UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
| EMMIS COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) |
EMMIS OPERATING COMPANY (Exact name of registrant as specified in its charter) |
|
| INDIANA (State of incorporation or organization) |
INDIANA (State of incorporation or organization) |
|
| 0-23264 (Commission file number) |
333-62172-13 (Commission file number) |
|
| 35-1542018 (I.R.S. Employer Identification No.) |
35-2141064 (I.R.S. Employer Identification No.) |
|
| ONE EMMIS PLAZA 40 MONUMENT CIRCLE SUITE 700 INDIANAPOLIS, INDIANA 46204 (Address of principal executive offices) |
ONE EMMIS PLAZA 40 MONUMENT CIRCLE SUITE 700 INDIANAPOLIS, INDIANA 46204 (Address of principal executive offices) |
|
| (317) 266-0100 (Registrant’s Telephone Number, Including Area Code) |
(317) 266-0100 (Registrant’s Telephone Number, Including Area Code) |
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act).
Yes X No
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The number of shares outstanding of each of Emmis Communications Corporation’s classes of common stock, as of January 2, 2004, was:
| 50,322,901 | Shares of Class A Common Stock, $.01 Par Value | |
| 5,030,002 | Shares of Class B Common Stock, $.01 Par Value | |
| 0 | Shares of Class C Common Stock, $.01 Par Value |
Emmis Operating Company had 1,000 shares of common stock outstanding as of January 2, 2004 and all of these shares are owned by Emmis Communications Corporation.
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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
and nine months ended November 30, 2002 and 2003 |
5 | ||||||
Condensed Consolidated Balance Sheets
as of February 28, 2003 and November 30, 2003 |
7 | ||||||
Condensed Consolidated Statements of Cash Flows
for the nine months ended November 30, 2002 and 2003 |
9 | ||||||
Emmis Operating Company and Subsidiaries: |
|||||||
Condensed Consolidated Statements of Operations for the three
and nine months ended November 30, 2002 and 2003 |
11 | ||||||
Condensed Consolidated Balance Sheets
as of February 28, 2003 and November 30, 2003 |
12 | ||||||
Condensed Consolidated Statements of Cash Flows
for the nine months ended November 30, 2002 and 2003 |
14 | ||||||
Notes to Condensed Consolidated Financial Statements |
16 | ||||||
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
37 | ||||||
Item 3. Quantitative and Qualitative Disclosures
about Market Risk |
49 | ||||||
Item 4. Controls and Procedures |
50 | ||||||
PART II — OTHER INFORMATION |
|||||||
Item 6. Exhibits and Reports on Form 8-K |
52 | ||||||
Signatures |
54 | ||||||
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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
The Board of Directors and Shareholders
Emmis Communications Corporation and subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of Emmis Communications Corporation and subsidiaries as of November 30, 2003, and the related condensed consolidated statements of operations and cash flows for the three and nine-month periods ended November 30, 2003 and 2002. We have also reviewed the accompanying condensed consolidated balance sheet of Emmis Operating Company (a wholly owned subsidiary of Emmis Communications Corporation) and subsidiaries as of November 30, 2003, and the related condensed consolidated statements of operations and cash flows for the three and nine-month periods ended November 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.
We conducted our reviews 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 reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Emmis Communications Corporation and subsidiaries as of February 28, 2003, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended. We have also audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Emmis Operating Company and subsidiaries as of February 28, 2003, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended. In our report dated April 11, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheets of Emmis Communications Corporation and subsidiaries and Emmis Operating Company and subsidiaries as of February 28, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheets from which it has been derived.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 5, 2004
-4-
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| November 30, | November 30, | |||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | |||||||||||||||
GROSS REVENUES |
$ | 179,064 | $ | 184,123 | $ | 501,270 | $ | 526,892 | ||||||||||
LESS: AGENCY COMMISSIONS |
23,520 | 24,078 | 65,698 | 68,777 | ||||||||||||||
NET REVENUES |
155,544 | 160,045 | 435,572 | 458,115 | ||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||
Station operating expenses, excluding noncash compensation |
87,781 | 94,685 | 260,076 | 279,965 | ||||||||||||||
Corporate expenses, excluding noncash compensation |
5,571 | 6,066 | 15,750 | 17,690 | ||||||||||||||
Noncash compensation |
6,470 | 5,585 | 17,600 | 18,056 | ||||||||||||||
Depreciation and amortization |
10,738 | 11,769 | 32,090 | 34,728 | ||||||||||||||
Total operating expenses |
110,560 | 118,105 | 325,516 | 350,439 | ||||||||||||||
OPERATING INCOME |
44,984 | 41,940 | 110,056 | 107,676 | ||||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||||
Interest expense |
(24,468 | ) | (20,919 | ) | (80,611 | ) | (64,863 | ) | ||||||||||
Gain (loss) from unconsolidated affiliates |
(128 | ) | 11 | (4,208 | ) | (328 | ) | |||||||||||
Loss on debt extinguishment |
— | — | (13,506 | ) | — | |||||||||||||
Gain (loss) on sale of assets |
(33 | ) | (95 | ) | 8,900 | 862 | ||||||||||||
Minority interest expense |
(110 | ) | (1,352 | ) | (14 | ) | (2,141 | ) | ||||||||||
Other income (expense), net |
(275 | ) | (517 | ) | 886 | (232 | ) | |||||||||||
Total other income (expense) |
(25,014 | ) | (22,872 | ) | (88,553 | ) | (66,702 | ) | ||||||||||
INCOME BEFORE INCOME TAXES AND
ACCOUNTING CHANGE |
19,970 | 19,068 | 21,503 | 40,974 | ||||||||||||||
PROVISION FOR INCOME TAXES |
9,156 | 7,752 | 13,419 | 17,302 | ||||||||||||||
INCOME BEFORE ACCOUNTING CHANGE |
10,814 | 11,316 | 8,084 | 23,672 | ||||||||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAXES OF $102,600 IN 2002 |
— | — | (167,400 | ) | — | |||||||||||||
NET INCOME (LOSS) |
10,814 | 11,316 | (159,316 | ) | 23,672 | |||||||||||||
PREFERRED STOCK DIVIDENDS |
2,246 | 2,246 | 6,738 | 6,738 | ||||||||||||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS |
$ | 8,568 | $ | 9,070 | $ | (166,054 | ) | $ | 16,934 | |||||||||
See independent accountants’ review report and accompanying notes.
In the three months ended November 30, 2002 and 2003, $4.9 million and $4.4 million, respectively of our noncash compensation was attributable to our stations, while $1.6 million and $1.2 million, respectively was attributable to corporate. In the nine months ended November 30, 2002 and 2003, $14.3 million and $14.4 million, respectively of our noncash compensation was attributable to our stations, while $3.3 million and $3.7 million, respectively was attributable to corporate.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| November 30, | November 30, | ||||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | ||||||||||||||||
Basic net income (loss) available to common shareholders: |
|||||||||||||||||||
Before accounting change |
$ | 0.16 | $ | 0.17 | $ | 0.03 | $ | 0.31 | |||||||||||
Cumulative effect of accounting change, net of tax |
— | — | (3.16 | ) | — | ||||||||||||||
Net income (loss) available to common shareholders |
$ | 0.16 | $ | 0.17 | $ | (3.13 | ) | $ | 0.31 | ||||||||||
Basic weighted average common shares outstanding |
53,358 | 54,895 | 53,019 | 54,470 | |||||||||||||||
Diluted net income (loss) available to common shareholders: |
|||||||||||||||||||
Before accounting change |
$ | 0.16 | $ | 0.16 | $ | 0.02 | $ | 0.31 | |||||||||||
Cumulative effect of accounting change, net of tax |
— | — | (3.14 | ) | — | ||||||||||||||
Net income (loss) available to common shareholders |
$ | 0.16 | $ | 0.16 | $ | (3.12 | ) | $ | 0.31 | ||||||||||
Diluted weighted average common shares outstanding |
53,507 | 55,252 | 53,280 | 54,780 | |||||||||||||||
See independent accountants’ review report and accompanying notes.
-6-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| February 28, | November 30, | |||||||||
| 2003 | 2003 | |||||||||
| (Note 1) | (Unaudited) | |||||||||
| ASSETS |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 16,079 | $ | 12,624 | ||||||
Accounts receivable, net |
102,345 | 123,184 | ||||||||
Prepaid expenses |
15,596 | 17,315 | ||||||||
Other |
25,661 | 26,290 | ||||||||
Total current assets |
159,681 | 179,413 | ||||||||
PROPERTY AND EQUIPMENT, NET |
223,430 | 216,088 | ||||||||
INTANGIBLE ASSETS (Note 2): |
||||||||||
Indefinite-lived intangibles |
1,508,886 | 1,620,159 | ||||||||
Goodwill |
138,986 | 162,842 | ||||||||
Other intangibles, net |
28,861 | 41,217 | ||||||||
Total intangible assets |
1,676,733 | 1,824,218 | ||||||||
OTHER ASSETS, NET |
56,569 | 58,677 | ||||||||
Total assets |
$ | 2,116,413 | $2,278,396 | |||||||
See independent accountants’ review report and accompanying notes.
-7-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except share data)
| February 28, | November 30, | ||||||||||
| 2003 | 2003 | ||||||||||
| (Note 1) | (Unaudited) | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
CURRENT LIABILITIES: |
|||||||||||
Accounts payable |
$ | 39,526 | $ | 34,764 | |||||||
Current maturities of long-term debt |
14,912 | 40,660 | |||||||||
Current portion of TV program rights payable |
27,424 | 30,587 | |||||||||
Accrued salaries and commissions |
14,247 | 9,584 | |||||||||
Accrued interest |
11,641 | 5,857 | |||||||||
Deferred revenue |
15,805 | 14,193 | |||||||||
Other |
8,102 | 8,270 | |||||||||
Total current liabilities |
131,657 | 143,915 | |||||||||
LONG-TERM DEBT, NET OF CURRENT MATURITIES |
1,194,789 | 1,241,029 | |||||||||
OTHER LONG-TERM DEBT, NET OF CURRENT MATURITIES |
13,087 | 9,837 | |||||||||
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION |
32,044 | 29,749 | |||||||||
MINORITY INTEREST |
721 | 48,252 | |||||||||
OTHER NONCURRENT LIABILITIES |
17,065 | 12,761 | |||||||||
DEFERRED INCOME TAXES |
22,345 | 39,031 | |||||||||
Total liabilities |
1,411,708 | 1,524,574 | |||||||||
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, 2003 and November 30, 2003 |
29 | 29 | |||||||||
Class A common stock, $.01 par value; authorized 170,000,000 shares;
issued and outstanding 48,874,017 shares at February 28, 2003
and 50,210,632 shares at November 30, 2003 |
489 | 502 | |||||||||
Class B common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 5,011,348 shares at February 28, 2003
and 5,030,002 shares at November 30, 2003 |
50 | 50 | |||||||||
Additional paid-in capital |
990,770 | 1,018,350 | |||||||||
Accumulated deficit |
(269,274 | ) | (252,340 | ) | |||||||
Accumulated other comprehensive loss |
(17,359 | ) | (12,769 | ) | |||||||
Total shareholders’ equity |
704,705 | 753,822 | |||||||||
Total liabilities and shareholders’ equity |
$ | 2,116,413 | $ | 2,278,396 | |||||||
See independent accountants’ review report and accompanying notes.
-8-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| Nine Months Ended November 30, | |||||||||||
| 2002 | 2003 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|||||||||||
Net income (loss) |
$ | (159,316 | ) | $ | 23,672 | ||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities - |
|||||||||||
Cumulative effect of accounting change |
167,400 | — | |||||||||
Depreciation and amortization |
50,020 | 55,242 | |||||||||
Accretion of interest on senior discount notes,
including amortization of related debt costs |
19,789 | 19,690 | |||||||||
Provision for bad debts |
3,189 | 2,611 | |||||||||
Provision for deferred income taxes |
13,419 | 17,302 | |||||||||
Noncash compensation |
17,600 | 18,056 | |||||||||
Loss on debt extinguishment |
13,506 | — | |||||||||
Gain on sale of assets |
(8,900 | ) | (862 | ) | |||||||
Other |
(7,098 | ) | 2,430 | ||||||||
Changes in assets and liabilities - |
|||||||||||
Accounts receivable |
(22,060 | ) | (19,450 | ) | |||||||
Prepaid expenses and other current assets |
(6,400 | ) | (3,219 | ) | |||||||
Other assets |
6,281 | 2,022 | |||||||||
Accounts payable and accrued liabilities |
(7,542 | ) | (13,840 | ) | |||||||
Deferred revenue |
(402 | ) | (1,658 | ) | |||||||
Other liabilities |
(22,981 | ) | (28,626 | ) | |||||||
Net cash provided by operating activities |
56,505 | 73,370 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||||||||
Purchases of property and equipment |
(21,035 | ) | (17,718 | ) | |||||||
Disposals of property and equipment |
— | 640 | |||||||||
Cash paid for acquisitions |
— | (118,134 | |||||||||