SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended November 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number: 0-23264
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1542018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 266-0100
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____________
------------
The number of shares outstanding of each of the Registrant's classes of
common stock, as of January 10, 2001, was:
41,764,073 Shares of Class A Common Stock, $.01 Par Value
5,230,396 Shares of Class B Common Stock, $.01 Par Value
1
<PAGE>
INDEX
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS........ .............................3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................4
Condensed Consolidated Statements of
Operations for the three and nine months
ended November 30, 1999 and 2000..............................4
Condensed Consolidated Balance Sheets
as of February 29, 2000 and November 30, 2000.................5
Condensed Consolidated Statements of Cash
Flows for the nine months ended
November 30, 1999 and 2000....................................7
Notes to Condensed Consolidated
Financial Statements.........................................10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations..........................................29
Item 3. Quantitative and Qualitative Disclosures
about Market Risk......................................36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................36
Item 6. Exhibits and Reports on Form 8-K...............................37
Signatures............................................................. 38
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmis Communications Corporation and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet
of Emmis Communications Corporation (an Indiana corporation) and Subsidiaries as
of November 30, 2000, and the related condensed consolidated statements of
operations for the three-month and nine-month periods ended November 30, 1999
and 2000 and the condensed consolidated statements of cash flows for the
nine-month periods ended November 30, 1999 and 2000. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheet of Emmis
Communications Corporation and Subsidiaries as of February 29, 2000 (not
presented separately herein), and, in our report dated May 7, 2000, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of February
29, 2000 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
January 10, 2001.
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended November 30, Ended November 30,
1999 2000 1999 2000
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
GROSS REVENUES $ 106,502 $ 168,475 $ 286,656 $ 414,419
LESS: AGENCY COMMISSIONS 15,245 24,869 41,518 61,225
--------------- ------------ ------------ -------------
NET REVENUES 91,257 143,606 245,138 353,194
Operating expenses 52,171 84,166 145,293 207,736
International business
development expenses 301 469 1,048 1,300
Corporate expenses 3,533 3,948 10,217 11,635
Depreciation and amortization 12,017 20,602 32,062 49,595
Time brokerage agreement fees - 3,670 - 4,784
Non-cash compensation 2,306 530 4,599 4,097
Corporate restructuring fees
and other - 4,057 - 4,057
--------------- ------------ ------------ -------------
OPERATING INCOME 20,929 26,164 51,919 69,990
--------------- ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Interest expense (14,040) (23,711) (41,205) (41,303)
Minority interest 207 (301) 1,732 292
Other income (expense), net 830 19,522 537 33,394
--------------- ------------ ------------ -------------
Total other income (expense) (13,003) (4,490) (38,936) (7,617)
--------------- ------------ ------------ -------------
INCOME BEFORE INCOME TAXES 7,926 21,674 12,983 62,373
PROVISION FOR INCOME TAXES 5,470 10,108 9,070 28,258
--------------- ------------ ------------ -------------
NET INCOME 2,456 11,566 3,913 34,115
--------------- ------------ ------------ -------------
PREFERRED STOCK DIVIDENDS 799 2,246 799 6,738
--------------- ------------ ------------ -------------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 1,657 $ 9,320 $ 3,114 $ 27,377
=============== ============ ============ =============
Basic net income per common share $ .05 $ .20 $ .09 $ .59
=============== ============ ============ =============
Diluted net income per common share $ .04 $ .20 $ .09 $ .57
=============== ============ ============ =============
Weighted average common shares outstanding:
Basic 35,635 46,959 32,996 46,746
Diluted 37,075 47,528 34,119 47,894
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
February 29, November 30,
2000 2000
---------------- -----------------
(Note 1) (Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 17,370 $ 4,639
Accounts receivable, net 66,471 112,972
Prepaid expenses 10,053 16,663
Other 18,822 20,154
----------------- -----------------
Total current assets 112,716 154,428
Property and equipment, net 128,904 241,803
Intangible assets, net 1,033,970 1,891,069
Other assets, net 51,716 82,371
----------------- -----------------
Total assets $ 1,327,306 $ 2,369,671
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,957 $ 31,674
Current portion of other
long-term debt 5,379 5,278
Current portion of TV program
rights payable 16,816 19,085
Accrued salaries and commissions 8,162 14,302
Accrued interest 11,077 10,748
Deferred revenue 15,912 15,144
Income taxes payable - 2,345
Other 4,139 6,648
---------------- -----------------
Total current liabilities 84,442 105,224
Credit facility and senior
subordinated notes 300,000 1,212,000
TV program rights payable, net of
current portion 58,585 76,570
Other long-term debt, net of
current portion 14,607 12,919
Other noncurrent liabilities 6,166 5,364
Deferred income taxes 87,139 129,999
----------------- -----------------
Total liabilities 550,939 1,542,076
----------------- -----------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
February 29, November 30,
2000 2000
-------------- -----------------
(Note 1) (Unaudited)
COMMITMENTS AND CONTINGENCIES
<S> <C> <C>
SHAREHOLDERS' EQUITY:
Series A cumulative convertible
preferred stock, $.01 par value;
authorized 10,000,000 shares;
2,875,000 shares issued and
outstanding at February 29, 2000
and November 30, 2000 29 29
Class A common stock, $.01
par value; authorized 170,000,000
shares; issued and outstanding
41,232,811 shares at
February 29, 2000 and 41,746,006
shares at November 30, 2000 412 417
Class B common stock, $.01
par value; authorized 30,000,000
shares; issued and outstanding
4,738,582 shares at
February 29, 2000 and 5,230,396
shares at November 30, 2000 47 52
Additional paid-in capital 804,820 827,416
Accumulated deficit (27,482) (105)
Accumulated other comprehensive loss (1,459) (214)
------------------- -----------------
Total shareholders' equity 776,367 827,595
------------------- -----------------
Total liabilities and
shareholders' equity $ 1,327,306 $ 2,369,671
=================== =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
6
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended November 30,
1999 2000
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,913 $ 34,115
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities -
Depreciation and amortization 38,372 63,494
Provision for bad debts 1,592 3,381
Provision for deferred income taxes 5,529 10,341
Non-cash compensation 4,599 4,097
Gain on exchange of assets - (22,000)
Other (862) 1,497
Changes in assets and liabilities -
Accounts receivable (24,350) (25,626)
Prepaid expenses and other current assets (12,866) (4,458)
Other assets (2,115) 5,258
Accounts payable and accrued liabilities 6,407 13,048
Deferred revenue 3,748 (1,705)
Other liabilities (24,736) (5,278)
--------------- ---------------
Net cash provided by (used in)
operating activities (769) 76,164
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,077) (16,017)
Cash paid for acquisitions (228,859) (956,329)
Deposits on acquisitions and other (11,500) (26,548)
--------------- ---------------
Net cash used in investing activities (265,436) (998,894)
--------------- ---------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended November 30,
1999 2000
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on long-term debt (156,668) (123,388)
Proceeds from long-term debt 129,668 1,035,388
Proceeds from issuance of Class A
common stock, net of transaction costs 238,328 -
Proceeds from issuance of Series A
cumulative convertible preferred stock,
net of transaction costs 138,454 -
Proceeds from sale of Class A common stock
to Liberty Media Group, net of
transaction costs 145,287 -
Preferred stock dividends - (6,738)
Debt related costs - (4,758)
Proceeds from exercise of stock options 9,993 9,495
---------------- --------------
Net cash provided by financing activities 505,062 909,999
---------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 238,857 (12,731)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,117 17,370
---------------- ---------------
End of period $ 244,974 $ 4,639
================ ===============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 37,227 $ 35,422
Income taxes 9,270 352
Non cash transactions-
Preferred stock dividends $ 799 -
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 $ 246,445 $ -
Cash paid 197,105 -
--------------- ---------------
Liabilities recorded $ 49,340 $ -
================ ===============
ACQUISITION OF VOTIONIS, S.A:
Fair value of assets acquired $ 14,600 $ -
Cash paid 12,800 -
--------------- ---------------
Liabilities recorded $ 1,800 $ -
================ ===============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION OF LOS ANGELES MAGAZINE:
<S> <C> <C>
Fair value of assets acquired $ - $ 39,500
Cash paid - 36,807
--------------- ---------------
Liabilities recorded $ - $ 2,693
================ ===============
ACQUISITION OF KKFR-FM AND KXPK-FM:
Fair value of assets acquired $ - $ 108,921
Cash paid - 107,763
---------------- ---------------
Liabilities recorded $ - $ 1,158
================ ===============
ACQUISITION OF TELEVISION PROPERTIES
FROM LEE ENTERPRISES, INC:
Fair value of assets acquired $ - $ 644,466
Cash paid - 582,080
--------------- ---------------
Liabilities recorded $ - $ 62,386
================ ===============
ACQUISITION OF KIHT-FM, KXOK-FM, KPNT-FM,
WVRV-FM, WIL-FM AND WRTH-AM:
Fair value of assets acquired $ - $ 229,679
Cash paid - 229,679
--------------- ---------------
Liabilities recorded $ - $ -
================ ===============
EXCHANGE OF ASSETS FOR KZLA-FM:
Fair value of assets acquired $ - $ 185,000
Basis in assets exchanged 163,000
Gain on exchange of assets 22,000
Cash paid - -
--------------- ---------------
Liabilities recorded $ - $ -
================ ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
9
<PAGE>
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2000
(Unaudited)
Note 1. General
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated interim financial statements included
herein have been prepared, without audit, by Emmis Communications Corporation
and its subsidiaries (collectively, "Emmis" or the "Company"). As permitted
under the applicable rules and regulations of the Securities and Exchange
Commission, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations; however, Emmis believes that the disclosures are adequate
to make the information presented not misleading in any material respect. The
condensed consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report filed on Form 10-K/A for the year ended
February 29, 2000. On an interim basis, the Company defers major advertising
campaigns for which future benefits can be demonstrated. These costs are
amortized over the shorter of the estimated period benefited or the remainder of
the fiscal year.
In the opinion of the registrant, the accompanying condensed
consolidated interim financial statements contain all material adjustments
(consisting only of normal recurring adjustments), necessary to present fairly
the consolidated financial position of Emmis at November 30, 2000 and the
results of its operations for the three and nine months ended November 30, 1999
and 2000 and its cash flows for the nine months ended November 30, 1999 and
2000.
The Company's results are subject to seasonal fluctuations. Therefore,
results shown on an interim basis are not necessarily indicative of results for
a full year.
Note 2. Significant Events
On March 3, 2000, Emmis acquired all of the outstanding capital stock
of Los Angeles Magazines Holding Company, Inc. for approximately $36.8 million
in cash plus liabilities recorded of $2.7 million. Los Angeles Magazine Holding
Company, Inc., through a wholly-owned subsidiary, owns and operates Los Angeles,
a city magazine. The acquisition was accounted for as a purchase and was
financed through additional borrowings under Emmis' existing credit facility.
The excess of the purchase price over the estimated fair value of identifiable
assets was $35.9 million, which is included in intangible assets in the
accompanying condensed consolidated balance sheet and is being amortized over 15
years.
10
<PAGE>
In May, 2000, Emmis made an offer to purchase the stock of a company
that owns and operates WALR-FM in Atlanta, Georgia. Because an affiliate of Cox
Radio, Inc. held a right of first refusal to purchase WALR-FM, Emmis' offer was
made on the condition that Emmis would receive a $17.0 million break-up fee if
WALR-FM was sold pursuant to the right of first refusal. In June, 2000, the Cox
affiliate submitted an offer to purchase WALR-FM under the right of first
refusal and an application to transfer the station's FCC licenses was filed with
the FCC. Emmis received the break-up fee upon the closing of the sale of WALR-FM
under the right of first refusal on August 31, 2000, which is included in other
income in the accompanying condensed consolidated statements of operations.
On June 5, 2000, Emmis entered into an option agreement to acquire the
assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from
Hearst-Argyle Television, Inc. ("Hearst") for $160.0 million in cash. When Emmis
signed the option agreement, Emmis made an escrow payment of $20.0 million, paid
for with borrowings under its existing credit facility. This escrow payment will
be used to offset the option price. Under the terms of the option agreement,
Hearst has up to three years to identify a suitable television property, which
Emmis will then purchase and immediately exchange with Hearst for the radio
stations. During this three year period, Emmis will program and sell advertising
time on the radio stations under a time brokerage agreement. Emmis began
programming and selling advertising on the radio stations on August 1, 2000. If
Hearst is unable to locate a suitable television property by the end of the
three years, Emmis will have the option to purchase the radio stations for
$160.0 million. To the extent that the identified station is acquired for a
price in excess of our option price, Hearst will provide the necessary funds to
complete the transaction. Recently, Hearst announced that it had selected
WMUR-TV in Manchester, New Hampshire as the identified station. Management
expects to complete the transaction by the end of March 2001.
On August 24, 2000, Emmis acquired the assets of radio stations KKFR-FM
in Phoenix, Arizona and KXPK-FM in Denver, Colorado from AMFM, Inc. for $108.0
million in cash, less purchase price adjustments of $1.0 million, net of
transaction related costs of $0.8 million. Emmis financed the acquisition
through borrowings under its existing credit facility. The acquisition was
accounted for as a purchase. The total purchase price was allocated to property
and equipment and broadcast licenses based on a preliminary appraisal. Broadcast
licenses are included in intangible assets in the accompanying condensed
consolidated balance sheets and are being amortized over 40 years.
On September 18, 2000, Emmis paid a commitment fee and entered into an
agreement with Salem Communications Corporation to acquire the assets of radio
station KALC-FM in Denver, Colorado for a cash purchase price of $98.8 million.
Emmis began operating the station under a time brokerage agreement in October
2000 and expects to close on the acquisition in January 2001. The acquisition
will be accounted for as a purchase and financed through borrowings under Emmis'
Fourth Amended and Restated Senior Credit Facility (see Subsequent Events
footnote).
11
<PAGE>
Effective October 1, 2000 (closed October 2, 2000), Emmis purchased
eight network-affiliated and seven satellite television stations from Lee
Enterprises, Inc. for $559.5 million in cash, the payment of $21.3 million for
working capital and transaction related costs of $1.3 million (the "Lee
Acquisition"). In connection with the acquisition, Emmis recorded $31.3 million
of deferred tax liabilities. This transaction was financed through borrowings
under Emmis' Bridge Loan (described below) and was accounted for as a purchase.
The Lee Acquisition consisted of the following stations:
- KOIN-TV (CBS) in Portland, Oregon
- KRQE-TV (CBS) in Albuquerque, New Mexico (including satellite stations
KBIM-TV, Roswell, New Mexico and KREZ-TV, Durango, Colorado-Farmington, New
Mexico)
- WSAZ-TV (NBC) in Charleston-Huntington, West Virginia
- KSNW-TV (NBC) in Wichita, Kansas (including satellite stations KSNG-TV,
Garden City, Kansas, KSNC-TV, Great Bend, Kansas and KSNK-TV, Oberlin,
Kansas-McCook, Nebraska)
- KGMB-TV (CBS) in Honolulu, Hawaii (including satellite stations
KGMD-TV, Hilo, Hawaii and KGMV-TV, Wailuku, Hawaii)
- KGUN-TV (ABC) in Tucson, Arizona - KMTV-TV (CBS) in Omaha, Nebraska and -
KSNT-TV (NBC) in Topeka, Kansas.
The total purchase price was allocated to property and equipment,
television program rights, working capital related items and broadcast licenses
based on a preliminary appraisal. Broadcast licenses are included in intangible
assets in the accompanying condensed consolidated balance sheets and are being
amortized over 40 years.
As a result of the Lee Acquisition, Emmis owns more television stations
in the Hawaiian market than is currently permitted by FCC regulations. Emmis
will probably be required to sell one of its Hawaiian television stations to be
in compliance with this regulatory requirement. Emmis has been granted a
temporary waiver of this requirement and is assessing its alternatives.
On October 2, 2000, Emmis entered into its Third Amended and Restated
Senior Credit Facility (the "Bridge Loan"). This increased the borrowing
capacity under the credit facility to $1.0 billion and was expected to be
refinanced in January 2001. Accordingly, two-thirds, or $2.3 million, of a total
$3.4 million in debt costs were amortized into interest expense in the three
months ended November 30, 2000. The Bridge Loan was refinanced on January 5,
2001, when Emmis entered into its $1.4 billion Fourth Amended and Restated
Senior Credit Facility (see Subsequent Events footnote.)
On October 6, 2000, Emmis acquired certain assets of radio stations
WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri
from Sinclair Broadcast Group, Inc. ("Sinclair") for $220.0 million in cash,
plus transaction related costs of $9.7 million. The agreement also included the
settlement of outstanding lawsuits by and between Emmis and Sinclair. The
settlement resulted in no gain or loss by either party. This acquisition was
financed through borrowings under
12
<PAGE>
Emmis' Bridge Loan and was accounted for as a purchase. The total purchase
price was allocated to property and equipment and broadcast licenses based on a
preliminary appraisal. Broadcast licenses are included in intangible assets in
the accompanying condensed consolidated balance sheets and are being amortized
over 40 years.
On October 6, 2000, Emmis acquired certain assets of KZLA-FM in Los
Angeles, California from Bonneville International Corporation in exchange for
radio stations WIL-FM, WRTH-AM and WVRV-FM, which Emmis acquired from Sinclair,
as well as radio station WKKX-FM which Emmis already owned (all in the St.
Louis, Missouri market). Since the fair value of WKKX exceeded the book value of
the station at the date of the exchange, Emmis recorded a gain on exchange of
assets of $22.0 million. This gain is included in other income net in the
accompanying condensed consolidated statements of operations. From August 1,
2000 through the date of acquisition, Emmis operated KZLA-FM under a time
brokerage agreement. The acquisition was accounted for as a purchase. The total
purchase price of $185 million was allocated to property and equipment and
broadcast licenses based on a preliminary appraisal. Broadcast licenses are
included in intangible assets in the accompanying condensed consolidated balance
sheets and are being amortized over 40 years.
Note 3. Pro Forma Acquisitions
Unaudited pro forma summary information is presented below for the three
and nine months ended November 30, 1999 and 2000, assuming the following events
all had occurred on the first day of the pro forma periods presented below:(a)
the acquisition of (i) KZLA-FM, eight network-affiliated television stations
from Lee Enterprises, Inc. and KPNT-FM, KXOK-FM AND KIHT-FM in October 2000,
(ii) KKFR-FM and KXPK-FM in August 2000, (iii) Los Angeles Magazine in March
2000, (iv) two radio stations in Argentina in November 1999, (v) WKCF-TV in
October 1999 and (vi) Country Sampler Magazine in April 1999; (b) the
disposition of WKKX in October 2000; (c) the operation of radio stations
KKLT-FM, KTAR-AM and KMVP-AM under time brokerage agreements in August 2000 and
the operation of radio station KALC-FM under a time brokerage agreement in
October 2000; and (d) the use of proceeds from the Company's common and
preferred stock offerings in October 1999 and the investment from an affiliate
of Liberty Media Corporation in November 1999 to reduce outstanding borrowings.
Preparation of the pro forma summary information was based upon
assumptions deemed appropriate by the Company's management. The pro forma
summary information presented below is not necessarily indicative of the results
that actually would have occurred if the transactions indicated above had been
consummated at the beginning of the periods presented, and is not intended to be
a projection of future results.
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended November 30, Ended November 30,
(Pro Forma) (Pro Forma)
---------------------------------- ---------------------------------
(Dollars in thousands, except per share data)
1999 2000 1999 2000
--------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net revenues $ 151,618 $ 156,053 $ 424,238 $ 455,200
============= ============== ============= =============
Broadcast/publishing
cash flow $ 59,508 $ 64,338 $ 158,864 $ 181,078
============= ============== ============= =============
Net income (loss) $ 132 $ 8,712 $ (6,797) $ 15,640
============= ============== ============= =============
Net income (loss)
available to common
shareholders $ (2,114) $ 6,466 $ (13,535) $ 8,902
============= ============== ============== ==============
Basic net income (loss)
per common share $ (.05) $ .14 $ (.30) $ .19
============= ============== ============== ==============
Diluted net income (loss)
per common share $ (.05) $ .14 $ (.30) $ .19
============= ============== ============== ==============
Weighted average shares outstanding:
Basic 45,499 46,959 45,215 46,746
============= ============== ============== ==============
Diluted 45,499 47,528 45,215 47,894
============= ============== ============== ==============
</TABLE>
Note 4. Basic and Diluted Net Income Per Share
Basic net income per common share is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted net income per common share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted. Potentially dilutive securities at
November 30, 1999 and 2000 consisted of stock options and the 6.25% Series A
cumulative convertible preferred stock. The 6.25% Series A cumulative
convertible preferred stock is not included in the calculation of diluted net
income per common share for the three and nine months ended November 30, 1999
and 2000 as the effect of its conversion to common stock would be antidilutive.
Thus, for the three and nine months ended November 30, 1999 and 2000, the
difference between the weighted-average shares outstanding used to compute basic
and diluted EPS is attributable to dilution caused by stock options. Weighted
average shares excluded from the calculation of diluted net income per share
that would result from the conversion of the 6.25% Series A cumulative
convertible preferred stock amounted to approximately 3.7 million for the three
and nine months ended November 30, 1999 and 2000.
14
<PAGE>
Note 5. Comprehensive Income
Comprehensive income was comprised of the following for the three and
nine months ended November 30, 1999 and 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended November 30, Ended November 30,
1999 2000 1999 2000
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,456 $ 11,566 $ 3,913 $ 34,115
Translation adjustment 13 496 (843) 1,245
------------ ------------- ------------ ------------
Total comprehensive
income $ 2,469 $ 12,062 $ 3,070 $ 35,360
============ ============= ============ ============
</TABLE>
Note 6. Segment Information
The Company's operations are aligned into four business segments:
Radio, Television, Publishing and Interactive. These business segments are
consistent with the Company's management of these businesses and its financial
reporting structure. Corporate represents expense not allocated to reportable
segments.
The Company's segments operate primarily in the United States with one
radio station located in Hungary and two radio stations located in Argentina.
Total revenues of the radio station in Hungary during the three and nine months
ended November 30, 1999 were $2.0 million and $5.2 million, respectively. Total
revenues of the radio station in Hungary for the three and nine months ended
November 30, 2000 were $1.3 million and $4.5 million, respectively. Total assets
of this radio station as of November 30, 1999 and 2000 were $17.3 million and
$12.6 million, respectively. Emmis acquired a 75% interest in two radio stations
in Buenos Aires, Argentina in November 1999. Total revenues of these stations
for the three and nine months ended November 30, 2000 were $2.3 million and $5.4
million, respectively. Total assets of these stations as of November 30, 2000
were $22.9 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.
15
<PAGE>
BCF and PCF are not measures of liquidity or of performance in
accordance with accounting principles generally accepted in the United States,
and should be viewed as a supplement to, and not a substitute for, our results
of operations presented on the basis of accounting principles generally accepted
in the United States. Moreover, BCF and PCF are not standardized measures and
may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net
of agency commissions and operating expenses. The primary source of broadcast
advertising revenues is the sale of advertising time to local and national
advertisers. Publishing entities derive revenue from subscriptions and sale of
print advertising inventory. Interactive derives revenue from the sale of
advertisements on the websites of the Company's stations. The most significant
broadcast operating expenses are employee salaries and commissions, costs
associated with programming, advertising and promotion, and station general and
administrative costs. Significant publishing operating expenses are employee
salaries and commissions, costs associated with producing a magazine, and
general and administrative costs. Significant interactive operating expenses are
employee salaries and general and administrative costs.
The accounting policies as described in the summary of significant
accounting policies included in the Company's Annual Report filed on Form 10-K/A
for the year ended February 29, 2000, are applied consistently across segments.
<TABLE>
<CAPTION>
Three Months Ended
November 30, 2000 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 68,045 $ 55,667 $ 19,859 $ 35 $ - $ 143,606
Operating expenses 38,087 29,846 16,028 205 - 84,166
----------- ------------- ----------- ----------- ----------- --------------
Broadcast/publishing
cash flow 29,958 25,821 3,831 (170) - 59,440
International business
development expenses - - - - 469 469
Corporate expenses - - - - 3,948 3,948
Depreciation and
amortization 6,344 9,511 3,748 1 998 20,602
Time brokerage
agreement fees 3,670 - - - - 3,670
Non-cash compensation - - - - 530 530
Corporate restructuring
fees and other 2,000 - - - 2,057 4,057
----------- ------------- ----------- ----------- ----------- --------------
Operating income (loss) $ 17,944 $ 16,310 $ 83 $ (171) (8,002) $ 26,164
=========== ============= =========== =========== =========== ==============
Total assets $ 838,963 $ 1,342,156 $ 100,866 $ 23 $ 87,663 $ 2,369,671
=========== ============= =========== =========== =========== ==============
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
November 30, 2000 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 185,554 $ 110,228 $ 57,344 $ 68 $ - $ 353,194
Operating expenses 96,173 62,098 48,992 473 - 207,736
----------- ------------- ----------- ----------- ----------- --------------
Broadcast/publishing
cash flow 89,381 48,130 8,352 (405) - 145,458
International business
development expenses - - - - 1,300 1,300
Corporate expenses - - - - 11,635 11,635
Depreciation and
amortization 14,206 21,198 11,304 3 2,884 49,595
Time brokerage
agreement fees 4,784 - - - - 4,784
Non-cash compensation - - - - 4,097 4,097
Corporate restructuring
fees and other 2,000 - - - 2,057 4,057
----------- ------------- ----------- ----------- ----------- --------------
Operating income (loss) $ 68,391 $ 26,932 $ (2,952) $ (408) (21,973) $ 69,990
=========== ============= =========== =========== =========== ==============
Total assets $ 838,963 $ 1,342,156 $ 100,866 $ 23 $ 87,663 $ 2,369,671
=========== ============= =========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
November 30, 1999 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 52,212 $ 23,124 $ 15,921 $ - $ - $ 91,257
Operating expenses 26,368 13,143 12,660 - - 52,171
----------- ------------- ----------- ----------- ----------- --------------
Broadcast/publishing
cash flow 25,844 9,981 3,261 - - 39,086
International business
development expenses - - - - 301 301
Corporate expenses - - - - 3,533 3,533
Depreciation and
amortization 4,808 4,492 1,864 - 853 12,017
Time brokerage
agreement fees - - - - - -
Non-cash compensation - - - - 2,306 2,306
Corporate restructuring
fees and other - - - - - -
----------- ------------- ----------- ----------- ----------- --------------
Operating income (loss) $ 21,036 $ 5,489 $ 1,397 $ - (6,993) $ 20,929
=========== ============= =========== =========== =========== ==============
Total assets $ 483,705 $ 710,539 $ 68,230 $ - $ 323,897 $ 1,586,371
=========== ============= =========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
November 30, 1999 Radio Television Publishing Interactive Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 145,837 $ 58,170 $ 41,131 $ - $ - $ 245,138
Operating expenses 73,780 36,880 34,633 - - 145,293
----------- ------------- ----------- ----------- ----------- --------------
Broadcast/publishing
cash flow 72,057 21,290 6,498 - - 99,845
International business
development expenses - - - - 1,048 1,048
Corporate expenses - - - - 10,217 10,217
Depreciation and
amortization 12,937 11,477 5,127 - 2,521 32,062
Time brokerage
agreement fees - - - - - -
Non-cash compensation - - - - 4,599 4,599
Corporate restructuring
fees and other - - - - - -
----------- ------------- ----------- ----------- ----------- --------------
Operating income (loss) $ 59,120 $ 9,813 $ 1,371 $ - $ (18,385) $ 51,919
=========== ============= =========== =========== =========== ==============
Total assets $ 483,705 $ 710,539 $ 68,230 $ - $ 323,897 $ 1,586,371
=========== ============= =========== =========== =========== ==============
</TABLE>
17
<PAGE>
Note 7. Financial Information for Subsidiary Guarantors
and Subsidiary Non-Guarantors
Emmis conducts a significant portion of its business through
subsidiaries. The Company's senior subordinated notes are fully and
unconditionally guaranteed, jointly and severally, by certain direct and
indirect subsidiaries (the "Subsidiary Guarantors"). As of February 29, 2000 and
November 30, 2000, subsidiaries holding Emmis' interest in its radio stations in
Hungary and Argentina, as well as certain other subsidiaries conducting joint
ventures with third parties, did not guarantee the senior subordinated notes
(the "Subsidiary Non-Guarantors").
Presented below is condensed consolidating financial information for
the parent company only, the Subsidiary Guarantors and the Subsidiary
Non-Guarantors as of February 29, 2000 and November 30, 2000 and for the three
and nine months ended November 30, 1999 and 2000.
Emmis uses the equity method with respect to investments in
subsidiaries. Separate financial statements for Subsidiary Guarantors are not
presented based on management's determination that they do not provide
additional information that is material to investors.
18
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of November 30, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ - $ 2,450 $ 2,189 $ - $ 4,639
Accounts receivable, net - 108,734 4,238 - 112,972
Current portion of TV
program rights - 6,948 - - 6,948
Prepaid expenses 1,396 14,949 318 - 16,663
Other 1,117 12,031 58 - 13,206
------------- ------------ ----------- ------------- --------------
Total current assets 2,513 145,112 6,803 - 154,428
Property and equipment, net 37,927 199,456 4,420 - 241,803
Intangible assets, net - 1,869,047 22,022 - 1,891,069
Investment in affiliates 2,098,325 - - (2,098,325) -
Other assets, net 55,805 30,041 2,254 (5,729) 82,371
------------- ------------ ----------- ------------- --------------
Total assets $ 2,194,570 $ 2,243,656 $ 35,499 $ (2,104,054) $ 2,369,671
============= ============ =========== ============= ==============
CURRENT LIABILITIES:
Accounts payable $ 9,932 $ 17,177 $ 4,565 $ - $ 31,674
Current portion of other
long-term debt 34 18 5,226 - 5,278
Current portion of TV
program rights payable - 19,085 - - 19,085
Accrued salaries and
commissions 981 12,790 531 - 14,302
Accrued interest 10,359 - 389 - 10,748
Deferred revenue - 15,144 - - 15,144
Income taxes payable 1,999 346 - - 2,345
Other 1,421 5,227 - - 6,648
------------- ------------ ----------- ------------- --------------
Total current liabilities 24,726 69,787 10,711 - 105,224
Credit facility and senior
subordinated notes 1,212,000 - - - 1,212,000
TV program rights payable,
net of current portion - 76,570 - - 76,570
Other long-term debt, net of
current portion 36 659 17,953 (5,729) 12,919
Other noncurrent liabilities - 4,904 460 - 5,364
Deferred income taxes 129,999 - - - 129,999
------------- ------------ ----------- ------------- --------------
Total liabilities 1,366,761 151,920 29,124 (5,729) 1,542,076
Shareholders' equity
Series A preferred stock 29 - - - 29
Class A common stock 417 - - - 417
Class B common stock 52 - - - 52
Additional paid-in capital 827,416 - 4,393 (4,393) 827,416
Subsidiary investment - 1,750,205 18,883 (1,769,088) -
Retained earnings/
(accumulated deficit) (105) 341,531 (16,687) (324,844) (105)
Accumulated other
comprehensive loss - - (214) - (214)
------------- ------------ ----------- ------------- --------------
Total shareholders' equity 827,809 2,091,736 6,375 (2,098,325) 827,595
------------- ------------ ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 2,194,570 $ 2,243,656 $ 35,499 $ (2,104,054) $ 2,369,671
============= ============ =========== ============= ==============
</TABLE>
19
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 29, 2000
(Note 1, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 448 $ 2,564 $ 14,358 $ - $ 17,370
Accounts receivable, net - 63,146 3,325 - 66,471
Current portion of TV
program rights - - - - -
Prepaid expenses 1,197 8,434 422 - 10,053
Other 5,781 12,744 297 - 18,822
------------- ------------ ----------- ------------- --------------
Total current assets 7,426 86,888 18,402 - 112,716
Property and equipment, net 38,611 85,587 4,706 - 128,904
Intangible assets, net 196 1,007,860 25,914 - 1,033,970
Investment in affiliates 1,098,183 - - (1,098,183) -
Other assets, net 37,573 16,194 2,330 (4,381) 51,716
------------- ------------ ----------- ------------- --------------
Total assets $ 1,181,989 $ 1,196,529 51,352 $ (1,102,564) $ 1,327,306
============= ============ =========== ============ =============
CURRENT LIABILITIES:
Accounts payable $ 2,973 $ 15,202 $ 4,782 $ - $ 22,957
Current portion of other
long-term debt 34 17 5,328 - 5,379
Current portion of TV
program rights payable - 16,816 - - 16,816
Accrued salaries and
commissions 1,952 5,801 409 - 8,162
Accrued interest 10,995 - 82 - 11,077
Deferred revenue - 15,912 - - 15,912
Income taxes payable - - - - -
Other 1,034 3,105 - - 4,139
------------- ------------ ----------- ------------- --------------
Total current liabilities 16,988 56,853 10,601 - 84,442
Credit facility and senior
subordinated notes 300,000 - - - 300,000
TV program rights payable,
net of current portion - 58,585 - - 58,585
Other long-term debt, net of
current portion 36 671 18,281 (4,381) 14,607
Other noncurrent liabilities - 5,408 758 - 6,166
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 loss - - (1,459) - (1,459)
------------- ------------ ----------- ------------- --------------
Total shareholders' equity 777,826 1,075,012 21,712 (1,098,183) 776,367
------------- ------------ ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 1,181,989 $ 1,196,529 $ 51,352 $ (1,102,564) $ 1,327,306
============= ============ =========== ============= ==============
</TABLE>
20
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended November 30, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 464 $ 139,527 $ 3,615 $ - $ 143,606
Operating expenses 392 79,940 3,834 - 84,166
International business
development expenses - 469 - - 469
Corporate expenses 3,948 - - - 3,948
Depreciation and amortization 1,033 18,722 847 - 20,602
Non-cash compensation 398 132 - - 530
Time brokerage agreement fees - 3,670 - - 3,670
Corporate restructuring fees
and other 2,057 2,000 - - 4,057
------------- ----------- ----------- ------------ ------------
Operating income (loss) (7,364) 34,594 (1,066) - 26,164
------------- ----------- ----------- ------------ ------------
Other income (expense)
Interest expense (22,948) (61) (872) 170 (23,711)
Minority interest - - - (301) (301)
Other income (expense), net (4,079) 24,030 (259) (170) 19,522
------------- ----------- ----------- ------------ ------------
Total other income (expense) (27,027) 23,969 (1,131) (301) (4,490)
------------- ----------- ----------- ------------ ------------
Income (loss) before income taxes (34,391) 58,563 (2,197) (301) 21,674
Provision (benefit) for income
taxes (12,146) 22,254 - - 10,108
------------- ----------- ----------- ------------ ------------
(22,245) 36,309 (2,197) (301) 11,566
Equity in earnings of
subsidiaries 33,811 - - (33,811) -
------------- ----------- ----------- ------------ ------------
Net income (loss) 11,566 36,309 (2,197) (34,112) 11,566
Less: Preferred stock dividends 2,246 - - - 2,246
------------- ----------- ----------- ------------ ------------
Net income/(loss) available to
common shareholders $ 9,320 $ 36,309 $ (2,197) $ (34,112) $ 9,320
============= =========== =========== ============ ============
</TABLE>
21
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Nine Months Ended November 30, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,512 $ 341,796 $ 9,886 $ - $ 353,194
Operating expenses 1,052 196,836 9,848 - 207,736
International business
development expenses - 1,300 - - 1,300
Corporate expenses 11,635 - - - 11,635
Depreciation and amortization 2,982 43,992 2,621 - 49,595
Non-cash compensation 3,073 1,024 - - 4,097
Time brokerage agreement fees - 4,784 - - 4,784
Corporate restructuring fees
and other 2,057 2,000 - - 4,057
------------- ----------- ----------- ------------ ------------
Operating income (loss) (19,287) 91,860 (2,583) - 69,990
------------- ----------- ----------- ------------ ------------
Other income (expense)
Interest expense (39,080) (183) (2,535) 495 (41,303)
Minority interest - - - 292 292
Other income (expense), net 13,299 21,052 (462) (495) 33,394
------------- ----------- ----------- ------------ ------------
Total other income (expense) (25,781) 20,869 (2,997) 292 (7,617)
------------- ----------- ----------- ------------ ------------
Income (loss) before income taxes (45,068) 112,729 (5,580) 292 62,373
Provision (benefit) for income
taxes (14,579) 42,837 - - 28,258
------------- ----------- ----------- ------------ ------------
(30,489) 69,892 (5,580) 292 34,115
Equity in earnings of
subsidiaries 64,604 - - (64,604) -
------------- ----------- ----------- ------------ ------------
Net income (loss) 34,115 69,892 (5,580) (64,312) 34,115
Less: Preferred stock dividends 6,738 - - - 6,738
------------- ----------- ----------- ------------ ------------
Net income/(loss) available to
common shareholders $ 27,377 $ 69,892 $ (5,580) $ (64,312) $ 27,377
============= =========== =========== ============ ============
</TABLE>
22
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended November 30, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 465 $ 88,798 $ 1,994 $ - $ 91,257
Operating expenses 309 50,404 1,458 - 52,171
International business
development expenses - 301 - - 301
Corporate expenses 3,533 - - - 3,533
Depreciation and amortization 853 10,436 728 - 12,017
Non-cash compensation 1,729 577 - - 2,306
Time brokerage agreement fees - - - - -
Corporate restructuring fees
and other - - - - -
------------- ----------- ----------- ------------ ------------
Operating income (loss) (5,959) 27,080 (192) - 20,929
------------- ----------- ----------- ------------ ------------
Other income (expense)
Interest income (expense) (13,020) (348) (864) 192 (14,040)
Minority interest - - - - -
Other income (expense), net 1,377 (389) 34 15 1,037
------------- ----------- ----------- ------------ ------------
Total other income (expense) (11,643) (737) (830) 207 (13,003)
------------- ----------- ----------- ------------ ----------
Income (loss) before income taxes (17,602) 26,343 (1,022) 207 7,926
Provision (benefit) for income
taxes (4,277) 9,747 - - 5,470
------------- ----------- ----------- ------------ ------------
(13,325) 16,596 (1,022) 207 2,456
Equity in earnings of
subsidiaries 15,781 - - (15,781) -
------------- ----------- ----------- ------------ ------------
Net income (loss) 2,456 16,596 (1,022) (15,574) 2,456
Less: Preferred stock dividends 799 - - - 799
------------- ----------- ----------- ------------ ------------
Net income/(loss) available to
common shareholders $ 1,657 $ 16,596 $ (1,022) $ (15,574) $ 1,657
============= =========== =========== ============ ============
</TABLE>
23
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Nine Months Ended November 30, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,348 $ 238,622 $ 5,168 $ - $ 245,138
Operating expenses 955 140,187 4,151 - 145,293
International business
development expenses - 1,048 - - 1,048
Corporate expenses 10,217 - - - 10,217
Depreciation and amortization 2,521 27,363 2,178 - 32,062
Non-cash compensation 3,449 1,150 - - 4,599
Time brokerage agreement fees - - - - -
Corporate restructuring fees
and other - - - - -
------------- ----------- ----------- ------------ ------------
Operating income (loss) (15,794) 68,874 (1,161) - 51,919
------------- ----------- ----------- ------------ ------------
Other income (expense)
Interest income (expense) (39,027) (83) (2,670) 575 (41,205)
Minority interest - - - - -
Other income (expense), net 1,393 35 (316) 1,157 2,269
------------- ----------- ----------- ------------ ------------
Total other income (expense) (37,634) (48) (2,986) 1,732 (38,936)
------------- ----------- ----------- ------------ ------------
Income (loss) before income taxes (53,428) 68,826 (4,147) 1,732 12,983
Provision (benefit) for income
taxes (16,396) 25,466 - - 9,070
------------- ----------- ----------- ------------ ------------
(37,032) 43,360 (4,147) 1,732 3,913
Equity in earnings (loss) of
subsidiaries 40,945 - - (40,945) -
------------- ----------- ----------- ------------ ------------
Net income (loss) 3,913 43,360 (4,147) (39,213) 3,913
Less: Preferred stock dividends 799 - - - 799
------------- ----------- ----------- ------------ ------------
Net income/(loss) available to
common shareholders $ 3,114 $ 43,360 $ (4,147) $ (39,213) $ 3,114
============= =========== =========== ============ ============
</TABLE>
24
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended November 30, 2000
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 34,115 $ 69,892 $ (5,580) $ (64,312) $ 34,115
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities -
Depreciation and amortization 6,680 54,193 2,621 - 63,494
Provision for bad debts - 3,381 - - 3,381
Provision for deferred income
taxes 10,341 - - - 10,341
Non-cash compensation 3,073 1,024 - - 4,097
Equity in earnings of
subsidiaries (64,604) - - 64,604 -
Gain on exchange of assets - (22,000) - - (22,000)
Other 544 - 1,245 (292) 1,497
Changes in assets and
liabilities -
Accounts receivable - (24,713) (913) - (25,626)
Prepaid expenses and other
current assets 4,465 (9,266) 343 - (4,458)
Other assets 9,376 (4,194) 76 - 5,258
Accounts payable and accrued
liabilities 6,652 6,184 212 - 13,048
Deferred revenue - (1,705) - - (1,705)
Other liabilities 10,101 (14,651) (728) - (5,278)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
operating activities 20,743 58,145 (2,724) - 76,164
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (2,427) (13,435) (155) - (16,017)
Cash paid for acquisitions - (956,329) - - (956,329)
Deposits on acquisitions and other (26,548) - - - (26,548)
----------- ----------- ----------- ------------ ------------
Net cash used in investing
activities (28,975) (969,764) (155) - (998,894)
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (123,388) - - - (123,388)
Proceeds from long-term debt 1,035,388 - - - 1,035,388
Proceeds from issuance of
class A common stock, net of
transaction costs - - - - -
Proceeds from issuance of
Series A cumulative
convertible preferred stock,
net of transaction costs - - - - -
Proceeds from sale of Class A
common stock to Liberty Media
Corporation, net of
transaction costs - - - - -
Intercompany (902,215) 911,505 (9,290) - -
Preferred stock dividends (6,738) - - - (6,738)
Debt related costs (4,758) - - - (4,758)
Proceeds from exercise of
stock options 9,495 - - - 9,495
----------- ----------- ----------- ------------ ------------
Net cash provided by
financing activities 7,784 911,505 (9,290) - 909,999
----------- ----------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
25
<PAGE>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
INCREASE (DECREASE) IN CASH
<S> <C> <C> <C> <C>
AND CASH EQUIVALENTS (448) (114) (12,169) - (12,731)
CASH AND CASH EQUIVALENTS:
Beginning of period 448 2,564 14,358 - 17,370
----------- ----------- ----------- ------------ ------------
End of period $ - $ 2,450 $ 2,189 $ - $ 4,639
=========== =========== =========== ============ ============
</TABLE>
26
<PAGE>
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended November 30, 1999
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 3,913 $ 43,360 $ (4,147) $ (39,213) $ 3,913
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities -
Depreciation and amortization 4,361 31,833 2,178 - 38,372
Provision for bad debts - 1,592 - - 1,592
Provision for deferred income
taxes 5,529 - - - 5,529
Non-cash compensation 3,449 1,150 - - 4,599
Equity in earnings of
subsidiaries (40,945) - - 40,945 -
Gain on exchange of assets - - - - -
Other 1,713 - (843) (1,732) (862)
Changes in assets and
liabilities -
Accounts receivable - (23,911) (439) - (24,350)
Prepaid expenses and other
current assets 3,098 (15,768) (196) - (12,866)
Other assets (7,444) 5,256 73 - (2,115)
Accounts payable and accrued
liabilities 107 5,375 925 - 6,407
Deferred revenue - 3,748 - - 3,748
Other liabilities (5,696) (19,493) 453 - (24,736)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
operating activities (31,915) 33,142 (1,996) - (769)
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (7,316) (17,719) (42) - (25,077)
Cash paid for acquisitions - (216,059) (12,800) - (228,859)
Deposits on acquisitions and other (5,000) (6,500) - - (11,500)
----------- ----------- ----------- ------------ ------------
Net cash used in investing
activities (12,316) (240,278) (12,842) - (265,436)
----------- ----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (156,668) - - - (156,668)
Proceeds from long-term debt 129,668 - - - 129,668
Proceeds from issuance of
class A common stock, net of
transaction costs 238,328 - - - 238,328
Proceeds from issuance of
Series A cumulative
convertible preferred stock,
net of transaction costs 138,454 - - - 138,454
Proceeds from sale of Class A
common stock to Liberty Media
Corporation, net of
transaction costs 145,287 - - - 145,287
Intercompany (233,209) 218,346 14,863 - -
Preferred stock dividends - - - - -
Debt related costs - - - - -
Proceeds from exercise of
stock options 9,993 - - - 9,993
----------- ----------- ----------- ------------ ------------
Net cash provided by
financing activities 271,853 218,346 14,863 - 505,062
----------- ----------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
27
<PAGE>
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
INCREASE (DECREASE) IN CASH
<S> <C> <C> <C> <C>
AND CASH EQUIVALENTS 227,622 11,210 25 - 238,857
CASH AND CASH EQUIVALENTS:
Beginning of period 2,286 3,146 685 - 6,117
----------- ----------- ----------- ------------ ------------
End of period $ 229,908 $ 14,356 $ 710 $ - $ 244,974
=========== =========== =========== ============ ============
</TABLE>
28
<PAGE>
Note 8. Subsequent Events
Effective January 5, 2001 Emmis entered into a $1.4 billion Fourth Amended
and Restated Senior Credit Facility, which includes a provision allowing Emmis
to increase the commitment by $500.0 million under circumstances described in
the credit facility. The credit facility consists of a $320.0 million Revolver,
a $480.0 million Term Note A and a $600.0 million Term Note B. The Revolver and
Term Note A mature February 28, 2009 and the Term Note B matures August 31,
2009. Term Notes A and B begin amortizing in December 2003. The credit facility
also provides for Letters of Credit to be made available not to exceed $100.0
million. The aggregate amount of outstanding Letters of Credit and amounts
borrowed under the Revolver cannot exceed the Revolver commitment. All
outstanding amounts under the credit facility bear interest, at the option of
Emmis, at a rate equal to the Eurodollar Rate or an alternative Base Rate (as
defined in the credit facility) plus a margin. The margin varies from time to
time depending on Emmis' ratio of total debt to operating cash flow, as defined
in the credit facility. Interest is due on a calendar quarter under the
alternative Base Rate or at least every three months under the Eurodollar Rate.
The credit facility requires Emmis to maintain interest rate protection
agreements for a two year period, fixing interest rates on 50% of its total
outstanding debt. The credit facility contains various financial and operating
conditions and covenants with which Emmis must comply.
Note 9. Reclassifications
Certain reclassifications have been made to the November 30, 1999 and
February 29, 2000 financial statements to be consistent with the November 30,
2000 presentation. The reclassifications have no impact on net income or
retained earnings previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note: Certain statements included in this report which are not statements of
historical fact, including but not limited to those identified with the words
"expect," "will" or "look" are intended to be, and are, identified as
"forward-looking statements," as defined in the Securities and Exchange Act of
1934, as amended, and involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future result, performance or
achievement expressed or implied by such forward-looking statement. Such factors
include, among others, general economic and business conditions; fluctuations in
the demand for advertising; increased competition in the broadcasting industry;
inability to obtain necessary approvals for purchases or sale transactions or to
complete the transactions; changes in the costs of programming; inability to
grow through suitable acquisitions, including the desired radio; and other
factors mentioned in other documents filed by the Company with the Securities
and Exchange Commission.
29
<PAGE>
GENERAL
As of November 30, 2000, we owned or operated twenty-four radio
stations, fifteen television stations and seven magazine publishing operations
in the United States. Our radio stations consisted of twenty FM and four AM
stations serving New York City, Los Angeles, Chicago, Denver, Phoenix, St.
Louis, Indianapolis and Terre Haute, Indiana. Our television stations consisted
of five Fox affiliated stations serving New Orleans, Louisiana, Mobile, Alabama,
Green Bay, Wisconsin, Honolulu, Hawaii (including satellite stations in Wailuku
and Hilo, Hawaii) and Fort Myers, Florida; one WB affiliated station serving
Orlando, Florida; five CBS affiliated stations serving Portland, Oregon,
Albuquerque, New Mexico (including satellite stations in Roswell, New Mexico,
Durango Colorado-Farmington, New Mexico), Honolulu, Hawaii (including satellite
stations in Hilo, and Wailuku Hawaii), Omaha, Nebraska, and Terre Haute,
Indiana; three NBC affiliated stations serving Charleston-Huntington, West
Virginia, Wichita, Kansas (including satellite stations in Garden City and Great
Bend Kansas, and Oberlin, Kansas - McCook Nebraska); and one ABC station serving
Tucson, Arizona. Our publishing operations consisted primarily of five city or
regional monthly magazines and two special interest magazines, including
Indianapolis Monthly, Atlanta, Cincinnati, LA Magazine, Texas Monthly, Country
Sampler and Country Marketplace. In addition, we have a 59.5% interest in a
national radio station in Hungary and a 75% interest in a company owning two
radio stations in Buenos Aires, Argentina.
We are in the process of acquiring the four radio stations we currently
operate under time brokerage agreements. In connection with the Lee Acquisition
we will probably be required to sell one television station in Hawaii due to
federal regulations.
We have postponed plans to separate our radio and television businesses
through the issuance of a tracking stock. We will continue to review and
evaluate structural alternatives to effectuate the separation, which may include
the issuance of a tracking stock when equity market conditions become more
favorable. The costs incurred to date pursuing a separation plan were
approximately $2.1 million and are included in corporate restructuring fees and
other (along with a $2.0 million asset valuation adjustment) in the accompanying
condensed consolidated statement of operations.
Our broadcasting revenue is derived principally from the sale of
advertising time on our radio and television stations. The sale of advertising
time is affected primarily by the demand for advertising time by local, regional
and national advertisers and the advertising rates charged by our radio and
television stations. We derive a small portion of our broadcasting revenue from
fees paid by the networks and program syndicators for the broadcast of
programming. Our broadcast revenue is generally highest in our second and third
fiscal quarters.
30
<PAGE>
Radio station advertising rates are based in part on a station's
ability to attract audiences in the demographic groups that advertisers wish to
reach and the number of stations competing in the market area, as well as local,
regional and national economic conditions. A station's audience is customarily
reflected in rating service surveys, which demonstrate the size and demographics
of the audience tuned to the station and the time the audience spends listening
to the station.
Television station advertising is sold for placement in proximity to
specific local or network programming and is priced primarily on the basis of a
program's popularity with the audience advertisers seek to reach, as measured
principally by quarterly audience surveys. In addition, the number of
advertisers competing for the available time, the size and demographic makeup of
the market areas served, and local, regional and national economic conditions
are all factors in determining advertising rates.
Our publishing revenue is derived principally from the sale of local,
regional and national advertising pages in our magazines. Advertising sales and
our advertising rates are determined in part by a publication's ability to
attract audiences in the geographic and demographic groups which advertisers
wish to reach and the number of magazines competing in the market area, as well
as local, regional and national economic conditions. Our publications also
derive revenue from the sale of subscriptions to our magazines and the sales of
our magazines at retail locations such as newsstands, bookstores and shops.
The primary operating expenses involved in owning and operating radio
stations are employee salaries and commissions, programming, advertising and
promotion. These are the same expenses involved with owning and operating
television stations and magazines with the addition of syndicated program rights
fees and news gathering costs for television stations and printing costs for
magazines. Our net earnings also are impacted by depreciation, amortization and
interest expenses associated with our acquisition of broadcasting and publishing
operations.
We generally evaluate the performance of our operating entities based
on broadcast cash flow, which we refer to as BCF, and publishing cash flow,
which we refer to as PCF. We believe that BCF and PCF are useful because they
provide a meaningful comparison of operating performance between companies in
the industry and serve as an indicator of the market value of a group of
stations or publishing entities. BCF and PCF are generally recognized by the
broadcast and publishing industries as a measure of performance and are used by
analysts who report on the performance of broadcasting and publishing groups.
BCF and PCF do not take into account our debt service requirements and other
commitments and, accordingly, BCF and PCF are not necessarily indicative of
amounts that may be available for dividends, reinvestment in our business or
other discretionary uses. BCF and PCF are not measures of liquidity or of
performance in accordance with accounting principles generally accepted in the
United States, and should be viewed as a supplement to, and not a substitute
for, our results of operations presented on the basis of accounting principles
generally accepted in the United States. Moreover, BCF and PCF are not
standardized
31
<PAGE>
measures and may be calculated in a number of ways. We define BCF and PCF
as revenue net of agency commissions and operating expenses.
Our results are subject to seasonal fluctuations. Therefore, results
shown on a quarterly basis are not necessarily indicative of results for a full
year.
Results of Operations For the Three and Nine Months Ended November 30, 2000
Compared to November 30, 1999
Net revenues for the three months ended November 30, 2000 were $143.6
million compared to $91.3 million for the same period of the prior year, an
increase of $52.3 million or 57.4%. Net revenues for the nine months ended
November 30, 2000 were $353.2 million compared to $245.1 million for the same
period of the prior year, an increase of $108.1 million or 44.1%. Substantially
all of the increase in net revenues for the three and nine months ended November
30, 2000 related to stations recently acquired or operated under time brokerage
agreements.
Operating expenses for the three months ended November 30, 2000 were
$84.2 million compared to $52.2 million for the same period of the prior year,
an increase of $32.0 million or 61.3%. Operating expenses for the nine months
ended November 30, 2000 were $207.7 million compared to $145.3 million for the
same period of the prior year, an increase of $62.4 million or 43.0%.
Substantially all of the increase in operating expenses for the three and nine
months ended November 30, 2000 related to stations recently acquired or operated
under time brokerage agreements.
Broadcast/publishing cash flow for the three months ended November 30,
2000 was $59.4 million compared to $39.1 million for the same period of the
prior year, an increase of $20.3 million or 52.1%. Broadcast/publishing cash
flow for the nine months ended November 30, 2000 was $145.5 million compared to
$99.8 million for the same period of the prior year, an increase of $45.7
million or 45.7%. Substantially all of the increase in broadcast/publishing cash
flow for the three and nine months ended November 30, 2000 related to stations
recently acquired or operated under time brokerage agreements.
Corporate expenses for the three months ended November 30, 2000 were
$3.9 million compared to $3.5 million for the same period of the prior year, an
increase of $0.4 million or 11.7%. Corporate expenses for the nine months ended
November 30, 2000 were $11.6 million compared to $10.2 million for the same
period of the prior year, an increase of $1.4 million or 13.9%. These increases
were due to an increase in the number of corporate employees in all departments
as a result of our growth.
EBITDA before certain charges is defined as broadcast/publishing cash
flow less corporate and international business development expenses. EBITDA
before certain charges for the three months ended November 30, 2000 was $55.0
million compared to $35.3 million for the same period of the prior year, an
increase of $19.7 million or 56.1%. EBITDA before certain charges for the nine
months ended November 30, 2000 was $132.5 million
32
<PAGE>
compared to $88.6 million for the same period of the prior year, an
increase of $43.9 million or 49.6%. These increases were due to the increases in
broadcast/publishing cash flow partially offset by the increases in corporate
expenses.
Depreciation and amortization expense for the three months ended
November 30, 2000 was $20.6 million compared to $12.0 million for the same
period of the prior year, an increase of $8.6 million or 71.4%. Depreciation and
amortization expense for the nine months ended November 30, 2000 was $49.6
million compared to $32.1 million for the same period of the prior year, an
increase of $17.5 million or 54.7%. Substantially all of the increase in
depreciation and amortization expense for the three and nine months ended
November 30, 2000 related to recently consummated acquisitions.
Non-cash compensation expense for the three months ended November 30, 2000
was $0.5 million compared to $2.3 million for the same period of the prior year,
a decrease of $1.8 million or 77.0%. Non-cash compensation expense for the nine
months ended November 30, 2000 was $4.1 million compared to $4.6 million for the
same period of the prior year, a decrease of $0.5 million or 10.9%. 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 decrease for the
three months ended November 30, 2000 was due to lower accruals for performance
based compensation under employment agreements and a lower average stock price
during the period.
Interest expense for the three months ended November 30, 2000 was $23.7
million compared to $14.0 million for the same period of the prior year, an
increase of $9.7 million or 68.9%. Interest expense for the nine months ended
November 30, 2000 was $41.3 million compared to $41.2 million for the same
period of the prior year, an increase of $0.1 million or 0.2%. The increase for
the three months ended November 30, 2000 is due to higher outstanding debt
during the quarter coupled with a higher average borrowing rate. Included in
interest expense for the nine months ended November 30, 2000 is $2.3 million for
the amortization of debt fees related to our Bridge Loan.
Other income for the three months ended November 30, 2000 was $19.5
million compared to other income of $0.8 million for the same period of the
prior year. Other income for the nine months ended November 30, 2000 was $33.4
million compared to other income of $0.5 million for the same period of the
prior year. Other income for the three months ended November 30, 2000 includes a
$22.0 million gain on exchange of assets, offset by valuation adjustments on
certain investments. Other income for the nine months ended November 30, 2000
includes the $22.0 million gain on exchange of assets, offset by valuation
adjustments on certain investments and a $17.0 million break-up fee received in
connection with the sale of WALR-FM in Atlanta, Georgia to Cox Radio, Inc., net
of related expenses.
33
<PAGE>
Liquidity and Capital Resources
Capital Requirements
Our primary uses of capital have been historically, and are expected to
continue to be, funding acquisitions, capital expenditures, working capital and
debt and preferred stock service requirements.
Acquisitions
On August 24, 2000, we acquired the assets of radio stations KKFR-FM in
Phoenix, Arizona and KXPK-FM in Denver, Colorado from subsidiaries of AMFM, Inc.
for $108.0 million in cash as adjusted in accordance with the purchase
agreement. On October 2, 2000, we purchased eight network-affiliated and seven
satellite television stations from Lee Enterprises, Inc. for $559.5 million in
cash and paid $21.3 million for working capital. On October 6, 2000, we acquired
the assets of radio stations WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and
KIHT-FM in St. Louis, Missouri from Sinclair Broadcast Group, Inc. for $220.0
million in cash. We also settled outstanding lawsuits by and between Sinclair
and us pursuant to the terms of the transaction agreement. On October 6, 2000,
we also exchanged radio stations WIL-FM, WRTH-AM and WVRV-FM, which we acquired
from Sinclair, as well as radio station WKKX-FM which we already owned (all in
the St. Louis, Missouri market), for Bonneville International Corporation's
radio station KZLA-FM located in Los Angeles, California. We accounted for each
of these acquisitions using the purchase method of accounting. We financed each
of these acquisitions through borrowings under our credit facility.
We also have two pending acquisitions. We plan to purchase KALC-FM in
Denver, Colorado for $98.8 million in cash from Salem Communications
Corporation. When we signed the acquisition agreement, we paid an additional
$1.2 million as a commitment fee and entered into a time brokerage agreement. We
began operating KALC-FM under a time brokerage agreement in October 2000. On
June 5, 2000, we entered into an option agreement to acquire the assets of radio
stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from Hearst-Argyle
Television, Inc. for $160.0 million. When we signed the option agreement, we
made an escrow payment of $20.0 million, which was financed through borrowings
under our credit facility. This escrow payment will be used to offset the option
price. We began operating these stations on August 1, 2000.
Under the terms of the option agreement, Hearst-Argyle has up to three
years to identify a suitable television property, which we will then purchase
and immediately exchange with Hearst-Argyle for the radio stations. If Hearst is
unable to locate a suitable television property by the end of the three years,
we have the option to purchase the radio station for $160.0 million in cash. To
the extent that the identified station is acquired for a price in excess of our
purchase price, Hearst-Argyle will provide the necessary funds to complete the
transaction. Recently, Hearst-Argyle publicly announced that it has selected
WMUR-TV in Manchester, New Hampshire as the station to be exchanged.
34
<PAGE>
These pending acquisitions are subject to customary closing conditions,
including approval by the FCC for KTAR-AM, KMVP-AM and KKLT-FM. We expect to
complete the acquisition of KALC-FM in January 2001 and the acquisition of
KTAR-AM, KMVP-AM and KKLT-FM by the end of March 2001. Both acquisitions will be
financed through borrowings under our Fourth Amended and Restated Senior Credit
Facility and will be accounted for as a purchase.
Capital Expenditures
Capital expenditures incurred for the nine months ended November 30,
2000 were approximately $16.0 million. These capital expenditures primarily
related to office and studio construction at certain of our broadcasting
properties.
Debt Service and Preferred Stock Dividend Requirements
As of November 30, 2000, we had $1.2 billion of corporate indebtedness
outstanding under our credit facility including our $300 million senior
subordinated notes, and an additional $18.2 million of other indebtedness. We
also had $143.8 million of our preferred stock outstanding. See Sources of
Liquidity for discussion of our refinancing activities in January 2001. All
outstanding amounts under our credit facility bear interest, at our option, at a
rate equal to the Eurodollar rate or an alternative Base Rate plus a margin (the
margin varies based on our ratio of total debt to operating cash flow). As of
November 30, 2000, our weighted average borrowing rate under our credit facility
was approximately 8.5%.
Based on amounts currently outstanding under our senior subordinated
notes and convertible preferred stock, the debt service and preferred stock
dividend requirements for a twelve month period is $24.4 million and $9.0
million, respectively.
Sources of Liquidity
Our primary sources of liquidity are cash provided by operations and
funds available under our credit facility. At November 30, 2000, we had cash and
cash equivalents of $4.6 million and net working capital of $49.2 million. On
January 5, 2001, we closed on our Fourth Amended and Restated Senior Credit
Facility and borrowed $1.08 billion under Term Notes. These funds were used to
repay amounts outstanding under the previous credit facility and will be used to
fund the acquisition of KALC-FM. The remaining funds received will be used to
fund a portion of our pending acquisition of three radio stations from
Hearst-Argyle Television, Inc. At January 5, 2001, we have $320.0 million
available under our credit facility, less $5.5 million in outstanding Letters of
Credit. We expect that cash flow from operating activities will be sufficient to
fund all working capital, capital expenditures, debt service (including any
indebtedness that may be incurred to fund our pending acquisitions), and
preferred stock dividend requirements for at least the next twelve months.
35
<PAGE>
As part of our business strategy, we continually evaluate potential
acquisitions of radio and television stations as well as publishing properties.
If we elect to take advantage of future acquisition opportunities, we may incur
additional debt or issue additional equity or debt securities, depending on
market conditions and other factors.
Quantitative and Qualitative Disclosures About Market Risk
Management monitors and evaluates changes in market conditions on a
regular basis. Based upon the most recent review, management has determined that
there have been no material developments affecting market risk since the filing
of the Company's Annual Report on Form 10-K/A for the year ended February 29,
2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Discussion regarding these items is included in management's discussion
and analysis of financial condition and results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings arising in the
ordinary course of business. In the opinion of management of the Company,
however, there are no legal proceedings pending against the Company likely to
have a material adverse effect on the Company.
36
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed or incorporated by reference
as a part of this report:
3.1 Amended and Restated Articles of Incorporation of
Emmis Communications Corporation, incorporated by
reference from Exhibit 3.1 to the Company's Form
10-K/A for the year ended February 29, 2000. *
3.2 Amended and Restated Bylaws of Emmis Communications
Corporation, incorporated by reference from Exhibit
3.2 to the Company's Form 10-K/A for the year ended
February 29, 2000. *
15 Letter re: unaudited interim financial information
* Previously submitted
(b) Reports on Form 8-K
On October 5, 2000, the Company filed a Form 8-K disclosing
its financial performance for the three and six months ended
August 31, 2000.
On October 16, 2000, the Company filed a Form 8-K that
included audited financial statements for significant
acquisitions, pro forma financial information, purchase
agreements with AMFM, Lee and Sinclair, and the asset exchange
agreement with Bonneville.
37
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMMIS COMMUNICATIONS CORPORATION
Date: January 16, 2001 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President
(Authorized CorporateOfficer),
Chief Financial Officer and
Treasurer
38
<PAGE>
Exhibit 15
January 10, 2001
Mr. Walter Z. Berger
Chief Financial Officer
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle Suite 700
Indianapolis, Indiana 46204
Dear Mr. Berger:
We are aware that Emmis Communications Corporation has incorporated by
reference in its Registration Statements Nos. 33-83890, 333-14657, and 333-42878
its Form 10-Q for the quarter ended November 30, 2000, which includes our report
dated January 10, 2001 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933, that
report is not considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
39
<PAGE>
