-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C3Qdrrc8wXaAzKUEhR0xL2nfxKreGIlhMhz+OhB5Z8ko4y9Zo4Ft5iaAPxVZNzNk B27l0VN3esL3Jw/KV3i5lQ== 0000783005-01-000002.txt : 20010123 0000783005-01-000002.hdr.sgml : 20010123 ACCESSION NUMBER: 0000783005-01-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMMIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000783005 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 351542018 STATE OF INCORPORATION: IN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23264 FILM NUMBER: 1509053 BUSINESS ADDRESS: STREET 1: ONE EMMIS PLAZA STREET 2: 40 MONUMENT CIRCLE SUITE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3172660100 MAIL ADDRESS: STREET 1: ONE EMMIS PLZ STREET 2: 40 MONUMENT CIRCLE #700 CITY: INDIAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: EMMIS BROADCASTING CORPORATION DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt NOVEMBER 30, 2000 FORM 10-Q 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 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 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 PART I - FINANCIAL INFORMATION Item 1. Financial Statements EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data)
Three Months Nine Months Ended November 30, Ended November 30, 1999 2000 1999 2000 --------------- ------------- ------------ ------------- 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
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data)
February 29, November 30, 2000 2000 ---------------- ----------------- (Note 1) (Unaudited) ASSETS CURRENT ASSETS: 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 ----------------- -----------------
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February 29, November 30, 2000 2000 -------------- ----------------- (Note 1) (Unaudited) COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Series A cumulative convertible preferred stock, $.01 par value; authorized 10,000,000 shares; 2,875,000 shares issued and outstanding at February 29, 2000 and 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 =================== =================
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 6 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands)
Nine Months Ended November 30, 1999 2000 ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: 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) --------------- ---------------
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Nine Months Ended November 30, 1999 2000 ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: 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 $ - ================ ===============
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ACQUISITION OF LOS ANGELES MAGAZINE: 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 $ - $ - ================ ===============
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 9 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 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 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 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
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 --------------- --------------- ---------------- -------------- 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 ============= ============== ============== ==============
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 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):
Three Months Nine Months Ended November 30, Ended November 30, 1999 2000 1999 2000 ------------ ------------- ------------ ------------ 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 ============ ============= ============ ============
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 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.
Three Months Ended November 30, 2000 Radio Television Publishing Interactive Corporate Consolidated - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 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 =========== ============= =========== =========== =========== ==============
16
Nine Months Ended November 30, 2000 Radio Television Publishing Interactive Corporate Consolidated - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 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 =========== ============= =========== =========== =========== ==============
Three Months Ended November 30, 1999 Radio Television Publishing Interactive Corporate Consolidated - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 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 =========== ============= =========== =========== =========== ==============
Nine Months Ended November 30, 1999 Radio Television Publishing Interactive Corporate Consolidated - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 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 =========== ============= =========== =========== =========== ==============
17 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 Emmis Communications Corporation Condensed Consolidating Balance Sheet As of November 30, 2000 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated CURRENT ASSETS: 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 ============= ============ =========== ============= ==============
19 Emmis Communications Corporation Condensed Consolidating Balance Sheet As of February 29, 2000 (Note 1, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated 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 - - - - - 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 ============= ============ =========== ============= ==============
20 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended November 30, 2000 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated 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 ============= =========== =========== ============ ============
21 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Nine Months Ended November 30, 2000 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated 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 ============= =========== =========== ============ ============
22 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended November 30, 1999 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated 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 ============= =========== =========== ============ ============
23 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Nine Months Ended November 30, 1999 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated 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 ============= =========== =========== ============ ============
24 Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Nine Months Ended November 30, 2000 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated CASH FLOWS FROM OPERATING ACTIVITIES: 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 ----------- ----------- ----------- ------------ ------------
25 Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated INCREASE (DECREASE) IN CASH 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 =========== =========== =========== ============ ============
26 Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Nine Months Ended November 30, 1999 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated CASH FLOWS FROM OPERATING ACTIVITIES: 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 ----------- ----------- ----------- ------------ ------------
27 Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated INCREASE (DECREASE) IN CASH 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 =========== =========== =========== ============ ============
28 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 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 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 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 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 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 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----