NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS

During the three months ending March 31, 2014, we completed or entered into the following transactions:

Debt

On March 31, 2014, we repaid $2.3 million in principal on our current senior secured credit facility, consisting of a term loan of $300.0 million (“Term Loan B”). We recorded an $8,000 pre-tax loss on the early retirement of long-term debt related to the unamortized discount.

Equity

On March 6, 2014, we announced a quarterly distribution in the amount of $0.0575 per share on Class A and Class B common stock. The quarterly distribution of $1.4 million was paid on March 31, 2014 to all Class A and Class B common stockholders of record as of March 17, 2014.

Acquisition of Eagle Publishing

On January 10, 2014, we acquired the entities of Eagle Publishing, including Regnery Publishing, HumanEvents.com, Redstate.com, Eagle Financial Publications and Eagle Wellness. We began operating these entities as of the closing date. The base purchase price was $8.5 million, with $3.5 million paid in cash upon closing, and deferred payments of $2.5 million due January 2015 and $2.5 million due January 2016. We paid an additional $0.4 million of costs upon closing associated with liabilities incurred by the seller. The deferred payments due January 2015 and January 2016 were recorded at their present value of $2.4 million and $2.3 million, respectively.

We may pay up to an additional $8.5 million of contingent earn-out consideration over the next three years based on the achievement of certain revenue benchmarks established for calendar years 2014, 2015 and 2016 for each of the Eagle entities. The estimated fair value of the contingent earn-out consideration was recorded at the present value of $2.0 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 remaining three year earn-out period based on actual revenue earned as compared to the estimated revenue used in our forecasts. Any changes in the estimated fair value of the contingent earn-out consideration, up to the total contractual amount, 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 our estimates as of the quarter ending March 31, 2014.

We believe that strong author relationships, assembled creative talent agreements and the loyal readers of Eagle publications, as well as our ability to market and promote these products through our existing media platform, provides future economic benefits to us. We have recorded goodwill of $2.3 million representing the excess value of these future economic benefits.

Other Acquisitions

On February 7, 2014, we completed the acquisition of radio stations KDIS-FM, Little Rock, Arkansas and KRDY-AM, San Antonio, Texas for $2.0 million in cash. We began operating these stations as of the closing date. KDIS-FM, Little Rock, Arkansas began programming on March 31, 2014 and reflect station revenue in the accompanying Condensed Consolidated Statement of Operations as of that date. KRDY-AM, San Antonio, Texas began programming on May 1, 2014 and accordingly, does not reflect station revenues in the accompanying Condensed Consolidated Statement of Operations. We recorded goodwill of $18,000 associated with the excess value of these entities attributable to existing tower sites and the audience reach.

Throughout the three months ending March 31, 2014, we have acquired domain names associated with our Internet segment, including IBeliveInJesus.com, for an aggregate amount of approximately $0.2 million.

A summary of our business acquisitions and asset purchases for the three months ended March 31, 2014, none of which were material to our Condensed Consolidated financial position as of the respective date of acquisition, is as follows:

 

Acquisition Date		Description		Total Cost
				(Dollars in thousands)
February 7, 2014		KDIS-FM, Little Rock Arkansas and KRDY-AM, San Antonio, Texas (business acquisition)		$	1,984
January 10, 2014		Eagle Publishing (business acquisition)			10,628
Various		Purchase of Internet domains (asset purchases)			173
				$	12,785

The results of operations of the acquisitions are included in our consolidated results of operations from their respective dates of acquisition date, LMA date, or launch of programming date as applicable. 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, plant 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.

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 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 three months ended March 31, 2014:

 

Description		Total Consideration
		(Dollars in thousands)
Cash payments		$	5,957
Escrow deposits paid in prior years			200
Deferred cash payments made related to prior year acquisition			(100	)
Present value of deferred cash payments (due 2015)			2,392
Present value of deferred cash payments (due 2016)			2,289
Present value of estimated fair value of contingent earn-out consideration			2,047
Total purchase price consideration		$	12,785

 

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

 

		Broadcast Assets Acquired				Internet Assets Acquired				Publishing Assets Acquired				Net Assets Acquired
		(Dollars in thousands)
Assets
Property and equipment		$	195			$	929			$	3,929			$	5,053
Developed websites			—				539				38				577
Broadcast licenses			1,771				—				—				1,771
Goodwill			18				2,128				189				2,335
Customer lists and contracts			—				2,232				509				2,741
Domain and brand names			—				1,872				827				2,699
Subscriber base and lists			—				2,446				—				2,446
Author relationships			—				—				1,682				1,682
Non-compete agreements			—				79				66				145
Liabilities
Deferred revenue & royalties assumed			—				(3,779	)			(2,885	)			(6,664	)
		$	1,984			$	6,446			$	4,355			$	12,785

Pending Transactions

On February 28, 2014, we entered into an APA to acquire radio station WRTH-FM (formerly WOLT-FM) in Greenville, South Carolina for $1.1 million. We began operating the station under an LMA as of this date. The acquisition closed May 6, 2014.

On November 13, 2013, we entered into an APA to acquire radio station WOCN-AM, Miami, Florida and the related transmitter site for $2.2 million in cash. The acquisition is subject to the approval of the FCC and is expected to close during the year ending December 31, 2014.

Discontinued Operations

Based on operating results that did not meet our expectations, we ceased operating Samaritan Fundraising in December 2011. As of December 31, 2011, all employees of this entity were terminated. As a result of our decision to close operations, there have been no material cash flows associated with this entity and we have no ongoing or further involvement in the operations of this entity. The Condensed Consolidated Balance Sheets and Statements of Operations for all prior periods presented were reclassified to reflect the operating results and net assets of this entity as a discontinued operation.

The following table sets forth the components of the loss from discontinued operations:

 

		Three Months Ended March 31, 2013
		(Dollars in thousands)
Net revenues		$	—
Operating expenses			(16	)
Operating loss		$	(16	)
Benefit from income taxes			(5	)
Loss from discontinued operations, net of tax		$	(11	)