SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 2001 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number: 0-23264
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1542018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Zip Code)
(317) 266-0100
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No____________
------------
The number of shares outstanding of each of the Registrant's classes of
common stock, as of July 10, 2001, was:
42,116,902 Shares of Class A Common Stock, $.01 Par Value
5,230,396 Shares of Class B Common Stock, $.01 Par Value
0 Shares of Class C Common Stock, $.01 Par Value
-1-
INDEX
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS......................................3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................................4
Condensed Consolidated Statements of
Operations for the three months
ended May 31, 2000 and 2001......................................4
Condensed Consolidated Balance Sheets
as of February 28, 2001 and May 31, 2001.........................5
Condensed Consolidated Statements of Cash
Flows for the three months ended
May 31, 2000 and 2001............................................7
Notes to Condensed Consolidated
Financial Statements.............................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations..............................................20
Item 3. Quantitative and Qualitative Disclosures
about Market Risk..........................................24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................25
Item 6. Exhibits and Reports on Form 8-K................................25
Signatures ..............................................................26
-2-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmis Communications Corporation and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of
Emmis Communications Corporation (an Indiana corporation) and Subsidiaries as of
May 31, 2001, and the related condensed consolidated statements of operations
for the three-month periods ended May 31, 2000 and 2001, and the condensed
consolidated statements of cash flows for the three-month periods ended May 31,
2000 and 2001. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet as of February 28,
2001, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the year then ended (not presented
separately herein), and in our report dated March 29, 2001, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of February 28, 2001 is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
June 26, 2001.
-3-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months
Ended May 31,
2000 2001
------------ ------------
GROSS REVENUES $ 118,247 $ 160,155
LESS: AGENCY COMMISSIONS 17,728 22,820
----------- ------------
NET REVENUES 100,519 137,335
Operating expenses 61,856 89,052
International business
development expenses 404 238
Corporate expenses 3,720 4,719
Depreciation and amortization 14,272 24,136
Time brokerage fee - 479
Non-cash compensation 1,664 2,740
Restructuring fees and other - 572
------------ ------------
OPERATING INCOME 18,603 15,399
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (8,412) (34,652)
Minority interest 524 147
Other income (expense), net (214) 448
------------ ------------
Total other income (expense) (8,102) (34,057)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 10,501 (18,658)
PROVISION (BENEFIT) FOR INCOME TAXES 4,590 (5,181)
------------ -----------
NET INCOME (LOSS) 5,911 (13,477)
------------ -----------
PREFERRED STOCK DIVIDENDS 2,246 2,246
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 3,665 $ (15,723)
============ ===========
Basic net income (loss) per common share $ 0.08 $ (0.33)
============ ===========
Diluted net income (loss) per common share $ 0.08 $ (0.33)
============ ===========
Weighted average common shares outstanding:
Basic 46,269 47,258
Diluted 48,012 47,258
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-4-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
February 28, May 31,
2001 2001
------------ --------------
(Note 1) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,899 $ 13,606
Accounts receivable, net 97,281 106,142
Prepaid expenses 17,096 18,939
Other 40,830 31,487
-------------- --------------
Total current assets 215,106 170,174
Property and equipment, net 237,887 241,280
Intangible assets, net 1,981,097 2,124,886
Cash held in escrow - 93,000
Other assets, net 72,782 65,819
-------------- --------------
Total assets $ 2,506,872 $ 2,695,159
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 34,206 $ 35,551
Current portion of other
long-term debt 4,187 4,046
Current portion of TV program
rights payable 28,192 24,613
Accrued salaries and commissions 10,342 11,569
Accrued interest 17,038 10,144
Deferred revenue 17,418 18,214
Other 5,768 6,545
------------- --------------
Total current liabilities 117,151 110,682
Credit facility and senior
subordinated notes 1,380,000 1,385,000
Senior discount notes - 207,026
TV program rights payable, net of
current portion 47,567 47,189
Other long-term debt, net of
current portion 13,684 13,244
Other noncurrent liabilities 5,531 6,894
Deferred income taxes 135,468 128,990
-------------- --------------
Total liabilities 1,699,401 1,899,025
-------------- --------------
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-5-
February 28, May 31,
2001 2001
---------------- ----------------
(Note 1) (Unaudited)
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series A cumulative convertible
preferred stock, $.01 par value;
$50.00 liquidation value;
authorized 10,000,000 shares;
2,875,000 shares issued and
outstanding at February 28, 2001
and May 31, 2001 29 29
Class A common stock, $.01
par value; authorized 170,000,000
shares; issued and outstanding
41,900,315 shares at February 28, 2001
and 42,110,094 shares at May 31, 2001 419 421
Class B common stock, $.01
par value; authorized 30,000,000
shares; issued and outstanding
5,230,396 shares at February 28, 2001
and May 31, 2001 52 52
Additional paid-in capital 830,299 835,159
Accumulated deficit (22,730) (38,453)
Accumulated other comprehensive loss (598) (1,074)
---------------- --------------
Total shareholders' equity 807,471 796,134
---------------- --------------
Total liabilities and
shareholders' equity $ 2,506,872 $ 2,695,159
================ ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-6-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
Three Months
Ended May 31,
2000 2001
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,911 $ (13,477)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities -
Depreciation and amortization 17,586 29,377
Accretion of interest on senior discount notes - 4,414
Provision for bad debts 1,545 1,633
Provision for deferred income taxes 1,988 (5,181)
Non-cash compensation 1,664 2,740
Other 432 (1,178)
Changes in assets and liabilities -
Accounts receivable (14,497) (10,648)
Prepaid expenses and other current assets (1,641) 7,444
Other assets (1,118) (2,204)
Accounts payable and accrued liabilities (1,957) (5,178)
Deferred revenue 1,855 796
Other liabilities (3,872) (2,814)
------------ -----------
Net cash provided by operating activities 7,896 5,724
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,958) (9,090)
Cash paid for acquisitions (36,662) (140,746)
Other - (3,231)
------------ -----------
Net cash used in investing activities (39,620) (153,067)
------------ -----------
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-7-
Three Months
Ended May 31,
2000 2001
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (23,788) -
Proceeds from long-term debt 54,388 5,000
Proceeds from senior discount notes offering - 202,612
Cash held in escrow - (93,000)
Proceeds from exercise of stock options 5,751 725
Preferred stock dividends paid (2,246) (2,246)
Debt related costs - (12,041)
------------- ------------
Net cash provided by financing activities 34,105 101,050
------------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,381 (46,293)
CASH AND CASH EQUIVALENTS:
Beginning of period 17,370 59,899
------------- ------------
End of period $ 19,751 $ 13,606
============= ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 12,968 $ 35,691
Income taxes 234 857
ACQUISITION OF LOS ANGELES MAGAZINE:
Fair value of assets acquired $ 39,520 $ -
Cash paid 36,827 -
------------- ------------
Liabilities recorded $ 2,693 $ -
============= ============
ACQUISITION OF KKLT-FM, KTAR-AM and
KMVP-AM:
Fair value of assets acquired $ - 160,746
Cash paid, net of deposit - 140,746
Deposit paid in June 2000 - 20,000
------------- ------------
Liabilities recorded $ - $ -
============= ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-8-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2001
(Unaudited)
Note 1. General
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated interim financial statements included
herein have been prepared, without audit, by Emmis Communications Corporation
and its subsidiaries (collectively, "Emmis" or the "Company"). As permitted
under the applicable rules and regulations of the Securities and Exchange
Commission, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations; however, Emmis believes that the disclosures are adequate
to make the information presented not misleading. The condensed consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report filed on Form 10-K for the year ended February 28, 2001.
On an interim basis, the Company defers major advertising campaigns for which
future benefits can be demonstrated. These costs are amortized over the shorter
of the estimated period benefited or the remainder of the fiscal year.
In the opinion of the registrant, the accompanying condensed consolidated
interim financial statements contain all material adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the consolidated
financial position of Emmis at May 31, 2001 and the results of its operations
and cash flows for the three months ended May 31, 2000 and 2001.
The Company's results are subject to seasonal fluctuations. Therefore,
results shown on an interim basis are not necessarily indicative of results for
a full year.
Note 2. Significant Events
On March 28, 2001, Emmis completed its acquisition of substantially all of
the assets of radio stations KTAR-AM, KMVP-AM and KKLT-FM in Phoenix, Arizona
from Hearst-Argyle Television, Inc. for $160.0 million in cash, plus transaction
related costs of $0.7 million. The Company financed the acquisition through a
$20.0 million advance payment borrowed under the credit facility in June 2000
and the remainder with borrowings under the credit facility and proceeds from
the Company's March 2001 senior discount notes offering. The acquisition was
accounted for as a purchase. Emmis began programming and selling advertising on
the radio stations on August 1, 2000 under a time brokerage agreement. The total
purchase price was allocated to property and equipment and broadcast licenses
based on a preliminary appraisal. Broadcast licenses are included in intangible
assets in the accompanying condensed consolidated balance sheets and are being
amortized over 40 years.
On March 27, 2001, Emmis received $202.6 million of proceeds from the
issuance of senior discount notes due 2011, less approximately $11.5 million of
debt issuance costs. The notes, which are structurally subordinate to the credit
facility and senior subordinated notes, accrete interest at a rate of 12.5% per
year, compounded semi-annually to an aggregate principal amount of $370.0
million on March 15, 2006.
-9-
Commencing on September 15, 2006, interest is payable in cash on each March 15
and September 15, with the aggregate principal amount of $370.0 million due on
March 15, 2011. A portion of the net proceeds was used to fund the acquisition
of three radio stations in Phoenix, Arizona and the remaining net proceeds
($93.0 million) were placed in escrow. In June 2001, upon completion of the
Company's reorganization (see Note 8 for further discussion), the proceeds held
in escrow were released and used to reduce outstanding borrowings under the
credit facility.
During the three months ended May 31, 2001, the Company incurred a
restructuring charge of $0.6 million associated with centralizing certain
technical functions within the television division. This charge consists of
severance and related costs for approximately 30 employees and will be fully
paid by the quarter ended August 31, 2002.
Note 3. Pro Forma Financial Information
Unaudited pro forma summary information is presented below for the three
months ended May 31, 2000 and 2001, assuming the following events all had
occurred on the first day of the pro forma periods presented below: (a) the
acquisition of (i) KKLT-FM, KTAR-AM and KMVP-AM in March 2001, (ii) KALC-FM in
January 2001, (iii) KZLA-FM, eight network-affiliated television stations from
Lee Enterprises, Inc. and KPNT-FM, KXOK-FM AND KIHT-FM in October 2000, and (iv)
KKFR-FM and KXPK-FM in August 2000; (b) the disposition of (i) WTLC-AM in April
2001 and (ii) WKKX in October 2000; (c) the issuance of the senior discount
notes in March 2001 and (d) the refinancing of the credit facility in December
2000.
Preparation of the pro forma summary information was based upon assumptions
deemed appropriate by the Company's management. The pro forma summary
information presented below is not necessarily indicative of the results that
actually would have occurred if the transactions indicated above had been
consummated at the beginning of the periods presented, and is not intended to be
a projection of future results.
Three Months
Ended May 31,
(Pro Forma)
2000 2001
------------- -------------
(In thousands,except per share data)
Net revenues $ 148,455 $ 137,335
============= =============
Broadcast/publishing cash flow $ 56,318 $ 48,283
============= ============
Net income (loss) $ (2,930) $ (14,515)
============ ============
Net income (loss) available to
common shareholders $ (5,176) $ (16,761)
============ ============
Basic net income (loss) per
common share $ (0.11) $ (0.35)
============= ============
Diluted net income (loss) per
common share $ (0.11) $ (0.35)
============= ============
Weighted average shares outstanding:
Basic 46,269 47,258
Diluted 46,269 47,258
-10-
Note 4. Basic and Diluted Net Income Per Common Share
Basic net income per common share is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted net income per common share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted. Potentially dilutive securities at May
31, 2000 and 2001 consisted of stock options and the 6.25% Series A cumulative
convertible preferred stock. The 6.25% Series A cumulative convertible preferred
stock is not included in the calculation of diluted net income per common share
for the three months ended May 31, 2000 and 2001 as the effect of its conversion
to common stock would be antidilutive. For the three months ended May 31, 2000,
the difference between the weighted-average shares outstanding used to compute
basic and diluted EPS is attributable to dilution caused by stock options.
Weighted average shares excluded from the calculation of diluted net income per
share that would result from the conversion of the 6.25% Series A cumulative
convertible preferred stock amounted to approximately 3.7 million for the three
months ended May 31, 2000 and 2001.
Note 5. Comprehensive Income
Comprehensive income was comprised of the following for the three months
ended May 31, 2000 and 2001 (dollars in thousands):
Three Months
Ended May 31,
2000 2001
------------ ------------
Net income (loss) $ 5,911 $ (13,477)
Translation adjustment 324 512
Change in fair value of
derivative instruments - (988)
------------ ------------
Total comprehensive
income (loss) $ 6,235 $ (13,953)
============ ============
Note 6. Segment Information
The Company's operations are aligned into four business segments: Radio,
Television, Publishing and Other and Interactive. These business segments are
consistent with the Company's management of these businesses and its financial
reporting structure. Corporate represents expense not allocated to reportable
segments.
The Company's segments operate primarily in the United States with one
radio station located in Hungary and two radio stations located in Argentina.
Total revenues of the radio station in Hungary for the three months ended May
31, 2000 and 2001 were $1.3 million and $1.1 million, respectively. Long lived
assets of this radio station as of May 31, 2000 and 2001 were $12.1 million and
$8.5 million, respectively. Emmis acquired two radio stations in Buenos Aires,
Argentina in November 1999. Total revenues of these stations for the three
months ended May 31, 2000 and 2001 were $1.4 million and $1.9 million,
respectively. Long lived assets of these radio stations as of May 31, 2000 and
2001 were $19.2 million and $18.1 million, respectively.
-11-
The Company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes
that BCF and PCF are useful because they provide a meaningful comparison of
operating performance between companies in the industry and serve as an
indicator of the market value of a group of stations or publishing entities. BCF
and PCF are generally recognized by the broadcast and publishing industries as a
measure of performance and are used by analysts who report on the performance of
broadcasting and publishing groups. BCF and PCF do not take into account Emmis'
debt service requirements and other commitments and, accordingly, BCF and PCF
are not necessarily indicative of amounts that may be available for dividends,
reinvestment in Emmis' business or other discretionary uses.
BCF and PCF are not measures of liquidity or of performance in accordance
with accounting principles generally accepted in the United States, and should
be viewed as a supplement to, and not a substitute for, our results of
operations presented on the basis of accounting principles generally accepted in
the United States. Moreover, BCF and PCF are not standardized measures and may
be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of
agency commissions and operating expenses. The primary source of broadcast
advertising revenues is the sale of advertising time to local and national
advertisers. Publishing entities derive revenue from subscriptions and sale of
print advertising inventory. Interactive derives revenue from the sale of
advertisements on the websites of the Company's stations. The most significant
broadcast operating expenses are employee salaries and commissions, costs
associated with programming, advertising and promotion, and station general and
administrative costs. Significant publishing operating expenses are employee
salaries and commissions, costs associated with producing a magazine, and
general and administrative costs. Significant interactive operating expenses are
employee salaries and general and administrative costs.
The accounting policies as described in the summary of significant
accounting policies included in the Company's Annual Report filed on Form 10-K
for the year ended February 28, 2001, are applied consistently across segments.
Three Months Ended Publishing
May 31, 2001 Radio Television and Other Interactive Corporate Consolidated
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Net revenue $ 65,352 $ 53,795 $ 18,084 $ 104 $ -- $ 137,335
Operating expenses 36,027 35,672 17,036 317 -- 89,052
----------- ----------- ----------- ----------- ----------- -----------
Broadcast/publishing
cash flow 29,325 18,123 1,048 (213) -- 48,283
International business
development expenses -- -- -- -- 238 238
Corporate expenses -- -- -- -- 4,719 4,719
Depreciation and
amortization 7,843 13,057 2,138 2 1,096 24,136
Time brokerage fee 479 -- -- -- -- 479
Non-cash compensation -- -- -- -- 2,740 2,740
Restructuring fees
and other -- -- -- -- 572 572
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) $ 21,003 $ 5,066 $ (1,090) $ (215) $ (9,365) $ 15,399
=========== =========== =========== =========== =========== ===========
Total assets $ 1,082,159 $ 1,309,355 $ 93,675 $ 73 $ 209,897 $ 2,695,159
=========== =========== =========== =========== =========== ===========
-12-
Three Months Ended Publishing
May 31, 2000 Radio Television and Other Interactive Corporate Consolidated
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Net revenue $ 54,463 $ 28,142 $ 17,914 $ -- $ -- $ 100,519
Operating expenses 28,825 16,808 16,103 120 -- 61,856
---------- ---------- ---------- ---------- ---------- ----------
Broadcast/publishing
cash flow 25,638 11,334 1,811 (120) -- 38,663
International business
development expenses -- -- -- -- 404 404
Corporate expenses -- -- -- -- 3,720 3,720
Depreciation and
amortization 3,637 5,942 3,768 -- 925 14,272
Time brokerage fee -- -- -- -- -- --
Non-cash compensation -- -- -- -- 1,664 1,664
Restructuring fees and other -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) $ 22,001 $ 5,392 $ (1,957) $ (120) $ (6,713) $ 18,603
========== ========== ========== ========== ========== ==========
Total assets $ 481,544 $ 698,480 $ 104,500 $ -- $ 85,592 $1,370,116
========== ========== ========== ========== ========== ==========
Note 7. Financial Information for Subsidiary Guarantors
and Subsidiary Non-Guarantors
Emmis has historically conducted most of its business through subsidiaries,
and with the corporate reorganization (the "Corporate Reorganization") that
occurred on June 22, 2001 (see Note 8 for further discussion), Emmis now
conducts virtually all its business through subsidiaries. The senior
subordinated notes are fully and unconditionally guaranteed, jointly and
severally, by certain direct and indirect subsidiaries (the "Subsidiary
Guarantors"). As of February 28, 2001 and May 31, 2001, subsidiaries holding
Emmis' interest in its radio stations in Hungary and Argentina, as well as
certain other subsidiaries conducting joint ventures with third parties, did not
guarantee the senior subordinated notes (the "Subsidiary Non-Guarantors"). The
claims of creditors of Emmis subsidiaries have priority over the rights of Emmis
to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for the
Parent Company Only, the Subsidiary Guarantors and the Subsidiary Non-Guarantors
as of February 28, 2001 and May 31, 2001 and for the three months ended May 31,
2000 and 2001. This information is presented without giving effect to the
Corporate Reorganization, which occurred after May 31, 2001.
Emmis uses the equity method with respect to investments in subsidiaries.
Separate financial statements for Subsidiary Guarantors are not presented based
on management's determination that they do not provide additional information
that is material to investors.
-13-
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of May 31, 2001
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 4,220 $ 7,841 $ 1,545 $ -- $ 13,606
Accounts receivable, net -- 101,686 4,456 -- 106,142
Prepaid expenses 2,445 16,064 430 -- 18,939
Other 13,463 17,906 118 -- 31,487
----------- ----------- ----------- ----------- -----------
Total current assets 20,128 143,497 6,549 -- 170,174
Property and equipment, net 37,981 199,125 4,174 -- 241,280
Intangible assets, net -- 2,104,201 20,685 -- 2,124,886
Cash held in escrow 93,000 -- -- -- 93,000
Investment in affiliates 2,333,615 -- -- (2,333,615) --
Other assets, net 59,123 11,828 1,787 (6,919) 65,819
----------- ----------- ----------- ----------- -----------
Total assets $ 2,543,847 $ 2,458,651 $ 33,195 $(2,340,534) $ 2,695,159
=========== =========== =========== =========== ===========
CURRENT LIABILITIES:
Accounts payable $ 10,659 $ 19,952 $ 4,940 $ -- $ 35,551
Current portion of other
long-term debt 34 22 3,990 -- 4,046
Current portion of TV
program rights payable -- 24,613 -- -- 24,613
Accrued salaries and
commissions 554 10,520 495 -- 11,569
Accrued interest 9,367 -- 777 -- 10,144
Deferred revenue -- 18,214 -- -- 18,214
Other 3,950 2,595 -- -- 6,545
----------- ----------- ----------- ----------- -----------
Total current liabilities 24,564 75,916 10,202 -- 110,682
Credit facility and senior
subordinated notes 1,385,000 -- -- -- 1,385,000
Senior discount notes 207,026 -- -- -- 207,026
TV program rights payable,
net of current portion -- 47,189 -- -- 47,189
Other long-term debt, net of
current portion 37 533 19,593 (6,919) 13,244
Other noncurrent liabilities 2,010 4,384 500 -- 6,894
Deferred income taxes 128,990 -- -- -- 128,990
----------- ----------- ----------- ----------- -----------
Total liabilities 1,747,627 128,022 30,295 (6,919) 1,899,025
Shareholders' equity
Series A preferred stock 29 -- -- -- 29
Class A common stock 421 -- -- -- 421
Class B common stock 52 -- -- -- 52
Additional paid-in capital 835,159 -- 4,393 (4,393) 835,159
Subsidiary investment -- 1,968,935 17,591 (1,986,526) --
Retained earnings/
(accumulated deficit) (38,453) 361,694 (18,998) (342,696) (38,453)
Accumulated other
comprehensive loss (988) -- (86) -- (1,074)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity 796,220 2,330,629 2,900 (2,333,615) 796,134
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 2,543,847 $ 2,458,651 $ 33,195 $(2,340,534) $ 2,695,159
=========== =========== =========== =========== ===========
-14-
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 28, 2001
(Note 1, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 55,175 $ 4,018 $ 706 $ -- $ 59,899
Accounts receivable, net -- 91,754 5,527 -- 97,281
Prepaid expenses 2,032 14,737 327 -- 17,096
Other 15,902 24,152 776 -- 40,830
----------- ----------- ----------- ----------- -----------
Total current assets 73,109 134,661 7,336 -- 215,106
Property and equipment, net 38,151 195,404 4,332 -- 237,887
Intangible assets, net -- 1,959,341 21,756 -- 1,981,097
Investment in affiliates 2,169,602 -- -- (2,169,602) --
Other assets, net 68,113 9,706 1,882 (6,919) 72,782
----------- ----------- ----------- ----------- -----------
Total assets $ 2,348,975 $ 2,299,112 $ 35,306 $(2,176,521) $ 2,506,872
=========== =========== =========== =========== ===========
CURRENT LIABILITIES:
Accounts payable $ 6,908 $ 22,499 $ 4,799 $ -- $ 34,206
Current portion of other
long-term debt 34 18 4,135 -- 4,187
Current portion of TV
program rights payable -- 28,192 -- -- 28,192
Accrued salaries and
commissions 1,410 8,482 450 -- 10,342
Accrued interest 16,236 -- 802 -- 17,038
Deferred revenue -- 17,418 -- -- 17,418
Other 813 4,955 -- -- 5,768
----------- ----------- ----------- ----------- -----------
Total current liabilities 25,401 81,564 10,186 -- 117,151
Credit facility and senior
subordinated notes 1,380,000 -- -- -- 1,380,000
Senior discount notes -- -- -- -- --
TV program rights payable,
net of current portion -- 47,567 -- -- 47,567
Other long-term debt, net of
current portion 37 598 19,968 (6,919) 13,684
Other noncurrent liabilities -- 4,884 647 -- 5,531
Deferred income taxes 135,468 -- -- -- 135,468
----------- ----------- ----------- ----------- -----------
Total liabilities 1,540,906 134,613 30,801 (6,919) 1,699,401
Shareholders' equity
Series A preferred stock 29 -- -- -- 29
Class A common stock 419 -- -- -- 419
Class B common stock 52 -- -- -- 52
Additional paid-in capital 830,299 -- 4,393 (4,393) 830,299
Subsidiary investment -- 1,818,050 17,581 (1,835,631) --
Retained earnings /
(accumulated deficit) (22,730) 346,449 (16,871) (329,578) (22,730)
Accumulated other
comprehensive loss -- -- (598) -- (598)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity 808,069 2,164,499 4,505 (2,169,602) 807,471
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 2,348,975 $ 2,299,112 $ 35,306 $(2,176,521) $ 2,506,872
=========== =========== =========== =========== ===========
-15-
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended May 31, 2001
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
Net revenues $ 343 $ 134,041 $ 2,951 $ -- $ 137,335
Operating expenses 313 85,312 3,427 -- 89,052
International business
development expenses -- 238 -- -- 238
Corporate expenses 4,719 -- -- -- 4,719
Depreciation and amortization 1,096 22,214 826 -- 24,136
Time brokerage fee -- 479 -- -- 479
Non-cash compensation 2,055 685 -- -- 2,740
Restructuring fees and other 572 -- -- -- 572
--------- --------- --------- --------- ---------
Operating income (loss) (8,412) 25,113 (1,302) -- 15,399
--------- --------- --------- --------- ---------
Other income (expense)
Interest expense (33,764) (245) (811) 168 (34,652)
Minority interest -- -- -- 147 147
Other income (expense), net 910 (280) (14) (168) 448
--------- --------- --------- --------- ---------
Total other income (expense) (32,854) (525) (825) 147 (34,057)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (41,266) 24,588 (2,127) 147 (18,658)
Provision (benefit) for income
taxes (14,524) 9,343 -- -- (5,181)
--------- --------- --------- --------- ---------
(26,742) 15,245 (2,127) 147 (13,477)
Equity in earnings (loss) of
subsidiaries 13,265 -- -- (13,265) --
--------- --------- --------- --------- ---------
Net income (loss) (13,477) 15,245 (2,127) (13,118) (13,477)
Less: Preferred stock dividends 2,246 -- -- -- 2,246
--------- --------- --------- --------- ---------
Net income (loss) available to common
shareholders $ (15,723) $ 15,245 $ (2,127) $ (13,118) $ (15,723)
========= ========= ========= ========= =========
-16-
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Three Months Ended May 31, 2000
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
Net revenues $ 392 $ 97,441 $ 2,686 $ -- $ 100,519
Operating expenses 328 58,531 2,997 -- 61,856
International business
development expenses -- 404 -- -- 404
Corporate expenses 3,720 -- -- -- 3,720
Depreciation and amortization 925 12,445 902 -- 14,272
Time brokerage fee -- -- -- -- --
Non-cash compensation 1,248 416 -- -- 1,664
Restructuring fees and other -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss) (5,829) 25,645 (1,213) -- 18,603
--------- --------- --------- --------- ---------
Other income (expense)
Interest expense (7,546) (57) (969) 160 (8,412)
Minority interest -- -- -- 524 524
Other income (expense), net 165 (64) (155) (160) (214)
--------- --------- --------- --------- ---------
Total other income (expense) (7,381) (121) (1,124) 524 (8,102)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (13,210) 25,524 (2,337) 524 10,501
Provision (benefit) for income
taxes (4,854) 9,444 -- -- 4,590
--------- --------- --------- --------- ---------
(8,356) 16,080 (2,337) 524 5,911
Equity in earnings (loss) of
subsidiaries 14,267 -- -- (14,267) --
--------- --------- --------- --------- ---------
Net income (loss) 5,911 16,080 (2,337) (13,743) 5,911
Less: Preferred stock dividends 2,246 -- -- -- 2,246
--------- --------- --------- --------- ---------
Net income (loss) available to common
shareholders $ 3,665 $ 16,080 $ (2,337) $ (13,743) $ 3,665
========= ========= ========= ========= =========
-17-
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 31, 2001
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (13,477) $ 15,245 $ (2,127) $ (13,118) $ (13,477)
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating
activities -
Depreciation and amortization 2,280 26,271 826 -- 29,377
Accretion of interest on senior
discount notes 4,414 -- -- -- 4,414
Provision for bad debts -- 1,633 -- -- 1,633
Provision for deferred income
taxes (5,181) -- -- -- (5,181)
Non-cash compensation 2,055 685 -- -- 2,740
Equity in earnings of
subsidiaries (13,265) -- -- 13,265 --
Other (1,605) 62 512 (147) (1,178)
Changes in assets and
liabilities -
Accounts receivable -- (11,719) 1,071 -- (10,648)
Prepaid expenses and other
current assets 2,026 4,863 555 -- 7,444
Other assets 3,078 (5,377) 95 -- (2,204)
Accounts payable and accrued
liabilities (3,110) (2,229) 161 -- (5,178)
Deferred revenue -- 796 -- -- 796
Other liabilities 5,147 (7,439) (522) -- (2,814)
--------- --------- --------- --------- ---------
Net cash provided (used) by
operating activities (17,638) 22,791 571 -- 5,724
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (899) (8,203) 12 -- (9,090)
Cash paid for acquisitions -- (140,746) -- -- (140,746)
Other (3,231) -- -- -- (3,231)
--------- --------- --------- --------- ---------
Net cash provided (used) by
investing activities (4,130) (148,949) 12 -- (153,067)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt -- -- -- -- --
Proceeds from long-term debt 5,000 -- -- -- 5,000
Proceeds from senior discount notes
offering 202,612 -- -- -- 202,612
Cash held in escrow (93,000) -- -- -- (93,000)
Proceeds from exercise of stock
options 725 -- -- -- 725
Intercompany (130,237) 129,981 256 -- --
Preferred stock dividends paid (2,246) -- -- -- (2,246)
Debt related costs (12,041) -- -- -- (12,041)
--------- --------- --------- --------- ---------
Net cash provided (used) by
financing activities (29,187) 129,981 256 -- 101,050
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (50,955) 3,823 839 -- (46,293)
Beginning of period 55,175 4,018 706 -- 59,899
--------- --------- --------- --------- ---------
End of period $ 4,220 $ 7,841 $ 1,545 $ -- $ 13,606
========= ========= ========= ========= =========
-18-
Emmis Communications Corporation
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 31, 2000
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 5,911 $ 16,080 $ (2,337) $(13,743) $ 5,911
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating
activities -
Depreciation and amortization 1,395 15,289 902 -- 17,586
Accretion of interest on senior
discount notes -- -- -- -- --
Provision for bad debts -- 1,545 -- -- 1,545
Provision for deferred income
taxes 1,988 -- -- -- 1,988
Non-cash compensation 1,248 416 -- -- 1,664
Equity in earnings of
subsidiaries (14,267) -- -- 14,267 --
Other 633 -- 323 (524) 432
Changes in assets and
liabilities -
Accounts receivable -- (14,831) 334 -- (14,497)
Prepaid expenses and other
current assets 1,229 (3,337) 467 -- (1,641)
Other assets 598 (1,778) 62 -- (1,118)
Accounts payable and accrued
liabilities (5,784) 3,788 39 -- (1,957)
Deferred revenue -- 1,855 -- -- 1,855
Other liabilities 1,323 (4,493) (702) -- (3,872)
-------- -------- -------- -------- --------
Net cash provided (used) by
operating activities (5,726) 14,534 (912) -- 7,896
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (833) (2,114) (11) -- (2,958)
Cash paid for acquistions -- (36,662) -- -- (36,662)
Other -- -- -- -- --
-------- -------- -------- -------- --------
Net cash used by investing
activities (833) (38,776) (11) -- (39,620)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on long-term debt (23,788) -- -- -- (23,788)
Proceeds from long-term debt 54,388 -- -- -- 54,388
Proceeds from senior discount notes
offering -- -- -- -- --
Cash held in escrow -- -- -- -- --
Proceeds from exercise of stock
options 5,751 -- -- -- 5,751
Intercompany (23,223) 24,332 (1,109) -- --
Preferred stock dividends paid (2,246) -- -- -- (2,246)
Debt related costs -- -- -- -- --
-------- -------- -------- -------- --------
Net cash provided (used) by
financing activities 10,882 24,332 (1,109) -- 34,105
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 4,323 90 (2,032) -- 2,381
Beginning of period 448 2,564 14,358 -- 17,370
-------- -------- -------- -------- --------
End of period $ 4,771 $ 2,654 $ 12,326 $ -- $ 19,751
======== ======== ======== ======== ========
-19-
Note 8. Subsequent Event
On June 22, 2001, Emmis Communications Corporation transferred all of its
assets and substantially all of its liabilities, including its credit facility
and its outstanding senior subordinated notes, to Emmis Operating Company, a
newly formed, wholly-owned subsidiary. As a result, effective June 22, 2001,
Emmis Communications Corporation is a holding company that conducts
substantially all of its business operations through Emmis Operating Company and
its subsidiaries. Emmis Communications Corporation is still the issuer of the
Class A, Class B and Class C common stock, the convertible preferred stock and
the senior discount notes. Effective June 22, 2001, both Emmis Communications
Corporation and Emmis Operating Company are SEC registrants with separate
reporting requirements.
In June 2001, Emmis Communications Corporation filed an Exchange Offer
Registration Statement with the SEC to exchange the senior discount notes for
new senior discount notes registered under the Securities Act. The terms of the
new senior discount notes are identical to the terms of the senior discount
notes they replaced. Also in June 2001, Emmis filed a universal shelf
registration statement that gives Emmis and its subsidiaries the ability to
issue up to $500.0 million in various debt or equity securities.
Note 9. Reclassifications
Certain reclassifications have been made to the May 31, 2000 and February
28, 2001 financial statements to be consistent with the May 31, 2001
presentation. The reclassifications have no impact on net income or retained
earnings previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Note: Certain statements included in this report which are not statements of
historical fact, including but not limited to those identified with the words
"expect," "will" or "look" are intended to be, and are, identified as
"forward-looking statements," as defined in the Securities and Exchange Act of
1934, as amended, and involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future result, performance or
achievement expressed or implied by such forward-looking statement. Such factors
include, among others, general economic and business conditions; fluctuations in
the demand for advertising; our ability to service our outstanding debt;
increased competition in our markets and the broadcasting industry; inability to
obtain necessary approvals for purchases or sale transactions or to complete the
transactions; changes in the costs of programming; inability to grow through
suitable acquisitions, including the desired radio; tax and other regulatory or
practical limitations on the Company's ability to effectively separate the
Company's radio and television businesses; and other factors mentioned in other
documents filed by the Company with the Securities and Exchange Commission.
General
The Company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes
that BCF and PCF are useful because they provide a meaningful comparison of
operating performance between companies in the industry and serve as an
indicator of the market value of a group of stations or publishing entities. BCF
and PCF are generally recognized by the broadcast and publishing industries as a
measure of performance and are used by analysts who report on
-20-
the performance of broadcasting and publishing groups. BCF and PCF do not take
into account Emmis' debt service requirements and other commitments and,
accordingly, BCF and PCF are not necessarily indicative of amounts that may be
available for dividends, reinvestment in Emmis' business or other discretionary
uses.
BCF and PCF are not measures of liquidity or of performance in accordance
with accounting principles generally accepted in the United States, and should
be viewed as a supplement to, and not a substitute for, our results of
operations presented on the basis of accounting principles generally accepted in
the United States. Moreover, BCF and PCF are not standardized measures and may
be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of
agency commissions and operating expenses. The primary source of broadcast
advertising revenues is the sale of advertising time to local and national
advertisers. Publishing entities derive revenue from subscriptions and sale of
print advertising inventory. Interactive derives revenue from the sale of
advertisements on the websites of the Company's stations. The most significant
broadcast operating expenses are employee salaries and commissions, costs
associated with programming, advertising and promotion, and station general and
administrative costs. Significant publishing operating expenses are employee
salaries and commissions, costs associated with producing a magazine, and
general and administrative costs. Significant interactive operating expenses are
employee salaries and general and administrative costs.
The Company's results are subject to seasonal fluctuations. Therefore,
results shown on a quarterly basis are not necessarily indicative of results for
a full year.
Results of Operations for the Three Months Ended May 31, 2001 Compared to May
31, 2000
Net revenues for the three months ended May 31, 2001 were $137.3 million
compared to $100.5 million for the same period of the prior year, an increase of
$36.8 million or 36.6%. On a pro forma basis (after giving effect to all
acquisitions consummated since March 1, 2000), net revenues decreased $11.1
million, or 7.5%. The decrease in net revenues is generally due to a softening
U.S. economy resulting in an overall decrease in advertisement sales, coupled
with a sharp decrease in dot.com advertising in the three months ended May 31,
2001 as compared to the same period of the prior year.
Operating expenses for the three months ended May 31, 2001 were $89.1
million compared to $61.9 million for the same period of the prior year, an
increase of $27.2 million or 44.0%. On a pro forma basis, operating expenses
decreased $3.1 million, or 3.3% This decrease is primarily due to the
elimination of certain operational positions in the television division and a
decrease in promotional spending and sales related costs.
Broadcast/publishing cash flow for the three months ended May 31, 2001 was
$48.3 million compared to $38.7 million for the same period of the prior year,
an increase of $9.6 million or 24.9%. On a pro forma basis, broadcast/publishing
cash flow decreased by $8.0 million, or 14.3%. This decrease is due to decreased
net revenues partially offset by decreased operating expenses as discussed
above.
Corporate expenses for the three months ended May 31, 2001 were $4.7
million compared to $3.7 million for the same period of the prior year, an
increase of $1.0 million or 26.9%. This increase is largely attributable to an
increase in the number of corporate employees in all departments as a result of
our growth over the last twelve months.
-21-
EBITDA before certain charges is defined as broadcast/publishing cash flow
less corporate and international business development expenses. EBITDA before
certain charges for the three months ended May 31, 2001 was $43.3 million
compared to $34.5 million for the same period of the prior year, an increase of
$8.8 million or 25.4%. On a pro forma basis, EBITDA before certain charges
decreased $8.9 million, or 17.0%. This decrease reflects the decrease in
broadcast/publishing cash flow coupled with the increase in corporate expenses.
Restructuring fees and other of $0.6 million in the three months ended May
31, 2001 principally consists of severance and related costs associated with
centralizing certain technical functions of the television division.
Depreciation and amortization expense for the three months ended May 31,
2001 was $24.1 million compared to $14.3 million for the same period of the
prior year, an increase of $9.8 million or 69.1%. Substantially all of the
increase in depreciation and amortization expense for the three months ended May
31, 2001 is due to acquisitions consummated since March 1, 2000.
Non-cash compensation expense for the three months ended May 31, 2001 was
$2.7 million compared to $1.7 million for the same period of the prior year, an
increase of $1.0 million or 64.7%. Non-cash compensation includes compensation
expense associated with stock options granted, restricted common stock issued
under employment agreements, common stock contributed to the Company's Profit
Sharing Plan and common stock issued to employees at our discretion. This
increase was due to the payment of certain employee incentives with our common
stock.
Interest expense for the three months ended May 31, 2001 was $34.7 million
compared to $8.4 million for the same period of the prior year, an increase of
$26.3 million or 311.9%. This increase reflects higher outstanding debt due to
acquisitions consummated since March 1, 2000, all of which were financed with
debt.
Our effective tax rate for the three months ended May 31, 2001 was 27.8%,
compared to 43.7% for the same period of the prior year. The decrease in our
effective tax rate in the three months ended May 31, 2001 primarily resulted
from the relative impact of the non-deductible tax items in relation to the
change in pre-tax income (loss).
Liquidity and Capital Resources
Capital Requirements
Our primary uses of capital have been historically, and are expected to
continue to be, funding acquisitions, capital expenditures, working capital and
debt service and preferred stock dividend requirements.
Emmis is constructing new operating facilities for WALA-TV in Mobile,
Alabama. The project is expected to be completed in December of 2001 for an
estimated cost of $11.3 million of which $3.0 million has been incurred through
May 31, 2001. This project will be financed through cash flows from operating
activities and/or borrowings under the credit facility.
-22-
Capital Expenditures
In the three month periods ended May 31, 2000 and 2001, we had capital
expenditures of $3.0 million and $9.1 million, respectively. The capital
expenditures in the period ended May 31, 2001 primarily related to the WALA
operating facilities project, leasehold improvements to various office and
studio facilities, broadcast equipment purchases and tower upgrades. We
anticipate that future requirements for capital expenditures will include
capital expenditures incurred during the ordinary course of business, including
costs related to our conversion to digital television. We expect to fund such
capital expenditures with cash generated from operating activities and
borrowings under our credit facility.
Debt Service and Preferred Stock Dividend Requirements
As of May 31, 2001, we had $1.592 billion of corporate indebtedness
outstanding under our credit facility ($1.085 billion), senior subordinated
notes ($0.3 billion) and senior discount notes ($0.207 billion), and an
additional $17.3 million of other indebtedness. We also had $143.8 million of
our convertible preferred stock outstanding. All outstanding amounts under our
credit facility bear interest, at our option, at a rate equal to the Eurodollar
rate or an alternative Base Rate plus a margin. As of May 31, 2001, our weighted
average borrowing rate under our credit facility was approximately 7.1% and our
overall weighted average borrowing rate, after taking into account amounts
outstanding under our senior subordinated notes and senior discount notes, was
approximately 8.1%.
Based on amounts currently outstanding under our senior subordinated notes
and convertible preferred stock, the debt service and preferred stock dividend
requirements for the next twelve month period are $24.4 million and $9.0
million, respectively.
Sources of Liquidity
Our primary sources of liquidity are cash provided by operations and funds
available under our credit facility. At May 31, 2001, we had cash and cash
equivalents of $13.6 million and net working capital of $59.5 million. At
February 28, 2001, we had cash and cash equivalents of $59.9 million and net
working capital of $98.0 million. On June 22, 2001, we effectuated our corporate
reorganization (see Note 8 for further discussion) and $93.0 million that was
previously held in escrow was released to us. We used the cash to repay amounts
outstanding under the credit facility. At June 30, 2001, we had $315.0 million
available under our credit facility, less $6.6 million in outstanding letters of
credit. We expect that cash flow from operating activities will be sufficient to
fund all working capital, capital expenditures, debt service, and preferred
stock dividend requirements for the foreseeable future.
As part of our business strategy, we continually evaluate potential
acquisitions of radio and television stations, as well as publishing properties.
If we elect to take advantage of future acquisition opportunities, we may incur
additional debt or issue additional equity or debt securities, depending on
market conditions and other factors.
-23-
Intangibles
At May 31, 2001, approximately 79% of our total assets consisted of
intangible assets, such as FCC broadcast licenses, goodwill, subscription lists
and similar assets, the value of which depends significantly upon the
operational results of our businesses. In the case of our radio and television
stations, we would not be able to operate the properties without the related FCC
license for each property. FCC licenses are renewed every eight years;
consequently, we continually monitor our stations' compliance with the various
regulatory requirements. Historically, all of our FCC licenses have been renewed
at the end of their respective eight-year periods, and we expect that all FCC
licenses will continue to be renewed in the future.
Quantitative and Qualitative Disclosures About Market Risk
Management monitors and evaluates changes in market conditions on a regular
basis. Based upon the most recent review, management has determined that there
have been no material developments affecting market risk since the filing of the
Company's Annual Report on Form 10-K for the year ended February 28, 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Discussion regarding these items is included in management's discussion and
analysis of financial condition and results of operations.
-24-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal proceedings arising in the ordinary
course of business. In the opinion of management of the Company, however, there
are no legal proceedings pending against the Company likely to have a material
adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed or incorporated by reference as a part
of this report:
3.1 Second Amended and Restated Articles of Incorporation of Emmis
Communications Corporation, incorporated by reference from Exhibit 3.1
to the Company's Form 10-K/A for the year ended February 29, 2000, and
amendment relating to Series A cumulative convertible preferred stock,
incorporated by reference from Exhibit 3.2 to the Company's
registration statement on Form S-3 File No. 333-62172, as amended.
3.2 Amended and Restated Bylaws of Emmis Communications Corporation,
incorporated by reference from Exhibit 3.2 to the Company's Form
10-K/A for the year ended February 29, 2000.
10.1 Guaranty of Emmis Communications Corporation in favor of Toronto
Dominion (Texas), Inc., as administrative agent under the Fourth
Amended and Restated Revolving Credit and Term Loan Agreement of Emmis
Operating Company, as borrower.
15 Letter re: unaudited interim financial information
(b) Reports on Form 8-K
On March 12, 2001, the Company filed a Form 8-K to disclose pro forma
financial information.
On March 13, 2001, the Company filed a Form 8-K disclosing its financial
performance for the three and twelve months ended February 28, 2001.
On April 12, 2001, the Company filed a Form 8-K that included its Fourth
Amended and Restated Revolving Credit and Term Loan Agreement and First
Amendment to Fourth Amended and Restated Revolving Credit and Term Loan
Agreement.
-25-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMMIS COMMUNICATIONS CORPORATION
Date: July 16, 2001 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President (Authorized
Corporate Officer), Chief Financial
Officer and Treasurer
-26-
Exhibit 15
July 16, 2001
Mr. Walter Z. Berger
Executive Vice President, Chief Financial Officer and Treasurer
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle Suite 700
Indianapolis, Indiana 46204
Dear Mr. Berger:
We are aware that Emmis Communications Corporation has incorporated by reference
in its Registration Statements Nos. 33-83890, 333-14657, 333-42878, 333-62172
and 333-62160 its Form 10-Q for the quarter ended May 31, 2001, which includes
our report dated June 26, 2001 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities Act of
1933, that report is not considered a part of the registration statements
prepared or certified by our firm or a report prepared or certified by our firm
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
- ----------------------------------------
ARTHUR ANDERSEN LLP
-27-