Emmis

Nothing in this document should be construed as investment advice.  The purpose of this document is to explain the background of the company to people who listen to their stations, and identify information that might indicate how they will cope with the 2008/209 global economic problems.

Emmis Radio  (Website) is a publicly traded (Nasdaq: EMMS)  broadcasting company that owns and operates approximately 2 AM and 20 FM radio stations, in  in New York City, Chicago, LA, Saint Louis, Austin TX and Indiana.  Emmis has about 1,000 full time employees.

They claim to operate to “two most influential hip-hop radio stations in the world”, as well as several radio interests in Eastern Europe and South America.  Emmis also operates a small publishing business that distributes monthly magazines.

History

The roots of the Emmis  (Hebrew for “Truth”) Radio company go back to 1976 when founder Jeff Smulyan purchased  a small rimshot station with the goal of moving it into the Indianpolis Indiana market, a process that took about 5 years to complete.  In 1987, Emmis operated the original WFAN in New York an 1050 khz, and through a complex series of transactions WFAN took over what used to be WNBC on 660 khz and in 1993 was sold to Infinity Broadcasting, who launched Don Imus on the station.

In 1994, the company “Went Public”

In 1998, the company decided to enter the TV business, acquiring 15 TV stations.  They began to sell the TV stations in 2005 and sold the final one in July of 2008, returning to their roots as a radio company.

Stations Owned

+-------------+------------------+--------+
| Station     | City              | State |
+-------------+------------------+--------+
| WRXP FM/HD1 | NEW YORK         | NY     |
| WQHT FM/HD1 | NEW YORK         | NY     |
| WRKS FM/HD1 | NEW YORK         | NY     |

| KPWR FM/HD1 | LOS ANGELES      | CA     |

| WKQX FM/HD1 | CHICAGO          | IL     |
| WLUP FM/HD1 | CHICAGO          | IL     |

| KFTK FM/HD1 | FLORISSANT       | MO     |
| KSHE FM/HD1 | CRESTWOOD        | MO     |
| KIHT FM/HD1 | ST LOUIS         | MO     |
| KPNT FM/HD1 | ST GENEVIEVE     | MO     |

| WYXB FM/HD1 | INDIANAPOLIS     | IN     |
| WLHK FM/HD1 | SHELBYVILLE      | IN     |
| WIBC FM/HD1 | INDIANAPOLIS     | IN     |
| WFNI AM/HD  | INDIANAPOLIS     | IN     |
| WTHI FM     | TERRE HAUTE      | IN     |
| WWVR FM     | WEST TERRE HAUTE | IN     |

| KBPA FM/HD1 | SAN MARCOS       | TX     |
| KLBJ AM     | AUSTIN           | TX     |
| KGSR FM/HD1 | BASTROP          | TX     |
| KLBJ FM/HD1 | AUSTIN           | TX     |
| KROX FM/HD1 | BUDA             | TX     |
| KDHT FM/HD1 | CEDAR PARK       | TX     |
+-------------+------------------+--------+

Ownership

Founder Jeff Smulyan controls 70% of the voting rights.  Everyone else is along for the ride.  No matter how much he loses or pays himself, the Class A stockholders cannot fire him.    If somehow he is forced out, he gets a $7 million bonus.

There are 3 classes of stock

  • Class A – 31.9 million shares outstanding – voting stock publicly traded on NASDAQ as EMMS
  • Class B – 4.9 million shares – 10 votes per share – owned by Jeff Smulyan
  • Class C – None outstanding

Management

Founder Jeff Smulyan is the Chairman, President and CEO of Emmis.   He’s the only person who matters.   He is a director of the NAB.   He is a lawyer and works on issues involving regulation of communications by the FCC.

Richard Cummings is the President of the Radio Division.  He’s had that job since the launch of the first radio station in 1981.

Greg Nathanson was the head of the TV Division and still sits on the Board of Directors.

Patrick Walsh is the COO and CFO.  He joined Emmis in 2006 after doing a fine job as SVP and CFO at iBiquity, the company behind the amazingly successful HD Radio technology.  (37% of visitors to this web site claim to have never heard of HD radio, and another 40% say they know what HD Radio is but have no interest in buying an HD capable radio)

Institutional Owners:

Class A Owner Location Approx
# Shares
Luther King Capital
(TX Employee Retirement fund?)
Dallas, TX 3.1 million
Martin Capital Managment Elkhart Indiana 2.8 million
Chesapeake Partners Baltimore, Maryland 1.9 million
Dimensional Fund Advisors Chicago 1.8 million
Ohio State Teathers Retirement System Columbus, OH 1.6 million

Financial Condition as of Feb 28, 2009 (10-K)

Just to be confusing, Emmis ends its fiscal year at the end of February, so their annual financial reports are two months out of sync with most other publicly traded corporations.  They also place the most current year on the right, which is highly confusing.   Maybe they were intended to be read from right to left.

Emmis has received several downgrades to their credit rating in 2009, and the probability of them failing to meet the requirements in their credit facility and being taken over by their lenders is very high.  The Credit Facility has already been amended in March 2009 to prevent technical default (“moving the line in the sand”)

Emmis’s financial statements are hard to evaluate because they ran up enormous debt to buy the TV stations, then sold them all in the last 5 years to get ride of much of the debt.  The TV stations are “discontinued operations”.  In 2005, there was a $300 million one time writedown due to change in accounting.  The TV stations were sold at a profit, but to do so they had to prepay the borrowed money early, which cost an offsetting loss to prepay the debt, so the net effect of being in the TV business was close to break even.

Key Balance Sheet Items: (Feb 2009)

Total Assets: $739 Million

  • Value of Radio Station licenses:  $496  Million
  • Goodwill and other intangible Assets: $29 Million
  • Cash: $49 Million
  • Accounts Receivable: $46 Million (x days of revenue)
  • Land, Buildings, Equipment (net) $55 Million

Debt:

  • Current Liabilities: $57 million
  • Long Term Debt: $417 Million

Stockholder Equity: -$28 Million

Credit Facility

The company’s current Credit Facility was created in 2006 – $455 mllion in Term Loans and $145 million in revolving credit for a total of $600 million.

In March 2009,  the facility was changed to lower the revolving portion to $75 million.

In April 2009, the company did a “Dutch Action” to sell $78 million in new term loans to extinguish $78 million of the credit facility (can you say “Toxic Assets”, TARP, Tim Geithner?).  They exchanged $48 million in cash for the $78 million in debt.

Swap transactions

The Eurodolla (aka LIBOR) based facility requires that at least 30% of the variable rate interest risk be offset by purchase of LIBOR/fixed interest rate swaps.

10-k/Proxy Notes

Emmis sold its private Gulfstream jet in April 2009 and incurred a loss of $7.3 million.   That would have bought a lot of first class airplane tickets from Indianapolis to Slovenia.   In 2008, Mr Smulyan reimbursed the company $171,000 for the incremental cost of using the plane for personal business.

In the event that any one owner other than Mr Smulyan acquires control of 25% control of the common stock or he has “good cause” to quit, he gets 3 years of salary+bonus (about $7 million) [the generally used term for this is a “golden parachute”].

Profitability

All numbers in $million 2008 2007 2006 2005 2004
Radio Revenue 333 358 356 375 344
License Impairment 373 21 35
Operating Income
(Without Impairment)
40 40 63 75 71
Long Term Debt Balance 417 434 494 808 1,317
Debt Service Cost 25 34 43 70 40

Stock Performance

The Emmis stock rougly parallels the performance of radio stocks in general, which means you have lost almost all of your money.  The stock is trading below $1 per share on NASDAQ, which means it could be delisted when/if NASDAQ resumes enforcing the $1 minimum trading price requirement.

The IPO of EMMS in 1994 was priced at $7.75  within 5 weeks, the stock was trading below $6.00.   It reached its peak on December 31, 1999 at $62.32/share.  It reached its minimum price on Mar 10th 2009 at $.26 a share.    As of May 22, 2009, the stock closed at $.34/share.

There was a $4/share one time special dividend paid in 2006.  Ignoring any regular cash dividends (if any were paid),  if you had invested at the IPO and received the dividend (making your base $3.75), your return for owning the stock for 15 years has been -91%.    If you bought at the peak, you have lost 99.4% of your investment.

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