e10vq
UNITED STATES
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, 2009
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA
(State of incorporation or organization)
0-23264
(Commission file number)
35-1542018
(I.R.S. Employer Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE, SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No þ
The number of shares outstanding of each of Emmis Communications Corporations classes of
common stock, as of July 6, 2009, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,987,170 |
|
|
Shares of Class A Common Stock, $.01 Par Value |
|
|
|
|
|
4,956,305 |
|
|
Shares of Class B Common Stock, $.01 Par Value |
|
|
|
|
|
0 |
|
|
Shares of Class C Common Stock, $.01 Par Value |
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, |
|
|
|
2008 |
|
|
2009 |
|
NET REVENUES |
|
$ |
85,410 |
|
|
$ |
62,429 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Station operating expenses excluding depreciation and amortization
expense of $3,301 and$2,767, respectively |
|
|
62,056 |
|
|
|
54,521 |
|
Corporate expenses excluding depreciation and amortization
expense of $531 and $395, respectively |
|
|
5,633 |
|
|
|
3,890 |
|
Restructuring charge |
|
|
|
|
|
|
3,350 |
|
Impairment loss |
|
|
|
|
|
|
3,661 |
|
Depreciation and amortization |
|
|
3,832 |
|
|
|
3,162 |
|
Gain on disposal of assets |
|
|
(7 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
Total operating expenses |
|
|
71,514 |
|
|
|
68,426 |
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
13,896 |
|
|
|
(5,997 |
) |
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(7,057 |
) |
|
|
(5,619 |
) |
Gain on debt extinguishment |
|
|
|
|
|
|
31,905 |
|
Other income (expense), net |
|
|
(151 |
) |
|
|
1,605 |
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(7,208 |
) |
|
|
27,891 |
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS |
|
|
6,688 |
|
|
|
21,894 |
|
|
PROVISION FOR INCOME TAXES |
|
|
3,924 |
|
|
|
10,083 |
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
2,764 |
|
|
|
11,811 |
|
|
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX |
|
|
161 |
|
|
|
588 |
|
|
|
|
|
|
|
|
|
CONSOLIDATED NET INCOME |
|
|
2,603 |
|
|
|
11,223 |
|
|
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
|
1,407 |
|
|
|
1,510 |
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO THE COMPANY |
|
|
1,196 |
|
|
|
9,713 |
|
|
PREFERRED STOCK DIVIDENDS |
|
|
2,246 |
|
|
|
2,195 |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
(1,050 |
) |
|
$ |
7,518 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-3-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
May 31, |
|
|
|
2008 |
|
|
2009 |
|
Amounts attributable to common shareholders: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(889 |
) |
|
$ |
8,106 |
|
Discontinued operations |
|
|
(161 |
) |
|
|
(588 |
) |
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
$ |
(1,050 |
) |
|
$ |
7,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.02 |
) |
|
$ |
0.22 |
|
Discontinued operations, net of tax |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
$ |
(0.03 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
36,120 |
|
|
|
36,928 |
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.02 |
) |
|
$ |
0.22 |
|
Discontinued operations, net of tax |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
$ |
(0.03 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
36,120 |
|
|
|
37,144 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-4-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
February 28, |
|
|
2009 |
|
|
|
2009 |
|
|
(Unaudited) |
|
ASSETS
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
49,731 |
|
|
$ |
20,728 |
|
Accounts receivable, net |
|
|
46,348 |
|
|
|
44,492 |
|
Prepaid expenses |
|
|
18,115 |
|
|
|
20,171 |
|
Other current assets |
|
|
14,497 |
|
|
|
2,658 |
|
Current assets discontinued operations |
|
|
650 |
|
|
|
441 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
129,341 |
|
|
|
88,490 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
55,043 |
|
|
|
52,834 |
|
INTANGIBLE ASSETS (Note 3): |
|
|
|
|
|
|
|
|
Indefinite-lived intangibles |
|
|
496,711 |
|
|
|
496,711 |
|
Goodwill |
|
|
29,442 |
|
|
|
29,442 |
|
Other intangibles, net |
|
|
11,720 |
|
|
|
10,420 |
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
537,873 |
|
|
|
536,573 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS, NET |
|
|
8,015 |
|
|
|
7,606 |
|
|
|
|
|
|
|
|
|
|
NONCURRENT ASSETS HELD FOR SALE |
|
|
8,900 |
|
|
|
|
|
|
NONCURRENT ASSETS DISCONTINUED OPERATIONS |
|
|
39 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
739,211 |
|
|
$ |
685,535 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-5-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
February 28, |
|
|
2009 |
|
|
|
2009 |
|
|
(Unaudited) |
|
LIABILITIES AND EQUITY
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
15,365 |
|
|
$ |
10,853 |
|
Current maturities of long-term debt |
|
|
5,263 |
|
|
|
4,278 |
|
Accrued salaries and commissions |
|
|
7,651 |
|
|
|
5,806 |
|
Accrued interest |
|
|
2,895 |
|
|
|
3,217 |
|
Deferred revenue |
|
|
18,805 |
|
|
|
25,970 |
|
Other current liabilities |
|
|
6,899 |
|
|
|
6,371 |
|
Current liabilities discontinued operations |
|
|
1,081 |
|
|
|
851 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
57,959 |
|
|
|
57,346 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, NET OF CURRENT MATURITIES |
|
|
417,141 |
|
|
|
343,540 |
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM DEBT, NET OF CURRENT MATURITIES |
|
|
8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
OTHER NONCURRENT LIABILITIES |
|
|
22,921 |
|
|
|
30,728 |
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES |
|
|
76,294 |
|
|
|
86,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
574,323 |
|
|
|
517,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$0.01 PAR VALUE; $50.00 LIQUIDATION PREFERENCE;
AUTHORIZED 10,000,000 SHARES; ISSUED AND OUTSTANDING
2,809,170 SHARES AT FEBRUARY 28, 2009 AND MAY 31, 2009 |
|
|
140,459 |
|
|
|
140,459 |
|
|
SHAREHOLDERS DEFICIT: |
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value; authorized 170,000,000 shares;
issued and outstanding 31,912,656 shares at February 28, 2009
and 31,982,563 shares at May 31, 2009 |
|
|
319 |
|
|
|
320 |
|
Class B common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 4,956,305 shares at February 28, 2009 and
May 31, 2009 |
|
|
50 |
|
|
|
50 |
|
Additional paid-in capital |
|
|
524,776 |
|
|
|
525,296 |
|
Accumulated deficit |
|
|
(551,053 |
) |
|
|
(541,339 |
) |
Accumulated other comprehensive loss |
|
|
(2,664 |
) |
|
|
(6,765 |
) |
|
|
|
|
|
|
|
Total shareholders deficit |
|
|
(28,572 |
) |
|
|
(22,438 |
) |
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS |
|
|
53,001 |
|
|
|
49,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
24,429 |
|
|
|
27,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
739,211 |
|
|
$ |
685,535 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-6-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
2,603 |
|
|
$ |
11,223 |
|
Adjustments to reconcile consolidated net income to net cash
provided by operating activities - |
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
161 |
|
|
|
588 |
|
Impairment loss |
|
|
|
|
|
|
3,661 |
|
Depreciation and amortization |
|
|
3,990 |
|
|
|
3,283 |
|
Gain on debt extinguishment |
|
|
|
|
|
|
(31,905 |
) |
Provision for bad debts |
|
|
745 |
|
|
|
1,231 |
|
Provision for deferred income taxes |
|
|
3,904 |
|
|
|
9,751 |
|
Noncash compensation |
|
|
2,609 |
|
|
|
551 |
|
Gain on sale of assets |
|
|
(7 |
) |
|
|
(158 |
) |
Changes in assets and liabilities - |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,434 |
) |
|
|
(209 |
) |
Prepaid expenses and other current assets |
|
|
95 |
|
|
|
9,290 |
|
Other assets |
|
|
1,390 |
|
|
|
(773 |
) |
Accounts payable and accrued liabilities |
|
|
(591 |
) |
|
|
(5,875 |
) |
Deferred revenue |
|
|
156 |
|
|
|
7,165 |
|
Income taxes |
|
|
(180 |
) |
|
|
(837 |
) |
Other liabilities |
|
|
(1,331 |
) |
|
|
7,763 |
|
Net cash provided by (used in) operating activities discontinued operations |
|
|
277 |
|
|
|
(606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
11,387 |
|
|
|
14,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(694 |
) |
|
|
(585 |
) |
Cash paid for acquisitions |
|
|
|
|
|
|
(4,882 |
) |
Proceeds from the sale of assets |
|
|
9 |
|
|
|
9,058 |
|
Other |
|
|
(250 |
) |
|
|
65 |
|
Net cash used in investing activities discontinued operations |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(1,121 |
) |
|
|
3,656 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-7-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(4,097 |
) |
|
|
(113,778 |
) |
Proceeds from long-term debt |
|
|
3,000 |
|
|
|
73,235 |
|
Fees associated with Dutch auction debt tenders |
|
|
|
|
|
|
(1,013 |
) |
Payments of dividends and distributions to noncontrolling interests |
|
|
(1,398 |
) |
|
|
(2,645 |
) |
Payments of preferred stock dividends |
|
|
(2,246 |
) |
|
|
|
|
Settlement of tax withholding obligations on stock issued to employees |
|
|
(540 |
) |
|
|
(25 |
) |
Other |
|
|
(137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(5,418 |
) |
|
|
(44,226 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents |
|
|
1,239 |
|
|
|
(2,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
6,087 |
|
|
|
(29,003 |
) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
19,498 |
|
|
|
49,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
25,585 |
|
|
$ |
20,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash paid for - |
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,844 |
|
|
$ |
5,176 |
|
Income taxes, net of refunds |
|
|
599 |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
Noncash financing transactions- |
|
|
|
|
|
|
|
|
Value of stock issued to employees under stock compensation
program and to satisfy accrued incentives |
|
|
2,473 |
|
|
|
495 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
-8-
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)
May 31, 2009
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Preparation of Interim Financial Statements
Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), the
condensed consolidated interim financial statements included herein have been prepared, without
audit, by Emmis Communications Corporation (ECC) and its subsidiaries (collectively, our, us,
we, Emmis or the Company). As permitted under the applicable rules and regulations of the
SEC, certain information and footnote disclosures normally included in financial statements
prepared in conformity with accounting principles generally accepted in the United States of
America 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 Annual Report for Emmis
filed on Form 10-K for the year ended February 28, 2009. The Companys 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, the accompanying condensed consolidated interim financial statements
contain all material adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position of Emmis at May 31, 2009, and the results of its
operations and cash flows for the three-month periods ended May 31, 2008 and 2009.
Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB) ratified Emerging Issue Task
Force Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entitys Own Stock (EITF 07-5). EITF 07-5 provides that an entity should use a two-step approach
to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instruments contingent exercise and settlement provisions.
EITF 07-5 was adopted by the Company on March 1, 2009 and had no impact on the Companys financial
position, results of operations or cash flows.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in the computation of
earnings per share under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, Earnings per Share. FSP EITF 03-6-1 was adopted by the Company on
March 1, 2009 and had no impact on the Companys financial position, results of operations or cash
flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No.
160). SFAS No. 160, which was adopted by the Company on March 1, 2009, changing the accounting and
reporting for minority interests, which are now characterized as noncontrolling interests and
classified as a component of equity in the accompanying condensed consolidated balance sheets. SFAS No. 160
requires retroactive adoption of the
-9-
presentation and disclosure requirements for existing minority
interests, with all other requirements applied prospectively. The adoption of SFAS No. 160
resulted in the reclassification of $53,001 and $49,655 of noncontrolling interests to a component
of equity at February 28, 2009 and May 31, 2009, respectively. Activity related to noncontrolling
interests for the three-month periods ended May 31, 2008 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
Noncontrolling interest, beginning of period |
|
$ |
53,758 |
|
|
$ |
53,001 |
|
Net income attributable to noncontrolling interests |
|
|
1,407 |
|
|
|
1,510 |
|
Redemption of noncontrolling interests |
|
|
|
|
|
|
(1,221 |
) |
Distributions to noncontrolling interests |
|
|
(1,398 |
) |
|
|
(2,645 |
) |
Other comprehensive income allocable to noncontrolling interests: |
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
66 |
|
|
|
(990 |
) |
|
|
|
|
|
|
|
Noncontrolling interest, end of period |
|
$ |
53,833 |
|
|
$ |
49,655 |
|
|
|
|
|
|
|
|
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (as
revised), Business Combinations (SFAS No. 141R), that will significantly change how business
combinations are accounted for through the use of fair values in financial reporting and will
impact financial statements both on the acquisition date and in subsequent periods. In February
2009, the FASB issued SFAS No. 141R-a, Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies, which allows an exception to the recognition
and fair value measurement principles of FAS 141R. This exception requires that acquired
contingencies be recognized at fair value on the acquisition date if fair value can be reasonably
estimated during the allocation period. FAS No. 141R was effective for the Company as of March 1,
2009 for all business combinations that close on or after March 1, 2009.
Advertising Costs
The Company defers the costs of major advertising campaigns for which future benefits are
demonstrated. These costs are amortized over the shorter of the estimated period benefited
(generally six months) or the remainder of the fiscal year. The Company had deferred $0.6 million
of major advertising campaigns costs at May 31, 2009, but no such costs were deferred at February
28, 2009.
Basic and Diluted Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss)
attributable to common shareholders by the weighted-average number of common shares outstanding for
the period. Diluted net income (loss) 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, 2008 and 2009, consisted of stock options, restricted
stock awards and the 6.25% Series A cumulative convertible preferred stock. We currently have 2.8
million shares of preferred stock outstanding and each share converts into 2.44 shares of common
stock. Shares excluded from the calculation as the effect of their conversion into shares of our
common stock would be antidilutive were as follows:
-10-
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
2008 |
|
2009 |
|
|
(shares in 000s) |
6.25% Series A cumulative convertible preferred stock |
|
|
7,015 |
|
|
|
6,854 |
|
Stock options and restricted stock awards |
|
|
8,425 |
|
|
|
9,850 |
|
|
|
|
|
|
|
|
|
|
Antidilutive common share equivalents |
|
|
15,440 |
|
|
|
16,704 |
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
Summary of Discontinued Operations Activity:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
Income (loss) from discontinued operations: |
|
|
|
|
|
|
|
|
Television |
|
$ |
1,506 |
|
|
$ |
|
|
Belgium |
|
|
(682 |
) |
|
|
(561 |
) |
Tu Ciudad Los Angeles |
|
|
(555 |
) |
|
|
(15 |
) |
Emmis Books |
|
|
(13 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
Total |
|
|
256 |
|
|
|
(588 |
) |
Less: Provision for income taxes |
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
|
(161 |
) |
|
|
(588 |
) |
Discontinued Operation Television Division
On July 18, 2008, Emmis completed the sale of its sole remaining television station, WVUE-TV
in New Orleans, LA, to Louisiana Media Company LLC for $41.0 million in cash. The sale of WVUE-TV
completed the sale of our television division which began on May 10, 2005, when Emmis announced
that it had engaged advisors to assist in evaluating strategic alternatives for its television
assets. As previously disclosed, the Compensation Committee of the Board of Directors may evaluate
a discretionary bonus to executive officers and certain other employees integral to the sale of the
television division now that all sixteen of the Companys television stations have been sold.
However, the Compensation Committee has not addressed this issue since the completion of the sale.
The television division had historically been presented as a separate reporting segment of
Emmis. The following table summarizes certain operating results for the television division for
all periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
|
2008 |
|
2009 |
Net revenues |
|
$ |
4,972 |
|
|
$ |
|
|
Station operating expenses |
|
|
3,469 |
|
|
|
|
|
Gain on disposal of assets |
|
|
3 |
|
|
|
|
|
Income before taxes |
|
|
1,506 |
|
|
|
|
|
Provision for income taxes |
|
|
650 |
|
|
|
|
|
Assets and liabilities related to our television division are classified as discontinued
operations in the accompanying condensed consolidated balance sheets as follows:
-11-
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
May 31, 2009 |
|
Current assets: |
|
|
|
|
|
|
|
|
Other |
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
303 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
303 |
|
|
|
303 |
|
|
|
|
|
|
|
|
Discontinued Operation Belgium
On May 29, 2009, Emmis sold the stock of its Belgium radio operation to Alfacam Group NV, a
Belgian corporation, for 100 euros. Emmis desired to exit Belgium as its financial performance in
the market failed to meet expectations. The sale allowed Emmis to eliminate further operating
losses. Emmis recorded a full valuation allowance against the net operating losses generated by
the Belgium radio operation during the three months ended May 31, 2008 and 2009. The following
table summarizes certain operating results for Belgium for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
|
2008 |
|
2009 |
Net revenues |
|
$ |
614 |
|
|
$ |
341 |
|
Station operating expenses |
|
|
1,197 |
|
|
|
920 |
|
Depreciation and amortization |
|
|
100 |
|
|
|
|
|
Loss before income taxes |
|
|
(682 |
) |
|
|
(561 |
) |
Assets and liabilities related to Belgium are classified as discontinued operations in the
accompanying condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
May 31, 2009 |
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
446 |
|
|
$ |
228 |
|
Prepaid expenses |
|
|
136 |
|
|
|
147 |
|
Other |
|
|
18 |
|
|
|
31 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
600 |
|
|
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
|
34 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
34 |
|
|
|
32 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
634 |
|
|
$ |
438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
542 |
|
|
$ |
356 |
|
Accrued salaries and commissions |
|
|
116 |
|
|
|
104 |
|
Deferred revenue |
|
|
80 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
738 |
|
|
|
540 |
|
|
|
|
|
|
|
|
Through its stock acquisition, Alphacam Group NV purchased title to all assets and assumed all obligations of
-12-
our Belgium radio operation. The sale will be reflected in our quarter ended
August 31, 2009, as we consolidate the results of our foreign radio operations for the quarter
ended June 30, 2009 with our domestic results for the fiscal quarter ended August 31, 2009.
Discontinued Operation Tu Ciudad Los Angeles
On July 10, 2008, Emmis announced that it had indefinitely suspended publication of Tu Ciudad
Los Angeles because the magazines financial performance did not meet the Companys expectations.
Tu Ciudad Los Angeles had historically been included in the publishing segment. The following
table summarizes certain operating results for Tu Ciudad Los Angeles for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
|
2008 |
|
2009 |
Net revenues |
|
$ |
824 |
|
|
$ |
|
|
Station operating expenses |
|
|
1,366 |
|
|
|
15 |
|
Depreciation and amortization |
|
|
12 |
|
|
|
|
|
Loss on disposal of assets |
|
|
1 |
|
|
|
|
|
Loss before income taxes |
|
|
(555 |
) |
|
|
(15 |
) |
Benefit from income taxes |
|
|
228 |
|
|
|
|
|
Assets and liabilities related to Tu Ciudad Los Angeles are classified as discontinued
operations in the accompanying condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
May 31, 2009 |
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
10 |
|
|
$ |
8 |
|
Other |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
13 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
Discontinued Operation Emmis Books
In February 2009, Emmis discontinued the operations of Emmis Books, which was engaged in
regional book publication, as Emmis Books financial performance did not meet the Companys
expectations. Emmis had ceased new book publication in March 2006, but continued to sell existing
book inventory until the decision to totally cease operations. Emmis Books had historically been
included in the publishing segment. The following table summarizes certain operating results for
Emmis Books for all periods presented:
-13-
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
|
2008 |
|
2009 |
Net revenues |
|
$ |
(1 |
) |
|
$ |
4 |
|
Station operating expenses, excluding
depreciation and amortization expense |
|
|
9 |
|
|
|
16 |
|
Depreciation and amortization |
|
|
3 |
|
|
|
|
|
Loss before taxes |
|
|
(13 |
) |
|
|
(12 |
) |
|
Benefit for income taxes |
|
|
5 |
|
|
|
|
|
Assets and liabilities related to Emmis Books are classified as discontinued operations in the
accompanying condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
May 31, 2009 |
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
45 |
|
|
$ |
35 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
45 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
27 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
Certain reclassifications have been made to the prior years financial statements to be
consistent with the May 31, 2009 presentation. The reclassifications have no impact on net income
previously reported.
Note 2. Share Based Payments
Stock Option Awards
The Company has granted options to purchase its common stock to employees and directors of the
Company under various stock option plans at no less than the fair market value of the underlying
stock on the date of grant. These options are granted for a term not exceeding 10 years and are
forfeited, except in certain circumstances, in the event the employee or director terminates his or
her employment or relationship with the Company. Generally, these options either vest annually
over three years (one-third each year for three years), or cliff vest at the end of three years.
The Company issues new shares upon the exercise of stock options.
The Company adopted the fair value recognition provisions of SFAS No. 123R on March 1, 2006,
using the modified-prospective-transition method. The amounts recorded as share based compensation
expense under SFAS No. 123R primarily relate to annual stock option and restricted stock grants,
but may also include restricted common stock issued under employment agreements, common stock
issued to employees in lieu of cash bonuses, and Company matches of common stock in our 401(k)
plans.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes
option-pricing model and expensed on a straight-line basis over the vesting period. Expected
volatilities are based on historical volatility of the Companys stock. The Company uses
historical data to estimate option exercises and employee terminations within the valuation model.
The Company includes estimated forfeitures in its compensation cost and updates the estimated
forfeiture rate through the final vesting date of awards. The
-14-
Company uses the simplified method to estimate the expected term for all options granted. Although the Company has granted options
for many years, the historical exercise activity of our options was impacted by
the way the Company processed the equitable adjustment of our November 2006 special dividend.
Consequently, the Company believes that reliable data regarding exercise behavior only exists for
the period subsequent to November 2006, which is insufficient experience upon which to estimate the
expected term. The risk-free interest rate for periods within the life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used
to calculate the fair value of the Companys options on the date of grant during the three months
ended May 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
2008 |
|
2009 |
Risk-Free Interest Rate: |
|
|
2.7 |
% |
|
|
2.3% - 2.4 |
% |
Expected Dividend Yield: |
|
|
0 |
% |
|
|
0 |
% |
Expected Life (Years): |
|
|
6.0 |
|
|
|
6.4 - 6.5 |
|
Expected Volatility: |
|
|
48.6 |
% |
|
|
72.3% - 85.5 |
% |
The following table presents a summary of the Companys stock options outstanding at May 31,
2009, and stock option activity during the three months ended May 31, 2009 (Price reflects the
weighted average exercise price per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Intrinsic |
|
|
Options |
|
Price |
|
Contractual Term |
|
Value |
Outstanding, beginning of period |
|
|
8,350,802 |
|
|
$ |
14.60 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,432,812 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
54,406 |
|
|
|
1.71 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
36,290 |
|
|
|
15.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
9,692,918 |
|
|
|
12.56 |
|
|
|
4.9 |
|
|
$ |
84 |
|
Exercisable, end of period |
|
|
7,386,275 |
|
|
|
15.98 |
|
|
|
3.6 |
|
|
$ |
|
|
|
|
|
(1) |
|
No options were exercised during the three months ended May 31, 2008 and 2009; thus, the
Company did not record an income tax benefit related to option exercises. |
The weighted average grant date fair value of options granted during the three months ended
May 31, 2008 and 2009, was $1.45 and $0.19, respectively.
A summary of the Companys nonvested options at May 31, 2009, and changes during the three
months ended May 31, 2009, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date |
|
|
Options |
|
Fair Value |
Nonvested, beginning of period |
|
|
1,536,094 |
|
|
$ |
2.73 |
|
Granted |
|
|
1,432,812 |
|
|
|
0.19 |
|
Vested |
|
|
607,857 |
|
|
|
4.11 |
|
Forfeited |
|
|
54,406 |
|
|
|
0.89 |
|
|
|
|
|
|
|
|
|
|
Nonvested, end of period |
|
|
2,306,643 |
|
|
|
0.83 |
|
There were 0.8 million shares available for future grants under the various option plans at
May 31, 2009. The vesting date of outstanding options at May 31, 2009 range from July 2009 to
March 2012, and expiration dates range from October 2009 to April 2019.
-15-
Restricted Stock Awards
The Company began granting restricted stock awards to employees and directors of the Company
in lieu of certain stock option grants in 2005. These awards generally vest at the end of the
second or third year after grant and are forfeited, except in certain circumstances, in the event
the employee terminates his or her employment or relationship with the Company prior to vesting.
The restricted stock awards were granted out of the Companys 2004 Equity Incentive Plan. The
Company also awards, out of the Companys 2004 Equity Compensation Plan, stock to settle certain
bonuses and other compensation that otherwise would be paid in cash. Any restrictions on these
shares are immediately lapsed on the grant date.
The following table presents a summary of the Companys restricted stock grants outstanding at
May 31, 2009, and restricted stock activity during the three months ended May 31, 2009 (Price
reflects the weighted average share price at the date of grant):
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
Price |
Grants outstanding, beginning of period |
|
|
644,084 |
|
|
$ |
7.08 |
|
Granted |
|
|
20,000 |
|
|
|
0.29 |
|
Vested (restriction lapsed) |
|
|
205,413 |
|
|
|
10.04 |
|
Forfeited |
|
|
17,133 |
|
|
|
5.16 |
|
|
|
|
|
|
|
|
|
|
Grants outstanding, end of period |
|
|
441,538 |
|
|
|
5.49 |
|
The total grant date fair value of shares vested during the three months ended May 31, 2008
and 2009 was $5.1 million and $2.1 million, respectively.
Recognized Non-Cash Compensation Expense
The following table summarizes stock-based compensation expense and related tax benefits
recognized by the Company in the three months ended May 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
Station operating expenses |
|
$ |
1,053 |
|
|
$ |
163 |
|
Corporate expenses |
|
|
1,556 |
|
|
|
388 |
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expenses |
|
|
2,609 |
|
|
|
551 |
|
Tax benefit |
|
|
(1,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
Recognized stock-based compensation expense, net of tax |
|
$ |
1,539 |
|
|
$ |
551 |
|
|
|
|
|
|
|
|
As of May 31, 2009, there was $2.3 million of unrecognized compensation cost, net of estimated
forfeitures, related to nonvested share-based compensation arrangements. The cost is expected to
be recognized over a weighted average period of approximately 1.3 years.
-16-
Note 3. Intangible Assets and Goodwill
Indefinite-lived Intangibles
Under the guidance in Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), the Companys Federal Communications Commission (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 are tested for
impairment at least annually as discussed below.
The carrying amounts of the Companys FCC licenses were $496.7 million as of February 28, 2009
and May 31, 2009. This amount is entirely attributable to our radio division. The Company
generally performs its annual impairment test of indefinite-lived intangibles as of December 1 of
each year. When indicators of impairment are present, the Company will perform an interim
impairment test. These impairment tests may result in impairment charges in future periods.
The Company uses a direct-method valuation approach known as the greenfield income valuation
method when it performs its impairment tests. Under this method, the Company projects the cash
flows that would be generated by each of its units of accounting if the unit of accounting were
commencing operations in each of its markets at the beginning of the valuation period. This cash
flow stream is discounted to arrive at a value for the FCC license. The Company assumes the
competitive situation that exists in each market remains unchanged, with the exception that its
unit of accounting was beginning operations. In doing so, the Company extracts the value of going
concern and any other assets acquired, and strictly values the FCC license. Major assumptions
involved in this analysis include market revenue, market revenue growth rates, unit of accounting
audience share, unit of accounting revenue share and discount rate. For its radio stations, the
Company has determined the unit of accounting to be all of its stations in a local market.
Goodwill
SFAS No. 142 requires the Company to test goodwill for impairment at least annually 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 conducts the two-step impairment test on December 1
of each fiscal year, unless indications of impairment exist during an interim period. When
assessing its goodwill for impairment, the Company uses an enterprise valuation approach to
determine the fair value of each of the Companys reporting units (radio stations grouped by market
and magazines on an individual basis). Management determines enterprise value for each of its
reporting units by multiplying the two-year average station operating income generated by each
reporting unit (current year based on actual results and the next year based on budgeted results)
by an estimated market multiple. The Company uses a blended station operating income trading
multiple of publicly traded radio operators as a benchmark for the multiple it applies to its radio
reporting units. The multiple applied to each reporting unit is then adjusted up or down from this
benchmark based upon characteristics of the reporting units specific market, such as market size,
market growth rate, and recently completed or announced transactions within the market. There are
no publicly traded publishing companies that are focused predominantly on city and regional
magazines as is our publishing segment. Therefore, the market multiple used as a benchmark for our
publishing reporting units is based on recently completed transactions within the city and regional
magazine industry.
This enterprise valuation is compared to the carrying value of the reporting unit for the
first step of the goodwill impairment test. If the reporting unit exhibits impairment, the Company
proceeds to the second step of the goodwill impairment test. For its step-two testing, the
enterprise value is allocated among the tangible assets, indefinite-lived intangible assets (FCC
licenses valued using a direct-method valuation approach) and
unrecognized intangible assets, such as customer lists, with the residual amount representing
the implied fair value
-17-
of the goodwill. To the extent the carrying amount of the goodwill exceeds
the implied fair value of the goodwill, the difference is recorded as an impairment charge in the
statement of operations.
As of February 28, 2009 and May 31, 2009, the carrying amount of the Companys goodwill was
$29.4 million. As of February 28, 2009 and May 31, 2009, approximately $6.3 million and $23.1
million of our goodwill was attributable to our radio and publishing divisions, respectively.
Definite-lived intangibles
The Companys definite-lived intangible assets consist primarily of foreign broadcasting
licenses, trademarks, customer list, favorable office leases and noncompete agreements all of which
are amortized over the period of time the assets are expected to contribute directly or indirectly
to the Companys future cash flows. The following table presents the weighted-average useful life,
gross carrying amount and accumulated amortization for each major class of definite-lived
intangible assets at February 28, 2009 and May 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
May 31, 2009 |
|
|
Weighted Average |
|
Gross |
|
|
|
|
|
Net |
|
Gross |
|
|
|
|
|
Net |
|
|
Useful Life |
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
Accumulated |
|
Carrying |
|
|
(in years) |
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
|
|
|
|
|
|
|
Foreign Broadcasting Licenses |
|
|
6.9 |
|
|
$ |
33,848 |
|
|
$ |
25,524 |
|
|
$ |
8,324 |
|
|
$ |
33,408 |
|
|
$ |
26,269 |
|
|
$ |
7,139 |
|
Trademarks |
|
|
19.6 |
|
|
|
3,687 |
|
|
|
754 |
|
|
|
2,933 |
|
|
|
3,687 |
|
|
|
810 |
|
|
|
2,877 |
|
Customer List |
|
|
4.0 |
|
|
|
692 |
|
|
|
460 |
|
|
|
232 |
|
|
|
692 |
|
|
|
484 |
|
|
|
208 |
|
Favorable Office Leases |
|
|
6.4 |
|
|
|
688 |
|
|
|
605 |
|
|
|
83 |
|
|
|
688 |
|
|
|
613 |
|
|
|
75 |
|
Noncompete and Other |
|
|
3.0 |
|
|
|
312 |
|
|
|
164 |
|
|
|
148 |
|
|
|
312 |
|
|
|
191 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
$ |
39,227 |
|
|
$ |
27,507 |
|
|
$ |
11,720 |
|
|
$ |
38,787 |
|
|
$ |
28,367 |
|
|
$ |
10,420 |
|
|
|
|
|
|
|
|
|
|
Total amortization expense from definite-lived intangibles for the three-month periods ended
May 31, 2008 and 2009, was $1.5 million and $0.9 million, respectively. The following table
presents the Companys estimate of amortization expense for each of the five succeeding fiscal
years for definite-lived intangibles:
|
|
|
|
|
YEAR ENDED FEBRUARY 28 (29), |
|
|
|
|
2010 |
|
$ |
3,297 |
|
2011 |
|
|
2,056 |
|
2012 |
|
|
1,953 |
|
2013 |
|
|
1,887 |
|
2014 |
|
|
306 |
|
Note 4. Significant Events
Credit Agreement Modification
On March 3, 2009, Emmis and its principal operating subsidiary, Emmis Operating Company (EOC),
entered into the First Amendment and Consent to Amended and Restated Revolving Credit and Term Loan
Agreement (the First Amendment) by and among Emmis, Emmis Operating Company and Bank of America,
N.A., as administrative agent for itself and other Lenders, to the Amended and Restated Revolving
Credit and Term Loan Agreement, dated November 2, 2006 (the Credit Agreement). Among other
things, the First Amendment (i) permits Emmis to purchase a portion of the Tranche B Term Loan (as
defined in the Credit Agreement) at an amount less than par for an aggregate purchase price not to
exceed $50 million, (ii) reduces the Total Revolving Credit Commitment (as defined in the Credit
Agreement) from $145 million to $75 million, (iii) excludes from Consolidated Operating Cash Flow
(as defined in the Credit Agreement) up to $10 million in cash severance and contract termination expenses incurred for the period
commencing March 1, 2008 and ending February 28, 2010, (iv) makes Revolving Credit Loans (as
defined in the Credit Agreement) subject to a pro forma incurrence test and (v) tightens the
restrictions on the ability of Emmis to perform certain activities, including restricting the amount
-18-
that can be used to fund our TV Proceeds Quarterly Bonus Program, and of Emmis Operating
Company to conduct transactions with affiliates.
Dutch Auction Tenders Credit Agreement Term Loans
In April and May 2009, Emmis completed a series of Dutch auction tenders that purchased term
loans of EOC under the Credit Agreement as amended. The cumulative effect of all of the debt
tenders resulted in the purchase of $78.5 million in face amount of EOCs outstanding term loans
for $44.7 million in cash. As a result of these purchases, Emmis recognized a gain on
extinguishment of debt of $31.9 million in the quarter ended May 31, 2009, which is net of
transaction costs of $1.0 million. The Credit Agreement, as amended, permitted the Company to pay
up to $50 million (less amounts paid after February 1, 2009 under our TV Proceeds Quarterly Bonus
Program) to purchase EOCs outstanding term loans through tender offers and required a minimum
offer of $5 million per tender. Since the Company paid $44.7 million in debt tenders and paid $4.1
million under the TV Bonus Program in March 2009, we are not permitted to effect further tenders
under the Credit Agreement.
Blackstone Financial Advisory Services
Emmis previously announced that it had engaged Blackstone Advisory Services L.P. to provide
financial advisory services as the Company explored a possible further amendment to the Credit
Agreement or a possible restructuring of certain liabilities. In May 2009, Emmis and Blackstone
Advisory Services L.P. terminated the financial advisory services agreement as Emmis concluded that
neither action was necessary at that time. However, Emmis may re-engage Blackstone or another
financial advisory services firm from time to time as conditions warrant.
Sale of Airplane
On December 1, 2008, Emmis exercised its purchase option on its leased Gulfstream airplane.
Emmis paid $10.2 million in cash, net of a refundable deposit of $4.2 million, to AVN Air, LLC, the
lessor of the airplane. Emmis entered into an agreement to sell the airplane in February 2009 for
$9.1 million in cash. The sale closed on April 14, 2009. During the year ended February 28, 2009,
we recognized a $7.3 million impairment loss on the airplane as its carrying value, which included
$2.0 million of previously capitalized major maintenance costs, exceeded its fair value less
estimated costs to sell, which we estimated at $8.9 million as of February 28, 2009.
Purchase of Noncontrolling Shareholders Interests in Bulgarian Radio Networks
During the first fiscal quarter, Emmis completed a series of transactions with its
noncontrolling partners of two of our Bulgarian radio networks that gave Emmis 100% ownership in
those networks. The purchase price of these transactions totaled $4.9 million in cash, and a
substantial portion was allocated to goodwill which was then determined to be substantially
impaired. Emmis recorded an impairment loss of $3.7 million related to Bulgarian goodwill during
the quarter ended May 31, 2009.
Note 5. Liquidity
The Company continually projects its anticipated cash needs, which include its operating
needs, capital needs, principal and interest payments on its indebtedness and preferred stock
dividends. Managements most recent operating income and cash flow projections considered the
current economic crisis, which has reduced
advertising demand in general, as well as the limited credit environment. As of the filing of
this Form 10-Q, management believes the Company can meet its liquidity needs through the end of
fiscal year 2010 with cash and cash equivalents on hand, projected cash flows from operations and,
to the extent necessary, through its borrowing capacity under the Credit Agreement, which was
approximately $68.2 million at May 31, 2009. Based on these projections and certain planned
expense reductions, management also believes the Company will be in compliance
-19-
with its debt covenants through the end of fiscal year 2010. However, continued global
economic challenges, or other unforeseen circumstances, such as those described in Item 1A Risk
Factors on our Form 10-K for the year ended February 28, 2009, may negatively impact the Companys
operations beyond those assumed in its projections. Management considered the risks that the
current economic conditions may have on its liquidity projections, as well as the Companys ability
to meet its debt covenant requirements. If economic conditions deteriorate to an extent that we
could not meet our liquidity needs or it appears that noncompliance with debt covenants is likely
to result, the Company would implement several remedial measures, which could include further
operating cost and capital expenditure reductions, and further de-leveraging actions, which may
include the sale of assets. If these measures are not successful in maintaining compliance with
our debt covenants, the Company would attempt to negotiate for relief through an amendment with its
lenders or waivers of covenant noncompliance, which could result in higher interest costs,
additional fees and reduced borrowing limits. There is no assurance that the Company would be
successful in obtaining relief from its debt covenant requirements in these circumstances. Failure
to comply with our debt covenants and a corresponding failure to negotiate a favorable amendment or
waivers with the Companys lenders could result in the acceleration of the maturity of all the
Companys outstanding debt, which would have a material adverse effect on the Companys business
and financial position.
Note 6. Derivative Instruments and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial instruments.
Specifically, the Company enters into derivative financial instruments to manage interest rate
exposure with the following objectives:
|
|
manage current and forecasted interest rate risk while maintaining optimal financial
flexibility and solvency |
|
|
|
proactively manage the Companys cost of capital to ensure the Company can effectively
manage operations and execute its business strategy, thereby maintaining a competitive
advantage and enhancing shareholder value |
|
|
|
comply with covenant requirements in the Companys Credit Agreement |
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the
Company primarily uses interest rate swaps as part of its interest rate risk management strategy.
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts
from a counterparty in exchange for the Company making fixed-rate payments over the life of the
agreements without exchange of the underlying notional amount. Under the terms of its Credit
Agreement, the Company is required to fix or cap the interest rate on at least 30% of its debt
outstanding (as defined in the Credit Agreement) for a period of at least three years.
The effective portion of changes in the fair value of derivatives designated and that qualify
as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is
subsequently reclassified into earnings in the period that the hedged forecasted transaction
affects earnings. During the three months ended May 31, 2009, such derivatives were used to hedge
the variable cash flows associated with existing variable-rate debt. The ineffective
-20-
portion of the change in fair value of the derivatives is recognized directly in earnings.
The Company did not record any hedge ineffectiveness in earnings during the three months ended May
31, 2008 and 2009.
Amounts reported in accumulated other comprehensive loss related to derivatives will be
reclassified to interest expense as interest payments are made on the Companys variable-rate debt.
The Company estimates that an additional $8.3 million will be reclassified as an increase to
interest expense over the next twelve months.
As of May 31, 2009, the Company had the following outstanding interest rate derivatives that
were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
Interest Rate Derivative |
|
Number of Instruments |
|
Notional |
Interest Rate Swaps |
|
|
3 |
|
|
$ |
340,000 |
|
In March 2007, the Company entered into a three-year interest rate exchange agreement (a
Swap), whereby the Company pays a fixed rate of 4.795% on $165 million of notional principal to
Bank of America, and Bank of America pays to the Company a variable rate on the same amount of
notional principal based on the three-month London Interbank Offered Rate (LIBOR). In March
2008, the Company entered into an additional three-year Swap, whereby the Company pays a fixed rate
of 2.964% on $100 million of notional principal to Deutsche Bank, and Deutsche Bank pays to the
Company a variable rate on the same amount of notional principal based on the three-month LIBOR.
In January 2009, the Company entered into an additional two-year Swap effective as of March 28,
2009, whereby the Company pays a fixed rate of 1.771% on $75 million of notional principal to
Deutsche Bank, and Deutsche Bank pays to the Company a variable rate on the same amount of notional
principal based on the three-month LIBOR.
The Company does not use derivatives for trading or speculative purposes and currently does
not have any derivatives that are not designated as hedges.
The table below presents the fair value of the Companys derivative financial instruments as
well as their classification on the balance sheet as of February 28, 2009 and May 31, 2009. The
fair values of the derivative instruments are estimated by obtaining quotations from the financial
institutions that are counterparties to the instruments. The fair value is an estimate of the net
amount that the Company would have been required to pay on February 28, 2009 and May 31, 2009, if
the agreements were transferred to other parties or cancelled by the Company, as further adjusted
by a SFAS No. 157 credit adjustment discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabular Disclosure of Fair Values of Derivative Instruments |
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
As of February 28, 2009 |
|
|
As of May 31, 2009 |
|
|
As of February 28, 2009 |
|
|
As of May 31, 2009 |
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
Derivatives designated as hedging
instruments under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements |
|
|
N/A |
|
|
$ |
|
|
|
|
N/A |
|
|
$ |
|
|
|
Other Noncurrent Liabilities |
|
$ |
6,777 |
|
|
Other Noncurrent Liabilities |
|
$ |
8,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments under SFAS 133 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
6,777 |
|
|
|
|
|
|
$ |
8,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below presents the effect of the Companys derivative financial instruments on the
consolidated statements of operations as of May 31, 2008 and 2009.
-21-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended May 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss) |
|
Amount of Gain or (Loss) |
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
|
|
|
|
|
|
|
|
Recognized in Income on |
|
Recognized in Income on Derivative |
|
|
Amount of Gain or (Loss) |
|
(Loss) Reclassified |
|
Amount of Gain or (Loss) |
|
Derivative (Ineffective |
|
(Ineffective Portion and Amount |
Derivatives in SFAS 133 |
|
Recognized in OCI on Derivative |
|
from Accumulated |
|
Reclassified from Accumulated OCI |
|
Portion and Amount |
|
Excluded from Effectiveness |
Cash Flow Hedging |
|
(Effective Portion) |
|
OCI into Income |
|
into Income (Effective Portion) |
|
Excluded from |
|
Testing) |
Relationships |
|
2008 |
|
2009 |
|
(Effective Portion) |
|
2008 |
|
2009 |
|
Effectiveness Testing) |
|
2008 |
|
2009 |
|
Interest Rate Swap
Agreements |
|
$ |
2,386 |
|
|
$ |
(3,440 |
) |
|
Interest expense |
|
$ |
(669 |
) |
|
$ |
(1,968 |
) |
|
|
N/A |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,386 |
|
|
$ |
(3,440 |
) |
|
|
|
|
|
$ |
(669 |
) |
|
$ |
(1,968 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-risk-related Contingent Features
The Company manages its counterparty risk by entering into derivative instruments with global
financial institutions where it believes the risk of credit loss resulting from nonperformance by
the counterparty is low. As discussed above, the Companys existing counterparties on its interest
rate swaps are Bank of America and Deutsche Bank.
In accordance with SFAS No. 157, the Company makes Credit Value Adjustments (CVAs) to adjust
the valuation of derivatives to account for our own credit risk with respect to all derivative
liability positions. The CVA is accounted for as a decrease to the derivative position with the
corresponding increase or decrease reflected in accumulated other comprehensive income (loss) for
derivatives designated as cash flow hedges. The CVA also accounts for nonperformance risk of our
counterparties in the fair value measurement of all derivative asset positions, when appropriate.
As of February 28, 2009 and May 31, 2009, the fair value of our derivative instruments was net of
$2.0 million and $1.1 million in CVAs, respectively.
The Companys interest rate swap agreements with Bank of America and Deutsche Bank incorporate
the loan covenant provisions of the Companys Credit Agreement. Both Bank of America and Deutsche
Bank are lenders under the Companys Credit Agreement. Failure to comply with the loan covenant
provisions of the Credit Agreement could result in the Company being in default of its obligations
under the interest rate swap agreements.
As of May 31, 2009, the Company has not posted any collateral related to the interest rate
swap agreements.
Note 7. Fair Value Measurements
Effective March 1, 2008, the Company adopted Statement of Financial Accounting Standards No.
157, Fair Value Measurement (SFAS 157), which requires enhanced disclosures about assets and
liabilities carried at fair value under SFAS No. 157.
As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). The Company
utilizes market data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market corroborated or generally unobservable.
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs. SFAS No. 157 establishes a fair value hierarchy that prioritizes
the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the
lowest priority to unobservable inputs (level 3 measurement).
The following table sets forth by level within the fair value hierarchy the Companys
financial assets and liabilities that were accounted for at fair value on a recurring basis as of
February 28, 2009 and May 31, 2009.
-22-
The financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement. The
Companys assessment of the significance of a particular input to the fair value measurement
requires judgment and may affect the valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2009 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
or Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
Cash equivalents |
|
$ |
|
|
|
$ |
13 |
|
|
$ |
|
|
|
$ |
13 |
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
13 |
|
|
$ |
452 |
|
|
$ |
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cash flow hedge |
|
|
|
|
|
|
|
|
|
|
8,249 |
|
|
|
8,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
8,249 |
|
|
$ |
8,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2009 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
or Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
Cash equivalents |
|
$ |
|
|
|
$ |
24,415 |
|
|
$ |
|
|
|
$ |
24,415 |
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
24,415 |
|
|
$ |
452 |
|
|
$ |
24,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cash flow hedge |
|
|
|
|
|
|
|
|
|
|
6,777 |
|
|
|
6,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,777 |
|
|
$ |
6,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents At February 28, 2009, a majority of Emmis domestic cash equivalents were
invested in an institutional money market fund. The fund is not publicly traded, but third-party
quotes for the fund are available and are therefore considered a Level 2 input. During the three
months ended May 31, 2009, most of this cash was used to fund the Companys Dutch auction tenders.
Available for sale securities Emmis available for sale security is an investment in preferred
stock of a company that specializes in digital radio transmission technology that is not traded in
active markets. The investment is recorded at fair value, which is materially consistent with the
Companys cost basis. This is considered a Level 3 input.
Derivative Instruments Emmis derivative financial instruments consist solely of interest rate
cash flow hedges in which the Company pays a fixed rate and receives a variable interest rate that
is observable based upon a forward interest rate curve, as adjusted for the CVA discussed in Note
6. Because a more than insignificant portion of the valuation is based upon unobservable inputs,
these interest rate swaps are considered a Level 3 input.
The following table shows a reconciliation of the beginning and ending balances for fair value
measurements using significant unobservable inputs:
-23-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ending |
|
|
|
May 31, 2008 |
|
|
May 31, 2009 |
|
|
|
Available |
|
|
Available |
|
|
|
|
|
|
For Sale |
|
|
For Sale |
|
|
Derivative |
|
|
|
Securities |
|
|
Securities |
|
|
Instruments |
|
Beginning Balance |
|
$ |
1,000 |
|
|
$ |
452 |
|
|
$ |
6,777 |
|
Purchases |
|
|
250 |
|
|
|
|
|
|
|
|
|
Unrealized losses in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
1,472 |
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
1,250 |
|
|
$ |
452 |
|
|
$ |
8,249 |
|
|
|
|
|
|
|
|
|
|
|
Note 8. Local Marketing Agreement
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KMVN-FM in Los
Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (GRC), a Mexican broadcasting
company. The LMA for KMVN-FM started on April 15, 2009 and will continue for up to 7 years, for $7
million a year plus reimbursement of certain expenses. At any time during the LMA, GRC has the
right to purchase the station for $110 million. At the end of the term, Emmis has the right to
require GRC to purchase the station for the same amount. Under the LMA, Emmis continues to own and
operate the station, with GRC providing Emmis with programming to be broadcast. For the quarter
ended May 31, 2009, we recognized $0.9 million in LMA fees classified as net revenues in the
accompanying condensed consolidated statements of operations.
Note 9. Comprehensive Income
Comprehensive income was comprised of the following for the three-month periods ended May 31,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
Consolidated net income |
|
$ |
2,603 |
|
|
$ |
11,223 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
|
3,055 |
|
|
|
(1,472 |
) |
Translation adjustment |
|
|
2,467 |
|
|
|
(3,619 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,125 |
|
|
$ |
6,132 |
|
Comprehensive income attributable to noncontrolling interests |
|
|
(1,473 |
) |
|
|
(520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the Company |
|
$ |
6,652 |
|
|
$ |
5,612 |
|
|
|
|
|
|
|
|
Note 10. Segment Information
The Companys operations are aligned into two business segments: (i) Radio and (ii)
Publishing. These business segments are consistent with the Companys management of these
businesses and its financial reporting structure. Corporate expenses are not allocated to
reportable segments. The results of operations of our television division, Belgium radio
operations, Tu Ciudad Los Angeles and Emmis Books have been classified as discontinued operations
and have been excluded from the segment disclosures below. See Note 1 for more discussion of our
discontinued operations.
-24-
The Companys segments operate primarily in the United States, but we also operate radio
stations located in Hungary, Slovakia, and Bulgaria. The following table summarizes the net
revenues and long-lived assets of our international properties included in our condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
Long-lived Assets |
|
|
Three Months Ended May 31, |
|
As of February 28, |
|
As of May 31, |
|
|
2008 |
|
2009 |
|
2009 |
|
2009 |
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary |
|
$ |
4,235 |
|
|
$ |
2,631 |
|
|
$ |
2,110 |
|
|
$ |
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slovakia |
|
|
3,574 |
|
|
|
2,937 |
|
|
|
9,965 |
|
|
|
9,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria |
|
|
916 |
|
|
|
441 |
|
|
|
3,722 |
|
|
|
3,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (see Note 1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belgium |
|
$ |
614 |
|
|
$ |
341 |
|
|
$ |
34 |
|
|
$ |
32 |
|
The accounting policies as described in the summary of significant accounting policies
included in the Companys Annual Report filed on Form 10-K for the year ended February 28, 2009,
and in Note 1 to these condensed consolidated financial statements, are applied consistently across
segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2008 |
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Net revenues |
|
$ |
63,577 |
|
|
$ |
21,833 |
|
|
$ |
|
|
|
$ |
85,410 |
|
Station operating expenses,
excluding depreciation and
amortization |
|
|
41,961 |
|
|
|
20,095 |
|
|
|
|
|
|
|
62,056 |
|
Corporate expenses,
excluding depreciation and
amortization |
|
|
|
|
|
|
|
|
|
|
5,633 |
|
|
|
5,633 |
|
Depreciation and amortization |
|
|
3,004 |
|
|
|
297 |
|
|
|
531 |
|
|
|
3,832 |
|
(Gain) loss on disposal of
fixed assets |
|
|
(9 |
) |
|
|
2 |
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
18,621 |
|
|
$ |
1,439 |
|
|
$ |
(6,164 |
) |
|
$ |
13,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2009 |
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Net revenues |
|
$ |
46,178 |
|
|
$ |
16,251 |
|
|
$ |
|
|
|
$ |
62,429 |
|
Station operating expenses,
excluding depreciation and
amortization |
|
|
37,899 |
|
|
|
16,622 |
|
|
|
|
|
|
|
54,521 |
|
Corporate expenses, excluding
depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
3,890 |
|
|
|
3,890 |
|
Depreciation and amortization |
|
|
2,514 |
|
|
|
253 |
|
|
|
395 |
|
|
|
3,162 |
|
Impairment loss |
|
|
3,661 |
|
|
|
|
|
|
|
|
|
|
|
3,661 |
|
Restructuring charge |
|
|
1,412 |
|
|
|
741 |
|
|
|
1,197 |
|
|
|
3,350 |
|
Gain on disposal of fixed assets |
|
|
|
|
|
|
|
|
|
|
(158 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
692 |
|
|
$ |
(1,365 |
) |
|
$ |
(5,324 |
) |
|
$ |
(5,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2009 |
|
|
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Assets continuing operations |
|
$ |
627,069 |
|
|
$ |
52,263 |
|
|
$ |
59,190 |
|
|
$ |
738,522 |
|
Assets discontinued operations |
|
|
634 |
|
|
|
50 |
|
|
|
5 |
|
|
|
689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
627,703 |
|
|
$ |
52,313 |
|
|
$ |
59,195 |
|
|
$ |
739,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2009 |
|
|
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Assets continuing operations |
|
$ |
601,534 |
|
|
$ |
49,223 |
|
|
$ |
34,305 |
|
|
$ |
685,062 |
|
Assets discontinued operations |
|
|
438 |
|
|
|
35 |
|
|
|
|
|
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
601,972 |
|
|
$ |
49,258 |
|
|
$ |
34,305 |
|
|
$ |
685,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11. Regulatory, Legal and Other Matters
The Company is a party to various legal and regulatory proceedings arising in the ordinary
course of business. In the opinion of management of the Company, there are no legal or regulatory
proceedings pending against the Company that are likely to have a material adverse effect on the
Company.
Certain individuals and groups have challenged applications for renewal of the FCC licenses of
certain of the Companys stations. The challenges to the license renewal applications are
currently pending before the Commission. Emmis does not expect the challenges to result in the
denial of any license renewals.
The terms of Emmis Preferred Stock provide for a quarterly dividend payment of $.78125 per
share on each January 15, April 15, July 15 and October 15. Emmis has not declared a preferred
stock dividend since October 15, 2008. As of May 31, 2009, cumulative preferred dividends in
arrears total $4.4 million. Failure to pay the dividend is not a default under the terms of the
Preferred Stock. However, if dividends remain unpaid for more than six quarters, the holders of
the Preferred Stock are entitled to elect two persons to our board of directors. Payment of future
preferred stock dividends is at the discretion of the Companys Board of Directors.
Item 2. Managements 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, should, 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.
Such statements 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 and demand for different types of
advertising media; |
|
|
|
|
our ability to service our outstanding debt; |
|
|
|
|
loss of key personnel; |
|
|
|
|
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 (or to obtain timely) necessary approvals for purchase or sale
transactions or to complete the transactions for other reasons generally beyond our
control; |
|
|
|
|
increases in the costs of programming, including on-air talent; |
-26-
|
|
|
new or changing regulations of the Federal Communications Commission or other
governmental agencies; |
|
|
|
|
changes in radio audience measurement methodologies; |
|
|
|
|
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. |
For a more detailed discussion of these and other risk factors, see the Risk Factors section of our
Annual Report on Form 10-K for the year ended February 28, 2009. Emmis does not undertake any
obligation to publicly update or revise any forward-looking statements because of new information,
future events or otherwise.
GENERAL
We are a diversified media company. We own and operate radio and publishing properties
located primarily in the United States. Our revenues are mostly affected by the advertising rates
our entities charge, as advertising sales represent approximately 80% of our consolidated revenues.
These rates are in large part based on our entities ability to attract audiences/subscribers in
demographic groups targeted by their advertisers. Arbitron Inc. generally measures radio station
ratings either four times a year (for markets measured by diaries) or weekly (for markets measured
by the Portable People Meter). Because audience ratings in a stations local market are critical
to the stations financial success, our strategy is to use market research and advertising and
promotion to attract and retain audiences in each stations chosen demographic target group.
Our revenues vary throughout the year. As is typical in the broadcasting industry, our
revenues and operating income are usually lowest in our fourth fiscal quarter.
In addition to the sale of advertising time for cash, stations typically exchange advertising
time for goods or services, which can be used by the station in its business operations. These
barter transactions are recorded at the estimated fair value of the product or service received.
We generally confine the use of such trade transactions to
promotional items or services for which we would otherwise have paid cash. In addition, it is
our general policy not to pre-empt advertising spots paid for in cash with advertising spots paid
for in trade.
The following table summarizes the sources of our revenues for the three-month periods ended
May 31, 2008 and 2009. All revenues generated by our international radio properties are included
in the Local category. The category Non Traditional principally consists of ticket sales and
sponsorships of events our stations and magazines conduct in their local markets. The category
Other includes, among other items, revenues generated by the websites of our entities and barter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
% of Total |
|
|
2009 |
|
|
% of Total |
|
|
|
(Dollars in thousands) |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
$ |
55,815 |
|
|
|
65.3 |
% |
|
$ |
40,500 |
|
|
|
64.9 |
% |
National |
|
|
14,824 |
|
|
|
17.4 |
% |
|
|
7,832 |
|
|
|
12.5 |
% |
Publication Sales |
|
|
3,817 |
|
|
|
4.5 |
% |
|
|
3,409 |
|
|
|
5.5 |
% |
Non Traditional |
|
|
3,121 |
|
|
|
3.7 |
% |
|
|
2,383 |
|
|
|
3.8 |
% |
Other |
|
|
7,833 |
|
|
|
9.1 |
% |
|
|
8,305 |
|
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
85,410 |
|
|
|
|
|
|
$ |
62,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-27-
As previously mentioned, we derive approximately 80% of our net revenues from advertising
sales. Our radio stations derive a higher percentage of their advertising revenues from local
sales than our publishing entities. In the three-month period ended May 31, 2009, local sales,
excluding political revenues, represented approximately 86% and 75% of our advertising revenues for
our radio and publishing divisions, respectively. In the three-month period ended May 31, 2008,
local sales, excluding political revenues, represented approximately 84% and 62% of our advertising
revenues for our radio and publishing divisions, respectively. Our net revenues decreased
principally as a result of a precipitous decline of advertising spending due to the global economic
slowdown. Local sales have been slightly more resilient than national sales during the global
economic slowdown. For the three months ended May 31, 2009 as compared to the same period of the
prior year, local sales are down approximately 27.4%, while national sales are down approximately
47.2%.
No customer represents more than 10% of our consolidated net revenues. Our top ten categories
for radio represent approximately 60% of the total advertising net revenues. Although the
automotive industry, representing approximately 9% of our radio net revenues, is the largest
category for our radio division for the three-month period ended May 31, 2009, our radio net
revenues for this category are down 38% versus the same period of the prior year.
The majority of our expenses are fixed in nature, principally consisting of salaries and
related employee benefit costs, office and tower rent, utilities, property and casualty insurance
and programming-related expenses. However, approximately 20% of our expenses vary in connection
with changes in revenues. These variable expenses primarily relate to sales commissions and bad
debt reserves. In addition, costs related to our marketing and promotions department are highly
discretionary and incurred primarily to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
Although the slowing global economy has negatively impacted advertising revenues for a wide
variety of media businesses, domestic radio revenue growth has been challenged for several years.
Management believes this is principally the result of four factors unrelated to the slowing
economy: (1) the emergence of new media, such as various media content distributed via the
Internet and cable interconnects, which are gaining advertising share against radio and other
traditional media, (2) the perception of investors and advertisers that satellite radio and
portable media players diminish the effectiveness of radio advertising, (3) advertisers lack of
confidence in the ratings of radio stations due to dated ratings-gathering methods, and (4) a lack
of inventory and pricing discipline by radio operators.
The radio industry has begun several initiatives to address these issues, most notable of
which is the rollout of HD Radio®. HD Radio® offers listeners advantages
over standard analog broadcasts, including improved sound quality and additional digital channels.
To make the rollout of HD Radio® more efficient, a consortium of broadcasters
representing a majority of the radio stations in nearly all of our markets have agreed to work
together in each radio market to ensure the most diverse consumer offering possible and to
accelerate the rollout of HD Radio® receivers, particularly in automobiles. In
addition to offering secondary channels, the HD Radio® spectrum allows broadcasters to
transmit other forms of data. We are participating in a joint venture with other broadcasters to
provide the bandwidth that a third party will use to transmit location-based data to hand-held and
in-car navigation devices. We currently utilize HD Radio® digital technology on most of
our FM stations. It is unclear what impact HD Radio® will have on the markets in which
we operate.
Arbitron Inc., the supplier of ratings data for United States radio markets, has developed
technology to passively collect data for its ratings service. The Portable People
MeterTM (PPMTM) is a small, pager-sized device that does not require any
active manipulation by the end user and is capable of automatically measuring radio, television,
Internet, satellite radio and satellite television signals that are encoded for the service by the
-28-
broadcaster. The PPMTM offers a number of advantages over the traditional diary ratings
collection system including ease of use, more reliable ratings data and shorter time periods
between when advertising runs and when audience listening or viewing habits can be reported. This
service began in the New York, Los Angeles and Chicago markets in October 2008 and is scheduled to
begin for most of our other radio markets by September 2010. In each market, there has been a
compression in the relative ratings of all stations in the market, enhancing the competitive
pressure within the market for advertising dollars. In addition, ratings for certain stations when
measured by the PPMTM as opposed to the traditional diary methodology can be materially
different. The Company continues to evaluate the impact PPMTM will have on our revenues
in these markets.
As discussed below, our radio stations in Los Angeles and New York are trailing the
performance of their respective markets. Our Los Angeles and New York markets collectively account
for approximately 50% of our domestic radio revenues. In each market, one of our competitors has
recently changed the format of one of its stations. The reformatted station in each market now
competes more directly with one of our stations, specifically KPWR-FM in Los Angeles and WQHT-FM in
New York. We have seen some ratings erosion at both KPWR-FM and WQHT-FM, which has negatively
impacted our revenues for these stations.
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KMVN-FM in Los
Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (GRC), a Mexican broadcasting
company. The LMA for KMVN-FM started on April 15, 2009 and will continue for up to 7 years, for $7
million a year plus reimbursement of certain expenses. Under the LMA, Emmis continues to own and
operate the station, with GRC providing Emmis with programming to be broadcast. The performance of
Emmis other Los Angeles radio station, KPWR-FM, trailed the performance of the overall market.
For the three-month period ended May 31, 2009, KPWR-FMs gross revenues were down 40.2% whereas the
independent accounting firm Miller, Kaplan, Arase & Co. (Miller Kaplan) reported that the Los
Angeles market total gross revenues were down 27.9% versus the same period of the prior year.
Our radio cluster in New York trailed the performance of the overall New York radio market
during the three months ended May 31, 2009. For the three months ended May 31, 2009, our New York
radio stations gross revenues were down 34.3%, whereas the independent accounting firm Miller
Kaplan reported that New York radio market total gross revenues were down 23.7% versus the same
period of the prior year.
As part of our business strategy, we continually evaluate potential acquisitions of
international radio stations, publishing properties and other businesses that we believe hold
promise for long-term appreciation in value and leverage our strengths. We also regularly review
our portfolio of assets and may opportunistically dispose of assets when we believe it is
appropriate to do so.
ACCOUNTING PRONOUNCEMENTS
In June 2008, the Financial Accounting Standards Board (FASB) ratified Emerging Issue Task
Force Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entitys Own Stock (EITF 07-5). EITF 07-5 provides that an entity should use a two-step approach
to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instruments contingent exercise and settlement provisions.
EITF 07-5 was adopted by the Company on March 1, 2009 and had no impact on the Companys financial
position, results of operations or cash flows.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP
EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore need to be included in the computation of
earnings per share under the two-class method as described in FASB Statement of Financial
Accounting Standards No. 128, Earnings per Share. FSP EITF 03-6-1
-29-
was adopted by the Company on
March 1, 2009 and had no impact on the Companys financial position, results of operations or cash
flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No.
160). SFAS No. 160, which was adopted by the Company on March 1, 2009, changing the accounting and
reporting for minority interests, which are now characterized as noncontrolling interests and
classified as a component of equity in the accompanying condensed consolidated balance sheets.
SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for
existing minority interests, with all other requirements applied prospectively. The adoption of
SFAS No. 160 resulted in the reclassification of $53,001 and $49,655 of noncontrolling interests to
a component of equity at February 28, 2009 and May 31, 2009, respectively. Activity related to
noncontrolling interests for the three-month periods ended May 31, 2008 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
Noncontrolling interest, beginning of period |
|
$ |
53,758 |
|
|
$ |
53,001 |
|
Net income attributable to noncontrolling interests |
|
|
1,407 |
|
|
|
1,510 |
|
Redemption of noncontrolling interests |
|
|
|
|
|
|
(1,221 |
) |
Distributions to noncontrolling interests |
|
|
(1,398 |
) |
|
|
(2,645 |
) |
Other comprehensive income allocable to noncontrolling interests: |
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
66 |
|
|
|
(990 |
) |
|
|
|
|
|
|
|
Noncontrolling interest, end of period |
|
$ |
53,833 |
|
|
$ |
49,655 |
|
|
|
|
|
|
|
|
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (as
revised), Business Combinations (SFAS No. 141R), that will significantly change how business
combinations are accounted for through the use of fair values in financial reporting and will
impact financial statements both on the acquisition date and in subsequent periods. In February
2009, the FASB issued SFAS No. 141R-a, Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies, which allows an exception to the recognition
and fair value measurement principles of FAS 141R. This exception requires that acquired
contingencies be recognized at fair value on the acquisition date if fair value can be reasonably
estimated during the allocation period. FAS No. 141R was effective for the Company as of March 1,
2009 for all business combinations that close on or after March 1, 2009.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and
uncertainties, and potentially lead to 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 (and interim tests when applicable) 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.
-30-
Allocations for Purchased Assets
We have made acquisitions in the past for which a significant amount of the purchase price was
allocated to broadcasting licenses and goodwill assets. As of May 31, 2009, we have recorded
approximately $526.2 million in FCC licenses and goodwill, which represents 76.8% of our total
assets. In assessing the recoverability of these assets, we conduct annual impairment testing
required by SFAS No. 142 (and interim testing when applicable) and charge to operations an
impairment expense if the recorded value of these assets is more than their fair value. We believe
our estimate of the fair value of our radio broadcasting licenses and goodwill assets is a critical
accounting estimate as these assets are significant in relation to our total assets, and our
estimate of the value uses assumptions that incorporate variables based on past experiences and
judgments about future performance of our stations. These variables include but are not limited
to: (1) the forecasted growth rate of each radio market, including population, household income,
retail sales and other expenditures that would influence advertising expenditures; (2) market share
and profit margin of an average station within a market; (3) estimated capital start-up costs and
losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media
competition within the market area; and (6) terminal values. Changes in our estimates of the fair
value of these assets could result in material future period write-downs in the carrying value of
our broadcasting licenses and goodwill assets.
Deferred Taxes and Effective Tax Rates
We estimate the effective tax rates and associated liabilities or assets for each legal entity
within Emmis in accordance with SFAS No. 109, Accounting for Income Taxes and FIN 48, Accounting
for Uncertainty in Income Taxes. These estimates are based upon our interpretation of United
States and local tax laws as they apply to our legal entities and our overall tax structure.
Audits by local tax jurisdictions, including the United States Government, could yield different
interpretations from our own and cause the Company to owe more taxes than originally recorded. We
utilize advisors in the various tax jurisdictions to evaluate our position and to assist in our
calculation of our tax expense and related assets and liabilities.
Insurance Claims and Loss Reserves
The Company is self-insured for most healthcare claims, subject to stop-loss limits. Claims
incurred but not reported are recorded based on historical experience and industry trends, and
accruals are adjusted when warranted by changes in facts and circumstances. The Company had $0.9
million accrued for employee healthcare claims as of February 28, 2009, and May 31, 2009. The
Company also maintains large deductible programs (ranging from $100 thousand to $200 thousand per
occurrence) for property and media liability claims.
Valuation of Stock Options
The Company determines the fair value of its employee stock options at the date of grant using
a Black-Scholes option-pricing model. The Black-Scholes option pricing model was developed for use
in estimating the value of exchange-traded options that have no vesting restrictions and are fully
transferable. The Companys employee stock options have characteristics significantly different
than these traded options. In addition, option pricing models require the input of highly
subjective assumptions, including the expected stock price volatility and expected term of the
options granted. The Company relies heavily upon historical data of its stock price when
determining expected volatility, but each year the Company reassesses whether or not historical
data is representative of expected results.
-31-
Results of Operations for the Three-month Periods Ended May 31, 2009, Compared to May 31, 2008
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
63,577 |
|
|
$ |
46,178 |
|
|
$ |
(17,399 |
) |
|
|
(27.4 |
)% |
Publishing |
|
|
21,833 |
|
|
|
16,251 |
|
|
|
(5,582 |
) |
|
|
(25.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
85,410 |
|
|
$ |
62,429 |
|
|
$ |
(22,981 |
) |
|
|
(26.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio net revenues decreased principally as a result of a precipitous decline of advertising
spending in our domestic and international radio markets due to the global economic slowdown. We
typically monitor the performance of our domestic stations against the aggregate performance of the
markets in which we operate based on reports for the periods prepared by the independent accounting
firm Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and
exclude revenues from barter arrangements. For the three-month period ended May 31, 2009, revenues
of our domestic radio stations excluding KMVN, which is operating under an LMA as discussed
earlier, as reported to Miller Kaplan were down 28.0%, whereas Miller Kaplan reported that revenues
of our domestic radio markets were down 23.8%. The Companys national representation firm
guaranteed a minimum amount of national sales for the year ended February 28, 2009. For the
three-month period ended May 31, 2008, a $1.3 million reduction of national agency commissions was
recorded related to the national representation firms guarantee. No such guarantee exists
subsequent to February 28, 2009. Market weakness and our stations weaknesses have led us to
discount our rates charged to advertisers. For the three-month period ended May 31, 2009, our
average unit rate for our domestic radio stations was down 34% and our number of units sold was
down 1%.
The decrease in publishing pro forma net revenue in both periods is principally attributable
to the slowing economy that has diminished demand for advertising inventory at most of our
city/regional publications.
Station operating expenses, excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
Station operating
expenses, excluding
depreciation and
amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
41,961 |
|
|
$ |
37,899 |
|
|
$ |
(4,062 |
) |
|
|
(9.7 |
)% |
Publishing |
|
|
20,095 |
|
|
|
16,622 |
|
|
|
(3,473 |
) |
|
|
(17.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total station
operating expenses,
excluding
depreciation and
amortization expense |
|
$ |
62,056 |
|
|
$ |
54,521 |
|
|
$ |
(7,535 |
) |
|
|
(12.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio station operating expenses, excluding depreciation and amortization expense, decreased
in the three-month period ended May 31, 2009 principally due to division-wide cost reduction
efforts consisting, among other things, of headcount and wage reductions. These cost reduction
efforts as well as lower sales-related costs contributed to the reduction in station operating
expenses, excluding depreciation and amortization expense.
Publishing operating expenses, excluding depreciation and amortization expense, decreased
primarily due to division-wide cost reduction efforts similar to our radio division.
-32-
Emmis anticipates its cost reduction efforts to result in year-over-year declines in station
operating expenses, excluding depreciation and amortization expense, for both the radio and
publishing divisions throughout fiscal 2010.
Corporate expenses, excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(Amounts in thousands) |
|
|
|
|
Corporate expenses,
excluding
depreciation and
amortization
expense |
|
$ |
5,633 |
|
|
$ |
3,890 |
|
|
$ |
(1,743 |
) |
|
|
(30.9 |
)% |
Corporate expenses decreased due to cost reduction efforts primarily consisting of headcount
reductions and mandatory wage reductions, eliminating operating costs associated with the Companys
corporate aircraft, which was sold during the three months ended May 31, 2009, lower noncash
compensation costs related to the discontinuance of the discretionary 401k matching program and
lower Black-Scholes valuations related to the Companys March 2009 equity grants.
Emmis expects its corporate expenses, excluding depreciation and amortization expense, to
decline throughout fiscal 2010.
Restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
|
(As reported, amounts in thousands) |
|
Restructuring charge: |
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
|
|
|
$ |
1,412 |
|
|
$ |
1,412 |
|
Publishing |
|
|
|
|
|
|
741 |
|
|
|
741 |
|
Corporate |
|
|
|
|
|
|
1,197 |
|
|
|
1,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charge |
|
$ |
|
|
|
$ |
3,350 |
|
|
$ |
3,350 |
|
|
|
|
|
|
|
|
|
|
|
In response to the deteriorating economic environment and the decline in domestic advertising
revenues previously discussed, the Company announced a plan on March 5, 2009 to reduce payroll
costs by $10 million
annually. In connection with the plan, approximately 100 employees were terminated. The
terminated employees received severance of $4.2 million under the Companys standard severance
plan. This amount was recognized as of February 28, 2009, as the terminations were probable and
the amount was reasonably estimable. Employees terminated also received one-time enhanced
severance of $3.4 million that was recognized during the three months ended May 31, 2009, as the
enhanced plan was not finalized and communicated until March 5, 2009.
-33-
Impairment loss:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(As reported, amounts in thousands) |
|
Impairment loss: |
|
|
|
|
|
|
|
|
Radio |
|
$ |
|
|
|
$ |
3,661 |
|
Publishing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment loss |
|
$ |
|
|
|
$ |
3,661 |
|
|
|
|
|
|
|
|
During the first quarter of fiscal 2010, Emmis purchased the remaining ownership interests of
its two majority owned radio networks in Bulgaria. Emmis now owns 100% of all three radio networks
in Bulgaria. A substantial portion of the purchase price related to these acquisitions was
allocated to goodwill, which was then determined to be substantially impaired.
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
3,004 |
|
|
$ |
2,514 |
|
|
$ |
(490 |
) |
|
|
(16.3 |
)% |
Publishing |
|
|
297 |
|
|
|
253 |
|
|
|
(44 |
) |
|
|
(14.8 |
)% |
Corporate |
|
|
531 |
|
|
|
395 |
|
|
|
(136 |
) |
|
|
(25.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
3,832 |
|
|
$ |
3,162 |
|
|
$ |
(670 |
) |
|
|
(17.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of the decrease in radio depreciation and amortization relates to lower
amortization of the Companys foreign broadcasting licenses as a result of impairment losses
recorded in the year ended February 28, 2009 pursuant to our annual impairment review.
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
18,621 |
|
|
$ |
692 |
|
|
$ |
(17,929 |
) |
|
|
(96.3 |
)% |
Publishing |
|
|
1,439 |
|
|
|
(1,365 |
) |
|
|
(2,804 |
) |
|
|
(194.9 |
)% |
Corporate |
|
|
(6,164 |
) |
|
|
(5,324 |
) |
|
|
840 |
|
|
|
(13.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
$ |
13,896 |
|
|
$ |
(5,997 |
) |
|
$ |
(19,893 |
) |
|
|
(143.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in operating income is attributable to the declining revenues in both our radio
and publishing divisions and restructuring and impairment losses, all of which are partially offset
by reduced station operating expenses, excluding depreciation and amortization.
-34-
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(As reported, amounts in thousands) |
|
|
|
|
Interest expense |
|
$ |
7,057 |
|
|
$ |
5,619 |
|
|
$ |
(1,438 |
) |
|
|
(20.4 |
)% |
The decrease in interest expense is principally due to lower interest rates on the portion of
our outstanding floating rate debt that is not hedged, as well as lower outstanding debt balances
following the completion of our Dutch auction tenders. These decreases in interest expense were
partially offset by higher outstanding revolver debt during the three months ended May 31, 2009,
however most of the revolver was repaid prior to May 31, 2009.
Gain on debt extinguishment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
|
(As reported, amounts in thousands) |
Gain on debt extinguishment |
|
$ |
|
|
|
$ |
31,905 |
|
|
$ |
31,905 |
|
In April 2009, Emmis commenced a series of Dutch auction tenders to purchase term loans of EOC
under the Credit Agreement as amended. The cumulative effect of all of the debt tenders resulted
in the purchase of $78.5 million in face amount of EOCs outstanding term loans for $44.7 million
in cash. As a result of these purchases, Emmis recognized a gain on extinguishment of debt of
$31.9 million in the quarter ended May 31, 2009, which is net of transaction costs of $1.0 million.
The Credit Agreement as amended permitted the Company to pay up to $50 million (less amounts paid
after February 1, 2009 under our TV Proceeds Quarterly Bonus Program) to purchase EOCs outstanding
term loans through tender offers and required a minimum offer of $5 million per tender. Since the
Company paid $44.7 million in debt tenders and paid $4.1 million under the TV Bonus Program in
March 2009, we are not permitted to effect further tenders under the Credit Agreement.
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(As reported, amounts in thousands) |
|
|
|
|
Other income (expense), net |
|
$ |
(151 |
) |
|
$ |
1,605 |
|
|
$ |
1,756 |
|
|
|
(1162.9 |
)% |
Other income recognized during the three months ended May 31, 2009 mostly related to foreign
exchange transactional gains on US dollar denominated cash holdings in Hungary and Slovakia.
-35-
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(As reported, amounts in thousands) |
|
|
|
|
Provision for income taxes |
|
$ |
3,924 |
|
|
$ |
10,083 |
|
|
$ |
6,159 |
|
|
|
157.0 |
% |
Income taxes increased primarily due to an increase in income from continued operations due to
the gain on debt extinguishment as discussed above, as well as an increase in our valuation
allowance as our deferred tax assets subject to a valuation allowance (after excluding net deferred
tax liabilities associated with indefinite-lived intangibles) increased. Our effective tax rate
for the three-month period ended May 31, 2009 was approximately 46%, which we expect to approximate
our effective tax rate for the year ending February 28, 2010.
Loss from discontinued operations, net of tax:
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(As reported, amounts in thousands) |
|
|
|
|
Loss from discontinued operations,
net of tax |
|
$ |
161 |
|
|
$ |
588 |
|
|
$ |
427 |
|
|
|
265.2 |
% |
Our television division, Belgium radio operations, Tu Ciudad Los Angeles and Emmis Books have
been classified as discontinued operations in the accompanying condensed consolidated statements.
The financial results of these businesses and related discussions are fully described in Note 1 to
the accompanying condensed consolidated financial statements.
Consolidated net income:
|
|
|
|
Three Months Ended May 31, |
|
|
|
|
|
|
2008 |
|
2009 |
|
$ Change |
|
% Change |
|
|
(As reported, amounts in thousands) |
|
|
|
|
Consolidated net income |
|
$ |
2,603 |
|
|
$ |
11,223 |
|
|
$ |
8,620 |
|
|
|
331.2 |
% |
The increase in net income is due to the gain on debt extinguishment and reduced station
operating expenses, excluding depreciation and amortization, partially offset by declining
revenues, a restructuring charge and an impairment loss.
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,
debt service requirements and the repayment of debt. We also have used capital to repurchase our
common stock.
On March 3, 2009, Emmis and its principal operating subsidiary, Emmis Operating Company (EOC),
entered into the First Amendment and Consent to Amended and Restated Revolving Credit and Term Loan
Agreement
-36-
(the First Amendment) by and among Emmis, Emmis Operating Company and Bank of America,
N.A., as administrative agent for itself and other Lenders, to the Amended and Restated Revolving
Credit and Term Loan Agreement, dated November 2, 2006 (the Credit Agreement). Among other
things, the First Amendment (i) permits Emmis to purchase a portion of the Tranche B Term Loan (as
defined in the Credit Agreement) at an amount less than par for an aggregate purchase price not to
exceed $50 million, (ii) reduces the Total Revolving Credit Commitment (as defined in the Credit
Agreement) from $145 million to $75 million, (iii) excludes from Consolidated Operating Cash Flow
(as defined in the Credit Agreement) up to $10 million in cash severance and contract termination
expenses incurred for the period commencing March 1, 2008 and ending February 28, 2010, (iv) makes
Revolving Credit Loans (as defined in the Credit Agreement) subject to a pro forma incurrence test
and (v) tightens the restrictions on the ability of Emmis to perform certain activities, including
restricting the amount that can be used to fund our TV Proceeds Quarterly Bonus Program, and of
Emmis Operating Company to conduct transactions with affiliates.
In April 2009, Emmis commenced a series of Dutch auction tenders to purchase term loans of EOC
under the Credit Agreement as amended. The cumulative effect of all of the debt tenders resulted
in the purchase of $78.5 million in face amount of EOCs outstanding term loans for $44.7 million
in cash. The Credit Agreement as amended permitted the Company to pay up to $50 million (less
amounts paid after February 1, 2009 under our TV Proceeds Quarterly Bonus Program) to purchase
EOCs outstanding term loans through tender offers and required a minimum offer of $5 million per
tender. Since the Company paid $44.7 million in debt tenders and paid $4.1 million under the TV
Bonus Program in March 2009, we are not permitted to effect further tenders under the Credit
Agreement.
Emmis previously announced that it had engaged Blackstone Advisory Services L.P. to provide
financial advisory services as the Company explored a possible further amendment to the Credit
Agreement or a possible restructuring of certain liabilities. In May 2009, Emmis and Blackstone
Advisory Services L.P. terminated the financial advisory services agreement as Emmis concluded that
neither action was necessary at that time. However, Emmis may re-engage Blackstone or another
financial advisory services firm from time to time as conditions warrant.
On August 8, 2007, Emmis Board of Directors authorized a share repurchase program pursuant to
which Emmis is authorized to purchase up to an aggregate value of $50 million of its outstanding
Class A common stock within the parameters of SEC Rule 10b-18. Common stock repurchase
transactions may occur from time to time at our discretion, either on the open market or in
privately negotiated purchases, subject to prevailing market conditions and other considerations.
On May 22, 2008, Emmis Board of Directors revised the share repurchase program to allow for the
repurchase of both Class A common stock and Series A cumulative convertible preferred stock. We
did not purchase Class A common stock or Series A preferred stock during the three month period
ended May 31, 2009.
At May 31, 2009, we had cash and cash equivalents of $20.7 million and net working capital of
$31.1 million. At February 28, 2009, we had cash and cash equivalents of $49.7 million and net
working capital of $71.4 million. Cash and cash equivalents held at various European banking
institutions at May 31, 2009, and February 28, 2009
was $6.4 million and $23.3 million, respectively. Our ability to access our share of these
international cash balances (net of noncontrolling interests) is limited by country-specific
statutory requirements. During the three-month period ended May 31, 2009, working capital
decreased $40.3 million. The decrease in net working capital primarily relates to the cash used to
fund our Dutch auction tenders during the quarter. 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 a discussion of specific segment needs.
The Company has entered into three separate three-year interest rate exchange agreements,
whereby the Company pays a fixed rate of notional principal in exchange for a variable rate on the
same amount of notional
-37-
principal based on the three-month LIBOR. The counterparties to these
agreements are global financial institutions.
The Company continually projects its anticipated cash needs, which include its operating
needs, capital needs, principal and interest payments on its indebtedness and preferred stock
dividends. Managements most recent operating income and cash flow projections considered the
current economic crisis, which has reduced advertising demand in general, as well as the limited
credit environment. As of the filing of this Form 10-Q, management believes the Company can meet
its liquidity needs through the end of fiscal year 2010 with cash and cash equivalents on hand,
projected cash flows from operations and, to the extent necessary, through its borrowing capacity
under the Credit Agreement, which was approximately $68.2 million at May 31, 2009. Based on these
projections and certain planned expense reductions, management also believes the Company will be in
compliance with its debt covenants through the end of fiscal year 2010. However, continued global
economic challenges, or other unforeseen circumstances, such as those described in Item 1A Risk
Factors on our Form 10-K for the year ended February 28, 2009, may negatively impact the Companys
operations beyond those assumed in its projections. Management considered the risks that the
current economic conditions may have on its liquidity projections, as well as the Companys ability
to meet its debt covenant requirements. If economic conditions deteriorate to an extent that we
could not meet our liquidity needs or it appears that noncompliance with debt covenants is likely
to result, the Company would implement several remedial measures, which could include further
operating cost and capital expenditure reductions, and further de-leveraging actions, which may
include the sale of assets. If these measures are not successful in maintaining compliance with
our debt covenants, the Company would attempt to negotiate for relief through an amendment with its
lenders or waivers of covenant noncompliance, which could result in higher interest costs,
additional fees and reduced borrowing limits. There is no assurance that the Company would be
successful in obtaining relief from its debt covenant requirements in these circumstances. Failure
to comply with our debt covenants and a corresponding failure to negotiate a favorable amendment or
waivers with the Companys lenders could result in the acceleration of the maturity of all the
Companys outstanding debt, which would have a material adverse effect on the Companys business
and financial position.
Operating Activities
Cash flows provided by operating activities were $14.1 million for the three-month period
ended May 31, 2009 versus $11.4 million in the same period of the prior year. The increase in cash
flows provided by operating activities was mainly attributable to an increase in cash provided by
working capital, which was up approximately $18.5 million partially offset by a reduction in
operating income excluding noncash depreciation and amortization and impairment losses of $16.9
million. The increase in cash provided by working capital was largely driven by the receipt of
$10.2 million related to our national representation performance guarantee and the collection of
the first two years of LMA fees for KMVN-FM.
Investing Activities
Cash flows provided by investing activities were $3.7 million for the three-month period ended
May 31, 2009,
versus cash used in investing activities of $1.1 million in the same period of the prior year.
During the three-month period ended May 31, 2009, the Company completed the sale of its airplane
and received $9.0 million in proceeds. This was partially offset by the purchase of our
noncontrolling partners ownership interests in two of our Bulgarian radio networks and capital
expenditures. During the three-month period ended May 31, 2008, the Companys main investing
activity consisted of capital expenditures totaling $0.7 million. Investing activities generally
include capital expenditures and business acquisitions and dispositions.
We expect capital expenditures related to continuing operations to be approximately $6.0
million in the current fiscal year, compared to $20.4 million in fiscal 2009, which included
approximately $14.4 million of
-38-
capital expenditures related to the airplane. We expect that future
requirements for capital expenditures will include capital expenditures incurred during the
ordinary course of business. 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 were $44.2 million for the three-month period ended
May 31, 2009, versus $5.4 million in the same period of the prior year. Cash flows used in
financing activities in the three-month period ended May 31, 2009 primarily relate to the Dutch
auction debt tenders (and related fees) under our Credit Agreement and $2.6 million used to pay
distributions to noncontrolling interests. Cash flows used in financing activities for the
three-month period ended May 31, 2008 primarily relate to the $1.1 million of net repayments of
debt under our Credit Agreement and $2.2 million used to pay preferred stock dividends and $1.4
million used to pay cash distributions to noncontrolling interests. Our financing activities for
the three-month period ended May 31, 2008, were funded by cash generated by operating activities,
remaining cash from our sale of WVUE-TV in July 2008 and the sale of our corporate airplane.
As of May 31, 2009, Emmis had $347.0 million of borrowings under its senior credit facility
($3.4 million current and $343.6 million long-term), $0.9 million of other current indebtedness and
$140.5 million of 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, 2009, our weighted average borrowing rate under our credit facility
including our interest rate exchange agreements was approximately 5.5%.
The debt service requirements of Emmis over the next 12 month period (excluding interest under
our credit facility) are expected to be $4.3 million. This amount is comprised of $3.4 million for
repayment of term notes under our Credit Agreement and $0.9 million related to foreign broadcasting
license obligations. Although the Credit Agreement bears interest at variable rates, we have
entered into three separate interest rate exchange agreements that effectively fixes the rate we
will pay on substantially all of the debt outstanding under our Credit Agreement. Interest that
Emmis will be required to pay related to the interest rate exchange agreements (plus the applicable
margin of 2% under the Credit Agreement) over the next twelve months is expected to be $17.1
million. Our $165 million notional amount interest rate exchange agreement matures on March 28,
2010. Interest to be paid on Credit Agreement debt outstanding that is in excess of our interest
rate exchange agreements is not presently determinable given that the Credit Agreement bears
interest at variable rates.
The terms of Emmis Preferred Stock provide for a quarterly dividend payment of $.78125 per
share on each January 15, April 15, July 15 and October 15. Emmis has not declared a preferred
stock dividend since October 15, 2008. As of May 31, 2009, cumulative preferred dividends in
arrears total $4.4 million. Failure to pay the dividend is not a default under the terms of the
Preferred Stock. However, if dividends remain unpaid for more than six quarters, the holders of
the Preferred Stock are entitled to elect two persons to our board of directors. Payment of future
preferred stock dividends is at the discretion of the Companys Board of Directors.
At July 6, 2009, we had $68.2 million available for additional borrowing under our credit
facility, which is net
of $1.8 million in outstanding letters of credit. Availability under the credit facility
depends upon our continued compliance with certain financial covenants in our Credit Agreement,
including: (1) Consolidated Total Funded Debt to Consolidated Operating Cash Flow (each as defined
in our Credit Agreement) of 6 times; and (2) Consolidated Operating Cash Flow to Consolidated Fixed
Charges (each as defined in our Credit Agreement) of 1.25 times. Emmis was in compliance with
these covenants at May 31, 2009. The Consolidated Total Funded Debt to Consolidated Operating Cash
Flow ratio required by the Credit Agreement changes to 5.5 times on May 31, 2010, 5 times on
February 28, 2011, 4.5 times on November 30, 2011 and 4 times for all periods after May 31, 2012.
As part of our business strategy, we continually evaluate potential acquisitions, dispositions and
swaps of radio stations, publishing properties and other businesses, striving to maintain a
portfolio that we believe
-39-
leverages our strengths and holds promise for long-term appreciation in
value. 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. In addition, Emmis currently has the option, but not the obligation, to purchase our
49.9% partners entire interest in the Austin radio partnership based on an 18-multiple of trailing
12-month cash flow. The option, which does not expire, has not been exercised.
Intangibles
Approximately 78% of our total assets consisted of intangible assets, such as FCC broadcast
licenses, goodwill, trademarks and similar assets, the value of which depends significantly upon
the operational results of our businesses. In the case of our U.S. radio 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 periods, and we expect that all FCC licenses will continue to be renewed in
the future. Our foreign broadcasting licenses expire during periods ranging from November 2009 to
February 2013. We will need to submit applications to extend our foreign licenses upon their
expiration to continue our broadcast operations in these countries. While we expect our foreign
licenses to be renewed, most of the countries in which we operate do not have the regulatory
framework or history that we have with respect to license renewals in the United States. This
makes the risk of non-renewal (or of renewal on less favorable terms) of foreign licenses greater
than for United States licenses.
Regulatory, Legal and Other Matters
The Company is a party to various legal and regulatory proceedings arising in the ordinary
course of business. In the opinion of management of the Company, there are no legal or regulatory
proceedings pending against the Company that are likely to have a material adverse effect on the
Company.
Certain individuals and groups have challenged applications for renewal of the FCC licenses of
certain of the Companys stations. The challenges to the license renewal applications are
currently pending before the Commission. Emmis does not expect the challenges to result in the
denial of any license renewals.
Quantitative and Qualitative Disclosures About Market Risk
Based on amounts outstanding at May 31, 2009, (including the interest rate exchange agreements
in place) if the interest rate on our variable debt were to increase by 1.0%, our annual interest
expense would increase by approximately $0.1 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Discussion regarding these items is included in managements discussion and analysis of
financial condition and results of operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, the Company evaluated the
effectiveness of the design and operation of its disclosure controls and procedures (Disclosure
Controls). This evaluation (the Controls Evaluation) was performed under the supervision and
with the participation of management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO).
-40-
Based upon the Controls Evaluation, our CEO and CFO concluded that as of May 31, 2009, our
Disclosure Controls are effective to provide reasonable assurance that information relating to
Emmis Communications Corporation and Subsidiaries that is required to be disclosed by us in the
reports that we file or submit, is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commissions rules and forms, and is accumulated
and communicated to our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the period covered by this quarterly report, there were no changes in the Companys
internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
It should be noted that any control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control systems objectives will be met.
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three-month period ended May 31, 2009, there were no repurchases of our Class A
common stock or Preferred Stock pursuant to a previously announced share repurchase program by the
Companys Board of Directors. There were, however, elections by employees to withhold shares of
stock upon vesting of restricted stock units to cover withholding tax obligations. The following
table provides information on our repurchases related to the withholding of shares of stock in
payment of employee tax obligations upon vesting of restricted stock during the three months ended
May 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
(d) |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Approximate |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
Dollar Value of |
|
|
(a) |
|
(b) |
|
Part of Publicly |
|
Shares That May |
|
|
Total Number |
|
Average Price |
|
Announced |
|
Yet Be Purchased |
|
|
of Shares |
|
Paid Per |
|
Plans or |
|
Under the Plans |
Period |
|
Purchased |
|
Share |
|
Programs |
|
or Programs |
March 1, 2009 - March 31, 2009 |
|
|
76,754 |
|
|
$ |
0.31 |
|
|
|
|
|
|
$ |
36,150,565 |
|
April 1, 2009 - April 30, 2009 |
|
|
1,936 |
|
|
$ |
0.36 |
|
|
|
|
|
|
$ |
36,150,565 |
|
May 1, 2009 - May 31, 2009 |
|
|
685 |
|
|
$ |
0.37 |
|
|
|
|
|
|
$ |
36,150,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-41-
Item 6. Exhibits
(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, as amended effective June 13, 2005 incorporated by
reference from Exhibit 3.1 to the Companys Form 10-K for the fiscal year ended
February 28, 2006. |
|
|
3.2 |
|
Amended and Restated Bylaws of Emmis Communications Corporation
incorporated by reference to the Companys Form 10-Q for the quarter ended
November 30, 2008 |
|
|
4.1 |
|
Form of stock certificate for Class A common stock, incorporated
by reference from Exhibit 3.5 to the 1994 Emmis Registration Statement on Form
S-1, File No. 33-73218 (the 1994 Registration Statement). |
|
|
12 |
|
Statement re: Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.* |
|
|
31.1 |
|
Certification of Principal Executive Officer of Emmis
Communications Corporation pursuant to Rule 13a-14(a) under the Exchange Act.* |
|
|
31.2 |
|
Certification of Principal Financial Officer of Emmis
Communications Corporation pursuant to Rule 13a-14(a) under the Exchange Act.* |
|
|
32.1 |
|
Section 1350 Certification of Principal Executive Officer of
Emmis Communications Corporation.* |
|
|
32.2 |
|
Section 1350 Certification of Principal Financial Officer of
Emmis Communications Corporation.* |
|
|
|
* |
|
Filed with this report. |
|
++ |
|
Management contract or compensatory plan or arrangement. |
-42-
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 10, 2009 |
By: |
/s/ PATRICK M. WALSH
|
|
|
|
Patrick M. Walsh |
|
|
|
Executive Vice President, Chief Financial
Officer and Chief Operating Officer |
|
|
-43-