NOTE 4. ACQUISITIONS AND RECENT TRANSACTIONS

 

During the nine months ending September 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 September 1, 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 September 30, 2015 to all Class A and Class B common stockholders of record as of September 16, 2015.

 

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 September 15, 2015, we acquired radio station KEXB-AM (formerly KMKI-AM) in Dallas, Texas, for $3.0 million in cash. We recorded goodwill of approximately $12,000 associated with the going concern value of this radio station. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On September 10, 2015, we acquired radio station WBIX-AM (formerly WMKI-AM) in Boston, Massachusetts, for $0.5 million in cash. We recorded goodwill of approximately $5,000 associated with the going concern value of this radio station. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On September 3, 2015, we acquired the Spanish Bible mobile applications and their related website and Facebook properties for $0.5 million in cash. We recorded goodwill of approximately $10,000 associated with the expected synergies to be realized from combining the operations of the Spanish Bible mobile applications into our digital media platform. The accompanying condensed consolidated statements of operations reflect the operating results of these applications as of the closing date within the digital media operating segment.

 

On September 1, 2015, we acquired the DailyBible mobile applications, including all content, code and functionality for $1.5 million in cash. We recorded goodwill of approximately $45,000 associated with the expected synergies to be realized from combining the operations of the DailyBible mobile applications into our digital media platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. The accompanying condensed consolidated statements of operations reflect the operating results of these applications as of the closing date within the digital media operating segment.

 

On July 1, 2015, we acquired DividendInvestor.com for $1.0 million in cash and the assumption of $70,000 in deferred subscription liabilities. DividendInvestor.com is a website offering stock screening tools and dividend information for individual subscribers to obtain dividend information and data. We recorded goodwill of approximately $82,000 associated with the expected synergies to be realized from combining the operations of DividendInvestor.com into our digital media platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. The accompanying condensed consolidated statements of operations reflect the operating results of this business as of the closing date within the digital media operating segment.

 

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 acquired radio station WPGP-AM (formerly WDDZ-AM) in Pittsburgh, Pennsylvania, for $1.0 million in cash. We recorded goodwill of approximately $5,000 associated with the going concern value of this radio station. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On May 7, 2015, we acquired radio station WDWD-AM in Atlanta, Georgia, for $2.8 million in cash. We recorded goodwill of approximately $5,000 associated with the going concern value of this radio station. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

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 Asset Purchase Agreement (“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 and is discussed in more detail in Note 5. We recorded goodwill of $0.1 million associated with the expected synergies to be realized from combining the operations of the Daily Bible Devotional into our digital media platform and brand loyalty from its existing subscriber base that is not a separately identifiable intangible asset. 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.

 

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 acquired 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. We recorded goodwill of approximately$3,000 associated with the going concern value of this radio station. The accompanying condensed consolidated statements of operations reflect the operating results of this station as of the APA date within the broadcast operating segment.

 

On February 6, 2015, we acquired Bryan Perry's Cash Machine and Bryan Perry's Premium Income financial publications (“Bryan Perry Newsletters”) with assets valued at $0.6 million and we assumed deferred subscription liabilities of $0.4 million. We paid no cash to the seller upon closing. We recorded goodwill of approximately $3,000 associated with the expected synergies to be realized from combining the operations of Bryan Perry Newsletters into our digital media platform. 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 and is discussed in more detail in Note 5. 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.

 

Throughout the nine month period ending September 30, 2015, we acquired other domain names and 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 nine months ended September 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 Codification 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. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill. Estimates of the fair value include discounted estimated cash flows to be generated by the assets acquired and their expected useful lives based on historical experience, market trends and any synergies believed to be achieved from the acquisition. Our acquisitions may also include contingent earn-out 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 net assets acquired 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.

 

Acquired property and equipment are recorded at their 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 typically represents the organizational systems and procedures in place to ensure the effective operation of the business acquired, may be recorded and subject to testing for impairment. Costs associated with acquisitions, such as consulting and legal fees are expensed as incurred. We recognized costs associated with acquisitions of $0.3 million during the nine month period ending September 30, 2015 compared to $0.4 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 present 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 measurements are based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as discussed in Note 14 -Fair Value Measurements in our condensed consolidated financial statements. The fair value of any contingent earn-out consideration is reviewed quarterly over the applicable earn-out period. Actual results and achievements of benchmarks are compared to the estimates used in our forecasts. Changes in the estimated fair value of any contingent earn-out consideration are reflected in our results of operations in the period in which they are identified and may materially impact and cause volatility in our operating results as discussed in Note 5 – Contingent Consideration to our condensed consolidated financial statements.

 

The following table summarizes the total acquisition consideration for the nine months ended September 30, 2015:

 

 

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

 

 

Pending Transactions

 

On August 28, 2015, we entered an APA to acquire radio station WWMI-AM in Tampa, Florida, for $0.8 million in cash. The purchase is subject to the approval of the FCC and is expected to close in the fourth quarter of 2015.

 

On August 28, 2015, we entered an APA to acquire radio station KDDZ-AM in Denver, Colorado, for $0.6 million in cash. The purchase is subject to the approval of the FCC and is expected to close in in the fourth quarter of 2015.

 

On August 28, 2015, we entered an APA to acquire radio station KDIZ-AM in Minneapolis, Minnesota, for $0.4 million in cash. The purchase is subject to the approval of the FCC and is expected to close in in the fourth quarter of 2015.

 

On August 28, 2015, we entered an APA to acquire radio station KDZR-AM in Portland, Oregon, for $0.3 million in cash. The purchase is subject to the approval of the FCC and is expected to close in in the fourth quarter of 2015.

 

On August 28, 2015, we entered an APA to acquire radio station WSDZ-AM in St. Louis, Missouri, for $0.3 million in cash. The purchase is subject to the approval of the FCC and is expected to close in in the fourth 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 closed on October 1, 2015. We will continue to program KHTE-FM under the TBA agreement.