UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | |
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the Fiscal Year Ended February 28, 2017
☐ | |
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the Transition Period from
to .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
(Registrant’s Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Class A common stock, $0.01 par value | EMMS | Nasdaq Global Select Market |
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A common stock, $.01 par value of Emmis Communications Corporation
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐¨ No ☒ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐¨ No ☒ý
Indicate by check mark whether the registrant (1) has filed all documents and 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 ☒ý No ☐¨
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 ☒ý No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non acceleratednon-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | ||
Emerging Growth Company | ☐ | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐¨ No ☒ý
The aggregate market value of the voting stock held by non-affiliates of the registrant, as of August 31, 2016,2018, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $40,919,000.
The number of shares outstanding of each of Emmis Communications Corporation’s classes of common stock, as of May 5, 2017,3, 2019, was:
11,856,200 Class A Common Shares, $.01 par value
1,242,366 Class B Common Shares, $.01 par value
0 Class C Common Shares, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K Reference | ||
Proxy Statement for expected to be filed within 120 days | Part III |
FORM 10-K
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Unless the context requires otherwise, all references in this report to “Emmis,” “the Company,” “we,” “our,” “us,” and similar terms refer to Emmis Communications Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by our use of words such as “intend,” “plan,” “may,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. We cannot guarantee that we will achieve these plans, intentions or expectations. All statements regarding our expected financial position, business and financing plans are forward-looking statements.
Actual results or events could differ materially from the plans, intentions or expectations disclosed in the forward-looking statements we make. We have included important facts in various cautionary statements in this report that we believe could cause our actual results to differ materially from forward-looking statements that we make. These include, but are not limited to, the factors described in Part I, Item 1A, “Risk Factors.”
The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We undertake no obligation to update or revise any forward-looking statements because of new information, future events or otherwise.
GENERAL
We are a diversified media company, principally focused on radio broadcasting. Emmis owns 1611 FM and 3 AM radio stations in New York, Los Angeles, St. Louis,Indianapolis, and Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located there) and Indianapolis.. One of the FM radio stations that Emmis currently owns in New York is operated pursuant to a Local Marketing Agreement ("LMA"(“LMA”) whereby a third party provides the programming for the station and sells all advertising within that programming. In addition Emmis has entered into an agreement to sell its FM radio station in Los Angeles and that transaction is expected to close in the back half of 2017. Emmis also developed and licenses TagStation
BUSINESS STRATEGY
We are committed to improving the operating results of our core assets while simultaneously seeking future growth opportunities in relatednew businesses. Our strategy is focused on the following operating principles:
Develop unique and compelling content and strong local brands
Most of our established local media brands have achieved and sustained a leading position in their respective market segments over many years. Knowledge of local markets and consistently producing unique and compelling content that meets the needs of our target audiences are critical to our success. As such, we make substantial investments in areas such as market research, data analysis and creative talent to ensure that our content remains relevant, has a meaningful impact on the communities we serve and reinforces the core brand image of each respective property.
Extend the reach and relevance of our local brands through digital platforms
In recent years, we have placed substantial emphasis on enhancing the distribution of our content through digital platforms, such as the Internet and smartphones.mobile platforms. We believe these digital platforms offer excellent opportunities to further enhance the relationships we have with our audiences by allowing them to consume and share our content in new ways and providing us with new distribution channels for one-to-one communication with them.
Deliver results to advertisers
Competition for advertising revenue is intense and becoming more so. To remain competitive, we focus on sustaining and growing our audiences, optimizing our pricing strategy and developing innovative marketing programs for our clients that allow them to interact with our audiences in more direct and measurable ways. These programs often include elements such as on-air endorsements, events, contests, special promotions, Internet advertising, email marketing, interactive mobile advertising and online video. Our ability to deploy multi-touchpoint marketing programs allows us to deliver a stronger return-on-investment for our clients while simultaneously generating ancillary revenue streams for our media properties.
Extend sales efforts into new market segments
Given the competitive pressures in many of our “traditional” advertising categories, we arehave been expanding our network of advertiser relationships into not-for-profits, political advertising, corporate philanthropy, environmental initiatives and government agencies. These efforts primarily focus on the health care and education sectors. We believe our capabilities can address these clients’ under-served needs. The early return on these efforts has been encouraging and we plan to shift additional resources toward these efforts over time.
Enhance the efficiency of our operations
We believe it is essential that we operate our businesses as efficiently as possible. We regularly review our business operations and reduce costs or realign resources as necessary. We have also invested in common technology platforms across all of our radio stations to help further standardize our business processes.
4
Pursue new businesses that display better growth characteristics
Advertising revenues in our radio and magazine businesses remain under heavy pressure by new forms of digital media. We have experienced steady declines in our advertising revenues, partially offset by the growth we have been able to enhance the valuegenerate from our events and digital initiatives. In recent years, we have been divesting radio stations and magazines to repay our indebtedness and reduce our exposure to these businesses. We intend to continue to explore diversification of our media assets
RADIO STATIONS
In the following table, “Market Rank by Revenue” is the ranking of the market revenue size of the principal radio market served by our stations among all radio markets in the United States. Market revenue rankings are from BIA/Kelsey’s Media Access Pro database as of March 28, 2017.19, 2019. “Ranking in Primary Demographic Target” is the ranking of the station within its designated primary demographic target among all radio stations in its market based on the March 20172019 Nielsen Audio, Inc. ("Nielsen"(“Nielsen”) Portable People Meter results. A “t” indicates the station tied with another station for the stated ranking. “Station Audience Share” represents a percentage generally computed by dividing the average number of persons in the primary demographic listening to a particular station during specified time periods by the average number of such persons in the primary demographic for all stations in the market area as determined by Nielsen.
STATION AND MARKET |
| MARKET RANK BY REVENUE |
|
| FORMAT |
| PRIMARY DEMOGRAPHIC TARGET AGES |
| RANKING IN PRIMARY DEMOGRAPHIC TARGET |
| STATION AUDIENCE SHARE | |
New York, NY1 |
|
| 2 |
|
|
|
|
|
|
|
|
|
WQHT-FM |
|
|
|
|
| Hip-Hop |
| 18-34 |
| 3t |
| 7.3 |
WBLS-FM |
|
|
|
|
| Urban Adult Contemporary |
| 25-54 |
| 2 |
| 6.6 |
WLIB-AM |
|
|
|
|
| Urban Gospel |
| 25-54 |
| 40t |
| 0.1 |
Austin, TX |
|
| 31 |
|
|
|
|
|
|
|
|
|
KLBJ-AM |
|
|
|
|
| News/Talk |
| 25-54 |
| 14 |
| 2.7 |
KLZT-FM |
|
|
|
|
| Mexican Regional |
| 18-34 |
| 2 |
| 8.4 |
KBPA-FM |
|
|
|
|
| Adult Hits |
| 25-54 |
| 3 |
| 7.8 |
KLBJ-FM |
|
|
|
|
| Album Oriented Rock |
| 25-54 |
| 7t |
| 4.7 |
KGSR-FM 2 |
|
|
|
|
| Soft Adult Contemporary |
| 25-54 |
| N/A |
| N/A |
KROX-FM |
|
|
|
|
| Alternative Rock |
| 18-34 |
| 7t |
| 5.8 |
Indianapolis, IN |
|
| 37 |
|
|
|
|
|
|
|
|
|
WFNI-AM |
|
|
|
|
| Sports Talk |
| 25-54 |
| 18 |
| 2.1 |
WYXB-FM |
|
|
|
|
| Soft Adult Contemporary |
| 25-54 |
| 3t |
| 7.2 |
WLHK-FM |
|
|
|
|
| Country |
| 25-54 |
| 1 |
| 8.1 |
WIBC-FM |
|
|
|
|
| News/Talk |
| 35-64 |
| 6 |
| 5.7 |
1 | Our fourth owned station in New York, WEPN-FM, is being operated pursuant to an LMA. Under the terms of the LMA, New York AM Radio LLC, a subsidiary of Disney Enterprises, Inc., provides the programming for the station and sells all advertising within that programming. Emmis continues to own and operate WEPN-FM. |
2 | On March 8, 2019, we moved our Austin City Limits branded format from 93.3FM to our FM translator broadcasting on 97.1FM. KGSR-FM was rebranded as Star 93.3 with a soft adult contemporary format. The ranking and audience share listed above for the 93.3FM signal is not applicable since the station’s format changed during the month. |
| STATION AND MARKET | MARKET RANK BY REVENUE | FORMAT | PRIMARY DEMOGRAPHIC TARGET AGES | RANKING IN PRIMARY DEMOGRAPHIC TARGET | STATION AUDIENCE SHARE | |||||
| Los Angeles, CA | 1 | |||||||||
| KPWR-FM | Hip-Hop | 18-34 | 4t | 5.2 | ||||||
New York, NY 1 | 2 | |||||||||
| WQHT-FM | Hip-Hop | 18-34 | 2 | 7.9 | ||||||
| WBLS-FM | Urban Adult Contemporary | 25-54 | 4 | 5.4 | ||||||
| WLIB-AM | Urban Gospel | 25-54 | 44t | 0.2 | ||||||
| St. Louis, MO | 23 | |||||||||
| KPNT-FM | Alternative Rock | 18-34 | 1 | 9.3 | ||||||
| KSHE-FM | Album Oriented Rock | 25-54 | 1 | 8.5 | ||||||
| KNOU-FM | Contemporary Hit Radio | 18-34 | 9 | 5.3 | ||||||
| KFTK-FM | Talk | 25-54 | 12t | 4.1 | ||||||
| Austin, TX | 32 | |||||||||
| KLBJ-AM | News/Talk | 25-54 | 12 | 3.1 | ||||||
| KLZT-FM | Mexican Regional | 18-34 | 4 | 7.1 | ||||||
| KBPA-FM | Adult Hits | 25-54 | 1 | 9.8 | ||||||
| KLBJ-FM | Album Oriented Rock | 25-54 | 9 | 4.1 | ||||||
| KGSR-FM | Adult Album Alternative | 25-54 | 13t | 3.0 | ||||||
| KROX-FM | Alternative Rock | 18-34 | 3 | 7.4 | ||||||
| Indianapolis, IN | 37 | |||||||||
| WFNI-AM | Sports Talk | 25-54 | 18 | 2.1 | ||||||
| WYXB-FM | Soft Adult Contemporary | 25-54 | 4 | 6.7 | ||||||
| WLHK-FM | Country | 25-54 | 5 | 5.7 | ||||||
| WIBC-FM | News/Talk | 35-64 | 10 | 3.6 | ||||||
In addition to our other radio broadcasting operations, we own and operate Network Indiana, a radio network that provides news and other programming to 60approximately 70 affiliated radio stations in Indiana.
We believe that the growth of new technologies present not only a challenge,presents challenges, but an opportunityalso opportunities for broadcasters and publishers. The primary challenge is increased competition for the time and attention of our listeners and readers. The primary opportunity is to further enhance the relationships we already have with our listeners and readers by expanding products and services offered by our radio stations and
COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the communities we serve. We see ourselves as community partners. To that end, each of our radio stations and
Indianapolis MonthlyThe National Association of Broadcasters Education Foundation (“NABEF”) has honored us with the Hubbard Award, honoring a broadcaster “for extraordinary involvement in serving the community.” Emmis was the second broadcaster to receive this prestigious honor, after the Hubbard family, for which the award is named. The NABEF also recognized Emmis’ WQHT-FM in New York for its outreach after Hurricane Sandy, both for the news coverage it provided and the relief efforts it organized in the weeks after the storm. WIBC-FM was nominated for a national Crystal Award from the National Association of Broadcasters for our efforts in the community in 2014 and in 2016, and WBLS-FM
5
won a national Crystal Award in 2017.
INDUSTRY INVOLVEMENT
We have an active leadership role in a wide range of industry organizations. Our senior managers have served in various capacities with industry associations, including as directors of the National Association of Broadcasters, the Radio Advertising Bureau, the Radio Futures Committee, the Nielsen Audio Advisory Council, the Media Financial Management Association, the City and Regional Magazine Association and as founding members of the Magazine Publishers of America. Our chief executive officer has been honored with the National Association of Broadcasters’ “National Radio Award,” was named Radio Ink’s “Radio Executive of the Year,” and was recently named the 2017 recipient of the Broadcasters Foundation of America's "LowryAmerica’s “Lowry Mays Excellence in Broadcasting Award."” In 2018, our chief financial officer was awarded Media Financial Management’s “Rainmaker Award” recognizing his efforts and contributions in helping Media Financial Management’s growth initiatives. Our other management and on-air personalities have won numerous industry awards.
COMPETITION
Radio broadcasting stations compete with the other broadcasting stations in their respective market areas, as well as with other advertising media such as newspapers, cable, magazines, outdoor advertising, transit advertising, the Internet, satellite radio, direct marketing and mobile and wireless device marketing. Competition within the broadcasting industry occurs primarily in individual market areas, so that a station in one market (e.g., New York) does not generally compete with stations in other markets (e.g., Los Angeles)Austin). In each of our markets, our stations face competition from other stations with substantial financial resources, including stations targeting the same demographic groups. In addition to management experience, factors that are material to competitive position include the station’s rank in its market in terms of the number of listeners, authorized power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area. We attempt to improve our competitive position with programming and promotional campaigns aimed at the demographic groups targeted by our stations. We also seek to improve our position through sales efforts designed to attract advertisers that have done little or no radio advertising by emphasizing the effectiveness of radio advertising in increasing the advertisers’ revenues. The policies and rules of the Federal Communications Commission (the “FCC”) permit certain joint ownership and joint operation of local stations. Most of our radio stations take advantage of these joint arrangements in an effort to lower operating costs and to offer advertisers more attractive rates and services. Although we believe that each of our stations can compete effectively in its market, there can be no assurance that any of our stations will be able to maintain or increase its current audience ratings or advertising revenue market share.
Although the broadcasting industry is highly competitive, barriers to entry exist. The operation of a broadcasting station in the United States requires a license from the FCC. Also, the number of stations that can operate in a given market is limited by the availability of the frequencies that the FCC will license in that market, as well as by the FCC’s multiple ownership rules regulating the number of stations that may be owned or controlled by a single entity, and cross ownership rules which limit the types of media properties in any given market that can be owned by the same person or company.
ADVERTISING SALES
Our stations derive their advertising revenue from local and regional advertising in the marketplaces in which they operate, as well as from the sale of national advertising. Local and most regional sales are made by a station’s or magazine’s sales staff. National sales are made by firms specializing in such sales, which are compensated on a commission-only basis. We believe that the volume of national advertising revenue tends to adjust to shifts in a station’s audience share position more rapidly than does the volume of local and regional advertising revenue. During the year ended February 28, 2017,2019, approximately 15%14% of our total advertising revenues were derived from national sales, and 85%86% were derived from local sales.
EMPLOYEES
As of February 28, 2017,2019, Emmis had approximately 540350 full-time employees and approximately 290210 part-time employees. Approximately 3530 employees are represented by unions at our various radio stations. We consider relations with our employees to be good.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Listed below is certain information about the executive officers of Emmis or its affiliates who are not directors or nominees to be directors.
NAME |
| POSITION |
| AGE AT FEBRUARY 28, 2019 |
| YEAR FIRST ELECTED OFFICER |
Paul V. Brenner |
| Advisor, President of the Broadcaster Traffic Consortium LLC |
| 50 |
| 2008 |
J. Scott Enright |
| Executive Vice President, General Counsel and Secretary |
| 56 |
| 1998 |
Ryan A. Hornaday |
| Executive Vice President, Chief Financial Officer and Treasurer |
| 45 |
| 2006 |
Gregory T. Loewen |
| President - Publishing Division and Chief Strategy Officer |
| 47 |
| 2007 |
Mr. Brenner was appointed Advisor, President of the Broadcaster Traffic Consortium in March 2019. Previously, Mr. Brenner served as President – TagStation/NextRadio from March 2016 to February 2019, as Senior Vice President and Chief Technology Officer from October
6
2012 to February 2016, and as Vice President – Integrated Technologies from May 2008 to September 2012. Mr. Brenner joined Emmis in 1998 and ceased to be an executive officer on February 28, 2019.
Mr. Enright was appointed Executive Vice President, General Counsel and Secretary in March 2009. Previously, Mr. Enright served as Senior Vice President, Associate General Counsel and Secretary of Emmis from September 2006 to February 2009 and as Vice President, Associate General Counsel and Assistant Secretary from the date he joined Emmis in October 1998, adding the office of Secretary in 2002.
Mr. Hornaday was appointed Executive Vice President, Chief Financial Officer and Treasurer in August 2015. Previously, Mr. Hornaday served as Senior Vice President - Finance and Treasurer from December 2008 to July 2015. Mr. Hornaday joined Emmis in 1999.
Mr. Loewen was appointed President – Publishing Division and Chief Strategy Officer in March 2010. Mr. Loewen has also served as President of Digonex since our acquisition of a controlling interest in June 2014. Previously, Mr. Loewen served as Chief Strategy Officer from February 2007 to February 2010. Prior to joining Emmis in February 2007, Mr. Loewen served as Vice President of Digital Media and Strategy for The Toronto Star
INTERNET ADDRESS AND INTERNET ACCESS TO SEC REPORTS
Our Internet address is
www.emmis.com. Through our Internet website, free of charge, you may obtain copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports will be available the same day we electronically file such material with, or furnish such material to, the SEC. We have been making such reports available on the same day they are filed during the period covered by this report.FEDERAL REGULATION OF BROADCASTING
Radio broadcasting in the United States is subject to the jurisdiction of the FCC under the Communications Act of 1934 (the “Communications Act”), as amended in part by the Telecommunications Act of 1996 (the “1996 Act”). Radio broadcasting is prohibited except in accordance with a license issued by the FCC upon a finding that the public interest, convenience and necessity would be served by the grant of such license. The FCC has the power to revoke licenses for, among other things, false statements made in applications or willful or repeated violations of the Communications Act or of FCC rules. In general, the Communications Act provides that the FCC shall allocate broadcast licenses for radio stations in such a manner as will provide a fair, efficient and equitable distribution of service throughout the United States. The FCC determines the operating frequency, location and power of stations; regulates the equipment used by stations; and regulates numerous other areas of radio broadcasting pursuant to rules, regulations and policies adopted under authority of the Communications Act. The Communications Act, among other things, prohibits the assignment of a broadcast license or the transfer of control of an entity holding such a license without the prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of media that compete with broadcast stations.
The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act as well as FCC rules, public notices and rulings for further information concerning the nature and extent of federal regulation of radio stations. Legislation has been introduced from time to time which would amend the Communications Act in various respects, and the FCC from time to time considers new regulations or amendments to its existing regulations. We cannot predict whether any such legislation will be enacted or whether new or amended FCC regulations will be adopted or what their effect would be on Emmis.
LICENSE RENEWAL. Radio stations operate pursuant to broadcast licenses that are ordinarily granted by the FCC for maximum terms of eight years and are subject to renewal upon approval by the FCC. The following table sets forth our FCC license expiration dates in addition to the call letters, license classification, antenna elevation above average terrain (for our FM stations only), power and frequency of all owned stations as of February 28, 2017:April 1, 2019:
Radio Market |
| Stations |
| City of License |
| Frequency |
|
| Expiration Date of License 1 |
| FCC Class |
| Height Above Average Terrain (in feet) |
|
| Power (in Kilowatts) |
| |||
New York, NY |
| WQHT-FM |
| New York, NY |
|
| 97.1 |
|
| June 2022 |
| B |
|
| 1,339 |
|
|
| 6.7 |
|
|
| WBLS-FM |
| New York, NY |
|
| 107.5 |
|
| June 2022 |
| B |
|
| 1,362 |
|
|
| 4.2 |
|
|
| WLIB-AM |
| New York, NY |
|
| 1190 |
|
| June 2022 |
| B |
| N/A |
|
| 10 D / 30 N |
| ||
|
| WEPN-FM |
| New York, NY |
|
| 98.7 |
|
| June 2022 |
| B |
|
| 1,362 |
|
|
| 6 |
|
Austin, TX |
| KBPA-FM |
| San Marcos, TX |
|
| 103.5 |
|
| August 2021 |
| C0 |
|
| 1,257 |
|
|
| 100 |
|
|
| KGSR-FM |
| Cedar Park, TX |
|
| 93.3 |
|
| August 2021 |
| C |
|
| 1,926 |
|
|
| 100 |
|
|
| KLZT-FM |
| Bastrop, TX |
|
| 107.1 |
|
| August 2021 |
| C2 |
|
| 499 |
|
|
| 49 |
|
|
| KLBJ-AM |
| Austin, TX |
|
| 590 |
|
| August 2021 |
| B |
| N/A |
|
| 5 D / 1 N |
| ||
|
| KLBJ-FM |
| Austin, TX |
|
| 93.7 |
|
| August 2021 |
| C |
|
| 1,050 |
|
|
| 97 |
|
|
| KROX-FM |
| Buda, TX |
|
| 101.5 |
|
| August 2021 |
| C2 |
|
| 847 |
|
|
| 12.5 |
|
Indianapolis, IN |
| WFNI-AM |
| Indianapolis, IN |
|
| 1070 |
|
| August 2020 |
| B |
| N/A |
|
| 50 D / 10 N |
| ||
|
| WLHK-FM |
| Shelbyville, IN |
|
| 97.1 |
|
| August 2020 |
| B |
|
| 732 |
|
|
| 23 |
|
|
| WIBC-FM |
| Indianapolis, IN |
|
| 93.1 |
|
| August 2020 |
| B |
|
| 991 |
|
|
| 13.5 |
|
|
| WYXB-FM |
| Indianapolis, IN |
|
| 105.7 |
|
| August 2020 |
| B |
|
| 492 |
|
|
| 50 |
|
1 | Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application. |
Expiration Date of License1 | Height Above Average Terrain (in feet) | Power (in Kilowatts) | |||||||||||||
| Radio Market | Stations | City of License | Frequency | FCC Class | |||||||||||
| Los Angeles, CA | KPWR-FM | Los Angeles, CA | 105.9 | December 2021 | B | 3,035 | 25 | ||||||||
| New York, NY | WQHT-FM | New York, NY | 97.1 | June 2022 | B | 1,339 | 6.7 | ||||||||
| WBLS-FM | New York, NY | 107.5 | June 2022 | B | 1,362 | 4.2 | |||||||||
| WLIB-AM | New York, NY | 1190 | June 2022 | B | N/A | 10 D / 30 N | |||||||||
| WEPN-FM | New York, NY | 98.7 | June 2022 | B | 1,362 | 6 | |||||||||
| St. Louis, MO | KFTK-FM | Florissant, MO | 97.1 | February 2021 | C1 | 561 | 100 | ||||||||
| KNOU-FM | St. Louis, MO | 96.3 | February 2021 | C1 | 1,014 | 92 | |||||||||
| KPNT-FM | Collinsville, IL | 105.7 | December 2020 | C1 | 835 | 54 | |||||||||
| KSHE-FM | Crestwood, MO | 94.7 | February 2021 | C0 | 1,014 | 100 | |||||||||
| Austin, TX | KBPA-FM | San Marcos, TX | 103.5 | August 2021 | C0 | 1,257 | 100 | ||||||||
| KGSR-FM | Cedar Park, TX | 93.3 | August 2021 | C | 1,926 | 100 | |||||||||
| KLZT-FM | Bastrop, TX | 107.1 | August 2021 | C2 | 499 | 49 | |||||||||
| KLBJ-AM | Austin, TX | 590 | August 2021 | B | N/A | 5 D / 1 N | |||||||||
| KLBJ-FM | Austin, TX | 93.7 | August 2021 | C | 1,050 | 97 | |||||||||
| KROX-FM | Buda, TX | 101.5 | August 2021 | C2 | 847 | 12.5 | |||||||||
| Indianapolis, IN | WFNI-AM | Indianapolis, IN | 1070 | August 2020 | B | N/A | 50 D / 10 N | ||||||||
| WLHK-FM | Shelbyville, IN | 97.1 | August 2020 | B | 732 | 23 | |||||||||
| WIBC-FM | Indianapolis, IN | 93.1 | August 2020 | B | 991 | 13.5 | |||||||||
| WYXB-FM | Indianapolis, IN | 105.7 | August 2020 | B | 492 | 50 | |||||||||
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1 Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application.
has served the public interest, convenience and necessity;
has committed no serious violations of the Communications Act or the FCC rules; and
has committed no other violations of the Communications Act or the FCC rules which would constitute a pattern of abuse.
If the FCC cannot make such a finding, it may deny the renewal application, and only then may the FCC consider competing applications for the same frequency. In a vast majority of cases, the FCC renews a broadcast license even when petitions to deny have been filed against the renewal application.
REVIEW OF OWNERSHIP RESTRICTIONS. The FCC is required by statute to review all of its broadcast ownership rules on a quadrennial basis (
i.e., every four years) and to repeal or modify any of its rules that are no longer “necessary in the public interest.”Despite several such reviews and appellate remands, the FCC’s rules limiting the number of radio stations that may be commonly owned or owned in combination with a television station or newspaper, in a local market have remained largely intact.intact since their initial adoption following the 1996 Act. The FCC'sFCC’s previous ownership reviews have been subject to litigation. The most recent court decision was issued by the Third Circuit in May 2016 and concerned the FCC'sFCC’s then-pending 2010 and 2014 reviews. In August 2016, the FCC concluded its 2010 and 2014 reviews, deciding to retain the local radio ownership rule the radio-television cross-ownership rule, and the prohibition on newspaper/broadcast cross-ownershipas well as several other media ownership rules, without significant alteration. Various parties have appealed the FCC'sFCC’s August 2016 order, and other parties have filed petitions for reconsideration. In November 2017, the FCC issued a decision on reconsideration of the August 2016 Order which, while making only a minor change to the local radio ownership rule (discussed below), eliminated the restrictions on newspaper/broadcast cross-ownership and radio/television cross-ownership and relaxed the local television ownership rule. Several parties have jointly appealed the FCC’s November 2017 order, and their appeal remains pending. In December 2018, the FCC commenced its 2018 quadrennial review of its media ownership regulations. Among other things, the FCC is seeking comment on all aspects of which remain pending.the local radio ownership rule’s implementation and whether the current version of the rule remains necessary in the public interest. We cannot predict whether the appealsappeal or reconsideration proceedingscurrent review proceeding will result in modifications of the ownership rules or the impact (if any) that such modifications would have on our business.
The discussion below reviews the pertinent ownership rules currently in effect as a result of the FCC'sFCC’s August 2016 order.
Local Radio Ownership:
The local radio ownership rule limits the number of commercial radio stations that may be owned by one entity in a given radio market based on the number of radio stations in that market:
if the market has 45 or more radio stations, one entity may own up to eight stations, not more than five of which may be in the same service (AM or FM);
if the market has between 30 and 44 radio stations, one entity may own up to seven stations, not more than four of which may be in the same service;
if the market has between 15 and 29 radio stations, one entity may own up to six stations, not more than four of which may be in the same service; and
if the market has 14 or fewer radio stations, one entity may own up to five stations, not more than three of which may be in the same service, however one entity may not own more than 50% of the stations in the market.
Each of the markets in which our radio stations are located has at least 1530 radio stations.
For purposes of applying these numerical limits, the FCC has also adopted rules with respect to (i) so-called local marketing agreements, or “LMAs,” by which the licensee of one radio station provides programming for another licensee’s radio station in the same market and sells all of the advertising within that programming and (ii) so-called joint sale agreements, or “JSAs,” by which the licensee of one station sells the advertising time on another station in the market. Under these rules, an entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or sells more than 15% of the advertising time, on another radio station in the same market pursuant to an LMA or JSA is generally required to count the station toward its media ownership limits even though it does not own the station. As a result, in a market where we own one or more radio stations, we generally cannot provide programming to another station under an LMA, or sell advertising on another station pursuant to a JSA, if we could not acquire that station under the local radio ownership rule. In its August 2016 order, the FCC declined to make other types of agreements such as “shared services agreements” (or "SSAs"“SSAs”) and/or “local news service” agreements, attributable, and adopted a disclosure requirement for SSAs between commercial television stations.
On April 26, 2012, a subsidiary of Emmis entered into an LMA with New York AM Radio, LLC pursuant to which, commencing April 30, 2012, it began purchasing from Emmis the right to provide programming on radio station WEPN-FM, 98.7 FM, New York, NY until August 31, 2024, subject to certain conditions. Disney Enterprises, Inc., the parent company of New York AM Radio, LLC, has guaranteed the obligations under the LMA. Emmis’ subsidiary will retain ownership of the 98.7 FM FCC license during the term of the LMA and received an annual fee of $8.4 million for the first year of the term under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination.
Although the FCC’s quadrennial review decisions have not changed the numerical caps under the local radio rule, the FCC adjusted the rule in June 2003 by deciding that both commercial and noncommercial stations could be counted in determining the number of stations in a radio market. The decision also altered the definition of the relevant local market for purposes of the rule. The FCC “grandfathered” existing station “clusters”
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“clusters” not in compliance with the numerical caps as calculated pursuant to the new market definition, but provided that they could be sold intact only to small businesses meeting certain requirements. In December 2007, the FCC expanded this policy to allow an owner to sell a grandfathered station cluster to any buyer, so long as the buyer committed to file, within 12 months, an application with the FCC to transfer the excess station(s) to an eligible small business or to a trust for ultimate sale to such an entity. Although the Third Circuit vacated the FCC’s selected definition of small businesses eligible to purchase clusters that exceed the numerical limits in 2011, the FCC reinstated that definition in its August 2016 order. The change in market definition appears to impact the Austin, Texas market, such that we exceed the numerical cap for FM stations. If we chose to sell our Austin cluster of stations and we were not able to obtain a waiver from the current ownership regulations, we would likely therefore have to “spin off” one FM station to a separate buyer or to transfer the cluster to an entity meeting the FCC'sFCC’s small business definition.definition, and such a spin-off would require the consent of our minority partner. In the November 2017 Order, the FCC adopted a presumptive waiver standard for so called “embedded markets” (
Cross-Media Ownership:
Prior to the November 2017 Order, the FCC’s radio/television cross-ownership rulerules generally permitsrestricted the common ownership of the following(1) certain combinations in the same market, to the extent permitted under the FCC’s television duopoly ruleof radio and local radio rules:
ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the FCC has developed specific criteria that it uses to determine whether a certain ownership interest or other relationship with an FCC licensee is significant enough to be “attributable” or “cognizable” under its rules. Specifically, among other relationships, certain stockholders, officers and directors of a broadcasting company are deemed to have an attributable interest in the licenses held by that company, such that there would be a violation of the FCC’s rules where the broadcasting company and such a stockholder, officer or director together hold attributable interests in more than the permitted number of stations or a prohibited combination of outlets in the same market. The FCC’s regulations generally deem the following relationships and interests to be attributable for purposes of its ownership restrictions:
all officer and director positions in a licensee or its direct/indirect parent(s);
voting stock interests of at least 5% (or 20%, if the holder is a passive institutional investor,
i.e., a mutual fund, insurance company or bank);any equity interest in a limited partnership or limited liability company where the limited partner or member has not been “insulated” from the media-related activities of the LP or LLC pursuant to specific FCC criteria;
equity and/or debt interests which, in the aggregate, exceed 33% of the total asset value of a station or other media entity (the “equity/debt plus policy”), if the interest holder supplies more than 15% of the station’s total weekly programming (usually pursuant to a time brokerage, local marketing or network affiliation agreement) or is a same-market media entity (
i.e., broadcast company or newspaper). In December 2007, the FCC increased these limits under certain circumstances where the equity and/or debt interests are in a small business meeting certain requirements. Although the Third Circuit vacated the FCC’s selected definition of small businesses eligible to take advantage of these increased limits in 2011, the FCC reinstated that definition in its August 2016 order.To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the FCC uses a “multiplier” analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain.
Under existing FCC policy, in the case of corporations having a “single majority shareholder,” the interests of minority shareholders are generally not deemed attributable. Because Jeffrey H. Smulyan’s voting interest in the Company currently exceeds 50%, this exemption appears to apply to the Company. Elimination of the exemption is, however, under consideration by the FCC. If the exemption is eliminated, or if Mr. Smulyan’s voting interest falls to or below 50%, then the interests of any minority shareholders that meet or exceed the thresholds described above would become attributable and would be combined with the Company’s interests for purposes of determining compliance with FCC ownership rules.
Ownership-rule conflicts arising as a result of aggregating the media interests of the Company and its attributable shareholders could require divestitures by either the Company or the affected shareholders. Any such conflicts could result in Emmis being unable to obtain FCC consents necessary for future acquisitions. Conversely, Emmis’ media interests could operate to restrict other media investments by shareholders having or acquiring an interest in Emmis.
ALIEN OWNERSHIP. Under the Communications Act, no FCC license may be held by a corporation if more than one-fifth of its capital stock is owned or voted by aliens or their representatives, a foreign government or representative thereof, or an entity organized under the laws of a foreign country (collectively, “Non-U.S. Persons”). Furthermore, the Communications Act provides that no FCC license may be granted to an entity directly or indirectly controlled by another entity of which more than one-fourth of its capital stock is owned or voted by Non-U.S. Persons if the FCC finds that the public interest will be served by the denial of such license. The FCC staff had interpreted this provision to require an affirmative public interest finding to permit the grant or holding of a license, and had made such a finding only in limited circumstances. In November 2013 the FCC clarified that it would accept requests to allow foreign investment above 25% in broadcast holding companies, and that it would evaluate those requests on a case-by-case basis to determine whether the requesting party had provided a sufficient public interest showing. In September 2016, the FCC adopted rules to simplify and streamline the process for requesting authority to exceed the 25% indirect foreign ownership limit in broadcast licensees and revised the methodology that publicly traded broadcasters must use to assess their compliance with the foreign ownership restrictions. The foregoing restrictions on alien ownership apply in modified form to other types of business organizations, including partnerships and limited liability companies. In addition, an LMA with a foreign owned company is not prohibited as long as the non-foreign holder of the FCC license continues to control and operate the station. Our Second Amended and Restated Articles of
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Incorporation and Second Amended and Restated Code of By-Laws authorize the Board of Directors to prohibit such restricted alien ownership, voting or transfer of capital stock as would cause Emmis to violate the Communications Act or FCC regulations.
ASSIGNMENTS AND TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors, including compliance with the various rules limiting common ownership of media properties, the “character” of the assignee or transferee and those persons holding attributable interests therein and compliance with the Communications Act’s limitations on alien ownership as well as other statutory and regulatory requirements. When evaluating an assignment or transfer of control application, the FCC is prohibited from considering whether the public
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the “public interest.” Beginning in the late 1970s, the FCC gradually relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness.
Federal law prohibits the broadcast of obscene material at any time and the broadcast of indecent material during specified time periods; these prohibitions are subject to enforcement by the FCC and carry fines of up to $325,000$503,349 per violation. The company has received, and may receive in the future, letters of inquiry or other notifications concerning alleged violations of the indecency rules at certain of its stations. We cannot predict the outcome of any indecency complaint proceeding or investigation or the extent or nature of future FCC enforcement actions.
The FCC’s indecency rules have also been the subject of litigation. In July 2010, the Second Circuit held the FCC’s indecency standards to be unconstitutionally vague in violation of the First Amendment. The Second Circuit later vacated the agency decision at issue in another appeal based on its earlier decision. The FCC challenged these rulings in the Supreme Court. In June 2012 the Supreme Court vacated the Second Circuit’s decision, finding that the FCC had failed to provide adequate notice regarding the contours of its indecency policy with respect to the broadcasts at issue in the underlying proceedings, but leaving open the possibility that the agency might be able to enforce the prohibition on broadcast indecency in the future. The Third Circuit issued a decision vacating another FCC indecency ruling in November 2011, and the Supreme Court denied the FCC’s request for review of this decision. It is not clear how the FCC will apply these judicial decisions to outstanding complaints, including any that may involve Emmis stations, or how they will impact future FCC policies in this area. The FCC has also solicited public comment on whether, and if so how, to revise its indecency enforcement policies, in a proceeding that remains pending.
Federal law also imposes sponsorship identification (or “payola”) requirements, which mandate the disclosure of information concerning programming that is paid for by third parties. The company has received, and may receive in the future, letters of inquiry or other notifications concerning alleged violations of the sponsorship identification rules at certain of its stations. We cannot predict the outcome of any sponsorship identification complaint proceeding or investigation or the extent or nature of future FCC enforcement actions.
Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, equal employment opportunities, contest and lottery advertisements, and technical operations, including limits on radio frequency radiation.
Failure to observe FCC rules and policies can result in the imposition of various sanctions, including monetary fines, the grant of “short-term” (less than the maximum term) license renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.
ADDITIONAL DEVELOPMENTS AND PROPOSED CHANGES. The FCC has adopted rules implementing a low power FM (“LPFM”) service, and approximately 800 such stations are in operation. In November 2007, the FCC adopted rules that, among other things, enhance LPFM’s interference protection from subsequently-authorized full-service stations. Congress then passed legislation eliminating certain minimum distance separation requirements between full-power and LPFM stations, thereby reducing the interference protection afforded to FM stations. As required by the legislation, the FCC in January 2012 submitted a report to Congress indicating that the results of a statutorily mandated economic study indicated that, on the whole, LPFM stations do not currently have, and in the future are unlikely to have, a demonstrable economic impact on full-service commercial FM radio stations. In March 2012, the FCC modified its rules to permit the processing of additional LPFM applications and to implement the legislative requirements regarding interference protection. The FCC opened a window for the filing of applications seeking authority to construct or make major changes to LPFM facilities which extended from October 15 through November 14, 2013, and in which it received more than 2,800 LPFM applications. The FCC continues to process the applications submitted during the window and, although to date there have been very few, if any, instances of LPFM stations interfering with full-power radio stations, we cannot predict whether any LPFM stations will actually interfere with the coverage of our radio stations in the future.
In June 2009, the FCC adopted rules that allow an AM radio station to use currently authorized FM translator stations to retransmit the AM station’s programming within the AM station’s authorized service area. In October 2015, the FCC issued an Order that adopted a two-stage process for AM radio stations to acquire additional FM translators, which began in early 2016 and is expected to conclude in 2017.translators. The FCC has also adopted certain changes to its rules that govern AM radio stations, and has sought comment on additional changes to those rules. The October 2015 proceeding remainsrules, which remain pending.
The FCC also previously authorized the launch and operation of a satellite digital audio radio service (“SDARS”) system. In July 2008, the two original SDARS companies-Sirius Satellite Radio, Inc. and XM Satellite Radio Holdings, Inc.-merged into
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In October 2002, the FCC issued an order selecting a technical standard for terrestrial digital audio broadcasting (“DAB,” also known as high definition radio or “HD Radio”Radio®”). The in-band, on-channel (“IBOC”) technology chosen by the agency allows AM and FM radio broadcasters to introduce digital operations and permits existing stations to operate on their current frequencies in either full analog mode, full digital mode, or a combination of both (at reduced power). In March 2005, the FCC announced that, pending adoption of final rules, it would allow stations on an interim basis to broadcast multiple digital channels. In March 2007, the FCC adopted service rules for HD Radio®. Significantly, the FCC decided to allow FM stations to broadcast digital multicast streams without seeking prior FCC authority, to provide datacasting services, to lease excess digital capacity to third parties, and to offer subscription services pursuant to requests for experimental authority. Under the newthese rules, FM stations may operate in the “extended hybrid mode,” which provides more flexibility for multicasting and datacasting services; and may use separate analog and digital antennas without seeking prior FCC authority. FM translators, FM boosters and low power FM stations may also broadcast digitally where feasible, and AM stations may now operate digitally during nighttime hours. The new rules mandate that broadcasters offering digital service provide at least one free over-the-air signal comparable in quality to their analog signal and that they simulcast their analog programming on their main digital stream, and prohibit broadcasters from operating exclusively in digital. The FCC declined either to set any mandatory deadline for broadcasters to convert to digital operations or to impose additional public interest obligations (beyond those that already apply to analog broadcasters) on digital broadcasters. The FCC did, however, adopt a Further Notice of Proposed Rulemaking seeking comment on (among other things) whether additional public interest obligations are necessary, including consideration of a requirement that radio stations report their public service programming in detail on a standardized form and post that form and all other contents of their public inspection files on the station’s website. The FCC subsequently imposed an online public file requirement on television stations and, in January 2016, announced that it would extend that requirement to radio stations. In January 2010, the FCC revised its DAB service rules to allow FM DAB stations to increase the permitted power levels of DAB transmissions. In September 2008, shortly after approving the Sirius-XM merger, the FCC sought comment on whether it should mandate the inclusion of HD Radio® features in satellite radio receivers. That proceeding remains pending, and we cannot predict its outcome or the impact that a decision might have on our business.
In order to broadcast musical compositions or to stream them over the Internet, Emmis must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers). These copyright owners often rely on organizations known as performing rights organizations, which negotiate licenses with copyright users for the public performance of their compositions, collect royalties, and distribute them to copyright owners. The three major performing rights organizations, from which Emmis has licenses and to which Emmis pays royalties, are the American Society of Composers, Authors, and Publishers, Broadcast Music, Inc., and SESAC, Inc..Inc. These rates are set periodically, are often negotiated by organizations acting on behalf of broadcasters, and may increase in the future. It also is possible that songwriters or publishers may disassociate with these performing rights organizations, or that additional such organizations could emerge in the future. In 2013 a new performing rights organization, named Global Music Rights ("GMR"(“GMR”), was formed. GMR has obtained the rights to certain high-value copyrights and is seeking to negotiate individual licensing agreements with radio stations for songs within its repertoire. GMR and the Radio Music License Committee, Inc. ("RMLC"(“RMLC”), which negotiates music licensing fees with performance rights organizations on behlafbehalf of many radio stations, have initiated antitrust litigation against one another, which remains pending. In addition, there has been litigation concerning whether the consent decrees between the Department of Justice ("DOJ"(“DOJ”) has recently disagreed with a federal court regarding whether the DOJ's consent decrees withand major performance rights organizations require so-called "full-work"“full-work” licenses (which would allow a license-holder to play all of the works in a performance rights organization'sorganization’s repertoire)., most recently resulting in a ruling by a federal appeals court that they do not. If a significant number of musical composition copyright owners withdraw from the established performing rights organizations, or if new performing rights organizations form to license compositions that are not already licensed, or if the consent decrees between the DOJ and certain major performance rights organizations are eliminated, Emmis’ royalty rates or negotiation costs could increase. Emmis'Emmis’ royalty rates or negotiation costs could also change as a result of GMR/RMLC litigation or the resolution of the full-work licensing issue.
In order to stream music over the Internet, Emmis must also obtain licenses and pay royalties to the owners of copyrights in sound recordings (typically, artists and record companies). These royalties are in addition to royalties for Internet streaming that must also be paid to performance rights organizations. The Copyright Royalty Board (“CRB”) recently completed its proceeding to set ratesa rate for the 2016-2020 license period. The CRB set a rate during this period for performances by non-subscription noninteractive services of 0.17 cent per listener per song, and a rate for noninteractive subscription services of 0.22 cent per listener per song, both of which are subject to changes that mirror changes in the Consumer Price Index. The CRB's 2016-2020A proceeding to establish the rates represent a decrease from the 2015 CRB rates applicablefor 2021-2025 is expected to begin in 2019.
Sound recordings fixed on or after February 15, 1972 are protected by federal copyright law. Sound recording copyright owners have asserted that state law provides copyright protection for recordings fixed before that date (“pre-72 recordings”). Sound recording copyright owners have sued radio broadcasters and other webcasters, but the determination has been appealed.
Legislation also has previously been introduced in Congress that would require the payment of performance royalties to artists, musicians, or record companies whose music is played on terrestrial radio stations, ending a long-standing copyright law exception. If enacted, such legislation could have an adverse impact on the cost of music programming.
Congress and the FCC also have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of additional matters that could, directly or indirectly, affect the operation, ownership and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and/or affect our ability to acquire additional broadcast stations or finance such acquisitions. Such matters include, but are not limited to:
proposals to impose spectrum use or other fees on FCC licensees;
proposals to repeal or modify some or all of the FCC’s multiple ownership rules and/or policies;
proposals to change rules relating to political broadcasting;
technical and frequency allocation matters;
AM stereo broadcasting;
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• | proposals to modify service and technical rules for digital radio, including possible additional public interest requirements for terrestrial digital audio broadcasters; |
proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;
proposals to tighten safety guidelines relating to radio frequency radiation exposure;
proposals permitting FM stations to accept formerly impermissible interference;
proposals to reinstate holding periods for licenses;
changes to broadcast technical requirements related to the implementation of SDARS;
proposals to modify broadcasters’ public interest obligations;
proposals to limit the tax deductibility of advertising expenses by advertisers; and
proposals to regulate violence and hate speech in broadcasts.
We cannot predict whether any proposed changes will be adopted, what other matters might be considered in the future, or what impact, if any, the implementation of any of these proposals or changes might have on our business.
The risk factors listed below, in addition to those set forth elsewhere in this report, could affect the business and future results of the Company. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
Risks Related to our Business
Our results of operations could be negatively impacted by weak economic conditions and instability in financial markets.
We believe that advertising is a discretionary business expense. Spending on advertising tends to decline disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. A recession or downturn in the economy of any individual geographic market, particularly a majorour largest market such as Los Angeles orof New York, also generally hascould have a significant adverse effect on us.
Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector experiences a downturn. If that sector’s spending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may affect our revenue.
Radio revenues in the markets in which we operate have been challenged and may remain so.
Radio revenues in the markets in which we operate have lagged the growth of the general United States economy. Our market revenues, as measured by the accounting firm Miller Kaplan Arase LLP ("(“Miller Kaplan"Kaplan”), during the years ended February 2015, 20162017, 2018 and 20172019 were down 3.7%up 1.7%, down 1.5%0.8%, and up 1.7%down 1.3%, respectively. During this same period, the U.S. Bureau of Economic Analysis reports that U.S. current-dollarreal gross domestic product growth has been 3%approximately 2% to 4%3% each year. Our results of operations could be negatively impacted if radio revenue performance in the markets in which we operate continues to lag general United States economic growth.
We may lose audience share and advertising revenue to competing radio stations or other types of media.
We operate in highly competitive industries. Our radio stations compete for audiences and advertising revenue with other radio stations and station groups, as well as with other media. Shifts in population, demographics, audience tastes, consumer use of technology and forms of media and other factors beyond our control could cause us to lose market share. Any adverse change in a particular market, or adverse change in the relative market positions of the stations located in a particular market, could have a material adverse effect on our revenue or ratings, could require increased promotion or other expenses in that market, and could adversely affect our revenue in other markets. Other radio broadcasting companies may enter the markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenue in the face of such competition.
We routinely conduct market research to review the competitive position of our stations in their respective markets. If we determine that a station could improve its operating performance by serving a different demographic within its market, we may change the format of that station. Our competitors may respond to our actions by more aggressive promotions of their stations or by replacing the format we vacate, limiting our options if we do not achieve expected results with our new format.
From time to time, other stations may change their format or programming, a new station may adopt a format to compete directly with our stations for audiences and advertisers, or stations might engage in aggressive promotional campaigns. These tactics could result in lower ratings and advertising revenue or increased promotion and other expenses and, consequently, lower earnings and cash flow for us. Any failure by us to respond, or to respond as quickly as our competitors, could also have an adverse effect on our business and financial performance. In February 2015, one of our large competitors changed the format of one of its radio stations in the Los Angeles radio market to more directly compete with our radio station in Los Angeles. This development in Los Angeles negatively impacted our financial performance in fiscal 2016 and 2017 and the early months of fiscal 2018. On May 8, 2017, we entered into an agreement to sell our radio station in Los Angeles, subject to certain regulatory approvals and closing conditions.
Because of the competitive factors we face, we cannot assure investors that we will be able to maintain or increase our current audience ratings and advertising revenue.
Our radio operations in New York, and Los Angeles, including the LMA fee we receive from a subsidiary of Disney, accounted for approximately 50% of our radio revenues in fiscal 2017.2019. Our results from operations can be materially affected by decreased ratings or resulting revenuesfor our stations in either one of these markets. On May 8, 2017, we entered into an agreement to sell our radio stationNew York, which could result in Los Angeles, subject to certain regulatory approvals and closing conditions. Our exposure to the Los Angeles radio market will be eliminated if we are able to close this transaction, as expected,revenue declines for us in the back half of 2017.
Our radio operations lack the scale of some of our competitors, especially in the New York and Los Angeles markets.
We currently own one station in Los Angeles and four stations in New York, one of which is being programmed by another broadcaster under the terms of an LMA. Some of our competitors in these marketsthis market have larger clusters of radio stations. Our competitors may be able to leverage their market share to extract a greater percentage of available advertising revenues in these marketsthis market and may be able to realize operating efficiencies by programming multiple stations in athe market. Also, given our reliance on urban formats in each of these markets,New York, our results from operations can be materially affected by additional urban format competition by our competitors. On May 8, 2017, we entered into an agreement
Future operation of our business may require significant additional capital.
The continued development, growth and operation of our businesses may require substantial capital. In particular, our emerging technologies, principally consisting of Digonex, are not currently profitable and need additional capital to sellfund their operations. Furthermore, any acquisitions may require large amounts of capital. We intend to fund our radio station in Los Angeles,growth, including our emerging technologies and acquisitions, if any, with cash generated from operations and asset sales, and proceeds from future issuances of debt and equity, both public and private. Currently, our long-term debt agreements substantially limit our ability to make acquisitions. Our ability to raise additional debt or equity financing is subject to certain regulatory approvalsmarket conditions, our financial condition and closing conditions. Our exposureother factors. If we cannot obtain financing on acceptable terms when needed, our results of operations, ability to the Los Angeles radio market willfund our emerging technologies, and financial condition could be eliminated if we are able to close this transaction, as expected, in the back half of 2017.
We must respond to the rapid changes in technology, services and standards that characterize our industry in order to remain competitive, and changes in technology may increase the risk of material intellectual property infringement claims.
The radio broadcasting industry is subject to rapid technological changes, evolving industry standards and the emergence of competition from new technologies and services. We cannot assure that we will have the resources to acquire new technologies or to introduce new services that could compete with these new technologies. Various media technologies and services that have been developed or introduced include:
satellite-delivered digital audio radio service, which has resulted in subscriber-based satellite radio services with numerous niche formats;
audio programming by cable systems, direct-broadcast satellite systems, Internet content providers and other digital audio broadcast formats;formats, including podcasts;
personal digital audio devices;
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HD Radio®, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and |
low-power FM radio, which could result in additional FM radio broadcast outlets, including additional low-power FM radio signals authorized in December 2010 under the Local Community Radio Act.
New media has resulted in fragmentation in the advertising market, but we cannot predict the impact that additional competition arising from new technologies may have on the radio broadcasting industry or on our financial condition and results of operations. We also cannot ensure that our investments in HD Radio®, TagStation®, NextRadio® and other technologies will produce the desired returns.
A number of automakers are introducing more advanced, interactive dashboard technology including the introduction of technologies like Apple CarPlay and Google Android Auto that enable vehicle entertainment systems to more easily interface with a consumer’s smartphone and include alternative audio entertainment options.
Programmatic buying, which enables an advertiser to purchase advertising inventory through an exchange or other service and bypass the traditional personal sales relationship, has become widely adopted in the purchase of digital advertising and is an emerging trend in the radio industry. We cannot predict the impact programmatic buying may have on the radio industry or our financial condition and results of operations.
Additionally, technological advancements in the operation of radio stations and related businesses have increased the number of patent and other intellectual property infringement claims brought against broadcasters, including Emmis. While Emmis has not historically been subject to material patent and other intellectual property claims and takes certain steps to limit the likelihood of, and exposure to, such claims, no assurance can be given that material claims will not be asserted in the future.
Our business depends heavily on maintaining our licenses with the FCC. We could be prevented from operating a radio station if we fail to maintain its license.
The radio broadcasting industry is subject to extensive and changing regulation. The Communications Act and FCC rules and policies require FCC approval for transfers of control and assignments of FCC licenses. The filing of petitions or complaints against FCC licensees could result in the FCC delaying the grant of, or refusing to grant, its consent to the assignment of licenses to or from an FCC licensee or the transfer of control of an FCC licensee. In certain circumstances, the Communications Act and FCC rules and policies will operate to impose limitations on alien ownership and voting of our common stock. There can be no assurance that there will be no changes in the current regulatory scheme, the imposition of additional regulations or the creation of new regulatory agencies, which changes could restrict or curtail our ability to acquire, operate and dispose of stations or, in general, to compete profitably with other operators of radio and other media properties.
Each of our radio stations operates pursuant to one or more licenses issued by the FCC. Under FCC rules, radio licenses are granted for a term of eight years. Our licenses expire at various times through June 2022. Although we will apply to renew these licenses, third parties may
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challenge our renewal applications. While we are not aware of facts or circumstances that would prevent us from having our current licenses renewed, there can be no assurance that the licenses will be renewed or that renewals will not include conditions or qualifications that could adversely affect our business and operations. Failure to obtain the renewal of any of our broadcast licenses may have a material adverse effect on our business and operations. In addition, if we or any of our officers, directors or significant stockholders materially violates the FCC’s rules and regulations or the Communications Act, is convicted of a felony or is found to have engaged in unlawful anticompetitive conduct or fraud upon another government agency, the FCC may, in response to a petition from a third party or on its own initiative, in its discretion, commence a proceeding to impose sanctions upon us which could involve the imposition of monetary fines, the revocation of our broadcast licenses or other sanctions. If the FCC were to issue an order denying a license renewal application or revoking a
We disseminate large amounts of its indecency rules againstcontent to the broadcast industry, whichpublic. An ill-conceived or mistimed on-air statement or social media post could have a material adverse effect on our business.
The FCC’s rules prohibit the broadcast of obscene material at any time and prohibit indecent material between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition on the broadcast of indecent material because of the FCC’s broad definition of such material, coupled with the spontaneity of live programming.
Congress has dramatically increased the penalties for broadcasting obscene, indecent or profane programming and broadcasters can potentially face license revocation, renewal or qualification proceedings in the event that they broadcast indecent material. In addition, the FCC’s heightened focus on indecency, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. As a result of these developments, we have implemented certain measures that are designed to reduce the risk of broadcasting indecent material in violation of the FCC’s rules. These and other future modifications to our programming in an effort to reduce the risk of indecency violations could have an adverse effect on our competitive position.
Even statements or social media posts that do not violate the FCC’s indecency rules could offend our audiences and advertisers or infringe the rights of third parties, resulting in a decline in ratings, a loss in revenues, a challenge to our broadcast licenses, or extended litigation. While we maintain insurance covering some of these risks, others are effectively uninsurable and could have a material adverse effect on our results from operations and financial condition.
Any changes in current FCC ownership regulations may negatively impact our ability to compete or otherwise harm our business operations.
The FCC is required to review all of its broadcast ownership rules every four years and to repeal or modify any of its rules that are no longer “necessary in the public interest.” We cannot predict the impact of these reviews on our business or their effect on our ability to acquire broadcast stations in the future or to continue to own and freely transfer stations that we have already acquired.
In 2003, we acquired a controlling interest in five FM stations and one AM station in the Austin, Texas market. Under ownership regulations released after the date of our acquisition, it appears that we would be permitted to own or control only four FM stations in the Austin market (ownership of one AM station would continue to be allowed). The new rules do not require divestiture of existing non-conforming station combinations, but do provide that such clusters may be transferred only to defined small business entities or to buyers that commit to selling any excess stations to such entities within one year.
Consequently, if we wish to sell our interest in the Austin stations, we will likely haveneed to obtain a waiver from the current ownership regulations, or we will need to either sell to an entity that meets those FCC requirements or exclude at least one FM station from the transaction.
Changes in current Federal regulations could adversely affect our business operations.
Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress is considering a revocation of radio’s exemption from paying royalties to performing artists for use of their recordings (radio already pays a royalty to songwriters). A requirement to pay additional royalties could have an adverse effect on our business operations and financial performance.
Our business strategy and our ability to operate profitably depend on the continued services of our key employees, the loss of whom could have a material adverse effect on our business.
Our ability to maintain our competitive position depends to a significant extent on the efforts and abilities of our senior management team and certain key employees. Although our executive officers are typically under employment agreements, their managerial, technical and other services would be difficult to replace if we lose the services of one or more of them or other key personnel. Our business could be seriously harmed if one of them decides to join a competitor or otherwise competes directly or indirectly against us.
Our radio stations employ or independently contract with several on-air personalities and hosts of syndicated radio programs with large and loyal audiences in their respective broadcast areas. These on-air personalities are sometimes significantly responsible for the ranking of a station and, thus, the ability of the station to sell advertising. Such on-air personalities or other key individuals may not remain with our radio stations and we may not retain their audiences, which could affect our competitive position.
Impairment losses related to our intangible assets have reduced our earnings.
We have reported significant net losses in our consolidated statement of operations in the past as a result of recording noncash impairment charges, mostly related to FCC licenses and goodwill. During the years ended February 28, (29), 2015, 20162017, 2018 and 2017,2019, we incurred impairment losses related to our intangible assets of $67.9$9.8 million, $9.5$0.3 million, and $9.8$0.3 million, respectively. As of February 28, 2017,2019, our FCC licenses and
14
goodwill comprise 70%74% of our total assets. If events occur or circumstances change, that would reduceor even if radio valuations trend downward, the fair value of theour FCC licenses and goodwill might fall below the amount reflected on theour balance sheet, and we may be required to recognize impairment charges, which may be material, in future periods.
We may fail to realize any benefits and incur unanticipated losses related to any acquisition.
The success of our strategic acquisitions will depend, in part, on our ability to successfully integrate the acquired assets with our existing assets.business. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers and employees or to achieve the anticipated benefits of the acquisition. Successful integration may also be hampered by any differences between the operations and corporate culture of the two organizations. If we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues from the acquired business.
We may fail to consummate dispositions or complete them in a timely manner.
We regularly review our portfolio of assets and periodically dispose of assets when we believe it is appropriate to do so. In that respect, on August 19, 2016, we announced that we wereWe are exploring strategic alternatives for our publishing division (except
Our operating results have been and may again be adversely affected by acts of war, terrorism and natural catastrophes.
Acts of war and terrorism against the United States, and the country’s response to such acts, may negatively affect the U.S. advertising market, which could cause our advertising revenues to decline due to advertising cancellations, delays or defaults in payment for advertising time, and other factors. In addition, these events may have other negative effects on our business, the nature and duration of which we cannot predict.
For example, after the September 11, 2001 terrorist attacks, we decided that the public interest would be best served by the presentation of continuous commercial-free coverage of the unfolding events on our stations. This temporary policy had a material adverse effect on our advertising revenues and operating results for the month of September 2001. Future events like those of September 11, 2001 may cause us to adopt similar policies, which could have a material adverse effect on our advertising revenues and operating results.
Additionally, the attacks on the World Trade Center on September 11, 2001 resulted in the destruction of the transmitter facilities that were located there. Although we had no transmitter facilities located at the World Trade Center, broadcasters that had facilities located in the destroyed buildings experienced temporary disruptions in their ability to broadcast. Since we tend to locate transmission facilities for stations serving urban areas on tall buildings or other significant structures, such as the Empire State Building in New York, further terrorist attacks or other disasters could cause similar disruptions in our broadcasts in the areas affected. If these disruptions occur, we may not be able to locate adequate replacement facilities in a cost-effective or timely manner or at all. Failure to remedy disruptions caused by terrorist attacks or other disasters and any resulting degradation in signal coverage could have a material adverse effect on our business and results of operations.
Similarly, hurricanes, floods, tornadoes, earthquakes, wild fires and other natural disasters can have a material adverse effect on our operations in any given market. While we generally carry insurance covering such catastrophes, we cannot be sure that the proceeds from such insurance will be sufficient to offset the costs of rebuilding or repairing our property or the lost income.
We have significant obligations relating to our current operating leases.
In February 2016, the Financial Accounting Standards Board released Accounting Standards Update 2016-02, Leases (Topic 842) ("(“ASU 2016-02"2016-02”). This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
As of February 28, 2017,2019, we had operating lease commitments of approximately $58.4$38.1 million. These leases are classified as operating leases and disclosed in Note 11 to our accompanying consolidated financial statements. Currently, operating leases are classified as off-balance sheet transactions and only the current year operating lease expense is accounted for in the consolidated statementsUpon adoption of operations as rent expense. All of our leases classified as operating leases require us to make certain estimates at the inception of the lease in order to determine whether the lease is operating or capital. ASU 2016-02, requires that substantiallythe Company recognized all operating leases be recognized as assets (the right to use the leased property) and liabilities (the present value of future lease payments). This guidance will be effective for the Company as of March 1, 2019 and requires a modified retrospective implementation. When adopted, ASU 2016-02 will result in an increase in theThe assets and liabilities reflected on our consolidated balance sheets.
Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
The proper functioning of our internal business processes and information systems is critical to the efficient operation and management of our business. If these information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable to supportadapt to the future growthsize of our business and may require modifications or upgrades that expose us to a number of operational risks. Our information technology systems, and those of third party providers, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic intrusions, unauthorized access and cyber-attacks. Any material disruption, malfunction or similar challenges with our business processes or information systems, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on our financial position, results of operations and cash flows.
15
Because of our holding company structure, we depend on our subsidiaries for cash flow, and our access to this cash flow is restricted.
We operate as a holding company. All of our radio stations and other assets are currently owned and operated by our subsidiaries. Emmis Operating Company (“EOC”), our wholly-owned subsidiary, is the borrower under our credit facility.secured indebtedness. All of our station and other operating subsidiaries and FCC license subsidiaries are subsidiaries of EOC. Further, we guarantee EOC’s obligations under the credit facilityour secured indebtedness and substantially alla significant portion of EOC’s assets are pledged as collateral under the credit facility.our secured indebtedness. As a holding company, our only source of cash to pay our obligations, including corporate overhead expenses, is cash distributed from our subsidiaries. We currently expect that the majority of the net earnings and cash flow of our subsidiaries will be retained and used by them in their operations, including servicing their debt obligations. Even if our subsidiaries elect to make distributions to us, we cannot be assured that applicable state law and contractual restrictions, including covenants contained in our credit facility,secured indebtedness, would permit such dividends or distributions.
Risks Related to our Indebtedness:
Our substantial indebtedness could adversely affect our financial health.
We have a significant amount of indebtedness. At February 28, 2017,May 1, 2019, our total indebtedness was $221.0$82.5 million, consisting of $152.2$22.9 million under our 2014 Credit Agreement, $60.0mortgage debt, $45.6 million of 98.7FM nonrecourse debt, and $8.8$10.1 million of other nonrecourse debt and $3.9 million of term loan debt. The Company expects that proceeds from the LMA in New York with a subsidiary of Disney will be sufficient to pay all debt service related to the 98.7FM nonrecourse debt. Our shareholders’ deficit was $36.9 million. Our substantial indebtedness could have important consequences to investors. For example, it could:
o |
make it more difficult for us to satisfy our obligations with respect to our indebtedness;
increase our vulnerability to generally adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
result in higher interest expense in the event of increases in interest rates because some of our debt is at variable rates of interest;
limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
place us at a competitive disadvantage compared to some of our competitors that have less debt; and
limit, along with the financial and other restrictive covenants in our 2014 Credit Agreement,credit agreements, our ability to borrow additional funds.funds or make acquisitions.
If we cannot continue to comply with the financial covenants in our debt instruments, or obtain waivers or other relief from our lenders, we may default, which could result in loss of our sources of liquidity and acceleration of our indebtedness.
We have a substantial amount of indebtedness, and the instruments governing such indebtedness contain restrictive financial covenants. Our ability to comply with the covenants in our debt instruments will depend upon our future performance and various other factors, such as business, competitive, technological, legislative and regulatory factors, some of which are beyond our control. We may not be able to maintain compliance with all of these covenants. In that event, we would need to seek an amendment to our debt instruments, or would need to refinance our debt instruments. There can be no assurance that we can obtain future amendments or waivers of our debt instruments, or refinance our debt instruments and, even if so, it is likely that such relief would only last for a specified period, potentially necessitating additional amendments, waivers or refinancings in the future. In the event that we do not maintain compliance with the covenants under our debt instruments, the lenders could declare an event of default, subject to applicable notice and cure provisions, resulting in a material adverse impact on our financial position. Upon the occurrence of an event of default under our debt instruments, the lenders could elect to declare all amounts outstanding under our 2014 Credit Agreementcredit agreements to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. Our lenders under our 2014 Credit Agreement have taken security interests in substantially all of our consolidated assets. If the lenders accelerate the repayment of borrowings, we may be forced to liquidate certain assets to repay all or part of our debt instruments, and we cannot be assured that sufficient assets will remain for us to continue our business operations after we have paid all of the borrowings under our debt instruments. Our ability to liquidate assets is affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may make the market for these assets less liquid and increase the chances that these assets will be liquidated at a significant loss.
Our 98.7FM debt is not subject to these risks to the same degree as the debt under our 2014 Credit Agreement,other long-term debt agreements, as certain rights and payments under the 98.7FM LMA have been assigned to the holder of the 98.7FM debt, the 98.7FM debt is generally nonrecourse to the rest of Emmis, and the LMA payments have been guaranteed by Disney Enterprises, Inc.
The terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take some actions.
Our debt instruments impose significant operating and financial restrictions on us. These restrictions significantly limit or prohibit, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends, enter into asset purchase or sale transactions, merge or consolidate with another company, dispose of all or substantially all of our assets or make certain other payments or investments.
These restrictions currently limit our ability to grow our business through acquisitions and could limit our ability to respond to market conditions or meet extraordinary capital needs. They also could restrict our corporate activities in other ways. These restrictions could adversely affect our ability to finance our future operations or capital needs.
16
To service our indebtedness and other obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our 2014 Credit Agreement, as amended, requireslong-term debt agreements require us to repay approximately $12.1 million of our term notes in fiscal 2018pay periodic interest and $4.7 million annually thereafter until maturity in addition to periodic interestprincipal payments. Our ability to make payments on our indebtedness and to fund capital expenditures will depend on our ability to generate cash in the future. This ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our businesses might not generate sufficient cash flow from operations. We might not be able to complete future offerings, and future borrowings might not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
Risks Related to our Common Stock:
One shareholder controls a majority of the voting power of our common stock, and his interest may conflict with those of other shareholders.
As of May 5, 2017,3, 2019, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey H. Smulyan, beneficially owned shares representing approximately 51.6%52.0% of the outstanding combined voting power of all classes of our common stock, as calculated pursuant to Rule 13d-3 of the Exchange Act. He therefore is in a position to exercise substantial influence over the outcome of most matters submitted to a vote of our shareholders, including the election of a majority of our directors.
The difficulties associated with any attempt to gain control of our company could adversely affect the price of our Class A common stock.
Jeffrey H. Smulyan has substantial influence over the decision as to whether a change in control will occur for our company. There are also provisions contained in our articles of incorporation, by-laws and Indiana law that could make it more difficult for a third party to acquire control of Emmis. In addition, FCC approval for transfers of control of FCC licenses and assignments of FCC licenses are required. These restrictions and limitations could adversely affect the trading price of our Class A common stock.
Our stock price and trading volume could be volatile.
Our Class A common stock is currently listed on the National Association of Securities Dealers Automated Quotation ("Nasdaq"(“Nasdaq”) Global Select Market under the symbol “EMMS.” The market price of our Class A common stock and our trading volume have been subject to fluctuations since our initial public offering in 1994. Accordingly, the market price of our Class A common stock could experience volatility, regardless of our operating performance.
Our Class A common stock may cease to be listed on the Nasdaq Global Select Market.
Our common stock is currently listed on the Nasdaq Global Select Market under the symbol “EMMS.” We may not be able to meet the continued listing requirements of the Nasdaq Global Select Market, which require, among other things, a minimum closing price of our common stock and a minimum market capitalization. In the past, we have received written deficiency notices from The Nasdaq Stock Market advising us that the closing bid price of our Class A common stock did not meet the continued listing requirements pursuant to NASDAQ Listing Rule 5450(a)(1). In each of these instances, we were able to satisfy the requirements for continued listing. If we are unable to satisfy the requirements of the Nasdaq Global Select Market for continued listing, our common stock would be subject to delisting from that market, and we might or might not be eligible to list our shares on another Nasdaq market.
A delisting of our Class A common stock from the Nasdaq Global Select Market could negatively impact us by, among other things, reducing the liquidity and market price of our common stock. There can be no assurance that we will be able to comply with the Minimum Bid Price Rule, or any other requirement in the future.
None.
The types of properties required to support each of our radio stations include offices, studios and transmitter/antenna sites. We typically lease our studio and office space, although we do own some of our facilities. Most of our studio and office space leases contain lease terms with expiration dates of five to fifteen years. A station’s studios are generally housed with its offices in downtown or business districts. We generally consider our facilities to be suitable and of adequate size for our current and intended purposes. We own several of our main transmitter/antenna sites and lease the remainder of our transmitter/antenna sites with lease terms that generally range from five to twenty years. The transmitter/antenna site for each station is generally located so as to provide maximum market coverage, consistent with the station’s FCC license. In general, we do not anticipate difficulties in renewing facility or transmitter/antenna site leases or in leasing additional space or sites if required. We have approximately $58.4$38.1 million in aggregate minimum rental commitments under real estate leases. Many of these leases contain escalation clauses such as defined contractual increases or cost-of-living adjustments.
Our principal executive offices are located at 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, in approximately 91,500115,000 square feet of owned office space which is shared by our Indianapolis radio stations and our
We own substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by our stations are generally in good condition, although opportunities to upgrade facilities are periodically reviewed.
The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company.
Emmis filed suit against Illinois National Insurance Company (“INIC”) in 2015 related to INIC’s decision to not cover Emmis’ defense costs under Emmis’ directors and officers insurance policy in a lawsuit related to the Company’s preferred stock in which Emmis was the defendant (the “Prior Litigation”). On March 21, 2018, Emmis was granted summary judgment entitling it to coverage of its defense costs in the Prior Litigation. On October 10, 2018, Emmis and INIC agreed that the amount of Emmis’ damages are $3.5 million. On November 7, 2018, INIC appealed the District Court’s summary judgment determination that the insurance policy covers Emmis’ defense costs. The United States Court of Appeals for the Seventh Circuit is certain information aboutscheduled to hear oral arguments by both parties on May 30, 2019. Accordingly, Emmis cannot estimate the executive officers of Emmisamount or its affiliates who are not directors or nominees to be directors.
| NAME | POSITION | AGE AT FEBRUARY 28, 2017 | YEAR FIRST ELECTED OFFICER | ||
| Paul V. Brenner | President - TagStation / NextRadio | 48 | 2007 | ||
| J. Scott Enright | Executive Vice President, General Counsel and Secretary | 54 | 1998 | ||
| Ryan A. Hornaday | Executive Vice President, Chief Financial Officer and Treasurer | 43 | 2006 | ||
| Gregory T. Loewen | President - Publishing Division and Chief Strategy Officer | 45 | 2007 | ||
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION FOR OUR COMMON STOCK
Emmis’ Class A common stock is traded in the over-the-counter market and is quoted on the Nasdaq Global Select Market under the symbol EMMS. There is no established public trading market for Emmis’ Class B common stock or Class C common stock. On July 8, 2016, we effected a one-for-four reverse stock split for all classes of our common stock.
| QUARTER ENDED | HIGH | LOW | |||||
| May 2015 | $ | 8.52 | $ | 4.16 | |||
| August 2015 | $ | 5.96 | $ | 3.96 | |||
| November 2015 | $ | 5.76 | $ | 2.44 | |||
| February 2016 | $ | 3.24 | $ | 1.72 | |||
| May 2016 | $ | 2.76 | $ | 1.92 | |||
| August 2016 | $ | 4.33 | $ | 2.20 | |||
| November 2016 | $ | 4.17 | $ | 3.22 | |||
| February 2017 | $ | 3.68 | $ | 2.76 | |||
HOLDERS
At May 5, 2017,3, 2019, there were 511 record2,403 beneficial holders of the Class A common stock, and there was one recordbeneficial holder of the Class B common stock.
DIVIDENDS
Emmis currently intends to retain future earnings for use in its business and has no plans to pay any dividends on shares of its common stock in the foreseeable future. Emmis’ 2014 Credit Agreementrevolving credit agreement sets forth certain restrictions on our ability to pay dividends. See Note 5 to the accompanying consolidated financial statements for more discussion of the 2014 Credit Agreement.
SHARE REPURCHASES
During the three-month period ended February 28, 2017,2019, there was withholding of shares of common stock upon vesting of restricted stock to cover withholding tax obligations. The following table provides information on our repurchases during the three months ended February 28, 2017:2019:
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid Per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| (d) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in 000’s) |
| ||||
Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2018 - December 31, 2018 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
January 1, 2019 - January 31, 2019 |
|
| 14,683 |
|
| $ | 3.95 |
|
|
| — |
|
| $ | — |
|
February 1, 2019 - February 28, 2019 |
|
| 37,981 |
|
| $ | 3.84 |
|
|
| — |
|
| $ | — |
|
|
|
| 52,664 |
|
|
|
|
|
|
| — |
|
|
|
|
|
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in 000’s) | |||||||||
| Class A Common Stock | |||||||||||||
| December 1, 2016 - December 31, 2016 | — | $ | — | — | $ | — | |||||||
| January 1, 2017 - January 31, 2017 | 24,462 | $ | 3.16 | — | $ | — | |||||||
| February 1, 2017 - February 28, 2017 | 11,411 | $ | 2.77 | — | $ | — | |||||||
| 35,873 | — | ||||||||||||
As a smaller reporting company, we are not required to provide this information.
GENERAL
The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively, “Emmis” or the “Company”).
We principally own and operate radio properties located in the United States. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales represent approximately 70%two-thirds 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. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter
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 preempt advertising spots paid for in cash with advertising spots paid for in trade.
The following table summarizes the sources of our revenues for the past three years. 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 related to our TagStation and Digonex businesses, network revenues and barter. During the three year period ended February 28, 2019, we sold all of our city and regional magazines with the exception of Indianapolis Monthly. We also sold
|
| Years Ended February 28, |
| |||||||||||||||||||||
|
| 2017 |
|
| % of Total |
|
| 2018 |
|
| % of Total |
|
| 2019 |
|
| % of Total |
| ||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
| $ | 121,841 |
|
|
| 56.8 | % |
| $ | 81,949 |
|
|
| 55.2 | % |
| $ | 62,441 |
|
|
| 54.7 | % |
National |
|
| 21,706 |
|
|
| 10.1 | % |
|
| 16,261 |
|
|
| 11.0 | % |
|
| 10,472 |
|
|
| 9.2 | % |
Political |
|
| 2,163 |
|
|
| 1.0 | % |
|
| 457 |
|
|
| 0.3 | % |
|
| 1,684 |
|
|
| 1.5 | % |
Publication Sales |
|
| 4,193 |
|
|
| 2.0 | % |
|
| 412 |
|
|
| 0.3 | % |
|
| 384 |
|
|
| 0.3 | % |
Non Traditional |
|
| 22,936 |
|
|
| 10.7 | % |
|
| 17,280 |
|
|
| 11.6 | % |
|
| 12,897 |
|
|
| 11.3 | % |
Interactive |
|
| 14,737 |
|
|
| 6.9 | % |
|
| 10,058 |
|
|
| 6.8 | % |
|
| 5,500 |
|
|
| 4.8 | % |
LMA Fees |
|
| 10,331 |
|
|
| 4.8 | % |
|
| 10,752 |
|
|
| 7.2 | % |
|
| 11,050 |
|
|
| 9.7 | % |
Other |
|
| 16,661 |
|
|
| 7.7 | % |
|
| 11,318 |
|
|
| 7.6 | % |
|
| 9,703 |
|
|
| 8.5 | % |
Total net revenues |
| $ | 214,568 |
|
|
|
|
|
| $ | 148,487 |
|
|
|
|
|
| $ | 114,131 |
|
|
|
|
|
| Years ended February 28 (29), | ||||||||||||||||||||
| 2015 | % of Total | 2016 | % of Total | 2017 | % of Total | |||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Local | $ | 136,283 | 57.3 | % | $ | 130,486 | 56.4 | % | $ | 121,841 | 56.8 | % | ||||||||
| National | 29,793 | 12.5 | % | 26,994 | 11.7 | % | 21,706 | 10.1 | % | |||||||||||
| Political | 1,434 | 0.6 | % | 661 | 0.3 | % | 2,163 | 1.0 | % | |||||||||||
| Publication Sales | 6,076 | 2.6 | % | 5,612 | 2.4 | % | 4,193 | 2.0 | % | |||||||||||
| Non Traditional | 23,810 | 10.0 | % | 25,683 | 11.1 | % | 22,936 | 10.7 | % | |||||||||||
| Interactive | 12,894 | 5.4 | % | 13,223 | 5.7 | % | 14,737 | 6.9 | % | |||||||||||
| LMA Fees | 10,331 | 4.3 | % | 10,331 | 4.5 | % | 10,331 | 4.8 | % | |||||||||||
| Other | 17,317 | 7.3 | % | 18,443 | 7.9 | % | 16,661 | 7.7 | % | |||||||||||
| Total net revenues | $ | 237,938 | $ | 231,433 | $ | 214,568 | ||||||||||||||
A significant portion of our expenses varies in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, syndicated programming fees, utilities, office expenses and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
The U.S. radio industry is a mature industry and its growth rate has stalled. Management believes this is principally the result of two factors: (1) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.
Along with the rest of the radio industry, the majority of our stations have deployed HD Radio
®. HD Radio offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. 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 uses to transmit location-based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the markets in which we operate.The Company has also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, harnessing the power of digital video on our websites and YouTube channels, and delivering real-time traffic to navigation devices.
The results of our radio operations are heavily dependent on the results of our stations in the New York and Los Angeles markets. These marketsmarket, which account for approximately 50% of our radio net revenues. Our acquisition of WBLS-FM and WLIB-AM in New York in fiscal 2015 enhanced our ability to adapt to competitive environment shifts in that market, but our single station in the Los Angeles market, KPWR-FM, has less ability to adapt. Furthermore, someSome of our competitors that operate larger station clusters in the New York and Los Angelesmarket are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates and may be able to realize operating efficiencies by programming multiple stations in these markets. In February 2015, one of our large competitors changed the format of one of its radio stations in the Los Angeles radio market to more directly compete with our radio station in Los Angeles. In addition, the new station hired our former KPWR-FM morning radio host to be its morning radio host. This development in Los Angeles negatively impacted our financial performance in fiscal 2016 and 2017, as well as the early months of fiscal 2018. On May 8, 2017, we entered into an agreement to sell our radio station in Los Angeles, subject to certain regulatory approvals and closing conditions.
20
accounting firm used by the radio industry to compile revenue information, were up 3.3% and 0.2%, respectively,down 2.0% for the twelve months ended February 28, 2017,2019, as compared to the same period of the prior year. However, during the sameDuring this period, revenues for our station in Los Angeles, KPWR-FM, and ourNew York cluster were down 3.4%. Our underperformance in New York both lagged their respective market performance. As discussed above, KPWR-FM has been adversely affected bywas largely attributable to lower ticket sales revenue for our largest concert, Summer Jam. Poor weather on the introductionday of a format competitor. Our New York operations werethe concert negatively impacted by severe weather at our largest outdoor concert in June 2016, as well as intensifying competition for transactional business in the local market. We have made changes in our local sales organization in New York to derive more local, direct business and reduce our reliance on transactional, agency business.
As part of our business strategy, we continually evaluate potential acquisitions of radio stations, publishing properties and other businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, Emmis' 2014 Credit AgreementEmmis’ long-term debt agreements substantially limitslimit our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so. In that respect, on August 19, 2016,over the past three fiscal years we announced that we were exploring strategic alternatives for our publishing division (except
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially derive materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.
Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of delivery of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue and upon delivery of the publication for publication revenue. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
FCC Licenses and Goodwill
We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses and goodwill assets. As of February 28, 2017,2019, we have recorded approximately $202.3$174.9 million in goodwill and FCC licenses, which represents approximately 70%74% of our total assets.
In the case of our 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. We consider our FCC licenses to be indefinite-lived intangibles.
We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by Accounting Standards Codification (“ASC”) Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster.
We complete our annual impairment tests on December 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be 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. To determine the fair value of our FCC licenses, the Company uses an income valuation method when it performs its impairment tests. Under this method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market 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 commenced operations at the beginning of the valuation period. 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. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take current economic conditions into consideration.
Below are some of the key assumptions used in our annual impairment assessments. In recent years, we have reduced long-term growth rates in the markets in which we operate based on recent industry trends and our expectations for the markets going forward. The methodology used to value our FCC licenses has not changed in the three-year period ended February 28, 2017.
December 1, 2016 | December 1, 2017 | December 1, 2018 | |||||||
Discount Rate | 12.2% - 12.5% | 12.1% - 12.4% | 11.9% - 12.3% | ||||||
Long-term Revenue Growth Rate | 1.0% - 2.0% | 1.0% - 1.8% | 0.3% - 1.0% | ||||||
Mature Market Share | 3.1% - 30.4% | 12.7% - 31.1% | 12.9% - 30.2% | ||||||
Operating Profit Margin | 25.1% - 39.1% | 27.0% - 39.1% | 26.0% - 38.0% |
21
The Company has recorded impairment charges related to FCC licenses in eachtwo of the past three years. Impairment charges recognized as part of our December 1, 2014, 20152016 and 20162018 annual testing were $9.5 million, $5.4$6.9 million and $6.9$0.3 million, respectively. These impairments were mostly related to declining market revenues combined with lowered expectations for future long-term revenue growth rates as noted in the table above.
Valuation of Goodwill
ASC Topic 350350-20-35 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.annually. The Company conducts the two-stepits 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 Company’s reporting units (radio stations grouped by market, excluding any stations that are being operated pursuant to an LMA, and magazines on an individual basis)LMA). 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 well as recent market transactions as a benchmark for the multiple it applies to its radio reporting units. 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 or analyst reports that include valuations of magazine divisions within publicly traded media conglomerates. For the annual assessment performed as of December 1, 2016,2018, the Company applied a market multiple of 8.0 times the reporting unit’s operating performance for our radio reporting units. As of December 1, 2016, all of the Company's goodwill related to our radio reporting units, so no assessment of goodwill impairment for our publishing reporting units was required.performance. Management believes this methodology for valuing radio properties is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons and market transactions, including our own recent transactions. To corroborate the step-one reporting unit fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit.
The methodology usedCompany adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment as of March 1, 2017. Prior to value our goodwill has not changed inMarch 1, 2017, the three-year periodCompany performed a two-step impairment test for goodwill. Goodwill impairment recorded during the year ended February 28, 2017.
The Company used an income approach to determine the enterprise value of Digonex. Digonex is a dynamic pricing business that does not have well-established industry trading multiples, analyst estimates of valuations, or recently completed transactions that would indicate fair values of these businesses. As such, the Company wrote off $58.4 millionused a discounted cash flow method to determine the fair value of goodwill associated with our WBLS-FM and WLIB-AM radio stations in New York. We began programming these stations on March 1, 2014 pursuant to an LMA and completed our first closing of the stations on June 10, 2014, with the second closing on February 13, 2015. We accounted for the acquisition of the stations as a purchase in June 2014. According to Miller Kaplan, gross revenues for the New York radio market were down 7.0% during fiscal 2015, which was significantly below our expectations for the year. Although our New York cluster outperformed the market for the year, financial performance at the newly acquired stations did not meet the expectations of management and resulted in a step-one indication of impairment on both the market and income approaches. Upon completing the step-two analysis, the Company determined that the full carrying amount of our New York cluster goodwill of $58.4 million, all of which related to our acquisition of WBLS-FM and WLIB-AM, was impaired.
During the quarter ended August 31, 2016, the Company lowered its growth expectations for Digonex for the next several years due to slow client adoption of dynamic pricing services. While the Company continues to believe in the long-term growth prospects of Digonex, the lengthy sales cycle has caused Digonex to perform below expectations to date. Despite lowering near-term growth expectations for Digonex in connection with our annual impairment review for fiscal 2016, which led to a goodwill impairment charge of $0.7 million as discussed above, performance in the first six months of fiscal 2017 indicated that a further revision was appropriate. Our then-current projections assumed that Digonex would generate cash flow losses in the short and medium-term. The combination of lower-than-expected current period results, coupled with downward revisions to future revenue projections, resulted in an impairment indicator that caused the Company to assess goodwill and related intangibles on an interim basis during the quarter ended August 31, 2016. The Company'sCompany’s discounted cash flow analysis for Digonex indicated a nominal enterprise value. Therefore, in connection with the interim impairment test, Emmis determined that Digonex'sDigonex’s goodwill was fully impaired and recorded an impairment loss of $2.1 million.
During our December 2017 annual goodwill impairment test, the Company wrote off $0.3 million of goodwill associated with our Indianapolis radio cluster. Weak ratings and declining market revenues significantly impacted our operating performance in Indianapolis. This resulted in the carrying value of our Indianapolis radio cluster exceeding its estimated fair value by more than the amount of goodwill we had recorded for the cluster on the assessment date. As such, the Company fully impaired the goodwill of this cluster.
Sensitivity Analysis
Based on the results of our December 1, 20162018 annual impairment assessment, the fair value of our broadcasting licenses was approximately $277.3$203.6 million, which was in excess of the $198.3$170.5 million carrying value by $79.0$33.1 million, or 39.8%19.4%. Should our estimates or assumptions worsen, or should negative events or circumstances occur in the units that have limited fair value cushion, additional license impairments may be needed.
|
| Radio Broadcasting Licenses |
| |||||||||
|
| As of December 1, 2018 |
|
|
|
|
| |||||
Unit of Accounting |
| Carrying Value |
|
| Fair Value |
|
| Percentage by which fair value exceeds carrying value |
| |||
New York Cluster |
|
| 71,614 |
|
|
| 102,976 |
|
|
| 43.8 | % |
98.7FM (New York) |
|
| 46,390 |
|
|
| 47,112 |
|
|
| 1.6 | % |
Austin Cluster |
|
| 34,720 |
|
|
| 35,675 |
|
|
| 2.8 | % |
Indianapolis Cluster |
|
| 17,823 |
|
|
| 17,823 |
|
|
| 0.0 | % |
Total |
|
| 170,547 |
|
|
| 203,586 |
|
|
| 19.4 | % |
| Radio Broadcasting Licenses | ||||||||
| As of December 1, 2016 | ||||||||
| Unit of Accounting | Carrying Value | Fair Value | Percentage by which fair value exceeds carrying value | |||||
| New York Cluster | 71,615 | 101,914 | 42.3 | % | ||||
| 98.7FM (New York) | 46,390 | 46,390 | — | % | ||||
| Austin Cluster | 34,719 | 34,719 | — | % | ||||
| St. Louis Cluster | 24,758 | 24,758 | — | % | ||||
| Indianapolis Cluster | 18,166 | 19,064 | 4.9 | % | ||||
| KPWR-FM (Los Angeles) | 2,018 | 49,774 | 2,366.5 | % | ||||
| Terre Haute Cluster | 643 | 643 | — | % | ||||
| Total | 198,309 | 277,262 | 39.8 | % | ||||
If we were to assume a 100 basis point change in any of our three key assumptions (a reduction in the long-term revenue growth rate, a reduction in local commercial share or an increase in the discount rate) used to determine the fair value of our broadcasting licenses on December 1, 2016,2018, the resulting impairment charge would have been $31.0$21.3 million, $22.5$13.4 million and $19.7$9.9 million, respectively. Also, if we were to assume a market multiple decrease of one or a 10% decrease in the two-year average station operating income, two of the key assumptions used to determine the fair value of our goodwill on December 1, 2016,2018, the resulting estimates of enterprise valuations would still exceed the carrying values of the enterprises. As such, step two of the goodwill impairment testing would not be required, thus no additional goodwill impairment would be recognized if either of these two key assumptions were lowered.
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
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 $0.7$0.4 million and $0.8$0.2 million accrued for employee healthcare claims as of February 28, (29), 20162018 and 2017,2019, respectively. The Company also maintains large deductible programs (ranging from $100 thousand to $250 thousand per occurrence) for workers’ compensation, employment liability, automotive liability and media liability claims.
DISPOSITIONS AND INVESTMENTS
The transactions described below impact the comparability of operating results for the three years ended February 28, 2017.
Sale of St. Louis radio stations
On April 30, 2018, Emmis closed on its sale of substantially all of the assets of its radio stations in St. Louis in two separate transactions. In one transaction, Emmis sold the assets of KSHE-FM and KPNT-FM to affiliates of Hubbard Radio. In the other transaction, Emmis sold the assets of KFTK-FM and KNOU-FM to affiliates of Entercom Communications Corp. Emmis decided to sell its stations in St. Louis to further reduce overall indebtedness. At closing, Emmis received aggregate gross proceeds of $60.0 million. After deducting estimated taxes payable and transaction-related expenses, net proceeds totaled approximately $40.5 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. The taxes payable as a result of the transactions were not immediately due, so we repaid amounts outstanding under our revolver and we held excess cash on our balance sheet to enhance our liquidity position until we remit the taxes when due. Emmis recorded a $32.1 million gain on the sale of its St. Louis stations. Our St. Louis radio stations had historically been included in our Radio segment. These disposals did not qualify for reporting as a discontinued operation as they did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.
Sale of KPWR-FM
On August 1, 2017, Emmis closed on its sale of substantially all of the assets of KPWR-FM for gross proceeds of approximately $80.1 million to affiliates of the Meruelo Group. Under the terms of the Fourth Amendment to Emmis’ senior credit facility, Emmis was required to enter into definitive agreements to sell assets that generated at least $80 million of proceeds by January 18, 2018 and to close on such transactions following receipt of required regulatory approvals. The sale of KPWR-FM satisfied these requirements. Emmis found it more advantageous to sell its standalone radio station in Los Angeles than to sell other assets to meet this requirement. After payment of transaction costs and withholding for estimated tax obligations, net proceeds totaled approximately $73.6 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $76.7 million gain on the sale of KPWR-FM. KPWR-FM had historically been included in our Radio segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.
Sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine
On February 28, 2017, Emmis closed on its sale of substantially all of the assets of
Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine andSale of Terre Haute, Indiana radio stations
On January 30, 2017, Emmis closed on its sale of substantially all of the assets of its radio stations in Terre Haute, Indiana, in two contemporaneous transactions. In one transaction, Emmis sold the assets of WTHI-FM and the intellectual property of WWVR-FM to Midwest Communications, Inc. In the other transaction, Emmis sold the assets of WFNF-AM, WFNB-FM, WWVR-FM (other than the intellectual
23
property for that station) and an FM translator to DLC Media, Inc. The Company previously announced that it was exploring strategic alternatives for these radio stations. Emmis believed that operating stations in Terre Haute, Indiana was not a core part of its radio strategy and its strong market position in the Terre Haute market would be attractive to potential buyers. At closing, Emmis received gross proceeds of approximately $5.2 million for both transactions. After payment of brokerage and other transaction costs, net proceeds totaled $4.8 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $3.5 million gain on the sale of its Terre Haute radio stations
Sale of Texas Monthly
On November 1, 2016, Emmis closed on its sale of
Texas Monthlyfor gross proceeds of $25.0 million in cash to a subsidiary of Genesis Park, LP. The Company previously announced that it was exploring strategic alternatives for its publishing division, excluding Indianapolis Monthly. Emmis believed that its publishing portfolio had significant brand value and planned to use proceeds from the sale of its publishing properties to repay debt. Emmis received net proceeds of $23.4 million, consisting of the stated purchase price of $25.0 million, net of estimated purchase price adjustments totaling $0.7 million and disposition costs totaling $0.9 million. The $0.9 million of disposition costs primarily related to severance costs. Proceeds were used to repay term and revolving loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $17.4 million gain on the sale of Texas Monthly. Texas Monthlyhad historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 29, 201628, 2018 COMPARED TO YEAR ENDED FEBRUARY 28, 2017
Net revenues:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | 142,852 |
|
| $ | 108,018 |
|
| $ | (34,834 | ) |
|
| (24.4 | )% |
Publishing |
|
| 4,521 |
|
|
| 4,678 |
|
|
| 157 |
|
|
| 3.5 | % |
Emerging Technologies |
|
| 1,114 |
|
|
| 1,435 |
|
|
| 321 |
|
|
| 28.8 | % |
Total net revenues |
| $ | 148,487 |
|
| $ | 114,131 |
|
| $ | (34,356 | ) |
|
| (23.1 | )% |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Net revenues: | ||||||||||||||
| Radio | $ | 169,228 | $ | 165,148 | $ | (4,080 | ) | (2.4 | )% | |||||
| Publishing | 60,992 | 48,559 | (12,433 | ) | (20.4 | )% | ||||||||
| Emerging Technologies | 1,213 | 861 | (352 | ) | (29.0 | )% | ||||||||
| Total net revenues | $ | 231,433 | $ | 214,568 | $ | (16,865 | ) | (7.3 | )% | |||||
Radio net revenues decreased during the year ended February 28, 2017 as2019 mostly due to the sale of our St. Louis radio stations on April 30, 2018. Excluding the effects of radio station sales, our radio division underperformednet revenues would have been down 3.2% for the aggregate performanceyear ended February 28, 2019. Our net revenues were negatively impacted by lower ticket sales revenue for our largest concert, Summer Jam. Poor weather on the day of the markets in which we operate. concert negatively impacted ticket sales.
We typically monitor the performance of our stations against the aggregate performance of the markets in which we operate based on reports for the periods prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements. A summary of market revenue performance and Emmis’ revenue performance in those markets for the year ended February 28, 20172019 is presented below:
|
| For the year ended February 28, 2019 |
| |||||
|
| Overall Market |
|
| Emmis |
| ||
Market |
| Revenue Performance |
|
| Revenue Performance1 |
| ||
New York |
|
| (2.0 | %) |
|
| (3.4 | %) |
Indianapolis |
|
| (2.7 | %) |
|
| (1.3 | %) |
Austin |
|
| 3.9 | % |
|
| (1.8 | %) |
All Markets |
|
| (1.3 | %) |
|
| (2.5 | %) |
1 | Emmis revenue performance in New York excludes the results of WEPN-FM, which is being operated pursuant to an LMA. |
| For the year ended February��28, 2017 | |||||
| Overall Market | Emmis | ||||
| Market | Revenue Performance | Revenue Performance 1 | |||
| New York | 0.2 | % | (2.8 | %) | |
| Los Angeles | 3.3 | % | (14.7 | %) | |
| St. Louis | 1.4 | % | 11.0 | % | |
| Indianapolis | 0.8 | % | (4.3 | %) | |
| Austin | 0.3 | % | (0.9 | %) | |
| All Markets | 1.7 | % | (3.1 | %) | |
Publishing net revenues were downup for the year ended February 28, 20172019 mostly due to a $0.2 million increase in advertising sales over the prior year.
Emerging technologies net revenues, which primarily related to pricing services provided by Digonex and licensing fees of our TagStation software, increased during the year ended February 28, 2019 principally due to client growth at Digonex. During the quarter ended November 30, 2018, we decided to dramatically reduce the scale of our TagStation business. The Company does not expect to generate revenues from this business going forward.
24
Station operating expenses excluding depreciation and amortization expense:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Station operating expenses excluding depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | 102,413 |
|
| $ | 76,128 |
|
| $ | (26,285 | ) |
|
| (25.7 | )% |
Publishing |
|
| 5,035 |
|
|
| 4,822 |
|
|
| (213 | ) |
|
| (4.2 | )% |
Emerging Technologies |
|
| 12,310 |
|
|
| 10,083 |
|
| $ | (2,227 | ) |
|
| (18.1 | )% |
Total station operating expenses excluding depreciation and amortization expense |
| $ | 119,758 |
|
| $ | 91,033 |
|
| $ | (28,725 | ) |
|
| (24.0 | )% |
The decrease in station operating expenses excluding depreciation and amortization expense for our radio division for the year ended February 28, 2019 is mostly due to the sale of
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Station operating expenses excluding LMA fees and depreciation and amortization expense: | ||||||||||||||
| Radio | $ | 116,862 | $ | 115,366 | $ | (1,496 | ) | (1.3 | )% | |||||
| Publishing | 58,891 | 51,063 | (7,828 | ) | (13.3 | )% | ||||||||
| Emerging Technologies | 7,641 | 13,656 | $ | 6,015 | 78.7 | % | ||||||||
| Total station operating expenses excluding LMA fees and depreciation and amortization expense | $ | 183,394 | $ | 180,085 | $ | (3,309 | ) | (1.8 | )% | |||||
The decrease in station operating expenses excluding depreciation and amortization expense for publishing decreased duringfor the year ended February 28, 20172019 was mostly due to the sale of
Station operating expenses excluding depreciation and amortization expense for emerging technologies increased duringdecreased in the year ended February 28, 20172019 mostly due to a dramatic reduction of scale of our TagStation business during the fourth quarter of fiscal 2019. Also contributing to the decline in operating expenses were nonrecurring charges in the prior year including (i) NextRadio funding $3.35$0.6 million of its obligation to Sprint with the proceeds of a third party loan in March 2017, which was remitted to Sprint, and (ii) increasedEmmis contributing $0.3 million to NextRadio, headcount duringwhich was remitted to Sprint in connection with the year across all departmentsfinal payment to support increased activity expected inSprint, both of which were expensed at the next fiscal year and beyond.
Corporate expenses excluding depreciation and amortization expense:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Corporate expenses excluding depreciation and amortization expense |
| $ | 10,712 |
|
| $ | 10,313 |
|
| $ | (399 | ) |
|
| (3.7 | )% |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Corporate expenses excluding depreciation and amortization expense | $ | 13,023 | $ | 11,359 | $ | (1,664 | ) | (12.8 | )% | |||||
Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 20172019 mostly due to personnel bonuses, which totaled approximately $1.0 million in fiscal 2016, but there were no such bonuses in fiscal 2017. Also contributing to the decrease in corporate expenses excluding depreciationlower employee compensation and amortization expense was the effect of cost reduction actions taken in January 2016, which were partially offset by costs incurred related to the evaluation of a go-private offer received by the Company during fiscal 2017.
Impairment loss on intangible assets:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Impairment loss on intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | 265 |
|
| $ | 343 |
|
| $ | 78 |
|
|
| 29.4 | % |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Impairment loss on intangible assets: | ||||||||||||||
| Radio | $ | 5,440 | $ | 6,855 | $ | 1,415 | 26.0 | % | ||||||
| Emerging Technologies | 4,059 | 2,988 | $ | (1,071 | ) | (26.4 | )% | |||||||
| Impairment loss on intangible assets | $ | 9,499 | $ | 9,843 | $ | 344 | 3.6 | % | ||||||
In connection with the annual impairment review conducted on December 1, 2015,2018, the Company concluded that itsthe FCC license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $5.4 million. The Company also concluded that the goodwill and patentsLicenses associated with Digonexits Indianapolis radio operations were impaired and recorded an impairment loss of $4.1 million related to these assets.
In connection with the annual impairment review conducted on December 1, 2016,2017, the Company concluded that goodwill associated with its its FCC license for 98.7FM in New York,Indianapolis radio operations was impaired and recorded an impairment loss of $0.3 million to reduce the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $6.9 million.
We could record impairment charges in future periods if we determine the carrying value of our intangible assets exceeds their fair value. Our annual impairment test of our broadcasting licenses and goodwill is performed each year as of December 1. We may be required to retest prior to our next annual evaluation, which could result in additional impairment charges.
25
Depreciation and amortization:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | 2,792 |
|
| $ | 2,338 |
|
| $ | (454 | ) |
|
| (16.3 | )% |
Publishing |
|
| 19 |
|
|
| 18 |
|
|
| (1 | ) |
|
| (5.3 | )% |
Corporate & Emerging Technologies |
|
| 817 |
|
|
| 857 |
|
|
| 40 |
|
|
| 4.9 | % |
Total depreciation and amortization |
| $ | 3,628 |
|
| $ | 3,213 |
|
| $ | (415 | ) |
|
| (11.4 | )% |
The decrease in radio depreciation and amortization expense for the year ended February 28, 2019 mostly relates to the sale of our radio stations in St. Louis on April 30, 2018.
The increase in corporate & emerging technologies is due to depreciation of new equipment placed into service.
(Gain) loss on sale of radio and publishing assets, net of disposition costs:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
(Gain) loss on sale of radio and publishing assets, net of disposition costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | (76,745 | ) |
| $ | (32,148 | ) |
| $ | (44,597 | ) |
|
| (58.1 | )% |
Publishing |
|
| 141 |
|
|
| 331 |
|
|
| 190 |
|
|
| 134.8 | % |
(Gain) loss on sale of radio and publishing assets, net of disposition costs |
| $ | (76,604 | ) |
| $ | (31,817 | ) |
| $ | (44,787 | ) |
|
| (58.5 | )% |
| For the years ended February 28 (29), | |||||||||||||
| 2016 | 2017 | $ Change | % Change | ||||||||||
| (As reported, amounts in thousands) | |||||||||||||
| Gain on sale of radio and publishing assets, net of disposition costs: | |||||||||||||
| Radio | $ | — | $ | (3,478 | ) | $ | (3,478 | ) | N/A | ||||
| Publishing | — | (20,079 | ) | (20,079 | ) | N/A | |||||||
| Emerging Technologies | — | — | $ | — | N/A | ||||||||
| Gain on sale of radio and publishing assets, net of disposition costs | $ | — | $ | (23,557 | ) | $ | (23,557 | ) | N/A | ||||
On November 1, 2016, we closed onApril 30, 2018, the sale of
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Depreciation and amortization: | ||||||||||||||
| Radio | $ | 3,345 | $ | 3,462 | $ | 117 | 3.5 | % | ||||||
| Publishing | 266 | 230 | (36 | ) | (13.5 | )% | ||||||||
| Corporate & Emerging Technologies | 2,186 | 1,114 | (1,072 | ) | (49.0 | )% | ||||||||
| Total depreciation and amortization | $ | 5,797 | $ | 4,806 | $ | (991 | ) | (17.1 | )% | |||||
The increase in depreciationloss on sale of publishing assets mostly relates to the legal fees and amortization foreventual settlement of a dispute with Hour Media, the year ended February 28, 2017 for our radio division is mostly due to depreciation expense associated with broadcasting equipmentbuyer of Los Angeles Magazine, Cincinnati Magazine, Atlanta Magazine and other equipment that was placed into service toward the end of the prior fiscal year.
Operating income (loss):
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
| $ | 114,209 |
|
| $ | 61,300 |
|
| $ | (52,909 | ) |
|
| (46.3 | )% |
Publishing |
|
| (687 | ) |
|
| (493 | ) |
|
| 194 |
|
|
| 28.2 | % |
Corporate & Emerging Technologies |
|
| (22,725 | ) |
|
| (19,818 | ) |
|
| 2,907 |
|
|
| 12.8 | % |
Total operating income (loss) |
| $ | 90,797 |
|
| $ | 40,989 |
|
| $ | (49,808 | ) |
|
| (54.9 | )% |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Operating income (loss): | ||||||||||||||
| Radio | $ | 43,527 | $ | 42,819 | $ | (708 | ) | (1.6 | )% | |||||
| Publishing | 1,835 | 17,345 | 15,510 | 845.2 | % | |||||||||
| Corporate & Emerging Technologies | (25,698 | ) | (28,256 | ) | (2,558 | ) | (10.0 | )% | ||||||
| Total operating income (loss) | $ | 19,664 | $ | 31,908 | $ | 12,244 | 62.3 | % | ||||||
Radio operating income decreased for year ended February 28, 2017 principally due to the net effect of revenue declines for all of our markets except St. Louis and larger impairment losses recorded during the year. The gain on sale of our Terre Haute, Indiana clusterSt. Louis radio stations in the current year and KPWR-FM in the prior year.
Publishing operating loss decreased due to better revenue performance and lower radio operating expenses partially offset the effect of the revenue declines and larger impairment losses.
Corporate and Emerging Technologiesemerging technologies operating losses increasedloss decreased mostly due to additional investments inlower operating expenses as a result of the scale-down of our TagStation and NextRadio and proceeds from a third party loan to NextRadio that were remitted to Sprint, as previously discussed. These increases were partially offset by lower overall corporate expenses.
Interest expense:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Interest expense |
| $ | (15,143 | ) |
| $ | (8,103 | ) |
| $ | (7,040 | ) |
|
| (46.5 | )% |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Interest expense | $ | (18,956 | ) | $ | (18,018 | ) | $ | 938 | 4.9 | % | ||||
The decrease in interest expense is attributable to lower debt balances as the Company used the proceeds from its various assetSt. Louis radio station sales during fiscal 2017 to reduce debt outstanding.
26
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Loss on debt extinguishment |
| $ | (2,662 | ) |
| $ | (779 | ) |
| $ | (1,883 | ) |
|
| (70.7 | )% |
| For the years ended February 28 (29), | |||||||||||||
| 2016 | 2017 | $ Change | % Change | ||||||||||
| (As reported, amounts in thousands) | |||||||||||||
| Loss on debt extinguishment | $ | — | $ | (620 | ) | $ | (620 | ) | N/A | ||||
The Company repaid outstanding term loans under its credit facility with proceeds from asset sales during fiscal 2017.2018 and fiscal 2019. The pro-rata portion of unamortized debt discount that was written-off in connection with these repayments was classified as a loss on debt extinguishment.
| For the years ended February 28 (29), | |||||||||||||
| 2016 | 2017 | $ Change | % Change | ||||||||||
| (As reported, amounts in thousands) | |||||||||||||
| Other (expense) income, net | $ | 1,057 | $ | (160 | ) | $ | (1,217 | ) | (115.1)% | ||||
(Benefit) provision for income taxes:
|
| For the years ended February 28, |
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change | |||
|
| (As reported, amounts in thousands) |
|
|
| |||||||||
(Benefit) provision for income taxes |
| $ | (11,732 | ) |
| $ | 6,167 |
|
| $ | 17,899 |
|
| N/M |
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Provision (benefit) for income taxes | $ | 2,069 | $ | (110 | ) | $ | (2,179 | ) | (105.3 | )% | ||||
Our effective income tax expense related to deferred tax liabilitiesrate was (16%) and 19% for indefinite-lived intangibles must still be recorded. Because this amount is based on tax amortization, the full year amount of associated tax expense is known at the beginning of the year and the Company recognizes the tax expense related to deferred tax liabilities for indefinite-lived intangibles evenly through the year as a discrete item. Separately, the company recorded tax benefits of $1.3 million and $2.4 million related to impairment charges on FCC licenses during the years ended February 29, 201628, 2018 and 2019, respectively. During the year ended February 28, 2017, respectively.
| For the years ended February 28 (29), | |||||||||||||
| 2016 | 2017 | $ Change | % Change | ||||||||||
| (As reported, amounts in thousands) | |||||||||||||
| Consolidated net income (loss) | $ | (304 | ) | $ | 13,220 | $ | 13,524 | N/M | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2016 | 2017 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Loss on modification of preferred stock | $ | (162 | ) | $ | — | $ | 162 | (100.0 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Net revenues: | ||||||||||||||
| Radio | $ | 176,250 | $ | 169,228 | $ | (7,022 | ) | (4.0 | )% | |||||
| Publishing | 61,142 | 60,992 | (150 | ) | (0.2 | )% | ||||||||
| Emerging Technologies | 546 | 1,213 | $ | 667 | 122.2 | % | ||||||||
| Total net revenues | $ | 237,938 | $ | 231,433 | $ | (6,505 | ) | (2.7 | )% | |||||
| For the year ended February 29, 2016 | |||||
| Overall Market | Emmis | ||||
| Market | Revenue Performance | Revenue Performance 1 | |||
| New York | (2.5 | %) | (4.8 | %) | |
| Los Angeles | (0.2 | %) | (14.2 | %) | |
| St. Louis | (3.2 | %) | 2.0 | % | |
| Indianapolis | (1.2 | %) | 4.5 | % | |
| Austin | (2.7 | %) | (4.3 | %) | |
| All Markets | (1.5 | %) | (4.6 | %) | |
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Station operating expenses, excluding depreciation and amortization expense: | ||||||||||||||
| Radio | $ | 117,167 | $ | 116,862 | $ | (305 | ) | (0.3 | )% | |||||
| Publishing | 60,083 | 58,891 | (1,192 | ) | (2.0 | )% | ||||||||
| Emerging Technologies | 3,759 | 7,641 | $ | 3,882 | 103.3 | % | ||||||||
| Total station operating expenses, excluding depreciation and amortization expense | $ | 181,009 | $ | 183,394 | $ | 2,385 | 1.3 | % | ||||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Corporate expenses excluding depreciation and amortization expense | $ | 14,922 | $ | 13,023 | $ | (1,899 | ) | (12.7 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| LMA fees | $ | 4,208 | $ | — | $ | (4,208 | ) | (100.0 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Hungary license litigation expense | $ | 521 | $ | — | $ | (521 | ) | (100.0 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Impairment loss on intangible assets | $ | 67,915 | $ | 9,499 | $ | (58,416 | ) | (86.0 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Depreciation and amortization: | ||||||||||||||
| Radio | $ | 3,143 | $ | 3,345 | $ | 202 | 6.4 | % | ||||||
| Publishing | 245 | 266 | 21 | 8.6 | % | |||||||||
| Corporate & Emerging Technologies | 2,538 | 2,186 | (352 | ) | (13.9 | )% | ||||||||
| Total depreciation and amortization | $ | 5,926 | $ | 5,797 | $ | (129 | ) | (2.2 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Gain on contract settlement | $ | (2,500 | ) | $ | — | $ | 2,500 | (100 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Operating income (loss): | ||||||||||||||
| Radio | $ | (14,204 | ) | $ | 43,527 | $ | 57,731 | (406.4 | )% | |||||
| Publishing | 814 | 1,835 | 1,021 | 125.4 | % | |||||||||
| Corporate & Emerging Technologies | (20,673 | ) | (25,698 | ) | (5,025 | ) | 24.3 | % | ||||||
| Total operating income (loss) | $ | (34,063 | ) | $ | 19,664 | $ | 53,727 | (157.7 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Interest expense | $ | (17,101 | ) | $ | (18,956 | ) | $ | (1,855 | ) | 10.8 | % | |||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Loss on debt extinguishment | $ | (1,455 | ) | $ | — | $ | 1,455 | (100.0 | )% | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Other income (expense), net | $ | (6,418 | ) | $ | 1,057 | $ | 7,475 | 116.5 | % | |||||
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Provision for income taxes | $ | 36,948 | $ | 2,069 | $ | (34,879 | ) | (94.4 | )% | |||||
Consolidated net loss:income:
|
| For the years ended February 28, |
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
|
| (As reported, amounts in thousands) |
|
|
|
|
| |||||||||
Consolidated net income |
| $ | 84,759 |
|
| $ | 26,079 |
|
| $ | (58,680 | ) |
|
| (69.2 | )% |
| For the years ended February 28 (29), | ||||||||||||||
| 2015 | 2016 | $ Change | % Change | |||||||||||
| (As reported, amounts in thousands) | ||||||||||||||
| Consolidated net loss | $ | (95,985 | ) | $ | (304 | ) | $ | 95,681 | 99.7 | % | ||||
The changedecrease in consolidated net lossincome is principally due to the $34.9 million changedifference in the gains on sale recorded in connection with our provision for income taxessale of KPWR-FM in the prior year and our St. Louis radio stations in the $58.4 million change in impairment loss, bothcurrent year, coupled with the effect of which werethe one-time tax benefit recorded in the prior year related to the Act.
YEAR ENDED FEBRUARY 28, 2017 COMPARED TO YEAR ENDED FEBRUARY 28, 2018
A discussion comparing the years ended February 28, 2017 and are discussed above.
| For the years ended February 28 (29), | |||||||||||||
| 2015 | 2016 | $ Change | % Change | ||||||||||
| (As reported, amounts in thousands) | |||||||||||||
| Loss on modification of preferred stock | $ | — | $ | (162 | ) | $ | 162 | N/A | |||||
LIQUIDITY AND CAPITAL RESOURCES
APRIL 2019 REFINANCING
On April 12, 2019, Emmis and certain of its subsidiaries entered into three loan agreements, consisting of:
1. | $12 million revolving credit agreement by and among Wells Fargo Bank, National Association, as lender, the Company, Emmis Operating Company, a wholly owned subsidiary of the Company, and certain other subsidiaries as borrowers (the “Revolving Credit Agreement”) |
2. | $23 million mortgage by and between Emmis Operating Company and Emmis Indiana Broadcasting, L.P., as borrowers, and Star Financial Bank, as lender (the “Mortgage”) |
3. | $4 million term loan, by and between Emmis Operating Company, as borrower, and Barrett Investment Partners, LLC, as lender (the “Term Loan”) |
The Revolving Credit Agreement expires April 12, 2024, provided the Term Loan is repaid, replaced, or extended by October 12, 2021. Amounts borrowed under the Revolving Credit Agreement bear interest at daily three-month LIBOR plus 2.50%. A commitment fee of 0.50% per annum is charged for unused amounts under the Revolving Credit Agreement. Pursuant to a Guaranty and Security Agreement, dated as of April 12, 2019, by and among Wells Fargo Bank, National Association, as lender, the Company, Emmis Operating Company, and certain other subsidiaries as borrowers (the “GSA”), the obligations under the Revolving Credit Agreement are secured by a perfected first priority security interest in certain of the Company’s accounts receivable and fixed assets, as well as security interests in certain other assets of the Company. Borrowing under the Revolving Credit Agreement depends upon continued compliance with certain operating covenants and financial covenants, including maintaining a fixed charge coverage ratio, as specifically defined in the Revolving Credit Agreement, of at least 1.10:1.00. No amounts
27
may be borrowed under the Revolving Credit Agreement unless and until all (i) existing income tax obligations, currently estimated to be approximately $7 million, are paid in full, or (ii) the borrowing is used to pay such income tax obligations. The operating and other restrictions with which the Company must comply include, among others, restrictions on additional indebtedness, incurrence of liens, engaging in businesses other than our primary business, paying certain dividends, redeeming or repurchasing capital stock, acquisitions and asset sales. No default or event of default has occurred or is continuing.
The Mortgage expires April 12, 2029, and is secured by a perfected first priority security interest in the Company’s headquarters building in Indianapolis, Indiana, and approximately 70 acres of land owned by the Company in Whitestown, Indiana, which currently is used as a tower site for one of the Company’s radio stations. The Mortgage bears interest at 5.48% per annum and requires monthly principal and interest payments using a 25 year amortization period, with a balloon payment due at expiration. The Mortgage requires continued compliance with certain operating covenants and financial covenants, including maintaining a fixed charge coverage ratio, as specifically defined in the Mortgage, of at least 1.10:1.00, and requires certain proceeds from asset sales to be used to repay the Mortgage indebtedness.
The Term Loan expires April 12, 2022, and is secured by a pledge of the Company’s controlling ownership interest in a partnership that owns and operates 6 radio stations in Austin, Texas. The Term Loan bears interest at 10% per annum the first year, with the rate increasing to 12% in the second year and to 14% in the third year. The Term Loan requires monthly principal and interest payments, and is prepayable at par at any time provided that interest of at least $125,000 must be paid to the lender.
2014 CREDIT AGREEMENT
On June 10, 2014, Emmis entered into the 2014 Credit Agreement, by and among the Company, EOC, as borrower (the “Borrower”), certain other subsidiaries of the Company, as guarantors (the “Subsidiary Guarantors”), and the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent.thereto. As discussed above, the Company repaid all amounts outstanding under the 2014 Credit Agreement on April 12, 2019. Capitalized terms in this section not defined elsewhere in this 10-K are defined in the 2014 Credit Agreement and related amendments.
As of February 28, 2019, the 2014 Credit Agreement includesconsisted of the remaining balance of a senior secured term loan facility (the “Term Loan”) of $185.0($69.5 million and a senior secured revolving credit facility$25.0 million as of $20.0 million,February 28, 2018 and contains provisions for an uncommitted increase of up to $20.0 million principal amount (plus additional amounts so long as a pro forma total net senior secured leverage ratio condition is met) of the revolving credit facility and/or the Term Loan subject to the satisfaction of certain conditions.2019, respectively). The revolving credit facility includesmatured on August 31, 2018. Outstanding revolver borrowings as of February 28, 2018 were $9.0 million and were fully paid prior to the maturity date. The revolving credit facility included a sub-facility for the issuance of up to $5.0 million of letters of credit. Pursuant toNo letters of credit were outstanding during the three years ended February 28, 2019.
Amounts outstanding under the 2014 Credit Agreement bore interest, at the Borrower borrowed $185.0 million ofCompany’s option, at either (i) the Term Loan on June 10, 2014.
Our 2014 Credit Agreement debt was carried net of Accounting Standards Update 2015-03 during the year ended February 29, 2016. As such, thean unamortized balance of existing deferred debt fees was reclassified and is now shown as a direct reduction of the carrying amount of long-term debt. These fees, along with an original issue discount of $9.7$1.8 million ($6.1and $0.1 million incurred in connection with theas of February 28, 2018 and 2019, respectively. The original issuance of the 2014 Credit Agreement debt on June 10, 2014, $1.0 million incurred in connection with the November 7, 2014 amendment to the 2014 Credit Agreement, $1.1 million incurred in connection with the April 30, 2015 amendment to the 2014 Credit Agreement, and $1.5 million incurred in connection with the April 18, 2017 amendment to the 2014 Credit Agreement) are beingissue discount was amortized as additional interest expense over the life of the 2014 Credit Agreement.
The 2014 Credit Agreement required mandatory prepayments for, among other things, proceeds from the sale of assets, insurance proceeds and Consolidated Excess Cash Flow (as defined in the 2014 Credit Agreement).
The 2014 Credit Agreement required the Company to comply with certain financial and non-financial covenants. These covenants included a Total Leverage Ratio covenant of 4.00:1.00. The Company maintained compliance with all financial and non-financial covenants through the repayment of the term loan on April 12, 2019.
The obligations under the 2014 Credit Agreement arewere secured by a perfected first priority security interest in substantially all of the assets of the Company, the Borrower and the Subsidiary Guarantors.
SOURCES OF LIQUIDITY
Our primary sources of liquidity are cash provided by operations and cash available through revolver borrowings under our credit facility.Revolving Credit Agreement. Our primary uses of capital during the past few years have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements repayment of debt and investments in future growth opportunities in relatednew businesses.
At February 28, 2017,2019, we had cash and cash equivalents of $11.3$5.4 million and net working capital of $(8.1)($27.4) million. At February 29, 2016,28, 2018, we had cash and cash equivalents of $4.5$4.1 million and net working capital of $0.4$27.1 million. The decrease in net working capital is largely due to a $6.0 million increase of current maturities of long-term debt, which includes $5.5 million of Digonex non-recourse debt that isour St. Louis radio stations being classified as current assets held for sale as of February 28, 2017. We are currently2018 and our $25.0 million term loan, which was reclassified to current in discussion with the holders of Digonex's non-recourse debt to extend thecurrent year given its April 2019 maturity date of the debt past its current maturity date of December 31, 2017.
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs,
28
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.
Operating Activities
Cash flows provided byused in operating activities were $25.1 million and $19.1$0.1 million for the yearsyear ended February 28, (29), 2016 and 2017, respectively. The decrease in2018 versus cash flows provided by operating activities was mainly attributable to lower operating income (excluding the effect of gains on the sale of businesses) of our radio and publishing businesses.
Investing Activities
Cash flows provided by investing activities of $28.5$59.7 million for the year ended February 28, 2017 primarily2019 consisted of $31.3$60.2 million of proceeds from the sale of our Terre Haute, IndianaSt. Louis radio cluster and five of our magazines,stations, partially offset by $2.9$0.5 million of capital expenditures.
Cash used inflows provided by investing activities of
Financing Activities
Cash used in financing activities of $65.6 million for the year ended February 28, 20172019 primarily relates to net payments on our long-term debt of $34.6$60.0 million, distributions to noncontrolling interests of $5.6$5.3 million and the settlement of tax withholding obligations of $0.5$0.6 million.
Cash used in financing activities of $85.9 million for the year ended February 29, 201628, 2018 primarily relates to net payments on our long-term debt of $13.2$79.1 million, distributions to noncontrolling interests of $5.8$4.9 million, debt-related costs of $1.1$1.6 million and the settlement of tax withholding obligations of $1.0$0.4 million.
As of February 28, 2017,2019, Emmis had $152.2$25.0 million of borrowings under the 2014 Credit Agreement, ($12.1 millionall of which were current, and $140.1 million long-term) and $68.8$57.4 million of non-recourse debt ($11.57.2 million current and $57.3$50.2 million long-term). Borrowings under the 2014 Credit Agreement bearbore interest, at our option, at a rate equal to the Eurodollar rate or an alternative Base Rate plus a margin. The non-recourse debt bears interest ranging from 4.0%2.0% to 5.0% per annum. As of February 28, 2017,2019, our weighted average borrowing rate under our 2014 Credit Agreement was approximately 7.0%10.5%.
Subsequent to the Company’s refinancing on April 12, 2019, the Company’s weighted average borrowing rate was 6.1%, excluding our various nonrecourse debt instruments.
Subsequent to the Company’s refinancing on April 12, 2019, the debt service requirements of Emmis over the next twelve-month period are expected to be $23.9$1.7 million related to our 2014 Credit Agreement, as amended,Mortgage, ($12.10.4 million of principal repayments and $11.8$1.3 million of interest payments) and $8.3, $9.0 million related to our 98.7FM non-recourse debt ($6.07.3 million of principal repayments and $2.3$1.7 million of interest payments) and $1.6 million related to our Term Loan ($1.3 million of principal repayments and $0.3 million of interest payments). Digonex non-recourse debt ($6.2 million face amount, $5.5$6.1 million carrying amount as of February 28, 2017)2019) is due in December 2017. The Company2020. NextRadio non-recourse debt of $4.0 million is currently working with with holders of the debt to extend the maturity date of the debt.due in December 2021. The Company expects that proceeds from the 98.7FM LMA will be sufficient to pay all debt service related to the 98.7FM non-recourse debt. The 2014Our Revolving Credit Agreement debt bears interest at variable rates. The Company estimated interest payments for the 2014 Credit Agreement above by using therates based on amounts outstanding as of February 28, 2017 and estimated interest rates subsequent to the closing of the Fourth Amendment to the Credit Agreement on April 18, 2017 .
As of May 3, 2019, we had $12.0$8.1 million available for additional borrowing under our credit facility.Revolving Credit Agreement, $7.0 million of which must be used to pay remaining income tax obligations. Availability under the credit facilityRevolving Credit Agreement depends upon, among other things, our continued compliance with certain operating covenants and financial ratios. Emmis was in compliance with these covenants as of February 28, 2017. May 2, 2019.
As part of our business strategy, we continually evaluate potential acquisitions of radio stations, publishing properties and other businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, Emmis Operating Company’s credit facility substantially limits our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so. See Note 7 to our consolidated financial statements for a discussion of various acquisitions and dispositions that occurred during the three years ended February 2017.
INTANGIBLES
As of February 28, 2017,2019, approximately 70%74% of our total assets consisted of FCC licenses and goodwill, the value of which depends significantly upon the operational results of our businesses. In the case of our 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 the activities of our stations for compliance with regulatory requirements. Historically, all of our FCC licenses have been renewed (or a waiver has been granted pending renewal) at the end of their respective eight-year periods, and we expect that all of our FCC licenses will continue to be renewed in the future.
SEASONALITY
Our results of operations are usually subject to seasonal fluctuations, which result in higher second and third quarter revenues and operating income. For our radio operations, this seasonality is due to the younger demographic composition of many of our stations. Advertisers increase spending during the summer months to target these listeners. In addition, advertisers generally increase spending across all segments during the months of October and November, which are part of our third quarter, in anticipation of the holiday season.
The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since our senior bank debt is comprised entirely of variable-rate debt.
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than lease commitments, legal contingencies incurred in the normal course of business, contractual commitments to purchase goods and services and employment contracts for key employees, all of which are discussed in Note 11 to the consolidated financial statements, the Company does not have any material off-balance sheet financings or liabilities. The Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not reflected in the consolidated financial statements or disclosed in the Notes to Consolidated Financial Statements.
As a smaller reporting company, we are not required to provide this information.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors and Shareholders
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Emmis Communications Corporation and Subsidiaries (the Company) as of February 28, (29), 20162019 and 2017, and2018, the related consolidated statements of operations, comprehensive income, (loss), changes in deficit,equity (deficit), and cash flows for each of the three years in the period ended February 28, 2017. 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 28, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company’sits internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Indianapolis, Indiana
May 11, 2017
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
NET REVENUES |
| $ | 214,568 |
|
| $ | 148,487 |
|
| $ | 114,131 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Station operating expenses excluding depreciation and amortization expense |
|
| 180,085 |
|
|
| 119,758 |
|
|
| 91,033 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| 11,359 |
|
|
| 10,712 |
|
|
| 10,313 |
|
Impairment loss on intangible assets |
|
| 9,843 |
|
|
| 265 |
|
|
| 343 |
|
Depreciation and amortization |
|
| 4,806 |
|
|
| 3,628 |
|
|
| 3,213 |
|
Gain on sale of radio and publishing assets, net of disposition costs |
|
| (23,557 | ) |
|
| (76,604 | ) |
|
| (31,817 | ) |
Loss (gain) on sale of assets |
|
| 124 |
|
|
| (69 | ) |
|
| 57 |
|
Total operating expenses |
|
| 182,660 |
|
|
| 57,690 |
|
|
| 73,142 |
|
OPERATING INCOME |
|
| 31,908 |
|
|
| 90,797 |
|
|
| 40,989 |
|
OTHER EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (18,018 | ) |
|
| (15,143 | ) |
|
| (8,103 | ) |
Loss on debt extinguishment |
|
| (620 | ) |
|
| (2,662 | ) |
|
| (779 | ) |
Other (expense) income, net |
|
| (160 | ) |
|
| 35 |
|
|
| 139 |
|
Total other expense |
|
| (18,798 | ) |
|
| (17,770 | ) |
|
| (8,743 | ) |
INCOME BEFORE INCOME TAXES |
|
| 13,110 |
|
|
| 73,027 |
|
|
| 32,246 |
|
(BENEFIT) PROVISION FOR INCOME TAXES |
|
| (110 | ) |
|
| (11,732 | ) |
|
| 6,167 |
|
CONSOLIDATED NET INCOME |
|
| 13,220 |
|
|
| 84,759 |
|
|
| 26,079 |
|
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 101 |
|
|
| 2,630 |
|
|
| 2,727 |
|
NET INCOME ATTRIBUTABLE TO THE COMPANY |
| $ | 13,119 |
|
| $ | 82,129 |
|
| $ | 23,352 |
|
| For the years ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| NET REVENUES | $ | 237,938 | $ | 231,433 | $ | 214,568 | |||||
| OPERATING EXPENSES: | |||||||||||
| Station operating expenses excluding depreciation and amortization expense of $3,984, $4,713, and $3,998 respectively | 181,009 | 183,394 | 180,085 | ||||||||
| Corporate expenses excluding depreciation and amortization expense of $1,942, $1,084, and $808 respectively | 14,922 | 13,023 | 11,359 | ||||||||
| LMA fees | 4,208 | — | — | ||||||||
| Hungary license litigation expense | 521 | — | — | ||||||||
| Impairment loss on intangible assets | 67,915 | 9,499 | 9,843 | ||||||||
| Depreciation and amortization | 5,926 | 5,797 | 4,806 | ||||||||
| Gain on contract settlement | (2,500 | ) | — | — | |||||||
| Gain on sale of radio and publishing assets, net of disposition costs | — | — | (23,557 | ) | |||||||
| Loss on sale of assets | — | 56 | 124 | ||||||||
| Total operating expenses | 272,001 | 211,769 | 182,660 | ||||||||
| OPERATING (LOSS) INCOME | (34,063 | ) | 19,664 | 31,908 | |||||||
| OTHER EXPENSE: | |||||||||||
| Interest expense | (17,101 | ) | (18,956 | ) | (18,018 | ) | |||||
| Loss on debt extinguishment | (1,455 | ) | — | (620 | ) | ||||||
| Other (expense) income, net | (6,418 | ) | 1,057 | (160 | ) | ||||||
| Total other expense | (24,974 | ) | (17,899 | ) | (18,798 | ) | |||||
| (LOSS) INCOME BEFORE INCOME TAXES | (59,037 | ) | 1,765 | 13,110 | |||||||
| PROVISION (BENEFIT) FOR INCOME TAXES | 36,948 | 2,069 | (110 | ) | |||||||
| CONSOLIDATED NET (LOSS) INCOME | (95,985 | ) | (304 | ) | 13,220 | ||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 3,274 | (2,418 | ) | 101 | |||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY | (99,259 | ) | 2,114 | 13,119 | |||||||
| LOSS ON MODIFICATION OF PREFERRED STOCK | — | (162 | ) | — | |||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (99,259 | ) | $ | 1,952 | $ | 13,119 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Basic net income per share attributable to common shareholders: |
| $ | 1.09 |
|
| $ | 6.65 |
|
| $ | 1.85 |
|
Diluted net income per share attributable to common shareholders: |
| $ | 1.07 |
|
| $ | 6.50 |
|
| $ | 1.74 |
|
Basic weighted average common shares outstanding |
|
| 12,040 |
|
|
| 12,347 |
|
|
| 12,606 |
|
Diluted weighted average common shares outstanding |
|
| 12,229 |
|
|
| 12,626 |
|
|
| 13,448 |
|
| For the years ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Amounts attributable to common shareholders for basic earnings per share | $ | (99,259 | ) | $ | 1,952 | $ | 13,119 | ||||
| Amounts attributable to common shareholders for diluted earnings per share | $ | (99,259 | ) | $ | 1,952 | $ | 13,119 | ||||
| Basic net (loss) income per share attributable to common shareholders: | $ | (9.33 | ) | $ | 0.18 | $ | 1.09 | ||||
| Diluted net (loss) income per share attributable to common shareholders: | $ | (9.33 | ) | $ | 0.17 | $ | 1.07 | ||||
| Basic weighted average common shares outstanding | 10,634 | 11,034 | 12,040 | ||||||||
| Diluted weighted average common shares outstanding | 10,634 | 11,316 | 12,229 | ||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
(In thousands)
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
CONSOLIDATED NET INCOME |
| $ | 13,220 |
|
| $ | 84,759 |
|
| $ | 26,079 |
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 101 |
|
|
| 2,630 |
|
|
| 2,727 |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS |
| $ | 13,119 |
|
| $ | 82,129 |
|
| $ | 23,352 |
|
| For the year ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| CONSOLIDATED NET (LOSS) INCOME | $ | (95,985 | ) | $ | (304 | ) | $ | 13,220 | |||
| OTHER COMPREHENSIVE INCOME: | |||||||||||
| Change in value of derivative instrument | 99 | — | — | ||||||||
| COMPREHENSIVE (LOSS) INCOME | (95,886 | ) | (304 | ) | 13,220 | ||||||
| LESS: COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 3,274 | (2,418 | ) | 101 | |||||||
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (99,160 | ) | $ | 2,114 | $ | 13,119 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
| FEBRUARY 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 4,107 |
|
| $ | 5,438 |
|
Restricted cash |
|
| 2,008 |
|
|
| 2,504 |
|
Accounts receivable, net of allowance for doubtful accounts of $539 and $395, respectively |
|
| 20,594 |
|
|
| 16,775 |
|
Prepaid expenses |
|
| 3,234 |
|
|
| 3,831 |
|
Assets held for sale |
|
| 26,170 |
|
|
| — |
|
Other |
|
| 3,680 |
|
|
| 1,446 |
|
Total current assets |
|
| 59,793 |
|
|
| 29,994 |
|
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
|
|
Land and buildings |
|
| 26,608 |
|
|
| 26,443 |
|
Leasehold improvements |
|
| 9,239 |
|
|
| 9,036 |
|
Broadcasting equipment |
|
| 34,623 |
|
|
| 33,089 |
|
Office equipment, computer equipment, software and automobiles |
|
| 24,773 |
|
|
| 21,040 |
|
Construction in progress |
|
| 696 |
|
|
| 19 |
|
|
|
| 95,939 |
|
|
| 89,627 |
|
Less-accumulated depreciation and amortization |
|
| 69,338 |
|
|
| 66,150 |
|
Total property and equipment, net |
|
| 26,601 |
|
|
| 23,477 |
|
INTANGIBLE ASSETS: |
|
|
|
|
|
|
|
|
Indefinite lived intangibles |
|
| 170,890 |
|
|
| 170,547 |
|
Goodwill |
|
| 4,338 |
|
|
| 4,338 |
|
Other intangibles |
|
| 2,154 |
|
|
| 2,154 |
|
|
|
| 177,382 |
|
|
| 177,039 |
|
Less-accumulated amortization |
|
| 1,101 |
|
|
| 1,396 |
|
Total intangible assets, net |
|
| 176,281 |
|
|
| 175,643 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Investments |
|
| 800 |
|
|
| 800 |
|
Deposits and other |
|
| 7,669 |
|
|
| 7,832 |
|
Total other assets |
|
| 8,469 |
|
|
| 8,632 |
|
Total assets |
| $ | 271,144 |
|
| $ | 237,746 |
|
| FEBRUARY 28 (29), | |||||||
| 2016 | 2017 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 4,456 | $ | 11,349 | |||
| Restricted cash | 1,464 | 2,323 | |||||
| Accounts receivable, net of allowance for doubtful accounts of $934 and $903, respectively | 34,906 | 26,484 | |||||
| Prepaid expenses | 7,413 | 4,798 | |||||
| Other | 3,452 | 1,503 | |||||
| Total current assets | 51,691 | 46,457 | |||||
| PROPERTY AND EQUIPMENT: | |||||||
| Land and buildings | 27,689 | 27,242 | |||||
| Leasehold improvements | 13,934 | 13,142 | |||||
| Broadcasting equipment | 43,926 | 43,566 | |||||
| Office equipment and automobiles | 31,248 | 27,810 | |||||
| Construction in progress | 544 | 1,474 | |||||
| 117,341 | 113,234 | ||||||
| Less-accumulated depreciation and amortization | 83,498 | 82,389 | |||||
| Total property and equipment, net | 33,843 | 30,845 | |||||
| INTANGIBLE ASSETS: | |||||||
| Indefinite lived intangibles | 205,129 | 197,666 | |||||
| Goodwill | 14,697 | 4,603 | |||||
| Other intangibles | 6,224 | 3,165 | |||||
| 226,050 | 205,434 | ||||||
| Less-accumulated amortization | 2,925 | 1,642 | |||||
| Total intangible assets, net | 223,125 | 203,792 | |||||
| OTHER ASSETS: | |||||||
| Investments | 1,137 | 800 | |||||
| Deposits and other | 6,810 | 7,444 | |||||
| Total other assets | 7,947 | 8,244 | |||||
| Total assets | $ | 316,606 | $ | 289,338 | |||
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS – (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
| FEBRUARY 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 6,394 |
|
| $ | 4,451 |
|
Current maturities of long-term debt |
|
| 16,037 |
|
|
| 32,150 |
|
Accrued salaries and commissions |
|
| 3,541 |
|
|
| 2,570 |
|
Deferred revenue |
|
| 4,030 |
|
|
| 4,055 |
|
Income taxes payable |
|
| 381 |
|
|
| 11,218 |
|
Other |
|
| 2,314 |
|
|
| 2,922 |
|
Total current liabilities |
|
| 32,697 |
|
|
| 57,366 |
|
LONG-TERM DEBT, NET OF CURRENT PORTION |
|
| 122,849 |
|
|
| 48,757 |
|
OTHER NONCURRENT LIABILITIES |
|
| 5,932 |
|
|
| 6,024 |
|
DEFERRED INCOME TAXES |
|
| 31,403 |
|
|
| 25,232 |
|
Total liabilities |
|
| 192,881 |
|
|
| 137,379 |
|
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value; authorized 42,500,000 shares; issued and outstanding 11,649,440 shares and 11,809,291 shares at February 28, 2018 and 2019, respectively |
|
| 116 |
|
|
| 118 |
|
Class B common stock, $0.01 par value; authorized 7,500,000 shares; issued and outstanding 1,142,366 shares and 1,242,366 shares at February 28, 2018 and 2019, respectively |
|
| 11 |
|
|
| 12 |
|
Class C common stock, $0.01 par value, authorized 7,500,000 shares; none issued |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 594,708 |
|
|
| 595,984 |
|
Accumulated deficit |
|
| (547,252 | ) |
|
| (523,900 | ) |
Total shareholders’ equity |
|
| 47,583 |
|
|
| 72,214 |
|
NONCONTROLLING INTERESTS |
|
| 30,680 |
|
|
| 28,153 |
|
Total equity |
|
| 78,263 |
|
|
| 100,367 |
|
Total liabilities and equity |
| $ | 271,144 |
|
| $ | 237,746 |
|
| FEBRUARY 28 (29), | |||||||
| 2016 | 2017 | ||||||
| LIABILITIES AND DEFICIT | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable and accrued expenses | $ | 8,127 | $ | 13,398 | |||
| Current maturities of long-term debt | 17,573 | 23,600 | |||||
| Accrued salaries and commissions | 8,375 | 6,238 | |||||
| Deferred revenue | 11,435 | 4,560 | |||||
| Other | 5,775 | 6,807 | |||||
| Total current liabilities | 51,285 | 54,603 | |||||
| LONG-TERM DEBT, NET OF CURRENT PORTION | 228,027 | 190,372 | |||||
| OTHER NONCURRENT LIABILITIES | 7,728 | 4,842 | |||||
| DEFERRED INCOME TAXES | 43,715 | 43,537 | |||||
| Total liabilities | 330,755 | 293,354 | |||||
| COMMITMENTS AND CONTINGENCIES (NOTE 11) | |||||||
| SHAREHOLDERS’ DEFICIT: | ` | ||||||
| Class A common stock, $0.01 par value; authorized 42,500,000 shares; issued and outstanding 10,402,400 shares and 11,278,065 shares at February 29, 2016 and February 28, 2017, respectively | 104 | 113 | |||||
| Class B common stock, $0.01 par value; authorized 7,500,000 shares; issued and outstanding 1,142,366 shares at February 28 (29), 2016 and 2017 | 11 | 11 | |||||
| Class C common stock, $0.01 par value; authorized 7,500,000 shares; none issued | — | — | |||||
| Series A convertible preferred stock, $.01 par value; $50.00 liquidation preference per share, aggregate liquidation preference and redemption amount of $43,316 at February 29, 2016; authorized 2,875,000 shares; issued and outstanding 866,319 at February 29, 2016 | 9 | — | |||||
| Additional paid-in capital | 589,830 | 592,320 | |||||
| Accumulated deficit | (642,500 | ) | (629,381 | ) | |||
| Total shareholders’ deficit | (52,546 | ) | (36,937 | ) | |||
| NONCONTROLLING INTERESTS | 38,397 | 32,921 | |||||
| Total deficit | (14,149 | ) | (4,016 | ) | |||
| Total liabilities and deficit | $ | 316,606 | $ | 289,338 | |||
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED FEBRUARY 28, 2017
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Series A Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| APIC |
|
| Accumulated Deficit |
|
| Noncontrolling Interests |
|
| Total |
| ||||||||||
BALANCE, FEBRUARY 29, 2016 |
|
| 10,402,400 |
|
| $ | 104 |
|
|
| 1,142,366 |
|
| $ | 11 |
|
|
| 866,319 |
|
| $ | 9 |
|
| $ | 589,830 |
|
| $ | (642,500 | ) |
| $ | 38,397 |
|
| $ | (14,149 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,119 |
|
|
| 101 |
|
|
| 13,220 |
|
Exercise of stock options and related income tax benefits |
|
| 57,738 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| 115 |
|
Issuance of Common Stock to employees and officers and related income tax benefits |
|
| 213,197 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,372 |
|
|
| — |
|
|
| — |
|
|
| 2,374 |
|
Conversion of Preferred Stock to Class A Common Stock |
|
| 606,423 |
|
|
| 6 |
|
|
|
|
|
|
| — |
|
|
| (866,319 | ) |
|
| (9 | ) |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Purchase of Class A Common Stock |
|
| (1,693 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (5 | ) |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,577 | ) |
|
| (5,577 | ) |
BALANCE, FEBRUARY 28, 2017 |
|
| 11,278,065 |
|
| $ | 113 |
|
|
| 1,142,366 |
|
| $ | 11 |
|
|
| - |
|
| $ | - |
|
| $ | 592,320 |
|
| $ | (629,381 | ) |
| $ | 32,921 |
|
| $ | (4,016 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 82,129 |
|
|
| 2,630 |
|
|
| 84,759 |
|
Exercise of stock options and related income tax benefits |
|
| 52,250 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131 |
|
|
| — |
|
|
| — |
|
|
| 131 |
|
Issuance of Common Stock to employees and officers and related income tax benefits |
|
| 319,125 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,257 |
|
|
| — |
|
|
| — |
|
|
| 2,260 |
|
Conversion of Preferred Stock to Class A Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase of Class A Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,871 | ) |
|
| (4,871 | ) |
BALANCE, FEBRUARY 28, 2018 |
|
| 11,649,440 |
|
| $ | 116 |
|
|
| 1,142,366 |
|
| $ | 11 |
|
|
| — |
|
| $ | — |
|
| $ | 594,708 |
|
| $ | (547,252 | ) |
| $ | 30,680 |
|
| $ | 78,263 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,352 |
|
|
| 2,727 |
|
|
| 26,079 |
|
Exercise of stock options and related income tax benefits |
|
| 157,918 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 366 |
|
|
| — |
|
|
| — |
|
|
| 368 |
|
Issuance of Common Stock to employees and officers and related income tax benefits |
|
| 1,933 |
|
|
| — |
|
|
| 100,000 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 910 |
|
|
| — |
|
|
| — |
|
|
| 911 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,254 | ) |
|
| (5,254 | ) |
BALANCE, FEBRUARY 28, 2019 |
|
| 11,809,291 |
|
| $ | 118 |
|
|
| 1,242,366 |
|
| $ | 12 |
|
| $ | — |
|
| $ | — |
|
| $ | 595,984 |
|
| $ | (523,900 | ) |
| $ | 28,153 |
|
| $ | 100,367 |
|
| Class A Common Stock | Class B Common Stock | Series A Preferred Stock | ||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||
| BALANCE, FEBRUARY 28, 2014 | 9,316,781 | $ | 93 | 1,142,366 | $ | 11 | 928,991 | $ | 9 | |||||||||||
| Net (loss) income | — | — | — | — | — | — | ||||||||||||||
| Exercise of stock options and related income tax benefits | 198,096 | 2 | — | — | — | — | ||||||||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 96,978 | 1 | — | — | — | — | ||||||||||||||
| Distribution of 2012 Retention Plan Trust, net of taxes | 151,825 | 2 | — | — | — | — | ||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ||||||||||||||
| Acquisition of noncontrolling interest | — | — | — | — | — | — | ||||||||||||||
| Change in value of derivative instrument | — | — | — | — | — | — | ||||||||||||||
| BALANCE, FEBRUARY 28, 2015 | 9,763,680 | $ | 98 | 1,142,366 | $ | 11 | 928,991 | $ | 9 | |||||||||||
| Net (loss) income | — | — | — | — | — | — | ||||||||||||||
| Exercise of stock options and related income tax benefits | 47,500 | — | — | — | — | — | ||||||||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 552,990 | 6 | — | — | — | — | ||||||||||||||
| Conversion of Preferred Stock to Class A Common Stock | 38,230 | — | — | (62,672 | ) | — | ||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ||||||||||||||
| BALANCE, FEBRUARY 29, 2016 | 10,402,400 | $ | 104 | 1,142,366 | $ | 11 | 866,319 | $ | 9 | |||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||
| Exercise of stock options and related income tax benefits | 57,738 | 1 | — | — | — | — | ||||||||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 213,197 | 2 | — | — | — | — | ||||||||||||||
| Conversion of Preferred Stock to Class A Common Stock | 606,423 | 6 | — | (866,319 | ) | (9 | ) | |||||||||||||
| Purchase of Class A Common Stock | (1,693 | ) | — | |||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ||||||||||||||
| BALANCE, FEBRUARY 28, 2017 | 11,278,065 | $ | 113 | 1,142,366 | $ | 11 | — | $ | — | |||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)THOUSANDS)
|
| FOR THE YEAR ENDED FEBRUARY 28 (29), |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
| $ | 13,220 |
|
| $ | 84,759 |
|
| $ | 26,079 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities— |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of radio and publishing assets, net of disposition costs |
|
| (23,557 | ) |
|
| (76,604 | ) |
|
| (31,817 | ) |
Impairment losses on long-lived assets |
|
| 9,843 |
|
|
| 265 |
|
|
| 647 |
|
Loss on debt extinguishment |
|
| 620 |
|
|
| 2,662 |
|
|
| 779 |
|
Noncash accretion of debt instruments to interest expense |
|
| 743 |
|
|
| 495 |
|
|
| 82 |
|
Amortization of deferred financing costs, including original issue discount |
|
| 1,661 |
|
|
| 2,536 |
|
|
| 1,198 |
|
Impairment of assets held for sale |
|
| — |
|
|
| — |
|
|
| 205 |
|
Depreciation and amortization |
|
| 4,806 |
|
|
| 3,628 |
|
|
| 3,213 |
|
Provision for bad debts |
|
| 377 |
|
|
| 699 |
|
|
| 816 |
|
Benefit for deferred income taxes |
|
| (178 | ) |
|
| (12,134 | ) |
|
| (6,171 | ) |
Noncash compensation |
|
| 2,920 |
|
|
| 2,654 |
|
|
| 1,554 |
|
Loss on investments including other-than-temporary impairment |
|
| 254 |
|
|
| — |
|
|
| — |
|
Loss (gain) on sale of assets |
|
| 124 |
|
|
| (69 | ) |
|
| 57 |
|
Changes in assets and liabilities— |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 3,460 |
|
|
| 5,191 |
|
|
| 3,003 |
|
Prepaid expenses and other current assets |
|
| 1,639 |
|
|
| (631 | ) |
|
| 948 |
|
Other assets |
|
| (644 | ) |
|
| (507 | ) |
|
| (161 | ) |
Accounts payable and accrued liabilities |
|
| 5,131 |
|
|
| (9,701 | ) |
|
| (4,845 | ) |
Deferred revenue |
|
| (294 | ) |
|
| (463 | ) |
|
| 597 |
|
Income taxes |
|
| (76 | ) |
|
| (121 | ) |
|
| 10,810 |
|
Other liabilities |
|
| (788 | ) |
|
| (2,733 | ) |
|
| 745 |
|
Net cash provided by (used in) operating activities |
|
| 19,261 |
|
|
| (74 | ) |
|
| 7,739 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (2,850 | ) |
|
| (1,809 | ) |
|
| (518 | ) |
Proceeds from the sale of assets |
|
| 31,980 |
|
|
| 80,238 |
|
|
| 60,171 |
|
Other |
|
| 19 |
|
|
| — |
|
|
| — |
|
Net cash provided by investing activities |
|
| 29,149 |
|
|
| 78,429 |
|
|
| 59,653 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
| (55,970 | ) |
|
| (100,833 | ) |
|
| (62,538 | ) |
Proceeds from long-term debt |
|
| 21,350 |
|
|
| 21,690 |
|
|
| 2,500 |
|
Settlement of tax withholding obligations |
|
| (539 | ) |
|
| (393 | ) |
|
| (641 | ) |
Dividends and distributions paid to noncontrolling interests |
|
| (5,577 | ) |
|
| (4,871 | ) |
|
| (5,254 | ) |
Proceeds from exercise of stock options and employee stock purchases |
|
| 115 |
|
|
| 131 |
|
|
| 368 |
|
Payments for debt related costs |
|
| (32 | ) |
|
| (1,636 | ) |
|
| — |
|
Other |
|
| (5 | ) |
|
| — |
|
|
| — |
|
Net cash used in financing activities |
|
| (40,658 | ) |
|
| (85,912 | ) |
|
| (65,565 | ) |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 7,752 |
|
|
| (7,557 | ) |
|
| 1,827 |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
| 5,920 |
|
|
| 13,672 |
|
|
| 6,115 |
|
End of period |
| $ | 13,672 |
|
| $ | 6,115 |
|
| $ | 7,942 |
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for (refund from) — |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 15,618 |
|
| $ | 13,334 |
|
| $ | 5,765 |
|
Income taxes |
|
| 112 |
|
|
| 2,636 |
|
|
| (467 | ) |
Noncash financing transactions — |
|
|
|
|
|
|
|
|
|
|
|
|
Value of stock issued to employees under stock compensation program and to satisfy accrued incentives |
|
| 2,920 |
|
|
| 2,650 |
|
|
| 1,554 |
|
| Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total Equity (Deficit) | ||||||||||
| BALANCE, FEBRUARY 28, 2014 | 581,091 | (545,355 | ) | (99 | ) | 47,618 | 83,368 | |||||||
| Net (loss) income | — | (99,259 | ) | — | 3,274 | (95,985 | ) | |||||||
| Exercise of stock options and related income tax benefits | 417 | — | — | — | 419 | |||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 2,122 | — | — | — | 2,123 | |||||||||
| Distribution of 2012 Retention Plan Trust, net of taxes | 2,056 | — | — | — | 2,058 | |||||||||
| Distributions to noncontrolling interests | — | — | — | (5,428 | ) | (5,428 | ) | |||||||
| Acquisition of noncontrolling interests | — | — | — | 1,197 | 1,197 | |||||||||
| Change in value of derivative instrument | — | — | 99 | — | 99 | |||||||||
| BALANCE, FEBRUARY 28, 2015 | 585,686 | (644,614 | ) | — | 46,661 | (12,149 | ) | |||||||
| Net (loss) income | — | 2,114 | — | (2,418 | ) | (304 | ) | |||||||
| Exercise of stock options and related income tax benefits | 135 | — | — | — | 135 | |||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 4,008 | — | — | — | 4,014 | |||||||||
| Conversion of Preferred Stock to Class A Common Stock | 1 | — | — | — | 1 | |||||||||
| Distributions to noncontrolling interests | — | — | — | (5,846 | ) | (5,846 | ) | |||||||
| BALANCE, FEBRUARY 29, 2016 | 589,830 | (642,500 | ) | — | 38,397 | (14,149 | ) | |||||||
| Net income | — | 13,119 | — | 101 | 13,220 | |||||||||
| Exercise of stock options and related income tax benefits | 114 | — | — | — | 115 | |||||||||
| Issuance of Common Stock to employees and officers and related income tax benefits | 2,372 | — | — | — | 2,374 | |||||||||
| Conversion of Preferred Stock to Class A Common Stock | 9 | — | — | — | 6 | |||||||||
| Purchase of Class A Common Stock | (5 | ) | — | — | — | (5 | ) | |||||||
| Distributions to noncontrolling interests | — | — | — | (5,577 | ) | (5,577 | ) | |||||||
| BALANCE, FEBRUARY 28, 2017 | 592,320 | (629,381 | ) | — | 32,921 | (4,016 | ) | |||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
| FOR THE YEARS ENDED FEBRUARY 28 (29), | ||||||||
| 2015 | 2016 | 2017 | ||||||
| OPERATING ACTIVITIES: | ||||||||
| Consolidated net (loss) income | (95,985 | ) | (304 | ) | 13,220 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities— | ||||||||
| Gain on sale of radio and publishing assets, net of disposition costs | — | — | (23,557 | ) | ||||
| Impairment losses on intangible assets | 67,915 | 9,499 | 9,843 | |||||
| Loss on debt extinguishment | 1,455 | — | 620 | |||||
| Noncash accretion of debt instruments to interest expense | 3,472 | 743 | 743 | |||||
| Amortization of deferred financing costs, including original issue discount | 1,227 | 1,667 | 1,661 | |||||
| Depreciation and amortization | 5,926 | 5,797 | 4,806 | |||||
| Provision for bad debts | 627 | 626 | 377 | |||||
| Provision (benefit) for deferred income taxes | 36,719 | 2,100 | (178 | ) | ||||
| Noncash compensation | 2,813 | 4,904 | 2,920 | |||||
| Loss on investments including other-than-temporary impairment | 6,682 | — | 254 | |||||
| Loss on sale of assets | — | 56 | 124 | |||||
| Changes in assets and liabilities— | ||||||||
| Restricted cash | (501 | ) | 1,276 | (209 | ) | |||
| Accounts receivable | (6,954 | ) | 1,796 | 3,460 | ||||
| Prepaid expenses and other current assets | (1,527 | ) | 1,289 | 1,639 | ||||
| Other assets | (682 | ) | (1,583 | ) | (644 | ) | ||
| Accounts payable and accrued liabilities | (373 | ) | (1,236 | ) | 5,131 | |||
| Deferred revenue | 62 | (133 | ) | (294 | ) | |||
| Income taxes | (30 | ) | (117 | ) | (76 | ) | ||
| Other liabilities | (2,390 | ) | (1,266 | ) | (788 | ) | ||
| Net cash provided by operating activities | 18,456 | 25,114 | 19,052 | |||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (3,514 | ) | (3,388 | ) | (2,850 | ) | ||
| Cash paid for acquisitions | (136,006 | ) | — | — | ||||
| Proceeds from the sale of assets | 3 | — | 31,330 | |||||
| (Cash paid for) received from investments, net | (516 | ) | 107 | 54 | ||||
| Other | (185 | ) | — | (35 | ) | |||
| Net cash (used in) provided by investing activities | (140,218 | ) | (3,281 | ) | 28,499 | |||
| FOR THE YEARS ENDED FEBRUARY 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Payments on long-term debt | (79,541 | ) | (24,228 | ) | (55,970 | ) | |||||
| Proceeds from long-term debt | 214,000 | 11,000 | 21,350 | ||||||||
| Settlement of tax withholding obligations | (1,466 | ) | (971 | ) | (539 | ) | |||||
| Dividends and distributions paid to noncontrolling interests | (5,428 | ) | (5,846 | ) | (5,577 | ) | |||||
| Proceeds from exercise of stock options and employee stock purchases | 411 | 133 | 115 | ||||||||
| Payments for debt related costs | (7,849 | ) | (1,134 | ) | (32 | ) | |||||
| Other | — | — | (5 | ) | |||||||
| Net cash provided by (used in) financing activities | 120,127 | (21,046 | ) | (40,658 | ) | ||||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,635 | ) | 787 | 6,893 | |||||||
| CASH AND CASH EQUIVALENTS: | |||||||||||
| Beginning of period | 5,304 | 3,669 | 4,456 | ||||||||
| End of period | $ | 3,669 | $ | 4,456 | $ | 11,349 | |||||
| SUPPLEMENTAL DISCLOSURES: | |||||||||||
| Cash paid for — | |||||||||||
| Interest | $ | 9,781 | $ | 16,742 | $ | 15,618 | |||||
| Income taxes | 243 | 216 | 112 | ||||||||
| Noncash financing transactions— | |||||||||||
| Value of stock issued to employees under stock compensation program and to satisfy accrued incentives | 5,637 | 4,963 | 2,920 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively, “Emmis,” the “Company,” or “we”). All significant intercompany balances and transactions have been eliminated.
Organization
We are a diversified media company, principally focused on radio broadcasting. Emmis owns 1611 FM and 3 AM radio stations in New York, Los Angeles, St. Louis,Indianapolis, and Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located there) and Indianapolis.. One of the FM radio stations that Emmis currently owns in New York is operated pursuant to a Local Marketing Agreement ("LMA"(“LMA”) whereby a third party provides the programming for the station and sells all advertising within that programming. In addition, Emmis has entered into an agreementOn April 30, 2018, we sold our four radio stations in St. Louis. These stations were being operated pursuant to sell its FM radio stationLMAs, which commenced on March 1, 2018 and remained in Los Angeles and that transaction is expected to close ineffect until the back half of 2017. Emmis also developed and licenses TagStation
In addition to our radio properties, we also publish
Indianapolis MonthlySubstantially all of ECC’s business is conducted through its subsidiaries. Our credit agreement, dated June 10, 2014 (the “2014 Credit Agreement”), containslong-term debt agreements contain certain provisions that may restrict the ability of ECC’s subsidiaries to transfer funds to ECC in the form of cash dividends, loans or advances.
Common Stock Reverse Split
On July 8, 2016, the Company effected a one-for-four reverse stock split for its Class A, Class B and Class C common
Revenue Recognition
The Company generates from the sale of services and products including, but not limited to: (i) on-air commercial broadcast time, (ii) magazine-related display advertising, (iii) magazine circulation and newsstand revenues, (iv) non-traditional revenues including event-related revenues and event sponsorship revenues, (v) revenues generated from LMAs and (vi) digital advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of deliverywithin twelve months of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain conditions such as persuasive evidence thatpayment date. We do not disclose the value of unsatisfied performance obligations for contracts with an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue and upon deliveryoriginal expected length of the publication for publication revenue.one year or less. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
Advertising
On-air broadcast revenue and magazine display revenue are recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received by advertisers before the performance obligation is satisfied are recorded as deferred revenue in the consolidated balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.
Circulation
Circulation revenue includes revenues for Indianapolis Monthly purchased by readers or distributors. Single copy newsstand sales are recognized when the monthly magazine is distributed, net of provisions for related returns. Circulation revenues from digital and home delivery subscriptions are recognized over the subscription period as the performance obligations are delivered.
Nontraditional
Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations and magazine conduct in their local markets. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.
LMA Fees
LMA fee revenue relates to fees that the Company collects from third parties in exchange for the right to program and sell advertising for a specified portion of a radio stations’ inventory of broadcast time. These revenues are generally recognized ratably over the duration that the third party programs the radio station.
Digital
Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video sponsorships) to advertisers. Digital revenues are generally recognized as the digital advertising is delivered.
39
The following table presents the Company’s revenues disaggregated by revenue source:
|
| For the Year Ended February 28, |
| |||||||||||||||||||||
|
| 2017 |
|
| % of Total |
|
| 2018 |
|
| % of Total |
|
| 2019 |
|
| % of Total |
| ||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
| $ | 145,710 |
|
|
| 67.9 | % |
| $ | 98,667 |
|
|
| 66.4 | % |
| $ | 74,597 |
|
|
| 65.4 | % |
Circulation |
|
| 4,193 |
|
|
| 2.0 | % |
|
| 412 |
|
|
| 0.3 | % |
|
| 384 |
|
|
| 0.3 | % |
Non Traditional |
|
| 22,936 |
|
|
| 10.7 | % |
|
| 17,280 |
|
|
| 11.6 | % |
|
| 12,897 |
|
|
| 11.3 | % |
LMA Fees |
|
| 10,331 |
|
|
| 4.8 | % |
|
| 10,752 |
|
|
| 7.2 | % |
|
| 11,050 |
|
|
| 9.7 | % |
Digital |
|
| 14,737 |
|
|
| 6.9 | % |
|
| 10,058 |
|
|
| 6.8 | % |
|
| 5,500 |
|
|
| 4.8 | % |
Other |
|
| 16,661 |
|
|
| 7.7 | % |
|
| 11,318 |
|
|
| 7.7 | % |
|
| 9,703 |
|
|
| 8.5 | % |
Total net revenues |
| $ | 214,568 |
|
|
|
|
|
| $ | 148,487 |
|
|
|
|
|
| $ | 114,131 |
|
|
|
|
|
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded based on management’s judgment of the collectability of receivables. When assessing the collectability of receivables, management considers, among other things, historical loss experience and existing economic conditions. Amounts are written off after all normal collection efforts have been exhausted. The activity in the allowance for doubtful accounts for the three years ended February 28, 20172019 was as follows:
|
| Balance At Beginning Of Year |
|
| Provision |
|
| Write-Offs |
|
| Balance At End Of Year |
| ||||
Year ended February 28, 2017 |
| $ | 934 |
|
| $ | 377 |
|
| $ | (408 | ) |
| $ | 903 |
|
Year ended February 28, 2018 |
|
| 903 |
|
|
| 699 |
|
|
| (1,063 | ) |
|
| 539 |
|
Year ended February 28, 2019 |
|
| 539 |
|
|
| 816 |
|
|
| (960 | ) |
|
| 395 |
|
Balance At Beginning Of Year | Provision | Write-Offs | Balance At End Of Year | ||||||||||||
| Year ended February 28, 2015 | $ | 574 | $ | 627 | $ | (536 | ) | $ | 665 | ||||||
| Year ended February 29, 2016 | 665 | 626 | (357 | ) | 934 | ||||||||||
| Year ended February 28, 2017 | 934 | 377 | (408 | ) | 903 | ||||||||||
Local Programming and Marketing Agreement Fees
The Company from time to time enters into LMAs in connection with acquisitions and dispositions of radio stations, pending regulatory approval of transfer of the FCC licenses. Under the terms of these agreements, the acquiring company makes specified periodic payments to the holder of the FCC license in exchange for the right to program and sell advertising for a specified portion of the station’s inventory of broadcast time. The acquiring company records revenues and expenses associated with the portion of the station’s inventory of broadcast time it manages. Nevertheless, as the holder of the FCC license, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all programming broadcast on the station.
On April 26, 2012, the Company entered into an LMA with New York AM Radio, LLC (“98.7FM Programmer”) pursuant to which, commencing April 30, 2012, 98.7FM Programmer purchased from Emmis the right to provide programming on 98.7FM until August 31, 2024. Disney Enterprises, Inc., the parent company of 98.7FM Programmer, has guaranteed the obligations of 98.7FM Programmer under the LMA. The Company retains ownership and control of the station, including the related FCC license during the term of the LMA and received an annual fee from 98.7FM Programmer of $8.4 million for the first year of the term under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination. This LMA fee revenue is recorded on a straight-line basis over the term of the LMA. Emmis retains the FCC license of 98.7FM after the term of the LMA expires.
On February 11, 2014,May 8, 2017, Emmis and an affiliate of the CompanyMeruelo Group (the “Meruelo Group”) entered into an LMA and asset purchase agreement related to KPWR-FM in connectionLos Angeles. This LMA started on July 1, 2017 and terminated with its agreement to purchase WBLS-FM and WLIB-AM in New York City from YMF Media New York LLC and YMF Media New York License LLC (collectively, "YMF"). The LMA, which commencedthe consummation of the sale of KPWR-FM on MarchAugust 1, 2014, gave2017. Emmis the right to program and sell advertising for the two New York stations. Emmis paid YMF $1.3recognized $0.4 million per month and reimbursed YMF for certain monthly expenses. The monthlyof LMA fee decreased to approximately $0.74 million after the first closingrevenue which is included in net revenues in our accompanying consolidated statements of the purchase of the stations, which occurred on June 10, 2014, and ceased effective with the second closing on February 13, 2015. The LMA fees paid after the first closing were recognized as a liability as of the date of purchase of the stations on June 10, 2014. Accordingly, LMA fees incurred after June 10, 2014 did not impact our results of operations. Duringoperations during the year ended February 28, 2015, Emmis recorded $4.2 million of LMA expense.2018. See Note 7 for more discussion of our sale of KPWR-FM to the Company's purchaseMeruelo Group.
On April 30, 2018, Emmis closed on the sale of WBLS-FM and WLIB-AMsubstantially all of its radio station assets in St. Louis. The St. Louis stations were operated pursuant to LMAs from YMF.
LMA fees recorded as net revenues in the accompanying consolidated statements of operations were as follows for the three years ended February 2015, 2016 and 2017:28, 2019:
|
| For the years ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
98.7FM, New York |
| $ | 10,331 |
|
| $ | 10,331 |
|
| $ | 10,331 |
|
KPWR-FM, Los Angeles |
|
| — |
|
|
| 421 |
|
|
| — |
|
St. Louis Radio Cluster |
|
| — |
|
|
| — |
|
|
| 719 |
|
Total LMA fees |
| $ | 10,331 |
|
| $ | 10,752 |
|
| $ | 11,050 |
|
| For the years ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| 98.7FM, New York | $ | 10,331 | $ | 10,331 | $ | 10,331 | |||||
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 Company’s 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. See Note 4 for more discussion of share-based compensation.
Cash and Cash Equivalents
Emmis considers time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
Restricted Cash
As of February 28, 2019, restricted cash relates to cash on deposit in trust accounts related to our 98.7FM LMA in New York City that services long-term debt and cash collectedheld by our wholly-owned subsidiary, NextRadio LLC, from other radio broadcasters for paymentsJPMorgan Chase as collateral to Sprint,secure the Company’s corporate purchasing card and travel and expense programs. Restricted cash as of February 28, 2018 also included cash held in escrow as part ofrelated to our sale of four magazinesLos Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine. The funds held in February 2017. Usage of cash collected by NextRadio
|
| As of February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
Cash and cash equivalents |
| $ | 4,107 |
|
| $ | 5,438 |
|
Restricted cash: |
|
|
|
|
|
|
|
|
98.7FM LMA restricted cash (see Note 8) |
|
| 1,358 |
|
|
| 1,504 |
|
Cash used to secure the Company's purchasing card and travel and expense programs |
|
| — |
|
|
| 1,000 |
|
Cash held in escrow from magazine sale restricted cash (see Note 7) |
|
| 650 |
|
|
| — |
|
Total cash, cash equivalents and restricted cash |
| $ | 6,115 |
|
| $ | 7,942 |
|
| For the years ending February 28 (29), | |||||||
| 2016 | 2017 | ||||||
| 98.7FM LMA restricted cash (see Note 8) | $ | 1,464 | $ | 1,550 | |||
| NextRadio LLC restricted cash (see Note 8) | — | 123 | |||||
| Cash held in escrow from magazine sale restricted cash (see Note 7) | — | 650 | |||||
| Total investments | $ | 1,464 | $ | 2,323 | |||
Property and Equipment
Property and equipment are recorded at cost. Depreciation is generally computed using the straight-line method over the estimated useful lives of the related assets, which are 39 years for buildings, the shorter of economic life or expected lease term for leasehold improvements, five to seven years for broadcasting equipment, five years for automobiles, office equipment and computer equipment, and three to five years for office equipment.software. Maintenance, repairs and minor renewals are expensed as incurred; improvements are capitalized. On a continuing basis, the Company reviews the carrying value of property and equipment for impairment. If events or changes in circumstances were to indicate that an asset carrying value may not be recoverable, a write-down of the asset would be recorded through a charge to operations. See below for more discussion of impairment policies related to our property and equipment. Depreciation expense for the years ended February 2015, 20162017, 2018 and 20172019 was $5.0$4.1 million, $4.3$3.3 million and $4.1$2.9 million, respectively.
Intangible Assets and Goodwill
Indefinite-lived Intangibles and Goodwill
In connection with past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired. In accordance with ASC Topic 350, “
Intangibles—Goodwill and Other,” goodwill and radio broadcasting licenses are not amortized, but are tested at least annually for impairment at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on December 1 of each year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Impairment exists when the asset carrying values exceed their respective fair values, and the excess is then recorded to operations as an impairment charge. See Note 9, Intangible Assets and Goodwill, for more discussion of our interim and annual impairment tests performed during the three years ended February 28,Definite-lived Intangibles
The Company’s definite-lived intangible assets primarily consist of trademarks, customer lists and radio programming contracts which are amortized over the period of time the intangible assets are expected to contribute directly or indirectly to the Company’s future cash flows.
Advertising and Subscription Acquisition Costs
Advertising and subscription acquisition costs are expensed when incurred. Advertising expense and subscription acquisition costs for the years ended February 2015, 20162017, 2018 and 2017 was $3.22019 were $5.7 million, $4.1$2.6 million and $5.7$1.6 million, respectively.
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. For otherthose investments held at February 28, 2017,in which the Company does not have such significant influence, the Company applies the accounting guidance for certain investments in debt and equity securities. Emmis’ equity method investment reports on a fiscal year ending December 31, which Emmis incorporates into its fiscal year ended February 28 (29).
| For the years ending February 28 (29), | |||||||
| 2016 | 2017 | ||||||
| Available-for-sale investment | $ | 800 | $ | 800 | |||
| Equity method investment | 337 | — | |||||
| Total investments | $ | 1,137 | $ | 800 | |||
Equity method investment
Emmis hashad a minority interest in a partnership that owns and operates various entertainment websites. During the year ended February 28, 2017, Emmis recorded a noncash impairment charge of $0.3 million in other (expense) income, (expense), net in the accompanying consolidated statements of operations as it deemed the investment was impaired and the impairment was other-than-temporary. This impairment charge reduced the carrying value of this investment to zero as of February 28, 2017.
Available for sale investment
Emmis’ available for sale investment is an investment in the preferred shares of a non-public company. During the year ended February 29, 2016, Emmis received an additional $0.3 million of preferred shares of this non-public company in exchange for promotional airtime on its various radio stations. This investment is accounted for under the provisions of ASC 320, and as such, is carried at its fair value, which Emmis believes approximates its cost basis of $0.8 million.
Unrealized gains and losses would be reported in other comprehensive income until realized, at which point they would be recognized in the consolidated statements of operations. If the Company determines that the value of an investment is other-than-temporarily impaired, the Company will recognize, through the statements of operations, a loss on the investment.
Deferred Revenue and Barter Transactions
Deferred revenue includes deferred barter, other transactions in which payments are received prior to the performance of services (i.e. cash-in-advance advertising and prepaid LMA payments), and deferred magazine subscription revenue. Barter transactions are recorded at the estimated fair value of the product or service received. Revenue from barter transactions is recognized when commercials are broadcast or a publication is delivered. The appropriate expense or asset is recognized when merchandise or services are used or received. Magazine subscription revenue is recognized when the publication is shipped. Barter revenues for the years ended February 2015, 20162017, 2018 and 20172019 were $8.5$7.8 million, $8.5$4.7 million and $7.8$3.4 million, respectively, and barter expenses were $8.7$7.9 million, $8.5$4.8 million, and $7.9$3.5 million, respectively.
Earnings Per Share
ASC Topic 260 requires dual presentation of basic and diluted income (loss) per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities atfor the three years ended February 2015, 2016 and 201728, 2019 consisted of stock options and restricted stock awards and preferred stock.
The following table sets forth the calculation of basic and diluted net income (loss) per share from continuing operations:
|
| For the year ended |
| |||||||||||||||||||||||||||||||||
|
| February 28, 2017 |
|
| February 28, 2018 |
|
| February 28, 2019 |
| |||||||||||||||||||||||||||
|
| Net Income |
|
| Shares |
|
| Net Income Per Share |
|
| Net Income |
|
| Shares |
|
| Net Income Per Share |
|
| Net Income |
|
| Shares |
|
| Net Income Per Share |
| |||||||||
|
| (amounts in 000’s, except per share data) |
| |||||||||||||||||||||||||||||||||
Basic net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders from continuing operations |
| $ | 13,119 |
|
|
| 12,040 |
|
| $ | 1.09 |
|
| $ | 82,129 |
|
|
| 12,347 |
|
| $ | 6.65 |
|
| $ | 23,352 |
|
|
| 12,606 |
|
| $ | 1.85 |
|
Impact of equity awards |
|
| — |
|
|
| 189 |
|
|
|
|
|
|
| — |
|
|
| 279 |
|
|
|
|
|
|
| — |
|
|
| 842 |
|
|
|
|
|
Diluted net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders from continuing operations |
| $ | 13,119 |
|
|
| 12,229 |
|
| $ | 1.07 |
|
| $ | 82,129 |
|
|
| 12,626 |
|
| $ | 6.50 |
|
| $ | 23,352 |
|
|
| 13,448 |
|
| $ | 1.74 |
|
| For the year ended | ||||||||||||||||||||||||||||||||
| February 28, 2015 | February 29, 2016 | February 28, 2017 | ||||||||||||||||||||||||||||||
| Net Loss | Shares | Net Loss Per Share | Net Income | Shares | Net Income Per Share | Net Income | Shares | Net Income Per Share | ||||||||||||||||||||||||
| (amounts in 000’s, except per share data) | ||||||||||||||||||||||||||||||||
| Basic net income (loss) per common share: | ||||||||||||||||||||||||||||||||
| Net income (loss) available to common shareholders from continuing operations | $ | (99,259 | ) | 10,634 | $ | (9.33 | ) | $ | 1,952 | 11,034 | $ | 0.18 | $ | 13,119 | 12,040 | $ | 1.09 | |||||||||||||||
| Impact of equity awards | — | — | — | 282 | — | 189 | ||||||||||||||||||||||||||
| Diluted net income (loss) per common share: | ||||||||||||||||||||||||||||||||
| Net income (loss) available to common shareholders from continuing operations | $ | (99,259 | ) | 10,634 | $ | (9.33 | ) | $ | 1,952 | 11,316 | $ | 0.17 | $ | 13,119 | 12,229 | $ | 1.07 | |||||||||||||||
Shares excluded from the calculation as the effect of their conversion into shares of our common stock would be antidilutive were as follows:
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
|
| (shares in 000’s ) |
| |||||||||
Stock options and restricted stock awards |
|
| 1,341 |
|
|
| 1,951 |
|
|
| 1,089 |
|
| For the year ended February 28 (29), | ||||||||
| 2015 | 2016 | 2017 | ||||||
| (shares in 000’s ) | ||||||||
| Preferred stock | 567 | 607 | — | |||||
| Stock options and restricted stock awards | 1,081 | 1,279 | 1,341 | |||||
| Antidilutive common share equivalents | 1,648 | 1,886 | 1,341 | |||||
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes.
After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
Long-Lived Tangible Assets
The Company periodically considers whether indicators of impairment of long-lived tangible assets are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question are less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals and other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the asset’s carrying value is greater than the fair value. The fair value of the asset then becomes the asset’s new carrying value, which, if applicable, the Company depreciates or amortizes over the remaining estimated useful life of the asset.
During the year ended February 28, 2019, the Company dramatically scaled back the operations of its TagStation business in Chicago. In connection with this decision, the Company recorded an impairment charge of $0.3 million related to the long-lived tangible assets of TagStation. This charge is included in station operating expenses, excluding depreciation and amortization expense in the accompanying consolidated statements of operations.
Noncontrolling Interests
The Company follows Accounting Standards Codification paragraph 810-10-65-1 to report the noncontrolling interests related to our Austin radio partnership and Digonex. We have a 50.1% controlling interest in our Austin radio partnership. We do not own any of the common equity of Digonex, but we consolidate the entity because we control its board of directors via rights granted in convertible preferred stock and convertible debt that we own.
Noncontrolling interests represents the noncontrolling interest holders'holders’ proportionate share of the equity of the Austin radio partnership and Digonex. Noncontrolling interests are adjusted for the noncontrolling interest holders'holders’ proportionate share of the earnings or losses of the applicable entity. The noncontrolling interest continues to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance. Below is a summary of the noncontrolling interest activity for the years ended February 20162018 and 2017:2019:
|
| Austin Radio Partnership |
|
| Digonex |
|
| Total Noncontrolling Interests |
| |||
Balance, February 28, 2017 |
| $ | 46,830 |
|
| $ | (13,909 | ) |
| $ | 32,921 |
|
Net income (loss) |
|
| 5,465 |
|
|
| (2,835 | ) |
|
| 2,630 |
|
Payments of dividends and distributions to noncontrolling interests |
|
| (4,871 | ) |
|
| — |
|
|
| (4,871 | ) |
Balance, February 28, 2018 |
|
| 47,424 |
|
|
| (16,744 | ) |
|
| 30,680 |
|
Net income (loss) |
|
| 4,976 |
|
|
| (2,249 | ) |
|
| 2,727 |
|
Payments of dividends and distributions to noncontrolling interests |
|
| (5,254 | ) |
|
| — |
|
|
| (5,254 | ) |
Balance, February 28, 2019 |
| $ | 47,146 |
|
| $ | (18,993 | ) |
| $ | 28,153 |
|
| Austin radio partnership | Digonex | Total noncontrolling interests | ||||||||||
| Balance, February 28, 2015 | $ | 47,883 | $ | (1,222 | ) | $ | 46,661 | |||||
| Net income (loss) | 5,519 | (7,937 | ) | (2,418 | ) | |||||||
| Payments of dividends and distributions to noncontrolling interests | (5,846 | ) | — | (5,846 | ) | |||||||
| Balance, February 29, 2016 | 47,556 | (9,159 | ) | 38,397 | ||||||||
| Net income (loss) | 4,851 | (4,750 | ) | 101 | ||||||||
| Payments of dividends and distributions to noncontrolling interests | (5,577 | ) | — | (5,577 | ) | |||||||
| Balance, February 28, 2017 | $ | 46,830 | $ | (13,909 | ) | $ | 32,921 | |||||
Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
National Representation Agreement
On October 1, 2007, Emmis terminated its existing national sales representation agreement with Interep National Radio Sales, Inc. (“Interep”) and entered into a new agreement with Katz Communications, Inc. (“Katz”) extending throughto March 2018. Emmis’ existing contract with Interep at the time extended through September 2011. Emmis, Interep and Katz entered into a tri-party termination and mutual release agreement under which Interep agreed to release Emmis from its future contractual obligations in exchange for a one-time payment of $15.3 million, which was paid by Katz on behalf of Emmis as an inducement for Emmis to enter into the new long-term contract with Katz. Emmis measured and recognized the charge associated with terminating the Interep contract as of the effective termination date, which was recorded as a noncash contract termination fee in the year ended February 2008. The liability established as a result of the termination representsrepresented an incentive received from Katz that is beingwas recognized as a reduction of our national agency commission expense over the term of the agreement with Katz. At February 28, 2017, the entire balance of this liability is included in other current liabilities in the accompanying consolidated balance sheets.
In accordance with cash and cash equivalents on hand, projected cash flows from operations, and, to the extent necessary, through its borrowing capacity under the 2014 Credit Agreement, which was $20.0 million at February 28, 2017. Based on these projections, management also believes the Company will be in compliance with its debt covenants through the end of fiscal year 2018.
In evaluating the Company’s ability to continue as a going concern, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to provide related footnote disclosures. ASU 2014-15 was effectivecontinue as a going concern within one year after the date that the financial statements were issued (May 9, 2019). Management considered the Company’s current projections of future cash flows, current financial condition, sources of liquidity and debt obligations due on or before May 9, 2020.
The Company successfully refinanced its 2014 Credit Agreement Debt in April 2019. Accordingly, the Company believes it has the ability to meet its obligations for at least one year from the fiscal year ending February 28, 2017, and for annual periods and interim periods thereafter. The adoptiondate of issuance of this guidance did not have any effect onForm 10-K. See Note 16 for more discussion of the Company's consolidated financial statements.
Recent Accounting Standards Updates Not Yet Adopted
In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU was issued to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ThisThe Company adopted this guidance will be effective for the Company as ofon March 1, 2018. The Company does not expect adoption of this guidance will have a2018 with no material impact on the Company'sits consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance on March 1, 2018 with no material impact on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. This guidancestandard will be effective for the Companyus as of March 1, 2018, and requires a retrospective transition method. The Company does not expect2020. We are currently evaluating the impact that the adoption of this guidancethe new standard will have a material impact on the Company'sour consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidancestatement of operations. Upon adoption on March 1, 2019, we expect to recognize a right of use asset and corresponding lease liability of $27 million to $31 million, representing the present value of future lease payments required under our lessee arrangements. We utilized lease terms ranging from 2019 to 2032, including periods for which exercising an extension option is reasonably assured and discount rates from 5.1% to 6.2% when determining the present value of future lease payments. All of our existing lessee arrangements upon adoption will continue to be classified as operating leases, in which case the pattern of lease expense recognition will be effective for the Company as of March 1, 2019. A modified retrospective transition method is required. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles used to recognize revenue for all entities. The FASB deferred implementation of this guidance by one year with the issuance of Accounting Standards Update 2015-14. As such,The Company adopted this guidance will be effectiveon March 1, 2018 using the modified retrospective method with no impact on its consolidated financial statements for the Companythree years ending February 28, 2018. The cumulative effect of initially applying the new guidance had no impact on the opening balance of retained earnings as of March 1, 2018. The Company expects to use the modified retrospective method of adoption. The Company has completed its initial evaluation of potential changes from adopting the new standard on its financial reporting2018 and disclosures, which included a detailed review of contractual terms for all of its significant revenue streams. The Company will continue to progress on its implementation plan during the remainder of fiscal 2018. Based on its initial evaluation, the Company does not expect adoption of this guidance will have a material impact on the Company'sits consolidated financial statements but disclosures related to revenue recognition will likely be expanded.
2. COMMON STOCK
Emmis has authorized Class A common stock, Class B common stock, and Class C common stock. The rights of these three classes are essentially identical except that each share of Class A common stock has one vote with respect to substantially all matters, each share of Class B common stock has 10 votes with respect to substantially all matters, and each share of Class C common stock has no voting rights with respect to substantially all matters. All Class B common stock is owned by our Chairman, CEO and President, Jeffrey H. Smulyan. All shares of Class B common stockSmulyan, and automatically convertconverts to Class A common stock upon sale or other transfer to a party unaffiliated with Mr. Smulyan. At February 28, (29), 20162018 and 2017,2019, no shares of Class C common stock were issued or outstanding.
On July 8, 2016, the Company effected a one-for-four reverse stock split. As a result of the reverse stock split, every four shares of each class of the Company'sCompany’s outstanding common stock were combined into one share of the same class of common stock and the authorized shares of each class of the Company'sCompany’s common stock were reduced by the same ratio. In lieu of issuing fractional shares, the Company paid in cash the fair value of such fractions of a share as of July 7, 2016 .2016. Such fair value was $0.695 for each pre-split share of our outstanding common stock, which was the average closing sales price of the Class A common stock as reported by the Nasdaq Global Select Market for the thirty trading days preceding such date. The number and strike price of the Company'sCompany’s outstanding stock options were adjusted proportionally. The par value of the Company'sCompany’s common stock was not adjusted as a result of the reverse stock split.
The Company'sCompany’s redeemable Preferred Stock was delisted from the Nasdaq Global Select Market on March 28, 2016. Pursuant to the Company'sCompany’s Articles of Incorporation, all shares of Preferred Stock were converted into shares of Class A common stock on April 4, 2016. Subsequent to the mandatory conversion on April 4, 2016, no shares of the Company'sCompany’s redeemable Preferred Stock remain outstanding. On various dates during the year ended February 28, 2017, including the mandatory conversion date of April 4, 2016, 866,319 shares of Preferred Stock were originally converted into 2,452,692 shares of Class A common stock (606,423 shares of Class A common stock after the one-for-four reverse stock split).
4. SHARE BASED PAYMENTS
The amounts recorded as share based compensation expense consist of stock option and restricted stock grants, common stock issued to employees and directors in lieu of cash payments, and Preferred Stock contributed to the 2012 Retention Plan.
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 3 years (one-third each year for 3 years), or cliff vest at the end of 3 years. The Company issues new shares upon the exercise of stock options.
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 Company’s 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 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 Company’s options on the date of grant during the years ended February 2015, 20162017, 2018 and 2017:2019:
|
| For the Years Ended February 28, |
| |||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |
Risk-Free Interest Rate: |
| 0.9% - 1.8% |
|
| 1.7% - 2.0% |
|
| 2.6% - 2.8% |
| |
Expected Dividend Yield: |
| 0% |
|
| 0% |
|
| 0% |
| |
Expected Life (Years): |
| 4.3 - 4.4 |
|
|
| 4.4 |
|
| 4.8 - 4.9 |
|
Expected Volatility: |
| 52.9% - 60.0% |
|
| 52.9% - 53.9% |
|
| 51.3% - 53.2% |
| |
| For the Years Ended February 28 (29), | |||||
| 2015 | 2016 | 2017 | |||
| Risk-Free Interest Rate: | 1.2% - 1.5% | 1.2% - 1.4% | 0.9% - 1.8% | ||
| Expected Dividend Yield: | 0% | 0% | 0% | ||
| Expected Life (Years): | 4.3 | 4.3 | 4.3 - 4.4 | ||
| Expected Volatility: | 69.0% - 73.9% | 57.2% - 64.6% | 52.9% - 60.0% | ||
The following table presents a summary of the Company’s stock options outstanding at February 28, 2017,2019, and stock option activity during the year ended February 28, 20172019 (“Price” reflects the weighted average exercise price per share):
|
| Options |
|
| Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding, beginning of period |
|
| 2,691,329 |
|
| $ | 4.66 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 259,000 |
|
|
| 4.64 |
|
|
|
|
|
|
|
|
|
Exercised (1) |
|
| 157,918 |
|
|
| 2.32 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| 5,500 |
|
|
| 4.16 |
|
|
|
|
|
|
|
|
|
Expired |
|
| 46,995 |
|
|
| 8.92 |
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
| 2,739,916 |
|
|
| 4.72 |
|
|
| 6.0 |
|
| $ | 1,770 |
|
Exercisable, end of period |
|
| 2,131,741 |
|
|
| 5.08 |
|
|
| 5.2 |
|
| $ | 1,334 |
|
| Options | Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
| Outstanding, beginning of period | 1,948,384 | $ | 6.36 | |||||||||
| Granted | 704,678 | 2.68 | ||||||||||
| Exercised (1) | 57,738 | 1.98 | ||||||||||
| Forfeited | 12,499 | 7.12 | ||||||||||
| Expired | 23,182 | 36.62 | ||||||||||
| Outstanding, end of period | 2,559,643 | 5.17 | 7.0 | $ | 346 | |||||||
| Exercisable, end of period | 1,469,268 | 5.63 | 5.4 | $ | 254 | |||||||
(1) | |
The Company did not record an income tax benefit related to option exercises in the years ended February |
The weighted average grant date fair value of options granted during the years ended February 2015, 20162017, 2018 and 2017,2019, was $6.53, $2.98$1.20 , $1.25 and $1.20,$2.27, respectively.
45
A summary of the Company’s nonvested options at February 28, 2017,2019, and changes during the year ended February 28, 2017,2019, is presented below:
|
| Options |
|
| Weighted Average Grant Date Fair Value |
| ||
Nonvested, beginning of period |
|
| 691,114 |
|
| $ | 2.10 |
|
Granted |
|
| 259,000 |
|
|
| 2.27 |
|
Vested |
|
| 336,439 |
|
|
| 3.07 |
|
Forfeited |
|
| 5,500 |
|
|
| 2.03 |
|
Nonvested, end of period |
|
| 608,175 |
|
|
| 1.64 |
|
| Options | Weighted Average Grant Date Fair Value | |||||
| Nonvested, beginning of period | 830,803 | $ | 3.71 | |||
| Granted | 704,678 | 1.20 | ||||
| Vested | 432,607 | 3.28 | ||||
| Forfeited | 12,499 | 3.62 | ||||
| Nonvested, end of period | 1,090,375 | 2.26 | ||||
There were 0.92.0 million shares available for future grants under the Company’s various equity plans at February 28, 2017 (0.62019 (1.7 million shares under the 20162017 Equity Compensation Plan and 0.3 million shares under other plans). The vesting dates of outstanding options at February 28, 20172019 range from March 20172019 to July 2019,2021, and expiration dates range from March 20172019 to February 2027.
Restricted Stock Awards
The Company grants restricted stock awards to directors annually, and periodically grants restricted stock award to employees in connection with employment agreements.directors and employees. Awards to directors arewere historically granted on the date of our annual meeting of shareholders and vestvested on the earlier of (i) the completion of the director’s 3-year3 -year term or (ii) the third anniversary of the date of grant. No such awards were made to directors at our last annual meeting of shareholders. Awards to employees are typically made pursuant to employment agreements. Restricted stock award grants are granted out of the Company’s 20162017 Equity Compensation Plan. The Company may also award,awards, out of the Company’s 20162017 Equity Compensation Plan, stock to settle certain bonuses and other compensation that otherwise would be paid in cash. Any restrictions on these shares may be immediately lapsed on the grant date.
The following table presents a summary of the Company’s restricted stock grants outstanding at February 28, 2017,2019, and restricted stock activity during the year ended February 28, 20172019 (“Price” reflects the weighted average share price at the date of grant):
|
| Awards |
|
| Price |
| ||
Grants outstanding, beginning of period |
|
| 353,394 |
|
| $ | 3.05 |
|
Granted |
|
| 219,356 |
|
|
| 4.45 |
|
Vested (restriction lapsed) |
|
| 307,643 |
|
|
| 3.72 |
|
Forfeited |
|
| — |
|
|
| — |
|
Grants outstanding, end of period |
|
| 265,107 |
|
|
| 3.43 |
|
| Awards | Price | |||||
| Grants outstanding, beginning of period | 212,995 | $ | 7.12 | |||
| Granted | 389,084 | 3.11 | ||||
| Vested (restriction lapsed) | 405,373 | 4.48 | ||||
| Forfeited | — | — | ||||
| Grants outstanding, end of period | 196,706 | 4.64 | ||||
The total grant date fair value of shares vested during the years ended February 2015, 20162017, 2018 and 2017,2019, was $4.1$1.8 million, $3.4$1.1 million and $1.8$1.1 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 years ended February 2015, 20162017, 2018 and 2017:2019:
|
| Year Ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Station operating expenses |
| $ | 1,012 |
|
| $ | 501 |
|
| $ | 291 |
|
Corporate expenses |
|
| 1,908 |
|
|
| 2,153 |
|
|
| 1,263 |
|
Stock-based compensation expense included in operating expenses |
|
| 2,920 |
|
|
| 2,654 |
|
|
| 1,554 |
|
Tax benefit |
|
| — |
|
|
| — |
|
|
| — |
|
Recognized stock-based compensation expense, net of tax |
| $ | 2,920 |
|
| $ | 2,654 |
|
| $ | 1,554 |
|
| Year Ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Station operating expenses | $ | 720 | $ | 1,760 | $ | 1,012 | |||||
| Corporate expenses | 2,093 | 3,144 | 1,908 | ||||||||
| Stock-based compensation expense included in operating expenses | 2,813 | 4,904 | 2,920 | ||||||||
| Tax benefit | — | — | — | ||||||||
| Recognized stock-based compensation expense, net of tax | $ | 2,813 | $ | 4,904 | $ | 2,920 | |||||
As of February 28, 2017,2019, there was $1.7$0.9 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 1.21.5 years.
Long-term debt was comprised of the following at February 28, (29), 20162018 and 2017:2019:
|
| As of February 28, 2018 |
|
| As of February 28, 2019 |
| ||
Revolver |
| $ | 9,000 |
|
| $ | — |
|
Term Loan |
|
| 69,451 |
|
|
| 25,000 |
|
Total 2014 Credit Agreement debt |
|
| 78,451 |
|
|
| 25,000 |
|
Other nonrecourse debt (1) |
|
| 9,992 |
|
|
| 10,074 |
|
98.7FM nonrecourse debt |
|
| 53,919 |
|
|
| 47,332 |
|
Current maturities |
|
| (16,037 | ) |
|
| (32,150 | ) |
Unamortized original issue discount |
|
| (3,476 | ) |
|
| (1,499 | ) |
Total long-term debt |
| $ | 122,849 |
|
| $ | 48,757 |
|
(1) | The face value of other nonrecourse debt was $10.2 million at February 28, 2018 and 2019. |
| As of February 29, 2016 | As of February 28, 2017 | ||||||
| Revolver | 3,000 | — | |||||
| Term Loan | 181,762 | 152,245 | |||||
| Total 2014 Credit Agreement debt | 184,762 | 152,245 | |||||
Other nonrecourse debt (1) | 4,714 | 8,807 | |||||
| 98.7FM nonrecourse debt | 65,411 | 59,958 | |||||
| Current maturities | (17,573 | ) | (23,600 | ) | |||
| Unamortized original issue discount | (9,287 | ) | (7,038 | ) | |||
| Total long-term debt | $ | 228,027 | $ | 190,372 | |||
On April 12, 2019, Emmis refinanced its 2014 Credit Agreement
2014 Credit Agreement Debt
On June 10, 2014, Emmis entered into the 2014 Credit Agreement, by and among the Company, EOC, as borrower (the “Borrower”), certain other subsidiaries of the Company, as guarantors (the “Subsidiary Guarantors”), and the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent.thereto. Capitalized terms in this section not defined elsewhere in this Form 10-K are defined in the 2014 Credit Agreement and related amendments.
The 2014 Credit Agreement includesconsisted of remaining balances of a senior secured term loan facility (the “Term Loan”) of $185.0($69.5 million and $25.0 million as of February 28, 2018 and 2019, respectively), and as of February 28, 2018, a senior secured revolving credit facility balance of $9.0 million. Our revolving credit facility, which had a maximum commitment of $20.0 million, and contains provisions for an uncommitted increase of up to $20.0 million principal amount (plus additional amounts so long as a pro forma total net senior secured leverage ratio condition is met) of the revolving credit facility and/or the Term Loan subject to the satisfaction of certain conditions.expired on August 31, 2018. The revolving credit facility includesincluded a sub-facility for the issuance of up to $5.0 million of letters of credit. Pursuant toNo letters of credit were outstanding during the 2014 Credit Agreement,periods presented in the Borrower borrowed $185.0 million of the Term Loan on June 10, 2014; $109.0 millionaccompanying consolidated financial statements.
The term loan was disbursed to the Borrower (the “Initial Proceeds”) and the remaining $76.0 million was funded into escrow (the “Subsequent Acquisition Proceeds”).
Our 2014 Credit Agreement debt was carried net of Accounting Standards Update 2015-03 during the year ended February 29, 2016. As such, thean unamortized balance of existing deferred debt fees was reclassified and is now shown as a direct reduction of the carrying amount of long-term debt. These fees, along with an original issue discount of $8.2$0.1 million as of February 28, 2017, ($6.1 million incurred in connection with the2019. The original issuance of the 2014 Credit Agreement debt on June 10, 2014, $1.0 million incurred in connection with the November 7, 2014 amendment to the 2014 Credit Agreement and $1.1 million incurred in connection with the April 30, 2015 amendment to the 2014 Credit Agreement) are beingissue discount was amortized as additional interest expense over the life of the 2014 Credit Agreement.
The 2014 Credit Agreement required mandatory prepayments for, among other things, proceeds from the sale of assets, insurance proceeds and Consolidated Excess Cash Flow (as defined in the 2014 Credit Agreement).
The obligations under the 2014 Credit Agreement arewere secured by a perfected first priority security interest in substantially all of the assets of the Company, the Borrower and the Subsidiary Guarantors.
Term Loan Mandatory Repayment Texas Monthly Sale | |||
Gross proceeds from the sale of Texas Monthly | $ | 25,000 | |
| Working capital and other closing adjustments | (747 | ) | |
| Transaction costs, including severance | (1,378 | ) | |
| Subtotal | 22,875 | ||
| Less: Reinvestments (estimated) | (3,475 | ) | |
| Less: Term Loan repayment on November 1, 2016 | (15,000 | ) | |
| Remaining Net Available Proceeds, subject to finalization of reinvestments | $ | 4,400 | |
The 2014 Credit Agreement provides that an event of default will occur if there is a “change in control” of Emmis, as defined. The payment of principal, premium and interest under the 2014 Credit Agreement is fully and unconditionally guaranteed, jointly and severally, by ECC and most of its existing wholly-owned domestic subsidiaries. Substantially all of Emmis’ assets, including the stock of most of Emmis’ wholly-owned, domestic subsidiaries, are pledged to secure the 2014 Credit Agreement.
98.7FM Nonrecourse Debt
On May 30, 2012, the Company, through wholly-owned, newly-created subsidiaries, issued $82.2 million of nonrecourse notes. Teachers Insurance and Annuity Association of America, through a participation agreement with Wells Fargo Bank Northwest, National Association, is entitled to receive payments made on the notes. The notes are obligations only of the newly-created subsidiaries, are non-recourse to the rest of the Company’s subsidiaries and are secured by the assets of the newly-created subsidiaries, including the payments made to the newly-created subsidiary related to the 98.7FM LMA, which are guaranteed by Disney Enterprises, Inc. The notes bear interest at 4.1%.
Our 98.7FM nonrecourse debt is carried net of an unamortized original issue discount of $1.4 million as of February 28, 2019. The original issue discount is being amortized as additional interest expense over the life of the 98.7FM nonrecourse debt.
Other Nonrecourse Debt
Digonex issued $6.2 million of notes payable prior to Emmis’ acquisition of a controlling interest of Digonex on June 16, 2014. Emmis recorded these notes at fair value in its purchase price allocation as of June 16, 2014. The difference between the fair value recorded on June 16, 2014 and the face value of the notes is being accreted as additional interest expense through the maturity date of the notes. The notes are obligations of Digonex only and are non-recourse to the rest of Emmis'Emmis’ subsidiaries. Approximately $1.5 million of the Digonex notes are
47
secured by the assets of Digonex and the remaining $4.7 million are unsecured. The notes bear simple interest at 5% with interest due at maturity of the secured notes on December 1, 2017 and the unsecured notes on December 31, 2017. Digonex is seeking to extend the maturity date of the notes to December 31, 2020. This extension requires the consent of all noteholders. As of May 11, 2017, the holders of the secured notes had agreed to the extension if the unsecured noteholders also consented, but consent from the unsecured noteholders had not yet been obtained. See Note 7 for more discussion of the acquisition of Digonex.
NextRadio, LLC issued $3.4$4.0 million of notes payable. TheAs of February 28, 2019, these notes initially bear interest at 4.0% with2.0%.The first interest payment on these notes was due quarterly beginning inon August 15, 2018. The notes mature on December 23, 2021 andAs of May 9, 2019, NextRadio, LLC has not made any interest payments to the lender. Although there are to be repaid through revenues generated by enhanced advertisement revenues earned by NextRadio, LLC. If any portionno penalties for nonpayment of interest, the lender, at its election, may convert the notes remainand all unpaid at maturity, the lender has the optioninterest to exchange the notes for senior preferred equity of NextRadio, LLC'sNext Radio, LLC’s parent entity, TagStation, LLC. The lender has given notice of its intent to convert the notes to senior preferred equity of TagStation, LLC, but the steps required to effect this conversion as defined in the loan agreement have not yet been completed. These notes are obligations of NextRadio LLC and TagStation, LLC and are non-recourse to the rest of Emmis'Emmis’ subsidiaries.
Based on amounts outstanding at February 28, 2017,2019, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
Year ended February 28 (29), |
| Term Loan |
|
| 98.7FM Debt |
|
| Other Nonrecourse Debt |
|
| Total |
| ||||
2020 |
| $ | 25,000 |
|
| $ | 7,150 |
|
| $ | — |
|
| $ | 32,150 |
|
2021 |
|
| — |
|
|
| 7,755 |
|
|
| 6,239 |
|
|
| 13,994 |
|
2022 |
|
| — |
|
|
| 8,394 |
|
|
| 4,000 |
|
|
| 12,394 |
|
2023 |
|
| — |
|
|
| 9,069 |
|
|
| — |
|
|
| 9,069 |
|
2024 |
|
| — |
|
|
| 9,783 |
|
|
| — |
|
|
| 9,783 |
|
Thereafter |
|
| — |
|
|
| 5,181 |
|
|
| — |
|
|
| 5,181 |
|
Total |
| $ | 25,000 |
|
| $ | 47,332 |
|
| $ | 10,239 |
|
| $ | 82,571 |
|
| 2014 Credit Agreement | |||||||||||||||||||
Year ended February 28 (29), | Revolver | Term Loan | 98.7FM Debt | Other Nonrecourse Debt | Total | ||||||||||||||
| 2018 | $ | — | $ | 12,104 | $ | 6,039 | $ | 6,199 | $ | 24,342 | |||||||||
| 2019 | — | 4,717 | 6,587 | — | 11,304 | ||||||||||||||
| 2020 | — | 135,424 | 7,150 | — | 142,574 | ||||||||||||||
| 2021 | — | — | 7,755 | — | 7,755 | ||||||||||||||
| 2022 | — | — | 8,394 | — | 8,394 | ||||||||||||||
| Thereafter | — | — | 24,033 | 3,350 | 27,383 | ||||||||||||||
| Total | $ | — | $ | 152,245 | $ | 59,958 | $ | 9,549 | $ | 221,752 | |||||||||
6. FAIR VALUE MEASUREMENTS
As defined in ASC Topic 820, 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
Recurring Fair Value Measurements
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of February 28, (29), 20162018 and 2017.2019. 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 Company’s 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 February 28, 2019 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
|
|
|
| |||
|
| Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
|
| Total |
| ||||
Available for sale securities |
| $ | — |
|
| $ | — |
|
| $ | 800 |
|
| $ | 800 |
|
Total assets measured at fair value on a recurring basis |
| $ | — |
|
| $ | — |
|
| $ | 800 |
|
| $ | 800 |
|
|
| As of February 28, 2018 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
|
|
|
| |||
|
| Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
| Significant Other Observable Inputs |
|
| Significant Unobservable Inputs |
|
| Total |
| ||||
Available for sale securities |
| $ | — |
|
| $ | — |
|
| $ | 800 |
|
| $ | 800 |
|
Total assets measured at fair value on a recurring basis |
| $ | — |
|
| $ | — |
|
| $ | 800 |
|
| $ | 800 |
|
| As of February 28, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | Total | ||||||||||||
| Available for sale securities | $ | — | $ | — | $ | 800 | $ | 800 | |||||||
| Total assets measured at fair value on a recurring basis | $ | — | $ | — | $ | 800 | $ | 800 | |||||||
| As of February 29, 2016 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | Total | ||||||||||||
| Available for sale securities | $ | — | $ | — | $ | 800 | $ | 800 | |||||||
| Total assets measured at fair value on a recurring basis | $ | — | $ | — | $ | 800 | $ | 800 | |||||||
48
Available for sale securities — Emmis’ available for sale securities are comprised of preferred stock of a private company that is not traded in active markets. The preferred stock is recorded at fair value, which is generally estimated using significant unobservable market parameters, resulting in a level 3 categorization. The carrying value of our available for sale securities is determined by using implied valuations of recent rounds of financing and by other corroborating evidence, including the application of various valuation methodologies including option-pricing and discounted cash flow based models.
The following table shows a reconciliation of the beginning and ending balances for fair value measurements using significant unobservable inputs:
|
| Year Ended February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
|
| Available For Sale Securities |
| |||||
Beginning Balance |
| $ | 800 |
|
| $ | 800 |
|
Purchases |
|
| — |
|
|
| — |
|
Ending Balance |
| $ | 800 |
|
| $ | 800 |
|
| Year Ended February 28 (29), | |||||||
| 2016 | 2017 | ||||||
Available For Sale Securities | |||||||
| Beginning Balance | $ | 500 | $ | 800 | |||
| Purchases | 300 | — | |||||
| Ending Balance | $ | 800 | $ | 800 | |||
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 9, Intangible Assets and Goodwill, and are adjusted to fair value only when the carrying
Fair Value of Other Financial Instruments
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. Assets and liabilities acquired in business combinations are recorded at their fair value as of the date of acquisition. Refer to Note 7 for the fair values of assets acquired and liabilities assumed in connection with the Company's acquisitions. The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. Considerable judgment is necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition. The use of different market assumptions may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of financial instruments:
-
Cash and cash equivalents: The carrying amount of these assets approximates fair value because of the short maturity of these instruments.- 2014 Credit Agreement debt
: As of February 28,-
Other long-term debt: The Company’s 98.7FM7. ACQUISITIONS AND DISPOSITIONS
For the year ended February 28, 2019
Sale of St. Louis radio stations
On April 30, 2018, Emmis closed on its sale of substantially all of the assets of its radio stations in St. Louis in two separate transactions. In one transaction, Emmis sold the assets of KSHE-FM and KPNT-FM to affiliates of Hubbard Radio. In the other transaction, Emmis sold the assets of KFTK-FM and KNOU-FM to affiliates of Entercom Communications Corp. At closing, Emmis received aggregate proceeds of $60.0 million. After deducting estimated taxes payable and transaction-related expenses, net proceeds totaled approximately $40.5 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. The taxes payable as a result of the transactions were not immediately due, so we repaid amounts outstanding under our revolver and we held excess cash on our balance sheet to enhance our liquidity position. Emmis recorded a $32.1 million gain on the sale of its St. Louis radio stations.
The St. Louis radio stations were operated pursuant to an LMA from March 1, 2018 through the closing of the transactions on April 30, 2018. Affiliates of Hubbard Radio and Entercom Communications Corp paid an LMA fee to Emmis totaling $0.7 million during this period, which is included in net revenues in the accompanying consolidated statements of operations and in the summary of our St. Louis radio station results included below.
In connection with the sale of our St. Louis stations, the Company originally recorded $1.2 million of restructuring charges related to the involuntary termination of employees and estimated cease-use costs related to our leased St. Louis office facility, net of estimated sublease rentals. During the three months ended November 30, 2018, the Company revised its estimate of cease-use costs related to the St. Louis office facility, which resulted in an additional charge of $0.2 million. These charges are included in the gain on sale of radio and publishing assets, net of disposition costs in the accompanying consolidated statements of operations. The table below summarizes the activity related to our restructuring charge for the year ended February 28, 2019.
49
|
| For the year ended |
| |
|
| February 28, 2019 |
| |
Restructuring charges and estimated lease cease-use costs, beginning balance |
| $ | — |
|
Restructuring charges and estimated lease cease-use costs, St. Louis radio stations sale |
|
| 1,424 |
|
Payments, net of accretion |
|
| (325 | ) |
Restructuring charges and estimated lease cease-use costs unpaid and outstanding |
| $ | 1,099 |
|
The St. Louis stations had historically been included in our Radio segment. The following table summarizes certain operating results of the St. Louis stations for all periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense associated with the required term loan repayment associated with the sale of the St. Louis stations is included in the results below. The sale of the St. Louis stations did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45. The following table summarizes certain operating results of the St. Louis stations for all periods presented.
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 23,851 |
|
| $ | 24,238 |
|
| $ | 711 |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 18,464 |
|
|
| 20,071 |
|
|
| 505 |
|
Depreciation and amortization |
|
| 502 |
|
|
| 558 |
|
|
| — |
|
Impairment loss |
|
| 1,293 |
|
|
| — |
|
|
| — |
|
Gain on sale of radio assets, net of disposition costs |
|
| — |
|
|
| — |
|
|
| (32,148 | ) |
Loss on sale of fixed assets |
|
| 123 |
|
|
| — |
|
|
| — |
|
Operating income |
|
| 3,469 |
|
|
| 3,609 |
|
|
| 32,354 |
|
Interest expense |
|
| 2,910 |
|
|
| 3,379 |
|
|
| 592 |
|
Income before income taxes |
|
| 559 |
|
|
| 230 |
|
|
| 31,762 |
|
For the year ended February 28, 2018
Sale of KPWR-FM
On August 1, 2017, Emmis closed on its sale of substantially all of the assets of KPWR-FM for gross proceeds of approximately $80.1 million to affiliates of the Meruelo Group. Under the terms of the Fourth Amendment to Emmis’ senior credit facility, Emmis was required to enter into definitive agreements to sell assets that generated at least $80 million of proceeds by January 18, 2018 and to close on such transactions following receipt of required regulatory approvals. The sale of KPWR-FM satisfied these requirements. Emmis found it more advantageous to sell its standalone radio station in Los Angeles than to sell other assets to meet this requirement. After payment of transaction costs and withholding for estimated tax obligations, net proceeds totaled approximately $73.6 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $76.7 million gain on the sale of KPWR-FM.
KPWR-FM was operated pursuant to an LMA from July 1, 2017 through the closing of the sale on August 1, 2017. Affiliates of the Meruelo Group paid an LMA fee to Emmis totaling $0.4 million during this period, which is included in net revenues in the accompanying consolidated statements of operations and in the summary of KPWR-FM results included below.
KPWR-FM had historically been included in our Radio segment. The following table summarizes certain operating results of KPWR-FM for all periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense associated with the required term loan repayment associated with the sale of KPWR-FM is included in the results below. The sale of KPWR-FM did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45. The following table summarizes certain operating results of KPWR-FM for all periods presented.
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 24,379 |
|
| $ | 7,819 |
|
| $ | — |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 16,933 |
|
|
| 6,651 |
|
|
| — |
|
Depreciation and amortization |
|
| 401 |
|
|
| 63 |
|
|
| — |
|
Gain on sale of assets, net of disposition costs |
|
| — |
|
|
| (76,745 | ) |
|
| — |
|
Operating income |
|
| 7,045 |
|
|
| 77,850 |
|
|
| — |
|
Interest expense |
|
| 5,223 |
|
|
| 2,479 |
|
|
| — |
|
Income before income taxes |
|
| 1,822 |
|
|
| 75,371 |
|
|
| — |
|
For the year ended February 28, 2017
Sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine
50
On February 28, 2017, Emmis closed on its sale of substantially all of the assets of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazineand and Orange Coast Magazine(the "Hour Magazines" (the “Hour Magazines”) for gross proceeds of $6.5 million to Hour Media Group, LLC. The Company previously announced that it was exploring strategic alternatives for its publishing division, excluding Indianapolis Monthly. Emmis decided to sell most of its publishing assets to reduce debt outstanding. Emmis received net proceeds of $2.9 million, consisting of the stated purchase price of $6.5 million, less $0.7 million held in escrow and disposition costs totaling $2.9 million. The $2.9 million of disposition costs primarily relate to $1.6 million of employee-related costs, including severance, and transaction advisory fees of $1.0 million. The funds held in escrow secure Emmis' post closingsecured Emmis’ post-closing indemnification obligations in the purchase agreement and arewere scheduled to be released six months after the closing of the transaction. The release of these funds heldfrom escrow was subsequently litigated. The parties agreed to settle this dispute in escrow are classified as restricted cashMay 2018. As part of the mutual settlement, all claims and counterclaims were dismissed with Emmis and Hour receiving $0.45 million and $0.2 million, respectively. The Company recognized a loss of $0.2 million related to this settlement during the year ended February 28, 2019, which is included in our(gain) loss on sales of assets, net of disposition costs in the accompanying consolidated balance sheets.financial statements. After settling retention bonuses to affected employees, substantially all of the net proceeds were used to repay term loan indebtedness under Emmis'Emmis’ senior credit facility. Emmis recorded a $2.7 million gain on the sale of the Hour Magazines. The Hour Magazineshad historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.205-20-45. The following table summarizes certain operating results of the Hour Magazinesfor all periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense associated with the required Term Loanterm loan repayment associated with the sale of the Hour Magazinesis included in the magazines'magazines’ results below.
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 29,112 |
|
| $ | — |
|
| $ | — |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 31,076 |
|
|
| 172 |
|
|
| 35 |
|
Depreciation and amortization |
|
| 122 |
|
|
| — |
|
|
| — |
|
(Gain) loss on sale of publishing assets, net of disposition costs |
|
| (2,677 | ) |
|
| 141 |
|
|
| 331 |
|
Operating income (loss) |
|
| 591 |
|
|
| (313 | ) |
|
| (366 | ) |
Interest expense |
|
| 179 |
|
|
| — |
|
|
| — |
|
Income (loss) before income taxes |
|
| 412 |
|
|
| (313 | ) |
|
| (366 | ) |
| For the year ended February 28 (29), | |||||||||
| 2015 | 2016 | 2017 | |||||||
| Net revenues | $ | 31,380 | $ | 31,819 | $ | 29,112 | |||
| Station operating expenses, excluding depreciation and amortization expense | 31,139 | 31,385 | 31,076 | ||||||
| Depreciation and amortization | 106 | 125 | 122 | ||||||
| Gain on sale of publishing assets, net of disposition costs | — | — | (2,677 | ) | |||||
| Operating income | 135 | 309 | 591 | ||||||
| Interest expense | 136 | 173 | 176 | ||||||
| (Loss) income before income taxes | (1 | ) | 136 | 415 | |||||
Sale of Terre Haute, Indiana radio stations
On January 30, 2017, Emmis closed on its sale of substantially all of the assets of its radio stations in Terre Haute, Indiana, in two contemporaneous transactions. In one transaction, Emmis sold the assets of WTHI-FM and the intellectual property of WWVR-FM to Midwest Communications, Inc. In the other transaction, Emmis sold the assets of WFNF-AM, WFNB-FM, WWVR-FM (other than the intellectual property for that station) and an FM translator to DLC Media, Inc. The Company previously announced that it was exploring strategic alternatives for these radio stations. Emmis believed that operating stations in Terre Haute, Indiana was not a core part of its radio strategy and its strong market position in the Terre Haute market would be attractive to potential buyers. At closing, Emmis received gross proceeds of approximately $5.2 million for both transactions. After payment of brokerage and other transaction costs, net proceeds totaled $4.8 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $3.5 million gain on the sale of its Terre Haute radio stations
.The Terre Haute radio stationshad historically been included in our Radio segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 2,298 |
|
| $ | (6 | ) |
| $ | — |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 2,258 |
|
|
| 24 |
|
|
| — |
|
Depreciation and amortization |
|
| 117 |
|
|
| — |
|
|
| — |
|
Impairment loss |
|
| 79 |
|
|
| — |
|
|
| — |
|
Gain on sale of radio assets, net of disposition costs |
|
| (3,478 | ) |
|
| — |
|
|
| — |
|
Operating income (loss) |
|
| 3,322 |
|
|
| (30 | ) |
|
| — |
|
Interest expense |
|
| 307 |
|
|
| — |
|
|
| — |
|
Income (loss) before income taxes |
|
| 3,015 |
|
|
| (30 | ) |
|
| — |
|
| For the year ended February 28 (29), | |||||||||
| 2015 | 2016 | 2017 | |||||||
| Net revenues | $ | 2,684 | $ | 2,418 | $ | 2,298 | |||
| Station operating expenses, excluding depreciation and amortization expense | 2,607 | 2,395 | 2,258 | ||||||
| Depreciation and amortization | 147 | 163 | 117 | ||||||
| Impairment loss | 58 | 39 | 79 | ||||||
| Gain on sale of radio assets, net of disposition costs | — | — | (3,478 | ) | |||||
| Operating (loss) income | (128 | ) | (179 | ) | 3,322 | ||||
| Interest expense | 254 | 324 | 330 | ||||||
| (Loss) income before income taxes | (382 | ) | (503 | ) | 2,992 | ||||
On November 1, 2016, Emmis closed on its sale of Texas Monthlyfor gross proceeds of $25.0 million in cash to a subsidiary of Genesis Park, LP. The Company previously announced that it was exploring strategic alternatives for its publishing division, excluding Indianapolis Monthly. Emmis decidedbelieved that its publishing portfolio had significant brand value and planned to sell mostuse proceeds from the sale of its publishing assetsproperties to reduce debt outstanding.repay debt. Emmis received net proceeds of $23.4 million, consisting of the stated purchase price of $25.0 million, net of estimated purchase price adjustments totaling $0.7 million and disposition costs totaling $0.9 million. The $0.9 million of disposition costs primarily related to severance costs. Proceeds were used to repay term and revolving loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $17.4 million gain on the sale of Texas Monthly. Texas Monthlyhad historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.205-20-45. The following table summarizes certain operating results of Texas Monthlyfor all periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense associated with the required Term Loanterm loan repayment associated with the sale of Texas Monthlyis included in the magazine'smagazine’s results below. The required Term Loan repayment is preliminary and may be adjusted for
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 14,685 |
|
| $ | (2 | ) |
| $ | — |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 14,465 |
|
|
| (78 | ) |
|
| — |
|
Depreciation and amortization |
|
| 84 |
|
|
| — |
|
|
| — |
|
Gain on sale of publishing assets, net of disposition costs |
|
| (17,402 | ) |
|
| — |
|
|
| — |
|
Operating income |
|
| 17,538 |
|
|
| 76 |
|
|
| — |
|
Interest expense |
|
| 1,067 |
|
|
| — |
|
|
| — |
|
Other income |
|
| (37 | ) |
|
| — |
|
|
| — |
|
Income before income taxes |
|
| 16,508 |
|
|
| 76 |
|
|
| — |
|
| For the year ended February 28 (29), | |||||||||
| 2015 | 2016 | 2017 | |||||||
| Net revenues | $ | 24,186 | $ | 23,561 | $ | 14,685 | |||
| Station operating expenses, excluding depreciation and amortization expense | 22,446 | 21,527 | 14,465 | ||||||
| Depreciation and amortization | 116 | 118 | 84 | ||||||
| Gain on sale of publishing assets, net of disposition costs | — | — | (17,402 | ) | |||||
| Operating income | 1,624 | 1,916 | 17,538 | ||||||
| Interest expense | 1,047 | 1,334 | 1,358 | ||||||
| Other income | (15 | ) | (370 | ) | (37 | ) | |||
| Income before income taxes | 592 | 952 | 16,217 | ||||||
Unaudited pro forma summary information is presented below for the years ended February 28, (29), 20162018 and 2017,2019, assuming the dispositions discussed above and related mandatory debt repayments had occurred on the first day of the pro forma periods presented below.
|
| For the year ended February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Net revenues |
| $ | 116,438 |
|
| $ | 113,420 |
|
Station operating expenses, excluding depreciation and amortization |
|
| 92,918 |
|
|
| 90,493 |
|
Consolidated net income |
|
| 2,540 |
|
|
| 1,255 |
|
Net loss attributable to the Company |
|
| (90 | ) |
|
| (1,472 | ) |
Net income per share - basic |
| $ | (0.01 | ) |
| $ | (0.12 | ) |
Net income per share - diluted |
| $ | (0.01 | ) |
| $ | (0.12 | ) |
| For the year ended February 28 (29), | |||||||
| 2016 | 2017 | ||||||
| (unaudited) | (unaudited) | ||||||
| Net revenues | $ | 173,635 | $ | 168,473 | |||
| Station operating expenses, excluding depreciation and amortization | 128,087 | 132,286 | |||||
| Consolidated net loss | (889 | ) | (6,404 | ) | |||
| Net income (loss) attributable to the Company | 1,529 | (6,505 | ) | ||||
| Net income (loss) per share - basic | $ | 0.12 | $ | (0.54 | ) | ||
| Net income (loss) per share - diluted | $ | 0.12 | $ | (0.54 | ) | ||
8. OTHER SIGNIFICANT TRANSACTIONS
Going private offer
On August 18, 2016, the Board of Directors of the Company received a letter from E Acquisition Corporation ("EAC"(“EAC”), an Indiana corporation owned by Jeffrey H. Smulyan, the Company’s Chairman of the Board, Chief Executive Officer and controlling shareholder, setting forth a non-binding proposal by which E Acquisition Corporation (the “Proposing Person”), would acquire all the outstanding shares of Class A Common Stock of the Company that were not owned by the Proposing Person at a cash purchase price of $4.10 per share (the “Proposal”). The Proposal contemplated that, following the closing of the proposed transaction, the Company’s shares would no longer be registered with the Securities and Exchange Commission and the Company would no longer be a reporting company or have any public shares traded on Nasdaq.
The Company’s Board of Directors formed a special committee of independent and disinterested directors (the “Special Committee”) to review and evaluate the Proposal. The members of the Special Committee were Susan Bayh and Peter Lund. On October 14, 2016, EAC delivered to the Special Committee a letter (the “Proposal Expiration Letter”) confirming that the offer had expired on October 14, 2016 and had not been extended.
The Special Committee engaged independent legal counsel and independent financial advisors to assist the Special Committee in the evaluation of the Proposal. During the year ended February 28, 2017, the Company incurred $0.9 million of costs associated with the Proposal, which are included in corporate expenses, excluding depreciation and amortization expense in the accompanying consolidated statements of operations. No further costs are expected to be incurred in connection with the going private offer as it has expired.
Next Radio LLC - Sprint Agreement
On August 9, 2013, NextRadio LLC, a wholly-owned subsidiary of Emmis, entered into an agreement with Sprint whereby Sprint agreed to pre-load the Company'sCompany’s smartphone application, NextRadio, inon a minimum of 30 million FM-enabled wireless devices on the Sprint wireless
52
network over a three-yearthree -year period. In return, NextRadio LLC agreed to serve as a conduit for the radio industry to pay Sprint $15 million per year in equal quarterly installments over the three year term and to share with Sprint certain revenue generated by the NextRadio application. Emmis hasdid not guaranteedguarantee NextRadio LLC'sLLC’s performance under this agreement and Sprint doesdid not have recourse to any Emmis related entity other than NextRadio LLC. Additionally, the agreement doesdid not limit the ability of NextRadio LLC to place the NextRadio application on FM-enabled devices on other wireless networks. Through February 28, 2017,2019, the NextRadio application had not generated a material amount of revenue.
Nearly all of the largest radio broadcasters and many smaller radio broadcasters expressed support for NextRadio LLC'sLLC’s agreement with Sprint. Accordingly, NextRadio LLC entered into a number of funding agreements with radio broadcasters and other participants in the radio industry to collect and remit cash to Sprint to fulfill the quarterly payment obligation. As part of some of these funding agreements, Emmis agreed to certain limitations on the operation of its NextRadio and TagStation businesses, including assurances of access to the NextRadio app and to TagStation (the cloud-based engine that provides data to the NextRadio application), and limitations on the sale of the businesses to potential competitors of the U.S. radio industry. Emmis also granted the U.S. radio industry (as defined in the funding agreements) a call option on substantially all of the assets used in the NextRadio and TagStation businesses in the United States. The call option may be exercised in August 2017 or August 2019 by paying Emmis a purchase price equal to the greater of (i) the appraised fair market value of the NextRadio and TagStation businesses, or (ii) two times Emmis'Emmis’ cumulative investments in the development of the businesses.businesses through August 2015. If the call option is exercised, the businesses will continue to be subject to the operating limitations applicable today, and no radio operator will be permitted to own more than 30% of the NextRadio and TagStation businesses.
From the inception of NextRadio LLC'sLLC’s agreement with Sprint through December 7, 2016, NextRadio LLC had remitted to Sprint approximately $33.2 million. Effective December 8, 2016, NextRadio LLC and Sprint entered into an amendment of their original agreement. The amendment called for NextRadio LLC to make installment payments totaling $6.0 million million through March 15, 2017, which have been paid. In exchange, Sprint agreed to forgive the remaining $5.8 million that it was due under the original agreement, and in return receive a higher share of certain revenue generated by the NextRadio application. In addition, Sprint agreed to continue to pre-load the NextRadio application through March 31, 2020 with no additional cash payments from NextRadio (other than revenue share payments). NextRadio LLC received a loan of $4.0 million for the sole purpose of fulfilling the payment obligations to Sprint under the amendment. The loan willwas structured to be repaid out of proceeds from sales of enhanced advertising through the NextRadio application. Through February 28, 2017, NextRadio LLC received $3.4 million under the loan, which was promptly remitted to Sprint and is included in station operating expenses, excluding depreciation and amortization expense in the accompanying consolidated statementSee Note 5 for more discussion of operations. The remaining $0.6 million of loan proceeds was received in March 2017 and was promptly remitted to Sprint.
Emmis determined that NextRadio LLC is a variable interest entity (VIE) and that Emmis is the primary beneficiary because the Company has the power to direct substantially all of the activities of NextRadio LLC, and because the Company may absorb certain losses and receive certain benefits from the operations of the VIE. Emmis doesdid not record any revenue or expense related to the amounts that arewere collected and remitted to Sprint except the portion of any payment to Sprint that was actually contributed to NextRadio LLC by Emmis (or the amounts funded by NextRadio LLC via the loan discussed above). Emmis contributed approximately $0.5 million and $0.4$0.3 million to NextRadio LLC during the yearsyear ended February 201528, 2018, and 2016, respectively. These amounts were recorded its contributions as station operating expenses, excluding depreciation and amortization expense. Emmis did not fund any of NextRadio LLC'sLLC’s payments to Sprint during the year ended February 28, 2017 and as it had already fully funded its share through that date.
As of February 28, 2017,2018 and 2019, the carrying value of NextRadio LLC’s assets within NextRadio LLC totaledwere less than $0.1 million which represents cash collected by NextRadio LLC from other broadcasting companies and other companies in the radio industry. This cash is restricted because it must be remitted to Sprint. NextRadio LLC had $3.5 millionzero, respectively. As of liabilities at February 28, 2017, which represents the obligation to remit $0.12018 and 2019, liabilities totaled $4.2 million and $4.4 million, respectively, and consisted solely of cash received from radio industry participants to Sprint along with NextRadio LLC'sLLC’s nonrecourse debt of $3.4 million. NextRadio LLC remitted all cash collected from other broadcasting companies and other companies in the radio industry to Sprintrelated accrued interest as of February 29, 2016, and thus had no assets or liabilities as of that date.
LMA of 98.7FM in New York, NY and Related Financing Transaction
On April 26, 2012 Emmis entered into an LMA with a subsidiary of Disney Enterprises, Inc., pursuant to which the Disney subsidiary purchased the right to provide programming for 98.7FM in New York, NY until August 24, 2024. Emmis retains ownership and control of 98.7FM, including the related FCC license during the term of the LMA and receives an annual fee from the Disney subsidiary. The fee, initially $8.4 million annually, increases by 3.5% annually until the LMA'sLMA’s termination.
As discussed in Note 5, Emmis, through newly-created subsidiaries, issued $82.2 million of notes, which are nonrecourse to the rest of the Company'sCompany’s subsidiaries and are secured by the assets of the newly-created subsidiaries including the payments made in connection with the 98.7FM LMA. See Notes 1 and 5 for more discussion of the LMA payments and nonrecourse debt.
The following table summarizes Emmis'Emmis’ operating results of 98.7FM for all periods presented. Emmis programmed 98.7FM until the LMA commenced on April 26, 2012. 98.7FM is a part of our Radio segment. Results of operations of 98.7FM for the years ended February 2015, 20162017, 2018 and 20172019 were as follows:
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Net revenues |
| $ | 10,331 |
|
| $ | 10,331 |
|
| $ | 10,331 |
|
Station operating expenses, excluding depreciation and amortization expense |
|
| 1,275 |
|
|
| 1,169 |
|
|
| 1,198 |
|
Impairment loss on intangible assets (Note 9) |
|
| 2,907 |
|
|
| — |
|
|
| — |
|
Depreciation and amortization |
|
| 21 |
|
|
| 21 |
|
|
| 20 |
|
Interest expense |
|
| 2,827 |
|
|
| 2,591 |
|
|
| 2,331 |
|
| For the year ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Net revenues | $ | 10,331 | $ | 10,331 | $ | 10,331 | |||||
| Station operating expenses, excluding depreciation and amortization expense | 1,002 | 1,000 | 1,275 | ||||||||
| Impairment loss on intangible assets (Note 9) | 9,462 | 1,766 | 2,907 | ||||||||
| Depreciation and amortization | — | 21 | 21 | ||||||||
| Interest expense | 3,238 | 3,042 | 2,827 | ||||||||
53
Assets and liabilities of 98.7FM as of February 28, (29), 20162018 and 20172019 were as follows:
|
| As of February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
Current assets: |
|
|
|
|
|
|
|
|
Restricted cash |
| $ | 1,358 |
|
| $ | 1,504 |
|
Prepaid expenses |
|
| 448 |
|
|
| 394 |
|
Other |
|
| 31 |
|
|
| 340 |
|
Total current assets |
|
| 1,837 |
|
|
| 2,238 |
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Property and equipment |
|
| 208 |
|
|
| 188 |
|
Indefinite lived intangibles |
|
| 46,390 |
|
|
| 46,390 |
|
Deposits and other |
|
| 6,543 |
|
|
| 6,255 |
|
Total noncurrent assets |
|
| 53,141 |
|
|
| 52,833 |
|
Total assets |
| $ | 54,978 |
|
| $ | 55,071 |
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 18 |
|
| $ | 15 |
|
Current maturities of long-term debt |
|
| 6,587 |
|
|
| 7,150 |
|
Deferred revenue |
|
| 835 |
|
|
| 864 |
|
Other current liabilities |
|
| 184 |
|
|
| 162 |
|
Total current liabilities |
|
| 7,624 |
|
|
| 8,191 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
| 45,632 |
|
|
| 38,747 |
|
Total noncurrent liabilities |
|
| 45,632 |
|
|
| 38,747 |
|
Total liabilities |
| $ | 53,256 |
|
| $ | 46,938 |
|
| As of February 28 (29), | |||||||
| 2016 | 2017 | ||||||
| Current assets: | |||||||
| Restricted cash | $ | 1,464 | $ | 1,550 | |||
| Prepaid expenses | 545 | 445 | |||||
| Other | — | 7 | |||||
| Total current assets | 2,009 | 2,002 | |||||
| Noncurrent assets: | |||||||
| Property and equipment | 253 | 229 | |||||
| Indefinite lived intangibles | 49,297 | 46,390 | |||||
| Deposits and other | 5,460 | 6,205 | |||||
| Total noncurrent assets | 55,010 | 52,824 | |||||
| Total assets | $ | 57,019 | $ | 54,826 | |||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 14 | $ | 54 | |||
| Current maturities of long-term debt | 5,453 | 6,039 | |||||
| Deferred revenue | 779 | 807 | |||||
| Other current liabilities | 223 | 205 | |||||
| Total current liabilities | 6,469 | 7,105 | |||||
| Noncurrent liabilities: | |||||||
| Long-term debt, net of current portion | 57,728 | 51,954 | |||||
| Other noncurrent liabilities | — | — | |||||
| Total noncurrent liabilities | 57,728 | 51,954 | |||||
| Total liabilities | $ | 64,197 | $ | 59,059 | |||
9. INTANGIBLE ASSETS AND GOODWILL
In accordance with ASC Topic 350,
Intangibles—Goodwill and Other, the Company reviews goodwill and other intangibles at least annually for impairment. In connection with any such review, if the recorded value of goodwill and other intangibles is greater than its fair value, the intangibles are written down and charged to results of operations. FCC licenses are renewed every eight years at a nominal cost, and historically all of our FCC licenses have been renewed at the end of their respective eight-year periods. Since we expect that all of our FCC licenses will continue to be renewed in the future, we believe they have indefinite lives. Radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster.Impairment testing
The Company generally performs its annual impairment review of indefinite-lived intangibles as of December 1 each year. At the time of each impairment review, if the fair value of the indefinite-lived intangible is less than its carrying value a charge is recorded to results of operations. When indicators of impairment are present, the Company will perform an interim impairment test. Impairment recorded as a result of our interim and annual impairment testing is summarized in the table below. We will perform additional interim impairment assessments whenever triggering events suggest such testing for the recoverability of these assets is warranted. The table below summarizes the results of our interim and annual impairment testing for the three years ending February 28, 2017.2019.
|
| Interim Assessment |
|
| Annual Assessment |
|
|
|
|
| ||||||||||
|
| Goodwill |
|
| Definite-lived |
|
| FCC Licenses |
|
| Goodwill |
|
| Total |
| |||||
Year Ended February 28, 2017 |
|
| 2,058 |
|
|
| 930 |
|
|
| 6,855 |
|
|
| — |
|
|
| 9,843 |
|
Year Ended February 28, 2018 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 265 |
|
|
| 265 |
|
Year Ended February 28, 2019 |
|
| — |
|
|
| — |
|
|
| 343 |
|
|
| — |
|
|
| 343 |
|
| Interim Assessment | Annual Assessment | |||||||||||||||||||
| FCC Licenses | Goodwill | Definite-lived | FCC Licenses | Goodwill | Definite-lived | Total | ||||||||||||||
| Year Ended February 28, 2015 | — | — | — | 9,520 | 58,395 | — | 67,915 | |||||||||||||
| Year Ended February 29, 2016 | — | — | — | 5,440 | 695 | 3,364 | 9,499 | |||||||||||||
| Year Ended February 28, 2017 | — | 2,058 | 930 | 6,855 | — | — | 9,843 | |||||||||||||
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be 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. To determine the fair value of our FCC licenses, the Company uses an income valuation method when it performs its impairment tests. Under this method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market 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 commenced operations at the beginning of the valuation period. 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. Each of these assumptions may change in the future based upon changes in general economic conditions, audience
54
behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take into consideration then current economic conditions.
Below are some of the key assumptions used in our annual impairment assessments. As part of our recent annual impairment assessments, we reduced long-term growth rates in most of the markets in which we operate based on recent industry trends and our expectations for the markets going forward. The methodology used to value our FCC licenses has not changed in the three-year period ended February 28, 2017.
December 1, 2016 | December 1, 2017 | December 1, 2018 | |||||||
Discount Rate | 12.2% - 12.5% | 12.1% - 12.4% | 11.9% - 12.3% | ||||||
Long-term Revenue Growth Rate | 1.0% - 2.0% | 1.0% - 1.8% | 0.3% - 1.0% | ||||||
Mature Market Share | 3.1% - 30.4% | 12.7% - 31.1% | 12.9% - 30.2% | ||||||
Operating Profit Margin | 25.1% - 39.1% | 27.0% - 39.1% | 26.0% - 38.0% |
As of February 28, (29), 20162018 and 2017,2019, excluding amounts classified as held for sale, the carrying amounts of the Company’s FCC licenses were $205.1$170.9 million and $197.7$170.5 million, respectively. These amounts are entirely attributable to our radio division. The table below presents the changes to the carrying values of the Company’s FCC licenses for the years ended February 20162018 and 20172019 for each unit of accounting.
|
| Change in FCC License Carrying Values |
| |||||||||||||||||||||||||
Unit of Accounting |
| As of February 28, 2017 |
|
| Sale of Stations |
|
| Reclassification |
|
| As of February 28, 2018 |
|
| Sale of Stations |
|
| Impairment |
|
| As of February 28, 2019 |
| |||||||
New York Cluster |
| $ | 71,614 |
|
| $ | — |
|
| $ | — |
|
| $ | 71,614 |
|
| $ | — |
|
| $ | — |
|
| $ | 71,614 |
|
98.7FM (New York) |
|
| 46,390 |
|
|
| — |
|
|
| — |
|
|
| 46,390 |
|
|
| — |
|
|
| — |
|
|
| 46,390 |
|
Austin Cluster |
|
| 34,720 |
|
|
| — |
|
|
| — |
|
|
| 34,720 |
|
|
| — |
|
|
| — |
|
|
| 34,720 |
|
St. Louis Cluster |
|
| 24,758 |
|
|
| — |
|
|
| (24,758 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Indianapolis Cluster |
|
| 18,166 |
|
|
| — |
|
|
| — |
|
|
| 18,166 |
|
|
| — |
|
|
| (343 | ) |
|
| 17,823 |
|
KPWR-FM (Los Angeles) |
|
| 2,018 |
|
|
| (2,018 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Subotal |
|
| 197,666 |
|
|
| (2,018 | ) |
|
| (24,758 | ) |
|
| 170,890 |
|
|
| — |
|
|
| (343 | ) |
|
| 170,547 |
|
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Louis Cluster |
|
| — |
|
|
| — |
|
|
| 24,758 |
|
|
| 24,758 |
|
|
| (24,758 | ) |
|
| — |
|
|
| — |
|
Grand Total |
| $ | 197,666 |
|
| $ | (2,018 | ) |
| $ | — |
|
| $ | 195,648 |
|
| $ | (24,758 | ) |
| $ | (343 | ) |
| $ | 170,547 |
|
| Change in FCC License Carrying Values | ||||||||||||||||||||||||||||||||
| Unit of Accounting | As of February 28, 2015 | Purchase | Impairment | As of February 29, 2016 | Purchase | Sale of Stations | Impairment | As of February 28, 2017 | ||||||||||||||||||||||||
| New York Cluster | $ | 71,616 | $ | — | $ | — | $ | 71,616 | $ | — | $ | — | $ | — | 71,616 | |||||||||||||||||
| 98.7FM (New York) | 51,063 | — | (1,766 | ) | $ | 49,297 | — | — | (2,907 | ) | 46,390 | |||||||||||||||||||||
| Austin Cluster | 39,255 | — | (2,343 | ) | $ | 36,912 | — | — | (2,192 | ) | 34,720 | |||||||||||||||||||||
| St. Louis Cluster | 27,692 | — | (1,293 | ) | $ | 26,399 | 34 | — | (1,677 | ) | 24,756 | |||||||||||||||||||||
| Indianapolis Cluster | 17,654 | 512 | — | $ | 18,166 | — | — | — | 18,166 | |||||||||||||||||||||||
| KPWR-FM (Los Angeles) | 2,018 | — | — | $ | 2,018 | — | — | — | 2,018 | |||||||||||||||||||||||
| Terre Haute Cluster | 759 | — | (38 | ) | $ | 721 | — | (642 | ) | (79 | ) | — | ||||||||||||||||||||
| Total | $ | 210,057 | $ | 512 | $ | (5,440 | ) | $ | 205,129 | $ | 34 | $ | (642 | ) | $ | (6,855 | ) | 197,666 | ||||||||||||||
Impairment was recorded for our New York station being operated pursuant to an LMA during the years ended February 2016 and 2017 alongIndianapolis radio cluster in connection with our most recent annual impairment for our Austin, St. Louis and Terre Haute clusters.review. Stagnant market revenues in recent years, coupled with a reduction in the Company'sCompany’s estimate of long-term revenue growth rates, led to a lower estimate of fair value for these FCC licenses.
During the three years ended February 2019, we sold our stations in Terre Haute, Los Angeles and St. Louis. See Note 7 for more discussion of these transactions.
Valuation of Goodwill
ASC Topic 350350-20-35 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.annually. The Company conducts the two-stepits 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 Company’s reporting units (radio stations grouped by market, excluding any stations that are being operated pursuant to an LMA). 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 well as recent market transactions as a benchmark for the multiple it applies to its radio reporting units. For the annual assessment performed as of December 1, 2016,2018, the Company applied a market multiple of 8.0 times the reporting unit’s operating performance. Management believes this methodology for valuing radio properties is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons and market transactions. To corroborate the step-one reporting unit fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit.
The Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment as of March 1, 2017. Prior to March 1, 2017, the Company performed a two-step impairment test for goodwill. Goodwill impairment recorded during the year ended February 28, 2017 was recorded using the two-step methodology. Goodwill impairments recorded from March 1, 2017 forward will be recorded using the simplified method as described above.
The Company used an income approach to determine the enterprise value of Digonex. Digonex is a dynamic pricing business that does not have well-established industry trading multiples, analyst estimates of valuations, or recently completed transactions that would indicate fair values of these businesses. As such, the Company used a discounted cash flow method to determine the fair value of Digonex.
55
During the quarter ended August 31, 2016, the Company lowered its growth expectations for Digonex for the next several years due to slow client adoption of dynamic pricing services. While the Company continues to believe in the long-term growth prospects of Digonex, the lengthy sales cycle has caused Digonex to perform below expectations to date. Despite lowering near-term growth expectations for Digonex in connection with our annual impairment review for fiscal 2016 as discussed below, performance in the first six months of fiscal 2017 indicated that a further revision was appropriate. Our then-current projections assumed that Digonex would generate cash flow losses in the short and medium-term. The combination of lower-than-expected current period results, coupled with downward revisions to future revenue projections, resulted in an impairment
During our December 20152017 annual goodwill impairment test, the Company wrote off $0.7 million of goodwill associated with Digonex. Emmis acquired a controlling interest in Digonex in June 2014 and recorded approximately $2.8 million of goodwill. The performance of Digonex since Emmis acquired its controlling interest has lagged the original assumptions used when estimating the fair values of the acquired assets and liabilities of the business. This, coupled with a reduction in long-term growth estimates for Digonex, resulted in a step-one indication of impairment. Upon completion of the step-two analysis, the Company determined that Digonex goodwill was partially impaired.
As of February 28, (29), 20162018 and 2017,2019, the carrying amount of the Company’s goodwill was $14.7 million and $4.6$4.3 million. The table below presents the changes to the carrying values of the Company’s goodwill for the years ended February 20162018 and 20172019 for each reporting unit. As noted above, eachA reporting unit is a cluster of radio stations in one geographical market (except for stations being operated pursuant to LMAs) and magazineseach magazine on an individual basis. We sold
|
| Change in Goodwill Carrying Values |
| |||||||||||||||||
Reporting Unit (Segment) |
| As of February 28, 2017 |
|
| Impairment |
|
| As of February 28, 2018 |
|
| Impairment |
|
| As of February 28, 2019 |
| |||||
Indianapolis Cluster (Radio) |
| $ | 265 |
|
| $ | (265 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Austin Cluster (Radio) |
|
| 4,338 |
|
|
| — |
|
|
| 4,338 |
|
|
| — |
|
|
| 4,338 |
|
Total |
| $ | 4,603 |
|
| $ | (265 | ) |
| $ | 4,338 |
|
| $ | — |
|
| $ | 4,338 |
|
| Change in Goodwill Carrying Values | ||||||||||||||||||||||||
| Reporting Unit (Segment) | As of February 28, 2015 | Impairment | As of February 29, 2016 | Sale of Entity | Impairment | As of February 28, 2017 | ||||||||||||||||||
| Indianapolis Cluster (Radio) | $ | 265 | $ | — | $ | 265 | $ | — | $ | — | $ | 265 | ||||||||||||
| Austin Cluster (Radio) | 4,338 | — | 4,338 | — | — | 4,338 | ||||||||||||||||||
| Texas Monthly (Publishing) | 8,036 | — | 8,036 | (8,036 | ) | — | — | |||||||||||||||||
| Digonex (Corporate & Emerging Technologies) | 2,753 | (695 | ) | 2,058 | — | (2,058 | ) | — | ||||||||||||||||
| Total | $ | 15,392 | $ | (695 | ) | $ | 14,697 | $ | (8,036 | ) | $ | (2,058 | ) | $ | 4,603 | |||||||||
Definite-lived intangibles
The following table presents the weighted-average remaining useful life at February 28, 20172019 and gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at February 28, (29), 20162018 and 2017:2019:
|
|
|
|
|
| As of February 28, 2018 |
|
| As of February 28, 2019 |
| ||||||||||||||||||
|
| Weighted Average Remaining Useful Life (in years) |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| |||||||
Programming Contract |
|
| 2.6 |
|
| $ | 2,154 |
|
| $ | 1,101 |
|
| $ | 1,053 |
|
| $ | 2,154 |
|
| $ | 1,396 |
|
| $ | 758 |
|
| As of February 29, 2016 | As of February 28, 2017 | ||||||||||||||||||||||||
Weighted Average Remaining Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Trademarks | 8.5 | $ | 1,240 | $ | 727 | $ | 513 | $ | 696 | $ | 545 | $ | 151 | ||||||||||||
| Patents | N/A | 1,815 | 1,141 | 674 | — | — | — | ||||||||||||||||||
| Programming Contract | 4.6 | 2,154 | 514 | 1,640 | 2,154 | 808 | 1,346 | ||||||||||||||||||
| Customer List | 0.3 | 1,015 | 543 | 472 | 315 | 289 | 26 | ||||||||||||||||||
| Total | $ | 6,224 | $ | 2,925 | $ | 3,299 | $ | 3,165 | $ | 1,642 | $ | 1,523 | |||||||||||||
In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i) determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by comparing the long-lived asset'sasset’s fair value to its current carrying value. In connection with this analysis for the year ended February 29, 2016, the Company determined that the patents of Digonex were impaired and recorded an impairment charge of
Total amortization expense from definite-lived intangibles was $0.9$0.7 million, $1.5$0.3 million and $0.7$0.3 million for the years ended February 2015, 20162017, 2018 and 2017,2019, respectively. The following table presents the Company'sCompany’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles:
Year ended February 28 (29), |
| Expected Amortization Expense |
| |
|
| (in 000’s) |
| |
2020 |
| $ | 294 |
|
2021 |
|
| 294 |
|
2022 |
|
| 170 |
|
2023 |
|
| — |
|
2024 |
|
| — |
|
| Year ended February 28 (29), | Expected Amortization Expense | ||
| (in 000's) | |||
| 2018 | 338 | ||
| 2019 | 311 | ||
| 2020 | 311 | ||
| 2021 | 311 | ||
| 2022 | 189 | ||
10. EMPLOYEE BENEFIT PLANS
a. Equity Incentive Plans
The Company has stock options and restricted stock grants outstanding that were issued to employees or non-employee directors under one or more of the following plans: the 2004 Equity Compensation Plan, the 2010 Equity Compensation Plan, the 2012 Equity Compensation Plan, the 2015 Equity Compensation Plan, the 2016 Equity Compensation Plan and the 20162017 Equity Compensation Plan. These outstanding grants continue to be governed by the terms of the applicable plan.
At the 20162017 annual meeting, the shareholders of Emmis approved the 2016 Equity Compensation Plan (“the 2016 Plan”). Under the 2016 Plan, awards equivalent to 1.5 million shares of common stock may be granted. Furthermore, any unissued awards from prior equity compensation plans (or shares subject to outstanding awards that would again become available for awards under this plan) increases the number of shares of common stock available for grant under the 2016 Plan. The awards, which have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock units, stock appreciation rights or performance units. Under the 2016 Plan, all awards are granted with a purchase price equal to at least the fair market value of the stock except for shares of restricted stock and restricted stock units, which may be granted with any purchase price (including zero). The stock options under the 2016 Plan generally expire not more than 10 years from the date of grant. Under the 2016 Plan, awards equivalent to approximately 0.6 million shares of common stock were available for grant as of February 28, 2017.
b. 401(k) Retirement Savings Plan
Emmis sponsors a Section 401(k) retirement savings plan that is available to substantially all employees age 18 years and older who have at least 30 days of service. Employees may make pretax contributions to the plan up to 50% of their
c. Defined Contribution Health and Retirement Plan
Emmis contributes to a multi-employer defined contribution health and retirement plan for employees who are members of a certain labor union. Amounts charged to expense related to the multi-employer plan were approximately $0.3 million for each of the years ended February 2015, 20162017, 2018 and 2017.
11. OTHER COMMITMENTS AND CONTINGENCIES
a. Commitments
The Company has various commitments under the following types of material contracts: (i) operating leases; (ii) employment agreements and (iii) other contracts with annual commitments (mostly contractual services for audience measurement information) at February 28, 20172019 as follows:
Year ending February 28 (29), |
| Operating Leases |
|
| Employment Agreements |
|
| Other Contracts |
|
| Total |
| ||||
2020 |
| $ | 5,547 |
|
| $ | 10,062 |
|
| $ | 3,955 |
|
| $ | 19,564 |
|
2021 |
|
| 5,305 |
|
|
| 3,009 |
|
|
| 763 |
|
|
| 9,077 |
|
2022 |
|
| 5,284 |
|
|
| 1,223 |
|
|
| 526 |
|
|
| 7,033 |
|
2023 |
|
| 5,186 |
|
|
| 123 |
|
|
| — |
|
|
| 5,309 |
|
2024 |
|
| 3,666 |
|
|
| 123 |
|
|
| — |
|
|
| 3,789 |
|
Thereafter |
|
| 13,118 |
|
|
| — |
|
|
| — |
|
|
| 13,118 |
|
Total |
| $ | 38,106 |
|
| $ | 14,540 |
|
| $ | 5,244 |
|
| $ | 57,890 |
|
Year ending February 28 (29), | Operating Leases | Employment Agreements | Other Contracts | Total | |||||||||||
| 2018 | $ | 7,006 | $ | 15,498 | $ | 11,435 | $ | 33,939 | |||||||
| 2019 | 7,006 | 8,019 | 10,894 | 25,919 | |||||||||||
| 2020 | 7,082 | 1,453 | 3,631 | 12,166 | |||||||||||
| 2021 | 6,960 | 37 | 104 | 7,101 | |||||||||||
| 2022 | 6,741 | — | 104 | 6,845 | |||||||||||
| Thereafter | 23,649 | — | 70 | 23,719 | |||||||||||
| Total | $ | 58,444 | $ | 25,007 | $ | 26,238 | $ | 109,689 | |||||||
Emmis leases certain office space, tower space, equipment and automobiles under operating leases expiring at various dates through March 2032. Some of the lease agreements contain renewal options and annual rental escalation clauses, as well as provisions for payment of utilities and maintenance costs. The Company recognizes escalated rents on a straight-line basis over the term of the lease agreement. Rental expense during the years ended February 2015, 20162017, 2018 and 20172019 was approximately $9.1$8.3 million, $8.9$6.0 million and $8.3$5.0 million, respectively. The Company recognized approximately $0.3 million, $0.3less than $0.1 million and $0.4$0.2 million of sublease income as a reduction of rent expense for the years ended February 2015, 2016,2017, 2018, and 20172019 respectively. Total
The total minimum sublease rentals to be received in the future under noncancelable subleases as of February 28, 2017 amounted to $216 thousand, all of which is expected to be received during the year ended February 28, 2018.2019 were as follows:
Year ending February 28 (29), |
| Noncancelable Sublease rentals |
| |
2020 |
| $ | 441 |
|
2021 |
|
| 276 |
|
2022 |
|
| 129 |
|
2023 |
|
| 126 |
|
2024 |
|
| 88 |
|
Total |
| $ | 1,060 |
|
b. Litigation
The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company.
12. INCOME TAXES
| 2015 | 2016 | 2017 | |||||||||
| United States | $ | (58,692 | ) | $ | 1,765 | $ | 13,110 | ||||
| Foreign | (345 | ) | — | — | |||||||
| (Loss) income before income taxes | $ | (59,037 | ) | $ | 1,765 | $ | 13,110 | ||||
The provision (benefit) for income taxes for the years ended February 2015, 2016,2017, 2018 and 20172019 consisted of the following:
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | — |
|
| $ | (1,209 | ) |
| $ | 10,274 |
|
State |
|
| 68 |
|
|
| 1,611 |
|
|
| 2,064 |
|
Total current |
|
| 68 |
|
|
| 402 |
|
|
| 12,338 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (152 | ) |
|
| (13,612 | ) |
|
| (4,033 | ) |
State |
|
| (26 | ) |
|
| 1,478 |
|
|
| (2,138 | ) |
Total deferred |
|
| (178 | ) |
|
| (12,134 | ) |
|
| (6,171 | ) |
(Benefit) provision for income taxes |
| $ | (110 | ) |
| $ | (11,732 | ) |
| $ | 6,167 |
|
| 2015 | 2016 | 2017 | |||||||||
| Current: | |||||||||||
| State | $ | 229 | $ | (31 | ) | $ | 68 | ||||
| Total current | 229 | (31 | ) | 68 | |||||||
| Deferred: | |||||||||||
| Federal | 27,431 | 1,793 | (152 | ) | |||||||
| State | 9,288 | 307 | (26 | ) | |||||||
| Total deferred | 36,719 | 2,100 | (178 | ) | |||||||
| (Benefit) provision for income taxes | $ | 36,948 | $ | 2,069 | $ | (110 | ) | ||||
The provision (benefit) for income taxes for the years ended February 2015, 20162017, 2018 and 20172019 differs from that computed at the Federal statutory corporate tax rate as follows:
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Federal statutory income tax rate |
|
| 35 | % |
|
| 35 | % |
|
| 21 | % |
Computed income tax provision at federal statutory rate |
| $ | 4,588 |
|
| $ | 23,855 |
|
| $ | 6,772 |
|
State income tax |
|
| 42 |
|
|
| 3,089 |
|
|
| (74 | ) |
Nondeductible stock compensation |
|
| 444 |
|
|
| 261 |
|
|
| 63 |
|
Entertainment disallowance |
|
| 366 |
|
|
| 235 |
|
|
| 215 |
|
Disposal of goodwill with no tax basis |
|
| 3,533 |
|
|
| — |
|
|
| — |
|
Change in federal valuation allowance |
|
| (7,387 | ) |
|
| (20,373 | ) |
|
| 599 |
|
Tax attributed to noncontrolling interest |
|
| (1,698 | ) |
|
| (1,785 | ) |
|
| (1,045 | ) |
Federal tax credit |
|
| (171 | ) |
|
| (85 | ) |
|
| (85 | ) |
Federal tax reform |
|
| — |
|
|
| (15,546 | ) |
|
| — |
|
Reclassification of AMT credit |
|
| — |
|
|
| (2,162 | ) |
|
| 82 |
|
Other |
|
| 173 |
|
|
| 779 |
|
|
| (360 | ) |
(Benefit) provision for income taxes |
| $ | (110 | ) |
| $ | (11,732 | ) |
| $ | 6,167 |
|
| 2015 | 2016 | 2017 | |||||||||
| Computed income tax (benefit) provision at 35% | $ | (20,663 | ) | $ | 618 | $ | 4,588 | ||||
| State income tax | 9,517 | 276 | 42 | ||||||||
| Foreign taxes | 120 | — | — | ||||||||
| Tax benefit resulting from swap expiration and related OCI reversal | 5 | — | — | ||||||||
| Nondeductible stock compensation | 122 | 296 | 444 | ||||||||
| Entertainment disallowance | 421 | 366 | 366 | ||||||||
| Disposal of goodwill with no tax basis | — | — | 3,533 | ||||||||
| Change in federal valuation allowance | 50,250 | 2,376 | (7,387 | ) | |||||||
| Tax attributed to noncontrolling interest | (1,994 | ) | (1,932 | ) | (1,698 | ) | |||||
| Federal tax credit | (173 | ) | (43 | ) | (171 | ) | |||||
| Other | (657 | ) | 112 | 173 | |||||||
| Provision (benefit) for income taxes | $ | 36,948 | $ | 2,069 | $ | (110 | ) | ||||
The final determination of our income tax liability may be materially different from our income tax provision. Significant judgment is required in determining our provision for income taxes. Our calculation of the provision for income taxes is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. In addition, our income tax returns are subject to periodic examination by the Internal Revenue Service and other taxing authorities. As of February 28, 2019, the Company had no open income tax examinations. The Company’s tax years ended February 28, 2016 through 2019 remain subject to federal income tax examination. For state and local jurisdictions, the tax years February 28, 2015 through 2019 remain subject to income tax examination. To the extent that net operating losses are utilized, the year of loss is open to examination.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into federal law. The provisions of this major tax reform were generally effective January 1, 2018. The most significant change impacting the Company is the reduction of the corporate federal income tax rate from 35% to 21% effective January 1, 2018. The Company made reasonable estimates in order to remeasure its deferred tax balances and account for the effects of the Tax Act, as reflected in the February 28, 2018 financial statements. The adjustment to federal deferred tax balances resulted in a benefit of $15.5 million and the adjustment to state deferred tax balances resulted in an expense of $1.4 million. As of February 28, 2019, Emmis completed the accounting for enactment date income tax effects of the Tax Act, which resulted in an immaterial impact to our financial statements.
58
The components of deferred tax assets and deferred tax liabilities at February 29, 201628, 2018 and February 28, 2017 are2019 were as follows:
|
| As of February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
| $ | 10,977 |
|
| $ | 11,173 |
|
Intangible assets |
|
| 14,072 |
|
|
| 13,023 |
|
Compensation relating to stock options |
|
| 1,600 |
|
|
| 1,506 |
|
Accrued rent |
|
| 1,204 |
|
|
| 974 |
|
Tax credits |
|
| 1,464 |
|
|
| 1,165 |
|
Investments in subsidiaries |
|
| 143 |
|
|
| 148 |
|
Other |
|
| 332 |
|
|
| 298 |
|
Valuation allowance |
|
| (27,099 | ) |
|
| (26,724 | ) |
Total deferred tax assets |
|
| 2,693 |
|
|
| 1,563 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
| (31,383 | ) |
|
| (26,005 | ) |
Property and equipment |
|
| (483 | ) |
|
| (698 | ) |
Cancellation of debt income |
|
| (1,839 | ) |
|
| — |
|
Other |
|
| (391 | ) |
|
| (92 | ) |
Total deferred tax liabilities |
|
| (34,096 | ) |
|
| (26,795 | ) |
Net deferred tax liabilities |
| $ | (31,403 | ) |
| $ | (25,232 | ) |
| 2016 | 2017 | ||||||
| Deferred tax assets: | |||||||
| Net operating loss carryforwards | $ | 34,341 | $ | 35,365 | |||
| Intangible assets | 28,737 | 22,130 | |||||
| Compensation relating to stock options | 1,768 | 1,942 | |||||
| Deferred revenue | 840 | 420 | |||||
| Accrued rent | 2,275 | 1,892 | |||||
| Tax credits | 3,265 | 3,438 | |||||
| Investments in subsidiaries | 214 | 396 | |||||
| Capital loss carryforward | 2,740 | — | |||||
| Other | 1,628 | 993 | |||||
| Valuation allowance | (66,674 | ) | (60,379 | ) | |||
| Total deferred tax assets | 9,134 | 6,197 | |||||
| Deferred tax liabilities | |||||||
| Indefinite-lived intangible assets | (43,673 | ) | (43,505 | ) | |||
| Property and equipment | (1,055 | ) | (814 | ) | |||
| Cancellation of debt income | (8,079 | ) | (5,386 | ) | |||
| Other | (42 | ) | (29 | ) | |||
| Total deferred tax liabilities | (52,849 | ) | (49,734 | ) | |||
| Net deferred tax liabilities | $ | (43,715 | ) | $ | (43,537 | ) | |
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset (“DTA”) will not be realized. The Company historically recorded a full valuation allowance on all U.S. (federal and state) deferred tax assets. The Company does not benefit its deferred tax assets based on the deferred tax liabilities (“DTLs”) related to indefinite-lived intangibles that are not expected to reverse during the carry-forward period. Because these DTLs would not reverse until some future indefinite period when the intangibles are either sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support realization of the DTAs.
The Company decreased its valuation allowance by $6.3$0.4 million ($5.1(consisting of a $0.7 million federal increase and $1.2a $ 1.1 million state)state decrease), from $66.7 million as of February 29, 2016, to $60.4$27.1 million as of February 28, 2017.
The Company has considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowance. The Company will assess quarterly whether it remains more likely than not that the deferred tax assets will not be realized. In the event the Company determines at a future time that it could realize its deferred tax assets in excess of the net amount recorded, the Company will reduce its deferred tax asset valuation allowance and decrease income tax expense in the period when the Company makes such determination.
The Company has federal net operating losses ("NOLs"(“NOLs”) of $79$20 million and state NOLs of $168$135 million available to offset future taxable income. The federal net operating loss carryforwards begin expiring in 2030,2031, and the state net operating loss carryforwards expire between the years ending February 20182020 and February 2036.2037. A valuation allowance has been provided for the net operating loss carryforwards related to states in which the Company no longer has operating results as it is more likely than not that substantially all of these net operating losses will expire unutilized.
The activities of Digonex, Technologies, Inc.,which is a C Corporation, under the Internal Revenue Code, are consolidated for financial statement purposes, but are not included in the U.S. consolidated income tax return of Emmis. As of February 28, 2017,2019, Digonex has federal NOLs of $45$49 million and state NOLs of $45 million .$49 million. If Digonex produces pretax income in the future, it is possible that the utilization of these NOL carryforwards will be limited due to Section 382 of the Internal Revenue Code. The Company is in the process of completing a Section 382 study to determine the applicable limitation, if any. As of
The Company had $1.5 million of tax credits at February 28, 2019, including tax credits in California and Illinois, which have a full valuation allowance, and in Texas, which is expected to be fully utilized in future years.
Accounting Standards Codification paragraph 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken within a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of February 28, 2017,2019, the estimated value of the Company’s net uncertain tax positions is approximately $0.1 million, most of which is included in other noncurrent liabilities, as the Company does not expect to settle the items within the next 12 months.
59
The following is a tabular reconciliation of the total amounts of gross unrecognized tax benefits for the years ending February 29, 201628, 2018 and February 28, 2017:2019:
|
| For the year ending February 28, |
| |||||
|
| 2018 |
|
| 2019 |
| ||
Gross unrecognized tax benefit – opening balance |
| $ | (60 | ) |
| $ | (38 | ) |
Gross decreases – lapse of applicable statute of limitations |
|
| 22 |
|
|
| 16 |
|
Gross unrecognized tax benefit – ending balance |
| $ | (38 | ) |
| $ | (22 | ) |
| For the year ending February 28 (29), | |||||||
| 2016 | 2017 | ||||||
| Gross unrecognized tax benefit – opening balance | $ | (172 | ) | $ | (87 | ) | |
| Gross increases – tax positions in prior periods | (21 | ) | — | ||||
| Gross decreases—settlements with taxing authorities | 81 | — | |||||
| Gross decreases – lapse of applicable statute of limitations | 25 | 27 | |||||
| Gross unrecognized tax benefit – ending balance | $ | (87 | ) | $ | (60 | ) | |
Included in the balance of unrecognized tax benefits are tax benefits that, if recognized, would reduce the Company’s provision for income taxes totaling $0.1 million andby less than $0.1 million as of February 29, 201628, 2018 and February 28, 2017, respectively.2019. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the tax provision, or reclassify amounts on the accompanying consolidated balance sheets in the period in which such matter is effectively settled with the taxing authority.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued an immaterial amount of interest during the year ending February 28, 20172019 and in total, as of February 28, 2017,2019, has recognized a liability for interest of $8$4 thousand.
13. SEGMENT INFORMATION
The Company’s operations have historically been aligned into three business segments: (i) Radio, (ii) Publishing and (iii) Corporate & Emerging Technologies. Emerging Technologies includes our TagStation, NextRadio and Digonex businesses. Results of Emerging Technologiesbusinesses, although our TagStation and Next Radio businesses were reclassified from the Radio segment in the prior periods presented below and are not material.
These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses are not allocated to reportable segments. Our radio operations in New York, and Los Angeles, including the LMA fee we receive from a subsidiary of Disney, accounted for more thanapproximately 50% of our radio revenues for the year ended February 28, 2017.2019. The Company’s segments operate exclusively in the United States.
During the yearthree years ended February 28, 2017,2019, we sold our radio clusterclusters in Terre Haute Indianaand St. Louis, sold our radio station in Los Angeles and sold five of our six magazines. See Note 7 for more discussion of our dispositions.
The accounting policies as described in the summary of significant accounting policies included in Note 1 to these consolidated financial statements, are applied consistently across segments.
Year Ended February 28, 2019 |
| Radio |
|
| Publishing |
|
| Corporate & Emerging Technologies |
|
| Consolidated |
| ||||
Net revenues |
| $ | 108,018 |
|
| $ | 4,678 |
|
| $ | 1,435 |
|
| $ | 114,131 |
|
Station operating expenses excluding depreciation and amortization expense |
|
| 76,128 |
|
|
| 4,822 |
|
|
| 10,083 |
|
|
| 91,033 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| — |
|
|
| — |
|
|
| 10,313 |
|
|
| 10,313 |
|
Impairment loss |
|
| 343 |
|
|
| — |
|
|
| — |
|
|
| 343 |
|
Depreciation and amortization |
|
| 2,338 |
|
|
| 18 |
|
|
| 857 |
|
|
| 3,213 |
|
(Gain) loss on sale of radio and publishing assets, net of disposition costs |
|
| (32,148 | ) |
|
| 331 |
|
|
| — |
|
|
| (31,817 | ) |
Loss on disposal of fixed assets |
|
| 57 |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
Operating income (loss) |
| $ | 61,300 |
|
| $ | (493 | ) |
| $ | (19,818 | ) |
| $ | 40,989 |
|
Year Ended February 28, 2018 |
| Radio |
|
| Publishing |
|
| Corporate & Emerging Technologies |
|
| Consolidated |
| ||||
Net revenues |
| $ | 142,852 |
|
| $ | 4,521 |
|
| $ | 1,114 |
|
| $ | 148,487 |
|
Station operating expenses excluding depreciation and amortization expense |
|
| 102,413 |
|
|
| 5,035 |
|
|
| 12,310 |
|
|
| 119,758 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| — |
|
|
| — |
|
|
| 10,712 |
|
|
| 10,712 |
|
Impairment loss |
|
| 265 |
|
|
| — |
|
|
| — |
|
|
| 265 |
|
Depreciation and amortization |
|
| 2,792 |
|
|
| 19 |
|
|
| 817 |
|
|
| 3,628 |
|
(Gain) loss on sale of radio and publishing assets, net of disposition costs |
|
| (76,745 | ) |
|
| 141 |
|
|
| — |
|
|
| (76,604 | ) |
(Gain) loss on sale of fixed assets |
|
| (82 | ) |
|
| 13 |
|
|
| — |
|
|
| (69 | ) |
Operating income (loss) |
| $ | 114,209 |
|
| $ | (687 | ) |
| $ | (22,725 | ) |
| $ | 90,797 |
|
60
Year Ended February 28, 2017 |
| Radio |
|
| Publishing |
|
| Corporate & Emerging Technologies |
|
| Consolidated |
| ||||
Net revenues |
| $ | 165,148 |
|
| $ | 48,559 |
|
| $ | 861 |
|
| $ | 214,568 |
|
Station operating expenses excluding depreciation and amortization expense |
|
| 115,366 |
|
|
| 51,063 |
|
|
| 13,656 |
|
|
| 180,085 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| — |
|
|
| — |
|
|
| 11,359 |
|
|
| 11,359 |
|
Impairment loss |
|
| 6,855 |
|
|
| — |
|
|
| 2,988 |
|
|
| 9,843 |
|
Depreciation and amortization |
|
| 3,462 |
|
|
| 230 |
|
|
| 1,114 |
|
|
| 4,806 |
|
Gain on sale of radio and publishing assets, net of disposition costs |
|
| (3,478 | ) |
|
| (20,079 | ) |
|
| — |
|
|
| (23,557 | ) |
Loss on sale of fixed assets |
|
| 124 |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
Operating income (loss) |
| $ | 42,819 |
|
| $ | 17,345 |
|
| $ | (28,256 | ) |
| $ | 31,908 |
|
Total Assets |
| Radio |
|
| Publishing |
|
| Corporate & Emerging Technologies |
|
| Consolidated |
| ||||
As of February 28, 2018 |
| $ | 249,044 |
|
| $ | 1,293 |
|
| $ | 20,807 |
|
| $ | 271,144 |
|
As of February 28, 2019 |
|
| 216,473 |
|
|
| 728 |
|
|
| 20,545 |
|
|
| 237,746 |
|
| Year Ended February 28, 2017 | Radio | Publishing | Corporate & Emerging Technologies | Consolidated | |||||||||||
| Net revenues | $ | 165,148 | $ | 48,559 | $ | 861 | $ | 214,568 | |||||||
| Station operating expenses excluding depreciation and amortization expense | 115,366 | 51,063 | 13,656 | 180,085 | |||||||||||
| Corporate expenses excluding depreciation and amortization expense | — | — | 11,359 | 11,359 | |||||||||||
| Impairment loss | 6,855 | — | 2,988 | 9,843 | |||||||||||
| Depreciation and amortization | 3,462 | 230 | 1,114 | 4,806 | |||||||||||
| Gain on sale of radio and publishing assets, net of disposition costs | (3,478 | ) | (20,079 | ) | — | (23,557 | ) | ||||||||
| Loss on disposal of fixed assets | 124 | — | — | 124 | |||||||||||
| Operating income (loss) | $ | 42,819 | $ | 17,345 | $ | (28,256 | ) | $ | 31,908 | ||||||
| Year Ended February 29, 2016 | Radio | Publishing | Corporate & Emerging Technologies | Consolidated | |||||||||||
| Net revenues | $ | 169,228 | $ | 60,992 | $ | 1,213 | $ | 231,433 | |||||||
| Station operating expenses excluding depreciation and amortization expense | 116,862 | 58,891 | 7,641 | 183,394 | |||||||||||
| Corporate expenses excluding depreciation and amortization expense | — | — | 13,023 | 13,023 | |||||||||||
| Impairment loss | 5,440 | — | 4,059 | 9,499 | |||||||||||
| Depreciation and amortization | 3,345 | 266 | 2,186 | 5,797 | |||||||||||
| (Gain) loss on sale of fixed assets | 54 | — | 2 | 56 | |||||||||||
| Operating income (loss) | $ | 43,527 | $ | 1,835 | $ | (25,698 | ) | $ | 19,664 | ||||||
| Year Ended February 28, 2015 | Radio | Publishing | Corporate & Emerging Technologies | Consolidated | |||||||||||
| Net revenues | $ | 176,250 | $ | 61,142 | $ | 546 | $ | 237,938 | |||||||
| Station operating expenses excluding depreciation and amortization expense | 117,167 | 60,083 | 3,759 | 181,009 | |||||||||||
| Corporate expenses excluding depreciation and amortization expense | — | — | 14,922 | 14,922 | |||||||||||
| LMA fee | 4,208 | — | — | 4,208 | |||||||||||
| Hungary license litigation and related expenses | 521 | — | — | 521 | |||||||||||
| Impairment loss | 67,915 | — | — | 67,915 | |||||||||||
| Depreciation and amortization | 3,143 | 245 | 2,538 | 5,926 | |||||||||||
| Gain on contract settlement | (2,500 | ) | — | — | (2,500 | ) | |||||||||
| Operating income (loss) | $ | (14,204 | ) | $ | 814 | $ | (20,673 | ) | $ | (34,063 | ) | ||||
| Total Assets | Radio | Publishing | Corporate & Emerging Technologies | Consolidated | ||||||||||||
| As of February 29, 2016 | $ | 271,336 | $ | 22,060 | $ | 23,210 | $ | 316,606 | ||||||||
| As of February 28, 2017 | 260,228 | 1,746 | 27,364 | 289,338 | ||||||||||||
14. OTHER (EXPENSE) INCOME, (EXPENSE), NET
Components of other (expense) income, (expense), net for the three years ended February 2015, 20162017, 2018 and 20172019 were as follows:
|
| For the year ended February 28, |
| |||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
| |||
Loss from unconsolidated affiliate, including other-than-temporary impairment losses |
| $ | (28 | ) |
| $ | (15 | ) |
| $ | — |
|
Other-than-temporary impairment loss on investments |
|
| (254 | ) |
|
| — |
|
|
| — |
|
Interest income |
|
| 38 |
|
|
| 60 |
|
|
| 132 |
|
Other |
|
| 84 |
|
|
| (10 | ) |
|
| 7 |
|
Total other (expense) income, net |
| $ | (160 | ) |
| $ | 35 |
|
| $ | 139 |
|
| For the year ended February 28 (29), | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Income (loss) from unconsolidated affiliate, including other-than-temporary impairment losses | $ | 11 | $ | (82 | ) | $ | (28 | ) | |||
| Other-than-temporary impairment loss on investments | (6,682 | ) | — | (254 | ) | ||||||
| Interest income | 78 | 36 | 38 | ||||||||
| Other | 175 | 1,103 | 84 | ||||||||
| Total other income (expense), net | $ | (6,418 | ) | $ | 1,057 | $ | (160 | ) | |||
See Note 1 for further discussion of the other-than-temporary impairment loss on investments recorded in the years ended February 28, 2015 and 2017. Other income induring the year ended February 29, 2016 mostly relates to various nonrecurring recoveries and noncash gains.
15. RELATED PARTY TRANSACTIONS
Prior to 2002, the Company made certain life insurance premium payments for the benefit of Mr. Smulyan. The Company discontinued making such payments in 2001; however, pursuant to a Split Dollar Life Insurance Agreement and Limited Collateral Assignment dated November 2, 1997, the Company retains the right, upon Mr. Smulyan’s death, resignation or termination of employment, to recover all of the premium payments it has made, which total $1.1 million.
As previously discussed in Note 8, the Company received an offer in August 2016 from EAC, an Indiana corporation owned by Jeffrey H. Smulyan, the Company’s Chairman of the Board, Chief Executive Officer and controlling shareholder, setting forth a non-binding proposal by which EAC would acquire all the outstanding shares of Class A Common Stockcommon stock of the Company. During the year ended February 28, 2017, the Company incurred $0.9 of costs associated with the offer, which are included in corporate expenses, excluding depreciation and amortization expense in the accompanying consolidated statements of operations. The going private offer expired on October 14, 2016. No further costs are expected to be incurred in connection with the going private offer as it has expired. See Note 8 for further discussion of the going private offer.
16. SUBSEQUENT EVENTS
On April 18, 2017, Emmis12, 2019, the Company and certain of its subsidiaries entered into a Fourth Amendment to our 2014three loan agreements, consisting of:
1. | $12 million revolving credit agreement by and among Wells Fargo Bank, National Association, as lender, the Company, Emmis Operating Company, a wholly owned subsidiary of the Company, and certain other subsidiaries as borrowers (the “Revolving Credit Agreement”) |
2. | $23 million mortgage by and between Emmis Operating Company and Emmis Indiana Broadcasting, L.P., as borrowers, and Star Financial Bank, as lender (the “Mortgage”) |
3. | $4 million term loan, by and between Emmis Operating Company, as borrower, and Barrett Investment Partners, LLC, as lender (the “Term Loan”) |
61
The Revolving Credit Agreement expires April 12, 2024, provided the Term Loan is repaid, replaced, or extended by October 12, 2021. Amounts borrowed under the Revolving Credit Agreement bear interest at daily three-month LIBOR plus 2.50%. A commitment fee of 0.50% per annum is charged for unused amounts under the Revolving Credit Agreement. The Fourth Amendment (i) eliminated the maximum Total Leverage Ratio covenant through May 31, 2018 and replaced it with a minimum Consolidated EBITDA covenant of $20.0 million, after which it revertsPursuant to a Total Leverage RatioGuaranty and Security Agreement, dated as of 4.00:1.00 forApril 12, 2019, by and among Wells Fargo Bank, National Association, as lender, the quarters ended August 31, 2018Company, Emmis Operating Company, and thereafter, (ii) reducedcertain other subsidiaries as borrowers (the “GSA”), the Interest Coverage Ratio from 2.00:1.00 to 1.60:1.00, (iii) required Emmis to enter into definitive agreementsobligations under the Revolving Credit Agreement are secured by January 18, 2018 to sell assets that generate at least $80 million of sale proceeds and close such transactions no later than July 18, 2018, (iv) increased the Applicable Margin throughout the remaindera perfected first priority security interest in certain of the termCompany’s accounts receivable and fixed assets, as well as security interests in certain other assets of the Company. Borrowing under the Revolving Credit Agreement to 6.00% for ABR Loans (asdepends upon continued compliance with certain operating covenants and financial covenants, including maintaining a fixed charge coverage ratio, as specifically defined in the 2014Revolving Credit Agreement)Agreement, of at least 1.10:1.00. No amounts may be borrowed under the Revolving Credit Agreement unless and 7.00%until all (i) existing income tax obligations, currently estimated to be approximately $7 million, are paid in full, or (ii) the borrowing is used to pay such income tax obligations. The operating and other restrictions with which the Company must comply include, among others, restrictions on additional indebtedness, incurrence of liens, engaging in businesses other than our primary business, paying certain dividends, redeeming or repurchasing capital stock, acquisitions and asset sales. No default or event of default has occurred or is continuing.
The Mortgage expires April 12, 2029, and is secured by a perfected first priority security interest in the Company’s headquarters building in Indianapolis, Indiana, and approximately 70 acres of land owned by the Company in Whitestown, Indiana, which currently is used as a tower site for Eurodollar Loans (asone of the Company’s radio stations. The Mortgage bears interest at 5.48% per annum and requires monthly principal and interest payments using a 25 year amortization period, with a balloon payment due at expiration. The Mortgage requires continued compliance with certain operating covenants and financial covenants, including maintaining a fixed charge coverage ratio, as specifically defined in the 2014 Credit Agreement)Mortgage, of at least 1.10:1.00, and increasedrequires certain proceeds from asset sales to be used to repay the unused commitment fee on the revolving credit facility to 75 basis points,Mortgage indebtedness.
The Term Loan expires April 12, 2022, and (v) accelerated the maturityis secured by a pledge of the Company’s controlling ownership interest in a partnership that owns and operates 6 radio stations in Austin, Texas. The Term LoansLoan bears interest at 10% per annum the first year, with the rate increasing to April 18, 201912% in the second year and to 14% in the third year. The Term Loan requires monthly principal and interest payments, and is prepayable at par at any time provided that interest of at least $125 thousand must be paid to the lender.
In connection with the execution of the Revolving Loans to August 31, 2018. In addition to tightening or eliminating basketsCredit Agreement, Mortgage, and other credit enhancements for lenders, the Fourth Amendment contains ratcheting fees and premiums if the existing credit facility is not refinanced by July 18, 2018. The Fourth Amendment also required Emmis to pay a fee of 1.0% of the Term Loan, and Revolving Commitment of each Lender that consented to the Fourth Amendment. This fee totaled $1.5 million and was recorded as additional original issue discount and is being amortized as interest expense over the remaining life of the 2014 Credit Agreement beginning with the three-month period ending May 31, 2017.
| For the year ended February 28 (29), | |||||||||
| 2015 | 2016 | 2017 | |||||||
| Net revenues | $ | 32,986 | $ | 28,183 | $ | 24,379 | |||
| Station operating expenses, excluding depreciation and amortization expense | 17,848 | 16,305 | 16,933 | ||||||
| Depreciation and amortization | 570 | 422 | 401 | ||||||
| Operating income | 14,568 | 11,456 | 7,045 | ||||||
| As of February 28 (29), | ||||
| 2016 | 2017 | |||
| Property and equipment, net | 1,586 | 1,400 | ||
| Indefinite-lived intangibles | 2,018 | 2,018 | ||
| Other intangibles, net | 75 | 68 | ||
| Other assets, long-term | 21 | 39 | ||
None.
As of the end of the period covered by this annual 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”).
Based upon the Controls Evaluation, our CEO and CFO concluded that as of February 28, 2017,2019, 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 Commission’s 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.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the fourth quarter of fiscal 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management’s Report on Internal Control Over Financial Reporting
Emmis Communications Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, Emmis Communications Corporation’s principal executive and principal financial officers and effected by Emmis Communications Corporation’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Emmis Communications Corporation; |
(2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Emmis Communications Corporation are being made only in accordance with authorizations of management and directors of Emmis Communications Corporation; and |
(3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Emmis Communications Corporation’s assets that could have a material effect on the financial statements. |
Management has evaluated the effectiveness of its internal control over financial reporting as of February 28, 2017,2019, based on the control criteria established in a report entitled Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that Emmis Communications Corporation’s internal control over financial reporting is effective as of February 28, 2017.
Jeffrey H. Smulyan Chairman and Chief Executive Officer
Ryan A. Hornaday Executive Vice President, Chief Financial Officer and Treasurer
The information required by this item with respect to directors or nominees to be directors of Emmis is incorporated by reference from the sections entitled “Proposal 1: Election of Directors,” “Corporate Governance – Certain Committees of the Board of Directors,” and “Corporate Governance – Code of Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies. Information about executive officers of Emmis or its affiliates who are not directors or nominees to be directors is presented in Part I under the caption “Executive Officers of the Registrant.“Information about our Executive Officers.”
ITEM 11.EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance – Compensation of Directors,” and “Executive Compensation” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Information required by this item is incorporated by reference from the section entitled “Security Ownership of Beneficial Owners and Management” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under our 2004 Equity Compensation Plan, 2010 Equity Compensation Plan, 2012 Equity Compensation Plan, 2015 Equity Compensation Plan, 2016 Equity Compensation Plan and 20162017 Equity Compensation Plan as of February 28, 2017.2019. Our shareholders have approved these plans.
|
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) |
| |||
Plan Category |
| (A) |
|
| (B) |
|
| (C) |
| |||
Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Approved by Security Holders |
|
| 2,739,916 |
|
| $ | 4.72 |
|
|
| 1,731,062 |
|
Equity Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Not Approved by Security Holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 2,739,916 |
|
| $ | 4.72 |
|
|
| 1,731,062 |
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) | |||||||
| Plan Category | (A) | (B) | (C) | ||||||
| Class A common stock | |||||||||
| Equity Compensation Plans | |||||||||
| Approved by Security Holders | 2,559,643 | $ | 5.17 | 949,996 | |||||
| Equity Compensation Plans | |||||||||
| Not Approved by Security Holders | — | — | — | ||||||
| Total | 2,559,643 | $ | 5.17 | 949,996 | |||||
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance – Independent Directors” and “Corporate Governance – Transactions with Related Persons” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
The information required by this item is incorporated by reference from the section entitled “Matters Relating to Independent Registered Public Accountants” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
Financial Statements
The financial statements filed as a part of this report are set forth under Item 8.
Financial Statement Schedules
No financial statement schedules are required to be filed with this report.
Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| Incorporated by Reference | ||||||||
Exhibit Number |
| Exhibit Description |
| Filed Herewith |
| Form |
| Period Ending |
| Exhibit |
| Filing Date | ||
3.1 |
|
|
|
| 8-K |
|
|
| 3.1 |
| 7/7/2016 | |||
3.2 |
| Second Amended and Restated Bylaws of Emmis Communications Corporation |
|
|
| 10-K |
| 2/28/2013 |
| 3.2 |
| 5/8/2013 | ||
4.1 |
|
| X |
|
|
|
|
|
|
|
| |||
10.01 |
|
|
|
| 8-K |
|
|
| 10.1 |
| 7/13/2017 | |||
10.02 |
|
|
|
| 8-K |
|
|
| 10.1 |
| 7/13/2017 | |||
10.03 |
|
|
|
| 8-K |
|
|
| 10.10 |
| 3/2/2018 | |||
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
10.04 |
| Employment Agreement with Jeffrey H. Smulyan effective as of June 29, 2018 ++ |
|
|
| 8-K |
|
|
| 10.1 |
| 7/2/2018 | ||
10.05 |
| Change in Control Severance Agreement with Patrick M. Walsh effective March 1, 2019 ++ |
|
|
| 8-K |
|
|
| 10.3 |
| 3/6/2019 | ||
10.06 |
|
|
|
| 8-K |
|
|
| 10.1 |
| 8/3/2017 | |||
10.07 |
|
| X |
|
|
|
|
|
|
|
| |||
10.08 |
| Change in Control Severance Agreement with Paul V. Brenner effective March 1, 2016 ++ |
| X |
|
|
|
|
|
|
|
| ||
10.09 |
| Severance Agreement and General Release with Paul V. Brenner dated as of February 28, 2019 ++ |
| X |
|
|
|
|
|
|
|
| ||
10.10 |
|
| X |
|
|
|
|
|
|
|
| |||
10.11 |
|
|
|
| 10-K/A |
| 2/28/2009 |
| 10.31 |
| 10/9/2009 | |||
10.12 |
|
|
|
| 10-K |
| 2/28/2013 |
| 10.23 |
| 5/8/2013 | |||
10.13 |
|
|
|
| 10-K |
| 2/28/2018 |
| 10.17 |
| 5/10/2018 | |||
10.14 |
| Emmis Communications Corporation 2017 Equity Compensation Plan ++ |
|
|
| DEF 14A |
|
|
|
|
| 5/26/2017 | ||
10.15 |
|
|
|
| 8-K |
|
|
| 10.1 |
| 4/26/2012 | |||
21 |
|
| X |
|
|
|
|
|
|
|
| |||
23 |
|
| X |
|
|
|
|
|
|
|
| |||
24 |
|
| X |
|
|
|
|
|
|
|
| |||
31.1 |
|
| X |
|
|
|
|
|
|
|
| |||
| Incorporated by Reference | ||||||||||||
Exhibit Number | Exhibit Description | Filed Herewith | Form | Period Ending | Exhibit | Filing Date | ||||||
| 3.1 | Second Amended and Restated Articles of Incorporation of Emmis Communications Corporation, as amended effective July 7, 2016 | 8-K | 3.1 | 7/7/2016 | ||||||||
| 3.2 | Second Amended and Restated Bylaws of Emmis Communications Corporation | 10-K | 2/28/2013 | 3.2 | 5/8/2013 | |||||||
| 4.1 | Form of stock certificate for Class A common stock | S-1 | 3.5 | 12/22/1993 | ||||||||
| 10.01 | Form of Option Grant Agreement ++ | 8-K | 10.1 | 7/7/2016 | ||||||||
| 10.02 | Form of Restricted Stock Agreement ++ | 8-K | 10.1 | 7/7/2016 | ||||||||
| 10.03 | Credit Agreement, dated as of June 10, 2014, among Emmis Communications Corporation, Emmis Operating Company, certain other subsidiaries of the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent | 8-K | 10.1 | 6/10/2014 | ||||||||
| 10.04 | First Amendment to 2014 Credit Agreement, dated as of November 7, 2014, among Emmis Communications Corporation, Emmis Operating Company, certain other subsidiaries of the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent | 8-K | 10.1 | 11/7/2014 | ||||||||
| 10.05 | Second Amendment to 2014 Credit Agreement, dated as of April 30, 2015, among Emmis Communications Corporation, Emmis Operating Company, certain other subsidiaries of the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent | 8-K | 10.1 | 4/30/2015 | ||||||||
| 10.06 | Third Amendment to 2014 Credit Agreement, dated as of August 18, 2016, among Emmis Communications Corporation, Emmis Operating Company, certain other subsidiaries of the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent | 8-K | 10.1 | 8/26/2016 | ||||||||
| 10.07 | Successor agent agreement and amendment to credit agreement dated as of April 18, 2017 by and among JPMorgan Chase Bank, N.A., in its capacity as the existing administrative agent, the Bank of New York Mellon, in its capacity as successor administrative agent, Emmis Operating Company, certain other subsidiaries of the Company and the lenders party thereto. | 8-K | 10.1 | 4/24/2017 | ||||||||
| 10.08 | Change in Control Severance Agreement, dated as of May 7, 2012, by and between Emmis Communications Corporation and Jeffrey H. Smulyan ++ | 10-K | 2/29/2012 | 10.18 | 5/10/2012 | |||||||
| 10.09 | Change in Control Severance Agreement, dated as of July 10, 2012, by and between Emmis Operating Company and Jeffrey H. Smulyan ++ | 10-Q | 5/31/2012 | 10.18 | 7/12/2012 | |||||||
| Incorporated by Reference | ||||||||||||
Exhibit Number | Exhibit Description | Filed Herewith | Form | Period Ending | Exhibit | Filing Date | ||||||
| 10.10 | Employment Agreement, dated as of December 26, 2012, by and between Emmis Operating Company and Jeffrey H. Smulyan ++ | 8-K | 10.1 | 12/28/2012 | ||||||||
| 10.11 | Change in Control Severance Agreement, dated as of September 4, 2011, by and between Emmis Operating Company and Patrick M. Walsh ++ | 10-Q | 11/30/2011 | 10.2 | 1/12/2012 | |||||||
| 10.12 | Employment Agreement, dated as of September 4, 2013, by and between Emmis Operating Company and Patrick M. Walsh ++ | 8-K | 10.1 | 10/25/2013 | ||||||||
| 10.13 | Employment Agreement, dated as of March 1, 2012, by and between Emmis Operating Company and J. Scott Enright ++ | 10-K | 10.25 | 5/10/2012 | ||||||||
Employment Agreement, dated as of March 1, 2017, by and between Emmis Operating Company and J. Scott Enright ++ | X | |||||||||||
| 10.15 | Change in Control Severance Agreement, dated as of March 8, 2012, by and between Emmis Operating Company and J. Scott Enright ++ | 10-K | 10.24 | 5/10/2012 | ||||||||
| 10.16 | Employment Agreement, effective as of March 3, 2009, by and between Emmis Operating Company and Gary L. Kaseff ++ | 10-K/A | 2/28/2009 | 10.31 | 10/9/2009 | |||||||
| 10.17 | Amendment to Employment Agreement, effective as of March 1, 2013, by and between Emmis Operating Company and Gary L. Kaseff ++ | 10-K | 2/28/2013 | 10.23 | 5/8/2013 | |||||||
| 10.18 | Emmis Communications Corporation 2015 Equity Compensation Plan ++ | DEF14A | 5/29/2015 | |||||||||
| 10.19 | Emmis Communications Corporation 2016 Equity Compensation Plan ++ | DEF14A | 5/26/2016 | |||||||||
| 10.20 | Local Programming and Marketing Agreement, dated as of April 26, 2012, between Emmis Radio License Corporation of New York and New York AM Radio, LLC | 8-K | 10.1 | 4/26/2012 | ||||||||
| 10.21 | Asset Purchase Agreement, dated as of October 13, 2016, by and between Emmis Publishing, L.P., Emmis Operating Company, GP TM Acquisition LLC and Genesis Park II LP | 10-Q | 10.1 | 1/4/2017 | ||||||||
| 10.22 | Asset Purchase Agreement, dated as of October 12, 2016, by and between Emmis Indiana Broadcasting, L.P., Emmis Radio License, LLC, Emmis Communications Corporation, and Midwest Communications, Inc. | 10-Q | 10.2 | 1/4/2017 | ||||||||
| 10.23 | Asset Purchase Agreement, dated as of October 12, 2016, by and between Emmis Indiana Broadcasting, L.P., Emmis Radio License, LLC, Emmis Communications Corporation, and DLC Media, Inc. | 10-Q | 10.3 | 1/4/2017 | ||||||||
| 10.24 | Asset Purchase Agreement between subsidiaries of Emmis Communications Corporation and Hour Media Group, LLC, dated February 23, 2017 | 8-K | 10.1 | 2/28/2017 | ||||||||
| 10.25 | Asset Purchase Agreement, dated as of May 8, 2017, by and among Emmis Radio, LLC, Emmis Radio License, LLC and KWHY-22 Broadcasting, LLC | 8-K | 10.1 | 5/9/2017 | ||||||||
| 10.26 | Local Programming and Marketing Agreement, dated as of May 8, 2017, by and among Emmis Radio License, LLC and KWHY-22 Broadcasting, LLC | 8-K | 10.2 | 5/9/2017 | ||||||||
| Subsidiaries of Emmis | X | |||||||||||
| Consent of Independent Registered Public Accounting Firm | X | |||||||||||
| Powers of Attorney | X | |||||||||||
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| Certification of Principal Financial Officer of Emmis Communications Corporation pursuant to Rule 13a-14(a) under the Exchange Act | X | |||||||||||||
X | ||||||||||||||
X | ||||||||||||||
101.INS | XBRL Instance Document | X | ||||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | X | ||||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||
++ | |
Management contract or compensatory plan or arrangement. |
None.
66
Pursuant to the requirements of Section 13 or 15(d) 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: May | By: | /s/ Jeffrey H. Smulyan | |
Jeffrey H. Smulyan | |||
Chairman of the Board and Chief Executive Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE | TITLE | |||
Date: May | /s/ Jeffrey H. Smulyan | Chairman of the Board, Chief Executive Officer | ||
Jeffrey H. Smulyan | and Director (Principal Executive Officer) | |||
Date: May | /s/ Patrick M. Walsh | President, Chief Operating Officer and Director | ||
Patrick M. Walsh | ||||
Date: May | /s/ Ryan A. Hornaday | Executive Vice President, Chief Financial Officer | ||
Ryan A. Hornaday | and Treasurer (Principal Financial Officer and | |||
Principal Accounting Officer) | ||||
Date: May | Susan B. Bayh* | Director | ||
Susan B. Bayh | ||||
Date: May | James M. Dubin* | Director | ||
James M. Dubin | ||||
Date: May | Gary L. Kaseff* | Director | ||
Gary L. Kaseff | ||||
Date: May | Richard A. Leventhal* | Director | ||
Richard A. Leventhal | ||||
Date: May | Peter A. Lund* | Director | ||
Peter A. Lund | ||||
Date: May | Greg A. Nathanson* | Director | ||
Greg A. Nathanson | ||||
Date: May | Lawrence B. Sorrel* | Director | ||
Lawrence B. Sorrel | ||||
*By: | ||
/s/ J. Scott Enright | ||
J. Scott Enright Attorney-in-Fact | ||
67