-----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, CW4xV4m3FPJ9TdlJrJ/4tHNz0QBE8UYUTSIbpc7vsOv/Ql+PoYvTxIsq+ZHkXsgA kBHR7BXbCmKwN/FFg0PC8A== 0000950137-99-001400.txt : 19990507 0000950137-99-001400.hdr.sgml : 19990507 ACCESSION NUMBER: 0000950137-99-001400 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990506 ITEM INFORMATION: FILED AS OF DATE: 19990506 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23264 FILM NUMBER: 99611858 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 8-K/A 1 FORM 8-K/A 1 ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENTS TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 6, 1999 EMMIS COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) Indiana 0-23264 35-1542018 (State or jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 40 Monument Circle, Suite 700 Indianapolis, Indiana 46204 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 266-0100 Not applicable (Former name or former address, if changed since last report) ============================================================================== 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FINANCIAL STATEMENTS Report of Independent Public Accountants Consolidated Balance Sheets, February 28, 1997 and February 28, 1998 Consolidated Statements of Operations for the three-year period ended February 28, 1998 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the three-year period ended February 28,1998 Consolidated Statements of Cash Flows for the three year period ended February 28, 1998 Notes to Consolidated Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets, February 28, 1998 and November 30, 1998 (unaudited) Consolidated Statements of Operations for the nine months ended November 30, 1997 and 1998 (unaudited) Consolidated Statements of Cash Flows for the nine months ended November 30, 1997 and 1998 (unaudited) Notes to Consolidated Financial Statements EXHIBITS: None 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of EMMIS COMMUNICATIONS CORPORATION (an Indiana corporation) and Subsidiaries as of February 28, 1998 and 1997, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended February 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Emmis Communications Corporation and Subsidiaries as of February 28, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP -------------------------------------- ARTHUR ANDERSEN LLP Indianapolis, Indiana, March 31, 1998 (except with respect to the matter discussed in Note 1b as to which the date is April 30, 1999). 4 CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, ---------------------- 1997 1998 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 1,191 $ 5,785 Accounts receivable, net of allowance for doubtful accounts of $820 and $1,346 at February 28, 1997 and 1998, respectively..................................... 20,831 32,120 Prepaid expenses.......................................... 2,376 4,900 Income tax refunds receivable............................. 2,482 4,968 Other..................................................... 1,867 3,379 -------- -------- Total current assets................................. 28,747 51,152 -------- -------- PROPERTY AND EQUIPMENT: Land and buildings........................................ 1,009 2,192 Leasehold improvements.................................... 5,509 8,188 Broadcasting equipment.................................... 14,356 18,800 Furniture and fixtures.................................... 7,154 12,144 Construction in progress.................................. 1,363 13,091 -------- -------- 29,391 54,415 Less-Accumulated depreciation and amortization............ 16,400 20,969 -------- -------- Total property and equipment, net.................... 12,991 33,446 -------- -------- INTANGIBLE ASSETS: Broadcast licenses........................................ 126,116 195,400 Trademarks and organization costs......................... 1,073 1,022 Excess of cost over fair value of net assets of purchased businesses............................................. 20,371 53,297 Other intangibles......................................... 1,277 5,567 -------- -------- 148,837 255,286 Less-Accumulated amortization............................. 17,094 20,728 -------- -------- Total intangible assets, net......................... 131,743 234,558 -------- -------- OTHER ASSETS: Deferred debt issuance costs and cost of interest rate cap agreements, net of accumulated amortization of $3,625 and $692 at February 28, 1997 and 1998, respectively... 1,541 3,806 Investments............................................... 5,470 5,114 Deposits and other........................................ 9,224 5,312 -------- -------- Total other assets, net.............................. 16,235 14,232 -------- -------- Total assets......................................... $189,716 $333,388 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 5 CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
FEBRUARY 28, ---------------------- 1997 1998 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 2,868 $ 51 Book cash overdraft....................................... 1,942 -- Accounts payable.......................................... 3,687 13,140 Accrued salaries and commissions.......................... 1,561 2,893 Accrued interest.......................................... 174 2,421 Deferred revenue.......................................... 1,593 7,985 Other..................................................... 1,459 1,579 -------- -------- Total current liabilities............................ 13,284 28,069 -------- -------- LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 112,304 231,371 OTHER NONCURRENT LIABILITIES................................ 436 604 MINORITY INTEREST........................................... -- 1,875 DEFERRED INCOME TAXES....................................... 29,270 27,559 -------- -------- Total liabilities.................................... 155,294 289,478 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 8) SHAREHOLDERS' EQUITY: Class A common stock, $.01 par value; authorized 34,000,000 shares; issued and outstanding 8,410,956 shares and 8,430,660 shares at February 28, 1997 and 1998, respectively..................................... 84 84 Class B common stock, $.01 par value; authorized 6,000,000 shares; issued and outstanding 2,574,470 shares and 2,560,894 shares at February 28, 1997 and 1998, respectively........................................... 26 26 Additional paid-in capital................................ 70,949 69,353 Accumulated deficit....................................... (36,637) (25,553) -------- -------- Total shareholders' equity........................... 34,422 43,910 -------- -------- Total liabilities and shareholders' equity........... $189,716 $333,388 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 6 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, --------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) GROSS REVENUES.............................................. $127,708 $134,102 $165,324 LESS AGENCY COMMISSIONS..................................... 18,464 20,382 24,741 -------- -------- -------- NET REVENUES................................................ 109,244 113,720 140,583 Operating expenses........................................ 62,466 62,433 81,170 International business development expenses............... 1,264 1,164 999 Corporate expenses........................................ 4,419 5,929 6,846 Time brokerage fee........................................ -- -- 5,667 Depreciation and amortization............................. 5,677 5,481 7,536 Noncash compensation...................................... 3,667 3,465 1,482 -------- -------- -------- OPERATING INCOME............................................ 31,751 35,248 36,883 -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense.......................................... (13,540) (9,633) (13,772) Equity in loss of unconsolidated affiliate................ (3,111) -- -- Gain on sale of investment in Talk Radio U.K.............. 2,729 -- -- Loss on donation of radio station......................... -- -- (4,833) Other income, net......................................... 79 325 6 -------- -------- -------- Total other income (expense)........................... (13,843) (9,308) (18,599) -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 17,908 25,940 18,824 PROVISION FOR INCOME TAXES.................................. 7,600 10,500 7,200 -------- -------- -------- NET INCOME.................................................. $ 10,308 $ 15,440 $ 11,084 ======== ======== ======== Basic net income per share................................ $ .96 $ 1.41 $ 1.02 ======== ======== ======== Diluted net income per share.............................. $ .93 $ 1.37 $ .98 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 7 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, 1998
CLASS A CLASS B COMMON STOCK COMMON STOCK -------------------- -------------------- ADDITIONAL CUMULATIVE TOTAL SHARES SHARES PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT ADJUSTMENTS EQUITY ----------- ------ ----------- ------ ---------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE, FEBRUARY 28, 1995................... 7,997,692 $80 2,655,122 $27 $59,552 $(62,385) $65 $(2,661) Issuance of Class A Common Stock in exchange for Class B Common Stock......... 48,790 1 (48,790) (1) -- -- -- -- Exercise of stock options and related income tax benefits............. 198,850 2 -- -- 2,633 -- -- 2,635 Compensation related to granting of stock and stock options........ -- -- -- -- 2,917 -- -- 2,917 Issuance of Class A Common Stock to profit sharing plan................. 19,608 -- -- -- 750 -- -- 750 Translation adjustments.......... -- -- -- -- -- -- (65) (65) Net income............. -- -- -- -- -- 10,308 -- 10,308 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 29, 1996................... 8,264,940 83 2,606,332 26 65,852 (52,077) -- 13,884 --------- --- --------- --- ------- -------- --- ------- Issuance of Class A Common Stock in exchange for Class B Common Stock......... 31,862 -- (31,862) -- -- -- -- -- Exercise of stock options and related income tax benefits............. 92,415 1 -- -- 1,632 -- -- 1,633 Compensation related to granting of stock and stock options........ -- -- -- -- 2,715 -- -- 2,715 Issuance of Class A Common Stock to profit sharing plan................. 21,739 -- -- -- 750 -- -- 750 Net income............. -- -- -- -- -- 15,440 -- 15,440 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 28, 1997................... 8,410,956 84 2,574,470 26 70,949 (36,637) -- 34,422 --------- --- --------- --- ------- -------- --- ------- Issuance of Class A Common Stock in exchange for Class B Common Stock......... 13,576 -- (13,576) -- -- -- -- -- Exercise of stock options and related income tax benefits............. 106,305 1 -- -- 2,966 -- -- 2,967 Compensation related to granting of stock and stock options........ -- -- -- -- 732 -- -- 732 Issuance of Class A Common Stock to profit sharing plan................. 15,152 -- -- -- 750 -- -- 750 Issuance of Class A Common Stock to employees and officers and related income tax benefits............. 79,115 1 -- -- 954 -- -- 955 Purchase of Class A Common Stock......... (194,444) (2) -- -- (6,998) -- -- (7,000) Net income............. -- -- -- -- -- 11,084 -- 11,084 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 28, 1998................... 8,430,660 $84 2,560,894 $26 $69,353 $(25,553) $-- $43,910 ========= === ========= === ======= ======== === =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, ------------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES: Net income............................................... $10,308.. $ 15,440 $ 11,084 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization of property and equipment........................................... 1,636 1,639 2,580 Amortization of debt issuance costs and cost of interest rate cap agreements........................ 1,742 1,071 2,183 Amortization of intangible assets..................... 4,041 3,842 4,956 Provision for bad debts............................... 834 726 802 Provision (benefit) for deferred income taxes......... 4,870 1,590 (524) Gain on sale of TalkRadio UK.......................... (2,729) -- -- Compensation related to stock and stock options granted............................................. 2,917 2,715 732 Contribution to profit sharing plan paid with common stock............................................... 750 750 750 Equity in loss of unconsolidated affiliate............ 3,111 -- -- Loss on donation of radio station..................... -- -- 4,833 Other................................................. -- (195) 357 (Increase) decrease in certain current assets (net of dispositions and acquisitions)-- Accounts receivable................................. (3,175) (2,385) (8,389) Prepaid expenses and other current assets........... (751) (3,041) (4,760) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions)-- Accounts payable and book cash overdraft............ (569) 2,757 5,560 Accrued salaries and commissions.................... 830 (1,999) 1,332 Accrued interest.................................... (1,272) (146) 2,247 Deferred revenue.................................... (349) 395 292 Other current liabilities........................... 390 26 116 (Increase) decrease in deposits and other assets...... (108) (898) (1,832) Increase (decrease) in other noncurrent liabilities... 745 (925) 168 -------- -------- --------- Net cash provided by operating activities........ 23,221 21,362 22,487 -------- -------- --------- INVESTING ACTIVITIES: Costs incurred for WRKS-FM Acquisition................... (131) -- -- Acquisition of WALC-FM, WKBQ-AM and WKKX-FM.............. -- (6,600) (36,964) Acquisition of WTLC-FM and WTLC-AM....................... -- -- (15,336) Acquisition of Texas Monthly............................. -- -- (37,389) Acquisition of Cincinnati Magazine....................... -- -- (1,979) Acquisition of Network Indiana and AgriAmerica........... -- -- (709) Purchases of property and equipment...................... (1,396) (7,559) (16,991) Initial payment for purchase of Hungarian broadcast license............................................... -- -- (7,325) Investment in and advances to TalkRadio UK............... (980) -- -- Net proceeds from disposition of investment in TalkRadio UK.................................................... 2,729 -- -- Other.................................................... -- 240 -- -------- -------- --------- Net cash provided (used) by investing activities..................................... 222 (13,919) (116,693) -------- -------- ---------
9 CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, ------------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS) FINANCING ACTIVITIES: Proceeds of long-term debt............................... 29,518 19,000 288,378 Payments on long-term debt............................... (57,583) (28,102) (183,928) Payment of loan fees..................................... -- -- (4,291) Purchase of the Company's Class A Common Stock........... -- -- (7,000) Proceeds from exercise of stock options and income tax benefits of certain equity transactions............... 2,635 1,632 3,922 Other.................................................... -- -- 1,719 -------- -------- --------- Net cash provided (used) by financing activities.... (25,430) (7,470) 98,800 -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (1,987) (27) 4,594 CASH AND CASH EQUIVALENTS: Beginning of year........................................ 3,205 1,218 1,191 -------- -------- --------- End of year.............................................. $ 1,218 $ 1,191 $ 5,785 ======== ======== ========= SUPPLEMENTAL DISCLOSURES: Cash paid for-- Interest.............................................. $ 13,112 $ 8,708 $ 9,655 Income taxes.......................................... 2,931 9,180 8,419 Noncash investing and financing transactions -- Fair value of assets acquired by incurring debt....... 17 17 32 ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM: Fair value of assets acquired......................... -- -- $ 44,564 Cash paid............................................. -- -- 43,564 --------- Liabilities assumed................................... $ 1,000 ACQUISITION OF TEXAS MONTHLY: Fair value of assets acquired......................... -- -- $ 45,421 Cash paid............................................. -- -- 37,389 --------- Liabilities assumed................................... $ 8,032
The accompanying notes to consolidated financial statements are an integral part of these statements. 10 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION Emmis Broadcasting Corporation owns and operates FM radio stations in Los Angeles, New York City (2 stations owned and operated, 1 station operated), Chicago, St. Louis (3 stations) and Indianapolis (3 stations), two AM radio stations in Indianapolis, and a radio station which broadcasts in Hungary (Slager Radio). Emmis Broadcasting Corporation also publishes Indianapolis Monthly, Texas Monthly, Cincinnati Magazine, and Atlanta magazines, and engages in certain businesses ancillary to its radio businesses, such as advertising, program consulting and broadcast tower leasing. B. RESTATEMENT The Company has restated its financial results for the year ended February 28, 1998. The restatement relates to a change in accounting for certain stock options that ultimately were not granted to the CEO under his employment contract for fiscal 1998. At February 28, 1998, Emmis had accrued for the anticipated grant of these stock options. In fiscal 1999, Emmis had reversed the accrual for the stock options since they were ultimately not granted. In this circumstance, under generally accepted accounting principles, such options should not be recorded until granted by the Board of Directors. The restatement adjustment decreased non-cash compensation expense and additional paid in capital by $3.4 million and increased net income and retained earnings by $2.1 million for the three months and twelve months ended February 28, 1998. Additionally, the restatement adjustment decreased basic and diluted loss per share by $0.19 for the three months ended February 28, 1998 and increased the basic and diluted income per share by $0.20 and $0.19, respectivly, for the year ended February 28, 1998. C. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Emmis Broadcasting Corporation and its majority owned Subsidiaries. Unless the content otherwise requires, references to Emmis or the Company in these financial statements mean Emmis Broadcasting Corporation and its Subsidiaries. All significant intercompany balances and transactions have been eliminated. D. REVENUE RECOGNITION Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of issue. E. INTERNATIONAL BUSINESS DEVELOPMENT EXPENSES International business development expenses includes the cost of the Company's efforts to identify, investigate and develop international broadcast investments or other international business opportunities. F. NONCASH COMPENSATION Noncash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements and common stock contributed to the Company's Profit Sharing Plan. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Pro forma disclosure of net income and earnings per share under SFAS No. 123 is presented in Note 7. G. CASH AND CASH EQUIVALENTS Emmis considers time deposits, money market fund shares, and all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. H. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are generally computed by the straight-line method over the estimated useful lives of the related assets which are 31.5 years for buildings, not more than 32 years for leasehold improvements, 5 to 7 years for broadcasting equipment and 7 years for furniture and fixtures. Maintenance, repairs and minor renewals are expensed; improvements are capitalized. 11 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest is being capitalized in connection with the construction of the Indianapolis office facility (Note 8). The capitalized interest is recorded as part of the building cost, which is currently included in construction in progress, and will be amortized over the building's estimated useful life. In fiscal 1998 approximately $312,000 of interest was capitalized. No interest was capitalized in fiscal 1997 and 1996. On a continuing basis, the Company reviews the financial statement carrying value of property and equipment for impairment. If events or changes in circumstances were to indicate that an asset carrying value may not be recoverable, a write-down of the asset would be recorded through a charge to operations. I. INTANGIBLE ASSETS Intangible assets are recorded at cost. Generally, broadcast licenses, trademarks and the excess of cost over fair value of net assets of purchased businesses are being amortized using the straight-line method over 40 years. The cost of the broadcast license for Slager Radio (totaling approximately $20.8 million) is being amortized over the seven year initial term of the license. The approximately $32.4 million of excess of cost over fair value of net assets resulting from the purchase of Texas Monthly is being amortized over 15 years. Other intangibles are amortized using the straight-line method over varying periods, not in excess of 10 years. Subsequent to the acquisition of an intangible asset, Emmis evaluates whether later events and circumstances indicate the remaining estimated useful life or that the remaining carrying value of such an asset may not be recoverable. When factors indicate that an intangible asset should be evaluated for possible impairment, Emmis uses an estimate of the related asset's undiscounted cash flows over the remaining life of that asset in measuring recoverability. If seperately identifiable cash flows are not available for an intangible asset (as would generally be the case for the excess of cost over fair value of purchased business). Emmis evaluates recoverability based on the expected undiscounted cash flows of the specific business to which the asset relates. If such an analysis indicates that impairment has in fact occurred, Emmis writes down the remaining net book value of the intangible asset to its fair value. For this purpose, fair value is determined using quoted market prices (if available), appraisals or approporiate valuation techniques. J. INVESTMENTS Emmis has a 50% ownership interest in a partnership in which the sole asset is land on which a transmission tower is located. The other owner has voting control of the partnership. This investment is reflected at cost of $5,114,000, which approximates the equity method of accounting. On November 7, 1995, Emmis sold its 24.5% interest in TalkRadio UK Limited (TRUK) for approximately $3.0 million and recorded a gain on sale of approximately $2.7 million. K. DEPOSITS AND OTHER ASSETS Deposits and other assets includes amounts due from officers, including accrued interest, of $1,570,000 and $1,654,000 at February 28, 1997 and 1998, respectively. Officer loans bear interest at the Company's borrowing rate of approximately 6.625% and 6.60% at February 28, 1997 and 1998, respectively. L. DEFERRED REVENUE AND BARTER TRANSACTIONS Deferred revenue includes deferred magazine subscription revenue and deferred barter revenue. Barter transactions are recorded at the estimated fair value of the product or service received. Broadcast revenue from barter transactions is recognized when commercials are broadcast. The appropriate expense or asset is recognized when merchandise or services are used or received. M. INCOME TAXES Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The liability method measures the expected tax impact of future taxable income or deductions resulting from differences in the tax and financial reporting bases of assets and liabilities reflected in the consolidated balance sheets and the expected tax impact of carryforwards for tax purposes. 12 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. FOREIGN CURRENCY TRANSLATION The functional currency of Slager Radio is the Hungarian forint. Slager Radio's balance sheet has been translated from forints to the U.S. dollar using the current exchange rate in effect at the balance sheet date. Slager Radio's results of operations have been translated using an average exchange rate for the period. The translation adjustment resulting from the conversion of Slager Radio's financial statements was not significant for the year ended February 28, 1998. The functional currency of TRUK is the pound sterling. The Company's investment in and advances to TRUK have been translated from the pound sterling to the U.S. dollar using current exchange rates in effect at the balance sheet date. The Company's equity in the loss of TRUK has been translated using an average exchange rate for the period. The applicable gains or losses, net of deferred income taxes, resulting from the translation of the Company's investment in and advances to TRUK is shown as cumulative translation adjustments in shareholders' equity. As indicated above, Emmis sold its investment in TRUK on November 7, 1995. O. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", was issued. This new statement supersedes APB Opinion No. 15, "Earnings Per Share", and supersedes or amends other related accounting pronouncements. SFAS No. 128 was adopted by the Company effective March 1, 1997 and all prior period earnings per share (EPS) data have been restated. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures like the Company's. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period (10,942,996 and 10,903,333 shares for the years ended February 28, 1997 and 1998, respectively). Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Weighted average common equivalent shares outstanding for the period, considering the effect of employee stock options, are 11,291,225 and 11,361,881 for the years ended February 28, 1997 and 1998, respectively. P. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Q. ACCOUNTING PRONOUNCEMENTS In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. Under this statement, the Company will report in its financial statements, in addition to net income, comprehensive income and its components which includes foreign currency items. The statement must be adopted by the Company in fiscal 1999. Implementation of this disclosure standard will not affect the financial position or results of operations. Management has not yet determined the manner in which comprehensive income will be displayed. In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," was issued. This statement, which must be adopted by the Company for the year ended February 28, 1999, establishes standards for reporting information about operating segments in annual and interim financial statements. Operating segments are determined consistent with the way management organizes and evaluates 13 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial information internally for making decisions and assessing performance. It also requires related disclosures about the source of revenues for each segment, geographic areas, and major customers. Implementation of this disclosure standard will not affect the Company's financial position or results of operations. Management has not yet determined the manner in which segment information will be displayed. R. RECLASSIFICATIONS Certain reclassifications have been made to the February 28, 1997 financial statements to be consistent with the February 28, 1998 presentation. 2. COMMON STOCK Emmis has authorized 34,000,000 shares of Class A Common Stock, par value $.01 per share, and 6,000,000 shares of Class B Common Stock, par value $.01 per share. The rights of these two classes are essentially identical except that each share of Class B Common Stock has 10 votes with respect to substantially all matters. Class B Common Stock is owned by the principal shareholder (Jeffrey H. Smulyan). All shares of Class B Common Stock convert to Class A Common Stock upon sale or other transfer to a party unaffiliated with the principal shareholder. The financial statements presented reflect the establishment of the two classes of stock. In June 1997, Emmis acquired 194,444 shares of its common stock from Morgan Stanley, Dean Witter, Discover and Co. at $36 per share. The aggregate purchase price of $7.0 million is reflected as a decrease to additional paid in capital in the accompanying financial statements and was financed through additional borrowings under the Company's existing Credit Facility. 3. PREFERRED STOCK Emmis has authorized 10,000,000 shares of preferred stock which may be issued with such designations, preferences, limitations and relative rights as Emmis' Board of Directors may authorize. As of February 28, 1997 and 1998, no shares of preferred stock are issued and outstanding. 4. LONG-TERM DEBT Long-term debt was comprised of the following at February 28, 1997 and 1998 (dollars in thousands):
1997 1998 ---- ---- Credit Facility: Revolving Credit Facility................................. $ 6,000 $115,000 Term Note................................................. 40,000 100,000 Revolving Credit Facility/Term Note....................... 69,000 -- License Obligation -- Hungary............................... -- 11,800 Bonds Payable............................................... -- 2,996 Notes Payable............................................... -- 1,448 Other....................................................... 172 178 -------- -------- Total debt.................................................. 115,172 231,422 Less Current Maturities................................... 2,868 51 -------- -------- $112,304 $231,371 ======== ========
On July 1, 1997, the Company entered into an amended and restated Credit Facility. As a result of the early payoff of the refinanced debt, the Company recorded a loss of approximately $1.3 million, related to unamortized deferred debt issuance costs, which is recorded as interest expense in the accompanying consolidated statement of operations. The amended and restated Credit Facility matures on February 28, 2005 14 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and is comprised of (1) a $250 million revolving credit facility which is subject to certain adjustments as defined in the credit facility and includes an additional commitment for $100 million which may be requested by Emmis prior to May 31, 1999, (2) a $100 million term note and (3) a $150 million revolving credit facility/term note. The amended and restated Credit Facility provides for Letters of Credit to be made available to the Company not to exceed $50 million. The aggregate amount of outstanding Letters of Credit and amounts borrowed under the Revolving Credit Facility cannot exceed the Revolving Credit Facility commitment. At February 28, 1998, a $50 million Letter of Credit was outstanding. All outstanding amounts under the Credit Facility bear interest, at the option of Emmis, at a rate equal to the Eurodollar Rate (5.375% and 5.625% at February 28, 1997 and 1998, respectively) or an alternative base rate (as defined in the Credit Facility) plus a margin. The margin over the Eurodollar Rate or the alternative base rate varies from time to time, depending on Emmis' ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA), as defined in the agreement. The interest rate on borrowings outstanding under the Credit Facility at February 28, 1997 and 1998 was approximately 6.625% and 6.60%, respectively. Interest is due on a calendar quarter basis under the alternative base rate and at least every three months under the Eurodollar Rate. The Credit Facility requires the Company to maintain interest rate protection agreements through July 2000. The notional amount required varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility. The notional amount of the agreements required at February 28, 1998 totaled $109 million. The agreements, which expire at various dates ranging from April 2000 to February 2001, establish various ceilings approximating 8% on the one-month LIBOR interest rate. The cost of these agreements are being amortized over the lives of the agreements and the amortization is included as a component of interest expense. The aggregate amount of the Revolving Credit Facility reduces quarterly beginning May 31, 2000. Amortization of the outstanding principal amount under the Term Note and Revolving Credit Facility/Term Note is payable in quarterly installments beginning May 31, 2000. The annual amortization and reduction schedules as of February 28, 1998, assuming the entire $500 million Credit Facility were outstanding prior to the scheduled amortization payments are as follows: SCHEDULED AMORTIZATION/REDUCTION OF CREDIT FACILITY AVAILABILITY (IN THOUSANDS)
REVOLVING REVOLVING CREDIT FACILITY/ YEAR ENDED CREDIT FACILITY TERM NOTE TERM NOTE FEBRUARY (29)28 AMORTIZATION AMORTIZATION AMORTIZATION TOTAL --------------- --------------- ------------ ---------------- ----- 2001..................................... $ 37,500 $ 15,000 $ 15,000 $ 67,500 2002..................................... 50,000 20,000 22,500 92,500 2003..................................... 50,000 20,000 22,500 92,500 2004..................................... 50,000 20,000 37,500 107,500 2005..................................... 62,500 25,000 52,500 140,000 -------- -------- -------- -------- Total.................................... $250,000 $100,000 $150,000 $500,000 ======== ======== ======== ========
Commencing with the fiscal year ending February 28, 2001 and continuing through February 29, 2004, in addition to the scheduled amortization/reduction of the Credit Facility, within 60 days after the end of each fiscal year, the Credit Facility is permanently reduced by 50% of the Company's excess cash flow if the ratio of adjusted debt (as defined in the Credit Facility) to EBITDA exceeds 5 to 1. Excess cash flow is generally defined as EBITDA reduced by cash taxes, capital expenditures, required debt service, increases in working 15 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) capital (net of cash or cash equivalents), the fixed fees paid under the WQCD-FM time brokerage agreement, and $3,000,000. The net proceeds from any sale of certain assets must also be used to permanently reduce borrowings under the Credit Facility. If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other conditions are met, the Company will be permitted in certain circumstances to reborrow the amount of the net proceeds within nine months solely for the purpose of funding an acquisition. The Credit Facility contains various financial and operating covenants and other restrictions with which Emmis must comply, including, among others, restrictions on additional indebtedness, engaging in businesses other than broadcasting and publishing, paying cash dividends, redeeming or repurchasing capital stock of Emmis and use of borrowings, as well as requirements to maintain certain financial ratios. The Company was in compliance with these covenants at February 28, 1997 and 1998. The Credit Facility also prohibits Emmis, under certain circumstances, from making acquisitions and disposing of certain assets without the prior consent of the lenders, and provides that an event of default will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant equity investment in Emmis (as specified in the Credit Facility), (ii) the ability to elect a majority of Emmis' directors or (iii) control of a majority of shareholder voting power. Substantially all of Emmis' assets, including the stock of Emmis' subsidiaries, are pledged to secure the Credit Facility. The License Obligation -- Hungary is payable, in Hungarian forints, by Emmis' Hungarian subsidiary (see Note 5) to the Hungarian government in four equal annual installments commencing November 2000. The license obligation of $11.8 million, reflected net of unamortized discount of $1.7 million, is non-interest bearing and thus has been discounted at an imputed rate of approximately 3% to reflect the obligation at its fair value. In accordance with the license purchase agreement, a Hungarian cost of living adjustment is calculated annually and is payable, concurrent with the principal payments, on the outstanding obligation. The cost of living adjustment is estimated each reporting period and included in interest expense. The Bonds and Notes Payable are payable by Emmis' Hungarian subsidiary to the minority shareholders of the subsidiary. The Bonds are due on maturity at November 2004 and bear interest at the Hungarian State Bill rate plus 3% (approximately 23% at February 28, 1998). Interest is payable semiannually. The Notes Payable and accrued interest are due on demand and bear interest at prime plus 2% (approximately 10.5% at February 28, 1998). 5. ACQUISITIONS On March 31, 1997, Emmis completed its acquisition of substantially all of the assets of radio stations WALC-FM (formerly WKBQ-FM), WKBQ-AM and WKKX-FM in St. Louis from Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to broadcast approximately $1.0 million in trade spots for Zimco, Inc., over a period of years. In accordance with the asset purchase agreement, Emmis made an escrow payment of $6.0 million and paid $600,000 in non-refundable prepayments in December 1996. These payments are reflected in deposits and other assets in the consolidated balance sheet as of February 28, 1997. Concurrent with the signing of the asset purchase agreement, Emmis entered into a time brokerage agreement which permitted Emmis to operate the acquired stations effective December 1, 1996 through the date of closing. Operating results of these stations are reflected in the consolidated statements of operations commencing December 1, 1996. The purchase price was financed through additional bank borrowings. The acquisition was accounted for as a purchase. In February 1998, the Company donated WKBQ-AM to a church. The $4.8 million net book value of the station at the time of donation was reflected as a loss on donation of radio station in the accompanying consolidated statement of operations. On May 15, 1997, the Company entered into an agreement to purchase radio station WQCD-FM in New York City. The purchase price, after adjustments, is expected to be approximately $141 million. As part of the transaction therewith, the Company issued an irrevocable letter of credit, to the current owner, totaling $50 million as security for the Company's obligations under this agreement. The acquisition will be financed 16 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) through additional bank borrowings and will be accounted for as a purchase upon closing. The acquisition is currently awaiting FCC approval. In connection with the above agreement to acquire WQCD-FM, the Company entered into a time brokerage agreement which permitted Emmis to begin operating the station effective July 1, 1997. This agreement expires upon the closing of the sale of the station to the Company. In consideration for the time brokerage agreement, the Company pays a monthly fee of approximately $700,000. Operating results of WQCD-FM are reflected in the consolidated statement of operations for the period from July 1, 1997 through February 28, 1998. On October 1, 1997, the Company acquired the assets of Network Indiana and AgriAmerica from Wabash Valley Broadcast Corporation for $.7 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On November 1, 1997, the Company completed its acquisition of substantially all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting, L.P. for approximately $15.3 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On November 1, 1997, the Company acquired substantially all of the net assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. Emmis owns a 54% interest in a Hungarian subsidiary (Radio Hungaria Rt., d/b/a Slager Radio) which was formed in August 1997. In November 1997, Slager Radio acquired a radio broadcasting license from the Hungarian government at a cost of approximately $19.2 million, of which a cash payment of $7.3 million had been made as of February 28, 1998. The broadcast license has an initial term of seven years and is subject to renewal for an additional five years. Slager Radio began broadcasting on February 16, 1998. Slager Radio's operating results included in Emmis' results of operations for the year ended February 28, 1998 were not material. On February 1, 1998, the Company acquired all of the outstanding capital stock of Mediatex Communications Corporation for approximately $37.4 million in cash. Mediatex Communications Corporation owns and operates Texas Monthly, a regional magazine. The acquisition was accounted for as a purchase and was financed through additional bank borrowings. 6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) A pro forma condensed consolidated statement of operations is presented below for the years ended February 28, 1997 and 1998, assuming the acquisitions of WALC-FM, WKKX-FM, WTLC-FM and AM, and Texas Monthly and the operation of WQCD-FM, under the Time Brokerage Agreement, all had occurred on the first day of the year ended February 28, 1997. Pro forma results for the year ended February 28, 1997, include pro forma adjustments for March through November, actual revenues and operating expenses from December through February, operating under the time brokerage agreement, and certain pro forma expense adjustments for December through February for the acquisition of WALC-FM and WKKX-FM. In addition, pro forma adjustments for March through February for the operation of WQCD-FM under the time brokerage agreement, and the acquisition of WTLC-FM and AM and Texas Monthly are included in pro forma results for fiscal 1997. Pro forma results for the year ended February 28, 1998, include pro forma adjustments for March and actual results for April through February for the acquisition of WALC-FM and WKKX-FM, pro forma results for March through June and actual results for July through February for the operation of WQCD-FM under the time brokerage agreement, pro forma results for March through October and actual results for November through February for the acquisition of WTLC- FM and AM, and pro forma results for March through January and actual results for February for the acquisition of Texas 17 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Monthly. Pro forma results for Cincinnati Magazine, Network Indiana and AgriAmerica have been excluded as they are not significant to the consolidated operating results of the Company. Pro forma interest expense, depreciation of property and equipment and amortization expense related to the intangibles resulting from the allocation of the purchase price for the above acquisitions and pro forma time brokerage fees for the operation of WQCD-FM have been included in the pro forma statements presented below (in thousands, except per share data).
PRO FORMA ---------------------- 1997 1998 ---- ---- NET REVENUES............................................ $153,161 $172,896 Operating expenses.................................... 92,204 107,163 International business development expenses........... 1,164 999 Corporate expenses.................................... 5,929 6,846 Depreciation and amortization......................... 11,164 11,267 Noncash compensation.................................. 3,465 1,482 Time brokerage agreement fees......................... 8,500 8,500 -------- -------- OPERATING INCOME........................................ 30,735 36,639 -------- -------- OTHER INCOME (EXPENSE): Interest expense...................................... (16,713) (17,485) Equity in loss of unconsolidated affiliates........... -- (357) Loss on donation of radio station..................... -- (4,833) Other income (expense), net........................... 333 459 -------- -------- Total other income (expense)..................... (16,380) (22,216) -------- -------- INCOME BEFORE INCOME TAXES.............................. 14,355 14,423 PROVISION FOR INCOME TAXES.............................. 5,740 5,710 -------- -------- NET INCOME.............................................. $ 8,615 $ 8,713 ======== ======== Basic net income per share............................ $0.79 $0.80 ======== ======== Diluted net income per share.......................... $0.76 $0.77 ======== ========
The pro forma condensed consolidated statement of operations presented above does not purport to be indicative of the results that actually would have been obtained if the indicated transactions had been effective at the beginning of the year presented, and is not intended to be a projection of future results or trends. 7. EMPLOYEE BENEFIT PLANS A. 1986 STOCK INCENTIVE PLAN AND 1992 NONQUALIFIED STOCK OPTION PLAN These stock plans provide for incentive stock options, nonqualified stock options and stock appreciation rights equivalent to 1,112,500 shares of common stock. The options and stock appreciation rights are generally exercisable six months after the date of grant and expire not more than 10 years from the date the options or rights are granted. Stock appreciation rights provide for the issuance of stock or the payment of cash equal to the appreciation in market value of the allocated shares from the date of grant to the date of exercise. When rights are issued with options, exercise of either the option or the right results in the surrender of the other. As of February 28, 1997 and 1998, there were no stock appreciation rights outstanding nor were there any stock appreciation rights issued with options outstanding. Certain stock options awarded remain outstanding as of February 28, 1997 and 1998. 18 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. 1994 EQUITY INCENTIVE PLAN Effective March 1, 1994, the shareholders of Emmis approved the 1994 Equity Incentive Plan (the Plan). Under the Plan, awards equivalent to 1,000,000 shares of common stock may be granted. The awards, which have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, stock appreciation rights, performance units or limited stock appreciation rights. Under this Plan, all awards are granted with an exercise price equal to the fair market value of the stock except for shares of restricted stock which may be granted with an exercise price at amounts greater than or equal to the par value of the underlying stock. No more than 500,000 shares of Class B Common Stock are available for grant and issuance under the Plan. As of February 28, 1997 and 1998, the only awards granted under this Plan were for stock options and restricted shares of stock. Certain stock options awarded remain outstanding as of February 28, 1997 and 1998. The stock options under this Plan are generally exercisable one year after the date of grant and expire not more than 10 years from the date of grant. The exercise price of these options are at the fair market value of the stock on the grant date. C. 1995 EQUITY INCENTIVE PLAN Effective March 1, 1995, the shareholders of Emmis approved the 1995 Equity Incentive Plan (the Plan). Under the Plan, awards equivalent to 650,000 shares of common stock may be granted pursuant to employment agreements discussed in Note 8. D. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Effective June 29, 1995, Emmis implemented a Non-Employee Director Stock Option Plan. Under this Plan, each non-employee director, as of January 24, 1995, was granted an option to acquire 5,000 shares of the Company's Class A Common Stock. Thereafter, upon election or appointment of any non-employee director or upon a continuing director becoming a non-employee director, such individual will also become eligible to receive a comparable option. In addition, an equivalent option will be automatically granted on an annual basis to each non-employee director. All awards are granted with an exercise price equal to the fair market value of the stock on the date of grant. Under this Plan, awards equivalent to 85,000 shares of Class A Common Stock are available for grant at February 28, 1998. E. 1997 EQUITY INCENTIVE PLAN Effective March 1, 1997, the shareholders of Emmis approved the 1997 Equity Incentive Plan (the 1997 Plan). Under the 1997 Plan, awards equivalent to 1,000,000 shares of common stock may be granted. The awards, which have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, stock appreciation rights or performance units. Under the 1997 Plan, all awards are granted with an exercise price equal to the fair market value of the stock except for shares of restricted stock which may be granted with an exercise price at amounts greater than or equal to the par value of the underlying stock. No more than 500,000 shares of Class B Common Stock are available for grant and issuance under the 1997 Plan. As of February 28, 1998, there were no awards granted under this Plan. The stock options under this Plan are generally exercisable one year after the date of grant and expire not more than 10 years from the date of grant. F. OTHER DISCLOSURES RELATED TO STOCK OPTION AND EQUITY INCENTIVE PLANS The Company has historically accounted for its Stock Option Plans in accordance with APB Opinion No. 25 ("APB 25"), under which compensation expense is recognized only to the extent the exercise price of the option is less than the fair market value of the share of stock at the date of grant. During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS 123), which considers the stock options as compensation expense to the 19 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company, based on their fair value at the date of grant. Under this standard, the Company has the option of accounting for employee stock option plans as it currently does or under the new method. The Company has elected to continue to use the APB 25 method for accounting, but has adopted the disclosure requirements of SFAS 123. Accordingly, compensation expense reflected in noncash compensation in the consolidated statements of operations related to the plans summarized above was $2,917,000, $2,715,000 and $732,000 for the years ended February 1996, 1997 and 1998, respectively. Had compensation expense related to these plans been determined based on fair value at date of grant, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED FEBRUARY (29)28, ---------------------------------------- 1996 1997 1998 ----------- ----------- ---------- Net Income: As Reported............................ $10,308,000 $15,440,000 $11,084,000 Pro Forma.............................. $ 8,845,000 $11,545,000 $ 8,588,000 Basic EPS: As Reported............................ $.96 $1.41 $1.02 Pro Forma.............................. $.83 $1.06 $ .79 Diluted EPS: As Reported............................ $.93 $1.37 $ .98 Pro Forma.............................. $.80 $1.02 $ .76
Because the fair value method of accounting has not been applied to options granted prior to March 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model utilizing the following weighted average assumptions:
YEAR ENDED FEBRUARY (29)28, -------------------------- 1996 1997 1998 ------ ------ ------ Risk Free Interest Rate............................... 6.47% 6.39% 5.78% Expected Life (Years)................................. 6.8 7.1 7.5 Expected Volatility................................... 39.70% 41.56% 38.65%
Expected dividend yields were zero for fiscal 1996, 1997 and 1998. A summary of the status of options at February 1996, 1997 and 1998 and the related activity for the year is as follows:
1996 1997 1998 ------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding at Beginning of Year............................ 587,000 $ 9.37 893,888 $15.88 1,232,335 $23.42 Granted........................... 505,738 19.29 439,862 35.54 229,200 44.06 Exercised......................... (198,850) 6.63 (92,415) 10.01 (106,305) 21.09 Expired........................... -- -- (9,000) 33.96 (10,600) 42.47 Outstanding at End of Year........ 893,888 15.88 1,232,335 23.42 1,340,630 26.95 Exercisable at End of Year....................... 517,900 11.99 737,223 16.71 1,055,430 22.14 Available for Grant............... 1,816,012 1,385,150 2,671,350
20 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the years ended February 1996, 1997 and 1998 options were granted with an exercise price equal to or less than fair market value of the stock on the date of grant. A summary of the weighted average fair value and exercise price of options granted during 1996, 1997 and 1998 is as follows:
1996 1997 1998 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR PRICE VALUE PRICE VALUE PRICE VALUE -------- -------- -------- -------- -------- -------- OPTIONS GRANTED WITH AN EXERCISE PRICE: Equal to Fair Market Value of the Stock on the Date of Grant.......... $14.81 $26.03 $24.46 $42.66 $22.85 $41.20 Less Than Fair Market Value of the Stock on the Date of Grant.......... $16.55 $15.50 $24.30 $15.50 $ -- $ --
During fiscal 1996 and 1997, 90,000 and 14,800 shares of nonvested stock were granted at a weighted average grant date fair value of $17.36 and $37.20, respectively, under employment agreements discussed in Note 8. No nonvested stock was granted during fiscal 1998. The following information relates to options outstanding and exercisable at February 28, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - -------------------------------------- ------------------------------------ WEIGHTED WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE NUMBER OF EXERCISE REMAINING NUMBER OF EXERCISE PRICES OPTIONS PRICE CONTRACT LIFE OPTIONS PRICE -------- --------- -------- ------------- --------- -------- $3.75 60,375 $ 3.75 4.2 years 60,375 $ 3.75 10.00-13.25 76,450 12.43 5.7 years 76,450 12.43 15.13-17.125 544,393 15.63 8.0 years 544,393 15.63 28.875-42.25 297,362 34.01 8.1 years 206,862 33.42 44.125-48.75 362,050 44.79 9.0 years 167,350 44.40
In addition to the benefit plans noted above, Emmis has the following employee benefit plans: G. PROFIT SHARING PLAN In December 1986, Emmis adopted a profit sharing plan that covers all nonunion employees with one year of service. Contributions to the plan are at the discretion of the Emmis Board of Directors. Contributions to the plan can be made in the form of newly issued Emmis common stock or cash. Historically, all contributions to the plan have been in the form of Emmis common stock. Contributions reflected in noncash compensation in the consolidated statements of operations were $750,000 for each of the years ended February 1996, 1997 and 1998. H. 401(K) RETIREMENT SAVINGS PLAN Emmis sponsors a Section 401(k) retirement savings plan which covers substantially all nonunion employees age 18 years and older who have at least one year of service. Employees may make pretax contributions to the plan up to 10% of their compensation, not to exceed the annual limit prescribed by the Internal Revenue Service. Emmis may make discretionary matching contributions to the plan in the form of shares of the Company's Class A Common Stock. Effective March 1, 1996, Emmis began to match 50% of employee contributions up to $2,000. Emmis' contributions to the plan totaled $129,000, $273,000 and $315,000 for the years ended February 1996, 1997 and 1998, respectively. 21 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. DEFINED CONTRIBUTION HEALTH AND RETIREMENT PLAN Emmis contributes to a multi-employer defined contribution health and retirement plan for employees who are members of a labor union. Amounts charged to expense related to the multi-employer plan were approximately $276,000, $297,000 and $342,000 for the years ended February 1996, 1997 and 1998, respectively. J. EMPLOYEE STOCK PURCHASE PLAN Effective March 1, 1995, the Company implemented an employee stock purchase plan which permits employees to purchase, via payroll deduction, shares of the Company's Class A Common Stock, at fair market value, up to an amount not to exceed 10% of an employee's annual gross pay. 8. COMMITMENTS AND CONTINGENCIES A. OPERATING LEASES Emmis leases certain office space, tower space, equipment and automobiles under operating leases expiring at various dates through March 2013. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the Consumer Price Index or increases in the lessor's operating costs), as well as provisions for payment of utilities and maintenance costs. The future minimum rental payments (exclusive of future escalation costs) required by noncancelable operating leases which have remaining terms in excess of one year as of February 28, 1998, are as follows:
PAYABLE IN YEAR ENDING FEBRUARY PAYMENTS - --------------- -------- (IN THOUSANDS) 1999.................................................. $ 3,139 2000.................................................. 2,710 2001.................................................. 2,085 2002.................................................. 1,961 2003.................................................. 2,024 Thereafter............................................ 11,618 ------- $23,537 =======
Minimum payments have not been reduced by minimum sublease rentals of approximately $740,000 due in the future under noncancelable subleases. As further discussed in e. below, in 1999 Emmis intends to move its corporate office and Indianapolis operations to an office building being constructed in downtown Indianapolis. Included in future minimum rentals above is approximately $752,000 to be paid through 2000 relating to office space currently being leased in Indianapolis which will no longer be used after the move. At this time Emmis management believes that sublease income will be adequate to offset any rental expense associated with the existing lease. Rent expense totaled $4,437,000, $3,025,000 and $4,512,000 for the years ended February 1996, 1997 and 1998, respectively. Rent expense for the year ended February 1996 includes a loss recognized in connection with a remaining lease obligation related to leased property no longer used for operating purposes. During the year ended February 1997, the Company settled the aforementioned lease obligation which resulted in a reduction to rent expense. Rent expense for the year ended February 1998 is net of sublease income of approximately $86,000. 22 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. BROADCAST AGREEMENTS Emmis has entered into agreements to broadcast certain syndicated programs and sporting events. Future payments related to these broadcast rights are summarized as follows: Year ended February 1999 -- $1,584,000, 2000 -- $1,074,000, 2001 -- $1,100,000, 2002 -- $1,150,000, and 2003 -- $625,000. Expense related to these broadcast rights totaled $1,260,000, $1,383,000 and $1,400,000 for the years ended February 1996, 1997 and 1998. C. LITIGATION Emmis currently and from time to time is involved in litigation incidental to the conduct of its business, but Emmis is not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the financial position or results of operations of Emmis. D. EMPLOYMENT AGREEMENTS Effective March 1, 1994, Emmis entered into an employment agreement with its Chief Executive Officer that continues through February 28, 1999 and provides for an annual base salary as specified in the agreement and an annual bonus. In addition, for each year Emmis meets specified financial targets, the Chief Executive Officer will be granted an option to acquire 100,000 shares of Class B Common Stock. The options will have a five-year term and an exercise price of $15.50 per share. The Chief Executive Officer was granted an option to acquire 100,000 shares of Class B Common Stock in accordance with the terms of this agreement for each of the years ended February 1996 and 1997. The Board of Directors elected not to grant these options for fiscal 1998. Upon the termination or disability of the Chief Executive Officer, specified levels of compensation may continue for five years from the date of termination or disability. Upon the death of the Chief Executive Officer, lump sum payments are payable to his estate. Effective March 1, 1995, Emmis entered into employment agreements with two other executive officers of the Company that continued through February 28, 1998 and provided for an annual base salary and certain bonuses as specified in the agreements. Each executive officer received 12,000 shares of the Company's Class A Common Stock for each year of the employment agreements. The shares vested upon completion of the agreements. In addition, each executive officer was granted an option to acquire 25,000 shares of Class A Common Stock during each year of the employment agreements. The options became exercisable at the end of the term of the employment agreements and have an exercise price of $15.50 per share. Effective March 1, 1995 and 1996, Emmis entered into employment agreements with two additional executives of the Company that continue through February 28, 1999 and provide for an annual base salary and certain other bonuses as specified in the agreements. Subject to certain conditions, the executives will receive, in total, 27,000 shares of the Company's Class A Common Stock. Of the total shares to be received 2,000, were awarded as of February 28, 1997 with the remaining 25,000 to be awarded upon completion of the term of the agreements. In addition, subject to certain conditions, during the term of the agreements, the executives will be granted options to acquire shares of Class A Common Stock, with an exercise price equal to the fair market value at the date of grant. Each option becomes exercisable one year from the date of grant. Options to purchase up to 89,806 shares of Class A Common Stock may be granted over the term of the agreements. Through February 28, 1998, options to purchase 65,806 shares have been granted under the agreements. Effective March 1, 1995, Emmis entered into employment agreements with certain station managers that continued through February 28, 1997 and provided for an annual base salary and certain bonuses as specified in the agreements. Effective March 1, 1997 new employment agreements were entered into, with similar provisions, which continue through February 28, 1999. Subject to certain conditions, each station manager will receive a prescribed number of shares, not to exceed 1,500 shares, of the Company's Class A Common Stock 23 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) during each year of the employment agreements. Commencing with the initial agreements through February 28, 1998, 10,050 shares have been granted under these agreements. E. CONSTRUCTION OF OFFICE BUILDING In August 1996, Emmis announced its plan to build an office building in downtown Indianapolis for its corporate office and its Indianapolis operations. The project is expected to be completed in 1999 for an estimated cost of $30 million, net of reimbursable construction costs of $2 million. This amount reflects an increase over the original amount due to the acquisition of WTLC-FM, WTLC-AM, Network Indiana and AgriAmerica. Certain factors such as additional studio costs related to digital technology and historical landmark requirements may cause the cost of this project to increase. The Company plans to fund this project through additional borrowings under the Credit Facility. 9. INCOME TAXES The provision for income taxes for the years ended February 1996, 1997 and 1998, consisted of the following:
1996 1997 1998 ---- ---- ---- (IN THOUSANDS) Current: Federal................................................... $2,081 $ 7,535 $ 6,474 State..................................................... 649 1,375 1,250 ------ ------- ------- 2,730 8,910 7,724 ------ ------- ------- Deferred: Federal................................................... 4,572 1,328 (759) State..................................................... 298 262 235 ------ ------- ------- 4,870 1,590 (524) ------ ------- ------- Provision for income taxes.................................. $7,600 $10,500 $ 7,200 ====== ======= =======
The provision for income taxes for the years ended February 1996, 1997 and 1998, differs from that computed at the Federal statutory corporate tax rate as follows:
1996 1997 1998 ---- ---- ---- (IN THOUSANDS) Computed income taxes at 35%.................... $6,268 $ 9,079 $6,399 State income tax................................ 616 1,064 965 Other........................................... 716 357 (164) ------ ------- ------ $7,600 $10,500 $7,200 ====== ======= ======
24 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of deferred tax assets and deferred tax liabilities at February 28, 1997 and 1998, are as follows:
1997 1998 ---- ---- (IN THOUSANDS) Deferred tax assets: Capital loss carryforwards........................... $ 3,208 $ 2,914 Net operating loss carryforwards..................... -- 2,587 Compensation relating to stock options............... 2,435 2,243 Other................................................ 1,221 2,739 Valuation allowance.................................. (3,208) (2,914) -------- -------- Total deferred tax assets......................... 3,656 7,569 -------- -------- Deferred tax liabilities: Intangible assets.................................... (30,714) (33,166) Other................................................ (2,212) (1,962) -------- -------- Total deferred tax liabilities.................... (32,926) (35,128) -------- -------- Net deferred tax liability........................ $(29,270) $(27,559) ======== ========
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. A valuation allowance has been provided for 100% of the capital loss carryforwards available as of February 28, 1997 and 1998, since these loss carryforwards can only be utilized to offset future capital gains with expiration of approximately $6,187,000 in 1999, $730,000 in 2001, and $368,000 in 2002. The expiration of net operating loss carryforwards approximate $458,000 in 1999, $692,000 in 2000, $1,486,000 in 2003, $2,623,000 in 2004, $1,375,000 in 2005, and $758,000 in 2006. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments of Emmis is estimated below based on the methods and assumptions discussed therein. A. CASH AND CASH EQUIVALENTS The carrying amounts approximate fair value because of the short maturity of these instruments. B. LONG-TERM DEBT Based upon borrowing rates currently available to the Company for debt with similar terms and the same remaining maturities, the fair value of long-term debt approximated the carrying value at February 28, 1998. C. INTEREST RATE CAP AGREEMENTS The unamortized cost of interest rate cap agreements included in the February 28, 1998 consolidated balance sheet totals $172,000. The carrying amount of interest rate cap agreements approximate fair value given that the majority of the interest rate caps were purchased in February 1998. D. LETTER OF CREDIT Fees paid for the Company's $50 million letter of credit approximate fair value based on fees currently charged for similar arrangements. 25 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. RELATED PARTY TRANSACTIONS Two officers of Emmis are partners in a law firm which provides legal services to Emmis. Legal fees billed by this law firm were approximately $188,000, $296,000 and $512,000 for the years ended February 1996, 1997 and 1998, respectively. Affiliates of Morgan Stanley, Dean Witter, Discover and Co. are shareholders of Emmis. No fees were paid to Morgan Stanley, Dean Witter, Discover & Co. and affiliates for the years ended February 1996, 1997 and 1998. 12. SUBSEQUENT EVENT -- ACQUISITION Effective March 20, 1998, the Company entered into an agreement to purchase the majority of the assets of Wabash Valley Broadcasting Corporation for approximately $90 million in cash. The acquisition consists of WTHI-TV, a CBS network affiliated television station, WTHI-FM and AM and WWVR-FM, radio stations located in the Terre Haute, Indiana area, and WFTX-TV, a Fox network affiliated television station in Ft. Myers, Florida. Effective March 30, 1998, the Company entered into an agreement to purchase substantially all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc. and Subsidiaries (collectively "the SF Acquisition") for approximately $307 million. The purchase price will be paid a portion in cash ($257 million), either issuance of shares of Emmis' Class A Common Stock or cash, at Emmis' option ($25 million), and a promissory note ($25 million) bearing interest at 8%, with principal and interest due on the first anniversary of the closing date which, at Emmis' option, may be paid with an equivalent amount of Emmis' Class A Common Stock. In accordance with the asset purchase agreement, Emmis made a $25 million escrow payment. The SF Acquisition consists of four Fox network affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii). These acquisitions are awaiting approval by the FCC. The Company will account for these acquisitions under the purchase method of accounting. 26 13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES The Company 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). One of the Company's subsidiaries does not guarantee the Senior Subordinated Notes (the Non-Guarantor Subsidiary). The claims of creditors of the Non-Guarantor Subsidiary have priority over the rights of the Company to receive dividends or distributions from such subsidiary. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiary as of February 28, 1998 and 1997 and for each of the three years in the period ended February 28, 1998. The equity method has been used by the Company 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. 27
EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 29, 1996 (IN THOUSANDS OF DOLLARS) PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------- Net revenues $ 703 $ 108,541 $ - $ 109,244 Operating expenses 547 61,919 - 62,466 International business development expenses - 1,264 - 1,264 Corporate expenses 4,419 - - 4,419 Depreciation and amortization 192 5,485 - 5,677 Noncash compensation 3,023 644 - 3,667 ----------------------------------------------------------------- Operating Income (7,478) 39,229 - 31,751 ----------------------------------------------------------------- Other Income (Expense) Interest expense (13,507) (33) - (13,540) Equity in loss of unconsolidated affiliate (3,111) - - (3,111) Gain on sale of investment in Talk Radio U.K. 2,729 - - 2,729 Other Income (expense), net 75 4 - 79 ------------------------------------------------------------------ Total other income (expense) (13,814) (29) - (13,843) ----------------------------------------------------------------- Income before income taxes (21,292) 39,200 - 17,908 Provision (benefit) for income taxes (8,517) 16,117 - 7,600 ------------------------------------------------------------------ (12,775) 23,083 - 10,308 Equity in earnings of subsidiaries 23,083 - (23,083) - ------------------------------------------------------------------ Net Income (loss) $ 10,308 $ 23,083 $ (23,083) $ 10,308 ==================================================================
28 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 29, 1996 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED ----------------------------------------------------------------- Operating Activities: Net Income (Loss) $ 10,308 $ 23,083 $ (23,083) $ 10,308 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization of property and equipment 163 1,473 - 1,636 Amortization of debt issuance costs and cost of interest rate cap agreements 1,742 - - 1,742 Amortization of intangible assets 29 4,012 - 4,041 Provision for bad debts - 834 - 834 Equity in earnings of subsidiaries (23,083) - 23,083 - Provision for deferred income taxes 4,870 - - 4,870 Gain on sale of TalkRadio UK (2,729) - - (2,729) Non cash compensation 3,023 644 - 3,667 Equity in loss of unconsolidated affiliate 3,111 - - 3,111 Intercompany 26,328 (26,328) - - (Increase) decrease in certain current assets (net of dispositions and acquisitions) -- Accounts receivable (131) (3,044) - (3,175) Prepaid expenses and other current assets (53) (698) - (751) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions) Accounts payable and book cash overdraft 205 (774) - (569) Accrued salaries and commissions (18) 848 - 830 Accrued interest (1,272) - - (1,272) Deferred revenue - (349) - (349) Other current liabilities (616) 1,006 - 390 (Increase) decrease in deposits and other assets (137) 29 - (108) Increase in other noncurrent liabilities 37 708 - 745 ---------------------------------------------------------- Net cash provided by operating activities 21,777 1,444 - 23,221 Investing Activities: Costs incurred for WRKS-FM Acquisition - (131) - (131) Purchases of property and equipment (119) (1,277) - (1,396) Investment in and advances to TalkRadio UK (980) - - (980) Net proceeds from disposition of investment in TalkRadio UK 2,729 - - 2,729 ---------------------------------------------------------- Net cash provided by (used in) investing activities 1,630 (1,408) - 222 Financing Activities: Proceeds of long-term debt 29,518 - - 29,518 Payments on long-term debt (57,583) - - (57,583) Proceeds from exercise of stock options and income tax benefits of certain equity transactions 2,635 - - 2,635 ---------------------------------------------------------- Net cash used in financing activities (25,430) - - (25,430) ---------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (2,023) 36 - (1,987) Cash and Cash Equivalents Beginning of year 2,346 859 - 3,205 ---------------------------------------------------------- End of year $ 323 $ 895 $ - $ 1,218 ==========================================================
29 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET AS OF FEBRUARY 28, 1997 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ----------- ------------ ------------ Current Assets Cash and cash equivalents $ 119 $ 1,072 $ - $ 1,191 Accounts receivable, net 1,162 19,669 - 20,831 Prepaid expenses 383 1,993 - 2,376 Income tax refunds receivable - 2,482 - 2,482 Other 346 1,521 - 1,867 ----------- -------------- --------- ----------- Total current assets 2,010 26,737 - 28,747 Property and equipment, net 1,468 11,523 - 12,991 Intangible assets, net 545 131,198 - 131,743 Investment in affiliates 160,936 - (160,936) - Other assets, net 15,191 1,044 16,235 ----------- -------------- --------- ---------- Total assets $ 180,150 $ 170,502 $ (160,936) $ 189,716 =========== ============== ========== =========== Current Liabilities Current maturities of long-term debt $ 2,834 $ 34 $ - $ 2,868 Book cash overdraft 1,942 - - 1,942 Accounts payable 418 3,269 - 3,687 Accrued salaries and commissions 247 1,314 - 1,561 Accrued interest 174 - - 174 Deferred revenue - 1,593 - 1,593 Other current liabilities 105 1,354 - 1,459 ----------- -------------- ---------- ----------- Total current liabilities 5,720 7,564 - 13,284 ----------- -------------- ---------- ----------- Long-term debt, net of current maturities 112,291 13 - 112,304 Other noncurrent liabilities 37 399 - 436 Deferred income taxes 27,680 1,590 - 29,270 ----------- -------------- ---------- ----------- Total liabilities 145,728 9,566 - 155,294 ----------- -------------- ---------- ----------- Shareholders' Equity Class A common stock 84 - - 84 Class B common stock 26 - - 26 Additional paid-in capital 70,949 - - 70,949 Subsidiary investment - (43,652) 43,652 - Accumulated earnings (deficit) (36,637) 204,588 (204,588) (36,637) ----------- -------------- ---------- ----------- Total shareholders' equity 34,422 160,936 (160,936) 34,422 ----------- -------------- ---------- ----------- Total liabilities and shareholders' equity $ 180,150 $ 170,502 $ (160,936) $ 189,716 =========== ============== ========== ===========
30 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1997 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ------------ ------------ Net revenues $ 935 $ 112,785 $ - $ 113,720 Operating expenses 638 61,795 - 62,433 International business development expenses - 1,164 - 1,164 Corporate expenses 5,929 - - 5,929 Depreciation and amortization 179 5,302 - 5,481 Noncash compensation 2,702 763 - 3,465 ------------ ----------- ----------- ----------- Operating Income (8,513) 43,761 - 35,248 ------------ ----------- ----------- ----------- Other Income (Expense) Interest expense (9,573) (60) - (9,633) Other income (expense), net 351 (26) - 325 ------------ ----------- ----------- ---------- Total other income (expense) (9,222) (86) - (9,308) ------------ ----------- ----------- ----------- Income before income taxes (17,735) 43,675 - 25,940 Provision (benefit) for income taxes (7,094) 17,594 - 10,500 ------------ ------------ ------------ ---------- (10,641) 26,081 - 15,440 Equity in earnings of subsidiaries 26,081 - (26,081) - ------------ ------------ ------------ ---------- Net Income $ 15,440 $ 26,081 $ (26,081) $ 15,440 ============ ============ ============ ==========
31 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 28, 1997 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ------------ ------------ Operating Activities: Net Income $ 15,440 $ 26,081 $(26,081) $ 15,440 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization of property and equipment 161 1,478 - 1,639 Amortization of debt issuance costs and cost of interest rate cap agreements 1,071 - - 1,071 Amortization of intangible assets 18 3,824 - 3,842 Provision for bad debts - 726 - 726 Equity in earnings of subsidiaries (26,081) - 26,081 - Provision (benefit) for deferred income taxes - 1,590 - 1,590 Non cash compensation 2,702 763 - 3,465 Other (195) - - (195) Intercompany 21,582 (21,582) - - (Increase) decrease in certain current assets (net of dispositions and acquisitions) -- Accounts receivable 615 (3,000) - (2,385) Prepaid expenses and other current assets (517) (2,524) - (3,041) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions) -- Accounts payable and book cash overdraft 2,020 737 - 2,757 Accrued salaries and commissions (532) (1,467) - (1,999) Accrued interest (146) - - (146) Deferred revenue - 395 - 395 Other current liabilities (57) 83 - 26 (Increase) decrease in deposits and other assets (1,353) 455 - (898) Increase (decrease) in other noncurrent liabilities - (925) - (925) --------- -------- -------- -------- Net cash provided by operating activities 14,728 6,634 - 21,362 --------- -------- -------- -------- Investing Activities: Acquisition of WALC-FM, WKBQ-AM and WKKX-FM (6,600) - - (6,600) Purchases of property and equipment (1,102) (6,457) - (7,559) Other 240 - - 240 --------- -------- -------- -------- Net cash used in investing activities (7,462) (6,457) - (13,919) --------- -------- -------- -------- Financing Activities: Proceeds of long-term debt 19,000 - - 19,000 Payments on long-term debt (28,102) - - (28,102) Proceeds from exercise of stock options and income tax benefits of certain equity transactions 1,632 - - 1,632 --------- -------- -------- -------- Net cash used in financing activities (7,470) - - (7,470) --------- -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents (204) 177 - (27) Cash and Cash Equivalents Beginning of year 323 895 - 1,218 --------- -------- -------- -------- End of year $ 119 $ 1,072 $ - $ 1,191 ========= ======== ======== ========
32 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET AS OF FEBRUARY 28, 1998 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY NON-GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED -------------- ---------- ------------- ------------ ------------ Current Assets Cash and cash equivalents $ 623 $ 243 $ 4,919 $ - $ 5,785 Accounts receivable, net 345 30,346 1,429 - 32,120 Prepaid expenses 528 4,372 - - 4,900 Income tax refunds receivable 4,968 - - - 4,968 Other 467 2,912 - - 3,379 -------------- ---------- ------------- ------------ ------------ Total current assets 6,931 37,873 6,348 - 51,152 Property and equipment, net 13,295 19,528 623 - 33,446 Intangible assets, net 529 214,797 19,232 - 234,558 Investment in affiliate 257,816 - - (257,816) - Other assets, net 17,892 1,593 1,029 (6,282) 14,232 -------------- ---------- ------------- ------------ ------------ Total assets $ 296,463 $ 273,791 $ 27,232 $ (264,098) $ 333,388 ============== ========== ============= ============ ============ Current Liabilities Current liabilities of long- term debt $ 34 $ 17 $ - $ - $ 51 Accounts payable 3,381 9,169 590 - 13,140 Account salaries and commissions 1,026 1,867 - - 2,893 Accrued interest 2,421 - - - 2,421 Deferred revenue - 7,985 - - 7,985 Other current liabilities 1,189 390 - - 1,579 -------------- ---------- ------------- ------------ ------------ Total current liabilities 8,051 19,428 590 - 28,069 Long-term debt, net of current maturities 215,059 28 22,566 (6,282) 231,371 Other noncurrent liabilities 1,884 595 - (1,875) 604 Minority interest - - - 1,875 1,875 Deferred income taxes 27,559 - - - 27,559 -------------- ---------- ------------- ------------ ------------ Total liabilities 252,553 20,051 23,156 (6,282) 289,478 -------------- ---------- ------------- ------------ ------------ Shareholders' Equity Class A common stock 84 - - 84 Class B common stock 26 - - 26 Additional paid-in capital 69,353 - 4,076 (4,076) 69,353 Subsidiary investment - 22,347 - (22,347) - Accumulated earnings (deficit) (25,553) 231,393 - (231,393) (25,553) -------------- ---------- ------------- ------------ ------------ Total shareholders' equity 43,910 253,740 4,076 (257,816) 43,910 -------------- ---------- ------------- ------------ ------------ Total liabilities and shareholders' equity $ 296,463 $ 273,791 $ 27,232 $ (264,098) $ 333,388 ============== ========== ============= ============ ============
33 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1998 (IN THOUSANDS OF DOLLARS)
Parent Company Subsidiary Only Guarantors Eliminations Consolidated ------------------------------------------------------------------- Net revenues $ 1,142 $ 139,441 $ - $ 140,583 Operating expenses 924 80,246 - 81,170 International business development expenses - 999 - 999 Corporate expenses 6,846 - - 6,846 Depreciation and amortization 171 7,365 - 7,536 Noncash compensation 818 664 - 1,482 Time brokerage agreement fee - 5,667 - 5,667 ------------------------------------------------------------------- Operating Income (7,617) 44,500 - 36,883 ------------------------------------------------------------------- Other income (expense) - Interest expense (13,766) (6) - (13,772) Loss on donation of radio station (4,833) - - (4,833) Other income (expense), net 15 (9) - 6 ------------------------------------------------------------------- Total other income (expense) (18,584) (15) - (18,599) ------------------------------------------------------------------- Income before income taxes (26,201) 44,485 - 18,284 Provision (benefit) for income taxes (10,480) 17,680 - 7,200 ------------------------------------------------------------------- (15,721) 26,805 - 11,084 Equity in earnings of subsidiaries 26,805 - (26,805) - ------------------------------------------------------------------- Net Income (loss) $ 11,084 $ 26,805 $ (26,805) $ 11,084 ===================================================================
34 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 28, 1998 (IN THOUSANDS OF DOLLARS)
PARENT NON- COMPANY SUBSIDIARY GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ------------ ----------- Operating Activities: Net income (loss) $ 11,084 $ 26,805 $ -- (26,805) 11,084 Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation and amortization of property and equipment 155 2,425 -- -- 2,580 Amortization of debt issuance costs and cost of interest rate cap agreements 2,183 -- -- -- 2,183 Amortization of intangible assets 16 4,940 -- -- 4,956 Provision for bad debts 20 782 -- -- 802 Equity in earnings of subsidiaries (26,805) -- -- 26,805 -- Provision (benefit) for deferred income taxes (121) (403) -- -- (524) Non cash compensation 818 664 -- -- 1,482 Loss on donation of radio station 4,833 -- -- -- 4,833 Other 357 -- -- -- 357 Intercompany (75,327) 68,642 8,560 (1,875) -- (Increase) decrease in certain current assets (net of dispositions and acquisitions) -- Accounts receivable 797 (7,757) (1,429) -- (8,389) Prepaid expenses and other current assets (5,234) 474 -- -- (4,760) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions) -- Accounts payable and book cash overdraft 1,021 4,058 481 -- 5,560 Accrued salaries and commissions 779 553 -- -- 1,332 Accrued interest 2,247 -- -- -- 2,247 Deferred revenue -- 292 -- -- 292 Other current liabilities 1,084 (968) -- -- 116 (Increase) decrease in deposits and other assets (951) (6,136) (1,027) 6,282 (1,832) Increase (decrease) in other noncurrent liabilities (28) 196 -- -- 168 --------------------------------------------------------------- Net cash provided by (used in) operating activities (83,072) 94,567 6,585 4,407 22,487 --------------------------------------------------------------- Investing Activities: Acquisition of WALC-FM, WKBQ-AM and WKKX-FM -- (36,964) -- -- (36,964) Acquisition of WTLC-FM and WTLC-AM -- (15,336) -- -- (15,336) Acquisition of Texas Monthly -- (37,389) -- -- (37,389) Acquisition of Cincinnati Magazine -- (1,979) -- -- (1,979) Acquisition of Network Indiana and AgriAmerica -- (709) -- -- (709) Purchases of property and equipment (13,349) (3,019) (623) -- (16,991)
35
PARENT NON- COMPANY SUBSIDIARY GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED --------- ---------- ------------- ------------ ------------ Initial payment for purchase of Hungarian broadcast license -- -- (7,325) $ -- $ (7,325) ------------------------------------------------------------------- Net cash used in investing activities (13,349) (95,396) (7,948) -- (116,693) ------------------------------------------------------------------- Financial Activities: Proceeds of long-term debt 288,378 -- 6,282 (6,282) 288,378 Payments on long-term debt (183,928) -- -- -- (183,928) Payment of loan fees (4,291) -- -- -- (4,291) Purchase of the Company's Class A common stock (7,000) -- -- -- (7,000) Proceeds from exercise of stock options and income tax benefits of certain equity transactions 3,922 -- -- -- 3,922 Other (156) -- -- 1,875 1,719 ------------------------------------------------------------------- Net cash provided by (used in) financing activities 96,925 -- 6,282 (4,407) 98,800 ------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 504 (829) 4,919 -- 4,594 Cash and Cash Equivalents Beginning of year 119 1,072 -- -- 1,191 ------------------------------------------------------------------- End of year 623 243 4,919 $ -- $ 5,785 ===================================================================
36 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED -------------------------------------------------- FULL MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28 YEAR ------ --------- ----------- ----------- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Year ended February 28, 1997: Net broadcasting revenues............... $27,865 $31,103 $30,016 $24,736 $113,720 Operating income........................ 8,286 12,342 10,080 4,540 35,248 Net income.............................. 3,505 6,040 4,655 1,240 15,440 Basic net income per share........... $ 0.32 $ 0.55 $ 0.43 $ 0.11 $ 1.41 Diluted net income per share......... $ 0.31 $ 0.53 $ 0.41 $ 0.11 $ 1.37 Year ended February 28, 1998: Net broadcasting revenues............... $31,330 $37,008 $39,809 $32,436 $140,583 Operating income........................ 8,091 12,002 10,160 6,630 36,883 Net income (loss)....................... 3,368 4,672 4,079 (1,035) 11,084 Basic net income per share........... $ 0.31 $ 0.43 $ 0.38 $ (0.10) $ 1.02 Diluted net income per share......... $ 0.30 $ 0.41 $ 0.36 $ (0.10) $ 0.98
37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Emmis Communications Corporation and Subsidiaries: We have reviewed the accompanying condensed consolidated balance sheet of Emmis Communications Corporation (an Indiana corporation) and Subsidiaries as of November 30, 1998 and the related condensed consolidated statements of operations for the three-months and nine-months ended November 30, 1998 and 1997 and the condensed consolidated statements of cash flows for the nine-months ended November 30, 1998 and 1997. 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Emmis Communications Corporation as of February 28, 1998 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 31, 1998 (except with respect to the matter discussed in Note 1b as to which the date is April 30, 1999), 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, 1998 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, December 17, 1998 (except with respect to the matter discussed in Note 2 as to which the date is April 30, 1999). 38 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars in thousands, except per share data)
February 28, November 30, 1998 1998 ---- ---- (unaudited) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 5,785 $ 5,320 Accounts receivable, net 32,120 56,557 Current income tax receivable 4,968 - Prepaid expenses and other 8,279 16,278 ------- ---------- Total current assets 51,152 78,155 Property and equipment, net 33,446 101,896 Intangible assets, net 234,558 801,351 Other assets, net 14,232 28,436 -------- ---------- Total assets $333,388 $1,009,838 ======== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of other long-term liabilities 2,051 2,050 Accounts payable 13,140 10,556 Accrued salaries and commissions 2,893 6,018 Accrued interest 2,421 10,044 Deferred revenue 7,985 6,994 Current portion of TV program rights payable - 5,307 Income taxes payable - 17,480 Note payable-SF Acquisition - 25,000 Other 1,579 15,043 -------- ---------- Total current liabilities 30,069 98,492
39 CREDIT FACILITY 215,000 539,000 TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 25,606 OTHER LONG-TERM LIABILITIES, NET OF CURRENT PORTION 14,975 20,957 MINORITY INTEREST 1,875 - DEFERRED INCOME TAXES 27,559 87,128 -------- ---------- Total liabilities 289,478 771,183 -------- ---------- SHAREHOLDERS' EQUITY: Class A common stock, $.01 par value; authorized 34,000,000 shares; issued and outstanding 8,430,660 shares at February 28, 1998 and 13,105,944 shares at November 30, 1998 84 131 Class B common stock, $.01 par value; authorized 6,000,000 shares; issued and outstanding 2,560,894 shares at February 28, 1998 and 2,560,610 at November 30, 1998 26 26 Additional paid-in capital 69,353 257,341 Accumulated deficit (25,553) (18,190) Cumulative translation adjustments - (653) -------- ---------- Total shareholders' equity 43,910 238,655 -------- ---------- Total liabilities and shareholders' equity $333,388 $1,009,838 ======== ==========
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets. 40 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended November 30, November 30, (Unaudited) (Unaudited) ----------------------- ----------------------- 1997 1998 1997 1998 ---- ---- ---- ---- GROSS REVENUES $ 46,820 $ 84,338 127,082 205,059 LESS: AGENCY COMMISSIONS 7,011 12,699 18,935 30,927 ---------- ---------- ---------- ---------- NET REVENUES 39,809 71,639 108,147 174,132 Operating expenses 22,208 40,300 59,143 100,510 Amortization of TV program rights - 1,363 - 2,011 International business development expenses 327 413 932 974 Corporate expenses 1,966 2,453 5,338 6,379 Depreciation and amortization 1,902 8,683 5,407 18,595 Noncash compensation 1,120 342 3,532 2,378 Time brokerage fee 2,126 - 3,542 2,220 ---------- ---------- ---------- ---------- OPERATING INCOME 10,160 18,085 30,253 41,065 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense (3,337) (12,313) (10,356) (24,942) Minority interest - - - 1,875 Other income (expense), net 116 1,190 322 2,313 ---------- ---------- ---------- ---------- Total Other Income (Expense) (3,221) (11,123) (10,034) (20,754) ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 6,939 6,962 20,219 20,311 PROVISION FOR INCOME TAXES 2,860 3,950 8,100 11,350 NET INCOME BEFORE EXTRAORDINARY ITEM 4,079 3,012 12,119 8,961 ---------- ---------- ---------- ---------- EXTRAORDINARY ITEM, NET OF TAX - - - 1,597 ---------- ---------- ---------- ---------- NET INCOME $ 4,079 $ 3,012 $ 12,119 $ 7,364 ========== ========== ========== ========== Basic net income per share $ .38 $ .19 $ 1.10 $ .52 ========== ========== ========== ========== Diluted net income per share $ .36 $ .19 $ 1.06 $ .51 ========== ========== ========== ========== Weighted average common shares outstanding: Basic 10,867,289 15,654,123 11,034,856 14,046,628 Diluted 11,348,632 15,965,611 11,450,283 14,447,764
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 41 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars in thousands)
Nine Months Ended November 30, (Unaudited) ------------------- 1997 1998 ---- ---- OPERATING ACTIVITIES: Net income $ 12,119 $ 7,364 Adjustments to reconcile net income to net cash provided by operating activities- Extraordinary item - 1,597 Depreciation and amortization of property and equipment 1,866 6,306 Amortization of debt issuance costs and cost of interest rate cap agreements 1,920 910 Amortization of intangible assets 3,541 12,289 Amortization of TV program rights - 2,011 Deferred income taxes (1,250) 4,247 Noncash compensation 3,532 2,378 Other 894 (2,377) (Increase) decrease in certain current assets (net of dispositions and acquisitions)- Accounts receivable (16,362) (24,437) Prepaid expenses and other 1,338 (4,131) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions)- Accounts payable 1,566 (3,211) Accrued salaries and commissions 2,051 2,810 Accrued interest 646 7,623 Deferred revenue 29 (991) Other 2,602 6,796 Increase (decrease) in other assets, net (958) 3,836 Increase in other liabilities - 7,345 --------- -------- Net cash provided by operating activities 13,534 30,365 --------- --------
42 INVESTING ACTIVITIES: Purchases of property and equipment (6,492) (26,224) Proceeds from sale of equipment - 607 Acquisition of WQCD-FM - (128,449) Acquisition of SF Broadcasting - (287,293) Acquisition of Wabash Valley Broadcasting - (88,905) Acquisition of WALC-FM, WKBQ-AM, and WKKX-FM (36,964) - Acquisition of WTLC-FM and WTLC-AM (15,336) - Acquisition of Cincinnati Magazine (1,979) - Acquisition of Network Indiana (709) - --------- -------- Net cash used by investment activities (61,480) (530,264) --------- -------- FINANCING ACTIVITIES: Payments on long-term debt (11,224) (410,157) Proceeds from long-term debt 79,200 733,500 Proceeds (purchase) of Class A Common Stock, net of transaction costs (7,000) 182,640 Purchase of interest rate cap agreements and other debt related costs (4,230) (8,912) Proceeds from exercise of stock options and related income tax benefits 2,302 3,016 --------- -------- Net cash provided by financing activities 59,048 500,087 --------- -------- EFFECT OF EXCHANGE RATES ON CASH - (653) --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,102 (465) CASH AND CASH EQUIVALENTS: Beginning of period 1,191 5,785 --------- -------- End of period $ 12,293 $ 5,320 ========= ======== SUPPLEMENTAL DISCLOSURES: Cash paid for- Interest $ 7,789 $ 15,301 Income taxes 6,575 $ 1,460
43 ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM: Fair value of assets acquired $ 44,642 Cash paid 43,642 --------- Liabilities assumed $ 1,000 ========= ACQUISITION OF WQCD-FM: Fair value of assets acquired $203,813 Cash paid 128,449 -------- Liabilities assumed $ 75,364 ======== ACQUISITION OF SF BROADCASTING: Fair value of assets acquired $342,809 Cash paid 287,293 Note payable 25,000 -------- Liabilities assumed $ 30,516 ======== ACQUISITION OF WABASH VALLEY BROADCASTING: Fair value of assets acquired $100,276 Cash paid 88,905 -------- Liabilites assumed $ 11,371 ========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 44 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------------------- (Unaudited) NOVEMBER 30, 1998 --------------- 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 Subsidiaries ("Emmis" or the "Company"). 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 on Form 10-K for the year ended February 28, 1998. In the opinion of the registrant, the accompanying interim financial statements contain all material adjustments (consisting only of normal recurring adjustments), necessary to present fairly the consolidated financial position of Emmis at November 30, 1998 and the results of its operations for the three and nine months ended November 30, 1998 and 1997 and its cash flows for the nine months ended November 30, 1998 and 1997. NOTE 2. RESTATEMENT OF FINANCIAL RESULTS -------------------------------- The company has restated its financial results for the year ended February 28, 1998 and its results for the three-months ended May 31, 1998 and August 31, 1998, and the six-months ended August 31, 1998 and the nine-months ended November 30, 1998. The restatement relates to a change in accounting for certain stock options that ultimately were not granted to the CEO under his employment contract for fiscal 1998. At February 28, 1998, Emmis had accrued for the anticipated grant of these options. In fiscal 1999, Emmis had reversed the accrual since they were ultimately not granted. Under generally accepted accounting principles, such options should not be recorded until granted by the Board of Directors. For the year ended February 28, 1998, the adjustment decreased non-cash compensations expense and additional paid in capital by $3.4 million and increased net income and retained earnings by $2.1 million. In fiscal 1999, the restatement adjustment increased non-cash compensation expense by $0.5 million and $2.9 million in the first and second quarters of fiscal 1999, respectively, and decreased net income by $0.3 million and $1.8 million for the first and second quarters of fiscal 1999 respectively. The restatement adjustment increased non-cash compensation expense by $3.4 million and decreased net income by $2.1 million for the six months ended August 31, 1998 and the nine months ended November 30, 1998. NOTE 3. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -------------------------------------------------------- On June 5, 1998, the Company completed its acquisition of radio station WQCD-FM in New York City (the "WQCD Acquisition") for a cash purchase price of $141 million (including transaction costs) less approximately $13 million for cash purchase price adjustments relating to taxes. The total purchase price plus $20,042 of net current tax liabilities and $55,322 of deferred tax liabilities assumed, were allocated to property and equipment, broadcast license and goodwill based upon a preliminary appraisal. Broadcast license and goodwill are included in intangible assets in the accompanying balance sheet. The Company financed the acquisition through additional bank borrowings under its Credit Facility. Effective July 1, 1997 through the date of closing, the Company operated WQCD-FM under a time brokerage agreement. In June 1998, Emmis completed the sale of 4.6 million shares of its Class A Common Stock at $42.00 per share resulting in total proceeds of $193 million (the "Offering"). Net proceeds of $182.6 million were used to repay outstanding obligations under the Credit Facility. On July 16, 1998, the Company entered into an amended and restated Credit Facility (the "Credit Facility"). See Note 6. On July 16, 1998, the Company completed its acquisition of substantially all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc. and Subsidiaries (collectively the "SF Acquisition"), the seller, for a cash purchase price of $287 million (including transaction costs), a $25 million promissory note due to the former owner, plus assumed program rights payable and other liabilities of approximately $30.5 million. The Company financed the acquisition through a $25 million advance payment, the $25 million promissory note (due July 15, 1999, bearing interest at 8%) and borrowings under the Credit Facility. Pledged as collateral for the promissory note is approximately $25 million of the Company's Class A Common Stock. At the option of the Company, the promissory note may be paid in cash or an equivalent amount of the Company's Class A Common Stock. The Company intends to pay this obligation in cash. The total purchase price was allocated to property and equipment, television program rights and broadcast licenses based on a preliminary appraisal. Broadcast licenses are included in intangible assets in the accompanying balance sheet and are being amortized over 40 years. Television program rights are included in prepaid expenses and other, and other assets, net in the accompanying condensed consolidated balance sheets. Amortization of television program rights is computed under either straight-line over the contract period or run value, which ever yields the greater amortization for each program on a monthly basis. The SF Acquisition consists of four Fox network affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including 45 McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii). Effective October 1, 1998, the Company completed its acquisition of substantially all of the assets of Wabash Valley Broadcasting Corporation (collectively the "Wabash Acquisition"), the seller, for a cash purchase price of $88.9 million (including transaction costs), plus assumed program rights payable and other liabilities of approximately $11.4 million. The Company financed the acquisition through a $9 million advance payment and borrowings under the Credit Facility. The total purchase price was allocated to property and equipment, television program rights and broadcast licenses based on a preliminary appraisal. Broadcast licenses are included in intangible assets in the accompanying balance sheet and are being amortized over 40 years. Television program rights are included in prepaid expenses and other, and other assets, net in the accompanying condensed consolidated balance sheets. Amortization of television program rights is computed under either straight-line over the contract period or run value, which ever yields the greater amortization for each program on a monthly basis. The Wabash Acquisition consists of WFTX-TV , a Fox network affiliated television station in Ft. Myers, Florida, WTHI-TV a CBS network affiliated television station, WTHI-FM and AM and WWVR-FM, radio stations located in the Terre Haute, Indiana area. The unaudited pro forma condensed consolidated statement of operations of the Company for the three months ended November 30, 1997, reflects adjustments to the condensed consolidated historical operating data of the Company to give effect to (i) the acquisitions of WTLC-FM and AM, and Texas Monthly all of which occurred during the year ended February 28, 1998, (ii) the WQCD Acquisition, (iii) the Offering and Credit Facility, (iv) the SF Acquisition, and (v) the Wabash Acquisition, as if such transactions had occurred as of September 1, 1997. The unaudited pro forma condensed consolidated statement of operations of the Company for the nine months ended November 30, 1997, reflects adjustments to the condensed consolidated historical operating data of the Company to give effect to (i) the acquisitions of WALC-FM, WKKX-FM, WKBQ-AM, WTLC-FM and AM, and Texas Monthly and the disposition of WKBQ-AM, all of which occurred during the year ended February 28, 1998, (ii) the WQCD Acquisition, (iii) the Offering and Credit Facility, (iv) the SF Acquisition, and (v) the Wabash Acquisition, as if such transactions had occurred as of March 1, 1997. The unaudited pro forma condensed consolidated statement of operations of the Company for the three months ended November 30, 1998 reflects adjustments to the condensed consolidated historical operating data of the Company to give effect to the Wabash Acquisition, as if such transaction had occurred as of September 1, 1998. The unaudited pro forma condensed consolidated statement of operations of the Company for the nine months ended November 30, 1998 reflects adjustments to the condensed consolidated historical operating data of the Company to give effect to (i) the Offering and Credit Facility, (ii) the WQCD Acquisition, (iii) the SF Acquisition, and (iv) the Wabash Acquisition, as if such transactions had occurred as of March 1, 1998. Preparation of the pro forma condensed consolidated financial information was based on assumptions deemed appropriate by management. The assumptions give effect to the acquisitions under the purchase method of accounting in accordance with generally accepted accounting principles. The pro forma condensed consolidated financial information is unaudited and is not necessarily indicative of the results which actually would have occurred if the financing activities, the acquisitions and disposition had been consummated at the beginning of the periods presented, nor does it purport to represent the future financial position and results of operations for future periods. PRO FORMA CONDENSED CONSOLIDATED -------------------------------- STATEMENT OF OPERATIONS ---------------------- (Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1997 1998 1997 1998 ---- ---- ---- ---- Pro forma Pro forma Pro forma Pro forma --------- --------- --------- --------- Net revenues $ 66,009 $ 73,301 $ 188,133 $ 205,419 Operating expenses 39,619 41,316 113,627 120,648 Amortization of TV program rights 1,386 1,570 3,908 4,662 International business development expenses 327 413 932 974 Corporate expenses 2,216 2,453 6,088 6,779
46 Depreciation and amortization 7,963 8,964 23,879 26,360 Noncash compensation 1,120 342 3,532 2,378 ---------- ---------- ---------- ---------- Operating income 13,378 18,243 36,167 43,618 Interest expense (11,633) (11,407) (34,898) (35,219) Other income (expense), net 72 1,190 363 4,013 ---------- ---------- ---------- ---------- Income before income taxes 1,817 8,026 1,632 12,412 Provision for income taxes 945 4,174 849 6,922 ---------- ---------- ---------- ---------- Net income $ 872 $ 3,852 $ 783 $ 5,490 ========== ========== ========== ========== Basic net income per share $ .06 $ .25 $ .05 $ .35 ========== ========== ========== ========== Diluted net income per share $ .05 $ .24 $ .05 $ .34 ========== ========== ========== ========== Weighted average shares outstanding Basic 15,467,289 15,654,123 15,634,856 15,635,719 Diluted 15,948,632 15,965,611 16,050,283 16,036,855
NOTE 4. BASIC AND DILUTED NET INCOME PER SHARE --------------------------------------- Basic net income per share excludes dilution and 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 share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. NOTE 5. ACCOUNTING PRONOUNCEMENTS ------------------------- Effective March 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which established standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as net income and all nonowner changes in shareholders' equity. Comprehensive income was comprised of the following for the three and nine month periods ended November 30, 1998 and 1997 (dollars in thousands):
Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1997 1998 1997 1998 ---- ---- ---- ---- Net income $ 4,079 $ 3,012 $12,119 $ 7,364 Translation adjustment - (7) - (653) ------- ------- ------- ------- Total comprehensive income $ 4,079 $ 3,005 $12,119 $ 6,711 ======= ======= ======= =======
NOTE 6. INCOME TAXES ------------ Under Statement of Financial Accounting Standards No. 109, the Company recognizes income taxes under the liability method. The liability method measures the expected tax impact of future taxable income or deductions resulting from differences in the tax and financial reporting bases of assets and liabilities reflected in the consolidated balance sheet and the expected tax impact of carryforwards for tax purposes. Income tax expense is generally reported during interim periods on the basis of the estimated annual effective tax rate for the taxable jurisdictions in which the Company operates. NOTE 7. OTHER SIGNIFICANT EVENTS ------------------------ A. Amended and Restated Credit Facility ------------------------------------ On July 16, 1998, the Company entered into an amended and restated Credit Facility. As a result of the early payoff of the refinanced debt, the Company recorded an extraordinary loss of approximately $ 1.6 million, net of taxes, during the nine months 47 ended November 30, 1998 related to unamortized deferred debt issuance costs. The amended and restated Credit Facility matures on August 31, 2006, except for Term Note B which matures on February 28, 2007, and consists of the following: Credit Facility Amount - --------------- ------ Revolving Credit Facility $150,000,000 Term Note A $250,000,000 Revolving Credit Facility/Term Note $100,000,000 Term Note B $250,000,000 The Credit Facility provides for Letters of Credit to be made available to the Company not to exceed $50,000,000. The aggregate amount of outstanding Letters of Credit and amounts borrowed under the Revolving Credit Facility cannot exceed the Revolving Credit Facility commitment. As of November 30, 1998, the Company had amounts outstanding under the Credit Facility of $250 million under Term Note A, $250 million under Term Note B and $39 million under the Revolving Credit Facility. All outstanding amounts under the Credit Facility bear interest, at the option of Emmis, at a rate equal to the Eurodollar Rate or an alternative base rate (as defined in the Credit Facility) plus a margin. The margin over the Eurodollar Rate or the alternative base rate varies from time to time, depending on Emmis' ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA), as defined in the agreement. Interest is due on a calendar quarter basis under the alternative base rate and at least every three months under the Eurodollar Rate. The Credit Facility requires the Company to maintain interest rate protection agreements through July 2001. The notional amount required varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility. The notional amount of the agreements outstanding as of November 30, 1998 were $274 million. The agreements, which expire at various dates ranging from April 2000 to February 2001, establish ceilings of 6.5% to 8.0% on the LIBOR interest rate. The cost of these agreements are being amortized over the lives of the agreements and the amortization is included as a component of interest expense. 48 The aggregate amount of the Revolving Credit Facility reduces quarterly beginning August 31, 2001. Amortization of the outstanding principal amount under the Term Notes and Revolving Credit Facility/Term Note is payable in quarterly installments beginning August 31, 2001. The annual amortization and reduction schedules as of November 30, 1998, assuming the entire $750 million Credit Facility is outstanding prior to the scheduled amortization payments are as follows: SCHEDULED AMORTIZATION/REDUCTION OF ---------------------------------- CREDIT FACILITY AVAILABILITY ---------------------------- (In thousands)
Revolving Year Revolving Credit Ended Credit Facility/ February Facility Term Note A Term Note Term Note B 28(29) Amortization Amortization Amortization Amortization Total - -------- ------------- ------------ ------------ ------------ ------ 2002 $ 15,000 $ 25,000 $ 10,000 $ 1,875 $ 51,875 2003 22,500 37,500 15,000 2,500 77,500 2004 30,000 50,000 20,000 2,500 102,500 2005 33,750 56,250 22,500 2,500 115,000 2006 26,250 43,750 17,500 2,500 90,000 2007 22,500 37,500 15,000 238,125 313,125 -------- -------- -------- -------- -------- Total $150,000 $250,000 $100,000 $250,000 $750,000 ======== ======== ======== ======== ========
Commencing with the fiscal year ending February 28, 2002, in addition to the scheduled amortization/reduction of the Credit Facility, within 60 days after the end of each fiscal year, the Credit Facility is permanently reduced by 50% of the Company's excess cash flow if the ratio of adjusted debt (as defined in the Credit Facility) to EBITDA exceeds 4.5 to 1. Excess cash flow is generally defined as EBITDA reduced by cash taxes, capital expenditures, required debt service, increases in working capital (net of cash or cash equivalents), and $5,000,000. The net proceeds of any sale of certain assets must also be used to permanently reduce borrowings under the Credit Facility. If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other conditions are met, the Company will be permitted in certain circumstances to reborrow the amount of the net proceeds within nine months solely for the purpose of funding an acquisition. The Credit Facility contains various financial and operating covenants and other restrictions with which Emmis must comply, including, among others, restrictions on additional indebtedness, engaging in businesses other than broadcasting and publishing, paying cash dividends, redeeming or repurchasing capital stock of Emmis and use of borrowings, as well as requirements to maintain certain financial ratios. The Credit Facility also prohibits Emmis, under certain circumstances, from making acquisitions and disposing of certain assets without the prior consent of the lenders, and provides that an event of default will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant equity investment in Emmis (as specified in the Credit Facility), (ii) the ability to elect a majority of Emmis' directors or (iii) control of a majority of shareholder voting power. Substantially all of Emmis' assets, including the stock of Emmis' subsidiaries, are pledged to secure the Credit Facility. 49 Note 8. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES The Company 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). One of the Company's subsidiaries does not guarantee the Senior Subordinated Notes (the Non-Guarantor Subsidiary). The claims of creditors of the Non-Guarantor Subsidiary have priority over the rights of the Company to receive dividends or distributions from such subsidiary. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiary at and for the nine months ended November 30, 1998 and 1997. The equity method has been used by the Company 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. 50 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ------------ ------------- Net revenues $ 1,033 $ 107,114 $ - $ 108,147 Operating expenses 872 58,271 - 59,143 International business development expenses - 932 - 932 Corporate expenses 5,338 - - 5,338 Depreciation and amortization 119 5,288 - 5,407 Noncash compensation 3,034 498 - 3,532 Time brokerage agreement fee - 3,542 - 3,542 ----------- ---------- ------------ ----------- Operating Income (8,330) 38,583 - 30,253 ----------- ---------- ------------ ----------- Other Income (expense) Interest expense (10,351) (5) - (10,356) Minority interest - - - - Other income (expense), net 310 12 - 322 ----------- ---------- ------------ ----------- Total other income (expense) (10,041) 7 - (10,034) ----------- ---------- ------------ ----------- Income before income taxes (18,371) 38,590 - 20,219 Provision (benefit) for income taxes (7,348) 15,448 - 8,100 ----------- ---------- ------------ ----------- (11,023) 23,142 - 12,119 Equity in earnings of subsidiaries 23,142 - (23,142) - ----------- ---------- ------------ ----------- Net Income (loss) $ 12,119 $ 23,142 $ (23,142) $ 12,119 =========== ========== ============ ===========
51
EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997 (IN THOUSANDS OF DOLLARS) PARENT COMPANY SUBSIDIARY ONLY GUARANTORS ELIMINATIONS CONSOLIDATED -------------- ---------- ------------ ------------ Operating Activities: Net Income $ 12,119 $ 23,142 $ (23,142) $ 12,119 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization of property and equipment 107 1,759 - 1,866 Amortization of debt issuance costs and cost of interest rate cap agreements 1,920 - - 1,920 Amortization of intangible assets 10 3,531 - 3,541 Provision for bad debts - 894 - 894 Equity in earnings of subsidiaries (23,142) - 23,142 - Provision (benefit) for deferred income taxes 340 (1,590) - (1,250) Non cash compensation 3,034 498 - 3,532 Intercompany (53,524) 53,524 - - (Increase) decrease in certain current assets (net of dispositions and acquisitions) -- Accounts receivable 1,162 (17,524) - (16,362) Prepaid expenses and other current assets (1,003) 2,341 - 1,338 Increase (decrease) in certain current liabilities (net of dispositions and acquisitions) -- Accounts payable and book cash overdraft (1,716) 3,282 - 1,566 Accrued salaries and commissions 708 1,343 - 2,051 Accrued interest 646 - - 646 Deferred revenue - 29 - 29 Other current liabilities 287 2,315 - 2,602 (Increase) decrease in deposits and other assets 5,573 (6,531) - (958) Increase (decrease) in other noncurrent liabilities (37) 37 - - ------------ --------- ---------- --------- Net cash provided by (used in) operating activities (53,516) 67,050 - 13,534 ------------ --------- ---------- --------- Investing Activities: Acquisition of WALC-FM, WKBQ-AM and WKKX-FM - (36,964) - (36,964) Acquisition of WTLC-FM and WTLC-AM - (15,336) - (15,336) Acquisition of Cincinnati Magazine - (1,979) - (1,979) Acquisition of Network Indiana and AgriAmerica - (709) - (709) Purchases of property and equipment (4,487) (2,005) - (6,492) ------------- --------- ---------- --------- Net cash used in investing activities (4,487) (56,993) - (61,480) ------------ --------- ---------- --------- Financing Activities: Proceeds of long-term debt 79,200 - - 79,200 Payments on long-term debt (11,224) - - (11,224) Purchase of the Company's Class A Common stock (7,000) - - (7,000) Purchase of interest rate cap agreements and other debt related costs (4,230) - - (4,230) Proceeds from exercise of stock options and income tax benefits of certain equity transactions 2,302 - - 2,302 ------------ --------- ---------- --------- Net cash provided by financing activities 59,048 - - 59,048 ------------ --------- ---------- --------- Increase in Cash and Cash Equivalents 1,045 10,057 - 11,102 Cash and Cash Equivalents Beginning of year 119 1,072 - 1,191 ------------ --------- ---------- --------- End of year $ 1,164 $ 11,129 $ - $ 12,293 ============ ========= ========== =========
52 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET AS OF NOVEMBER 30, 1998 IN THOUSANDS OF DOLLARS
PARENT COMPANY SUBSIDIARY NON-GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED -------------- ---------- ------------- ------------ ------------ Current Assets Cash and cash equivalents $ 2,757 $ 581 $ 1,982 $ -- $ 5,320 Accounts receivable, net -- 55,589 968 -- 56,557 Prepaid expenses 5,480 10,786 12 -- 16,278 Income tax refunds receivable -- -- -- Other -- -- -- -- ------------ --------- ---------- --------- ---------- Total current assets 8,237 66,956 2,962 -- 78,155 -- Property and equipment, net 32,999 67,934 963 -- 101,896 Intangible assets, net 153 783,531 17,667 -- 801,351 Investment in affiliates 866,314 -- (866,314) -- Other assets, net 21,318 11,952 -- (4,834) 28,436 -- -- -- -- -- -- ------------ --------- ---------- --------- ---------- Total assets $ 929,021 $ 930,373 $ 21,592 $(871,148) $1,009,838 ============ ========= ========== ========= ========== Current Liabilities Current maturities of long-term debt $ 34 $ 2,016 $ $ -- $ 2,050 Accounts payable 10,734 (1,699) 2,975 (1,454) 10,556 Accrued salaries and commissions 414 5,604 -- 6,018 Accrued interest 10,043 1 -- 10,044 Deferred revenue -- 6,994 -- 6,994 Current portion of TV program rights -- 5,307 -- 5,307 Income taxes payable 17,248 232 -- 17,480 Note payable -- SF acquisition 25,000 -- -- 25,000 Intercompany -- -- -- Other current liabilities 123 14,920 -- 15,043 ------------ --------- ---------- --------- ---------- Total current liabilities 63,596 33,375 2,975 (1,454) 98,492 -- Credit facility 539,000 -- -- 539,000 TV program rights payable, net of current portion -- 25,606 -- 25,606 Other long-term liabilities, net of current portion 47 3,916 20,374 (3,380) 20,957 Deferred income taxes 87,070 58 -- 87,128 ------------ --------- ---------- --------- ---------- Total Liabilities 689,713 62,955 23,349 (4,834) 771,183 ------------ --------- ---------- --------- ---------- Shareholders' Equity Class A common stock 131 -- -- 131 Class B common stock 26 -- -- 26 Cumulative translation adjustments -- -- (653) -- (653) Additional paid-in capital 257,341 -- 4,393 (4,393) 257,341 Subsidiary investment -- 616,486 (616,486) -- Accumulated earnings (deficit) (18,190) 250,932 (5,497) (245,435) (18,190) ------------ --------- ---------- --------- ---------- Total shareholders' equity 239,308 867,418 (1,757) (866,314) 238,655 -- ------------ --------- ---------- --------- ---------- Total liabilities and shareholders' equity $ 929,021 $ 930,373 $ 21,592 $(871,148) $1,009,838 ============ ========= ========== ========= ==========
53 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 30, 1998 (IN THOUSANDS OF DOLLARS)
PARENT COMPANY SUBSIDIARY NON-GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED -------------- ---------- ------------- -------------- ------------ Net revenues $ 1,069 $ 171,484 $ 1,579 $ - $ 174,132 Operating expenses 497 97,162 2,851 - 100,510 International business development expenses - 974 - - 974 Corporate expenses 6,379 - - - 6,379 Amortization of television program rights - 2,011 - - 2,011 Depreciation and amortization 117 16,434 2,044 - 18,595 Noncash compensation 1,876 502 - - 2,378 Time brokerage agreement fee - 2,220 - - 2,220 ------------ ---------- ------------ ----------- ----------- Operating Income (7,800) 52,181 (3,316) - 41,065 ------------ ---------- ------------ ----------- ----------- Other Income (Expense) - Interest expense (23,120) (486) (2,476) 1,140 (24,942) Minority interest - - - 1,875 1,875 Other income (expense), net 19,395 (16,196) 254 (1,140) 2,313 ------------ ---------- ------------ ----------- ----------- Total other income (expense) (3,725) (16,682) (2,222) 1,875 (20,754) ------------ ---------- ------------ ----------- ----------- Income before income taxes (11,525) 35,499 (5,538) 1,875 20,311 Provision (benefit) for income taxes (4,610) 15,960 - - 11,350 ------------ ---------- ------------ ----------- ----------- (6,915) 19,539 (5,538) 1,875 8,961 Extraordinary item, net of tax (1,597) - - - (1,597) Equity in earnings of subsidiaries 15,876 - - (15,876) - ------------ ---------- ------------- ----------- ----------- Net Income (loss) $ 7,364 $ 19,539 $ (5,538) $ (14,001) $ 7,364 ============ ========== ============ =========== ===========
54 EMMIS COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE-MONTHS ENDED NOVEMBER 30, 1998 (IN THOUSANDS OF DOLLARS)
PARENT NON- COMPANY SUBSIDIARY GUARANTOR ONLY GUARANTORS SUBSIDIARY ELIMINATIONS CONSOLIDATED ----------- ---------- ---------- ------------ ------------ Operating Activities: Net income $ 7,364 $ 19,539 $ (5,538) $ (14,001) $ 7,364 Adjustments to reconcile net income to net cash provided by operating activities -- Extraordinary item 1,597 -- -- -- 1,597 Depreciation and amortization of property and equipment 107 6,199 -- -- 6,306 Amortization of debt issuance costs and cost of interest rate cap agreements 910 -- -- -- 910 Amortization of intangible assets 10 10,025 2,254 -- 12,289 Provision (benefit) for deferred income taxes 4,247 -- -- -- 4,247 Amortization of television program rights -- 2,011 -- -- 2,011 Non cash compensation 1,876 502 -- -- 2,378 Equity in earnings of subsidiaries (15,876) -- -- 15,876 -- Intercompany (511,498) 513,373 -- (1,875) -- Other (543) -- (1,834) -- (2,377) (Increase) decrease in certain current assets (net of dispositions and acquisitions) -- Accounts receivable 345 (25,243) 461 -- (24,437) Prepaid expenses and other current assets (4,485) 366 (12) -- (4,131) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions) -- Accounts payable and book cash overdraft 7,353 (11,495) 2,385 (1,454) (3,211) Accrued salaries and commissions (612) 3,422 -- -- 2,810 Accrued interest 7,622 1 -- -- 7,623 Deferred revenue -- (991) -- -- (991) Other current liabilities 11,437 (4,641) -- -- 6,796 (Increase) decrease in deposits and other assets 1,783 599 -- 1,454 3,836 Increase (decrease) in other noncurrent liabilities 10,224 (2,879) -- -- 7,345 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (478,139) 510,788 (2,284) -- 30,365 --------- --------- --------- --------- --------- Investing Activities: Acquisition of WQCD-FM -- (128,449) -- -- (128,449) Acquisition of SF Broadcasting -- (287,293) -- -- (287,293) Acquisition of Wabash Valley -- (88,905) -- -- (88,905) Purchases of property and equipment (19,814) (6,410) -- -- (26,224) Proceeds from sale of equipment -- 607 -- -- 607 --------- --------- --------- --------- --------- Net cash used in investing activities (19,814) (510,450) -- -- (530,264) --------- --------- --------- --------- --------- Financing Activities: Payments on long-term debt (410,157) -- -- -- (410,157) Proceeds of long-term debt 733,500 -- -- -- 733,500 Equiry offering 182,640 -- -- -- 182,640 Purchase of interest rate cap agreements and other debt related costs (8,912) -- -- -- (8,912) Proceeds from exercise of stock options and income tax benefits 3,016 -- -- -- 3,016 --------- --------- --------- --------- --------- Net cash provided by financing activities 500,087 -- -- -- 500,087 --------- --------- --------- --------- --------- Effect of exchange rates on cash -- -- (653) -- (653) Increase(Decrease) in Cash and Cash Equivalents 2,134 338 (2,937) -- (465) Cash and Cash Equivalents Beginning of year 623 243 4,919 -- 5,785 --------- --------- --------- --------- --------- End of year 2,757 581 1,982 -- 5,320 ========= ========= ========= ========= =========
55 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 hereunto duly authorized. EMMIS COMMUNICATIONS CORPORATION Date: May 5, 1999 By: /s/ Walter Z. Berger ---------------------------- Walter Z. Berger Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----