NOTE 3. ACQUISITIONS AND RECENT TRANSACTIONS

 

During the year ended December 31, 2015, we completed or entered into the following transactions:

 

Debt

 

 

Equity

 

On December 1, 2015, we announced a quarterly equity distribution in the amount of $0.0650 per share on Class A and Class B common stock. The equity distribution of $1.7 million was paid on December 29, 2015 to all Class A and Class B common stockholders of record as of December 15, 2015.

 

 

Acquisitions

 

On December 18, 2015, we acquired radio station WSDZ-AM in St. Louis, Missouri, for $0.3 million in cash. We recorded a gain on bargain purchase of approximately $0.8 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to our purchase price consideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On December 15, 2015, we acquired radio station KDIZ-AM in Minneapolis, Minnesota, for $0.4 million in cash. We recorded a gain on bargain purchase of approximately $0.3 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to our purchase price consideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On December 11, 2015, we acquired radio station WWMI-AM in Tampa, Florida, for $0.8 million in cash. We recorded a gain on bargain purchase of approximately $0.3 million associated with this acquisition based on the estimated fair value of the net assets acquired as compared to our purchase price consideration. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On December 8, 2015, we acquired radio station KDDZ-AM in Denver, Colorado, for $0.6 million in cash. We recorded goodwill of approximately $9,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On December 7, 2015, we acquired the Instapray mobile applications and a related website for $0.1 million in cash.

 

On December 4, 2015, we acquired radio station KDZR-AM in Portland, Oregon, for $0.3 million in cash. We recorded goodwill of approximately $9,000 attributable to the additional audience reach obtained and the expected synergies to be realized when combining the operations of this station into our existing cluster in this market. The accompanying consolidated statements of operations reflect the operating results of this station as of the closing date within the broadcast operating segment.

 

On October 29, 2015, we acquired DividendYieldHunter.com for $42,500 in cash, with $21,250 paid at closing and $21,250 payable in January 2016. DividendYieldHunter.com provides individuals with information about different classes of dividend-paying stocks including preferred stocks, bonds, Master Limited Partnerships (MLPs), Real Estate Investment Trusts (REITs) and more.

 

On October 1, 2015, we acquired radio station KKSP-FM in Little Rock, Arkansas for $1.5 million in cash. We recorded goodwill of approximately $16,000 associated with the going concern value of this radio station and expected synergies to be realized from combining the operations of this station into our existing cluster in this market. We began programming this station under a TBA as of April 1, 2015. The accompanying consolidated statements of operations reflect the operating results of this station as of TBA date within the broadcast operating segment.

 

 

 

A summary of our business acquisitions and asset purchases for the year ended December 31, 2015, none of which were individually or in the aggregate material to our Consolidated financial position as of the respective date of acquisition, is as follows:

 

Acquisition Date		Description		Total Cost
				(Dollars in thousands)
December 18, 2015		WSDZ-AM, St. Louis, Missouri (business acquisition)		$	275
December 15, 2015		KDIZ-AM, Minneapolis, Minnesota (business acquisition)			375
December 11, 2015		WWMI-AM, Tampa, Florida(business acquisition)			750
December 8, 2015		KDDZ-AM, Denver, Colorado (business acquisition)			550
December 7, 2015		Instapray mobile applications (asset acquisition)			118
December 4, 2015		KDZR-AM, Portland, Oregon (business acquisition)			275
October 29, 2015		DividendYieldHunter.com (asset acquisition)			43
October 1, 2015		KKSP-FM, Little Rock, Arkansas (business acquisition)			1,500
September 15, 2015		KEXB-AM (formerly KMKI-AM) Dallas, Texas (business acquisition)			3,000
September 10, 2015		WBIX-AM (formerly WMKI-AM), Boston, Massachusetts (business acquisition)			500
September 3, 2015		Spanish Bible mobile applications (business acquisition)			500
September 1, 2015		DailyBible mobile applications (business acquisition)			1,500
July 1, 2015		DividendInvestor.com (business acquisition)			1,000
June 4, 2015		Gene Smart Wellness (asset acquisition)			100
May 12, 2015		WPGP-AM (formerly WDDZ-AM), Pittsburgh, Pennsylvania (business acquisition)			1,000
May 7, 2015		WDWD-AM, Atlanta, Georgia (business acquisition)			2,750
May 6, 2015		Daily Bible Devotion mobile applications (business acquisition)			1,242
April 7, 2015		Land and Studio Building, Greenville, South Carolina (asset purchase)			201
March 27, 2015		WDYZ-AM, Orlando, Florida (business acquisition)			1,300
February 6, 2015		Bryan Perry Newsletters (business acquisition)			158
Various		Purchase of domain names and digital media assets (asset purchases)			134
				$	17,271

  

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. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill and any excess of fair value of the net assets acquired over the consideration paid is recorded as a gain on bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired, and liabilities assumed have been properly valued. We underwent such a reassessment, and as a result, recorded a gain on the bargain purchase of $1.4 million, including a gain on bargain purchase of $0.8 million for WSDZ-AM in St. Louis, Missouri, $0.3 million for KDIZ-AM in Minneapolis, Minnesota, and $0.3 million for WWMI-AM in Tampa, Florida. We believe that these gains on bargain purchase resulted from various factors that may have impacted the acquisition price, including, without limitation, that Disney was eager to divest of their Radio Disney properties.

  

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.

 

 

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 9 -Fair Value Measurements in our 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 4 – Contingent Earn-out Consideration to our consolidated financial statements.

 

The following table summarizes the total acquisition consideration for the year ended December 31, 2015:

 

Description		Total Consideration
		(Dollars in thousands)
Cash payments		$	16,885
Escrow deposits paid in prior years			65
Cash payment due January 2016			21
Present value of estimated fair value contingent earn out consideration due 2016			176
Present value of estimated fair value contingent earn out consideration due 2017			124
Total acquisition consideration		$	17,271
Gain on bargain purchase			1,357
Fair value of net assets acquired		$	18,628

 

The fair value of the acquisition consideration was allocated to the net assets acquired as follows:

 

		Net Broadcast Assets Acquired			Net Digital Media Assets Acquired			Net Assets Acquired
		(Dollars in thousands)
Assets
Property and equipment		$	7,845			649			8,494
Broadcast licenses			5,923			—			5,923
Goodwill			64			254			318
Customer lists and contracts			—			99			99
Domain and brand names			—			1,154			1,154
Subscriber base and lists			—			3,011			3,011
Non-compete agreements			—			146			146
Liabilities
Deferred revenue liabilities assumed			—			(517)			(517)
		$	13,832			4,796			18,628

Pending Transactions

 

On April 1, 2015, we began programming KHTE-FM, Little Rock, Arkansas under a 36-month Time Brokerage Agreement (“TBA”) that can be extended to 48 months. We have the option to acquire the station for $1.2 million in cash during the TBA period. The accompanying consolidated statements of operations included in this annual report on Form 10-K reflect the operating results of this entity as of the TBA date.

On December 15, 2015, we entered an APA to acquire an FM Translator in Columbus, Ohio for $0.4 million in cash. The transaction is expected to close in the first quarter of 2016.

 

On December 31, 2015, we ceased programming KVCE-AM, in Dallas, Texas upon expiration of our TBA.

 

During the year ended December 31, 2014, we completed or entered into the following transactions:

 

Debt

 

Throughout the year, we repaid $15.3 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 through each repayment date. We recorded a loss on early retirement of debt of $0.1 million related to the unamortized discount and $0.3 million in bank loan fees.

 

Repayments of our Term Loan B were as follows:

 

Date		Principal Paid			Unamortized Discount
		(Dollars in Thousands)
December 31, 2014		$	4,000		$	16
November 28, 2014			4,000			15
September 29, 2014			5,000			18
March 31, 2014			2,250			8

 

Equity

 

During the year ended December 31, 2014, after quarterly review of our earnings, cash flows, financial requirements, and other factors, our Board of Directors’ declared equity distributions to all stockholders of record of our Class A and Class B common stock as follows:

 

Announcement Date		Record Date		Payment Date		Amount Per Share			Cash Distributed (in thousands)
December 2, 2014		December 15, 2014		December 29, 2014		$	0.0650		$	1,646
September 2, 2014		September 16, 2014		September 30, 2014		$	0.0625		$	1,579
May 27, 2014		June 16, 2014		June 30, 2014		$	0.0600		$	1,514
March 6, 2014		March 17, 2014		March 31, 2014		$	0.0575		$	1,444

 

The actual declaration of future equity distributions and the establishment of the per share amount, record dates, and payment dates are subject to final determination by our Board of Directors and dependent upon future earnings, cash flows, financial requirements, and other factors.

 

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. The base purchase price was $8.5 million, with $3.5 million paid in cash upon closing, and deferred payments of $2.5 million each due January 2015 and January 2016. The deferred payments due January 2015 and January 2016 were recorded at their present value of $2.4 million and $2.3 million, respectively, with the discount being amortized to non-cash interest expense over the payment term using the effective interest method. We paid an additional $0.4 million of costs upon closing associated with liabilities incurred by the seller. On June 6, 2014, we paid $1.5 million of the $2.5 million deferred installment that was due January 2015. Based on the early payment, our deferred payment due January 2015 was reduced to $0.9 million.

 

We began operating these entities as of the closing date. The accompanying Consolidated Statements of Operations reflect the operating results of these entities as of the closing date. 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.

 

As part of the purchase agreement, 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 of $2.0 million was determined using a probability-weighted discounted cash flow model at the time of closing and is discussed in detail in Note 4 – Contingent Earn-Out Consideration.

 

Other Acquisitions

 

On December 23, 2014, we completed the acquisition of the construction permit for WLTE-FM in Pendleton, South Carolina for $0.5 million in cash. The asset acquisition cost was reflected in projects-in-process as of December 2014. The station will operate within our Greenville, South Carolina market.

 

On December 23, 2014, we completed the acquisition of an FM translator in Pickens, South Carolina for $0.2 million in cash. The asset acquisition cost was included in projects-in-process as of December 2014. The FM Translator will operate in our Greenville, South Carolina market.

 

On December 22, 2014, we completed the acquisition of an FM translator in Bayshore Gardens, Florida for $0.1 million in cash. The asset acquisition cost was included in projects-in-process as of December 2014. The FM Translator will operate in our Tampa, Florida market.

 

On November 24, 2014, we completed the acquisition of an FM translator in Travelers Rest, South Carolina for $0.2 million in cash. The asset acquisition cost was included in projects-in-process as of December 2014. The FM Translator will operate in our Greenville, South Carolina market.

 

On October 1, 2014, we completed the acquisition of radio station KXXT-AM in Phoenix, Arizona for $0.6 million in cash. We began operating the station under an LMA as of June 6, 2014. The accompanying Consolidated Statements of Operations reflect the operating results of this entity as of the LMA date. We recorded goodwill of $1,400 associated with the excess value of this entity attributable to the audience reach obtained and expected synergies to be realized from combining the operations of this station into our existing cluster in this market.

 

On May 22, 2014, we completed the acquisition of radio station WOCN-AM, Miami, Florida and the related transmitter site for $2.5 million in cash. The accompanying Consolidated Statements of Operations reflect the operating results of this entity as of the closing date. On November 24, 2014, we entered a TBA with a programmer under which we will receive monthly license fees beginning in December 2014 through November 2019. Upon acquisition, we recorded goodwill of $12,000 associated with the excess value of this entity attributable to the existing tower site, the related transmitter site and the audience reach obtained and expected synergies to be realized from combining the operations of this station into our existing cluster in this market.

 

On May 6, 2014, we completed the acquisition of WRTH-FM (formerly WOLT-FM) in Greenville, South Carolina for $1.1 million in cash. We began operating this station under an LMA as of February 28, 2014. The accompanying Consolidated Statements of Operations reflect the operating results of this entity as of the LMA date. We recorded goodwill of $6,400 associated with the excess value of this entity attributable to the existing tower site, the additional audience reach obtained, and the expected synergies to be realized when combining the operations of this station into our existing cluster in this market.

 

On April 15, 2014, we completed the acquisition of three FM translators for $0.4 million in cash. The asset acquisition cost is reflected in projects-in-process as of December 2014. The FM translators will serve our Orlando, Florida, Tampa, Florida and Omaha, Nebraska markets.

 

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. The accompanying Consolidated Statement of Operations reflects the operating results of these entities as of the closing date. We recorded goodwill of $18,000 associated with the excess value of these entities attributable to the existing tower site, the additional audience reach obtained, and the expected synergies to be realized when combining the operations of this station into our existing cluster in this market.

 

Throughout the year ending December 31, 2014, we have acquired domain names associated with our Internet segment for an aggregate amount of approximately $0.4 million in cash.

 

A summary of our business acquisitions and asset purchases for the year ended December 31, 2014, none of which were individually or in the aggregate material to our Consolidated financial position as of the respective date of acquisition, is as follows:

 

Acquisition Date		Description		Total Cost
				(Dollars in thousands)
December 23, 2014		WLTE-FM Pendleton, South Carolina (asset acquisition)		$	525
December 23, 2014		FM Translator, Pickens, South Carolina (asset acquisition)			185
December 22, 2014		FM Translator, Bayshore Gardens, Florida (asset acquisition)			140
November 24, 2014		FM Translator, Traveler’s Rest, South Carolina (asset acquisition)			200
October 1, 2014		KXXT-AM Phoenix, Arizona (business acquisition)			575
May 22, 2014		WOCN-AM Miami, Florida (business acquisition)			2,450
May 6, 2014		WRTH-FM (formerly WOLT-FM), Greenville, South Carolina (business acquisition)			1,125
April 15, 2014		FM Translators, Orlando, Florida, Tampa, Florida, Omaha, Nebraska (asset purchase)			357
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		Purchases of domain names (asset purchases)			487
				$	18,656

 

The following table summarizes the total acquisition consideration for the year ended December 31, 2014:

 

Purchase Price Consideration		Total Consideration
		(Dollars in thousands)
Cash payments		$	12,682
Escrow deposits paid in prior years			1,345
Deferred cash payments made related to prior year acquisition			(600)
Present value of deferred cash payments (due 2015)			893
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		$	18,656

 

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

 

		Net Broadcast Assets Acquired			Net Digital Media Assets Acquired			Net Publishing Assets Acquired			Net Assets Acquired
					(Dollars in thousands)
Assets
Property and equipment		$	2,338		$	1,179		$	3,929		$	7,446
Developed websites			—			539			38			577
Broadcast licenses			5,144			—			—			5,144
Goodwill			38			2,128			189			2,355
Customer lists and contracts			—			2,232			509			2,741
Domain and brand names			—			1,921			843			2,764
Subscriber base and lists			—			2,446			—			2,446
Author relationships			—			—			1,682			1,682
Non-compete agreements			—			79			66			145
Favorable and assigned leases			20			—			—			20
Liabilities
Deferred revenue & royalties assumed			—			(3,779)			(2,885)			(6,664)
		$	7,540		$	6,745		$	4,371		$	18,656

 

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 Statements of Operations for all prior periods presented are updated to reflect the operating results of this entity as a discontinued operation.

 

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

 

		For the Year Ended December 31,
		2013
		(Dollars in thousands)
Net revenues		$	10
Operating expenses			72
Operating loss		$	(62)
Benefit from income taxes			(25)
Loss from discontinued operations, net of tax		$	(37)