-----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, BPOAuOcdD/rdEV46KmxbpQ07Giw7HZI+INmngH+uDGQEDFNmXxeEGOcD3mviigkQ DbrOF3nAF2j1V6u4ohlmQA== 0000783005-01-500009.txt : 20010717 0000783005-01-500009.hdr.sgml : 20010717 ACCESSION NUMBER: 0000783005-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010716 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: 1681813 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 form10_q53101.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 2001 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number: 0-23264 EMMIS COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1542018 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE EMMIS PLAZA 40 MONUMENT CIRCLE SUITE 700 INDIANAPOLIS, INDIANA 46204 (Address of principal executive offices) (Zip Code) (317) 266-0100 (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____________ ------------ The number of shares outstanding of each of the Registrant's classes of common stock, as of July 10, 2001, was: 42,116,902 Shares of Class A Common Stock, $.01 Par Value 5,230,396 Shares of Class B Common Stock, $.01 Par Value 0 Shares of Class C 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 months ended May 31, 2000 and 2001......................................4 Condensed Consolidated Balance Sheets as of February 28, 2001 and May 31, 2001.........................5 Condensed Consolidated Statements of Cash Flows for the three months ended May 31, 2000 and 2001............................................7 Notes to Condensed Consolidated Financial Statements.............................................9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................20 Item 3. Quantitative and Qualitative Disclosures about Market Risk..........................................24 PART II - OTHER INFORMATION Item 1. Legal Proceedings...............................................25 Item 6. Exhibits and Reports on Form 8-K................................25 Signatures ..............................................................26 -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 May 31, 2001, and the related condensed consolidated statements of operations for the three-month periods ended May 31, 2000 and 2001, and the condensed consolidated statements of cash flows for the three-month periods ended May 31, 2000 and 2001. 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 as of February 28, 2001, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended (not presented separately herein), and in our report dated March 29, 2001, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 28, 2001 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Indianapolis, Indiana, June 26, 2001. -3- PART I - FINANCIAL INFORMATION Item 1. Financial Statements EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data)
Three Months Ended May 31, 2000 2001 ------------ ------------ GROSS REVENUES $ 118,247 $ 160,155 LESS: AGENCY COMMISSIONS 17,728 22,820 ----------- ------------ NET REVENUES 100,519 137,335 Operating expenses 61,856 89,052 International business development expenses 404 238 Corporate expenses 3,720 4,719 Depreciation and amortization 14,272 24,136 Time brokerage fee - 479 Non-cash compensation 1,664 2,740 Restructuring fees and other - 572 ------------ ------------ OPERATING INCOME 18,603 15,399 ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (8,412) (34,652) Minority interest 524 147 Other income (expense), net (214) 448 ------------ ------------ Total other income (expense) (8,102) (34,057) ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 10,501 (18,658) PROVISION (BENEFIT) FOR INCOME TAXES 4,590 (5,181) ------------ ----------- NET INCOME (LOSS) 5,911 (13,477) ------------ ----------- PREFERRED STOCK DIVIDENDS 2,246 2,246 ------------ ------------ NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 3,665 $ (15,723) ============ =========== Basic net income (loss) per common share $ 0.08 $ (0.33) ============ =========== Diluted net income (loss) per common share $ 0.08 $ (0.33) ============ =========== Weighted average common shares outstanding: Basic 46,269 47,258 Diluted 48,012 47,258
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 28, May 31, 2001 2001 ------------ -------------- (Note 1) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 59,899 $ 13,606 Accounts receivable, net 97,281 106,142 Prepaid expenses 17,096 18,939 Other 40,830 31,487 -------------- -------------- Total current assets 215,106 170,174 Property and equipment, net 237,887 241,280 Intangible assets, net 1,981,097 2,124,886 Cash held in escrow - 93,000 Other assets, net 72,782 65,819 -------------- -------------- Total assets $ 2,506,872 $ 2,695,159 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 34,206 $ 35,551 Current portion of other long-term debt 4,187 4,046 Current portion of TV program rights payable 28,192 24,613 Accrued salaries and commissions 10,342 11,569 Accrued interest 17,038 10,144 Deferred revenue 17,418 18,214 Other 5,768 6,545 ------------- -------------- Total current liabilities 117,151 110,682 Credit facility and senior subordinated notes 1,380,000 1,385,000 Senior discount notes - 207,026 TV program rights payable, net of current portion 47,567 47,189 Other long-term debt, net of current portion 13,684 13,244 Other noncurrent liabilities 5,531 6,894 Deferred income taxes 135,468 128,990 -------------- -------------- Total liabilities 1,699,401 1,899,025 -------------- --------------
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -5-
February 28, May 31, 2001 2001 ---------------- ---------------- (Note 1) (Unaudited) COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Series A cumulative convertible preferred stock, $.01 par value; $50.00 liquidation value; authorized 10,000,000 shares; 2,875,000 shares issued and outstanding at February 28, 2001 and May 31, 2001 29 29 Class A common stock, $.01 par value; authorized 170,000,000 shares; issued and outstanding 41,900,315 shares at February 28, 2001 and 42,110,094 shares at May 31, 2001 419 421 Class B common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding 5,230,396 shares at February 28, 2001 and May 31, 2001 52 52 Additional paid-in capital 830,299 835,159 Accumulated deficit (22,730) (38,453) Accumulated other comprehensive loss (598) (1,074) ---------------- -------------- Total shareholders' equity 807,471 796,134 ---------------- -------------- Total liabilities and shareholders' equity $ 2,506,872 $ 2,695,159 ================ ==============
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)
Three Months Ended May 31, 2000 2001 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,911 $ (13,477) Adjustments to reconcile net income (loss) to net cash provided by operating activities - Depreciation and amortization 17,586 29,377 Accretion of interest on senior discount notes - 4,414 Provision for bad debts 1,545 1,633 Provision for deferred income taxes 1,988 (5,181) Non-cash compensation 1,664 2,740 Other 432 (1,178) Changes in assets and liabilities - Accounts receivable (14,497) (10,648) Prepaid expenses and other current assets (1,641) 7,444 Other assets (1,118) (2,204) Accounts payable and accrued liabilities (1,957) (5,178) Deferred revenue 1,855 796 Other liabilities (3,872) (2,814) ------------ ----------- Net cash provided by operating activities 7,896 5,724 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,958) (9,090) Cash paid for acquisitions (36,662) (140,746) Other - (3,231) ------------ ----------- Net cash used in investing activities (39,620) (153,067) ------------ -----------
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -7-
Three Months Ended May 31, 2000 2001 ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (23,788) - Proceeds from long-term debt 54,388 5,000 Proceeds from senior discount notes offering - 202,612 Cash held in escrow - (93,000) Proceeds from exercise of stock options 5,751 725 Preferred stock dividends paid (2,246) (2,246) Debt related costs - (12,041) ------------- ------------ Net cash provided by financing activities 34,105 101,050 ------------- ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,381 (46,293) CASH AND CASH EQUIVALENTS: Beginning of period 17,370 59,899 ------------- ------------ End of period $ 19,751 $ 13,606 ============= ============ SUPPLEMENTAL DISCLOSURES: Cash paid for- Interest $ 12,968 $ 35,691 Income taxes 234 857 ACQUISITION OF LOS ANGELES MAGAZINE: Fair value of assets acquired $ 39,520 $ - Cash paid 36,827 - ------------- ------------ Liabilities recorded $ 2,693 $ - ============= ============ ACQUISITION OF KKLT-FM, KTAR-AM and KMVP-AM: Fair value of assets acquired $ - 160,746 Cash paid, net of deposit - 140,746 Deposit paid in June 2000 - 20,000 ------------- ------------ Liabilities recorded $ - $ - ============= ============
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -8- EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS May 31, 2001 (Unaudited) Note 1. General Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated interim financial statements included herein have been prepared, without audit, by Emmis Communications Corporation and its subsidiaries (collectively, "Emmis" or the "Company"). As permitted under the applicable rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations; however, Emmis believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended February 28, 2001. On an interim basis, the Company defers major advertising campaigns for which future benefits can be demonstrated. These costs are amortized over the shorter of the estimated period benefited or the remainder of the fiscal year. In the opinion of the registrant, the accompanying condensed consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of Emmis at May 31, 2001 and the results of its operations and cash flows for the three months ended May 31, 2000 and 2001. 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 28, 2001, Emmis completed its acquisition of substantially all of the assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from Hearst-Argyle Television, Inc. for $160.0 million in cash, plus transaction related costs of $0.7 million. The Company financed the acquisition through a $20.0 million advance payment borrowed under the credit facility in June 2000 and the remainder with borrowings under the credit facility and proceeds from the Company's March 2001 senior discount notes offering. The acquisition was accounted for as a purchase. Emmis began programming and selling advertising on the radio stations on August 1, 2000 under a time brokerage agreement. 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 March 27, 2001, Emmis received $202.6 million of proceeds from the issuance of senior discount notes due 2011, less approximately $11.5 million of debt issuance costs. The notes, which are structurally subordinate to the credit facility and senior subordinated notes, accrete interest at a rate of 12.5% per year, compounded semi-annually to an aggregate principal amount of $370.0 million on March 15, 2006. -9- Commencing on September 15, 2006, interest is payable in cash on each March 15 and September 15, with the aggregate principal amount of $370.0 million due on March 15, 2011. A portion of the net proceeds was used to fund the acquisition of three radio stations in Phoenix, Arizona and the remaining net proceeds ($93.0 million) were placed in escrow. In June 2001, upon completion of the Company's reorganization (see Note 8 for further discussion), the proceeds held in escrow were released and used to reduce outstanding borrowings under the credit facility. During the three months ended May 31, 2001, the Company incurred a restructuring charge of $0.6 million associated with centralizing certain technical functions within the television division. This charge consists of severance and related costs for approximately 30 employees and will be fully paid by the quarter ended August 31, 2002. Note 3. Pro Forma Financial Information Unaudited pro forma summary information is presented below for the three months ended May 31, 2000 and 2001, assuming the following events all had occurred on the first day of the pro forma periods presented below: (a) the acquisition of (i) KKLT-FM, KTAR-AM and KMVP-AM in March 2001, (ii) KALC-FM in January 2001, (iii) KZLA-FM, eight network-affiliated television stations from Lee Enterprises, Inc. and KPNT-FM, KXOK-FM AND KIHT-FM in October 2000, and (iv) KKFR-FM and KXPK-FM in August 2000; (b) the disposition of (i) WTLC-AM in April 2001 and (ii) WKKX in October 2000; (c) the issuance of the senior discount notes in March 2001 and (d) the refinancing of the credit facility in December 2000. 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. Three Months Ended May 31, (Pro Forma) 2000 2001 ------------- ------------- (In thousands,except per share data) Net revenues $ 148,455 $ 137,335 ============= ============= Broadcast/publishing cash flow $ 56,318 $ 48,283 ============= ============ Net income (loss) $ (2,930) $ (14,515) ============ ============ Net income (loss) available to common shareholders $ (5,176) $ (16,761) ============ ============ Basic net income (loss) per common share $ (0.11) $ (0.35) ============= ============ Diluted net income (loss) per common share $ (0.11) $ (0.35) ============= ============ Weighted average shares outstanding: Basic 46,269 47,258 Diluted 46,269 47,258 -10- Note 4. Basic and Diluted Net Income Per Common Share Basic net income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at May 31, 2000 and 2001 consisted of stock options and the 6.25% Series A cumulative convertible preferred stock. The 6.25% Series A cumulative convertible preferred stock is not included in the calculation of diluted net income per common share for the three months ended May 31, 2000 and 2001 as the effect of its conversion to common stock would be antidilutive. For the three months ended May 31, 2000, the difference between the weighted-average shares outstanding used to compute basic and diluted EPS is attributable to dilution caused by stock options. Weighted average shares excluded from the calculation of diluted net income per share that would result from the conversion of the 6.25% Series A cumulative convertible preferred stock amounted to approximately 3.7 million for the three months ended May 31, 2000 and 2001. Note 5. Comprehensive Income Comprehensive income was comprised of the following for the three months ended May 31, 2000 and 2001 (dollars in thousands): Three Months Ended May 31, 2000 2001 ------------ ------------ Net income (loss) $ 5,911 $ (13,477) Translation adjustment 324 512 Change in fair value of derivative instruments - (988) ------------ ------------ Total comprehensive income (loss) $ 6,235 $ (13,953) ============ ============ Note 6. Segment Information The Company's operations are aligned into four business segments: Radio, Television, Publishing and Other and Interactive. These business segments are consistent with the Company's management of these businesses and its financial reporting structure. Corporate represents expense not allocated to reportable segments. The Company's segments operate primarily in the United States with one radio station located in Hungary and two radio stations located in Argentina. Total revenues of the radio station in Hungary for the three months ended May 31, 2000 and 2001 were $1.3 million and $1.1 million, respectively. Long lived assets of this radio station as of May 31, 2000 and 2001 were $12.1 million and $8.5 million, respectively. Emmis acquired two radio stations in Buenos Aires, Argentina in November 1999. Total revenues of these stations for the three months ended May 31, 2000 and 2001 were $1.4 million and $1.9 million, respectively. Long lived assets of these radio stations as of May 31, 2000 and 2001 were $19.2 million and $18.1 million, respectively. -11- The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with 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 for the year ended February 28, 2001, are applied consistently across segments.
Three Months Ended Publishing May 31, 2001 Radio Television and Other Interactive Corporate Consolidated - -------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenue $ 65,352 $ 53,795 $ 18,084 $ 104 $ -- $ 137,335 Operating expenses 36,027 35,672 17,036 317 -- 89,052 ----------- ----------- ----------- ----------- ----------- ----------- Broadcast/publishing cash flow 29,325 18,123 1,048 (213) -- 48,283 International business development expenses -- -- -- -- 238 238 Corporate expenses -- -- -- -- 4,719 4,719 Depreciation and amortization 7,843 13,057 2,138 2 1,096 24,136 Time brokerage fee 479 -- -- -- -- 479 Non-cash compensation -- -- -- -- 2,740 2,740 Restructuring fees and other -- -- -- -- 572 572 ----------- ----------- ----------- ----------- ----------- ----------- Operating income (loss) $ 21,003 $ 5,066 $ (1,090) $ (215) $ (9,365) $ 15,399 =========== =========== =========== =========== =========== =========== Total assets $ 1,082,159 $ 1,309,355 $ 93,675 $ 73 $ 209,897 $ 2,695,159 =========== =========== =========== =========== =========== ===========
-12-
Three Months Ended Publishing May 31, 2000 Radio Television and Other Interactive Corporate Consolidated - -------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenue $ 54,463 $ 28,142 $ 17,914 $ -- $ -- $ 100,519 Operating expenses 28,825 16,808 16,103 120 -- 61,856 ---------- ---------- ---------- ---------- ---------- ---------- Broadcast/publishing cash flow 25,638 11,334 1,811 (120) -- 38,663 International business development expenses -- -- -- -- 404 404 Corporate expenses -- -- -- -- 3,720 3,720 Depreciation and amortization 3,637 5,942 3,768 -- 925 14,272 Time brokerage fee -- -- -- -- -- -- Non-cash compensation -- -- -- -- 1,664 1,664 Restructuring fees and other -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) $ 22,001 $ 5,392 $ (1,957) $ (120) $ (6,713) $ 18,603 ========== ========== ========== ========== ========== ========== Total assets $ 481,544 $ 698,480 $ 104,500 $ -- $ 85,592 $1,370,116 ========== ========== ========== ========== ========== ==========
Note 7. Financial Information for Subsidiary Guarantors and Subsidiary Non-Guarantors Emmis has historically conducted most of its business through subsidiaries, and with the corporate reorganization (the "Corporate Reorganization") that occurred on June 22, 2001 (see Note 8 for further discussion), Emmis now conducts virtually all its business through subsidiaries. The senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries (the "Subsidiary Guarantors"). As of February 28, 2001 and May 31, 2001, subsidiaries holding Emmis' interest in its radio stations in Hungary and Argentina, as well as certain other subsidiaries conducting joint ventures with third parties, did not guarantee the senior subordinated notes (the "Subsidiary Non-Guarantors"). The claims of creditors of Emmis subsidiaries have priority over the rights of Emmis to receive dividends or distributions from such subsidiaries. Presented below is condensed consolidating financial information for the Parent Company Only, the Subsidiary Guarantors and the Subsidiary Non-Guarantors as of February 28, 2001 and May 31, 2001 and for the three months ended May 31, 2000 and 2001. This information is presented without giving effect to the Corporate Reorganization, which occurred after May 31, 2001. 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. -13- Emmis Communications Corporation Condensed Consolidating Balance Sheet As of May 31, 2001 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated CURRENT ASSETS: Cash and cash equivalents $ 4,220 $ 7,841 $ 1,545 $ -- $ 13,606 Accounts receivable, net -- 101,686 4,456 -- 106,142 Prepaid expenses 2,445 16,064 430 -- 18,939 Other 13,463 17,906 118 -- 31,487 ----------- ----------- ----------- ----------- ----------- Total current assets 20,128 143,497 6,549 -- 170,174 Property and equipment, net 37,981 199,125 4,174 -- 241,280 Intangible assets, net -- 2,104,201 20,685 -- 2,124,886 Cash held in escrow 93,000 -- -- -- 93,000 Investment in affiliates 2,333,615 -- -- (2,333,615) -- Other assets, net 59,123 11,828 1,787 (6,919) 65,819 ----------- ----------- ----------- ----------- ----------- Total assets $ 2,543,847 $ 2,458,651 $ 33,195 $(2,340,534) $ 2,695,159 =========== =========== =========== =========== =========== CURRENT LIABILITIES: Accounts payable $ 10,659 $ 19,952 $ 4,940 $ -- $ 35,551 Current portion of other long-term debt 34 22 3,990 -- 4,046 Current portion of TV program rights payable -- 24,613 -- -- 24,613 Accrued salaries and commissions 554 10,520 495 -- 11,569 Accrued interest 9,367 -- 777 -- 10,144 Deferred revenue -- 18,214 -- -- 18,214 Other 3,950 2,595 -- -- 6,545 ----------- ----------- ----------- ----------- ----------- Total current liabilities 24,564 75,916 10,202 -- 110,682 Credit facility and senior subordinated notes 1,385,000 -- -- -- 1,385,000 Senior discount notes 207,026 -- -- -- 207,026 TV program rights payable, net of current portion -- 47,189 -- -- 47,189 Other long-term debt, net of current portion 37 533 19,593 (6,919) 13,244 Other noncurrent liabilities 2,010 4,384 500 -- 6,894 Deferred income taxes 128,990 -- -- -- 128,990 ----------- ----------- ----------- ----------- ----------- Total liabilities 1,747,627 128,022 30,295 (6,919) 1,899,025 Shareholders' equity Series A preferred stock 29 -- -- -- 29 Class A common stock 421 -- -- -- 421 Class B common stock 52 -- -- -- 52 Additional paid-in capital 835,159 -- 4,393 (4,393) 835,159 Subsidiary investment -- 1,968,935 17,591 (1,986,526) -- Retained earnings/ (accumulated deficit) (38,453) 361,694 (18,998) (342,696) (38,453) Accumulated other comprehensive loss (988) -- (86) -- (1,074) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity 796,220 2,330,629 2,900 (2,333,615) 796,134 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 2,543,847 $ 2,458,651 $ 33,195 $(2,340,534) $ 2,695,159 =========== =========== =========== =========== ===========
-14- Emmis Communications Corporation Condensed Consolidating Balance Sheet As of February 28, 2001 (Note 1, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated CURRENT ASSETS: Cash and cash equivalents $ 55,175 $ 4,018 $ 706 $ -- $ 59,899 Accounts receivable, net -- 91,754 5,527 -- 97,281 Prepaid expenses 2,032 14,737 327 -- 17,096 Other 15,902 24,152 776 -- 40,830 ----------- ----------- ----------- ----------- ----------- Total current assets 73,109 134,661 7,336 -- 215,106 Property and equipment, net 38,151 195,404 4,332 -- 237,887 Intangible assets, net -- 1,959,341 21,756 -- 1,981,097 Investment in affiliates 2,169,602 -- -- (2,169,602) -- Other assets, net 68,113 9,706 1,882 (6,919) 72,782 ----------- ----------- ----------- ----------- ----------- Total assets $ 2,348,975 $ 2,299,112 $ 35,306 $(2,176,521) $ 2,506,872 =========== =========== =========== =========== =========== CURRENT LIABILITIES: Accounts payable $ 6,908 $ 22,499 $ 4,799 $ -- $ 34,206 Current portion of other long-term debt 34 18 4,135 -- 4,187 Current portion of TV program rights payable -- 28,192 -- -- 28,192 Accrued salaries and commissions 1,410 8,482 450 -- 10,342 Accrued interest 16,236 -- 802 -- 17,038 Deferred revenue -- 17,418 -- -- 17,418 Other 813 4,955 -- -- 5,768 ----------- ----------- ----------- ----------- ----------- Total current liabilities 25,401 81,564 10,186 -- 117,151 Credit facility and senior subordinated notes 1,380,000 -- -- -- 1,380,000 Senior discount notes -- -- -- -- -- TV program rights payable, net of current portion -- 47,567 -- -- 47,567 Other long-term debt, net of current portion 37 598 19,968 (6,919) 13,684 Other noncurrent liabilities -- 4,884 647 -- 5,531 Deferred income taxes 135,468 -- -- -- 135,468 ----------- ----------- ----------- ----------- ----------- Total liabilities 1,540,906 134,613 30,801 (6,919) 1,699,401 Shareholders' equity Series A preferred stock 29 -- -- -- 29 Class A common stock 419 -- -- -- 419 Class B common stock 52 -- -- -- 52 Additional paid-in capital 830,299 -- 4,393 (4,393) 830,299 Subsidiary investment -- 1,818,050 17,581 (1,835,631) -- Retained earnings / (accumulated deficit) (22,730) 346,449 (16,871) (329,578) (22,730) Accumulated other comprehensive loss -- -- (598) -- (598) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity 808,069 2,164,499 4,505 (2,169,602) 807,471 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 2,348,975 $ 2,299,112 $ 35,306 $(2,176,521) $ 2,506,872 =========== =========== =========== =========== ===========
-15- Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended May 31, 2001 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated Net revenues $ 343 $ 134,041 $ 2,951 $ -- $ 137,335 Operating expenses 313 85,312 3,427 -- 89,052 International business development expenses -- 238 -- -- 238 Corporate expenses 4,719 -- -- -- 4,719 Depreciation and amortization 1,096 22,214 826 -- 24,136 Time brokerage fee -- 479 -- -- 479 Non-cash compensation 2,055 685 -- -- 2,740 Restructuring fees and other 572 -- -- -- 572 --------- --------- --------- --------- --------- Operating income (loss) (8,412) 25,113 (1,302) -- 15,399 --------- --------- --------- --------- --------- Other income (expense) Interest expense (33,764) (245) (811) 168 (34,652) Minority interest -- -- -- 147 147 Other income (expense), net 910 (280) (14) (168) 448 --------- --------- --------- --------- --------- Total other income (expense) (32,854) (525) (825) 147 (34,057) --------- --------- --------- --------- --------- Income (loss) before income taxes (41,266) 24,588 (2,127) 147 (18,658) Provision (benefit) for income taxes (14,524) 9,343 -- -- (5,181) --------- --------- --------- --------- --------- (26,742) 15,245 (2,127) 147 (13,477) Equity in earnings (loss) of subsidiaries 13,265 -- -- (13,265) -- --------- --------- --------- --------- --------- Net income (loss) (13,477) 15,245 (2,127) (13,118) (13,477) Less: Preferred stock dividends 2,246 -- -- -- 2,246 --------- --------- --------- --------- --------- Net income (loss) available to common shareholders $ (15,723) $ 15,245 $ (2,127) $ (13,118) $ (15,723) ========= ========= ========= ========= =========
-16- Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended May 31, 2000 (Unaudited, dollars in thousands)
Eliminations Parent Subsidiary and Company Subsidiary Non- Consolidating Only Guarantors Guarantors Entries Consolidated Net revenues $ 392 $ 97,441 $ 2,686 $ -- $ 100,519 Operating expenses 328 58,531 2,997 -- 61,856 International business development expenses -- 404 -- -- 404 Corporate expenses 3,720 -- -- -- 3,720 Depreciation and amortization 925 12,445 902 -- 14,272 Time brokerage fee -- -- -- -- -- Non-cash compensation 1,248 416 -- -- 1,664 Restructuring fees and other -- -- -- -- -- --------- --------- --------- --------- --------- Operating income (loss) (5,829) 25,645 (1,213) -- 18,603 --------- --------- --------- --------- --------- Other income (expense) Interest expense (7,546) (57) (969) 160 (8,412) Minority interest -- -- -- 524 524 Other income (expense), net 165 (64) (155) (160) (214) --------- --------- --------- --------- --------- Total other income (expense) (7,381) (121) (1,124) 524 (8,102) --------- --------- --------- --------- --------- Income (loss) before income taxes (13,210) 25,524 (2,337) 524 10,501 Provision (benefit) for income taxes (4,854) 9,444 -- -- 4,590 --------- --------- --------- --------- --------- (8,356) 16,080 (2,337) 524 5,911 Equity in earnings (loss) of subsidiaries 14,267 -- -- (14,267) -- --------- --------- --------- --------- --------- Net income (loss) 5,911 16,080 (2,337) (13,743) 5,911 Less: Preferred stock dividends 2,246 -- -- -- 2,246 --------- --------- --------- --------- --------- Net income (loss) available to common shareholders $ 3,665 $ 16,080 $ (2,337) $ (13,743) $ 3,665 ========= ========= ========= ========= =========
-17- Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Three Months Ended May 31, 2001 (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) $ (13,477) $ 15,245 $ (2,127) $ (13,118) $ (13,477) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities - Depreciation and amortization 2,280 26,271 826 -- 29,377 Accretion of interest on senior discount notes 4,414 -- -- -- 4,414 Provision for bad debts -- 1,633 -- -- 1,633 Provision for deferred income taxes (5,181) -- -- -- (5,181) Non-cash compensation 2,055 685 -- -- 2,740 Equity in earnings of subsidiaries (13,265) -- -- 13,265 -- Other (1,605) 62 512 (147) (1,178) Changes in assets and liabilities - Accounts receivable -- (11,719) 1,071 -- (10,648) Prepaid expenses and other current assets 2,026 4,863 555 -- 7,444 Other assets 3,078 (5,377) 95 -- (2,204) Accounts payable and accrued liabilities (3,110) (2,229) 161 -- (5,178) Deferred revenue -- 796 -- -- 796 Other liabilities 5,147 (7,439) (522) -- (2,814) --------- --------- --------- --------- --------- Net cash provided (used) by operating activities (17,638) 22,791 571 -- 5,724 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (899) (8,203) 12 -- (9,090) Cash paid for acquisitions -- (140,746) -- -- (140,746) Other (3,231) -- -- -- (3,231) --------- --------- --------- --------- --------- Net cash provided (used) by investing activities (4,130) (148,949) 12 -- (153,067) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt -- -- -- -- -- Proceeds from long-term debt 5,000 -- -- -- 5,000 Proceeds from senior discount notes offering 202,612 -- -- -- 202,612 Cash held in escrow (93,000) -- -- -- (93,000) Proceeds from exercise of stock options 725 -- -- -- 725 Intercompany (130,237) 129,981 256 -- -- Preferred stock dividends paid (2,246) -- -- -- (2,246) Debt related costs (12,041) -- -- -- (12,041) --------- --------- --------- --------- --------- Net cash provided (used) by financing activities (29,187) 129,981 256 -- 101,050 --------- --------- --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (50,955) 3,823 839 -- (46,293) Beginning of period 55,175 4,018 706 -- 59,899 --------- --------- --------- --------- --------- End of period $ 4,220 $ 7,841 $ 1,545 $ -- $ 13,606 ========= ========= ========= ========= =========
-18- Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Three Months Ended May 31, 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) $ 5,911 $ 16,080 $ (2,337) $(13,743) $ 5,911 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities - Depreciation and amortization 1,395 15,289 902 -- 17,586 Accretion of interest on senior discount notes -- -- -- -- -- Provision for bad debts -- 1,545 -- -- 1,545 Provision for deferred income taxes 1,988 -- -- -- 1,988 Non-cash compensation 1,248 416 -- -- 1,664 Equity in earnings of subsidiaries (14,267) -- -- 14,267 -- Other 633 -- 323 (524) 432 Changes in assets and liabilities - Accounts receivable -- (14,831) 334 -- (14,497) Prepaid expenses and other current assets 1,229 (3,337) 467 -- (1,641) Other assets 598 (1,778) 62 -- (1,118) Accounts payable and accrued liabilities (5,784) 3,788 39 -- (1,957) Deferred revenue -- 1,855 -- -- 1,855 Other liabilities 1,323 (4,493) (702) -- (3,872) -------- -------- -------- -------- -------- Net cash provided (used) by operating activities (5,726) 14,534 (912) -- 7,896 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (833) (2,114) (11) -- (2,958) Cash paid for acquistions -- (36,662) -- -- (36,662) Other -- -- -- -- -- -------- -------- -------- -------- -------- Net cash used by investing activities (833) (38,776) (11) -- (39,620) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (23,788) -- -- -- (23,788) Proceeds from long-term debt 54,388 -- -- -- 54,388 Proceeds from senior discount notes offering -- -- -- -- -- Cash held in escrow -- -- -- -- -- Proceeds from exercise of stock options 5,751 -- -- -- 5,751 Intercompany (23,223) 24,332 (1,109) -- -- Preferred stock dividends paid (2,246) -- -- -- (2,246) Debt related costs -- -- -- -- -- -------- -------- -------- -------- -------- Net cash provided (used) by financing activities 10,882 24,332 (1,109) -- 34,105 -------- -------- -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: 4,323 90 (2,032) -- 2,381 Beginning of period 448 2,564 14,358 -- 17,370 -------- -------- -------- -------- -------- End of period $ 4,771 $ 2,654 $ 12,326 $ -- $ 19,751 ======== ======== ======== ======== ========
-19- Note 8. Subsequent Event On June 22, 2001, Emmis Communications Corporation transferred all of its assets and substantially all of its liabilities, including its credit facility and its outstanding senior subordinated notes, to Emmis Operating Company, a newly formed, wholly-owned subsidiary. As a result, effective June 22, 2001, Emmis Communications Corporation is a holding company that conducts substantially all of its business operations through Emmis Operating Company and its subsidiaries. Emmis Communications Corporation is still the issuer of the Class A, Class B and Class C common stock, the convertible preferred stock and the senior discount notes. Effective June 22, 2001, both Emmis Communications Corporation and Emmis Operating Company are SEC registrants with separate reporting requirements. In June 2001, Emmis Communications Corporation filed an Exchange Offer Registration Statement with the SEC to exchange the senior discount notes for new senior discount notes registered under the Securities Act. The terms of the new senior discount notes are identical to the terms of the senior discount notes they replaced. Also in June 2001, Emmis filed a universal shelf registration statement that gives Emmis and its subsidiaries the ability to issue up to $500.0 million in various debt or equity securities. Note 9. Reclassifications Certain reclassifications have been made to the May 31, 2000 and February 28, 2001 financial statements to be consistent with the May 31, 2001 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; our ability to service our outstanding debt; increased competition in our markets and the broadcasting industry; inability to obtain necessary approvals for purchases or sale transactions or to complete the transactions; changes in the costs of programming; inability to grow through suitable acquisitions, including the desired radio; tax and other regulatory or practical limitations on the Company's ability to effectively separate the Company's radio and television businesses; and other factors mentioned in other documents filed by the Company with the Securities and Exchange Commission. General The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on -20- the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with accounting principles generally accepted in the 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 Company's results are subject to seasonal fluctuations. Therefore, results shown on a quarterly basis are not necessarily indicative of results for a full year. Results of Operations for the Three Months Ended May 31, 2001 Compared to May 31, 2000 Net revenues for the three months ended May 31, 2001 were $137.3 million compared to $100.5 million for the same period of the prior year, an increase of $36.8 million or 36.6%. On a pro forma basis (after giving effect to all acquisitions consummated since March 1, 2000), net revenues decreased $11.1 million, or 7.5%. The decrease in net revenues is generally due to a softening U.S. economy resulting in an overall decrease in advertisement sales, coupled with a sharp decrease in dot.com advertising in the three months ended May 31, 2001 as compared to the same period of the prior year. Operating expenses for the three months ended May 31, 2001 were $89.1 million compared to $61.9 million for the same period of the prior year, an increase of $27.2 million or 44.0%. On a pro forma basis, operating expenses decreased $3.1 million, or 3.3% This decrease is primarily due to the elimination of certain operational positions in the television division and a decrease in promotional spending and sales related costs. Broadcast/publishing cash flow for the three months ended May 31, 2001 was $48.3 million compared to $38.7 million for the same period of the prior year, an increase of $9.6 million or 24.9%. On a pro forma basis, broadcast/publishing cash flow decreased by $8.0 million, or 14.3%. This decrease is due to decreased net revenues partially offset by decreased operating expenses as discussed above. Corporate expenses for the three months ended May 31, 2001 were $4.7 million compared to $3.7 million for the same period of the prior year, an increase of $1.0 million or 26.9%. This increase is largely attributable to an increase in the number of corporate employees in all departments as a result of our growth over the last twelve months. -21- EBITDA before certain charges is defined as broadcast/publishing cash flow less corporate and international business development expenses. EBITDA before certain charges for the three months ended May 31, 2001 was $43.3 million compared to $34.5 million for the same period of the prior year, an increase of $8.8 million or 25.4%. On a pro forma basis, EBITDA before certain charges decreased $8.9 million, or 17.0%. This decrease reflects the decrease in broadcast/publishing cash flow coupled with the increase in corporate expenses. Restructuring fees and other of $0.6 million in the three months ended May 31, 2001 principally consists of severance and related costs associated with centralizing certain technical functions of the television division. Depreciation and amortization expense for the three months ended May 31, 2001 was $24.1 million compared to $14.3 million for the same period of the prior year, an increase of $9.8 million or 69.1%. Substantially all of the increase in depreciation and amortization expense for the three months ended May 31, 2001 is due to acquisitions consummated since March 1, 2000. Non-cash compensation expense for the three months ended May 31, 2001 was $2.7 million compared to $1.7 million for the same period of the prior year, an increase of $1.0 million or 64.7%. Non-cash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements, common stock contributed to the Company's Profit Sharing Plan and common stock issued to employees at our discretion. This increase was due to the payment of certain employee incentives with our common stock. Interest expense for the three months ended May 31, 2001 was $34.7 million compared to $8.4 million for the same period of the prior year, an increase of $26.3 million or 311.9%. This increase reflects higher outstanding debt due to acquisitions consummated since March 1, 2000, all of which were financed with debt. Our effective tax rate for the three months ended May 31, 2001 was 27.8%, compared to 43.7% for the same period of the prior year. The decrease in our effective tax rate in the three months ended May 31, 2001 primarily resulted from the relative impact of the non-deductible tax items in relation to the change in pre-tax income (loss). 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 service and preferred stock dividend requirements. Emmis is constructing new operating facilities for WALA-TV in Mobile, Alabama. The project is expected to be completed in December of 2001 for an estimated cost of $11.3 million of which $3.0 million has been incurred through May 31, 2001. This project will be financed through cash flows from operating activities and/or borrowings under the credit facility. -22- Capital Expenditures In the three month periods ended May 31, 2000 and 2001, we had capital expenditures of $3.0 million and $9.1 million, respectively. The capital expenditures in the period ended May 31, 2001 primarily related to the WALA operating facilities project, leasehold improvements to various office and studio facilities, broadcast equipment purchases and tower upgrades. We anticipate that future requirements for capital expenditures will include capital expenditures incurred during the ordinary course of business, including costs related to our conversion to digital television. We expect to fund such capital expenditures with cash generated from operating activities and borrowings under our credit facility. Debt Service and Preferred Stock Dividend Requirements As of May 31, 2001, we had $1.592 billion of corporate indebtedness outstanding under our credit facility ($1.085 billion), senior subordinated notes ($0.3 billion) and senior discount notes ($0.207 billion), and an additional $17.3 million of other indebtedness. We also had $143.8 million of our convertible preferred stock outstanding. 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. As of May 31, 2001, our weighted average borrowing rate under our credit facility was approximately 7.1% and our overall weighted average borrowing rate, after taking into account amounts outstanding under our senior subordinated notes and senior discount notes, was approximately 8.1%. Based on amounts currently outstanding under our senior subordinated notes and convertible preferred stock, the debt service and preferred stock dividend requirements for the next twelve month period are $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 May 31, 2001, we had cash and cash equivalents of $13.6 million and net working capital of $59.5 million. At February 28, 2001, we had cash and cash equivalents of $59.9 million and net working capital of $98.0 million. On June 22, 2001, we effectuated our corporate reorganization (see Note 8 for further discussion) and $93.0 million that was previously held in escrow was released to us. We used the cash to repay amounts outstanding under the credit facility. At June 30, 2001, we had $315.0 million available under our credit facility, less $6.6 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, and preferred stock dividend requirements for the foreseeable future. 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. -23- Intangibles At May 31, 2001, approximately 79% of our total assets consisted of intangible assets, such as FCC broadcast licenses, goodwill, subscription lists and similar assets, the value of which depends significantly upon the operational results of our businesses. In the case of our radio and television stations, we would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations' compliance with the various regulatory requirements. Historically, all of our FCC licenses have been renewed at the end of their respective eight-year periods, and we expect that all FCC licenses will continue to be renewed in the future. Quantitative and Qualitative Disclosures About Market Risk Management monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that there have been no material developments affecting market risk since the filing of the Company's Annual Report on Form 10-K for the year ended February 28, 2001. 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. -24- PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed or incorporated by reference as a part of this report: 3.1 Second 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, and amendment relating to Series A cumulative convertible preferred stock, incorporated by reference from Exhibit 3.2 to the Company's registration statement on Form S-3 File No. 333-62172, as amended. 3.2 Amended and Restated Bylaws of Emmis Communications Corporation, incorporated by reference from Exhibit 3.2 to the Company's Form 10-K/A for the year ended February 29, 2000. 10.1 Guaranty of Emmis Communications Corporation in favor of Toronto Dominion (Texas), Inc., as administrative agent under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement of Emmis Operating Company, as borrower. 15 Letter re: unaudited interim financial information (b) Reports on Form 8-K On March 12, 2001, the Company filed a Form 8-K to disclose pro forma financial information. On March 13, 2001, the Company filed a Form 8-K disclosing its financial performance for the three and twelve months ended February 28, 2001. On April 12, 2001, the Company filed a Form 8-K that included its Fourth Amended and Restated Revolving Credit and Term Loan Agreement and First Amendment to Fourth Amended and Restated Revolving Credit and Term Loan Agreement. -25- Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMMIS COMMUNICATIONS CORPORATION Date: July 16, 2001 By: /s/ WALTER Z. BERGER Walter Z. Berger Executive Vice President (Authorized Corporate Officer), Chief Financial Officer and Treasurer -26- Exhibit 15 July 16, 2001 Mr. Walter Z. Berger Executive Vice President, Chief Financial Officer and Treasurer 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, 333-42878, 333-62172 and 333-62160 its Form 10-Q for the quarter ended May 31, 2001, which includes our report dated June 26, 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 -27- EX-10 2 guaranty.txt GUARANTY This GUARANTY, dated as of June 22, 2001 (this "Guaranty"), is by and between Emmis Communications corporation, an Indiana corporation (the "Guarantor"), in favor of (i) TORONTO DOMINION (TEXAS), INC., a Delaware corporation, as administrative agent (hereinafter, in such capacity, the "Administrative Agent") for itself and the other lending institutions (hereinafter, collectively, the "Lenders") which are or may become parties to a Fourth Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 29, 2000December __, 2000 (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Credit Agreement"), among EMMIS OPERATING COMPANY, an Indiana corporation (as the assignee of the Guarantor) (the "Company"), the Lenders, Fleet National Bank, as documentation agent, First Union National Bank, as syndication agent, Credit Suisse First Boston, as co-documentation agent, and the Administrative Agent and (ii) each of the Lenders. WHEREAS, the Company and the Guarantor are members of a group of related entities, the success of any one of which is dependent in part on the success of the other members of such group; WHEREAS, the Guarantor expects to receive substantial direct and indirect benefits from the extensions of credit to the Company by the Lenders pursuant to the Credit Agreement (which benefits are hereby acknowledged); WHEREAS, it is a condition precedent to the Lenders' making any loans or otherwise extending credit to the Company under the Credit Agreement that the Guarantor execute and deliver to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent, a guaranty substantially in the form hereof; WHEAREAS, the Guarantor has executed and delivered to the Administrative Agent that certain Stock Pledge Agreement, dated as of the date hereof (as amended, supplemented, restated or otherwise modified and in effect from time to time, the "Parent Pledge Agreement"), pursuant to which, inter alia, the Guarantor pledged, assigned, and granted to the Administrative Agent, for its benefit and that of the Lenders, a security interest in one hundred percent (100%) of the issued and outstanding stock of the Company in accordance with the terms set forth therein; WHEREAS, the Guarantor wishes to guaranty the Company's Obligations to the Lenders and the Administrative Agent; NOW, THEREFORE, the Guarantor hereby agrees with the Lenders and the Administrative Agent as follows: 1. Definitions. The term "Obligations" and all other capitalized terms used herein without definition shall have the respective meanings provided therefor in the Credit Agreement. 2. Guaranty of Payment and Performance. The Guarantor hereby guarantees to the Lenders and the Administrative Agent the full and punctual payment when due (whether at stated maturity, by required pre-payment, by acceleration or otherwise), as well as the performance, of all of the Obligations including all such Obligations which would become due but for the operation of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy Code and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy Code. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Administrative Agent or any Lender first attempt to collect any of the Obligations from the Company or resort to any collateral security or other means of obtaining payment. Should the Company default in the payment or performance of any of the Obligations, the obligations of the Guarantor hereunder with respect to such Obligations in default shall, upon demand by the Administrative Agent, become immediately due and payable to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent, without demand or notice of any nature, all of which are expressly waived by the Guarantor. Payments by the Guarantor hereunder may be required by the Administrative Agent on any number of occasions. All payments by the Guarantor hereunder shall be made to the Administrative Agent, in the manner and at the place of payment specified therefor in the Credit Agreement, for the account of the Lenders and the Administrative Agent. 3. Limitation on Liability of Guarantor. The liability of the Guarantor hereunder shall be satisfied solely from the proceeds of the "Stock" and the "Stock Collateral" (as each such term is defined in the Parent Pledge Agreement) and any other collateral pledged pursuant to the Parent Pledge Agreement; and, except for exercising their respective rights with respect to such Stock, Stock Collateral and other collateral, the Administrative Agent and the Lenders waive any rights any of them may have, and agree that they will not seek, to receive or recover the Obligations from the Guarantor. 4. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to the Administrative Agent, on demand, all reasonable costs and expenses (including court costs and legal expenses) incurred or expended by the Administrative Agent or any Lender in connection with the Obligations to the extent such costs and expenses are required to be paid by the Company or the Guarantor under the Credit Agreement and all reasonable costs and expenses (including court costs and legal expenses) incurred or expended by the Administrative Agent or any Lender in connection with this Guaranty and the enforcement thereof, together with interest on amounts recoverable under this ss.4 from the time when such amounts become due until payment, whether before or after judgment, at the rate of interest for overdue principal set forth in the Credit Agreement, provided that if such interest exceeds the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount. 5. Waivers by Guarantor; Lenders' Freedom to Act. The Guarantor agrees that the Obligations will be paid and performed strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any Lender with respect thereto. The Guarantor waives promptness, diligences, presentment, demand, protest, notice of acceptance, notice of any Obligations incurred and all other notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Company or any other entity or other person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Without limiting the generality of the foregoing, the Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Administrative Agent or any Lender to assert any claim or demand or to enforce any right or remedy against the Company or any other entity or other person primarily or secondarily liable with respect to any of the Obligations; (ii) any extensions, compromise, refinancing, consolidation or renewals of any Obligation; (iii) any change in the time, place or manner of payment of any of the Obligations or any rescissions, waivers, compromise, refinancing, consolidation or other amendments or modifications of any of the terms or provisions of the Credit Agreement, the Notes, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations, (iv) the addition, substitution or release of any entity or other person primarily or secondarily liable for any Obligation; (v) the adequacy of any rights which the Administrative Agent or any Lender may have against any collateral security or other means of obtaining repayment of any of the Obligations; (vi) the impairment of any collateral securing any of the Obligations, including without limitation the failure to perfect or preserve any rights which the Administrative Agent or any Lender might have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security; or (vii) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor, all of which may be done without notice to the Guarantor. To the fullest extent permitted by law, the Guarantor hereby expressly waives any and all rights or defenses arising by reason of (A) any "one action" or "anti-deficiency" law which would otherwise prevent the Administrative Agent or any Lender from bringing any action, including any claim for a deficiency, or exercising any other right or remedy (including any right of set-off), against the Guarantor before or after the Administrative Agent's or such Lender's commencement or completion of any foreclosure action, whether judicially, by exercise of power of sale or otherwise, or (B) any other law which in any other way would otherwise require any election of remedies by the Administrative Agent or any Lender. 6. Unenforceability of Obligations Against Company. If for any reason the Company has no legal existence or is under no legal obligation to discharge any of the Obligations, or if any of the Obligations have become irrecoverable from the Company by reason of the Company's insolvency, bankruptcy or reorganization or by other operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if the Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Company, or for any other reason, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, the Notes, the other Loan Documents or any other agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantor. 7. Subrogation; Subordination. 7.1. Waiver of Rights Against Company. Until the final payment and performance in full of all of the Obligations, (i) the Guarantor shall not exercise and hereby waives any rights against the Company arising as a result of payment by the Guarantor hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and will not prove any claim in competition with the Administrative Agent or any Lender in respect of any payment hereunder in any bankruptcy, insolvency or reorganization case or proceedings of any nature; (ii) the Guarantor will not claim any setoff, recoupment or counterclaim against the Company in respect of any liability of the Guarantor to the Company; and (iii) the Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Administrative Agent or any Lender. 7.2. Subordination. The payment of any amounts due with respect to any indebtedness of the Company for money borrowed or credit received now or hereafter owed to the Guarantor is hereby subordinated to the prior payment in full of all of the Obligations. The Guarantor agrees that, after the occurrence of any default in the payment or performance of any of the Obligations, the Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Company to the Guarantor until all of the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still outstanding, such amounts shall be collected, enforced and received by the Guarantor as trustee for the Lenders and the Administrative Agent and be paid over to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent, on account of the Obligations without affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty. 7.3. Provisions Supplemental. The provisions of this ss.7 shall be supplemental to and not in derogation of any rights and remedies of the Lenders and the Administrative Agent under any separate subordination agreement which the Administrative Agent may at any time, and from time to time, enter into with the Guarantor for the benefit of the Lenders and the Administrative Agent. 8. Security. Subject to the provisions of ss.3, the Guarantor grants to each of the Administrative Agent and the Lenders, as security for the full and punctual payment and performance of all of the Guarantor's obligations hereunder, a continuing lien on and security interest in all securities belonging to the Guarantor now or hereafter held by the Administrative Agent or such Lender. 9. Further Assurances. The Guarantor agrees that it will from time to time, at the request of the Administrative Agent, do all such things and execute all such documents as the Administrative Agent may consider necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Lenders and the Administrative Agent hereunder. The Guarantor acknowledges and confirms that the Guarantor itself has established its own adequate means of obtaining from the Company on a continuing basis all information desired by the Guarantor concerning the financial condition of the Company and that the Guarantor will look to the Company and not to the Administrative Agent or any Lender in order for the Guarantor to keep adequately informed of changes in the Company's financial condition. 10. Termination; Reinstatement. This Guaranty shall remain in full force and effect until the Administrative Agent is given written notice of the Guarantor's intention to discontinue this Guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Administrative Agent at the address of the Administrative Agent for notices set forth in ss.19.6 of the Credit Agreement. No such notice shall affect any rights of the Administrative Agent or any Lender hereunder, including without limitation the rights set forth in ss.ss.5 and 7, with respect to any Obligations incurred or accrued prior to the receipt of such notice or any Obligations incurred or accrued pursuant to any contract or commitment in existence prior to such receipt. This Guaranty shall continue to be effective or be reinstated, notwithstanding any such notice, if at any time any payment made or value received with respect to any Obligation is rescinded or must otherwise be returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Company, or otherwise, all as though such payment had not been made or value received. 11. Successors and Assigns. This Guaranty shall be binding upon the Guarantor, its successors and assigns, and shall inure to the benefit of the Administrative Agent and the Lenders and their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, each Lender may assign or otherwise transfer the Credit Agreement, the Notes, its Revolving Credit Commitment, its Tranche A Commitment, its Tranche B Commitment, the other Loan Documents or any other agreement or note held by it evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein, to any other entity or other person, and such other entity or other person shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to such Lender herein, all in accordance with ss.18 of the Credit Agreement. The Guarantor may not assign any of its obligations hereunder. 12. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Administrative Agent with the consent of the Required Lenders and the Guarantor. No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. 13. Notices. All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class, postage prepaid, or, in the case of telegraphic or telexed notice, when transmitted, answer back received, addressed as follows: (a) if to the Guarantor, at Emmis Operating Company, One Emmis Plaza, 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, Attention: Jeffrey H. Smulyan, Chairman, and J. Scott Enright, Esq.; with a copy to Eric Goodison, Esq., Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019, or at such other address for notice as the Guarantor shall last have furnished in writing to the Person giving the notice; and (b) if to the Administrative Agent, at 909 Fannin, Ste. 1700, Houston, Texas 77010, Attention: Neva Nesbitt, with a copy to Sula R. Fiszman, Esq., Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110, or such other address for notice as the Administrative Agent shall have last furnished in writing to the Person giving the notice. 14. Governing Law; Consent to Jurisdiction. THIS GUARANTY IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (without regard to choice of law provisions). The Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of the State of New York or any federal court sitting therein and consents to the nonexclusive jurisdiction of such court and to service of process in any such suit being made upon the Guarantor by mail at the address specified by reference in ss.13. The Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court. 15. Waiver of Jury Trial. THE GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Guarantor hereby waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Guarantor (i) certifies that neither the Administrative Agent nor any Lender nor any representative, agent or attorney of the Administrative Agent or any Lender has represented, expressly or otherwise, that the Administrative Agent or any Lender would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that, in entering into the Credit Agreement and the other Loan Documents to which the Administrative Agent or any Lender is a party, the Administrative Agent and the Lenders are relying upon, among other things, the waivers and certifications contained in this ss.14. 16. Miscellaneous. This Guaranty constitutes the entire agreement of the Guarantor with respect to the matters set forth herein. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Guaranty shall be in addition to any other guaranty of or collateral security for any of the Obligations. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for the ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined. This Guaranty is the "Parent Guaranty" referenced in the Credit Agreement. [remainder of page intentionally left blank] IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as of the date first above written. EMMIS COMMUNICATIONS CORPORATION By: ---------------------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----