-----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, RnDxNQpy0C/SH8qvgtbaENvyFoxZDcJOygx8CmpL5EAOnaVq9MrI23TFktS+oSzN xGuTTEwFuq1tf5ApxRaMsA== /in/edgar/work/0000950137-00-003313/0000950137-00-003313.txt : 20000717 0000950137-00-003313.hdr.sgml : 20000717 ACCESSION NUMBER: 0000950137-00-003313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMMIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000783005 STANDARD INDUSTRIAL CLASSIFICATION: [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: 672963 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 e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number: 0-23264 EMMIS COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1542018 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE EMMIS PLAZA 40 MONUMENT CIRCLE SUITE 700 INDIANAPOLIS, INDIANA 46204 (Address of principal executive offices) (Zip Code) (317) 266-0100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------ ------------ The number of shares outstanding of each of the Registrant's classes of common stock, as of July 10, 2000, was: 41,653,388 Shares of Class A Common Stock, $.01 Par Value 5,230,396 Shares of Class B Common Stock, $.01 Par Value -1- 2 INDEX PAGE ---- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....................................3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements..........................................4 Condensed Consolidated Statements of Operations for the three months ended May 31, 1999 and 2000.................................4 Condensed Consolidated Balance Sheets as of February 29, 2000 and May 31, 2000....................5 Condensed Consolidated Statements of Cash Flows for the three months ended May 31, 1999 and 2000.......................................7 Notes to Condensed Consolidated Financial Statements........................................9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................23 Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................................27 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................27 Item 6. Exhibits and Reports on Form 8-K.............................27 Signatures............................................................28 -2- 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Emmis Communications Corporation and Subsidiaries: We have reviewed the accompanying condensed consolidated balance sheet of Emmis Communications Corporation (an Indiana corporation) and Subsidiaries as of May 31, 2000, and the related condensed consolidated statements of operations for the three-month periods ended May 31, 1999 and 2000 and the condensed consolidated statements of cash flows for the three-month periods ended May 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Emmis Communications Corporation and Subsidiaries as of February 29, 2000 (not presented separately herein), and, in our report dated March 29, 2000, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 29, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Indianapolis, Indiana, June 22, 2000. -3- 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data) Three Months Ended May 31, 1999 2000 ------------ ------------ GROSS REVENUES $ 84,921 $ 118,247 LESS: AGENCY COMMISSIONS 12,569 17,728 ------------ ------------ NET REVENUES 72,352 100,519 Operating expenses 45,463 61,856 International business development expenses 380 404 Corporate expenses 3,206 3,720 Depreciation and amortization 9,709 14,272 Non-cash compensation 645 1,664 ------------ ------------ OPERATING INCOME 12,949 18,603 ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (13,229) (8,412) Minority interest 1,059 524 Other income (expense), net (238) (214) ------------ ------------ Total other income (expense) (12,408) (8,102) ------------ ------------ INCOME BEFORE INCOME TAXES 541 10,501 PROVISION FOR INCOME TAXES 300 4,590 ------------ ------------ NET INCOME 241 5,911 ------------ ------------ PREFERRED STOCK DIVIDENDS -- 2,246 ------------ ------------ NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 241 $ 3,665 ============ ============ Basic net income per common share $ .01 $ .08 ============ ============ Diluted net income per common share $ .01 $ .08 ============ ============ Weighted average common shares outstanding: Basic 31,608,128 46,268,750 Diluted 32,287,712 48,012,311 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -4- 5 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) February 29, May 31, 2000 2000 ----------- ----------- (Note 1) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 17,370 $ 19,751 Accounts receivable, net 66,471 81,494 Prepaid expenses 10,053 14,474 Other 18,822 17,160 ---------- ---------- Total current assets 112,716 132,879 Property and equipment, net 128,904 127,953 Intangible assets, net 1,033,970 1,058,167 Other assets, net 51,716 51,117 ---------- ---------- Total assets $1,327,306 $1,370,116 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 22,957 $ 25,992 Current portion of other long-term debt 5,379 3,475 Current portion of TV program rights payable 16,816 16,712 Accrued salaries and commissions 8,162 8,500 Accrued interest 11,077 4,969 Deferred revenue 15,912 18,704 Other 4,139 4,561 ---------- ---------- Total current liabilities 84,442 82,913 Credit facility and senior subordinated notes 300,000 332,000 TV program rights payable, net of current portion 58,585 54,257 Other long-term debt, net of current portion 14,607 14,551 Other noncurrent liabilities 5,408 4,907 Deferred income taxes 87,139 90,341 Minority interest 758 557 ---------- ---------- Total liabilities 550,939 579,526 ---------- ---------- -5- 6 February 29, May 31, 2000 2000 ----------- ----------- (Note 1) (Unaudited) COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Series A cumulative convertible preferred stock, $.01 par value; authorized 10,000,000 shares; 2,875,000 shares issued and outstanding at February 29, 2000 and May 31, 2000 29 29 Class A common stock, $.01 par value; authorized 170,000,000 shares; issued and outstanding 41,232,811 shares at February 29, 2000 and 41,607,211 shares at May 31, 2000 412 416 Class B common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding 4,738,582 shares at February 29, 2000 and 4,938,582 shares at May 31, 2000 47 49 Additional paid-in capital 804,820 815,048 Accumulated deficit (27,482) (23,817) Accumulated other comprehensive loss (1,459) (1,135) ----------- ----------- Total shareholders' equity 776,367 790,590 ----------- ----------- Total liabilities and shareholders' equity $ 1,327,306 $ 1,370,116 =========== =========== The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -6- 7 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands) Three Months Ended May 31, 1999 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 241 $ 5,911 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation and amortization 11,524 17,586 Provision for bad debts 501 1,545 Provision for deferred income taxes 961 1,988 Non-cash compensation 645 1,664 Other (1,003) 432 Changes in assets and liabilities - Accounts receivable (4,535) (14,497) Prepaid expenses and other current assets (5,348) (1,641) Other assets 2,540 (1,118) Accounts payable and accrued liabilities 8,535 (1,957) Deferred revenue (328) 1,855 Other liabilities (18,985) (3,872) -------- -------- Net cash provided by (used in) operating activities (5,252) 7,896 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (9,954) (2,958) Acquisition of Country Sampler (18,454) -- Acquisition of Los Angeles Magazine -- (36,662) -------- -------- Net cash used in investing activities (28,408) (39,620) -------- -------- -7- 8 Three Months Ended May 31, 1999 2000 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (4,000) (23,788) Proceeds from long-term debt 32,000 54,388 Proceeds from exercise of stock options 962 5,751 Preferred stock dividends paid -- (2,246) -------- -------- Net cash provided by financing activities 28,962 34,105 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,698) 2,381 CASH AND CASH EQUIVALENTS: Beginning of period 6,117 17,370 End of period $ 1,419 $ 19,751 ======== ======== SUPPLEMENTAL DISCLOSURES: Cash paid for- Interest $ 6,111 $ 12,968 Income taxes 4,516 234 ACQUISITION OF COUNTRY SAMPLER: Fair value of assets acquired $ 25,608 -- Cash paid 18,454 -- -------- -------- Liabilities recorded $ 7,154 $ -- ======== ======== ACQUISITION OF LOS ANGELES MAGAZINE: Fair value of assets acquired $ -- $ 39,355 Cash paid -- 36,662 -------- -------- Liabilities recorded $ -- $ 2,693 ======== ======== The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -8- 9 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS May 31, 2000 (Unaudited) Note 1. General Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated interim financial statements included herein have been prepared, without audit, by Emmis Communications Corporation and its subsidiaries (collectively, "Emmis" or the "Company"). As permitted under the applicable rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, Emmis believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended February 29, 2000. On an interim basis, the Company defers major advertising campaigns for which future benefits can be demonstrated. These costs are amortized over the shorter of the estimated period benefited or the remainder of the fiscal year. In the opinion of the registrant, the accompanying condensed consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments), necessary to present fairly the consolidated financial position of Emmis at May 31, 2000 and the results of its operations and cash flows for the three months ended May 31, 1999 and 2000. The Company's results are subject to seasonal fluctuations. Therefore, results shown on an interim basis are not necessarily indicative of results for a full year. Note 2. Significant Events On March 3, 2000, the Company acquired all of the outstanding capital stock of Los Angeles Magazines Holding Company, Inc. for approximately $36.7 million in cash plus liabilities recorded of $2.7 million. Los Angeles Magazine Holding Company, Inc., through a wholly-owned subsidiary, owns and operates Los Angeles, a city magazine. The acquisition was accounted for as a purchase and was financed through additional borrowings under the Company's credit facility (the "Credit Facility"). The excess of the purchase price over the estimated fair value of identifiable assets was $35.8 million, which is included in intangible assets in the accompanying condensed consolidated balance sheets and is being amortized over 15 years. On May 7, 2000, Emmis entered into an agreement to purchase eight network-affiliated and seven satellite television stations from Lee -9- 10 Enterprises, Inc. for $562.5 million (the "Lee Acquisition"). The Lee Acquisition consists of the following stations: - - KOIN-TV (CBS) in Portland, Oregon - - KRQE-TV (CBS) in Albuquerque, New Mexico (including satellite stations KBIM-TV, Roswell, New Mexico, and KREZ-TV, Durango, Colorado - Farmington, New Mexico) - - WSAZ-TV (NBC) in Charleston-Huntington, West Virginia - - KSNW-TV (NBC) in Wichita, Kansas (including satellite stations KSNG-TV, Garden City, Kansas, KSNC-TV, Great Bend, Kansas, and KSNK-TV, Oberlin, Kansas - McCook, Nebraska) - - KGMB-TV (CBS) in Honolulu, Hawaii (including satellite stations KGMD-TV, Hilo, Hawaii, and KGMV-TV, Wailuku, Hawaii) - - KGUN-TV (ABC) in Tucson, Arizona - - KMTV-TV (CBS) in Omaha, Nebraska - - KSNT-TV (NBC) in Topeka, Kansas The Lee Acquisition will be accounted for as a purchase and is subject to obtaining various regulatory, network and other approvals prior to closing. In connection with the Lee Acquisition, management intends to separate the Company's radio operations from its television and publishing operations. Management is evaluating structural and financing alternatives to effect this separation of operations. Note 3. Pro Forma Acquisitions Unaudited pro forma summary information is presented below for the three months ended May 31, 1999, assuming the April 1999 Country Sampler Acquisition, the October 1999 WKCF-TV Acquisition, the November 1999 Argentina Acquisition, the March 2000 Los Angeles Magazine Acquisition, and the use of proceeds from the October 1999 Common and Preferred Stock Offerings and the November 1999 Liberty Investment all had occurred on the first day of the pro forma period presented below. -10- 11 Preparation of the pro forma summary information was based upon assumptions deemed appropriate by the Company. The pro forma summary information presented below is not necessarily indicative of the results that actually would have occurred if the transactions indicated above had been consummated at the beginning of the periods presented, and is not intended to be a projection of future results. Three Months Ended May 31, (Pro Forma) (Historical) 1999 2000 ----------- ----------- (Dollars in thousands, except per share data) Net revenues $ 88,653 $ 100,519 =========== =========== Broadcast/publishing cash flow $ 32,667 $ 38,663 =========== =========== Net Income $ 3,445 $ 5,911 =========== =========== Net income available to common shareholders $ 1,199 $ 3,665 =========== =========== Basic net income per common share $ .03 $ .08 =========== =========== Diluted net income per common share $ .03 $ .08 =========== =========== Weighted average shares outstanding: Basic 44,992,128 46,268,750 Diluted 45,671,712 48,012,311 -11- 12 Note 4. Basic and Diluted Net Income Per Share Basic net income per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at May 31, 1999 consisted solely of stock options. Potentially dilutive securities at May 31, 2000 consisted of stock options and the 6.25% Series A cumulative convertible preferred stock. The 6.25% Series A cumulative convertible preferred stock is not included in the calculation of diluted net income per common share for the three months ended May 31, 2000 as the effect of its conversion to common stock would be antidilutive. Thus, for the three months ended May 31, 1999 and 2000, the difference between the weighted-average shares outstanding used to compute basic and diluted EPS is attributable to dilution caused by stock options. Weighted average shares excluded from the calculation of diluted net income per share that would result from the conversion of the 6.25% Series A cumulative convertible preferred stock amounted to approximately 3.7 million for the three months ended May 31, 2000. Note 5. Comprehensive Income Comprehensive income was comprised of the following for the three months ended May 31, 1999 and 2000 (dollars in thousands): Three Months Ended May 31, 1999 2000 ------ ------ Net income $ 241 $5,911 Translation adjustment (975) 324 ----- ------ Total comprehensive income $(734) $6,235 ===== ====== Note 6. Segment Information The Company's operations are aligned into four business segments: Radio, Television, Publishing and Other and Interactive. These business segments are consistent with the Company's management of these businesses and its financial reporting structure. Corporate represents expense not allocated to reportable segments. The Company's segments operate primarily in the United States with one radio station located in Hungary and two radio stations located in Argentina. Total revenues of the radio station in Hungary for the three months ended May 31, 1999 and 2000 were $1.1 million and $1.3 million, respectively. Total assets of this radio station as of May 31, 1999 and 2000 were $18.1 million and $14.6 million, respectively. Emmis acquired -12- 13 two radio stations in Buenos Aires, Argentina in November 1999. Total revenues of these stations for the three months ended May 31, 2000 were $1.4 million and total assets as of May 31, 2000 were $32.3 million. The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with generally accepted accounting principles, and should be viewed as a supplement to, and not a substitute for, our results of operations presented on the basis of generally accepted accounting principles. Moreover, BCF and PCF are not standardized measures and may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of agency commissions and operating expenses. The primary source of broadcast advertising revenues is the sale of advertising time to local and national advertisers. Publishing entities derive revenue from subscriptions and sale of print advertising inventory. Interactive derives revenue from the sale of advertisements on the websites of the Company's stations. The most significant broadcast operating expenses are employee salaries and commissions, costs associated with programming, advertising and promotion, and station general and administrative costs. Significant publishing operating expenses are employee salaries and commissions, costs associated with producing a magazine, and general and administrative costs. Significant interactive operating expenses are employee salaries and general and administrative costs. The accounting policies as described in the summary of significant accounting policies included in the Company's Annual Report filed on Form 10-K for the year ended February 29, 2000, are applied consistently across segments. -13- 14
THREE MONTHS ENDED PUBLISHING MAY 31, 2000 RADIO TELEVISION AND OTHER INTERACTIVE CORPORATE CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------- Net revenue $ 54,463 $ 28,142 $ 17,914 $ - $ - $ 100,519 Operating Expense 28,825 16,808 16,103 120 - 61,856 ----------- ----------- ---------- ---------- ----------- -------------- Broadcast/publishing cash flow 25,638 11,334 1,811 (120) - 38,663 International business development expenses - - - - 404 404 Corporate expenses - - - - 3,720 3,720 Depreciation and amortization 3,637 5,942 3,768 - 925 14,272 Non-cash compensation - - - - 1,664 1,664 ----------- ----------- ---------- ---------- ----------- -------------- Operating income $ 22,001 $ 5,392 $ (1,957) $ (120) (6,713) $ 18,603 =========== =========== ========== ========== =========== ============== Total assets $ 481,544 $ 698,480 $ 104,500 $ - $ 85,592 $ 1,370,116 =========== =========== ========== ========== =========== ============== THREE MONTHS ENDED PUBLISHING MAY 31, 1999 RADIO TELEVISION AND OTHER INTERACTIVE CORPORATE CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------- Net revenue $ 41,965 $ 18,054 $ 12,333 $ - $ - $ 72,352 Operating Expense 23,035 12,006 10,422 - - 45,463 ----------- ----------- ---------- ---------- ----------- -------------- Broadcast/publishing cash flow 18,930 6,048 1,911 - - 26,889 International business development expenses - - - - 380 380 Corporate expenses - - - - 3,206 3,206 Depreciation and amortization 4,011 3,380 1,514 - 804 9,709 Non-cash compensation - - - - 645 645 ----------- ----------- ---------- ---------- ----------- -------------- Operating income $ 14,919 $ 2,668 $ 397 $ - (5,035) $ 12,949 =========== =========== ========== ========== =========== ============== Total assets $ 461,165 $ 447,490 $ 69,982 $ - $ 70,103 $ 1,048,740 =========== =========== ========== ========== =========== ==============
-14- 15 Note 7. Financial Information for Subsidiary Guarantors and Subsidiary Non-Guarantors Emmis conducts a significant portion of its business through subsidiaries. The senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries (the "Subsidiary Guarantors"). As of February 29, 2000 and May 31, 2000, subsidiaries holding Emmis' interest in its radio stations in Hungary and Argentina, as well as certain other subsidiaries conducting joint ventures with third parties, did not guarantee the Senior Subordinated Notes (the "Subsidiary Non-Guarantors"). The claims of creditors of Emmis subsidiaries have priority over the rights of Emmis to receive dividends or distributions from such subsidiaries. Presented below is condensed consolidating financial information for the parent company only, the Subsidiary Guarantors and the Subsidiary Non-Guarantors as of February 29, 2000 and May 31, 2000 and for the three months ended May 31, 1999 and 2000. Emmis uses the equity method with respect to investments in subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented based on management's determination that they do not provide additional information that is material to investors. -15- 16 Emmis Communications Corporation Condensed Consolidating Balance Sheet As of May 31, 2000 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTORS ENTRIES CONSOLIDATED ------------------------------------------------------------------------ CURRENT ASSETS: Cash and cash equivalents $ 4,771 $ 2,654 $ 12,326 $ - $ 19,751 Accounts receivable, net - 78,503 2,991 - 81,494 Prepaid expenses 1,197 13,080 197 - 14,474 Other 4,552 12,553 55 - 17,160 ------------- ------------ ----------- ------------- -------------- Total current assets 10,520 106,790 15,569 - 132,879 Property and equipment, net 38,445 84,936 4,572 - 127,953 Intangible assets, net 164 1,033,543 24,460 - 1,058,167 Investment in affiliates 1,138,175 - - (1,138,175) - Other assets, net 36,505 15,325 2,268 (2,981) 51,117 ------------- ------------ ----------- ------------- -------------- Total assets $ 1,223,809 $ 1,240,594 $ 46,869 $ (1,141,156) $ 1,370,116 ============= ============ =========== ============= ============== CURRENT LIABILITIES: Accounts payable $ 3,397 $ 17,860 $ 4,735 $ - $ 25,992 Current portion of other long-term debt 34 17 3,424 - 3,475 Current portion of TV program rights payable - 16,712 - - 16,712 Accrued salaries and commissions 519 7,453 528 - 8,500 Accrued interest 4,920 - 49 - 4,969 Deferred revenue - 18,704 - - 18,704 Other 836 3,725 - - 4,561 ------------- ------------ ----------- ------------- -------------- Total current liabilities 9,706 64,471 8,736 - 82,913 Credit facility and senior subordinated notes 332,000 - - - 332,000 TV program rights payable, net of current portion - 54,257 - - 54,257 Other long-term debt, net of current portion 37 (2,189) 19,684 (2,981) 14,551 Other noncurrent liabilities - 4,907 - - 4,907 Deferred income taxes 90,341 - - - 90,341 Minority interest - - 557 - 557 ------------- ------------ ----------- ------------- -------------- Total liabilities 432,084 121,446 28,977 (2,981) 579,526 Shareholders' equity Series A preferred stock 29 - - - 29 Class A common stock 416 - - - 416 Class B common stock 49 - - - 49 Additional paid-in capital 815,048 - 4,393 (4,393) 815,048 Subsidiary investment - 831,429 28,078 (859,507) - Retained earnings/ (accumulated deficit) (23,817) 287,719 (13,444) (274,275) (23,817) Accumulated other comprehensive loss - - (1,135) - (1,135) ------------- ------------ ----------- ------------- -------------- Total shareholders' equity 791,725 1,119,148 17,892 (1,138,175) 790,590 ------------- ------------ ----------- ------------- -------------- Total liabilities and shareholders' equity $ 1,223,809 $ 1,240,594 $ 46,869 $ (1,141,156) $ 1,370,116 ============= ============ =========== ============= ==============
-16- 17 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 Prepaid expenses 1,197 8,434 422 - 10,053 Other 5,781 12,744 297 - 18,822 ------------- ------------ ----------- ------------- -------------- Total current assets 7,426 86,888 18,402 - 112,716 Property and equipment, net 38,611 85,587 4,706 - 128,904 Intangible assets, net 196 1,007,860 25,914 - 1,033,970 Investment in affiliates 1,098,183 - - (1,098,183) - Other assets, net 37,573 16,194 2,330 (4,381) 51,716 ------------- ------------ ----------- -------------- -------------- Total assets $ 1,181,989 $ 1,196,529 51,352 $ (1,102,564) $ 1,327,306 ============= ============ =========== ============ ============= CURRENT LIABILITIES: Accounts payable $ 2,973 $ 15,202 $ 4,782 $ - $ 22,957 Current portion of other long-term debt 34 17 5,328 - 5,379 Current portion of TV program rights payable - 16,816 - - 16,816 Accrued salaries and commissions 1,952 5,801 409 - 8,162 Accrued interest 10,995 - 82 - 11,077 Deferred revenue 15,912 15,912 Other 1,034 3,105 - - 4,139 ------------- ------------ ----------- ------------- -------------- Total current liabilities 16,988 56,853 10,601 - 84,442 Credit facility and senior subordinated notes 300,000 - - - 300,000 TV program rights payable, net of current portion - 58,585 - - 58,585 Other long-term debt, net of current portion 36 671 18,281 (4,381) 14,607 Other noncurrent liabilities - 5,408 - - 5,408 Deferred income taxes 87,139 - - - 87,139 Minority interest - - 758 - 758 ------------- ------------ ----------- ------------- -------------- Total liabilities 404,163 121,517 29,640 (4,381) 550,939 Shareholders' equity Series A preferred stock 29 - - - 29 Class A common stock 412 - - - 412 Class B common stock 47 - - - 47 Additional paid-in capital 804,820 - 4,393 (4,393) 804,820 Subsidiary investment - 803,373 29,885 (833,258) - Retained earnings / (accumulated deficit) (27,482) 271,639 (11,107) (260,532) (27,482) Accumulated other comprehensive loss - - (1,459) - (1,459) ------------- ------------ ----------- ------------- -------------- Total shareholders' equity 777,826 1,075,012 21,712 (1,098,183) 776,367 ------------- ------------ ----------- ------------- -------------- Total liabilities and shareholders' equity $ 1,181,989 $ 1,196,529 $ 51,352 $ (1,102,564) $ 1,327,306 ============= ============ =========== ============= ==============
-17- 18 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 Non-cash compensation 1,248 416 - - 1,664 ------------- ----------- ----------- ----------- ----------- Operating income (5,829) 25,645 (1,213) - 18,603 ------------- ----------- ----------- ----------- ----------- Other income (expense) Interest expense (7,546) (57) (969) 160 (8,412) Minority interest - - - 524 524 Other income (expense), net 165 (64) (155) (160) (214) ------------- ----------- ----------- ----------- ----------- Total other income (expense) (7,381) (121) (1,124) 524 (8,102) ------------- ----------- ------------ ----------- ----------- Income (loss) before income taxes (13,210) 25,524 (2,337) 524 10,501 Provision (benefit) for income taxes (4,854) 9,444 - - 4,590 ------------- ----------- ----------- ----------- ----------- (8,356) 16,080 (2,337) 524 5,911 Equity in earnings (loss) of subsidiaries 14,267 - - (14,267) - ------------- ----------- ----------- ----------- ----------- Net income (loss) 5,911 16,080 (2,337) (13,743) 5,911 Less: Preferred stock dividends 2,246 - - - 2,246 ------------- ----------- ----------- ----------- ----------- Net income available to common shareholders $ 3,665 $ 16,080 $ (2,337) $ (13,743) $ 3,665 ============= =========== =========== =========== ===========
-18- 19 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended May 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED ----------------------------------------------------------------- Net revenues $ 416 $ 70,843 $ 1,093 $ - $ 72,352 Operating expenses 320 43,959 1,184 - 45,463 International business development expenses - 380 - - 380 Corporate expenses 3,206 - - - 3,206 Depreciation and amortization 804 8,155 750 - 9,709 Non-cash compensation 484 161 - - 645 ------------- ----------- ----------- ----------- ----------- Operating income (4,398) 18,188 (841) - 12,949 ------------- ----------- ----------- ----------- ----------- Other income (expense) Interest expense (12,380) 141 (1,180) 190 (13,229) Minority interest - - - 1,059 1,059 Other income (expense), net 17 216 (281) (190) (238) ------------- ----------- ----------- ----------- ----------- Total other income (expense) (12,363) 357 (1,461) 1,059 (12,408) ------------- ----------- ----------- ----------- ----------- Income (loss) before income taxes (16,761) 18,545 (2,302) 1,059 541 Provision (benefit) for income taxes (6,509) 6,862 (53) - 300 -------------- ----------- ----------- ----------- ----------- (10,252) 11,683 (2,249) 1,059 241 Equity in earnings (loss) of subsidiaries 10,493 - - (10,493) - ------------- ----------- ----------- ----------- ----------- Net income (loss) 241 11,683 (2,249) (9,434) 241 Less: Preferred stock dividends - - - - - ------------- ----------- ----------- ----------- ----------- Net income available to common stockholders $ 241 $ 11,683 $ (2,249) $ (9,434) $ 241 ============= =========== =========== =========== ===========
-19- 20 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 $ 5,911 $ 16,080 $ (2,337) $ (13,743) $ 5,911 Adjustments to reconcile net income to net cash provided (used) by operating activities - Depreciation and amortization 1,395 15,289 902 - 17,586 Provision for bad debts - 1,545 - - 1,545 Provision for deferred income taxes 1,988 - - - 1,988 Non-cash compensation 1,248 416 - - 1,664 Equity in earnings of subsidiaries (14,267) - - 14,267 - Other 633 - 323 (524) 432 Changes in assets and liabilities - Accounts receivable - (14,831) 334 - (14,497) Prepaid expenses and other current assets 1,229 (3,337) 467 - (1,641) Other assets 598 (1,778) 62 - (1,118) Accounts payable and accrued liabilities (5,784) 3,788 39 - (1,957) Deferred revenue - 1,855 - - 1,855 Other liabilities 1,323 (4,493) (702) - (3,872) ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities (5,726) 14,534 (912) - 7,896 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (833) (2,114) (11) - (2,958) Acquisition of L.A. Magazine - (36,662) - - (36,662) ----------- ----------- ----------- ----------- ----------- Net cash used by investing activities (833) (38,776) (11) - (39,620) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (23,788) - - - (23,788) Proceeds from long-term debt 54,388 - - - 54,388 Proceeds from exercise of stock options 5,751 - - - 5,751 Intercompany (23,223) 24,332 (1,109) - - Preferred stock dividends paid (2,246) - - - (2,246) ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by financing activities 10,882 24,332 (1,109) - 34,105 ----------- ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: 4,323 90 (2,032) - 2,381 Beginning of period 448 2,564 14,358 - 17,370 ----------- ----------- ----------- ----------- ----------- End of period $ 4,771 $ 2,654 $ 12,326 $ - $ 19,751 =========== =========== =========== =========== ===========
-20- 21 Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Three Months Ended May 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED --------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 241 $ 11,683 $ (2,249) $ (9,434) $ 241 Adjustments to reconcile net income to net cash provided (used) by operating activities - Depreciation and amortization 1,368 9,406 750 - 11,524 Provision for bad debts - 501 - - 501 Provision for deferred income taxes 961 - - - 961 Non-cash compensation 484 161 - - 645 Equity in earnings of subsidiaries (10,493) - - 10,493 - Other 56 - - (1,059) (1,003) Changes in assets and liabilities - Accounts receivable - (4,703) 168 - (4,535) Prepaid expenses and other current assets 3,428 (8,627) (149) - (5,348) Other assets 646 1,192 702 - 2,540 Accounts payable and accrued liabilities 7,381 1,873 (719) - 8,535 Deferred revenue - (328) - - (328) Other liabilities (4,001) (16,719) 1,735 - (18,985) ----------- ----------- ----------- ----------- ----------- Net cash provided (used) by operating activities 71 (5,561) 238 - (5,252) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (7,872) (1,425) (657) - (9,954) Acquisition of Country Sampler - (18,454) - - (18,454) ----------- ----------- ----------- ----------- ----------- Net cash used by investing activities (7,872) (19,879) (657) - (28,408) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (4,000) - - - (4,000) Proceeds from long-term debt 32,000 - - - 32,000 Proceeds from exercise of stock options 962 - - - 962 Intercompany (23,447) 22,294 1,153 - - Preferred stock dividends paid - - - - - ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities 5,515 22,294 1,153 - 28,962 ----------- ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (2,286) (3,146) 734 - (4,698) Beginning of period 2,286 3,146 685 - 6,117 ----------- ----------- ----------- ----------- ----------- End of period $ - $ - $ 1,419 $ - $ 1,419 =========== =========== =========== =========== ===========
-21- 22 Note 8. Subsequent Events On June 5, 2000, Emmis entered into an option agreement to acquire the assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from Heart-Argyle Television, Inc. ("Hearst") for $160.0 million. Under the terms of the option agreement, Hearst has up to three years to identify a suitable television property, which Emmis will then purchase and immediately exchange with Hearst for the radio stations. During this three year period, Emmis will operate the radio stations under a Local Management Agreement (LMA). If Hearst is unable to locate a suitable television property by the end of the three year timeframe, Emmis has the option to purchase the radio stations for $160.0 million. Emmis expects to begin managing the radio stations by August 1, 2000. In connection with the signing of the option agreement, the Company made an escrow payment of $20.0 million with borrowings under the Credit Facility. On June 19, 2000, Emmis entered into an agreement with Clear Channel Communications/AMFM to acquire the assets of radio stations KKFR-FM in Phoenix, Arizona and KXPK-FM in Denver, Colorado for a cash purchase price of $108.0 million. This acquisition is awaiting approval by the FCC and Department of Justice and will be accounted for under the purchase method of accounting. In connection with the signing of the purchase agreement, the Company made an escrow payment of $10.8 million with borrowings under the Credit Facility. On June 21, 2000, Emmis entered into an agreement with Sinclair Broadcast Group, Inc. ("Sinclair") to acquire the assets of radio stations WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri for a cash purchase price of $220.0 million. The agreement also included the settlement of outstanding lawsuits by and between Emmis and Sinclair. This acquisition is awaiting approval by the FCC and Department of Justice and will be accounted for under the purchase method of accounting. In connection with the signing of the purchase agreement, the Company made an escrow payment of $22.0 million with borrowings under the Credit Facility. On June 21, 2000, Emmis signed a letter of intent to swap radio stations WIL-FM, WRTH-AM and WVRV-FM that Emmis is acquiring from Sinclair, as well as radio station WKKX-FM that is currently owned by Emmis (all in St. Louis, Missouri), to Bonneville International Corporation ("Bonneville") in exchange for radio station KZLA-FM located in Los Angeles, California. The Company is in the process of negotiating a definitive asset purchase agreement with Bonneville. In May, 2000, the Company made an offer to purchase the stock of a company that owns and operates WALR-FM in Atlanta, Georgia. Because an affiliate of Cox Radio, Inc. holds a right of first refusal to purchase WALR-FM, Emmis' offer was made on the condition that Emmis would receive a $17 million break-up fee if WALR-FM was sold pursuant to the right of first refusal. In June, 2000, the Cox affiliate submitted an offer to purchase WALR-FM under the right of first refusal and an application to transfer the station's FCC licenses was filed with the FCC. The Company expects to receive the break-up fee upon the closing of the sale of WALR-FM under the right of first refusal. Note 9. Reclassifications Certain reclassifications have been made to the May 31, 1999 and February 29, 2000 financial statements to be consistent with the May 31, 2000 presentation. The reclassifications have no impact on net income or retained earnings previously reported. -22- 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Note: Certain statements included in this report which are not statements of historical fact, including but not limited to those identified with the words "expect," "will" or "look" are intended to be, and are, identified as "forward-looking statements," as defined in the Securities and Exchange Act of 1934, as amended, and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement. Such factors include, among others, general economic and business conditions; fluctuations in the demand for advertising; increased competition in the broadcasting industry; inability to obtain necessary approvals for purchases or sale transactions or to complete the transactions; changes in the costs of programming; inability to grow through suitable acquisitions, including the desired radio; tax and other regulatory or practical limitations on the Company's ability to effectively separate the Company's radio and television businesses; and other factors mentioned in other documents filed by the Company with the Securities and Exchange Commission. GENERAL The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with generally accepted accounting principles, and should be viewed as a supplement to, and not a substitute for, our results of operations presented on the basis of generally accepted accounting principles. Moreover, BCF and PCF are not standardized measures and may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of agency commissions and operating expenses. The primary source of broadcast advertising revenues is the sale of advertising time to local and national advertisers. Publishing entities derive revenue from subscriptions and sale of print advertising inventory. Interactive derives revenue from the sale of advertisements on the websites of the Company's stations. The most significant broadcast operating expenses are employee salaries and commissions, costs associated with programming, advertising and promotion, and station general and administrative costs. Significant -23- 24 publishing operating expenses are employee salaries and commissions, costs associated with producing a magazine, and general and administrative costs. Significant interactive operating expenses are employee salaries and general and administrative costs. The Company's results are subject to seasonal fluctuations. Therefore, results shown on a quarterly basis are not necessarily indicative of results for a full year. RESULTS OF OPERATIONS THREE MONTHS ENDED MAY 31, 2000 COMPARED TO MAY 31, 1999 Net revenues for the three months ended May 31, 2000 were $100.5 million compared to $72.4 million for the same period of the prior year, an increase of $28.1 million or 38.9%. Approximately $15.1 million of the increase in net revenues for the three month period ended May 31, 2000 is the result of the April 1999 Country Sampler Acquisition, the October 1999 WKCF-TV Acquisition, the November 1999 Argentina Acquisition and the March 2000 Los Angeles Magazine Acquisition (collectively, the "Recent Acquisitions"). Excluding the Recent Acquisitions, net revenues for the three months ended May 31, 2000 would have increased $13.0 million or 18.7%. This increase in net revenues is principally due to the ability to realize higher advertising rates at certain broadcasting properties, resulting from higher ratings at certain broadcasting properties, and increases in general radio spending in the markets in which the Company operates. Operating expenses for the three months ended May 31, 2000 were $61.9 million compared to $45.5 million for the same period of the prior year, an increase of $16.4 million or 36.1%. Approximately $10.2 million of the increase in operating expenses for the three month period ended May 31, 2000 is the result of the Recent Acquisitions. Excluding the Recent Acquisitions, operating expenses for the three months ended May 31, 2000 would have increased $6.2 million or 14.3%. This increase is due to higher advertising and promotional spending at certain of the Company's properties as well as an increase in sales related costs. Broadcast/publishing cash flow for the three months ended May 31, 2000 was $38.7 million compared to $26.9 million for the same period of the prior year, an increase of $11.8 million or 43.8%. Approximately $4.9 million of the increase in broadcast/publishing cash flow for the three month period ended May 31, 2000 is the result of the Recent Acquisitions. Excluding the Recent Acquisitions, broadcast/publishing cash flow for the three months ended May 31, 2000 would have increased $6.9 million or 26.0%. This increase is principally due to increased net revenues partially offset by increased operating expenses as discussed above. International business development expenses for the three months ended May 31, 2000 were $0.4 million compared to $0.4 million for the same period of the prior year. These expenses reflect costs associated with Emmis International Corporation. The purpose of this wholly owned subsidiary is to identify, investigate and develop international broadcast investments or other international business opportunities. Expenses consist primarily of salaries, travel and various administrative costs. -24- 25 Corporate expenses for the three months ended May 31, 2000 were $3.7 million compared to $3.2 million for the same period of the prior year, an increase of $0.5 million or 16.0%. This increase is due to an increase in the number of corporate employees in all departments as a result of the growth of the Company and the timing of certain expenses. EBITDA before certain charges is defined as broadcast/publishing cash flow less corporate and international business development expenses. EBITDA before certain charges for the three months ended May 31, 2000 was $34.5 million compared to $23.3 million for the same period of the prior year, an increase of $11.2 million or 48.2%. This increase is due to the increase in broadcast/publishing cash flow partially offset by the increase in corporate expenses. Depreciation and amortization expense for the three months ended May 31, 2000 was $14.3 million compared to $9.7 million for the same period of the prior year, an increase of $4.6 million or 47.0%. Approximately $4.2 million of the increase in depreciation and amortization expense for the three month period ended May 31, 2000 is the result of the Recent Acquisitions. Excluding the Recent Acquisitions, depreciation and amortization expense for the three months ended May 31, 2000 would have increased $0.4 million or 4.3%. Non-cash compensation expense for the three months ended May 31, 2000 was $1.7 million compared to $0.6 million for the same period of the prior year, an increase of $1.1 million or 158.0%. Non-cash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements and common stock contributed to the Company's Profit Sharing Plan. This increase was due to higher anticipated Profit Sharing Plan contributions and performance based compensation under employment agreements. Interest expense for the three months ended May 31, 2000 was $8.4 million compared to $13.2 million for the same period of the prior year, a decrease of $4.8 million or 36.4%. This decrease reflects lower outstanding debt due to the paydown of debt with the proceeds from the October 1999 Common and Preferred Stock Offerings and the November 1999 Liberty Investment. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash provided by operations and availability under the Credit Facility. At May 31, 2000, the Company had cash and cash equivalents of $19.8 million, net working capital of $50.0 million and $368.0 million available under the Credit Facility. Capital expenditures incurred for the three months ended May 31, 2000 were approximately $3.0 million. The Company expects that cash flow from operating activities will be sufficient to fund all debt service for debt existing at May 31, 2000, working capital and capital expenditure requirements. In addition, the Company also has access to public equity and debt markets. On May 7, 2000, Emmis entered into an agreement to purchase eight network-affiliated and seven satellite television stations from Lee Enterprises, Inc. for $562.5 million. The Lee Acquisition will be -25- 26 accounted for as a purchase and is subject to obtaining various regulatory, network and other approvals prior to closing. In connection with the Lee Acquisition, management intends to separate the Company's radio operations from its television and publishing operations. Management is evaluating structural and financing alternatives to effect this separation of operations. On June 5, 2000, Emmis entered into an option agreement to acquire the assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona from Heart-Argyle Television, Inc. for $160.0 million. Under the terms of the option agreement, Hearst has up to three years to identify a suitable television property, which Emmis will then purchase and immediately exchange with Hearst for the radio stations. During this three year period, Emmis will operate the radio stations under a Local Management Agreement (LMA). If Hearst is unable to locate a suitable television property by the end of the three year timeframe, Emmis has the option to purchase the radio stations for $160.0 million. Emmis expects to begin managing the radio stations by August 1, 2000. In connection with the signing of the option agreement, the Company made an escrow payment of $20.0 million with borrowings under the Credit Facility. On June 19, 2000, Emmis entered into an agreement with Clear Channel Communications/AMFM to acquire the assets of radio stations KKFR-FM in Phoenix, Arizona and KXPK-FM in Denver, Colorado for a cash purchase price of $108.0 million. This acquisition is awaiting approval by the FCC and Department of Justice and will be accounted for under the purchase method of accounting. In connection with the signing of the purchase agreement, the Company made an escrow payment of $10.8 million with borrowings under the Credit Facility. On June 21, 2000, Emmis entered into an agreement with Sinclair Broadcast Group, Inc. to acquire the assets of radio stations WIL-FM, WRTH-AM, WVRV-FM, KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri for a cash purchase price of $220.0 million. The agreement also included the settlement of outstanding lawsuits by and between Emmis and Sinclair. This acquisition is awaiting approval by the FCC and Department of Justice and will be accounted for under the purchase method of accounting. In connection with the signing of the purchase agreement, the Company made an escrow payment of $22.0 million with borrowings under the Credit Facility. On June 21, 2000, Emmis signed a letter of intent to swap radio stations WIL-FM, WRTH-AM and WVRV-FM that Emmis is acquiring from Sinclair, as well as radio station WKKX-FM that is currently owned by Emmis (all in St. Louis, Missouri), to Bonneville International Corporation in exchange for radio station KZLA-FM located in Los Angeles, California. The Company is in the process of negotiating a definitive asset purchase agreement with Bonneville. In May, 2000, the Company made an offer to purchase the stock of a company that owns and operates WALR-FM in Atlanta, Georgia. Because an affiliate of Cox Radio, Inc. holds a right of first refusal to purchase WALR-FM, Emmis' offer was made on the condition that Emmis would receive a $17 million break-up fee if WALR-FM was sold pursuant to the right of first refusal. In June, 2000, the Cox affiliate submitted an offer to purchase WALR-FM under the right of first refusal and an application to transfer the station's FCC licenses was filed with the FCC. The Company expects to receive the break-up fee upon the closing of the sale of WALR-FM under the right of first refusal. As part of its business strategy, the Company continually evaluates potential acquisitions of radio and television stations as well as publishing properties. In connection with the acquisitions discussed above and future acquisition opportunities, the Company may incur additional debt and issue additional equity or debt securities depending on market conditions and other factors. -26- 27 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that there have been no material developments affecting market risk since the filing of the Company's Annual Report on Form 10-K for the year ended February 29, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Discussion regarding these items is included in management's discussion and analysis of financial condition and results of operations. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed or incorporated by reference as a part of this report: 3.1 Amended and Restated Articles of Incorporation of Emmis Communications Corporation, incorporated by reference from Exhibit 3.1 to the Company's Form 10-K/A for the year ended February 29, 2000. * 3.2 Amended and Restated Bylaws of Emmis Communications Corporation, incorporated by reference from Exhibit 3.2 to the Company's Form 10-K/A for the year ended February 29, 2000. * 15 Letter re: unaudited interim financial information 27 Financial data schedule (Edgar version only) * Previously submitted (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the three months ended May 31, 2000. -27- 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMMIS COMMUNICATIONS CORPORATION Date: July 14, 2000 By: /s/ WALTER Z. BERGER Walter Z. Berger Executive Vice President (Authorized Corporate Officer), Chief Financial Officer and Treasurer -28- EX-15 2 ex15.txt LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 1 Exhibit 15 July 14, 2000 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 and 333-14657 its Form 10-Q for the three months ended May 31, 2000, which includes our report dated June 22, 2000 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 EX-27 3 ex27.txt FDS
5 0000783005 EMMIS COMMUNICATIONS CORPORATION 3-MOS FEB-28-2001 MAR-01-2000 MAY-31-2000 19,751 0 83,938 2,444 0 132,879 170,761 42,808 1,370,116 82,913 346,551 0 29 465 790,096 1,370,116 118,247 118,247 17,728 17,728 80,061 1,545 8,412 10,501 4,590 5,911 0 0 0 3,665 .08 .08
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