Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following tables set forth unaudited pro forma condensed combined financial information of Emmis Communications Corporation (“Emmis” or the “Company”) and Lencore Acoustics Corporation (“Lencore”). The unaudited pro forma condensed combined financial statements consist of an unaudited pro forma condensed combined balance sheet as of November 30, 2019, and unaudited pro forma condensed combined statements of operations for the year ended February 28, 2019, and nine months ended November 30, 2019. As Emmis reports on a fiscal year ending in February and Lencore has historically reported on a calendar year, Lencore’s balance sheet as of September 30, 2019 is being used for the pro forma condensed combined balance sheet as of November 30, 2019. Similarly, Lencore’s statements of operations for the year and nine months ended December 31, 2018 and September 30, 2019, respectively, are being used for the pro forma condensed combined statements of operations for the year ended February 28, 2019 and nine months ended November 30, 2019, respectively.
In management's opinion, the unaudited pro forma condensed combined financial statements reflect certain adjustments that are necessary to present fairly our unaudited pro forma condensed combined results of operations and our unaudited pro forma condensed combined balance sheet as of and for the periods indicated. The pro forma adjustments give effect to events that are (i) directly attributable to the transactions described below, (ii) factually supportable, and, (iii) with respect to the statement of operations, expected to have a continuing impact on us. The pro forma adjustments are based on assumptions that management believes are reasonable given the best information currently available.
The unaudited pro forma condensed combined financial statements are for illustrative and informational purposes only and are not intended to represent what our results of operations or financial position would have been had the transactions described below actually occurred as of the dates indicated. The unaudited pro forma condensed combined financial statements also should not be considered indicative of our future results of operations or financial position. Our actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma condensed combined financial statements give effect to the acquisition of the sound masking business of Lencore for $75.1 million in cash, plus transaction fees and expenses of $3.1 million, (the “Lencore Transaction”) as if it had occurred on November 30, 2019 for the unaudited pro forma condensed combined balance sheet and on March 1, 2018 for the pro forma condensed combined statements of operations. The pro forma condensed combined financial statements also give effect to the step up to fair value of the assets acquired as part of the transaction.
The unaudited pro forma condensed combined statement of operations for the year ended February 28, 2019 gives effect to the disposition of our 50.1% ownership interest in Emmis Austin Radio Broadcasting Company, L.P. (the “Austin Partnership”) and a controlling interest in WQHT-FM and WBLS-FM in New York, each as described more fully in Note 1 to our condensed consolidated financial statements for the nine-months ended November 30, 2019 as filed on Form 10-Q on January 9, 2020. The operating results for these entities were reflected as discontinued operations in our historical results for the nine-month period ended November 30, 2019, so no adjustment is needed in the unaudited pro forma condensed combined statement of operations for that period, other than the elimination of noncontrolling interest attributable to the Austin Partnership.
1
Unaudited Pro Forma Condensed Combined Balance Sheet
As of November 30, 2019
|
| Registrant |
|
| Acquiree |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma |
| ||||
|
| (Dollars in thousands) |
| |||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 111,345 |
|
| $ | 2,497 |
|
| $ | (79,772 | ) |
| (A) |
| $ | 34,070 |
|
Restricted cash |
|
| 1,622 |
|
|
| — |
|
|
| — |
|
|
|
|
| 1,622 |
|
Accounts receivable, net |
|
| 5,599 |
|
|
| 5,905 |
|
|
| (1,922 | ) |
| (B) |
|
| 9,582 |
|
Inventory |
|
| — |
|
|
| 2,646 |
|
|
| (359 | ) |
| (B) |
|
| 2,287 |
|
Prepaid expenses |
|
| 1,845 |
|
|
| 702 |
|
|
| (586 | ) |
| (B) |
|
| 1,961 |
|
Other current assets |
|
| 10,350 |
|
|
| — |
|
|
| — |
|
|
|
|
| 10,350 |
|
Total current assets |
|
| 130,761 |
|
|
| 11,750 |
|
|
| (82,639 | ) |
|
|
|
| 59,872 |
|
PROPERTY AND EQUIPMENT, NET |
|
| 15,265 |
|
|
| 740 |
|
|
| (669 | ) |
| (B) |
|
| 15,336 |
|
INTANGIBLE ASSETS AND GOODWILL, NET |
|
| 68,540 |
|
|
| — |
|
|
| 69,736 |
|
| (B) |
|
| 138,276 |
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
Operating lease right of use assets |
|
| 8,634 |
|
|
| — |
|
|
| — |
|
|
|
|
| 8,634 |
|
Equity method investment - MediaCo Class A Common Stock |
|
| 5,485 |
|
|
| — |
|
|
| — |
|
|
|
|
| 5,485 |
|
Deposits and other |
|
| 12,822 |
|
|
| — |
|
|
| — |
|
|
|
|
| 12,822 |
|
Total other assets |
|
| 26,941 |
|
|
| — |
|
|
| — |
|
|
|
|
| 26,941 |
|
Total assets |
| $ | 241,507 |
|
| $ | 12,490 |
|
| $ | (13,572 | ) |
|
|
| $ | 240,425 |
|
2
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 4,637 |
|
| $ | 3,192 |
|
| $ | (1,192 | ) |
| (B) |
| $ | 6,637 |
|
Current portion of long-term debt |
|
| 7,830 |
|
|
| — |
|
|
| — |
|
|
|
|
| 7,830 |
|
Accrued salaries and commissions |
|
| 7,812 |
|
|
| — |
|
|
| — |
|
|
|
|
| 7,812 |
|
Deferred revenue |
|
| 2,639 |
|
|
| 646 |
|
|
| (646 | ) |
| (B) |
|
| 2,639 |
|
Income taxes payable |
|
| 15,657 |
|
|
| — |
|
|
| — |
|
|
|
|
| 15,657 |
|
Operating lease liabilities |
|
| 842 |
|
|
| — |
|
|
| — |
|
|
|
|
| 842 |
|
Other |
|
| 1,868 |
|
|
| 5,403 |
|
|
| (5,403 | ) |
| (C) |
|
| 1,868 |
|
Total current liabilities |
|
| 41,285 |
|
|
| 9,241 |
|
|
| (7,241 | ) |
|
|
|
| 43,285 |
|
LONG-TERM DEBT, NET OF CURRENT |
|
| 55,662 |
|
|
| — |
|
|
| — |
|
|
|
|
| 55,662 |
|
OPERATING LEASE LIABILITIES, NET OF CURRENT |
|
| 9,372 |
|
|
| — |
|
|
| — |
|
|
|
|
| 9,372 |
|
DEFERRED INCOME TAXES |
|
| 18,263 |
|
|
| — |
|
|
| — |
|
|
|
|
| 18,263 |
|
OTHER NONCURRENT LIABILITIES |
|
| 2,328 |
|
|
| — |
|
|
| — |
|
|
|
|
| 2,328 |
|
Total liabilities |
|
| 126,910 |
|
|
| 9,241 |
|
|
| (7,241 | ) |
|
|
|
| 128,910 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net parent investment |
|
| — |
|
|
| 3,249 |
|
|
| (3,249 | ) |
| (D) |
|
| — |
|
Class A common stock, $.01 par value; authorized 42,500,000 shares; issued and outstanding 11,809,291 shares at February 28, 2019 and 12,060,388 shares at November 30, 2019 |
|
| 121 |
|
|
| — |
|
|
| — |
|
|
|
|
| 121 |
|
Class B common stock, $.01 par value; authorized 7,500,000 shares; issued and outstanding 1,242,366 at February 28, 2019 and November 30, 2019 |
|
| 12 |
|
|
| — |
|
|
| — |
|
|
|
|
| 12 |
|
Additional paid-in capital |
|
| 597,439 |
|
|
| — |
|
|
| — |
|
|
|
|
| 597,439 |
|
Accumulated deficit |
|
| (462,492 | ) |
|
| — |
|
|
| (3,082 | ) |
| (E) |
|
| (465,574 | ) |
Total shareholders' equity |
|
| 135,080 |
|
|
| 3,249 |
|
|
| (6,331 | ) |
|
|
|
| 131,998 |
|
NONCONTROLLING INTERESTS |
|
| (20,483 | ) |
|
| — |
|
|
| — |
|
|
|
|
| (20,483 | ) |
Total equity |
|
| 114,597 |
|
|
| 3,249 |
|
|
| (6,331 | ) |
|
|
|
| 111,515 |
|
Total liabilities and equity |
| $ | 241,507 |
|
| $ | 12,490 |
|
| $ | (13,572 | ) |
|
|
| $ | 240,425 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
3
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended February 28, 2019
|
| Registrant |
|
| Registrant Dispositions |
|
| Notes |
| Acquiree |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma |
| |||||
|
| (In thousands, except per share data) |
| |||||||||||||||||||||
NET REVENUES |
| $ | 114,131 |
|
| $ | (74,240 | ) |
| (F) |
| $ | 23,676 |
|
|
| — |
|
|
|
| $ | 63,567 |
|
COST OF GOODS SOLD |
|
| — |
|
|
| — |
|
|
|
|
| 9,836 |
|
|
| — |
|
|
|
|
| 9,836 |
|
GROSS PROFIT |
|
| 114,131 |
|
|
| (74,240 | ) |
|
|
|
| 13,840 |
|
|
| — |
|
|
|
|
| 53,731 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
| 91,033 |
|
|
| (51,721 | ) |
| (F) |
|
| 7,874 |
|
|
| — |
|
|
|
|
| 47,186 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| 10,313 |
|
|
| — |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
| 10,313 |
|
Impairment loss on intangible assets |
|
| 343 |
|
|
| — |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
| 343 |
|
Depreciation and amortization |
|
| 3,213 |
|
|
| (1,822 | ) |
| (F) |
|
| 68 |
|
|
| 4,713 |
|
| (I) |
|
| 6,172 |
|
Gain on sale of radio and publishing assets, net of disposition costs |
|
| (31,817 | ) |
|
| — |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
| (31,817 | ) |
Loss on disposal of assets |
|
| 57 |
|
|
| — |
|
|
|
|
| — |
|
|
| — |
|
|
|
|
| 57 |
|
Total operating expenses |
|
| 73,142 |
|
|
| (53,543 | ) |
|
|
|
| 7,942 |
|
|
| 4,713 |
|
|
|
|
| 32,254 |
|
OPERATING INCOME |
|
| 40,989 |
|
|
| (20,697 | ) |
|
|
|
| 5,898 |
|
|
| (4,713 | ) |
|
|
|
| 21,477 |
|
OTHER INCOME (EXPENSE) |
|
| (640 | ) |
|
| — |
|
|
|
|
| 18 |
|
|
| — |
|
|
|
|
| (622 | ) |
INTEREST EXPENSE |
|
| (8,103 | ) |
|
| 951 |
|
| (G) |
|
| — |
|
|
| — |
|
|
|
|
| (7,152 | ) |
INCOME BEFORE INCOME TAXES |
|
| 32,246 |
|
|
| (19,746 | ) |
|
|
|
| 5,916 |
|
|
| (4,713 | ) |
|
|
|
| 13,703 |
|
PROVISION (BENEFIT) FOR INCOME TAXES |
|
| 6,167 |
|
|
| (2,615 | ) |
| (H) |
|
| 41 |
|
|
| (1,320 | ) |
| (J) |
|
| 2,273 |
|
INCOME FROM CONTINUING OPERATIONS |
|
| 26,079 |
|
|
| (17,131 | ) |
|
|
|
| 5,875 |
|
|
| (3,393 | ) |
|
|
|
| 11,430 |
|
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 2,727 |
|
|
| (4,976 | ) |
| (F) |
|
| — |
|
|
| — |
|
|
|
|
| (2,249 | ) |
NET INCOME ATTRIBUTABLE TO THE COMPANY |
| $ | 23,352 |
|
| $ | (12,155 | ) |
|
|
| $ | 5,875 |
|
| $ | (3,393 | ) |
|
|
| $ | 13,679 |
|
Basic net income per share |
| $ | 1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1.09 |
|
Diluted net income per share |
| $ | 1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1.02 |
|
Basic weighted average shares outstanding |
|
| 12,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,606 |
|
Diluted weighted average shares outstanding |
|
| 13,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,448 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
4
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended November 30, 2019
|
| Registrant |
|
| Acquiree |
|
| Pro Forma Adjustments |
|
| Notes |
| Pro Forma |
| ||||
|
| (In thousands, except per share data) |
| |||||||||||||||
NET REVENUES |
| $ | 29,266 |
|
| $ | 17,011 |
|
|
| — |
|
|
|
| $ | 46,277 |
|
COST OF GOODS SOLD |
|
| — |
|
|
| 7,755 |
|
|
| — |
|
|
|
|
| 7,755 |
|
GROSS PROFIT |
|
| 29,266 |
|
|
| 9,256 |
|
|
| — |
|
|
|
|
| 38,522 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
| 23,667 |
|
|
| 6,220 |
|
|
| — |
|
|
|
|
| 29,887 |
|
Corporate expenses excluding depreciation and amortization expense |
|
| 15,211 |
|
|
| — |
|
|
| — |
|
|
|
|
| 15,211 |
|
Impairment loss |
|
| 4,022 |
|
|
| — |
|
|
| — |
|
|
|
|
| 4,022 |
|
Depreciation and amortization |
|
| 866 |
|
|
| 55 |
|
|
| 3,531 |
|
| (I) |
|
| 4,452 |
|
Loss on sale of assets, net of disposition costs |
|
| 31 |
|
|
| — |
|
|
| — |
|
|
|
|
| 31 |
|
Gain on legal matter |
|
| (2,153 | ) |
|
| — |
|
|
| — |
|
|
|
|
| (2,153 | ) |
Total operating expenses |
|
| 41,644 |
|
|
| 6,275 |
|
|
| 3,531 |
|
|
|
|
| 51,450 |
|
OPERATING INCOME (LOSS) |
|
| (12,378 | ) |
|
| 2,981 |
|
|
| (3,531 | ) |
|
|
|
| (12,928 | ) |
OTHER EXPENSE |
|
| (363 | ) |
|
| — |
|
|
| — |
|
|
|
|
| (363 | ) |
INTEREST EXPENSE |
|
| (3,040 | ) |
|
| — |
|
|
| — |
|
|
|
|
| (3,040 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| (15,781 | ) |
|
| 2,981 |
|
|
| (3,531 | ) |
|
|
|
| (16,331 | ) |
BENEFIT FOR INCOME TAXES |
|
| (1,533 | ) |
|
| — |
|
|
| (989 | ) |
| (J) |
|
| (2,522 | ) |
(LOSS) INCOME FROM CONTINUING OPERATIONS |
|
| (14,248 | ) |
|
| 2,981 |
|
|
| (2,542 | ) |
|
|
|
| (13,809 | ) |
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
| 1,557 |
|
|
| — |
|
|
| (3,047 | ) |
| (F) |
|
| (1,490 | ) |
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |
| $ | (15,805 | ) |
| $ | 2,981 |
|
| $ | 505 |
|
|
|
| $ | (12,319 | ) |
Basic net income per share |
| $ | (1.23 | ) |
|
|
|
|
|
|
|
|
|
|
| $ | (0.96 | ) |
Diluted net income per share |
| $ | (1.23 | ) |
|
|
|
|
|
|
|
|
|
|
| $ | (0.96 | ) |
Basic weighted average shares outstanding |
|
| 12,846 |
|
|
|
|
|
|
|
|
|
|
|
|
| 12,846 |
|
Diluted weighted average shares outstanding |
|
| 12,846 |
|
|
|
|
|
|
|
|
|
|
|
|
| 12,846 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
5
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1 – Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities acquired in the Lencore Transaction. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands).
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. The final purchase price will be completed when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary calculation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, customer relationships, and goodwill and (3) other changes to assets and liabilities.
Cash consideration | $ | 75,100 |
|
Preliminary working capital adjustment |
| (907 | ) |
Total Consideration | $ | 74,193 |
|
|
|
|
|
Accounts receivable | $ | 3,983 |
|
Inventory |
| 2,287 |
|
Prepaid expenses |
| 116 |
|
Property, plant and equipment |
| 71 |
|
Goodwill |
| 40,286 |
|
Intangibles |
| 29,450 |
|
Assets Acquired | $ | 76,193 |
|
|
|
|
|
Accounts payable | $ | 1,934 |
|
Accrued expenses and other current liabilities |
| 66 |
|
Liabilities Assumed | $ | 2,000 |
|
|
|
|
|
Net Assets Acquired | $ | 74,193 |
|
(A) | Pro forma adjustments include the following as a result of the Lencore Transaction: |
Distribution of purchase price | $ | (75,100 | ) |
Distribution for estimated transaction fees and expenses |
| (3,082 | ) |
Lencore historical cash balance not included in purchase price |
| (2,497 | ) |
Preliminary working capital adjustment |
| 907 |
|
Total pro forma adjustment | $ | (79,772 | ) |
(B) | Reflects the impact of the preliminary purchase price allocation as of the acquisition date as shown in Note 1. |
(C) | Principally consists of sales and use tax liabilities and state tax liabilities not assumed by Emmis in the Lencore Transaction. |
(D) | Represents the reclassification of parent net investment to additional paid-in capital at the closing of the Lencore Transaction. |
6
(E) | Represents the adjustments to additional paid-in capital and retained earnings resulting from the Lencore Transaction, calculated as follows: |
Distribution of purchase price | $ | (74,193 | ) |
Distribution for estimated transaction fees and expenses |
| (3,082 | ) |
Distribution of assets and liabilities retained by seller in Lencore Transaction, net (i) |
| 2,906 |
|
Purchase price allocation of assets and liabilities acquired in Lencore Transaction (ii) |
| 68,038 |
|
Reclassification of NPI to APIC |
| 3,249 |
|
Total pro forma adjustment | $ | (3,082 | ) |
| (i) | Cash retained by seller, net of liabilities retained by seller, principally consisting of sales and use tax liabilities and state tax liabilities. |
| (ii) | Reflects the estimated net impact of the purchase price allocation of the Lencore Transaction as shown in Note 1. |
(F) | Eliminate historical results of the Austin Partnership and WQHT-FM and WBLS-FM in New York. These entities were sold in the quarter ended November 30, 2019, as described more fully in Note 1 to our condensed consolidated financial statements for the nine-months ended November 30, 2019, as filed on Form 10-Q on January 9, 2020. |
(G) | A portion of Emmis’ debt was required to be repaid with proceeds of these transactions. In accordance with ASC 205-20-45-6, Emmis has allocated interest on the debt required to be repaid as a result of these disposal transactions to the results of these entities. |
(H) | An allocation of Emmis’ consolidated provision or benefit for income taxes is applied to continuing operations and discontinued operations using the with and without methodology. |
(I) | Reflects the adjustment to depreciation and amortization based on preliminary fair values and useful lives as follows: |
Asset | Preliminary Fair Value |
| Estimated Useful Life (Years) |
| ||
Customer Relationships | $ | 24,300 |
|
| 6 |
|
Developed Technologies |
| 2,800 |
|
| 6 |
|
Trade Name |
| 2,200 |
|
| 10 |
|
Non-compete Agreement |
| 150 |
|
| 5 |
|
Fixed Assets |
| 71 |
|
| 5 |
|
Pro forma adjustment to depreciation and amortization expense | $ | 29,521 |
|
|
|
|
The fair value and useful lives calculations are preliminary and subject to change after the Company finalizes its review of the tangible and intangible assets acquired. The following table summarizes the changes in the estimated depreciation and amortization expense.
| Nine Months September 30, 2019 |
| Twelve Months February 28, 2019 |
| ||
Estimated depreciation and amortization expense | $ | 3,586 |
| $ | 4,781 |
|
Historical depreciation and amortization expense |
| (55 | ) |
| (68 | ) |
Pro forma adjustment to depreciation and amortization expense |
| 3,531 |
|
| 4,713 |
|
(J) | Reflects the impact of the pro forma adjustments on income tax calculated using our statutory tax rate of 28% for all period presented. This represents our U.S. statutory rate during these periods, which differs from our effective rate and does not include the impact of valuation allowances. |
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