Emmis Communications Reports 3rd Quarter Results

Market share gains in radio and television continue

Indianapolis… Emmis Communications Corporation (NASDAQ: EMMS) today announced results for its third fiscal quarter ending Nov. 30, 2003.

For the third quarter, reported net revenue was $160.0 million, compared to $155.5 million for the same quarter of the prior year, an increase of 3%. On a pro forma basis, net revenue for the quarter was $160.0 million, compared to $161.2 million for the same quarter of the prior year, a decrease of 1%. Emmis’ third quarter of the prior year included approximately $13 million of net political revenue, compared to less than $2 million in the third quarter this year. Diluted Earnings Per Share (EPS) for the quarter were $0.16, which matched diluted EPS for the same quarter of the prior year. These results exceed the company’s previous guidance, as well as Wall Street First Call consensus estimates for revenues and profitability.

“Emmis divisions continue to outperform their markets and industries,” Jeff Smulyan, Chairman and CEO of Emmis, said. “We again exceeded guidance. In radio, we outperformed our markets by 1%, while in the 3rd calendar quarter in television we outperformed our markets by 3%. As ratings rise, our position moving forward only strengthens.”

For the third quarter, reported radio net revenues increased 15%, while pro forma radio net revenues increased 5%. As a result of the loss of net political revenues, as discussed above, reported television net revenues decreased 10% and pro forma television net revenues decreased 9%. Publishing net revenues were up 7%.

For the third quarter, operating income was $41.9 million for the quarter, compared to $45.0 million for the same quarter of the prior year. Emmis’ station operating income for the third quarter was $65.4 million, compared to $67.8 million for the same quarter of the prior year, a decrease of 3.5%.

Emmis has included supplemental pro forma net revenues and station operating expenses, excluding non-cash compensation, on its website, www.emmis.com. This information, which includes all announced and consummated station and magazine acquisitions and dispositions, can be found under the “Investors” tab.

As of November 30, 2003, Emmis’ total debt-to-EBITDA leverage (including senior discount notes) was 7x, compared with Emmis’ February 28, 2002 leverage of 9.3x. Based on the guidance for its fiscal fourth quarter (listed below), Emmis’ total debt-to-EBITDA leverage should be approximately 6.7x at February 29, 2004, with the company’s senior bank leverage expected to be under 4x and Emmis Operating Company’s total debt-to-EBITDA leverage expected to be 5.5x. On the same tab of the website, the company has provided a detailed calculation of its leverage ratios as of Nov. 30, 2003.

During the third quarter, Moody’s Investors Service raised Emmis’ speculative grade liquidity rating to SGL-1 from SGL-2. Moody’s said the upgrade reflects its expectation of Emmis’ “very good” liquidity position over the next 12-18 months as supported by ratings improvements and revenue growth.

Effective January 1, 2004, Emmis curtailed its stock compensation program by eliminating mandatory participation for employees making less than $52,000 per year. For calendar 2004, this change will result in an $8 million decrease in the company’s non-cash compensation expense and a corresponding increase in the company’s cash operating expense.

International radio net revenues for the quarter ended Nov. 30, 2003, were $3.7 million. International radio station operating expenses for the third quarter were $2.9 million. Subsequent to the quarter end, Emmis announced that it agreed to sell its controlling interest in Votionis, S.A., an Argentine broadcasting company, to its local minority partners, Daniel Hadad and Viviana Zocco, for approximately $7 million in cash. That transaction is expected to close in the first half of 2004, subject to receiving regulatory approval. Votionis operates one AM and one FM station in Buenos Aires. Emmis also announced that the Flemish Government has awarded licenses to operate nine FM radio stations serving more than 50% of the population in the Flanders region of Belgium.

Pro forma calculations assume the following events all had occurred on March 1, 2002: (a) the acquisition of (i) a controlling interest of 50.1% in a partnership that owns six radio stations in the Austin, Texas metropolitan area in July 2003 and (ii) WBPG-TV in March 2003 and (b) the disposition of (i) KALC-FM and KXPK-FM in May 2002 and (ii) Mira Mobile, a mobile television production company, in June 2003.

The following table reconciles reported results to pro forma results (dollars in thousands):

3 months ended Nov. 30, % Change 9 months ending Nov. 30, % Change
  2003 2002 % 2003 2002 %
Radio
Reported net revenues $75,528 $65,710 15% $221,284 $198,324 12%
Plus: Revenues from assets acquired 5,898   8,860 18,445  
Less: net revenues from assets disposed   (1,238)  
Pro forma net revenues $75,528 $71,608 5% $230,144 $215,531 7%
 
Television
Reported net revenues $63,182 $69,910 -10% $179,532 $182,493 -2%
Plus: Revenues from assets acquired 385   767  
Less: net revenues from assets disposed (666)   (1,140) (2,522)  
Pro forma net revenues $63,182 $69,629 -9% $178,392 $180,738 -1%
 
Publishing
Reported net revenues $21,335 $19,924 7% $57,299 $54,755 5%
Plus: Revenues from assets acquired    
Less: net revenues from assets disposed    
Pro forma net revenues $21,335 $19,924 7% $57,299 $54,755 5%
 
Total Company
Reported net revenues operating income $160,045 $155,544 3% $458,115 $435,572 5%
Plus: Revenues from assets acquired 6,283   8,860 19,212  
Less: Revenues from assets disposed   (666)   (1,140) (3,760)  
Pro forma net revenues $160,045 $161,161 -1% $465,835 $451,024 3%
Guidance Table
(Dollars in millions)
  Quarter Ending 2/29/04 Reported Full Year
Net Revenues:
Domestic Radio $60.0- $61.1 $270.4 – $271.5
International Radio $3.0 – $3.1 $13.9 – $14.0
Total Radio $63.0 – $64.2 $284.3 – $285.5
Television $55.0 – $56.0 $234.6 – $235.6
Publishing $18.0 – $18.2 $75.2 – $75.4
Total net revenues $136.0 – $138.4 $594.1 – $596.5
Station Operating Expenses, excluding non-cash compensation:
Domestic Radio $37.0-$37.1 $148.0 – $148.1
International Radio $2.3 $10.8
Total Radio $39.3 – $39.4 $158.8 – $158.9
Television $39.0 – $39.2 $150.7 – $150.9
Publishing $16.3 – $16.4 $65.0 – $65.1
Total station operating expenses, excluding non-cash comp $94.6 – $95.0 $374.5 – $374.9

The above domestic radio net revenue guidance implies pro forma growth of 4%-6% in Q4. The above international radio guidance reflects the planned sale of Emmis’ two Argentine radio stations. Prior year pro forma results are available on the company’s website.

Emmis will host a conference call regarding this information on Thursday, Jan. 8, 2004 at 9 a.m. Eastern at 1.773.756.4624, with a replay available until Thursday, Jan. 15, 2004 at 1.402.530.8055, or listen on-line by logging on to www.emmis.com.

Emmis generally evaluates the performance of its operating entities based on station operating income. Management believes that station operating income is useful to investors because it provides a meaningful comparison of operating performance between companies in the industry and serves as an indicator of the market value of a group of stations or publishing entities. Station operating income is generally recognized by the broadcast and publishing industries as a measure of performance and is used by analysts who report on the performance of broadcasting and publishing groups. Station operating income does not take into account Emmis’ debt service requirements and other commitments and, accordingly, station operating income is not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis’ business or other discretionary uses.

Station operating income is not a measure of liquidity or of performance in accordance with accounting principles generally accepted in the United States, and should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of accounting principles generally accepted in the United States. Moreover, station operating income is not a standardized measure and may be calculated in a number of ways. Emmis defines station operating income as revenues net of agency commissions and station operating expenses, excluding non-cash compensation.