SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment to Form 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 31, 1998 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.)
950 NORTH MERIDIAN STREET
SUITE 1200
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 October 5, 1998, was:
13,091,835 Shares of Class A Common Stock, $.01 Par Value
2,560,610 Shares of Class B Common Stock, $.01 Par Value
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . .5
Condensed Consolidated Balance Sheets
at February 28, 1998 and August 31, 1998 . . . . . . . . . . .5
Condensed Consolidated Statements of
Operations for the three and six months
ended August 31, 1997 and 1998 . . . . . . . . . . . . . . . .7
Condensed Consolidated Statements of Cash
Flows for the six months ended
August 31, 1997 and 1998. . . . . . . . . . . . . . . . . . .9
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . . . . . . . 12
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders . . . . 22
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 22
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 August 31, 1998, and the related condensed
consolidated statements of operations for the three-month and
six-month periods ended August 31, 1998 and 1997 and the condensed
consolidated statements of cash flows for the six-month periods ended
August 31, 1998 and 1997 (as restated - see Note 2). 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,
October 7, 1998 (except with respect to the matter
discussed in Note 2 as to which
the date is April 30, 1999).
ITEM 1. FINANCIAL STATEMENTS
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in thousands, except per share data)
As Restated
(Note 2)
February 28, August 31,
1998 1998
------- -------
(Note 1) (unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 5,785 $ 12,762
Accounts receivable, net 32,120 47,326
Current income tax receivable 4,968 -
Prepaid expenses and other 8,279 12,147
-------- --------
Total current assets 51,152 72,235
Property and equipment, net 33,446 80,706
Intangible assets, net 234,558 723,850
Other assets, net 14,232 34,036
-------- --------
Total assets $ 333,388 $ 910,827
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51 $ 50
Accounts payable 13,140 11,942
Accrued salaries and commissions 2,893 3,256
Accrued interest 2,421 3,001
Deferred revenue 7,985 6,826
Current portion of TV program rights payable - 5,101
Income taxes payable - 16,881
Note payable-SF Acquisition - 25,000
Other 1,579 7,795
------- -------
Total current liabilities 28,069 79,852
LONG-TERM DEBT, NET OF CURRENT MATURITIES 231,371 490,499
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 16,303
OTHER NONCURRENT LIABILITIES 604 3,902
MINORITY INTEREST 1,875 -
DEFERRED INCOME TAXES 27,559 84,898
------- -------
Total liabilities 289,478 675,454
------- -------
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 13,091,793 shares
at August 31, 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 August 31, 1998 26 26
Additional paid-in capital 69,353 257,064
Accumulated deficit (25,553) (21,202)
Cumulative translation adjustments - (646)
------- -------
Total shareholders' equity 43,910 235,373
------- -------
Total liabilities and shareholders'
equity $ 333,388 $ 910,827
======= =======
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
August 31, August 31,
(Unaudited) (Unaudited)
-------------------- ------------------
As Restated As Restated
(Note 2) (Note 2)
1997 1998 1997 1998
------ ------ ------ ------
GROSS REVENUES $ 43,415 $ 67,873 80,262 120,721
LESS: AGENCY COMMISSIONS 6,407 9,999 11,924 18,228
------- ------- ------- -------
NET REVENUES 37,008 57,874 68,338 102,493
Operating expenses 18,187 32,415 36,935 60,210
Amortization of TV program rights - 648 - 648
International business development
expenses 267 354 605 561
Corporate expenses 1,728 1,969 3,372 3,926
Depreciation and amortization 1,823 6,505 3,505 9,912
Noncash compensation 1,585 1,081 2,412 2,036
Time brokerage fee 1,416 95 1,416 2,220
------- ------- ------- -------
OPERATING INCOME 12,002 14,807 20,093 22,980
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (4,370) (7,121) (7,019) (12,629)
Minority interest - 868 - 1,875
Other income (expense), net 34 811 206 1,123
------- ------- ------- -------
Total Other Income (Expense) (4,336) (5,442) (6,813) (9,631)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 7,666 9,365 13,280 13,349
PROVISION FOR INCOME TAXES 2,994 5,204 5,240 7,400
NET INCOME BEFORE EXTRAORDINARY ITEM 4,672 4,161 8,040 5,949
------- ------- ------- -------
EXTRAORDINARY ITEM, NET OF TAX - 1,597 - 1,597
------- ------- ------- -------
NET INCOME $ 4,672 $ 2,564 $ 8,040 $ 4,352
======== ======= ======= =======
Basic net income per share $ .41 $ .17 $ .70 $ .33
======== ======= ======= =======
Diluted net income per share $ .40 $ .16 $ .69 $ .32
======== ======= ======= =======
Weighted average common shares outstanding:
Basic 11,532,609 15,512,702 11,524,351 13,255,592
Diluted 11,608,030 15,888,107 11,627,649 13,662,310
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
Six Months Ended August 31,
(Unaudited)
-------------------
As Restated
(Note 2)
1997 1998
---- ----
OPERATING ACTIVITIES:
Net income $ 8,040 $ 4,352
Adjustments to reconcile net income to net
cash provided by operating activities-
Extraordinary item - 1,597
Depreciation and amortization of
property and equipment 1,222 3,403
Amortization of debt issuance costs
and cost of interest rate cap agreements 1,694 604
Amortization of intangible assets 2,283 6,509
Amortization of TV program rights - 648
Deferred income taxes (870) 2,017
Noncash compensation 2,412 2,036
Other - (2,573)
(Increase) decrease in certain current
assets -
Accounts receivable (11,084) (15,357)
Prepaid expenses and other 1,428 144
Increase (decrease) in certain current
liabilities -
Accounts payable 64 (3,326)
Accrued salaries and commissions 990 48
Accrued interest 470 580
Deferred revenue (105) (1,159)
Other 1,034 6,216
Increase (decrease) in other assets, net (417) 2,466
Increase in other liabilities - 4,120
----- -----
Net cash provided by operating
activities 7,161 12,325
----- -----
INVESTING ACTIVITIES:
Purchases of property and equipment (2,031) (16,503)
Proceeds from sale of equipment - 607
Acquisition of WQCD-FM - (128,449)
Acquisition of SF Broadcasting - (287,293)
Acquisition of WALC-FM, WKBQ-AM, and WKKX-FM (36,964) -
Escrow deposit related to the acquisition of
WTLC-FM and WTLC-AM (750) -
Escrow deposit related to the acquisition of
Wabash Valley Broadcasting - (9,000)
------ -------
Net cash used by investment
activities (39,745) (440,638)
------ -------
FINANCING ACTIVITIES:
Payments on long-term debt (5,741) (396,525)
Proceeds from long-term debt 51,700 655,652
Proceeds (purchase) of Class A Common Stock (7,000) 182,640
Purchase of interest rate cap agreements and
other debt related costs (4,086) (8,912)
Proceeds from exercise of stock options and
related income tax benefits 1,524 3,081
------ ------
Net cash provided by
financing activities 36,397 435,936
------ ------
EFFECT OF EXCHANGE RATES ON CASH - (646)
INCREASE IN CASH AND CASH EQUIVALENTS 3,813 6,977
CASH AND CASH EQUIVALENTS:
Beginning of period 1,191 5,785
------ ------
End of period $5,004 $12,762
====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 4,855 10,971
Income taxes 595 286
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
=======
SF ACQUISITION:
Fair value of assets acquired $338,790
Cash paid 287,293
Note payable 25,000
-------
Liabilities assumed $ 26,497
=======
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
(Unaudited)
AUGUST 31, 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 August 31, 1998 and the results of its operations for the
three and six months ended August 31, 1998 and 1997 and its cash flows for the
six months ended August 31, 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 the timing of 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
compensation 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 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 liabilites 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 $27 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. 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 McHale Videofilm and satellite stations KAII-TV,
Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii).
The unaudited pro forma condensed consolidated statement of operations of
the Company for the three and six month periods ended August 31, 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, and (iv) the SF 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 and
six month periods ended August 31, 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, and (iii) the SF
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 Six Months Ended
August 31, August 31,
------------------ -----------------
As Restated As Restated
(Note 2) (Note 2)
1997 1998 1997 1998
---- ---- ---- ----
Pro forma Pro forma Pro forma Pro forma
--------- --------- --------- ---------
Net revenues $ 58,231 $ 64,024 $ 113,271 $ 122,388
Operating expenses 33,810 37,017 68,958 73,831
Amortization of TV program rights 882 1,089 1,764 1,971
International business development
expenses 267 354 605 561
Corporate expenses 2,085 2,357 4,340 4,744
Depreciation and amortization 7,133 8,059 14,230 15,768
Noncash compensation 1,585 1,081 2,412 2,036
------ ------ ------ ------
Operating income 12,469 14,067 20,962 23,477
Interest expense (9,811) (10,168) (19,910) (21,071)
Other income (expense), net (10) 1,621 117 2,881
------ ------ ------ ------
Income before income taxes 2,648 5,520 1,169 5,287
Provision for income taxes 1,400 3,304 600 3,200
------ ------ ------ ------
Net income $ 1,248 $ 2,216 $ 569 $ 2,087
====== ====== ====== ======
Basic net income per share $ .08 $ .14 $ .04 $ .13
====== ====== ====== ======
Diluted net income per share $ .08 $ .14 $ .04 $ .13
====== ====== ====== ======
Weighted average shares outstanding
Basic 16,132,609 15,662,702 16,124,351 15,630,592
Diluted 16,208,030 16,038,107 16,227,649 16,033,310
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 six month periods ended August
31, 1998 and 1997 (dollars in thousands):
Three Months Ended Six Months Ended
August 31, August 31,
------------------- ----------------
As Restated As Restated
(Note 2) (Note 2)
1997 1998 1997 1998
---- ---- ---- ----
Net income $4,672 $2,564 $8,040 $4,352
Translation adjustment - (475) - (646)
------ ------ ------ ------
Total comprehensive income $4,672 $2,089 $8,040 $3,706
====== ====== ====== ======
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. PENDING ACQUISITION AND OTHER SIGNIFICANT EVENTS
------------------------------------------------
A. Pending Acquisition
-------------------
Effective March 20, 1998, the Company entered into an agreement to purchase
the majority of the assets of Wabash Valley Broadcasting Corporation, the
seller, 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. The
Company plans to close this acquisition in October 1998. The Company will
account for this acquisition under the purchase method of accounting.
B. 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,
in the quarter ending August 31, 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 August 31, 1998, the Company had amounts outstanding under the Credit
Facility of $223 million under Term Note A and $250 million under Term Note B.
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 October 7, 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.
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 August 31, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PBC). 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 broadcasing 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 a measure of liquidity or of performance in accordance
with generally accepted accounting principles, and should be viewed as a
supplement to and not a substitute for our results of operations presented
on the basis of generally accepted accounting principles. Moreover, BCF and
PCF are not a standardized measure 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 broadcasting 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.
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 the magazine, and general and administrative costs.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1998 COMPARED TO AUGUST 31,
1997
Net revenues for the quarter ended August 31, 1998 were $57.9 million
compared to $37.0 million for the same quarter of the prior year, an increase
of $20.9 million or 56.4%. Net revenues for the six months ended August 31,
1998 were $102.5 million compared to $68.3 million for the same period of
the prior year, an increase of $34.2 million or 50.0%. These increases are
principally due to the operation of WQCD under a time brokerage agreement
and subsequent acquisition thereof, the acquisition of WTLC FM and AM, the
acquisition of Texas Monthly, the commencement of operations of Slager
Radio and the SF Acquisition, as well as the ability to realize higher
advertising rates at the Company's broadcasting properties, resulting from
higher ratings at certain broadcasting properties, as well as increases in
general radio spending in the markets in which the Company operates. On a
pro forma basis, net revenues increased $5.8 million or 9.9% for the quarter
and increased $9.1 million or 8.0% for the six month period.
Operating expenses for the quarter ended August 31, 1998 were $32.4
million compared to $18.2 million for the same quarter of the prior year,
an increase of $14.2 million or 78.2%. Operating expenses for the
six months ended August 31, 1998 were $60.2 million compared to $36.9 million
for the same period of the prior year, an increase of $23.3 million or 63.0%.
These increases are primarily attributable to the operation of WQCD under a
time brokerage agreement and subsequent acquisition thereof, the acquisition
of WTLC FM and AM, the acquisition of Texas Monthly, the commencement of
operations of Slager Radio, and the SF Acquisition. On a pro forma basis,
operating expenses increased $3.2 million or 9.5% for the quarter and
increased $4.9 million or 7.1% for the six month period.
BCF and PCF for the quarter ended August 31, 1998 was $25.5 million
compared to $18.8 million for the same quarter of the prior year, an increase
of $6.7 million or 35.3%. BCF and PCF for the six months ended August
31, 1998 was $42.3 million compared to $31.4 million for the same period of the
prior year, an increase of $10.9 million or 34.6%. These increases are
principally due to increased net revenues offset by increased
operating expenses as discussed above. On a pro forma basis,
BCF and PCF increased $2.6 million or 10.6% for the quarter and
increased $4.2 million or 9.6% for the six month period.
Corporate expenses for the quarter ended August 31, 1998 were $2.0 million
compared to $1.7 million for the same quarter of the prior year, an increase
of $0.3 million or 13.9%. Corporate expenses for the six month period ended
August 31, 1998 were $3.9 million compared to $3.4 million for same period of
the prior year, an increase of $.5 million or 16.4%. These increases are
primarily due to the establishment of a corporate division for publishing and
television.
International business development expenses for the quarter ended August
31, 1998 were $.4 million compared to $.3 million for the same quarter of the
prior year. International business development expenses for the six month
periods ended August 31, 1998 and 1997 were $.6 million. These expenses
reflect costs associated with Emmis International Corporation. The purpose of
this wholly owned subsidiary is to identify, investigate and develop
international broadcast investments or other international business
opportunities. Expenses consist primarily of salaries, travel and various
administrative costs.
Adjusted EBITDA is defined as broadcast/publishing cash flow less
corporate and international deveopment expenses. Adjusted EBITDA for the
quarter ended August 31, 1998 was $22.5 million compared to $16.8 million
for the same quarter of the prior year, an increase of $5.7 million or 33.7%.
Adjusted EBITDA for the six months ended August 31, 1998 was $37.1 million
compared to $27.4 million for the same period of the prior year, an increase
of $9.7 million or 35.4%. These increases are principally due to increased
net revenues offset by increased operating expenses, as discussed above.
On a pro forma basis, Adjusted EBITDA increased $2.0 million or 9.5% for the
quarter and increased $3.7 million or 9.8% for the six month period.
Interest expense was $7.1 million for the quarter ended August 31, 1998
compared to $4.4 million for the same quarter of the prior year, an increase
of $2.7 million or 63.0%. Interest expense was $12.6 million for the six
months ended August 31, 1998 compared to $7.0 million for the same period of
the prior year, an increase of $5.6 million or 79.9%. These increases reflect
higher outstanding debt due to the WTLC FM and AM, TEXAS MONTHLY, Slager Radio,
WQCD-FM, and SF acquisitions and an escrow deposit related to the Wabash Valley
acquisition. On a pro forma basis, interest expense increased $.4 million or
3.6% for the quarter and increased $1.2 million or 5.8% for the six month
period.
LIQUIDITY AND CAPITAL RESOURCES
The increase in accounts receivable from February 28, 1998 to August 31,
1998 is due to the increase of net revenues in the quarter ended August 31,
1998 compared to the quarter ended February 28, 1998.
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 $32
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 and AM, and network and television acquisitions, as well as an increase in
overall staffing. 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 is funding this project through cash
flow from operating activities.
In the six month period ended August 31, 1998, the Company had capital
expenditures of $16.5 million. These capital expenditures consist primarily
of progress payments in connection with the Indianapolis building project.
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 net proceeds of $182.6 million.
Net proceeds from the offering were used to repay outstanding obligations under
the Credit Facility.
In July 1998, Emmis entered into an amended and restated Credit Facility.
See Note 6 for further discussion.
The Company expects that cash flow from operating activities will be
sufficient to fund all debt service for debt existing at August 31, 1998,
working capital and capital expenditure requirements. To complete the
acquisition of assets from Wabash Valley Broadcasting, the Company will
increase its bank borrowings under its new Credit Facility. As part of its
business strategy, the Company frequently evaluates potential acquisitions of
radio and television stations. In connection with future acquisition
opportunities, the Company may incur additional debt or issue additional equity
or debt securities depending on market conditions and other factors.
YEAR 2000 COMPLIANCE
The Company has completed its assessment phase of year 2000 compliance for
information technology for its radio broadcasting properties, publishing
entities and corporate. It has also completed its assessment of other
equipment, including broadcast equipment, at some radio properties. Year 2000
compliance at newly acquired properties is being assessed. It has been
determined that certain information technology and other equipment is
represented by its vendors to be year 2000 compliant. This technology and
equipment will be tested prior to August 31, 1999. Technology and equipment
that is currently not represented as year 2000 compliant will be
upgraded or replaced, and tested prior to August 31, 1999. In connection with
the Company's move of its corporate and Indianapolis operations to an office
building in downtown Indianapolis, in early 1999, substantially all information
technology and other equipment in the building will be year 2000 compliant.
Given the status of the Company's assessment phase, the Company is in the
process of determining the total cost of remediation relating to year 2000
issues. The Company intends to fund all expenditures relating to year 2000
remediation from current operations. If certain broadcast equipment and
information technology is not year 2000 compliant prior to January 1, 2000, a
station using that equipment or information technology might not be able
to broadcast and process transactions. If this were to occur, temporary
solutions or processes not involving the malfunctioning equipment could be
developed. The Company intends to develop a contingency plan for use of
such temporary solutions.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders of the Company held on June
23, 1998, the following matters received the following votes:
VOTES VOTES
MATTER DESCRIPTION FOR AGAINST ABSTAINING
------------------ ----- ------- ----------
1. Election of Directors:
Jeffrey H. Smulyan . . . 9,307,252 - 23,064
Doyle L. Rose . . . . . 9,307,252 - 23,064
Gary L. Kaseff . . . . . 9,307,252 - 23,064
Lawrence B. Sorrel . . . 9,307,252 - 23,064
Susan B. Bayh* . . . . . 9,307,252 - 23,064
Richard A. Leventhal*. . 9,307,252 - 23,064
* Class A Director
2. Approval of the name change
From Emmis Broadcasting
Corporation to Emmis
Communications Corporation. 9,327,902 1,894 520
3. Approval of Appointment of
Auditors . . . . . . . . . 9,927,360 626 2,330
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS.
The following exhibits are filed or incorporated by reference as a
part of this report:
3.1 Articles of Amendment to Articles of Incorporation *
3.2 Amendment to the Amended and Restated Code of By-Laws *
10.1 Second Amended and Restated Revolving Credit and Term Loan Agreement *
10.2 1st Amendment to the Second Amended and Restated Revolving Credit and
Term Loan Agreement *
11 Statements re: Calculations of per share net income
15 Letter re: unaudited interim financial information
27 Financial data schedule (Edgar version only)
* Previously submitted
REPORTS ON FORM 8-K
The Company filed Form 8-K on June 22, 1998, to report the closing
of its purchase of radio station WQCD-FM in New York City. On July 31,
1998, the Company filed Form 8-K to report the closing of the SF
Acquisition and the change of its name from Emmis Broadcasting
Corporation to Emmis Communications Corporation.
Additionally, the Company filed Form 8-K/A on September 29, 1998,
to include the financial statements of SF Broadcasting of Wisconsin,
Inc. And SF Multistations, Inc. and Subsidiaries as of June 28, 1998 and
December 28, 1997 and pro forma financial information.
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: April 30, 1999 By: /s/ Walter Z. Berger
-------------------------
Walter Z. Berger
Vice President(Authorized
Corporate Officer), Chief
Financial Officer and Treasurer