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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2002
EMMIS COMMUNICATIONS CORPORATION EMMIS OPERATING COMPANY
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
INDIANA INDIANA
(State of incorporation or organization) (State of incorporation or organization)
0-23264 333-62172-13
(Commission file number) (Commission file number)
35-1542018 35-2141064
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
ONE EMMIS PLAZA ONE EMMIS PLAZA
40 MONUMENT CIRCLE 40 MONUMENT CIRCLE
SUITE 700 SUITE 700
INDIANAPOLIS, INDIANA 46204 INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices) (Address of principal executive offices)
(317) 266-0100 (317) 266-0100
(Registrant's Telephone Number, (Registrant's Telephone Number,
Including Area Code) 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________
1
The number of shares outstanding of each of Emmis Communications Corporation's classes of common stock, as
of July 10, 2002, was:
48,048,591 Shares of Class A Common Stock, $.01 Par Value
4,962,460 Shares of Class B Common Stock, $.01 Par Value
0 Shares of Class C Common Stock, $.01 Par Value
Emmis Operating Company has 1,000 shares of common stock outstanding as of July 10, 2002 and all of
these shares are owned by Emmis Communications Corporation.
2
INDEX
Page
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.....................................................................4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.........................................................................5
Emmis Communications Corporation and Subsidiaries:
Condensed Consolidated Statements of Operations for the three
months ended May 31, 2001 and 2002.........................................................5
Condensed Consolidated Balance Sheets
as of February 28, 2002 and May 31, 2002...................................................6
Condensed Consolidated Statements of Cash Flows for the
three months ended May 31, 2001 and 2002...................................................8
Emmis Operating Company and Subsidiaries:
Condensed Consolidated Statements of Operations for the three
months ended May 31, 2001 and 2002........................................................10
Condensed Consolidated Balance Sheets
as of February 28, 2002 and May 31, 2002..................................................11
Condensed Consolidated Statements of Cash Flows for the
three months ended May 31, 2001 and 2002..................................................13
Notes to Condensed Consolidated Financial Statements...............................................15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................33
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.........................................................................42
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................42
Item 6. Exhibits and Reports on Form 8-K............................................................43
Signatures ........................................................................................44
3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Emmis Communications Corporation and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet, statement of operations, and
statement of cash flows of Emmis Communications Corporation (an Indiana Corporation) and Subsidiaries as of May
31, 2002 and for the three-month period then ended. We have also reviewed the accompanying condensed consolidated
balance sheet, statement of operations, and statement of cash flows of Emmis Operating Company (an Indiana
Corporation and wholly owned subsidiary of Emmis Communication Corporation) and Subsidiaries as of May 31, 2002
and for the three-month period then ended. These financial statements are the responsibility of the Companies'
management. The condensed consolidated balance sheet, statement of operations, and statement of cash flows of
Emmis Communications Corporation and Subsidiaries as of May 31, 2001, and for the three-month period then
ended, was reviewed by other accountants whose report (dated June 26, 2001) stated that they were not aware of any
material modifications that should be made to those statements for them to be in conformity with accounting
principles generally accepted in the United States.
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, which will be performed for the full year with the objective of expressing 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
accompanying condensed consolidated financial statements at May 31, 2002, and for the three-month period then
ended for them to be in conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Indianapolis, Indiana
June 24, 2002
4
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,
2001 2002
--------- ---------
GROSS REVENUES $ 161,073 $ 159,498
LESS: AGENCY COMMISSIONS 22,820 22,692
--------- ---------
NET REVENUES 138,253 136,806
OPERATING EXPENSES:
Station operating expenses, excluding noncash compensation 89,970 86,330
Time brokerage fees 479 --
Corporate expenses 4,957 5,133
Noncash compensation 2,740 5,355
Depreciation and amortization 24,136 10,759
Restructuring fees and other 572 --
--------- ---------
Total operating expenses 122,854 107,577
--------- ---------
OPERATING INCOME 15,399 29,229
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (34,652) (29,947)
Loss from unconsolidated affiliates (864) (1,066)
Gain on sale of assets -- 8,933
Other income (expense), net 1,459 647
--------- ---------
Total other income (expense) (34,057) (21,433)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND ACCOUNTING CHANGE (18,658) 7,796
PROVISION (BENEFIT) FOR INCOME TAXES (5,181) 3,630
--------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
ACCOUNTING CHANGE (13,477) 4,166
--------- ---------
EXTRAORDINARY LOSS, NET OF TAXES OF $1,260 -- (2,340)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAXES OF $102,600 -- (167,400)
--------- ---------
NET LOSS (13,477) (165,574)
PREFERRED STOCK DIVIDENDS 2,246 2,246
--------- ---------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (15,723) $(167,820)
========= =========
Basic net income (loss) available to common shareholders:
Before accounting change and extraordinary loss $ (0.33) $ 0.04
Extraordinary loss, net of tax -- (0.05)
Cumulative effect of accounting change, net of tax -- (3.27)
--------- ----------
Net loss available to common shareholders $ (0.33) $ (3.28)
========= ==========
Diluted net income (loss) available to common shareholders:
Before accounting change and extraordinary loss $ (0.33) $ 0.04
Extraordinary loss, net of tax -- (0.05)
Cumulative effect of accounting change, net of tax -- (3.27)
--------- ----------
Net loss available to common shareholders $ (0.33) $ (3.28)
========= ==========
Weighted average common shares outstanding:
Basic 47,258 51,211
Diluted 47,258 51,211
See independent accountants review report and accompanying notes
5
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
February 28, May 31,
2002 2002
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,362 $ 65,367
Accounts receivable, net 95,240 101,433
Prepaid expenses 14,847 16,994
Income tax refund receivable -- 12,844
Other 23,657 19,998
Assets held for sale 123,416 --
---------- ----------
Total current assets 263,522 216,636
Property and equipment, net 231,139 226,068
Intangible assets, net 1,953,331 1,677,875
Other assets, net 62,077 56,382
---------- ----------
Total assets $2,510,069 $2,176,961
========== ==========
See independent accountants review report and accompanying notes.
6
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands, except share data)
FEBRUARY 28, May 31,
2002 2002
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 38,995 $ 39,754
Current maturities of long-term debt 7,933 8,228
Current portion of TV program rights payable 27,507 23,422
Accrued salaries and commissions 7,852 5,793
Accrued interest 14,068 8,095
Deferred revenue 16,392 16,619
Other 7,531 9,706
Credit facility debt to be repaid with assets held for sale 135,000 --
Senior discount notes to be repaid with proceeds from equity offering -- 52,890
Liabilities associated with assets held for sale 63 --
----------- -----------
Total current liabilities 255,341 164,507
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,343,507 1,237,722
OTHER LONG-TERM DEBT, NET OF CURRENT MATURITIES 6,949 7,001
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION 40,551 37,473
OTHER NONCURRENT LIABILITIES 26,966 22,765
DEFERRED INCOME TAXES 101,198 13,114
----------- -----------
Total liabilities 1,774,512 1,482,582
----------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series A cumulative convertible preferred stock, $0.01 par value;
$50.00 liquidation value; authorized 10,000,000 shares; issued and
outstanding 2,875,000 shares at February 28, 2002 and May 31, 2002 29 29
Class A common stock, $.01 par value; authorized 170,000,000 shares;
issued and outstanding 42,761,299 shares at February 28, 2002
and 47,991,150 shares at May 31, 2002 428 480
Class B common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 5,250,127 shares at February 28, 2002
and 4,962,460 shares at May 31, 2002 53 50
Additional paid-in capital 843,254 975,028
Accumulated deficit (95,822) (263,642)
Accumulated other comprehensive loss (12,385) (17,566)
----------- -----------
Total shareholders' equity 735,557 694,379
----------- -----------
Total liabilities and shareholders' equity $ 2,510,069 $ 2,176,961
=========== ===========
See independent accountants review report and accompanying notes.
7
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months
Ended May 31,
2001 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,477) $(165,574)
Adjustments to reconcile net loss
to net cash provided by operating activities -
Extraordinay item -- 2,340
Cumulative effect of accounting change -- 167,400
Depreciation and amortization 29,185 17,158
Accretion of interest on senior discount notes,
including amortization of related debt costs 4,606 7,507
Provision for bad debts 1,633 990
Provision (benefit) for deferred income taxes (5,181) 3,630
Noncash compensation 2,740 5,355
Gain on sale of assets -- (8,933)
Other (1,178) (4,208)
Changes in assets and liabilities -
Accounts receivable (10,648) (7,183)
Prepaid expenses and other current assets 7,444 873
Other assets (2,204) (731)
Accounts payable and accrued liabilities (5,178) (8,724)
Deferred revenue 796 227
Other liabilities (2,814) (9,634)
-------- --------
Net cash provided by operating activities 5,724 493
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,090) (3,842)
Cash paid for acquisitions (140,746) --
Proceeds from sale of assets, net -- 135,500
Other (3,231) (222)
------- -------
Net cash provided by (used in) investing activities (153,067) 131,436
-------- -------
See independent accountants review report and accompanying notes.
8
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(Dollars in thousands)
Three Months
Ended May 31,
2001 2002
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -- (201,102)
Proceeds from long-term debt 5,000 6,000
Proceeds from senior discount notes offering 202,612 --
Cash held in escrow (93,000) --
Proceeds from issuance of the Company's Class A common
stock, net of transaction costs -- 120,283
Proceeds from exercise of stock options 725 4,141
Preferred stock dividends paid (2,246) (2,246)
Debt related costs (12,041) --
--------- ---------
Net cash provided by (used in) financing activities 101,050 (72,924)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (46,293) 59,005
CASH AND CASH EQUIVALENTS:
Beginning of period 59,899 6,362
--------- ---------
End of period $ 13,606 $ 65,367
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for -
Interest $ 35,691 $ 28,605
Income taxes 857 412
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 $ --
=========
See independent accountants review report and accompanying notes.
9
EMMIS OPERATING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Three Months Ended May 31,
2001 2002
--------- ---------
GROSS REVENUES $ 161,073 $ 159,498
LESS: AGENCY COMMISSIONS 22,820 22,692
--------- ---------
NET REVENUES 138,253 136,806
OPERATING EXPENSES:
Station operating expenses, excluding noncash compensation 89,970 86,330
Time brokerage fees 479 --
Corporate expenses 4,957 5,133
Noncash compensation 2,740 5,355
Depreciation and amortization 24,136 10,759
Restructuring fees and other 572 --
-------- --------
Total operating expenses 122,854 107,577
-------- --------
OPERATING INCOME 15,399 29,229
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (30,238) (22,440)
Loss from unconsolidated affiliates (864) (1,066)
Gain on sale of assets -- 8,933
Other income (expense), net 1,459 647
-------- --------
Total other income (expense) (29,643) (13,926)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND ACCOUNTING CHANGE (14,244) 15,303
PROVISION (BENEFIT) FOR INCOME TAXES (3,382) 6,072
-------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
ACCOUNTING CHANGE (10,862) 9,231
-------- --------
EXTRAORDINARY LOSS, NET OF TAXES OF $1,260 -- (2,340)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAXES OF $102,600 -- (167,400)
--------- ---------
NET LOSS $ (10,862) $(160,509)
========= =========
See independent accountants review report and accompanying notes.
10
EMMIS OPERATING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share data)
February 28, May 31,
2002 2002
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,362 $ 65,367
Accounts receivable, net 95,240 101,433
Prepaid expenses 14,847 16,994
Income tax refund receivable -- 12,844
Other 23,657 19,998
Assets held for sale 123,416 --
----------- ----------
Total current assets 263,522 216,636
Property and equipment, net 231,139 226,068
Intangible assets, net 1,953,331 1,677,875
Other assets, net 51,147 45,753
----------- ----------
Total assets $2,499,139 $2,166,332
=========== ==========
See independent accountants review report and accompanying notes.
11
EMMIS OPERATING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(Dollars in thousands)
February 28, May 31,
2002 2002
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 38,995 $ 39,754
Current maturities of long-term debt 7,933 8,228
Current portion of TV program rights payable 27,507 23,422
Accrued salaries and commissions 7,852 5,793
Accrued interest 14,068 8,095
Deferred revenue 16,392 16,619
Other 6,408 8,583
Credit facility debt to be repaid with assets held for sale 135,000 --
Liabilities associated with assets held for sale 63 --
------------ ------------
Total current liabilities 254,218 110,494
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,117,000 1,056,898
OTHER LONG-TERM DEBT, NET OF CURRENT MATURITIES 6,949 7,001
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION 40,551 37,473
OTHER NONCURRENT LIABILITIES 26,966 22,765
DEFERRED INCOME TAXES 108,988 23,346
------------ ------------
Total liabilities 1,554,672 1,257,977
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value; authorized , issued and
outstanding 1,000 shares at February 28, 2002 and May 31, 2002 1,027,221 1,027,221
Additional paid-in capital 8,108 139,932
Accumulated deficit (78,477) (241,232)
Accumulated other comprehensive loss (12,385) (17,566)
------------ ------------
Total shareholder's equity 944,467 908,355
------------ ------------
Total liabilities and shareholder's equity $ 2,499,139 $ 2,166,332
============ ============
See independent accountants review report and accompanying notes.
12
EMMIS OPERATING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months
Ended May 31,
2001 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,862) $(160,509)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities -
Extraordinay item -- 2,340
Cumulative effect of accounting change -- 167,400
Depreciation and amortization 29,185 17,158
Provision for bad debts 1,633 990
Provision (benefit) for deferred income taxes (3,382) 6,072
Noncash compensation 2,740 5,355
Gain on sale of assets -- (8,933)
Other (1,178) (5,128)
Changes in assets and liabilities -
Accounts receivable (10,648) (7,183)
Prepaid expenses and other current assets 7,444 873
Other assets (2,204) (732)
Accounts payable and accrued liabilities (5,178) (8,724)
Deferred revenue 796 227
Other liabilities (2,814) (9,634)
---------- ----------
Net cash provided by (used in) operating activities 5,532 (428)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,090) (3,842)
Cash paid for acquisitions (140,746) --
Proceeds from sale of assets, net -- 135,500
Other (3,231) (222)
---------- ----------
Net cash provided by (used in) investing activities (153,067) 131,436
---------- ----------
See independent accountants review report and accompanying notes.
13
EMMIS OPERATING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(Dollars in thousands)
Three Months
Ended May 31,
2001 2002
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -- (201,102)
Proceeds from long-term debt 5,000 6,000
Distributions to parent (2,246) (2,246)
Contributions from parent 99,004 125,345
Debt related costs (516) --
---------- ----------
Net cash provided by (used in) financing activities 101,242 (72,003)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (46,293) 59,005
CASH AND CASH EQUIVALENTS:
Beginning of period 59,899 6,362
---------- ----------
End of period $ 13,606 $ 65,367
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for -
Interest $ 35,691 $ 28,605
Income taxes 857 412
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 $ --
=========
See independent accountants review report and accompanying notes.
14
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
AND EMMIS OPERATING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2002
(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 ("ECC") and its subsidiaries (collectively, "our," "us," "Emmis" or the "Company") and
by Emmis Operating Company and its subsidiaries (collectively "EOC"). Unless otherwise noted, all disclosures
contained in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q apply to Emmis and EOC.
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, 2002. 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.
In the opinion of Emmis and EOC, respectively, 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 and EOC at May 31, 2002 and the results of their
operations and their cash flows for the three months ended May 31, 2001 and 2002.
Note 2. Accounting Policies
Advertising Costs
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. The Company had deferred approximately $2.1 million of these costs as of May 31, 2002 and an
immaterial amount as of May 31, 2001.
Basic and Diluted Net Income Per Common Share
Emmis
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, 2001 and 2002 consisted of stock options and
the 6.25% Series A cumulative convertible preferred stock. Neither the 6.25% Series A cumulative convertible
preferred stock nor the stock options are included in the calculation of diluted net income per common share for
the three months ended May 31, 2001 and 2002 as the effect of their conversion to common stock would be
antidilutive. 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 and the conversion of
stock options amounted to approximately 4.2 million shares for the three months ended May 31, 2001 and 2002.
15
EOC
Because EOC is a wholly-owned subsidiary of Emmis, disclosure of earnings per share for EOC is not
required.
Reclassifications
Certain reclassifications have been made to the May 31, 2001 and February 28, 2002 financial statements
to be consistent with the May 31, 2002 presentation. The reclassifications have no impact on net income or
retained earnings previously reported.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business
Combinations." Statement No. 141 addresses financial accounting and reporting for business combinations and
supersedes Accounting Principle Board ("APB") Opinion No. 16, "Business Combinations" and FASB Statement No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." Statement No. 141 is effective for all
business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method of accounting
for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001.
Statement No. 141 also changes the criteria to recognize intangible assets apart from goodwill. The Company
adopted this Statement on July 1, 2001. The Company has historically used the purchase method to account for all
business combinations and adoption of this Statement did not have a material impact on the Company's financial
position, cash flows or results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". See Note 3 for a
discussion of Statement No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" that applies
to legal obligations associated with the retirement of a tangible long-lived asset that results from the
acquisition, construction, development and/or the normal operation of a long-lived asset. Under this standard,
guidance is provided on measuring and recording the liability. Adoption of this Statement by the Company will be
effective on March 1, 2003. The Company does not believe that the adoption of this Statement will materially
impact the Company's financial position, cash flows or results of operations.
Effective March 1, 2002, the Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" which addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. While SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," it removes certain assets such as deferred tax assets,
goodwill and intangible assets not being amortized from its scope and retains the requirements of SFAS No. 121
regarding the recognition of impairment losses on other long-lived assets held for use. SFAS No. 144 also
supercedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring events and Transactions" for the disposal of a segment of a business. However, SFAS No.
144 retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. The adoption of this statement did not have a material
impact on the Company's financial position, cash flows or results of operations.
16
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections". Statement No. 145 rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, and FASB Statement
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". Statement No. 145 also rescinds FASB
Statement No. 44, "Accounting for Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Statement No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. Adoption of this Statement by the Company will be effective on March 1,
2003. Upon adoption of this statement, the Company believes future write-offs of deferred debt fees resulting
from extinguishments of debt will be recorded as interest expense and not as an extraordinary charge.
Note 3. Intangible Assets and Goodwill
Effective March 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", which
requires the Company to cease amortizing goodwill and certain intangibles. Instead, these assets will be
reviewed at least annually for impairment, and will be written down and charged to results of operations in
periods in which the recorded value of goodwill and certain intangibles is more than its fair value. As of the
date of adoption, the Company reflected unamortized goodwill and unamortized FCC licenses in the amounts of
$175.1 million and $1,863.9 million, respectively. Under the guidance in Statement No. 142, the Company's FCC
licenses are considered indefinite-lived intangibles. The Company had previously amortized these assets over
the maximum period allowed of 40 years. Adoption of this accounting standard eliminated the Company's
amortization expense for goodwill and FCC licenses. For comparison purposes, for the three months ended May 31,
2001, the Company recorded amortization expense for goodwill and FCC licenses of $13.9 million.
The following unaudited pro forma summary presents the Company's estimate of the effect of the adoption
of Statement No. 142 as of the beginning of the periods presented. Reported income (loss) before extraordinary
loss and accounting change and reported net loss available to common shareholder are adjusted to eliminate the
amortization expense recognized in those periods related to goodwill and FCC licenses as these assets are not
amortized under this new accounting standard.
17
EMMIS
(Dollars in thousands, except per share data) Three months ended May 31,
2001 2002
---------- -----------
Reported income (loss) before extraordinary loss
and accounting change $ (13,477) $ 4,166
Add back: amortization of goodwill, net of tax
provision of $674 for the three months ended
May 31, 2001 1,099 --
Add back: amortization of FCC licenses,
net of tax provision of $4,625 for the three months
ended May 31, 2001 7,546 --
---------- -----------
Adjusted income (loss) before extraordinary loss
and accounting change $ (4,832) $ 4,166
========== ===========
Reported net loss available to common shareholders $ (15,723) $ (167,820)
Add back: amortization of goodwill, net of tax
provision of $674 for the three months ended
May 31, 2001 1,099 --
Add back: amortization of FCC licenses,
net of tax provision of $4,625 for the three months
ended May 31, 2001 7,546 --
---------- -----------
Adjusted net loss available to common shareholders $ (7,078) $ (167,820)
========== ===========
Basic net loss available to common shareholders:
Reported net loss available to common shareholders $ (0.33) $ (3.28)
Amortization of goodwill, net of taxes 0.02 --
Amortization of FCC licenses, net of taxes 0.16 --
---------- -----------
Adjusted net loss available to common shareholders $ (0.15) $ (3.28)
========== ===========
Diluted net loss available to common shareholders:
Reported net loss available to common shareholders $ (0.33) $ (3.28)
Amortization of goodwill, net of taxes 0.02 --
Amortization of FCC licenses, net of taxes 0.16 --
---------- -----------
Adjusted net loss available to common shareholders $ (0.15) $ (3.28)
========== ===========
18
EOC
(Dollars in thousands) Three months ended May 31,
2001 2002
-------- ---------
Reported income (loss) before extraordinary loss
and accounting change $(10,862) $ 9,231
Add back: amortization of goodwill, net of tax
provision of $674 for the three months ended
May 31, 2001 1,099 --
Add back: amortization of FCC licenses,
net of tax provision of $4,625 for the three months
ended May 31, 2001 7,546 --
-------- ---------
Adjusted income (loss) before extraordinary loss
and accounting change $ (2,217) $ 9,231
======== =========
Reported net loss $(10,862) $(160,509)
Add back: amortization of goodwill, net of tax
provision of $674 for the three months ended
May 31, 2001 1,099 --
Add back: amortization of FCC licenses,
net of tax provision of $4,625 for the three months
ended May 31, 2001 7,546 --
-------- ---------
Adjusted net loss $ (2,217) $(160,509)
======== =========
Because EOC is a wholly-owned subsidiary of Emmis, per share data is excluded.
Definite-lived intangibles
The Company has definite-lived intangible assets recorded that continue to be amortized in accordance
with Statement No. 142. These assets consist primarily of foreign broadcasting licenses, subscription lists,
lease rights, customer lists and non-compete agreements, all of which are amortized over the period of time the
assets are expected to contribute directly or indirectly to the Company's future cash flows. In accordance with
the transitional requirements of Statement No. 142, the Company reassessed the useful lives of these intangibles
and made no changes to their useful lives. The following table presents the gross carrying amount and
accumulated amortization for each major class of definite-lived intangible asset at February 28, 2002 and May 31,
2002 (dollars in thousands):
FEBRUARY 28, 2002 MAY 31, 2002
---------------------------- ---------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
---------------------------- ---------------------------
FOREIGN BROADCASTING LICENSES $ 22,542 $ 8,694 $ 18,851 $ 9,021
SUBSCRIPTION LISTS 12,189 11,077 12,189 11,478
LEASE RIGHTS 11,502 407 11,502 479
CUSTOMER LISTS 7,371 1,734 7,371 2,385
NON-COMPETE AGREEMENTS 5,738 5,561 5,738 5,572
OTHER 4,335 1,240 4,211 1,219
-------- --------- -------- ---------
TOTAL $ 63,677 $ 28,713 $ 59,862 $ 30,154
======== ========= ======== =========
19
Total amortization expense from definite-lived intangibles for the three months ended May 31, 2002 and
for the year ended February 28, 2002 was $1.9 million and $7.6 million, respectively. Foreign currency exchange
rate differences reduced the carrying value of the foreign broadcasting licenses and related accumulated
amortization as of May 31, 2002 by $3.7 million and $0.3 million, respectively. The following table presents
the Company's estimate of amortization expense for each of the five succeeding fiscal years for definite-lived
intangibles recorded on our books as of February 28, 2002 (dollars in thousands):
FISCAL YEAR ENDED FEBRUARY,
2003 $ 4,369
2004 3,257
2005 2,904
2006 993
2007 962
Indefinite-lived Intangibles
Under the guidance in Statement No. 142, the Company's FCC licenses are considered indefinite-lived
intangibles. These assets, which the Company determined were its only indefinite-lived intangibles, are not
subject to amortization, but will be tested for impairment at least annually. As of May 31, 2002 and February
28, 2002, the carrying amounts of the Company's FCC licenses were $1,509.2 million and $1,863.9 million,
respectively.
In accordance with Statement No. 142, the Company tested these indefinite-lived intangible assets for
impairment as of March 1, 2002 by comparing their fair value to their carrying value at that date. The Company
recognized impairment on its FCC licenses of approximately $145.0 million, net of $88.8 million in tax benefit,
which is recorded as a component of the cumulative effect of accounting change during the three months ended May
31, 2002. Approximately $14.8 million of the charge, net of tax, related to our radio segment and $130.2 million
of the charge, net of tax, related to our television segment. The fair value of our FCC licenses used to
calculate the impairment charge was determined by management, using an enterprise valuation approach. Enterprise
value was determined by applying an estimated market multiple to the broadcast cash flow generated by each
reporting unit. Market multiples were determined based on information available regarding publicly traded peer
companies, recently completed or contemplated transactions within the industry, and reporting units' competitive
position in their respective markets. Appropriate allocation was made to the tangible assets with the residual
amount representing the estimated fair value of our indefinite lived intangible assets and goodwill. To the
extent the carrying amount of the indefinite-lived intangible exceeded its fair value, the difference was
recorded in the statement of operations, as described above. In the case of radio, the Company determined the
reporting unit to be all of our stations in a local market, and in the case of television and publishing, the
Company determined the reporting unit to be each individual station or magazine. Throughout our fiscal
2002, unfavorable economic conditions persisted in the industries in which the Company engages. These conditions
caused customers to reduce the amount of advertising dollars spent on the Company's media inventory as compared
to prior periods, adversely impacting the cash flow projections used to determine the fair value of each
reporting unit and public trading multiples of media stocks, resulting in the write-off of a portion of the
carrying amount of our FCC licenses. The required impairment tests may result in future periodic write-downs.
20
Goodwill
Statement No. 142 requires the Company to test goodwill for impairment using a two-step process. The
first step is a screen for potential impairment, while the second step measures the amount of impairment. The
Company completed the two-step impairment test during the quarter ended May 31, 2002. As a result of this test,
the Company recognized impairment of approximately $22.4 million, net of $13.8 million in tax benefit, as a
component of the cumulative effect of an accounting change during the three months ended May 31, 2002.
Approximately $18.5 million of the charge, net of tax, related to our television segment and $3.9 million of the
charge, net of tax, related to our publishing segment. Consistent with the Company's approach to determining the
fair value of our FCC licenses, the enterprise valuation approach was used to determine the fair value of each of
the Company's reporting units, and a portion of the carrying value of our goodwill was written-off due to
reductions in cash flow and public trading multiples of media stocks resulting from the unfavorable economic
conditions that reduced advertising expenditures throughout our fiscal 2002. As of May 31, 2002 and February 28,
2002, the carrying amount of the Company's goodwill was $139.0 million and $175.1 million, respectively. The
required impairment tests may result in future periodic write-downs.
Note 4. Significant Events
Equity Issuance
In April 2002, ECC completed the sale of 4.6 million shares of its Class A common stock at $26.80 per
share resulting in total proceeds of $123.3 million. The net proceeds of $120.3 million were contributed to EOC
and 50% of the net proceeds were used in April 2002 to repay outstanding obligations under the credit facility.
The remainder was invested, and in July 2002 distributed to ECC and used to redeem approximately 22.6% of ECC's
outstanding 121/2% senior discount notes (See Note 9).
In addition, during the three months ended May 31, 2002, 300,000 shares of Class B common stock were
converted to Class A shares.
Dispositions
Effective May 1, 2002 Emmis completed the sale of substantially all of the assets of KALC-FM in Denver,
Colorado to Entercom Communications Corporation for $88.0 million. Proceeds from the sale were used to repay
outstanding term loans under our credit facility. In connection with the sale, Emmis recorded a loss on sale of
assets of $1.3 million. On February 12, 2002, Emmis entered into a definitive agreement to sell KALC-FM to
Entercom and Entercom began operating KALC-FM under a time brokerage agreement on March 16, 2002. Entercom paid
Emmis approximately $0.5 million under the time brokerage agreement, which is included in net revenues in the
accompanying condensed consolidated statements of operations. The assets of KALC-FM are reflected as held for
sale in the accompanying consolidated balance sheets as of February 28, 2002. The $87.7 million of credit
facility debt repaid with the net proceeds of the sale is reflected as a current liability in the accompanying
consolidated balance sheets as of February 28, 2002.
Effective May 1, 2002 Emmis completed the sale of substantially all of the assets of KXPK-FM in Denver,
Colorado to Entravision Communications Corporation for $47.5 million. Proceeds were used to repay outstanding
term loans under our credit facility. In connection with the sale, Emmis recorded a gain on sale of assets of
$10.2 million. Emmis entered into a definitive agreement to sell KXPK-FM to Entravision on February 12, 2002.
21
The assets of KXPK-FM are reflected as held for sale in the accompanying consolidated balance sheets as of
February 28, 2002. The $47.3 million of credit facility debt repaid with the net proceeds of the sale is
reflected as a current liability in the accompanying consolidated balance sheets as of February 28, 2002.
Note 5. Comprehensive Loss
Emmis
Comprehensive loss was comprised of the following for the three months ended May 31, 2001 and 2002
(dollars in thousands):
Three Months
Ended May 31,
2001 2002
--------- ----------
Net loss $ (13,477) $ (165,574)
Translation adjustment 512 (5,148)
Change in fair value of derivative instruments,
net of associated tax benefit (988) (33)
--------- ----------
Total comprehensive loss $ (13,953) $ (170,755)
========= ==========
The majority of the translation adjustment for the three months ended May 31, 2002 relates to the foreign
currency devaluation in Argentina, where we have a 75% ownership interest in two radio stations.
EOC
Comprehensive loss was comprised of the following for the three months ended May 31, 2001 and 2002
(dollars in thousands):
Three Months
Ended May 31,
2001 2002
--------- ----------
Net loss $ (10,862) $ (160,509)
Translation adjustment 512 (5,148)
Change in fair value of derivative instruments,
net of associated tax benefit (988) (33)
--------- ----------
Total comprehensive loss $ (11,338) $ (165,690)
========== ===========
The majority of the translation adjustment for the three months ended May 31, 2002 relates to the foreign
currency devaluation in Argentina, where we have a 75% ownership interest in two radio stations.
22
Note 6. Segment Information
The Company's operations are aligned into three business segments: Radio, Television, and Publishing and
Other. 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, 2001 and 2002 were $1.1 million and $1.7 million, respectively. The carrying value of long lived
assets of this radio station as of May 31, 2001 and 2002 was $8.5 million and $6.2 million, respectively. Total
revenues of our two radio stations in Buenos Aires, Argentina for the three months ended May 31, 2001 and 2002
were $1.9 million and $0.5 million, respectively. The carrying value of long lived assets of these radio
stations as of May 31, 2001 and 2002 was $18.1 million and $5.8 million, respectively.
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. Thus, our
calculation of these non-GAAP measures may not be comparable to such non-GAAP measures calculated by other
companies. Emmis defines BCF and PCF as revenues net of agency commissions and station operating expenses,
excluding noncash compensation. 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.
The most significant station operating expenses, excluding noncash compensation are employee salaries
and commissions, costs associated with programming, advertising and promotion, costs associated with producing a
magazine, and station 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, 2002 and in Note 2 to these condensed
consolidated financial statements, are applied consistently across segments.
Unless otherwise noted, all information pertaining to segments applies to Emmis and EOC.
23
Three Months Ended Publishing
May 31, 2002 Radio Television and Other Corporate Consolidated
- ------------ -------- ----------- -------- --------- -----------
(Dollars in thousands)
Net revenues $ 62,724 $ 57,157 $16,925 $ -- $ 136,806
Station operating expenses,
excluding noncash
compensation 34,408 36,812 15,110 -- 86,330
--------- ---------- ------- --------- ----------
Broadcast/publishing
cash flow 28,316 20,345 1,815 -- 50,476
Corporate expenses -- -- -- 5,133 5,133
Noncash compensation -- -- -- 5,355 5,355
Depreciation and --
amortization 2,093 6,930 590 1,146 10,759
-------- ---------- ------- --------- ----------
Operating income (loss) $ 26,223 $ 13,415 $ 1,225 $ (11,634) $ 29,229
======== ========== ======= ========= ==========
Total assets $890,326 $1,046,907 $79,963 $ 159,765 $2,176,961
======== ========== ======= ========= ==========
With respect to EOC, the above information would be identical, except corporate total assets would be
$149,136 and consolidated total assets would be $2,166,332.
Three Months Ended Publishing
May 31, 2001 Radio Television and Other Corporate Consolidated
- ------------ ---------- ---------- --------- --------- -----------
(Dollars in thousands)
Net revenues $ 66,148 $ 53,997 $ 18,108 $ -- $ 138,253
Station operating expenses,
excluding noncash
compensation 37,036 35,874 17,060 -- 89,970
---------- ---------- -------- --------- ----------
Broadcast/publishing
cash flow 29,112 18,123 1,048 -- 48,283
Time brokerage fees 479 -- -- -- 479
Corporate expenses -- -- -- 4,957 4,957
Noncash compensation -- -- -- 2,740 2,740
Depreciation and --
amortization 7,845 13,057 2,138 1,096 24,136
Restructuring fees and other -- -- -- 572 572
---------- ---------- -------- --------- ----------
Operating income (loss) $ 20,788 $ 5,066 $ (1,090) $ (9,365) $ 15,399
========== ========== ======== ========= ==========
Total assets $1,082,232 $1,309,355 $ 93,675 $ 209,897 $2,695,159
========== ========== ======== ========= ==========
With respect to EOC, the above information would be identical, except corporate total assets would be
$105,564 and consolidated total assets would be $2,590,826.
24
Note 7. Financial Information for Subsidiary Guarantors
and Subsidiary Non-Guarantors of Emmis Operating Company
The senior subordinated notes of EOC are fully and unconditionally guaranteed, jointly and severally, by
certain direct and indirect subsidiaries of EOC (the "Subsidiary Guarantors"). As of February 28, 2002 and May
31, 2002, subsidiaries holding EOC's interest in its radio stations in Hungary and Argentina, as well as certain
other subsidiaries (such as those conducting joint ventures with third parties), did not guarantee the senior
subordinated notes (the "Subsidiary Non-Guarantors"). The claims of creditors of the Subsidiary Non-Guarantors
have priority over the rights of EOC to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for the EOC Parent Company Only, the
Subsidiary Guarantors and the Subsidiary Non-Guarantors as of February 28, 2002 and May 31, 2002 and for the
three months ended May 31, 2001 and 2002. EOC uses the equity method with respect to investments in subsidiaries.
25
Emmis Operating Company
Condensed Consolidating Balance Sheet
As of May 31, 2002
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
----------- ---------- --------- ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 57,157 $ 7,791 $ 419 $ -- $ 65,367
Accounts receivable, net -- 98,395 3,038 -- 101,433
Prepaid expenses 690 16,071 233 -- 16,994
Income tax refund receivable 12,844 -- -- -- 12,844
Other 6 19,887 105 -- 19,998
Assets held for sale -- -- -- --
----------- ---------- -------- ----------- -----------
Total current assets 70,697 142,144 3,795 -- 216,636
Property and equipment, net 35,545 188,727 1,796 -- 226,068
Intangible assets, net 4,986 1,663,058 9,831 -- 1,677,875
Investment in affiliates 1,888,879 -- -- (1,888,879) --
Other assets, net 37,795 11,479 330 (3,851) 45,753
----------- ---------- -------- ----------- -----------
Total assets $ 2,037,902 $2,005,408 $ 15,752 $(1,892,730) $ 2,166,332
=========== ========== ======== =========== ===========
CURRENT LIABILITIES:
Accounts payable $ 18,143 $ 16,798 $ 4,813 $ -- $ 39,754
Current maturities of other long-term debt 34 8 9,407 (1,221) 8,228
Current portion of TV program rights payable -- 23,422 -- -- 23,422
Accrued salaries and commissions 138 5,442 213 -- 5,793
Accrued interest 8,094 1 -- -- 8,095
Deferred revenue -- 16,619 -- -- 16,619
Other 4,109 4,474 -- -- 8,583
Credit facility debt to be repaid with assets held
for sale -- -- -- -- --
Liabilities associated with assets held for sale -- -- -- -- --
----------- ---------- -------- ----------- -----------
Total current liabilities 30,518 66,764 14,433 (1,221) 110,494
Credit facility and senior subordinated notes 1,056,898 -- -- -- 1,056,898
Other long-term debt, net of current maturities 41 283 9,307 (2,630) 7,001
TV program rights payable, net of current portion -- 37,473 -- -- 37,473
Other noncurrent liabilities 18,744 3,900 121 -- 22,765
Deferred income taxes 23,346 -- -- -- 23,346
----------- ---------- -------- ----------- -----------
Total liabilities 1,129,547 108,420 23,861 (3,851) 1,257,977
Shareholder's equity
Common stock 1,027,221 -- -- -- 1,027,221
Additional paid-in capital 139,932 -- 4,393 (4,393) 139,932
Subsidiary investment -- 1,473,288 22,320 (1,495,608) --
Retained earnings/(accumulated deficit) (241,232) 423,700 (22,774) (400,926) (241,232)
Accumulated other comprehensive loss (17,566) -- (12,048) 12,048 (17,566)
----------- ---------- -------- ----------- -----------
Total shareholder's equity 908,355 1,896,988 (8,109) (1,888,879) 908,355
----------- ---------- -------- ----------- -----------
Total liabilities and shareholder's equity $ 2,037,902 $2,005,408 $ 15,752 $(1,892,730) $ 2,166,332
=========== ========== ======== =========== ===========
26
Emmis Operating Company
Condensed Consolidating Balance Sheet
As of February 28, 2002
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
----------- ---------- -------- ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 4,970 $ 1,392 $ -- $ 6,362
Accounts receivable, net -- 91,244 3,996 -- 95,240
Prepaid expenses 612 14,049 186 -- 14,847
Income tax refund receivable -- -- -- -- --
Other 271 23,312 74 -- 23,657
Assets held for sale -- 123,416 -- -- 123,416
----------- ---------- -------- ----------- -----------
Total current assets 883 256,991 5,648 -- 263,522
Property and equipment, net 35,957 192,690 2,492 -- 231,139
Intangible assets, net 5,637 1,933,846 13,848 -- 1,953,331
Investment in affiliates 2,274,321 -- -- (2,274,321) --
Other assets, net 43,428 12,655 527 (5,463) 51,147
----------- ---------- -------- ----------- -----------
Total assets $ 2,360,226 $2,396,182 $ 22,515 $(2,279,784) $ 2,499,139
=========== ========== ======== =========== ===========
CURRENT LIABILITIES:
Accounts payable $ 15,646 $ 18,373 $ 4,976 $ -- $ 38,995
Current maturities of other long-term debt 34 10 10,722 (2,833) 7,933
Current portion of TV program rights payable -- 27,507 -- -- 27,507
Accrued salaries and commissions 214 7,363 275 -- 7,852
Accrued interest 14,047 -- 21 -- 14,068
Deferred revenue -- 16,392 -- -- 16,392
Other 2,813 3,595 -- -- 6,408
Credit facility debt to be repaid with assets held
for sale 135,000 -- -- -- 135,000
Liabilities associated with assets held for sale -- 63 -- -- 63
----------- ---------- -------- ----------- -----------
Total current liabilities 167,754 73,303 15,994 (2,833) 254,218
Credit facility and senior subordinated notes 1,117,000 -- -- -- 1,117,000
Other long-term debt, net of current maturities 41 366 9,172 (2,630) 6,949
TV program rights payable, net of current portion -- 40,551 -- -- 40,551
Other noncurrent liabilities 21,976 4,403 587 -- 26,966
Deferred income taxes 108,988 -- -- -- 108,988
----------- ---------- -------- ----------- -----------
Total liabilities 1,415,759 118,623 25,753 (5,463) 1,554,672
Shareholder's equity
Common stock 1,027,221 -- -- -- 1,027,221
Additional paid-in capital 8,108 -- 4,393 (4,393) 8,108
Subsidiary investment -- 1,883,897 20,650 (1,904,547) --
Retained earnings/(accumulated deficit) (78,477) 393,662 (21,380) (372,282) (78,477)
Accumulated other comprehensive loss (12,385) -- (6,901) 6,901 (12,385)
----------- ---------- -------- ----------- -----------
Total shareholder's equity 944,467 2,277,559 (3,238) (2,274,321) 944,467
----------- ---------- -------- ----------- -----------
Total liabilities and shareholder's equity $ 2,360,226 $2,396,182 $ 22,515 $(2,279,784) $ 2,499,139
=========== ========== ======== =========== ===========
27
Emmis Operating Company
Condensed Consolidating Statement of Operations
For the Three Months Ended May 31, 2002
(Unaudited, dollars in thousands)
Eliminations
Parent Subsidiary and
Company Subsidiary Non- Consolidating
Only Guarantors Guarantors Entries Consolidated
--------- --------- -------- -------- -----------
Net revenues $ 231 $ 134,385 $ 2,190 $ -- $ 136,806
Operating expenses:
Station operating expenses, excluding
noncash compensation 189 83,641 2,500 -- 86,330
Time brokerage fees -- -- -- -- --
Corporate expenses 5,133 -- -- -- 5,133
Noncash compensation 4,016 1,339 -- -- 5,355
Depreciation and amortization 1,146 8,895 718 -- 10,759
Restructuring fees and other -- -- -- -- --
--------- --------- ------- -------- ---------
Total operating expenses 10,484 93,875 3,218 -- 107,577
--------- --------- ------- -------- ---------
Operating income (loss) (10,253) 40,510 (1,028) -- 29,229
--------- --------- ------- -------- ---------
Other income (expense)
Interest expense (21,909) (61) (645) 175 (22,440)
Loss from unconsolidated affiliates -- (1,066) -- -- (1,066)
Gain on sale of assets -- 8,933 -- -- 8,933
Other income (expense), net 351 133 279 (116) 647
--------- --------- ------- -------- ---------
Total other income (expense) (21,558) 7,939 (366) 59 (13,926)
--------- --------- ------- -------- ---------
Income (loss) before income taxes,
extraordinary loss and accounting change (31,811) 48,449 (1,394) 59 15,303
Provision (benefit) for income taxes (12,339) 18,411 -- -- 6,072
--------- --------- ------- -------- ---------
Income (loss) before extraordinary loss
and accounting change (19,472) 30,038 (1,394) 59 9,231
Extraordinary item, net of tax (2,340) -- -- -- (2,340)
Cumulative effect of accounting change,
net of tax (167,400) -- -- -- (167,400)
Equity in earnings (loss) of subsidiaries 28,703 -- -- (28,703) --
--------- --------- ------- -------- ---------
Net income (loss) $(160,509) $ 30,038 $(1,394) $(28,644) $(160,509)
========= ========= ======= ======== =========
28
Emmis Operating Company
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 $ 134,959 $ 2,951 $ -- $ 138,253
Operating expenses:
Station operating expenses, excluding
noncash compensation 313 86,230 3,427 -- 89,970
Time brokerage fees -- 479 -- -- 479
Corporate expenses 4,957 -- -- -- 4,957
Noncash compensation 2,055 685 -- -- 2,740
Depreciation and amortization 1,096 22,214 826 -- 24,136
Restructuring fees and other 572 -- -- -- 572
-------- --------- ------- -------- ---------
Total operating expenses 8,993 109,608 4,253 -- 122,854
-------- --------- ------- -------- ---------
Operating income (loss) (8,650) 25,351 (1,302) -- 15,399
-------- --------- ------- -------- ---------
Other income (expense)
Interest expense (29,350) (245) (811) 168 (30,238)
Loss from unconsolidated affiliates -- (864) -- -- (864)
Gain on sale of assets -- -- -- -- --
Other income (expense), net 910 584 (14) (21) 1,459
-------- --------- ------- -------- ---------
Total other income (expense) (28,440) (525) (825) 147 (29,643)
-------- --------- ------- -------- ---------
Income (loss) before income taxes,
extraordinary loss and accounting change (37,090) 24,826 (2,127) 147 (14,244)
Provision (benefit) for income taxes (12,725) 9,343 -- -- (3,382)
-------- --------- ------- -------- ---------
Income (loss) before extraordinary loss
and accounting change (24,365) 15,483 (2,127) 147 (10,862)
Extraordinary item, net of tax -- -- -- -- --
Cumulative effect of accounting change,
net of tax -- -- -- -- --
Equity in earnings (loss) of subsidiaries 13,503 -- -- (13,503) --
-------- --------- ------- -------- ---------
Net income (loss) $(10,862) $ 15,483 $(2,127) $(13,356) $ (10,862)
======== ========= ======= ======== =========
29
Emmis Operating Company
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 31, 2002
(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) $(160,509) $ 30,038 $(1,394) $(28,644) $(160,509)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities -
Extraordinary item 2,340 -- -- -- 2,340
Cumulative effect of accounting change -- 167,400 -- -- 167,400
Depreciation and amortization 2,696 13,744 718 -- 17,158
Provision for bad debts -- 990 -- -- 990
Provision (benefit) for deferred income taxes 6,072 -- -- -- 6,072
Noncash compensation 4,016 1,339 -- -- 5,355
Gain on sale of assets -- (8,933) -- -- (8,933)
Equity in earnings of subsidiaries (28,703) -- -- 28,703 --
Other 59 19 (5,147) (59) (5,128)
Changes in assets and liabilities -
Accounts receivable -- (8,141) 958 -- (7,183)
Prepaid expenses and other current assets 187 764 (78) -- 873
Other assets 1,356 (2,285) 197 -- (732)
Accounts payable and accrued liabilities (2,408) (6,070) (246) -- (8,724)
Deferred liabilities -- 227 -- -- 227
Other liabilities (2,668) (6,635) (331) -- (9,634)
--------- --------- ------- -------- ---------
Net cash provided (used) by investing activities (177,562) 182,457 (5,323) -- (428)
--------- --------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (734) (3,713) 605 -- (3,842)
Cash paid for acquisition -- -- -- -- --
Proceeds from sale of assets -- 135,500 -- -- 135,500
Other (222) -- -- -- (222)
--------- --------- ------- -------- ---------
Net cash provided (used) by investing activities (956) 131,787 605 -- 131,436
--------- --------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (201,102) -- -- -- (201,102)
Proceeds from long-term debt 6,000 -- -- -- 6,000
Intercompany 430,777 (311,423) 3,745 -- 123,099
Debt related costs -- -- -- -- --
--------- ------- -------- ---------
Net cash provided (used) by investing activities 235,675 (311,423) 3,745 -- (72,003)
--------- --------- ------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 57,157 2,821 (973) -- 59,005
CASH AND CASH EQUIVALENTS:
Beginning of period -- 4,970 1,392 -- 6,362
--------- --------- ------- -------- ---------
End of period $ 57,157 $ 7,791 $ 419 $ -- $ 65,367
========= ========= ======= ======== =========
30
Emmis Operating Company
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) $(10,862) $ 15,483 $(2,127) $(13,356) $ (10,862)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities -
Extraordinary item -- -- -- -- --
Cumulative effect of accounting change -- -- -- -- --
Depreciation and amortization 2,088 26,271 826 -- 29,185
Provision for bad debts -- 1,633 -- -- 1,633
Provision (benefit) for deferred income taxes (3,382) -- -- -- (3,382)
Noncash compensation 2,055 685 -- -- 2,740
Gain on sale of assets -- -- -- -- --
Equity in earnings of subsidiaries (13,503) -- -- 13,503 --
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 liabilities -- 796 -- -- 796
Other liabilities 5,147 (7,439) (522) -- (2,814)
-------- --------- ------- -------- ---------
Net cash provided (used) by investing activities (18,068) 23,029 571 -- 5,532
-------- --------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (899) (8,203) 12 -- (9,090)
Cash paid for acquisition -- (140,746) -- -- (140,746)
Proceeds from sale of assets -- -- -- -- --
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
Intercompany (33,479) 129,981 256 -- 96,758
Debt related costs (516) -- -- -- (516)
-------- --------- ------- -------- ---------
Net cash provided (used) by investing activities (28,995) 129,981 256 -- 101,242
-------- --------- ------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (51,193) 4,061 839 -- (46,293)
CASH AND CASH EQUIVALENTS:
Beginning of period 55,175 4,018 706 -- 59,899
-------- --------- ------- -------- ---------
End of period $ 3,982 $ 8,079 $ 1,545 $ -- $ 13,606
======== ========= ======= ======== =========
31
Note 8. Regulatory and International Matters
We acquired KGMB-TV in Honolulu, Hawaii as part of the Lee acquisition in October 2000. Because we
already owned KHON-TV in Honolulu, and both KHON and KGMB were rated among the top four television stations in
the Honolulu market, FCC regulations prohibited us from owning both stations. However, we received a temporary
waiver from the FCC that has allowed us to operate both stations (and their related "satellite" stations). As a
result of recent regulatory developments, we have requested a stay of divestiture until the FCC completes its
biennial review. We are currently awaiting the FCC's decision. No assurances can be given that the FCC will
grant us the stay of divestiture and we may need to sell one of the two stations in Hawaii.
FCC regulations require all commercial television stations in the United States to start broadcasting in
digital format by May 2002 and to abandon their present analog format by 2006, although the FCC may extend these
dates. Five of our television stations were broadcasting in digital format by the May 2002 deadline and the
remainder were granted extensions to November 2002. We expect all of our stations (other than our "satellite" stations
in Hawaii) to have commenced digital broadcasts by the end of our fiscal 2003 and will request waivers from the
FCC for those stations that may not meet the November 2002 deadline. We currently cannot predict the implications
if any of our stations fail to meet the November 2002 deadline.
Instead of making a required license payment to the Hungarian government in November 2001, our 59.5%
owned national radio station in Hungary requested a modification of the broadcast contract and ultimately filed
suit in arbitration court seeking reformation of the contract and requesting that the payments be reduced. The
Hungarian government then issued an order revoking our station's broadcast license for non-payment of the license
fee, and we appealed the order in the Hungarian ordinary court. The Hungarian government has also filed an
action seeking to liquidate our Hungarian broadcast company. We are vigorously prosecuting the actions in the
arbitration court and ordinary court and are vigorously opposing the action seeking liquidation. However, we
cannot predict the outcome of these actions. We do not plan to continue to operate the station under the present
fee arrangement. We do not expect an adverse material financial impact to Emmis or EOC if the station does not
continue to operate.
Note 9. Subsequent Events
On June 21, 2002, EOC amended its credit facility to (1) issue a $500.0 million new Term B Loan which
was used to repay amounts outstanding under the existing $552.1 million Term B loan, (2) reset financial
covenants for the remaining term of the credit facility, and (3) permit EOC to make a one time cash distribution
to ECC for the purpose of redeeming a portion of its 121/2% Senior Discount Notes.
The existing Term B Loan was repaid, in full, with the proceeds from the new Term B Loan and borrowings
under the Revolver. The new Term B Loan has the same terms as the existing Term B loan except that the
applicable margin over the Eurodollar Rate Loan decreased from a maximum of 3.5% to a maximum of 2.50%.
The amendment also decreased the total and senior leverage ratios (debt divided by pro forma EBITDA, as
defined in the credit agreement) during the initial periods subsequent to the amendment and increased the total
and senior leverage ratios in future periods. The interest coverage ratio requirement increased immediately
following the effective date of the amendment but decreased in future periods, as compared to the previous
requirements. The pro forma fixed charge coverage ratio requirement increased for the term of the credit
facility. These changes to the financial covenants are applicable to the Revolver, Term A Loan and new Term B
Loan.
32
On July 1, 2002, ECC redeemed approximately 22.6% of its $370.0 million, face value, 121/2% Senior
Discount Notes due 2011. Approximately $60.1 million of the proceeds from the Company's April 2002 equity
offering were used to repay approximately $53.4 million of the carrying value of the notes at July 1, 2002 and
pay approximately $6.7 million for a redemption premium. The redemption premium and approximately $2.4 million
of deferred debt fees related to the discount notes will be recorded as an extraordinary charge, net of tax, in
our quarter ended August 31, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Note: Certain statements included in this report or in the financial statements contained herein 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, by this Note, 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; our ability to attract and secure programming, on-air talent, writers and photographers;
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 desired radio
acquisitions; new or changing regulations of the Federal Communications Commission or other governmental
agencies; competition from new or different technologies; war, terrorist acts or political instability; and
other factors mentioned in other documents filed by the Company with the Securities and Exchange Commission.
Emmis does not undertake any obligation to publicly update or revise any forward-looking statements because of
new information, future events or otherwise.
General
The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and
publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful
comparison of operating performance between companies in the industry and serve as an indicator of the market
value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and
publishing industries as a measure of performance and are used by analysts who report on the performance of
broadcasting and publishing groups.
BCF and PCF 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.
Specifically, 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. Moreover, BCF and PCF are not standardized measures
and may be calculated in a number of ways. Thus, our calculation of these non-GAAP measures may not be
comparable to such non-GAAP measures calculated by other companies. Emmis defines BCF and PCF as revenues net of
agency commissions and station operating expenses, excluding noncash compensation.
The primary source of broadcast advertising revenues is the sale of advertising time to local and
33
national advertisers. Publishing entities derive revenue from subscriptions and sale of print advertising
inventory. Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in
the month of delivery of the publication. The most significant station operating expenses, excluding noncash
compensation are employee salaries and commissions, costs associated with programming, advertising and promotion,
and station 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.
Unless otherwise noted, all disclosures contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-Q apply to Emmis and EOC.
Critical Accounting Policies:
Critical accounting policies are defined as those that encompass significant judgments and
uncertainties, and potentially derive materially different results under different assumptions and conditions. We
believe that our critical accounting policies are those described below.
Impairment of Goodwill and Indefinite-lived Intangibles
The annual impairment tests for goodwill and indefinite-lived intangibles under SFAS No. 142 require us
to make certain assumptions in determining fair value, including assumptions about the cash flow growth rates of
our businesses. Additionally, the fair values are significantly impacted by macro-economic factors, including
market multiples at the time the impairment tests are performed. Accordingly, we may incur additional impairment
charges in future periods under SFAS No. 142 to the extent we do not achieve our expected cash flow growth rates,
or to the extent that market values decrease.
Allocations for Purchased Assets
We typically engage an independent appraisal firm to value assets acquired in a material acquisition.
We use the appraisal report to allocate the purchase price of the acquisition. To the extent that purchased
assets are not allocated appropriately, depreciation and amortization expense could be misstated.
Allowance for Doubtful Accounts
Our allowance for doubtful accounts requires us to estimate losses resulting from our customers'
inability to make payments. We specifically review historical write-off activity by market, large customer
concentrations, and changes in our customer payment patterns when evaluating the adequacy of the allowance for
doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, then additional allowances may be required.
Results of Operations for the Three Months Ended May 31, 2002 Compared to May 31, 2001
In April 2002, we sold 4.6 million shares of Class A common stock , raising $120.3 million in net
proceeds. One half of the proceeds was used in April 2002 to repay outstanding indebtedness under our credit
facility and the remaining half of the proceeds was used in July 2002 to redeem 22.6% of ECC's 121/2% Senior
Discount Notes due 2011. In May 2002, we sold KALC-FM to Entercom Communications Corporation for $88.0 million
and KXPK-FM to Entravision Communications Corporation for $47.5 million. The proceeds from the sales were used
to repay outstanding term loans under our credit facility. These transactions impact the comparability of
operating results period over period.
34
Summary of Segment Operating Results
(Dollars in thousands)
Three Months Three Months
Ended Ended Increase/ Percentage
May 31, 2002 May 31, 2001 (Decrease) Change
------------ ---------- ---------- ---------
Radio net revenues $ 62,724 $ 66,148 $(3,424) -5.2%
Television net revenues 57,157 53,997 3,160 5.9%
Publishing net revenues 16,925 18,108 (1,183) -6.5%
-------- -------- -------
Total net revenues 136,806 138,253 (1,447) -1.0%
Radio station operating expenses,
excluding noncash compensation 34,408 37,036 (2,628) -7.1%
Television station operating expenses,
excluding noncash compensation 36,812 35,874 938 2.6%
Publishing operating expenses,
excluding noncash compensation 15,110 17,060 (1,950) -11.4%
------- -------- -------
Total station operating expenses,
excluding noncash compensation 86,330 89,970 (3,640) -4.0%
Radio broadcast cash flow 28,316 29,112 (796) -2.7%
Television broadcast cash flow 20,345 18,123 2,222 12.3%
Publishing cash flow 1,815 1,048 767 73.2%
------- -------- -------
Total broadcast/publishing cash flow 50,476 48,283 2,193 4.5%
Radio broadcast cash flow margin 45.1% 44.0%
Television broadcast cash flow margin 35.6% 33.6%
Publishing cash flow margin 10.7% 5.8%
Total broadcast/publishing
cash flow margin 36.9% 34.9%
Net revenues: Radio net revenues decreased $3.4 million, or 5.2%. On a pro forma basis (assuming the
Denver radio asset sales had occurred on March 1, 2001), radio net revenues would have decreased $1.4 million, or
2.3%. Radio net revenues were negatively impacted by the devaluation of the peso in Argentina, as international
radio net revenues decreased $0.8 million, or 25.8%. Domestic radio net revenues were negatively impacted by the
results of our New York market, which represents approximately 30% of our radio net revenues, due to a format
change within the market by one of our competitors. The negative impact in our New York market was partially
offset by strength in our other markets. Television net revenues increased $3.2 million, or 5.9%. This increase
is due to approximately $2.3 million of political adverting revenues in the quarter ended May 31, 2002, as well
as higher advertising rates charged by our stations. Publishing revenues decreased $1.2 million, or 6.5%. This
decrease is due to lower advertising and newsstand revenues at our publications. Our publishing business has not
seen the same level of recovery in advertisement spending that, in general, our radio and television businesses
have experienced. On a consolidated basis, net revenues decreased $1.4 million, or 1.0%, due to the effect of
the items described above.
35
Station operating expenses, excluding noncash compensation: Radio station operating expenses, excluding noncash
compensation decreased $2.6 million, or 7.1%. On a pro forma basis (assuming the Denver radio asset sales had
occurred on March 1, 2001), radio station operating expenses, excluding noncash compensation would have decreased
$1.0 million, or 2.9%. Radio station operating expenses, excluding noncash compensation decreased due to the
implementation of our stock compensation program in December 2001, whereby each full-time employee's salary was
reduced by at least 10% and supplemented with a corresponding stock grant. Television station operating
expenses, excluding noncash compensation increased $0.9 million, or 2.6%. This increase is due to higher
programming, promotion and sales-related costs, partially offset by benefits from our stock compensation
program. Publishing operating expenses, excluding noncash compensation decreased $2.0 million, or 11.4% due to
cost control measures and our stock compensation program. On a consolidated basis, station operating expenses,
excluding noncash compensation decreased $3.6 million, or 4.0%, due to the effect of the items described above.
Noncash compensation expenses: Noncash compensation expenses for the three months ended May 31, 2002 were $5.4
million compared to $2.7 million for the same period of the prior year, an increase of $2.7 million or 95.4%.
Noncash compensation includes compensation expense associated with restricted common stock issued under
employment agreements, common stock contributed to the Company's Profit Sharing Plan, common stock issued to
employees at our discretion and common stock issued to employees pursuant to our stock compensation program. Our
stock compensation program increased our noncash compensation expense by approximately $4.4 million, offset by
lower accruals for incentives to be paid in stock. Our stock compensation program began December 2001;
therefore, no expense related to this program was recorded in the quarter ended May 31, 2001.
Corporate expenses: Corporate expenses for the three months ended May 31, 2002 were $5.1 million compared to
$5.0 million for the same period of the prior year, an increase of $0.1 million or 3.6%. These costs remained
essentially flat as increases in training and personnel development were offset by benefits from our stock
compensation program.
Depreciation and amortization: Depreciation and amortization expense for the three months ended May 31, 2002 was
$10.8 million compared to $24.1 million for the same period of the prior year, a decrease of $13.3 million or
55.4%. The decrease was mainly attributable to the adoption on March 1, 2002 of SFAS No. 142, "Goodwill and
Other Intangible Assets," as described more fully in the footnotes to the condensed consolidated financial
statements under Recent Accounting Pronouncements. Adoption of this accounting standard had the impact of
eliminating our amortization expense for goodwill and FCC licenses. For comparison purposes, for the three
months ended May 31, 2001, we recorded amortization expense for goodwill and FCC licenses of $13.9 million.
Operating income: Operating income for the three months ended May 31, 2002 was $29.2 million compared to $15.4
million for the same period of the prior year, an increase of $13.8 million or 89.8%. Substantially all of the
increase was attributable to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," as described
more fully in the footnotes to the condensed financial statements under Recent Accounting Pronouncements.
Adoption of this accounting standard had the impact of eliminating our amortization expense for goodwill and FCC
licenses, which totaled $13.9 million in the three months ended May 31, 2001.
Interest expense: With respect to Emmis, interest expense for the three months ended May 31, 2002 was $29.9
million compared to $34.7 million for the same period of the prior year, a decrease of $4.8 million or 13.6%.
This decrease is primarily attributable to a decrease in the interest rates we pay on amounts outstanding under
36
our credit facility, which is variable rate debt. Additionally, in the quarter ended May 31, 2002, we repaid
amounts outstanding under our credit facility with the proceeds of our Denver radio asset sales in May 2002 and a
portion of the proceeds from our equity offering in April 2002. The decrease in interest expense in the quarter
was offset by higher interest expense associated with ECC's senior discount notes. With respect to EOC, interest
expense for the three months ended May 31, 2002 was $22.4 million compared to $30.2 million for the same period
of the prior year, a decrease of $7.8 million or 25.8%. This decrease is also primarily attributable to a
decrease in the interest rates we pay on amounts outstanding under our credit facility, which is variable rate
debt, and repayments of amounts outstanding under our credit facility with the proceeds of our Denver radio asset
sales in May 2002 and a portion of the proceeds from our equity offering in April 2002. The difference between
interest expense for Emmis and EOC is due to interest expense associated with the senior discount notes, for
which ECC is the obligor, and thus it is excluded from the operations of EOC.
Income (loss) before income taxes, extraordinary loss and accounting change: With respect to Emmis, income
(loss) before income taxes, extraordinary loss and accounting change increased to $7.8 million for the three
months ended May 31, 2002 from a loss before income taxes, extraordinary loss and accounting change of $18.7
million for the same period of the prior year. The increase in the income before income taxes, extraordinary
loss and accounting change is mainly attributable to: (1) the elimination of our amortization expense for
goodwill and broadcasting licenses of $13.9 million, (2) the gain on sale of our Denver radio assets of $8.9
million and (3) a reduction in interest expense as a result of the factors described above under interest
expense. With respect to EOC, income (loss) before income taxes, extraordinary loss and accounting change
increased to $15.3 million for the three months ended May 31, 2002 from a loss before income taxes, extraordinary
loss and accounting change of $14.2 million for the same period of the prior year. The increase in the income
before income taxes, extraordinary loss and accounting change is mainly attributable to: (1) the elimination of
our amortization expense for goodwill and broadcasting licenses of $13.9 million, (2) the gain on sale of our
Denver radio assets of $8.9 million and (3) a reduction in interest expense as a result of the factors described
above under interest expense.
Net loss: With respect to Emmis, net loss increased to $165.6 million for the three months ended May 31, 2002
from $13.5 million for the same period of the prior year. The increase in net loss is mainly attributable to (1)
the elimination of amortization expense, the gain on asset sales and the reduction in interest expense, all
described above, and all net of taxes; (2) a $2.3 million extraordinary loss, net of a deferred tax benefit,
relating to the write-off of deferred debt fees associated with debt repaid during the quarter, and (3) a $167.4
million impairment charge, net of a deferred tax benefit, under the cumulative effect of accounting change as an
accumulated transition adjustment attributable to the adoption on March 1, 2002 of SFAS No. 142, "Goodwill and
Other Intangible Assets." With respect to EOC, net loss increased to $160.5 million for the three months ended
May 31, 2002 from $10.9 million for the same period of the prior year. The increase in net loss is mainly
attributable to (1) the elimination of amortization expense, the gain on asset sales and the reduction in
interest expense, all described above, and all net of taxes; (2) a $2.3 million extraordinary loss, net of a
deferred tax benefit, relating to the write-off of deferred debt fees associated with debt repaid during the
quarter, and (3) a $167.4 million impairment charge, net of a deferred tax benefit, under the cumulative effect
of accounting change as an accumulated transition adjustment attributable to the adoption on March 1, 2002 of
SFAS No. 142, "Goodwill and Other Intangible Assets."
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operations and cash available through revolver
borrowings under our credit facility. 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, in the case of
37
ECC, preferred stock dividend requirements. Since we manage cash on a consolidated basis, any cash needs of a
particular segment or operating entity are met by intercompany transactions. See Investing Activities below for
discussion of specific segment needs.
At May 31, 2002, we had cash and cash equivalents of $65.4 million and net working capital for Emmis and
EOC of $52.1 million and $106.1 million, respectively. At February 28, 2002, we had cash and cash equivalents of
$6.4 million and net working capital for Emmis and EOC of $19.8 million and $21.0 million, respectively,
excluding assets held for sale and associated liabilities. Approximately $60.1 million of cash at May 31, 2002
represents a portion of the proceeds from our April 2002 equity offering which were subsequently used to
redeem a portion of our senior discount notes. Due to the economic stimulus package passed by Congress in
March 2002, Emmis recorded a tax refund receivable of $12.8 million in the quarter ended May 31, 2002. As of
May 31, 2002, ECC's working capital reflects the current portion of senior discount notes to be redeemed
with a portion of the equity offering proceeds. See Financing Activities below for further discussion of
the equity offering and related use of proceeds.
Operating Activities
With respect to Emmis, net cash flows provided by operating activities were $0.5 million for the three
months ended May 31, 2002 compared to $5.7 million for the same period of the prior year. With respect to EOC,
net cash flows used in operating activities were $0.4 million for the three months ended May 31, 2002 compared to
net cash flows provided by operating activities of $5.5 million for the same period of the prior year. Net
revenues and expenses were relatively flat year over year; therefore, the decrease in cash flows provided by/used
in operating activities for the quarter ended May 31, 2002 as compared to the same period in the prior year is
due to changes in the timing of cash receipts and payments. Cash flows provided by operating activities are
historically the lowest in our first fiscal quarter as a significant portion of our accounts receivable
collections is derived from revenues recognized in our fourth fiscal quarter, which is our lowest revenue
quarter.
Investing Activities
Cash flows provided by investing activities were $131.4 million for the quarter ended May 31, 2002
compared to cash used in investing of $153.1 million in the same period of the prior year. This increase is
primarily attributable to our sales of radio stations in the quarter ended May 31, 2002 as opposed to our
purchase of radio stations in the quarter ended May 31, 2001, partially offset by a reduction in capital
expenditures in the quarter ended May 31, 2002 over the same period in the prior year. Investment activities
include capital expenditures and business acquisitions and dispositions.
As discussed in results of operations above and in Note 4 to the accompanying condensed consolidated
financial statements, Emmis sold radio stations KALC-FM and KXPK-FM in Denver, Colorado for $135.5 million in
cash in the quarter ended May 31, 2002. The net cash proceeds of $135.0 million were used to repay outstanding
borrowings under the credit facility. As disclosed in the supplemental disclosures to the statements of cash
flows, Emmis acquired radio stations KKLT-FM, KTAR-AM and KMVP-AM, in Phoenix, Arizona, in the quarter ended May
31, 2001 for cash of $140.7 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 ECC's March 2001 senior discount notes offering. Emmis began programming and selling
advertising on the radio stations on August 1, 2000 under a time brokerage agreement.
Capital expenditures primarily relate to leasehold improvements to various office and studio facilities,
38
broadcast equipment purchases, tower upgrades and computer equipment replacements. In the three month periods
ended May 31, 2002 and 2001, we had capital expenditures of $3.8 million and $9.1 million, respectively. Of this
decrease, approximately $3.0 million relates to the construction of new operating facilities for WALA-TV in
Mobile, Alabama in the first quarter of the prior year. We anticipate that future requirements for capital
expenditures will include capital expenditures incurred during the ordinary course of business, including
approximately $11.0 million in fiscal 2003 for the conversion to digital television. Although we expect that
substantially all of our stations will broadcast a digital signal by the end of our fiscal 2003, we will incur
approximately $8 million of additional costs, after fiscal 2003, to upgrade the digital signals of five of our
local stations and an indeterminable amount to upgrade the digital signals of our nine satellite stations. We
expect to fund such capital expenditures with cash generated from operating activities and borrowings under our
credit facility.
Financing Activities
Cash flows used in financing activities for Emmis and EOC were $72.9 million and $72.0 million,
respectively, for the quarter ended May 31, 2002. Cash flows provided by financing activities for Emmis and EOC
were $101.0 million and $101.2 million, respectively, for the same period of the prior year.
As discussed in Note 4 to the accompanying condensed consolidated financial statements, in April 2002,
ECC completed the sale of 4.6 million shares of its Class A common stock at $26.80 per share resulting in total
proceeds of $123.3 million. The net proceeds of $120.3 million were contributed to EOC and 50% of the net
proceeds were used in April 2002 to repay outstanding borrowings under the credit facility. The remainder was
invested, and in July 2002 distributed to ECC to redeem approximately 22.6% of ECC's $370.0 million, face value,
senior discount notes (see discussion below). As indicated in Investing Activities above, net proceeds of $135.0
million from the sale of two radio stations in Denver were also used to repay outstanding indebtedness under the
credit facility during the quarter ended May 31, 2002.
On March 28, 2001, ECC received $202.6 million of proceeds from the issuance of $370.0 million face
value, 121/2% senior discount notes due 2011. The net proceeds of $191.1 million, less $93.0 million held in
escrow at ECC, were distributed to EOC and used to fund the acquisition of the Phoenix radio stations discussed
in Investing Activities above. In June 2001, upon completion of the Company's reorganization, the proceeds held
in escrow were released and used to reduce outstanding borrowings under the credit facility.
As of May 31, 2002, EOC had $1.057 billion of corporate indebtedness outstanding under our credit
facility ($.757 billion) and senior subordinated notes ($0.3 billion), and an additional $15.2 million of other
indebtedness. As of May 31, 2002, total indebtedness outstanding for Emmis included all of EOC's indebtedness as
well as $233.7 million of senior discount notes. Emmis 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, 2002, our weighted average
borrowing rate under our credit facility was approximately 6.7% 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%. The overall weighted average borrowing rate for EOC, which would exclude the senior discount
notes, was approximately 7.1%.
Based on amounts currently outstanding under our senior subordinated notes, the debt service
requirements of EOC for these notes over the next twelve-month period are $24.4 million. ECC has no additional
debt service requirements in the next twelve-month period since interest on its senior discount notes accretes
into the principal balance of the notes until March 2006. However, ECC has preferred stock dividend requirements
of $9.0 million for the next twelve-month period. The terms of ECC's preferred stock provide for a quarterly
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dividend payment of $.78125 per share on each January 15, April 15, July 15 and October 15. While Emmis has
sufficient liquidity to declare and pay the dividends as they become due, it was not permitted to do so for the
April 15, 2002 payment because Emmis' leverage ratio under the senior discount notes indenture exceeded 8:1 and
its leverage ratio under the senior subordinated notes indenture exceeded 7:1. ECC's board of directors set a
record date for the April 15, 2002 payment, but did not declare the dividend. Instead, a wholly-owned,
unrestricted subsidiary of EOC made a payment of $.78125 per share to each preferred shareholder of record. This
subsidiary was permitted to make the payment to the preferred shareholders under the senior discount notes and
senior subordinated notes indentures. Currently, Emmis meets its leverage ratio requirements under both the
senior discount notes indenture and the senior subordinated notes indenture. On July 2, 2002, ECC's board of
directors declared the April 15, 2002 dividend, as well as dividends payable October 15, 2001 and January 15,
2002, and deemed the obligation to pay each dividend to have been discharged by the subsidiary's prior payment.
At July 3, 2002, we had $167.9 million available under our credit facility less $6.9 million in
outstanding letters of credit. 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.
Intangibles
At May 31, 2002, approximately 77% 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.
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." Statement No. 141 addresses
financial accounting and reporting for business combinations and supersedes Accounting Principle Board ("APB")
Opinion No. 16, "Business Combinations" and FASB Statement No. 38, "Accounting for Preacquisition Contingencies
of Purchased Enterprises." Statement No. 141 is effective for all business combinations initiated after June 30,
2001 and eliminates the pooling-of-interest method of accounting for business combinations except for qualifying
business combinations that were initiated prior to July 1, 2001. Statement No. 141 also changes the criteria to
recognize intangible assets apart from goodwill. The Company adopted this Statement on July 1, 2001. The
Company has historically used the purchase method to account for all business combinations and the adoption of
this Statement did not have a material impact on the Company's financial position, cash flows or results of
operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" that requires
companies to cease amortizing goodwill and certain other indefinite-lived intangible assets, including broadcast
licenses. Under SFAS 142, goodwill and certain indefinite-lived intangibles will not be amortized into results
of operations, but instead the recorded value of certain indefinite-lived intangibles will be tested for
impairment at least annually with impairment being measured as the excess of the asset's carrying amount over its
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fair value. Intangible assets that have finite useful lives will continue to be amortized over their useful
lives and measured for impairment in accordance with SFAS 121. In connection with the adoption of SFAS 142
effective March 1, 2002, we recorded an impairment loss of $167.4 million, net of tax, reflected as the
cumulative effect of an accounting change in the accompanying condensed consolidated statements of operations.
The adoption of this accounting standard reduced our amortization of goodwill and intangibles by approximately
$14 million in the quarter ended May 31, 2002. However, our impairment reviews may result in future periodic
write-downs.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" that applies
to legal obligations associated with the retirement of a tangible long-lived asset that results from the
acquisition, construction, or development and/or the normal operation of a long-lived asset. Under this
standard, guidance is provided on measuring and recording the liability. Adoption of this Statement by the
Company will be effective on March 1, 2003. The Company does not believe that the adoption of this Statement
will materially impact the Company's financial position, cash flows or results of operations.
Effective March 1, 2002, the Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" that addresses financial accounting and reporting for the impairment or disposal of long-lived
assets. While SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," it removes certain assets such as deferred tax assets, goodwill and
intangible assets not being amortized from its scope and retains the requirements of SFAS No. 121 regarding the
recognition of impairment losses on other long-lived assets held for use. SFAS No. 144 also supercedes the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring events and
Transactions" for the disposal of a segment of a business. However, SFAS No. 144 retains the requirement in
Opinion 30 to report separately discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held
for sale. Adoption of this statement did not have a material impact on the Company's financial position, cash
flows or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections". Statement No. 145 rescinds FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, and FASB Statement
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". Statement No. 145 also rescinds FASB
Statement No. 44, "Accounting for Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Statement No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. Adoption of this Statement by the Company will be effective on March 1,
2003. The Company has not assessed the impact, if any, that will result from the adoption of Statement No. 145.
Regulatory Matters
We acquired KGMB-TV in Honolulu, Hawaii as part of the Lee acquisition in October 2000. Because we
already owned KHON-TV in Honolulu, and both KHON and KGMB were rated among the top four television stations in
the Honolulu market, FCC regulations prohibited us from owning both stations. However, we received a temporary
waiver from the FCC that has allowed us to operate both stations (and their related "satellite" stations). As a
41
result of recent regulatory developments, we have requested a stay of divestiture until the FCC completes its
biennial review. We are currently awaiting the FCC's decision. No assurances can be given that the FCC will
grant us the stay of divestiture and we may need to sell one of the two stations in Hawaii.
FCC regulations require all commercial television stations in the United States to start broadcasting in
digital format by May 2002 and to abandon their present analog format by 2006, although the FCC may extend these
dates. Five of our television stations were broadcasting in digital format by the May 2002 deadline and the
remainder were granted extensions to November 2002. We expect all of our stations (other than our "satellite"
stations in Hawaii) to have commenced digital broadcasts by the end of our fiscal 2003 and will request waivers
from the FCC for those stations that may not meet the November 2002 deadline. We currently cannot predict the
implications if any of our stations fail to meet the November 2002 deadline.
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, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Discussion regarding these items is included in management's discussion and analysis of financial
condition and results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Instead of making a required license payment to the Hungarian government in November 2001, our 59.5%
owned national radio station in Hungary requested a modification of the broadcast contract and ultimately filed
suit in the arbitration court seeking reformation of the contract and requesting that the payments be reduced.
The Hungarian government then issued an order revoking our station's broadcast license for non-payment of the
license fee, and we appealed the order in the Hungarian ordinary court. The Hungarian government has also filed
an action seeking to liquidate our Hungarian broadcast company. We are vigorously prosecuting the actions in the
arbitration court and ordinary court and are vigorously opposing the action seeking liquidation. However, we
cannot predict the outcome of these actions. We do not plan to continue to operate the station under the present
fee arrangement. We do not expect an adverse material financial impact to Emmis or EOC if the station does not
continue to operate.
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.
42
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 an amendment thereto relating to certain
12.5% Senior Preferred Stock incorporated by reference from Exhibit 3.1 to the
Company's current report on Form 8-K filed December 13, 2001.
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.
3.3 Articles of Incorporation of Emmis Operating Company, incorporated by reference from Exhibit 3.4 to the
Company's Form S-3/A File No. 333-62172 filed on June 21, 2001.
3.4 Bylaws of Emmis Operating Company, incorporated by reference from Exhibit 3.5 to the Company's Form
S-3/A File No. 333-62172 filed on June 21, 2001.
10.1 Fourth Amendment to Fourth Amended and Restated Revolving Credit and Term Loan Agreement.
15 Letter re: unaudited interim financial information
(b) Reports on Form 8-K
On March 29, 2002, ECC filed on Form 8-K its press release dated March 26, 2002.
On March 29, 2002, ECC filed on Form 8-K its Terms Agreement and Underwriting Agreement related
to the equity offering it completed in April 2002. Also included in the same Form 8-K was its press
release dated March 27, 2002.
On May 14, 2002, both ECC and EOC filed on Form 8-K risk factors relating to both companies.
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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 15, 2002 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President (Authorized Corporate
Officer), Chief Financial Officer and Treasurer
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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 OPERATING COMPANY
Date: July 15, 2002 By: /s/ WALTER Z. BERGER
Walter Z. Berger
Executive Vice President (Authorized Corporate
Officer), Chief Financial Officer and Treasurer
45
Exhibit 15
July 15, 2002
The Board of Directors and Shareholders
Emmis Communications Corporation and Subsidiaries
We are aware of the incorporation by reference in the Registration Statements on form S-8 (Nos. 33-83890,
333-14657, 333-62172, and 333-92318) of Emmis Communications Corporation and the incorporation by reference in
the Registration Statement on form S-3 (No. 333-42878) of Emmis Communications Corporation and Emmis Operating
Company (collectively, "Emmis") of our report dated June 24, 2002 relating to the unaudited condensed
consolidated interim financial statements of Emmis Communications Corporation and Emmis Operating Company that
are included in Emmis' Form 10-Q for the quarter ended May 31, 2002. Pursuant to Rule 436(c) of the Securities
Act of 1933 our report is not part of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933. It should be noted that we have not performed any
procedures subsequent to June 24, 2002.
Very truly yours,
/s/ ERNST & YOUNG LLP
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ERNST & YOUNG LLP