NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS

 

During the six months ending June 30, 2015, we completed or entered into the following transactions:

 

Debt

 

On January 30, 2015, we repaid $2.0 million in principal on our current senior secured credit facility, consisting of a term loan of $300.0 million (“Term Loan B”) and paid interest due as of that date. We recorded a $15,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount and $27,000 in bank loan fees associated with the principal repayment.

 

Equity

On June 2, 2015 we announced a quarterly distribution in the amount of $0.0650 per share on Class A and Class B common stock. The distribution of $1.7 million was paid on June 30, 2015 to all Class A and Class B common stockholders of record as of June 16, 2015

 

On March 5, 2015 we announced a quarterly distribution in the amount of $0.0650 per share on Class A and Class B common stock. The distribution of $1.6 million was paid on March 31, 2015 to all Class A and Class B common stockholders of record as of March 17, 2015.

 

Acquisitions

        On June 4, 2015, we acquired the Gene Smart Wellness e-commerce website for $0.1 million in cash. Gene Smart Wellness products are complementary to our Eagle Wellness Products and are reported as digital revenue in our operating results as of the date of acquisition.

On May 12, 2015, we completed the acquisition of radio station WPGP-AM (formerly WDDZ-AM) in Pittsburgh, Pennsylvania, for $1.0 million in cash. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment. We recorded goodwill of $5,400 associated with the going concern value of this radio station.

 

On May 7, 2015, we completed the acquisition of radio station WDWD-AM in Atlanta, Georgia, for $2.8 million in cash. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment. We recorded goodwill of $5,200 associated with the going concern value of this radio station.

 

On May 6, 2015, we acquired domain names, mobile applications and code functionality for the Daily Bible Devotion for $1.1 million in cash. Under terms of the APA, we may pay up to an additional $0.3 million in contingent earn-out consideration payable over the next two years based upon on the achievement of certain benchmarks. The estimated fair value of the contingent earn-out consideration was recorded at the present value of $0.1 million. The estimated fair value of the contingent earn-out consideration was determined using a probability weighted discounted cash flow model. The fair value measurement includes revenue forecasts which are a Level 3 measurement as discussed in Note 14 to our condensed consolidated financial statements. The fair value of the contingent earn-out consideration will be reviewed quarterly over the two year earn-out period based on actual benchmarks achieved as compared to the estimates used in our forecasts. Changes in the estimated fair value of the contingent earn-out consideration will be reflected in our results of operations in future periods as they are identified. Changes in the fair value of the contingent earn-out consideration may materially impact and cause volatility in our future operating results. There were no changes in fair value or contingent earn-out estimates as of the period ending June 30, 2015. The accompanying condensed consolidated statements of operations reflect the operating results of the Daily Bible Devotional as of the closing date within our digital media operating segment. We recorded goodwill of $0.1 million associated with the organizational systems and procedures in place at the time of our purchase.

 

On April 7, 2015, we acquired land and real estate in Greenville, South Carolina, for $0.2 million in cash.

On March 27, 2015, we completed the acquisition of radio station WDYZ-AM in Orlando, Florida for $1.3 million in cash. We began operating this station under an APA as of December 10, 2014. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the APA date within the broadcast operating segment. We recorded goodwill of $3,200 associated with the going concern value of this radio station.

 

On February 6, 2015, we acquired the assets and assumed deferred subscription liabilities for Bryan Perry's Cash Machine and Bryan Perry's Premium Income financial publications (“Bryan Perry Newsletters”). We recorded the net assets acquired at their estimated fair value of $0.2 million. We paid no cash to the seller upon closing. Future amounts payable to the seller are contingent upon net subscriber revenues over a two year period from the closing date, of which we will pay the seller 50%. There is no minimum or maximum contractual amount. The estimated fair value of the contingent earn-out consideration was recorded at the present value of $0.2 million. As of June 30, 2015, we paid $14,167 to the seller as contingent consideration, which is consistent with the estimates used in our purchase price allocation. The estimated fair value of the contingent earn-out consideration was determined using a probability weighted discounted cash flow model. The fair value measurement includes revenue forecasts which are a Level 3 measurement as discussed in Note 14 to our condensed consolidated financial statements. The fair value of the contingent earn-out consideration will be reviewed quarterly over the two year earn-out period based on actual subscription revenue earned as compared to the estimated subscription revenue used in our forecasts. Changes in the estimated fair value of the contingent earn-out consideration will be reflected in our results of operations in future periods as they are identified. Changes in the fair value of the contingent earn-out consideration may materially impact and cause volatility in our future operating results. There were no changes in fair value or contingent earn-out estimates as of the six months ending June 30, 2015. The accompanying condensed consolidated statements of operations reflect the operating results of the Bryan Perry newsletters as of the closing date within our digital media operating segment. We recorded goodwill of $2,600 associated with the organizational systems and procedures in place at the time of our purchase.

 

Throughout the six month period ending June 30, 2015, we acquired domain names and other assets associated with our digital media operating segment for approximately $0.1 million in cash.

 

A summary of our business acquisitions and asset purchases for the six months ended June 30, 2015, none of which were individually or in the aggregate material to our Condensed Consolidated financial position as of the respective date of acquisition, is as follows:

 

 

The operating results of our business acquisitions and asset purchases are included in our consolidated results of operations from their respective closing date or the date that we began operating them under an LMA or TBA. Under the acquisition method of accounting as specified in FASB ASC Topic 805, Business Combinations, the total acquisition consideration is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of the transaction.

 

Estimates of the fair value include discounted estimated cash flows to be generated by the assets and their expected useful lives based on historical experience, market trends and any synergies believed to be achieved from the acquisition. Acquisitions may include contingent consideration, the fair value of which is estimated as of the acquisition date as the present value of the expected contingent payments as determined using weighted probabilities of the payment amounts. We may retain a third-party appraiser to estimate the fair value of the acquired net assets as of the acquisition date. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated fair values to the various asset categories in our financial statements. These fair value estimates are subjective in nature and require careful consideration and judgment. Management reviews the third party reports for reasonableness of the assigned values. We believe that these valuations and analysis provide appropriate estimates of the fair value for net assets acquired.

 

Property and equipment are recorded at the estimated fair value and depreciated on a straight-line basis over their estimated useful lives. Finite-lived intangible assets are recorded at their estimated fair value and amortized on a straight-line basis over their estimated useful lives. Goodwill, which represents the organizational systems and procedures in place to ensure the effective operation of the entity, may also be recorded and tested for impairment. Costs associated with acquisitions, such as consulting and legal fees are expensed as incurred in corporate operating expenses. We recognized costs associated with acquisitions of $0.2 million during the six month period ending June 30, 2015 compared to $0.3 million during the same period of the prior year, which are included in unallocated corporate expenses in the accompanying condensed consolidated statements of operations.

 

The total acquisition consideration is equal to the sum of all cash payments, the fair value of any deferred payments and promissory notes, and the present value of any estimated contingent earn-out consideration. We estimate the fair value of contingent earn-out consideration using a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in Note 14 -Fair Value Measurements. The following table summarizes the total acquisition consideration for the six months ended June 30, 2015:

 

 

The total acquisition consideration was allocated to the net assets acquired as follows:

 

 

Pending Transactions

 

On June 2, 2015, we entered an APA to acquire Daily Bible mobile applications, including content, code and functionality for $1.5 million in cash. We expect the transaction to close in the third quarter of 2015.

 

On May 22, 2015, we entered an APA to acquire radio station WMKI-AM in Boston, Massachusetts, for $0.5 million in cash. The purchase is subject to the approval of the FCC and is expected to close in the third quarter of 2015.

 

On May 22, 2015, we entered an APA to acquire radio station KMKI-AM in Dallas, Texas, for $3.0 million in cash. The purchase is subject to the approval of the FCC and is expected to close in the third quarter of 2015.

 

On April 1, 2015, we entered an APA to acquire radio station KKSP-FM in Little Rock, Arkansas, for $1.5 million in cash. We began programming KKSP-FM, Little Rock, Arkansas, and KHTE-FM, Little Rock, Arkansas under TBA's as of April 1, 2015. The purchase of KKSP-FM is subject to the approval of the FCC and is expected to close in the third quarter of 2015. We will continue to program KHTE-FM under the TBA agreement.