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 November 30, 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.)
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)
950 NORTH MERIDIAN STREET
SUITE 1200
INDIANAPOLIS, INDIANA 46204
(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 January 13, 1999, was:
13,138,286 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 November 30, 1998 . . . . . . . . . .5
Condensed Consolidated Statements of
Operations for the three and nine months
ended November 30, 1997 and 1998 . . . . . . . . . . . . . . .7
Condensed Consolidated Statements of Cash
Flows for the nine months ended
November 30, 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 . . . . . . . . . . . . . . . . . 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmis Communications Corporation and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet
of Emmis Communications Corporation (an Indiana corporation) and
Subsidiaries as of November 30, 1998 and the related condensed
consolidated statements of operations for the three-months and
nine-months ended November 30, 1998 and 1997 and the condensed
consolidated statements of cash flows for the nine-months ended
November 30, 1998 and 1997 (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,
December 17, 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, November 30,
1998 1998
------- -------
(Note 1) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,785 $ 5,320
Accounts receivable, net 32,120 56,557
Current income tax receivable 4,968 -
Prepaid expenses and other 8,279 16,278
-------- --------
Total current assets 51,152 78,155
Property and equipment, net 33,446 101,896
Intangible assets, net 234,558 801,351
Other assets, net 14,232 28,436
-------- --------
Total assets $ 333,388 $ 1,009,838
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of other long-term liabilities 2,051 2,050
Accounts payable 13,140 10,556
Accrued salaries and commissions 2,893 6,018
Accrued interest 2,421 10,044
Deferred revenue 7,985 6,994
Current portion of TV program rights payable - 5,307
Income taxes payable - 17,480
Note payable-SF Acquisition - 25,000
Other 1,579 15,043
------- -------
Total current liabilities 30,069 98,492
CREDIT FACILITY 215,000 539,000
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 25,606
OTHER LONG-TERM LIABILITIES, NET OF CURRENT PORTION 14,975 20,957
MINORITY INTEREST 1,875 -
DEFERRED INCOME TAXES 27,559 87,128
------- -------
Total liabilities 289,478 771,183
------- -------
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value;
authorized 34,000,000 shares; issued
and outstanding 8,430,660 shares at
February 28, 1998 and 13,105,944 shares
at November 30, 1998 84 131
Class B common stock, $.01 par value;
authorized 6,000,000 shares; issued
and outstanding 2,560,894 shares at
February 28, 1998 and 2,560,610 at November 30, 1998 26 26
Additional paid-in capital 69,353 257,341
Accumulated deficit (25,553) (18,190)
Cumulative translation adjustments - (653)
------- -------
Total shareholders' equity 43,910 238,655
------- -------
Total liabilities and shareholders'
equity $ 333,388 $ 1,009,838
======= =========
The accompanying notes to condensed consolidated financial
statements are an integral part of these balance sheets.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
(Unaudited) (Unaudited)
-------------------- ------------------
As Restated
(Note 2)
1997 1998 1997 1998
------ ------ ------ ------
GROSS REVENUES $ 46,820 $ 84,338 $127,082 $205,059
LESS: AGENCY COMMISSIONS 7,011 12,699 18,935 30,927
------- ------- ------- -------
NET REVENUES 39,809 71,639 108,147 174,132
Operating expenses 22,208 40,300 59,143 100,510
Amortization of TV program rights - 1,363 - 2,011
International business development
expenses 327 413 932 974
Corporate expenses 1,966 2,453 5,338 6,379
Depreciation and amortization 1,902 8,683 5,407 18,595
Noncash compensation 1,120 342 3,532 2,378
Time brokerage fee 2,126 - 3,542 2,220
------- ------- ------- -------
OPERATING INCOME 10,160 18,085 30,253 41,065
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (3,337) (12,313) (10,356) (24,942)
Minority interest - - - 1,875
Other income (expense), net 116 1,190 322 2,313
------- ------- ------- -------
Total Other Income (Expense) (3,221) (11,123) (10,034) (20,754)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 6,939 6,962 20,219 20,311
PROVISION FOR INCOME TAXES 2,860 3,950 8,100 11,350
NET INCOME BEFORE EXTRAORDINARY ITEM 4,079 3,012 12,119 8,961
------- ------- ------- -------
EXTRAORDINARY ITEM, NET OF TAX - - - 1,597
------- ------- ------- -------
NET INCOME $ 4,079 $ 3,012 $ 12,119 $ 7,364
======== ======= ======== =======
Basic net income per share $ .38 $ .19 $ 1.10 $ .52
======== ======= ======= =======
Diluted net income per share $ .36 $ .19 $ 1.06 $ .51
======== ======= ======= =======
Weighted average common shares outstanding:
Basic 10,867,289 15,654,123 11,034,856 14,046,628
Diluted 11,348,632 15,965,611 11,450,283 14,447,764
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
Nine Months Ended November 30,
(Unaudited)
-------------------
As Restated
(Note 2)
1997 1998
---- ----
OPERATING ACTIVITIES:
Net income $ 12,119 $ 7,364
Adjustments to reconcile net income to net
cash provided by operating activities-
Extraordinary item - 1,597
Depreciation and amortization of
property and equipment 1,866 6,306
Amortization of debt issuance costs
and cost of interest rate cap agreements 1,920 910
Amortization of intangible assets 3,541 12,289
Amortization of TV program rights - 2,011
Deferred income taxes (1,250) 4,247
Noncash compensation 3,532 2,378
Other 894 (2,377)
(Increase) decrease in certain current
assets (net of dispositions and acquisitions) -
Accounts receivable (16,362) (24,437)
Prepaid expenses and other 1,338 (4,131)
Increase (decrease) in certain current
liabilities (net of dispositions and acquisitions) -
Accounts payable 1,566 (3,211)
Accrued salaries and commissions 2,051 2,810
Accrued interest 646 7,623
Deferred revenue 29 (991)
Other 2,602 6,796
Increase (decrease) in other assets, net (958) 3,836
Increase in other liabilities - 7,345
----- -----
Net cash provided by operating
activities 13,534 30,365
----- -----
INVESTING ACTIVITIES:
Purchases of property and equipment (6,492) (26,224)
Proceeds from sale of equipment - 607
Acquisition of WQCD-FM - (128,449)
Acquisition of SF Broadcasting - (287,293)
Acquisition of Wabash Valley Broadcasting - (88,905)
Acquisition of WALC-FM, WKBQ-AM, and WKKX-FM (36,964) -
Acquisition of WTLC-FM and WTLC-AM (15,336) -
Acquisition of Cincinnati Magazine (1,979) -
Acquisition of Network Indiana (709) -
------ -------
Net cash used by investment
activities (61,480) (530,264)
------- -------
FINANCING ACTIVITIES:
Payments on long-term debt (11,224) (410,157)
Proceeds from long-term debt 79,200 733,500
Proceeds (purchase) of Class A Common Stock,
net of transaction costs (7,000) 182,640
Purchase of interest rate cap agreements and
other debt related costs (4,230) (8,912)
Proceeds from exercise of stock options and
related income tax benefits 2,302 3,016
------ ------
Net cash provided by
financing activities 59,048 500,087
------ ------
EFFECT OF EXCHANGE RATES ON CASH - (653)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,102 (465)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,191 5,785
------ ------
End of period $12,293 $ 5,320
====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 7,789 $ 15,301
Income taxes 6,575 $ 1,460
ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM:
Fair value of assets acquired $44,642
Cash paid 43,642
-------
Liabilities assumed $ 1,000
=======
ACQUISITION OF WQCD-FM:
Fair value of assets acquired $203,813
Cash paid 128,449
--------
Liabilities assumed $ 75,364
========
ACQUISITION OF SF BROADCASTING:
Fair value of assets acquired $342,809
Cash paid 287,293
Note payable 25,000
--------
Liabilities assumed $ 30,516
========
ACQUISITION OF WABASH VALLEY BROADCASTING:
Fair value of assets acquired $100,276
Cash paid 88,905
-------
Liabilites assumed $ 11,371
=======
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
(Unaudited)
NOVEMBER 30, 1998
---------------
NOTE 1. GENERAL
--------
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated interim financial statements included
herein have been prepared, without audit, by Emmis Communications Corporation,
and Subsidiaries ("Emmis" or the "Company"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, Emmis believes that the
disclosures are adequate to make the information presented not misleading. The
condensed consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
February 28, 1998.
In the opinion of the registrant, the accompanying interim financial
statements contain all material adjustments (consisting only of normal
recurring adjustments), necessary to present fairly the consolidated financial
position of Emmis at November 30, 1998 and the results of its operations for
the three and nine months ended November 30, 1998 and 1997 and its cash flows
for the nine months ended November 30, 1998 and 1997.
NOTE 2. RESTATEMENT OF FINANCIAL RESULTS
--------------------------------
The Company has restated its financial results for the year ended
February 28, 1998 and its results for the three-months ended May 31,
1998 and August 31, 1998, and the six-months ended August 31, 1998 and
the nine-months ended November 30, 1998.
The restatement relates to a change in 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 (including transaction costs) less approximately $13 million
for cash purchase price adjustments relating to taxes. The total purchase
price plus $20,042 of net current tax liabilities and $55,322 of deferred
tax liabilities assumed, were allocated to property and equipment, broadcast
license and goodwill based upon a preliminary appraisal. Broadcast license
and goodwill are included in intangible assets in the accompanying balance
sheet. The Company financed the acquisition through additional bank
borrowings under its Credit Facility.
Effective July 1, 1997 through the date of closing, the Company operated
WQCD-FM under a time brokerage agreement.
In June 1998, Emmis completed the sale of 4.6 million shares of its Class
A Common Stock at $42.00 per share resulting in total proceeds of $193 million
(the "Offering"). Net proceeds of $182.6 million were used to repay
outstanding obligations under the Credit Facility.
On July 16, 1998, the Company entered into an amended and restated Credit
Facility (the "Credit Facility"). See Note 6.
On July 16, 1998, the Company completed its acquisition of substantially
all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations,
Inc. and Subsidiaries (collectively the "SF Acquisition"), the seller, for a
cash purchase price of $287 million (including transaction costs), a $25
million promissory note due to the former owner, plus assumed program rights
payable and other liabilities of approximately $30.5 million. The Company
financed the acquisition through a $25 million advance payment, the $25
million promissory note (due July 15, 1999, bearing interest at 8%) and
borrowings under the Credit Facility. Pledged as collateral for the
promissory note is approximately $25 million of the Company's Class A Common
Stock. At the option of the Company, the promissory note may be paid in cash
or an equivalent amount of the Company's Class A Common Stock. The Company
intends to pay this obligation in cash. The total purchase price was
allocated to property and equipment, television program rights and broadcast
licenses based on a preliminary appraisal. Broadcast licenses are included in
intangible assets in the accompanying balance sheet and are being amortized
over 40 years. Television program rights are included in prepaid expenses and
other, and other assets, net in the accompanying condensed consolidated
balance sheets. Amortization of television program rights is computed under
either straight-line over the contract period or run value, which ever yields
the greater amortization for each program on a monthly basis.
The SF Acquisition consists of four Fox network affiliated television stations:
WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV
in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including McHale
Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo,
Hawaii).
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation
(collectively the "Wabash Acquisition"), the seller, for a cash purchase price
of $88.9 million (including transaction costs), plus assumed program rights
payable and other liabilities of approximately $11.4 million. The Company
financed the acquisition through a $9 million advance payment and borrowings
under the Credit Facility. The total purchase price was allocated to property
and equipment, television program rights and broadcast licenses based on a
preliminary appraisal. Broadcast licenses are included in intangible assets
in the accompanying balance sheet and are being amortized over 40 years.
Television program rights are included in prepaid expenses and other, and
other assets, net in the accompanying condensed consolidated balance sheets.
Amortization of television program rights is computed under either straight-
line over the contract period or run value, which ever yields the greater
amortization for each program on a monthly basis. The Wabash Acquisition
consists of WFTX-TV , a Fox network affiliated television station in Ft. Myers,
Florida, WTHI-TV a CBS network affiliated television station, WTHI-FM and AM
and WWVR-FM, radio stations located in the Terre Haute, Indiana area.
The unaudited pro forma condensed consolidated statement of operations of
the Company for the three months ended November 30, 1997, reflects adjustements
to the condensed consolidated historical operating data of the Company to
give effect to (i) the acquisitions of WTLC-FM and AM and Texas Monthly all of
which ocurred during the year ended February 28, 1998, (ii) the WQCD
Acqusition, (iii) the Offering and Credit Facility, (iv) the SF Acquisition,
and (v) the Wabash Acquisition, as if such transactions had ocurred as of
September 1, 1997. The unaudited pro forma condensed consolidated statement
of operations of the Company for the nine months ended November 30, 1997,
reflects adjustments to the condensed consolidated historical operating data
of the Company to give effect to (i) the acquisitions of WALC-FM, WKKX-FM,
WKBQ-AM, WTLC-FM and AM, and Texas Monthly and the disposition of WKBQ-AM, all
of which occurred during the year ended February 28, 1998, (ii) the WQCD
Acquisition, (iii) the Offering and Credit Facility, (iv) the SF Acquisition,
and (v) the Wabash Acquisition, as if such transactions had occurred as of
March 1, 1997. The unaudited pro forma condensed consolidated statement of
operations of the Company for the three months ended November 30, 1998 reflects
adjustments to the condensed consolidated historical operating data of the
Company to give effect to the Wabash Acquisition, as if such transaction had
ocurred as of September 1, 1998. The unaudited pro forma condensed
consolidated statement of operations of the Company for the nine
months ended November 30, 1998 reflects adjustments to the condensed
consolidated historical operating data of the Company to give effect to (i) the
Offering and Credit Facility, (ii) the WQCD Acquisition, (iii) the SF
Acquisition, and (iv) the Wabash Acquisition, as if such transactions had
occurred as of March 1, 1998.
Preparation of the pro forma condensed consolidated financial information
was based on assumptions deemed appropriate by management. The assumptions
give effect to the acquisitions under the purchase method of accounting in
accordance with generally accepted accounting principles. The pro forma
condensed consolidated financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if the
financing activities, the acquisitions and disposition had been consummated at
the beginning of the periods presented, nor does it purport to represent the
future financial position and results of operations for future periods.
PRO FORMA CONDENSED CONSOLIDATED
--------------------------------
STATEMENT OF OPERATIONS
----------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
As Restated
(Note 2)
1997 1998 1997 1998
---- ---- ---- ----
Pro forma Pro forma Pro forma Pro forma
---------- --------- --------- ---------
Net revenues $ 66,009 $ 73,301 $ 188,133 $ 205,419
Operating expenses 39,619 41,316 113,627 120,648
Amortization of TV program rights 1,386 1,570 3,908 4,662
International business development
expenses 327 413 932 974
Corporate expenses 2,216 2,453 6,088 6,779
Depreciation and amortization 7,963 8,964 23,879 26,360
Noncash compensation 1,120 342 3,532 2,378
------ ------ ------ ------
Operating income 13,378 18,243 36,167 43,618
Interest expense (11,633) (11,407) (34,898) (35,219)
Other income (expense), net 72 1,190 363 4,013
------ ------ ------ ------
Income before income taxes 1,817 8,026 1,632 12,412
Provision for income taxes 945 4,174 849 6,922
------ ------ ------ ------
Net income $ 872 $ 3,852 $ 783 $ 5,490
====== ====== ====== ======
Basic net income per share $ .06 $ .25 $ .05 $ .35
====== ====== ====== ======
Diluted net income per share $ .05 $ .24 $ .05 $ .34
====== ====== ====== ======
Weighted average shares outstanding
Basic 15,467,289 15,654,123 15,634,856 15,635,719
Diluted 15,948,632 15,965,611 16,050,283 16,036,855
NOTE 4. BASIC AND DILUTED NET INCOME PER SHARE
---------------------------------------
Basic net income per share excludes dilution and is computed by dividing
net income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity.
NOTE 5. ACCOUNTING PRONOUNCEMENTS
-------------------------
Effective March 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", which
established standards for reporting and displaying comprehensive income and its
components in financial statements. Comprehensive income is defined as net
income and all nonowner changes in shareholders' equity. Comprehensive income
was comprised of the following for the three and nine month periods ended
November 30, 1998 and 1997 (dollars in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
------------------- ----------------
As Restated
(Note 2)
1997 1998 1997 1998
---- ---- ---- ----
Net income $4,079 $3,012 $12,119 $7,364
Translation adjustment - (7) - (653)
------ ------ ------- ------
Total comprehensive income $4,079 $3,005 $12,119 $6,711
====== ====== ======= ======
NOTE 6. INCOME TAXES
------------
Under Statement of Financial Accounting Standards No. 109, the Company
recognizes income taxes under the liability method. The liability method
measures the expected tax impact of future taxable income or deductions
resulting from differences in the tax and financial reporting bases of assets
and liabilities reflected in the consolidated balance sheet and the expected
tax impact of carryforwards for tax purposes.
Income tax expense is generally reported during interim periods on the
basis of the estimated annual effective tax rate for the taxable jurisdictions
in which the Company operates.
NOTE 7. OTHER SIGNIFICANT EVENTS
------------------------
A. Amended and Restated Credit Facility
------------------------------------
On July 16, 1998, the Company entered into an amended and restated Credit
Facility. As a result of the early payoff of the refinanced debt, the Company
recorded an extraordinary loss of approximately $ 1.6 million, net of taxes,
during the nine months ended November 30, 1998 related to unamortized deferred
debt issuance costs. The amended and restated Credit Facility matures on
August 31, 2006, except for Term Note B which matures on February 28, 2007, and
consists of the following:
Credit Facility Amount
- --------------- ------
Revolving Credit Facility $150,000,000
Term Note A $250,000,000
Revolving Credit Facility/Term Note $100,000,000
Term Note B $250,000,000
The Credit Facility provides for Letters of Credit to be made available to
the Company not to exceed $50,000,000. The aggregate amount of outstanding
Letters of Credit and amounts borrowed under the Revolving Credit Facility
cannot exceed the Revolving Credit Facility commitment.
As of November 30, 1998, the Company had amounts outstanding under the
Credit Facility of $250 million under Term Note A, $250 million under Term Note
B and $39 million under the Revolving Credit Facility. All outstanding amounts
under the Credit Facility bear interest, at the option of Emmis, at a rate
equal to the Eurodollar Rate or an alternative base rate (as defined in the
Credit Facility) plus a margin. The margin over the Eurodollar Rate or the
alternative base rate varies from time to time, depending on Emmis' ratio of
debt to earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined in the agreement. Interest is due on a calendar quarter
basis under the alternative base rate and at least every three months under the
Eurodollar Rate. The Credit Facility requires the Company to maintain interest
rate protection agreements through July 2001. The notional amount required
varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined in the
Credit Facility. The notional amount of the agreements outstanding as of
November 30, 1998 were $274 million. The agreements, which expire at various
dates ranging from April 2000 to February 2001, establish ceilings of 6.5% to
8.0% on the LIBOR interest rate. The cost of these agreements are being
amortized over the lives of the agreements and the amortization is included as
a component of interest expense.
The aggregate amount of the Revolving Credit Facility reduces quarterly
beginning August 31, 2001. Amortization of the outstanding principal amount
under the Term Notes and Revolving Credit Facility/Term Note is payable in
quarterly installments beginning August 31, 2001. The annual amortization and
reduction schedules as of November 30, 1998, assuming the entire $750 million
Credit Facility is outstanding prior to the scheduled amortization payments are
as follows:
SCHEDULED AMORTIZATION/REDUCTION OF
----------------------------------
CREDIT FACILITY AVAILABILITY
----------------------------
(In thousands)
Revolving
Year Revolving Credit
Ended Credit Facility/
February Facility Term Note A Term Note Term Note B
28(29) Amortization Amortization Amortization Amortization Total
- -------- ------------- ------------ ------------ ------------ ----------
2002 $ 15,000 $ 25,000 $ 10,000 $ 1,875 $ 51,875
2003 22,500 37,500 15,000 2,500 77,500
2004 30,000 50,000 20,000 2,500 102,500
2005 33,750 56,250 22,500 2,500 115,000
2006 26,250 43,750 17,500 2,500 90,000
2007 22,500 37,500 15,000 238,125 313,125
------- ------- ------- ------- -------
Total $150,000 $250,000 $100,000 $250,000 $750,000
======= ======== ======== ======= =======
Commencing with the fiscal year ending February 28, 2002, in addition to
the scheduled amortization/reduction of the Credit Facility, within 60 days
after the end of each fiscal year, the Credit Facility is permanently reduced
by 50% of the Company's excess cash flow if the ratio of adjusted debt (as
defined in the Credit Facility) to EBITDA exceeds 4.5 to 1. Excess cash flow
is generally defined as EBITDA reduced by cash taxes, capital expenditures,
required debt service, increases in working capital (net of cash or cash
equivalents), and $5,000,000. The net proceeds of any sale of certain assets
must also be used to permanently reduce borrowings under the Credit Facility.
If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other
conditions are met, the Company will be permitted in certain circumstances to
reborrow the amount of the net proceeds within nine months solely for the
purpose of funding an acquisition.
The Credit Facility contains various financial and operating covenants and
other restrictions with which Emmis must comply, including, among others,
restrictions on additional indebtedness, engaging in businesses other than
broadcasting and publishing, paying cash dividends, redeeming or repurchasing
capital stock of Emmis and use of borrowings, as well as requirements to
maintain certain financial ratios. The Credit Facility also prohibits Emmis,
under certain circumstances, from making acquisitions and disposing of certain
assets without the prior consent of the lenders, and provides that an event of
default will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant
equity investment in Emmis (as specified in the Credit Facility), (ii) the
ability to elect a majority of Emmis' directors or (iii) control of a majority
of shareholder voting power. Substantially all of Emmis' assets, including the
stock of Emmis' subsidiaries, are pledged to secure the Credit Facility.
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 NINE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO NOVEMBER 30, 1997
Net revenues for the quarter ended November 30, 1998 were
$71.6 million compared to $39.8 million for the same quarter of the prior year,
an increase of $31.8 million or 80%. Net revenues for the nine months ended
November 30, 1998 were $174.1 million compared to $108.1 million for the
same period of the prior year, an increase of $66.0 million or 61.0%.
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, the SF Acquisition, and the Wabash Acquisition, as well as
improved performance at the Company's properties in New York and Chicago.
On a pro forma basis, net revenues increased $7.3 million or 11.0% for the
quarter and increased $17.3 million or 9.2% for the nine month period.
These pro forma increases are principally due to improved perfomance at the
Company's properties in New York and Chicago.
Operating expenses for the quarter ended November 30, 1998 were $40.3
million compared to $22.2 million for the same quarter of the prior
year, an increase of $18.1 million or 81.5%. Operating expenses
for the nine months ended November 30, 1998 were $100.5 million compared to
$59.1 million for the same period of the prior year, an increase of $41.4
million or 69.9%. 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, the SF Acquisition, and
the Wabash Acquisition. On a pro forma basis, operating expenses increased
$1.7 million or 4.3% for the quarter and increased $7.0 million or 6.2%
for the nine month period. These pro forma increases are principally due
to expenses associated with higher revenues.
BCF and PCF for the quarter ended November 30, 1998 was $31.3
million compared to $17.6 million for the same quarter of the prior year, an
increase of $13.7 million or 78.1%. BCF and PCF for the nine months
ended November 30, 1998 was $73.6 million compared to $49.0 million for the
same period of the prior year, an increase of $24.6 million or 50.2%. 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 $5.6 million or 21.2% for the quarter and
increased $10.3 million or 13.8% for the nine month period. These pro forma
increases are principally due to improved operations at the Company's
properties in New York and Chicago
Corporate expenses for the quarter ended November 30, 1998 were $2.5
million compared to $2.0 million for the same quarter of the prior year, an
increase of $0.5 million or 25.0%. Corporate expenses for the nine month
period ended November 30, 1998 were $6.4 million compared to $5.3 million for
same period of the prior year, an increase of $1.1 million or 19.5%. These
increases are primarily due to the establishment of a corporate division for
publishing and television.
International business development expenses for the quarter ended November
30, 1998 were $.4 million compared to $.3 million for the same quarter of the
prior year. International business development expenses for the nine month
period ended November 30, 1998 was $1.0 million compared to .9 million for
the same period of the prior year. These expenses reflect costs associated
with Emmis International Corporation. The purpose of this wholly owned
subsidiary is to identify, investigate and develop international broadcast
investments or other international business opportunities. Expenses consist
primarily of salaries, travel and various administrative costs.
Adjusted EBITDA is defined as broadcast/publishing cash flow less corporate
and international development expenses. Adjusted EBITDA for the
quarter ended November 30, 1998 was $27.1 million compared to $15.3 million
for the same quarter of the prior year, an increase of $11.8 million or 77.2%.
Adjusted EBITDA for the nine months ended November 30, 1998 was $64.3 million
compared to $42.7 million for the same period of the prior year, an increase
of $21.6 million or 50.4%. 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 $5.1 million or 22.7% for
the quarter and increased $8.8 million or 13.8% for the nine month period.
Interest expense was $12.3 million for the quarter ended November 30, 1998
compared to $3.3 million for the same quarter of the prior year, an increase
of $9.0 million or 269.0%. Interest expense was $24.9 million for the nine
months ended November 30, 1998 compared to $10.4 million for the same period
of the prior year, an increase of $14.5 million or 140.9%. These increases
reflect higher outstanding debt due to the WTLC FM and AM, Texas Monthly,
Slager Radio, WQCD-FM, SF and Wabash acquisitions. On a pro forma basis,
interest expense decreased $0.2 million or 1.9% for the quarter and increased
$.3 million or 0.9% for the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The increase in accounts receivable from February 28, 1998 to November 30,
1998 is due to the increase of net revenues in the quarter ended November 30,
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 in the final stages of completion.
In the nine month period ended November 30, 1998, the Company had capital
expenditures of $26.2 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 November 30, 1998,
working capital and capital expenditure requirements. 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.
Assessment of year 2000 compliance at newly acquired properties is
partially completed. It has been determined that certain information
technology and other equipment is represented by its vendors to be year
2000 compliant. The Company is in the process of testing this technology
and equipment. Testing should be completed by 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
substantially all information technology and other equipment in the building
will be year 2000 compliant. The Company intends to upgrade broadcast
equipment at radio properties that are not currently utilizing digital
equipment. Currently, the Company estimates that this upgrade to digital will
cost approximately $1.0 million. The Company believes this upgrade will
make the radio broadcast equipment year 2000 compliant. The Company
has completed its assessment of information technology, and other
equipment at some of its television stations and estimates that costs
to make such equipment year 2000 compliant will be approximately $1.0
million. The Company intends to fund all expenditures relating to year
2000 remediation from current operations. The Company has not
separately tracked costs incurred to date relating to year 2000 compliance,
however, Company management believes that these costs have been insignificant.
If certain broadcast equipment and information technology is not year 2000
compliant prior to January 1, 2000, a station using that equipment and
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 implemented. The Company intends to develop
a contingency plan which would be used to implement such temporary solutions.
PART II - OTHER INFORMATION
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:
11 Statements re: Calculations of per share net income
15 Letter re: unaudited interim financial information
27 Financial data schedule (Edgar version only)
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