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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
for the Fiscal Year Ended February 28, 2015
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
for the Transition Period from to .
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA
(State of incorporation or organization)
0-23264
(Commission file number)
35-1542018
(I.R.S. Employer Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrant’s Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A common stock, $.01 par value of
Emmis Communications Corporation; 6.25% Series A Convertible Preferred Stock, $.01 par value of Emmis Communications
Corporation.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant, as of August 31, 2014, the last business
day of the Registrant’s most recently completed second fiscal quarter, was approximately $63,672,000.
The number of shares outstanding of each of Emmis Communications Corporation’s classes of common stock, as of May 1,
2015, was:
39,335,607 Class A Common Shares, $.01 par value
4,569,464 Class B Common Shares, $.01 par value
0 Class C Common Shares, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
Documents
Proxy Statement for 2015 Annual Meeting of Shareholders
expected to be filed within 120 days
Form 10-K Reference
Part III
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners, and Management, and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
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CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this report to “Emmis,” “the Company,” “we,” “our,” “us,” and
similar terms refer to Emmis Communications Corporation, Inc. and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. You can identify these forward-looking statements by our use of words such as “intend,”
“plan,” “may,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and
similar expressions, whether in the negative or affirmative. We cannot guarantee that we will achieve these plans, intentions or
expectations. All statements regarding our expected financial position, business and financing plans are forward-looking
statements.
Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-
looking statements we make. We have included important facts in various cautionary statements in this report that we believe
could cause our actual results to differ materially from forward-looking statements that we make. These include, but are not
limited to, the factors described in Part I, Item 1A, “Risk Factors.”
The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We
undertake no obligation to update or revise any forward-looking statements because of new information, future events or
otherwise.
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ITEM 1. BUSINESS.
GENERAL
PART I
We are a diversified media company, principally focused on radio broadcasting. Emmis owns 19 FM and 4 AM radio
stations in New York, Los Angeles, St. Louis, Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located
there), Indianapolis and Terre Haute, IN. One of the FM radio stations that Emmis currently owns in New York is
operated pursuant to a Local Marketing Agreement ("LMA") whereby a third party provides the programming for the station
and sells all advertising within that programming. Emmis also developed and licenses TagStation®, a cloud-based software
platform that allows a broadcaster to manage album art, meta data and enhanced advertising on its various broadcasts, and
developed NextRadio®, a smartphone application that marries over-the-air FM radio broadcasts with visual and interactive
features on smartphones.
In addition to our radio properties, we publish several city and regional magazines. Our publishing operations consist of
Texas Monthly, Los Angeles, Atlanta, Indianapolis Monthly, Cincinnati, and Orange Coast. We also operate Digonex
Technologies, Inc. ("Digonex"), a dynamic pricing business.
BUSINESS STRATEGY
We are committed to improving the operating results of our core assets while simultaneously seeking future growth
opportunities in related businesses. Our strategy is focused on the following operating principles:
Develop unique and compelling content and strong local brands
Most of our established local media brands have achieved and sustained a leading position in their respective market
segments over many years. Knowledge of local markets and consistently producing unique and compelling content that meets
the needs of our target audiences are critical to our success. As such, we make substantial investments in areas such as market
research, data analysis and creative talent to ensure that our content remains relevant, has a meaningful impact on the
communities we serve and reinforces the core brand image of each respective property.
Extend the reach and relevance of our local brands through digital platforms
In recent years, we have placed substantial emphasis on enhancing the distribution of our content through digital
platforms, such as the Internet and mobile phones. We believe these digital platforms offer excellent opportunities to further
enhance the relationships we have with our audiences by allowing them to consume and share our content in new ways and
providing us with new distribution channels for one-to-one communication with them.
Deliver results to advertisers
Competition for advertising revenue is intense and becoming more so. To remain competitive, we focus on sustaining and
growing our audiences, optimizing our pricing strategy and developing innovative marketing programs for our clients that
allow them to interact with our audiences in more direct and measurable ways. These programs often include elements such as
on-air endorsements, events, contests, special promotions, Internet advertising, email marketing, text messaging and online
video. Our ability to deploy multi-touchpoint marketing programs allows us to deliver a stronger return-on-investment for our
clients while simultaneously generating ancillary revenue streams for our media properties.
Extend sales efforts into new market segments
Given the competitive pressures in many of our “traditional” advertising categories, we are expanding our network of
advertiser relationships into not-for-profits, political advertising, corporate philanthropy, environmental initiatives and
government agencies. These efforts primarily focus on the health care and education sectors. We believe our capabilities can
address these clients’ under-served needs. The early return on these efforts has been encouraging and we plan to shift additional
resources toward these efforts over time.
Enhance the efficiency of our operations
We believe it is essential that we operate our businesses as efficiently as possible. In response to the 2008 economic
recession and more recent trends, we implemented a series of aggressive restructurings and cost cuts. We have also invested in
common technology platforms across all of our radio and publishing entities to help further standardize our business processes.
Effectively deploy technology to enhance the value of our media assets
We continue to seek innovative ways to combine or enhance our scalable, low cost FM radio distribution system with
digital systems like HD Radio® and wireless broadband to enhance radio’s future through advances like TagStation®, a cloud-
based software platform that allows a broadcaster to manage album art, meta data and enhanced advertising on its various
broadcasts, and NextRadio®, a hybrid radio smartphone application, as an industry solution to make the user experience of
listening to free over-the-air radio broadcasts on their enabled smartphones a rich experience.
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RADIO STATIONS
In the following table, “Market Rank by Revenue” is the ranking of the market revenue size of the principal radio market
served by our stations among all radio markets in the United States. Market revenue rankings are from BIA/Kelsey’s Media
Access Pro database as of March 20, 2015. “Ranking in Primary Demographic Target” is the ranking of the station within its
designated primary demographic target among all radio stations in its market based on the March 2015 Portable People Meter™
(PPM™) results or, in the case of our Terre Haute stations, based on the Fall 2014 Nielsen Survey. A “t” indicates the station
tied with another station for the stated ranking. “Station Audience Share” represents a percentage generally computed by
dividing the average number of persons in the primary demographic listening to a particular station during specified time
periods by the average number of such persons in the primary demographic for all stations in the market area as determined by
Nielsen.
MARKET
RANK BY
REVENUE
FORMAT
PRIMARY
DEMOGRAPHIC
TARGET AGES
RANKING IN
PRIMARY
DEMOGRAPHIC
TARGET
STATION
AUDIENCE
SHARE
1
2
20
33
STATION AND MARKET
Los Angeles, CA
KPWR-FM
New York, NY 1
WQHT-FM
WBLS-FM
WLIB-AM
St. Louis, MO
KPNT-FM
KSHE-FM
KNOU-FM
KFTK-FM
Austin, TX
KLBJ-AM
KLZT-FM
KBPA-FM
KLBJ-FM
KGSR-FM
KROX-FM
Indianapolis, IN
38
WFNI-AM
WYXB-FM
WLHK-FM
WIBC-FM
Terre Haute, IN
227
WTHI-FM
WFNF-AM
WFNB-FM
WWVR-FM
Hip-Hop
Hip-Hop
Urban Adult Contemporary
Urban Gospel
Alternative Rock
Album Oriented Rock
Contemporary Hit Radio
Talk
News/Talk
Mexican Regional
Adult Hits
Album Oriented Rock
Adult Album Alternative
Alternative Rock
Sports Talk
Soft Adult Contemporary
Country
News/Talk
Country
Sports Talk
Adult Hits
Classic Rock
18-34
18-34
25-54
25-54
18-34
25-54
18-34
25-54
25-54
18-34
25-54
25-54
25-54
18-34
25-54
25-54
25-54
35-64
25-54
25-54
25-54
25-54
5
3
4
48t
1
1
11
19
16t
12t
1
5t
12
1
12t
6
2
7
1
12
9t
3
5.0
6.9
6.0
0.1
11.1
8.4
4.1
1.8
2.5
3.4
10.0
5.1
3.6
9.0
3.4
5.9
8.1
5.8
16.8
—
2.0
10.9
1 Our fourth owned station in New York, WEPN-FM, is being operated pursuant to an LMA. Under the terms of the LMA, New York AM Radio LLC, a
subsidiary of Disney Enterprises, Inc., provides the programming for the station and sells all advertising within that programming. Emmis continues to own and
operate WEPN-FM.
In addition to our other radio broadcasting operations, we own and operate Network Indiana, a radio network that
provides news and other programming to 85 affiliated radio stations in Indiana.
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PUBLISHING OPERATIONS
We publish the following magazines:
Texas Monthly
Los Angeles
Atlanta
Orange Coast
Indianapolis Monthly
Cincinnati
Monthly
Paid & Verified Circulation
1
300,600
142,680
70,130
48,460
40,280
35,340
1 Source: Publisher’s Statement subject to audit by the Alliance for Audited Media (as of December 31, 2014) or Circulation Verification Council (as of
March 31, 2014)
NEW TECHNOLOGIES
We believe that the growth of new technologies present not only a challenge, but an opportunity for broadcasters and
publishers. The primary challenge is increased competition for the time and attention of our listeners and readers. The
opportunity is to further enhance the relationships we already have with our listeners and readers by expanding products and
services offered by our stations and magazines and to potentially increase distribution to portable devices.
COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the communities we serve. We see ourselves as
community partners. To that end, each of our stations and magazines participates in many community programs, fundraisers
and activities that benefit a wide variety of causes. Charitable organizations that have been the beneficiaries of our
contributions, marathons, walkathons, concerts, fairs and festivals include, among others, The Salvation Army, Wish for
Heroes, Habitat for Humanity, United Way,Juvenile Diabetes Research Foundation, Make-A-Wish Foundation, March of
Dimes, Homeboy Industries, Los Angeles Unified School District, American Red Cross, St. Jude, and the Harlem Chamber of
Commerce.
The National Association of Broadcasters Education Foundation (“NABEF”) has honored us with the Hubbard Award,
honoring a broadcaster “for extraordinary involvement in serving the community.” Emmis was the second broadcaster to
receive this prestigious honor, after the Hubbard family, for which the award is named. The NABEF also recognized Emmis’
WQHT-FM in New York for its outreach after Hurricane Sandy, both for the news coverage it provided and the relief efforts it
organized in the weeks after the storm. WIBC-FM was nominated for a national Crystal Award from the National Association
of Broadcasters for our efforts in the community in 2014.
INDUSTRY INVOLVEMENT
We have an active leadership role in a wide range of industry organizations. Our senior managers have served in various
capacities with industry associations, including as directors of the National Association of Broadcasters, the Radio Advertising
Bureau, the Radio Futures Committee, the Nielsen Audio Advisory Council, the Media Financial Management Association,
MPA - the Association of Magazine Media, the City and Regional Magazine Association and as founding members of the
Magazine Publishers of America. Our chief executive officer has been honored with the National Association of Broadcasters’
“National Radio Award” and as Radio Ink’s “Radio Executive of the Year.” Our management and on-air personalities have won
numerous industry awards.
COMPETITION
Radio broadcasting stations compete with the other broadcasting stations in their respective market areas, as well as with
other advertising media such as newspapers, cable, magazines, outdoor advertising, transit advertising, the Internet, satellite
radio, direct marketing and mobile and wireless device marketing. Competition within the broadcasting industry occurs
primarily in individual market areas, so that a station in one market (e.g., New York) does not generally compete with stations
in other markets (e.g., Los Angeles). In each of our markets, our stations face competition from other stations with substantial
financial resources, including stations targeting the same demographic groups. In addition to management experience, factors
that are material to competitive position include the station’s rank in its market in terms of the number of listeners, authorized
power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other
stations in the market area. We attempt to improve our competitive position with programming and promotional campaigns
aimed at the demographic groups targeted by our stations. We also seek to improve our position through sales efforts designed
to attract advertisers that have done little or no radio advertising by emphasizing the effectiveness of radio advertising in
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increasing the advertisers’ revenues. The policies and rules of the Federal Communications Commission (the “FCC”) permit
certain joint ownership and joint operation of local stations. Most of our radio stations take advantage of these joint
arrangements in an effort to lower operating costs and to offer advertisers more attractive rates and services. Although we
believe that each of our stations can compete effectively in its market, there can be no assurance that any of our stations will be
able to maintain or increase its current audience ratings or advertising revenue market share.
Although the broadcasting industry is highly competitive, barriers to entry exist. The operation of a broadcasting station
in the United States requires a license from the FCC. Also, the number of stations that can operate in a given market is limited
by the availability of the frequencies that the FCC will license in that market, as well as by the FCC’s multiple ownership rules
regulating the number of stations that may be owned and controlled by a single entity and cross ownership rules which limit the
types of media properties in any given market that can be owned by the same person or company.
ADVERTISING SALES
Our stations and magazines derive their advertising revenue from local and regional advertising in the marketplaces in
which they operate, as well as from the sale of national advertising. Local and most regional sales are made by a station’s or
magazine’s sales staff. National sales are made by firms specializing in such sales, which are compensated on a commission-
only basis. We believe that the volume of national advertising revenue tends to adjust to shifts in a station’s audience share
position more rapidly than does the volume of local and regional advertising revenue. During the year ended February 28,
2015, approximately 22% of our total advertising revenues were derived from national sales, and 78% were derived from local
sales. For the year ended February 28, 2015, our radio stations derived a higher percentage of their advertising revenues from
local and regional sales (82%) than our publishing entities (67%).
EMPLOYEES
As of February 28, 2015, Emmis had approximately 785 full-time employees and approximately 335 part-time
employees. Approximately 35 employees are represented by unions at our various radio stations. We consider relations with our
employees to be good.
INTERNET ADDRESS AND INTERNET ACCESS TO SEC REPORTS
Our Internet address is www.emmis.com. Through our Internet website, free of charge, you may obtain copies of our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports will be available the same day
we electronically file such material with, or furnish such material to, the SEC. We have been making such reports available on
the same day they are filed during the period covered by this report.
FEDERAL REGULATION OF BROADCASTING
Radio broadcasting in the United States is subject to the jurisdiction of the FCC under the Communications Act of 1934 (the
“Communications Act”), as amended in part by the Telecommunications Act of 1996 (the “1996 Act”). Radio broadcasting is
prohibited except in accordance with a license issued by the FCC upon a finding that the public interest, convenience and necessity
would be served by the grant of such license. The FCC has the power to revoke licenses for, among other things, false statements
made in applications or willful or repeated violations of the Communications Act or of FCC rules. In general, the Communications
Act provides that the FCC shall allocate broadcast licenses for radio stations in such a manner as will provide a fair, efficient and
equitable distribution of service throughout the United States. The FCC determines the operating frequency, location and power
of stations; regulates the equipment used by stations; and regulates numerous other areas of radio broadcasting pursuant to rules,
regulations and policies adopted under authority of the Communications Act. The Communications Act, among other things,
prohibits the assignment of a broadcast license or the transfer of control of an entity holding such a license without the prior
approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of media that compete with broadcast
stations.
The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and
policies. Reference should be made to the Communications Act as well as FCC rules, public notices and rulings for further
information concerning the nature and extent of federal regulation of radio stations. Other legislation has been introduced from
time to time which would amend the Communications Act in various respects, and the FCC from time to time considers new
regulations or amendments to its existing regulations. We cannot predict whether any such legislation will be enacted or whether
new or amended FCC regulations will be adopted or what their effect would be on Emmis.
LICENSE RENEWAL. Radio stations operate pursuant to broadcast licenses that are ordinarily granted by the FCC for
maximum terms of eight years and are subject to renewal upon approval by the FCC. The following table sets forth our FCC
license expiration dates in addition to the call letters, license classification, antenna elevation above average terrain (for our FM
stations only), power and frequency of all owned stations as of April 30, 2015:
8
Stations
City of License
Frequency
Expiration Date
of License1
FCC Class
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Radio Market
Los Angeles, CA
New York, NY
St. Louis, MO
Austin, TX
Indianapolis, IN
KPWR-FM
Los Angeles, CA
WQHT-FM
New York, NY
WBLS-FM
WLIB-AM
WEPN-FM
KFTK-FM
KNOU-FM
KPNT-FM
KSHE-FM
KBPA-FM
KGSR-FM
KLZT-FM
KLBJ-AM
KLBJ-FM
KROX-FM
WFNI-AM
New York, NY
New York, NY
New York, NY
Florissant, MO
St. Louis, MO
Collinsville, IL
Crestwood, MO
San Marcos, TX
Cedar Park, TX
Bastrop, TX
Austin, TX
Austin, TX
Buda, TX
Indianapolis, IN
WLHK-FM
Shelbyville, IN
WIBC-FM
Indianapolis, IN
WYXB-FM
Indianapolis, IN
Terre Haute, IN
WTHI-FM
Terre Haute, IN
WWVR-FM
West Terre Haute, IN
WFNB-FM
WFNF-AM
Brazil, IN
Brazil, IN
105.9
97.1
107.5
1190
98.7
97.1
96.3
105.7
94.7
103.5
93.3
107.1
590
93.7
101.5
1070
97.1
93.1
105.7
99.9
105.5
92.7
1130
December 2021
June 2014 2
June 2022
June 2022
June 2022
February 2021
February 2021
December 2020
February 2021
August 2021
August 2021
August 2021
August 2021
August 2021
August 2021
August 2020
August 2020
August 2020
August 2020
August 2020
August 2020
August 2020
August 2020
B
B
B
B
B
C1
C1
C1
C0
C0
C
C2
B
C
C2
B
B
B
B
B
A
A
D
Height Above
Average
Terrain (in
feet)
Power (in
Kilowatts)
3,035
1,339
1,362
25
6.7
4.2
N/A
10 D / 30 N
1,362
561
1,014
835
1,014
1,257
1,926
499
N/A
1,050
847
N/A
732
991
492
489
295
299
6
100
92
54
100
100
100
49
5 D / 1 N
97
12.5
50 D / 10 N
23
13.5
50
50
3.3
6
N/A 0.5 D / 0.02 N
1 Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application.
2 Renewal application is pending.
Under the Communications Act, at the time an application is filed for renewal of a station license, parties in interest, as
well as members of the public, may apprise the FCC of the service the station has provided during the preceding license term
and urge the denial of the application. If such a petition to deny presents information from which the FCC concludes (or if the
FCC concludes on its own motion) that there is a “substantial and material” question as to whether grant of the renewal
application would be in the public interest under applicable rules and policy, the FCC may conduct a hearing on specified
issues to determine whether the renewal application should be granted. The Communications Act provides for the grant of a
renewal application upon a finding by the FCC that the licensee:
•
•
•
has served the public interest, convenience and necessity;
has committed no serious violations of the Communications Act or the FCC rules; and
has committed no other violations of the Communications Act or the FCC rules which would constitute a pattern of
abuse.
If the FCC cannot make such a finding, it may deny the renewal application, and only then may the FCC consider
competing applications for the same frequency. In a vast majority of cases, the FCC renews a broadcast license even when
petitions to deny have been filed against the renewal application.
A petition to deny was filed against the renewal application for WQHT, and remains pending.
REVIEW OF OWNERSHIP RESTRICTIONS. The FCC is required by statute to review all of its broadcast ownership
rules on a quadrennial basis (i.e., every four years) and to repeal or modify any of its rules that are no longer “necessary in the
public interest.”
Despite several such reviews and appellate remands, the FCC’s rules limiting the number of radio stations that may be
commonly owned, or owned in combination with a television station, in a local market have remained largely intact. The
FCC's previous ownership reviews have been subject to litigation. The most recent court decision was issued by the Third
Circuit in July 2011 and upheld the FCC’s decisions regarding all of its rules except for a revised newspaper/broadcast cross-
ownership rule, which the Court vacated and remanded to the Commission based on the Court’s finding that the agency had
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failed to provide adequate notice and opportunity for comment on the changes to that rule. The Supreme Court denied petitions
for certiorari of the Third Circuit’s decision in June 2012. In 2010, the FCC again commenced a quadrennial review of its
broadcast ownership rules, which it subsequently incorporated into the record of its 2014 quadrennial review launched in April
2014. At the same time it launched the 2014 review, the FCC issued an order that attributed Joint Sales Agreements for
television stations, and several parties (not including Emmis) have appealed that decision and the FCC's failure to complete the
2010 quadrennial review. Both the quadrennial review proceeding and the court appeals remain pending, and we cannot predict
whether these proceedings will result in modifications of the ownership rules or the impact (if any) that such modifications
would have on our business.
The discussion below reviews the pertinent ownership rules currently in effect as well as the changes in the newspaper/
broadcast rule adopted in the FCC’s December 2007 decision, which the FCC has largely proposed to reinstate in its 2010 and
2014 quadrennial reviews.
Local Radio Ownership:
The local radio ownership rule limits the number of commercial radio stations that may be owned by one entity in a given
radio market based on the number of radio stations in that market:
•
•
•
•
if the market has 45 or more radio stations, one entity may own up to eight stations, not more than five of which may be
in the same service (AM or FM);
if the market has between 30 and 44 radio stations, one entity may own up to seven stations, not more than four of
which may be in the same service;
if the market has between 15 and 29 radio stations, one entity may own up to six stations, not more than four of which
may be in the same service; and
if the market has 14 or fewer radio stations, one entity may own up to five stations, not more than three of which may
be in the same service, however one entity may not own more than 50% of the stations in the market.
Each of the markets in which our radio stations are located has at least 15 radio stations.
For purposes of applying these numerical limits, the FCC has also adopted rules with respect to (i) so-called local
marketing agreements, or “LMAs,” by which the licensee of one radio station provides programming for another licensee’s
radio station in the same market and sells all of the advertising within that programming and (ii) so-called joint sale
agreements, or “JSAs,” by which the licensee of one station sells the advertising time on another station in the market. Under
these rules, an entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or
sells more than 15% of the advertising time, on another radio station in the same market pursuant to an LMA or JSA is
generally required to count the station toward its media ownership limits even though it does not own the station. As a result, in
a market where we own one or more radio stations, we generally cannot provide programming to another station under an
LMA, or sell advertising on another station pursuant to a JSA, if we could not acquire that station under the local radio
ownership rule. In the 2010 and 2014 quadrennial reviews, the FCC has also sought comment on whether to expand the
categories of agreements that are considered for purposes of evaluating compliance with the ownership rules to include
agreements such as “shared services agreements” and/or “local news service” agreements.
On April 26, 2012, a subsidiary of Emmis entered into an LMA with New York AM Radio, LLC pursuant to which,
commencing April 30, 2012, it began purchasing from Emmis the right to provide programming on radio station WEPN-FM,
98.7FM, New York, NY until August 31, 2024, subject to certain conditions. Disney Enterprises, Inc., the parent company of
New York AM Radio, LLC, has guaranteed the obligations under the LMA. Emmis’ subsidiary will retain ownership of the
98.7FM FCC license during the term of the LMA and will receive an annual fee of $8.4 million for the first year of the term
under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination.
Although the FCC’s quadrennial review decisions have not changed the numerical caps under the local radio rule, the
FCC adjusted the rule in June 2003 by deciding that both commercial and noncommercial stations could be counted in
determining the number of stations in a radio market. The decision also altered the definition of the relevant local market for
purposes of the rule. The FCC “grandfathered” existing station “clusters” not in compliance with the numerical caps as
calculated pursuant to the new market definition, but provided that they could be sold intact only to small businesses meeting
certain requirements. In December 2007, the FCC expanded this policy to allow an owner to sell a grandfathered station cluster
to any buyer, so long as the buyer committed to file, within 12 months, an application with the FCC to transfer the excess
station(s) to an eligible small business or to a trust for ultimate sale to such an entity. Subsequently, however, the Third Circuit
vacated the FCC’s selected definition of small businesses eligible to purchase clusters that exceed the numerical limits. The
change in market definition appears to impact the Austin, Texas market, such that we exceed the numerical cap for FM stations.
If we chose to sell our Austin cluster of stations, we would therefore have to “spin off” one FM station to a separate buyer. The
FCC has proposed to retain intact its local radio ownership rule, and has sought comment on alternatives to its previous
definition of eligible small businesses, in its most recent quadrennial reviews.
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Cross-Media Ownership:
The FCC’s radio/television cross-ownership rule generally permits the common ownership of the following combinations
in the same market, to the extent permitted under the FCC’s television duopoly rule and local radio rules:
•
•
•
up to two commercial television stations and six commercial radio stations or one commercial television station and
seven commercial radio stations in a market where at least 20 independent media voices will remain post-merger;
up to two commercial television stations and four commercial radio stations in a market where at least 10 independent
media voices will remain post-merger; and
two commercial television stations and one commercial radio station in a market with less than 10 independent media
voices that will remain post-merger.
For purposes of this rule, the FCC counts as “voices” commercial and non-commercial broadcast television and radio
stations as well as some daily newspapers and no more than one cable operator. The FCC will consider permanent waivers of
its revised radio/television cross-ownership rule only if one of the stations is a “failed station.” The FCC has proposed to
eliminate this rule in its most recent quadrennial reviews.
FCC rules also generally prohibit common ownership of a daily newspaper and a radio or television station in the same
local market. In its December 2007 quadrennial review decision, the FCC adopted rules that contained a presumption in favor
of allowing ownership of one television or radio station in combination with one daily newspaper in the 20 largest media
markets. In smaller markets, there would have been a presumption against allowing such ownership. In the case of proposed
TV/newspaper combinations, the TV station could not be among the top four ranked stations in its market, and at least eight
independently owned and operated TV stations would have had to remain in the market post-transaction. As noted above, the
Third Circuit vacated these changes to the newspaper/broadcast cross-ownership ban on procedural grounds. The FCC has
largely proposed to reinstate the standards applicable to proposed newspaper/TV combinations in its most recent quadrennial
reviews, while at the same time seeking comment on whether to eliminate the newspaper/radio cross-ownership rule.
ALIEN OWNERSHIP. Under the Communications Act, no FCC license may be held by a corporation if more than one-
fifth of its capital stock is owned or voted by aliens or their representatives, a foreign government or representative thereof, or
an entity organized under the laws of a foreign country (collectively, “Non-U.S. Persons”). Furthermore, the Communications
Act provides that no FCC license may be granted to an entity directly or indirectly controlled by another entity of which more
than one-fourth of its capital stock is owned or voted by Non-U.S. Persons if the FCC finds that the public interest will be
served by the denial of such license. The FCC staff has interpreted this provision to require an affirmative public interest
finding to permit the grant or holding of a license, and such a finding has been made only in limited circumstances. In
November 2013 the FCC clarified that it would accept requests to allow foreign investment above 25% in broadcast holding
companies, and that it would evaluate those requests on a case-by-case basis to determine whether the requesting party had
provided a sufficient public interest showing. The foregoing restrictions on alien ownership apply in modified form to other
types of business organizations, including partnerships and limited liability companies. An LMA with a foreign owned
company is not prohibited as long as the non-foreign holder of the FCC license continues to control and operate the station.
Our Second Amended and Restated Articles of Incorporation and Amended and Restated Code of By-Laws authorize the Board
of Directors to prohibit such restricted alien ownership, voting or transfer of capital stock as would cause Emmis to violate the
Communications Act or FCC regulations.
ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the FCC has developed specific
criteria that it uses to determine whether a certain ownership interest or other relationship with an FCC licensee is significant
enough to be “attributable” or “cognizable” under its rules. Specifically, among other relationships, certain stockholders,
officers and directors of a broadcasting company are deemed to have an attributable interest in the licenses held by that
company, such that there would be a violation of the FCC’s rules where the broadcasting company and such a stockholder,
officer or director together hold attributable interests in more than the permitted number of stations or a prohibited combination
of outlets in the same market. The FCC’s regulations generally deem the following relationships and interests to be attributable
for purposes of its ownership restrictions:
•
•
•
•
all officer and director positions in a licensee or its direct/indirect parent(s);
voting stock interests of at least 5% (or 20%, if the holder is a passive institutional investor, i.e., a mutual fund, insurance
company or bank);
any equity interest in a limited partnership or limited liability company where the limited partner or member has not been
“insulated” from the media-related activities of the LP or LLC pursuant to specific FCC criteria;
equity and/or debt interests which, in the aggregate, exceed 33% of the total asset value of a station or other media entity
(the “equity/debt plus policy”), if the interest holder supplies more than 15% of the station’s total weekly programming
(usually pursuant to a time brokerage, local marketing or network affiliation agreement) or is a same-market media entity
(i.e., broadcast company or newspaper). In December 2007, the FCC increased these limits under certain circumstances
where the equity and/or debt interests are in a small business meeting certain requirements. Subsequently, however, the
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Third Circuit vacated the FCC’s definition of small businesses eligible to take advantage of the increased limits. The
FCC has sought comment on alternatives to its previous definition of eligible small businesses in its 2010 quadrennial
review.
To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the
FCC uses a “multiplier” analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-
controlling link in a multi-corporation ownership chain.
Under existing FCC policy, in the case of corporations having a “single majority shareholder,” the interests of minority
shareholders are generally not deemed attributable. Because Jeffrey H. Smulyan’s voting interest in the Company currently exceeds
50%, this exemption appears to apply to the Company. Elimination of the exemption is, however, under consideration by the
FCC. If the exemption is eliminated, or if Mr. Smulyan’s voting interest falls to or below 50%, then the interests of any minority
shareholders that meet or exceed the thresholds described above would become attributable and would be combined with the
Company’s interests for purposes of determining compliance with FCC ownership rules.
Ownership-rule conflicts arising as a result of aggregating the media interests of the Company and its attributable shareholders
could require divestitures by either the Company or the affected shareholders. Any such conflicts could result in Emmis being
unable to obtain FCC consents necessary for future acquisitions. Conversely, Emmis’ media interests could operate to restrict
other media investments by shareholders having or acquiring an interest in Emmis.
ASSIGNMENTS AND TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of a broadcast
license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant
such approval, the FCC considers a number of factors, including compliance with the various rules limiting common ownership
of media properties, the “character” of the assignee or transferee and those persons holding attributable interests therein and
compliance with the Communications Act’s limitations on alien ownership as well as other statutory and regulatory requirements.
When evaluating an assignment or transfer of control application, the FCC is prohibited from considering whether the public
interest might be served by an assignment of the broadcast license or transfer of control of the licensee to a party other than the
assignee or transferee specified in the application.
Emmis acquired WBLS and WLIB from a subsidiary of YMF Media (“YMF”), which itself had acquired those stations from
a subsidiary of Inner City Broadcasting. Several individuals filed petitions to deny the application requesting FCC approval of
the assignment of the stations’ licenses from Inner City to YMF, which the Media Bureau denied. Several petitioners filed an
application for review of the Media Bureau decision, which the Commission denied. These petitioners appealed the Commission’s
decision to the United States Court of Appeals for the D.C. Circuit, and their appeal remains pending. No party challenged the
subsequent assignment of the stations’ licenses from YMF to Emmis, and the time for filing any such challenges has expired.
However, in March 2015, one party filed a lawsuit in the Federal District Court of New York challenging the transfer of the assets
of WBLS-FM and WLIB-AM from Inner City to YMF, and claimed that Emmis had exerted undue influence in securing the FCC's
consent to the transfer of the FCC licenses of WBLS-FM and WLIB-AM from YMF to Emmis. Emmis believes the claims are
without merit.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the “public interest.”
Beginning in the late 1970s, the FCC gradually relaxed or eliminated many of the more formalized procedures it had developed
to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. However,
licensees continue to be required to present programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness.
Federal law prohibits the broadcast of obscene material at any time and the broadcast of indecent material during specified
time periods; these prohibitions are subject to enforcement by the FCC and carry fines of up to $325,000 per violation.
The company has received letters of inquiry from the FCC alleging violations of the indecency rules. The broadcasts covered
by these letters of inquiry could result in the imposition of liability.
The FCC’s indecency rules have also been the subject of litigation. In July 2010, the Second Circuit held the FCC’s indecency
standards to be unconstitutionally vague in violation of the First Amendment. The Second Circuit later vacated the agency decision
at issue in another appeal based on its earlier decision. The FCC challenged these rulings in the Supreme Court. In June 2012
the Supreme Court vacated the Second Circuit’s decision, finding that the FCC had failed to provide adequate notice regarding
the contours of its indecency policy with respect to the broadcasts at issue in the underlying proceedings, but leaving open the
possibility that the agency might be able to enforce the prohibition on broadcast indecency in the future. The Third Circuit issued
a decision vacating another FCC indecency ruling in November 2011, and the Supreme Court denied the FCC’s request for review
of this decision. It is not clear how the FCC will apply these judicial decisions to outstanding complaints, including those involving
Emmis stations, or how they will impact future FCC policies in this area. The FCC has also solicited public comment on whether,
and if so how, to revise its indecency enforcement policies, in a proceeding that remains pending.
In 2006, the FCC commenced an industry-wide inquiry into possible violations of sponsorship identification requirements
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and “payola” in the radio industry. Its initial inquiries were directed to four radio groups (Emmis was not one of them), and in
April 2007, those groups entered into Consent Decrees with the FCC to resolve outstanding investigations and allegations. Emmis
received similar inquiries from the FCC concerning an individual complaint which alleged violations of the sponsorship
identification requirements and submitted responses and in April 2011 entered into a Consent Decree with the FCC to resolve
these inquiries. Pursuant to the Consent Decree, (i) the company adopted a compliance plan intended to avoid violations of the
sponsorship identification requirements, (ii) the company agreed to make a voluntary payment of $12,000 to the U.S. Treasury,
and (iii) the FCC terminated its investigation of the matters covered by the complaint and agreed not to use against the company
the facts that it had developed in its investigation of the complaint or the existence of the Consent Decree.
Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act
that regulate, among other things, political advertising, sponsorship identification, equal employment opportunities, contest and
lottery advertisements, and technical operations, including limits on radio frequency radiation.
Failure to observe FCC rules and policies can result in the imposition of various sanctions, including monetary fines, the
grant of “short-term” (less than the maximum term) license renewals or, for particularly egregious violations, the denial of a license
renewal application or the revocation of a license.
ADDITIONAL DEVELOPMENTS AND PROPOSED CHANGES. The FCC has adopted rules implementing a new low
power FM (“LPFM”) service, and approximately 800 such stations are in operation. In November 2007, the FCC adopted rules
that, among other things, enhance LPFM’s interference protection from subsequently-authorized full-service stations. Congress
then passed legislation eliminating certain minimum distance separation requirements between full-power and LPFM stations,
thereby reducing the interference protection afforded to FM stations. As required by the legislation, the FCC in January 2012
submitted a report to Congress indicating that the results of a statutorily mandated economic study indicated that, on the whole,
LPFM stations do not currently have, and in the future are unlikely to have, a demonstrable economic impact on full-service
commercial FM radio stations. In March 2012, the FCC modified its rules to permit the processing of additional LPFM applications
and to implement the legislative requirements regarding interference protection. The FCC opened a window for the filing of
applications seeking authority to construct or make major changes to LPFM facilities which extended from October 15 through
November 14, 2013, and in which it received more than 2,800 LPFM applications. The FCC continues to process the applications
submitted during the window and, despite the findings of the March 2012 FCC study, we cannot predict whether any LPFM stations
will interfere with the coverage of our radio stations.
In June 2009, the FCC adopted rules that allow an AM radio station to use currently authorized FM translator stations to
retransmit the AM station’s programming within the AM station’s authorized service area.
The FCC also previously authorized the launch and operation of a satellite digital audio radio service (“SDARS”) system.
In July 2008, the two original SDARS companies-Sirius Satellite Radio, Inc. and XM Satellite Radio Holdings, Inc.-merged into
a new company called Sirius XM, which currently provides nationwide programming service. Sirius XM also offers channels
that provide local traffic and weather information for major cities.
In October 2002, the FCC issued an order selecting a technical standard for terrestrial digital audio broadcasting (“DAB,”
also known as high definition radio or “HD Radio”). The in-band, on-channel (“IBOC”) technology chosen by the agency allows
AM and FM radio broadcasters to introduce digital operations and permits existing stations to operate on their current frequencies
in either full analog mode, full digital mode, or a combination of both (at reduced power). In March 2005, the FCC announced
that, pending adoption of final rules, it would allow stations on an interim basis to broadcast multiple digital channels. In March
2007, the FCC adopted service rules for HD Radio®. Significantly, the FCC decided to allow FM stations to broadcast digital
multicast streams without seeking prior FCC authority, to provide datacasting services, to lease excess digital capacity to third
parties, and to offer subscription services pursuant to requests for experimental authority. Under the new rules, FM stations may
operate in the “extended hybrid mode,” which provides more flexibility for multicasting and datacasting services; and may use
separate analog and digital antennas without seeking prior FCC authority. FM translators, FM boosters and low power FM stations
may also broadcast digitally where feasible, and AM stations may now operate digitally during nighttime hours. The new rules
mandate that broadcasters offering digital service provide at least one free over-the-air signal comparable in quality to their analog
signal and that they simulcast their analog programming on their main digital stream, and prohibit broadcasters from operating
exclusively in digital. The FCC declined either to set any mandatory deadline for broadcasters to convert to digital operations or
to impose additional public interest obligations (beyond those that already apply to analog broadcasters) on digital broadcasters.
The FCC did, however, adopt a Further Notice of Proposed Rulemaking seeking comment on (among other things) whether
additional public interest obligations are necessary, including consideration of a requirement that radio stations report their public
service programming in detail on a standardized form and post that form and all other contents of their public inspection files on
the station’s website. (The FCC subsequently imposed such a requirement on television stations. Broadcasters challenged the
portions of the requirement related to the political file, and their appeal remains pending.) In January 2010, the FCC revised its
DAB service rules to allow FM DAB stations to increase the permitted power levels of DAB transmissions. In September 2008,
shortly after approving the Sirius-XM merger, the FCC sought comment on whether it should mandate the inclusion of HD Radio®
features in satellite radio receivers. That proceeding remains pending, and we cannot predict its outcome or the impact that a
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decision might have on our business.
In order to broadcast musical compositions or to stream them over the Internet, Emmis must pay royalties to copyright owners
of musical compositions (typically, songwriters and publishers). These copyright owners often rely on organizations known as
performing rights organizations, which negotiate licenses with copyright users for the public performance of their compositions,
collect royalties, and distribute them to copyright owners. The three major performing rights organizations, from which Emmis
has licenses and to which Emmis pays royalties, are the American Society of Composers, Authors, and Publishers (“ASCAP”),
Broadcast Music, Inc. (“BMI”), and SESAC, Inc. (“SESAC”). These rates are set periodically and are often negotiated by
organizations acting on behalf of broadcasters, and may increase in the future. It also is possible that songwriters or publishers
may disassociate with these performing rights organizations, or that additional such organizations could emerge in the future. If
a significant number of musical composition copyright owners withdraw from the established performing rights organizations, or
if new performing rights organizations form, Emmis’ royalty rates or negotiation costs could increase.
In order to stream music over the Internet, Emmis must also obtain performance rights licenses and pay public performance
royalties to the owners of copyrights in sound recordings (typically, artists and record companies). For the license period 2006-2015,
Emmis has been paying royalty rates for non-interactive Internet streaming of sound recordings in accordance with a settlement
agreement reached in February 2009 between the National Association of Broadcasters (“NAB”) and SoundExchange (the entity
that represents the recording industry and receives royalty payments from webcasters). On March 9, 2011, the Copyright Royalty
Board (“CRB”) published statutory royalty rates and terms for non-interactive Internet streaming of sound recordings for 2011-2015.
The rates do not apply to services, like Emmis’ Internet streaming services, that are governed by the NAB-SoundExchange
settlement. For radio broadcasters, however, the CRB modeled the statutory rates after the rates agreed to in the settlement; both
sets of rates increase from 0.17 cent per listener per song in 2011 to 0.25 cent per listener per song in 2015. The CRB has
commenced a proceeding to set rates for the upcoming 2016-2020 license period, which remains pending and will be decided by
the end of 2015. We cannot predict the outcome of that proceeding or determine the impact (if any) on our business of any new
rates the CRB may set or the parties may agree to for the upcoming license period.
In addition, lawsuits have been filed under various state laws regarding the ability of digital audio transmission services to
publicly perform or reproduce sound recordings fixed prior to February 15, 1972 (“pre-1972 sound recordings”). Such sound
recordings currently are exempt from federal copyright protection. The 1976 Copyright Act provides that pre-1972 sound recordings
may be the subject of state copyright protection until 2067. As a result, there are various protections of pre-1972 sound recordings
in place across various states, and the scope of protections and of exceptions and limitations to those protections is unclear. In
2014, two courts issued decisions in favor of the copyright owners. If appellate courts affirm these rulings and the decisions are
interpreted to apply to radio broadcasting or Internet streaming, this could impede Emmis’ ability to broadcast and/or stream
pre-1972 sound recordings and/or increase its costs.
Legislation also has previously been introduced in Congress that would require the payment of performance royalties to
artists, musicians, or record companies whose music is played on terrestrial radio stations, ending a long-standing copyright law
exception. If enacted, such legislation could have an adverse impact on the cost of music programming.
In December 2007, the FCC initiated a proceeding to consider imposing requirements intended to promote broadcasters’
service to their local communities, including (i) requiring stations to establish a “community advisory board,” (ii) reinstating a
requirement that a station’s main studio be in its community of license and (iii) imposing local programming “guidelines” that, if
not met, would result in additional scrutiny of a station’s license renewal application. While many broadcasters have opposed
these proposals, we cannot predict how the FCC will resolve the issues.
In February 2012, Congress passed legislation authorizing the FCC to conduct an incentive auction to redistribute spectrum
currently used by television broadcasters and to require television broadcasters that do not participate in the auction to make certain
modifications to their transmission facilities. The FCC has commenced proceedings to adopt rules implementing this legislation,
which remain pending. The spectrum used by radio broadcasters such as Emmis, however, is not included in this legislation.
Congress and the FCC also have under consideration, and may in the future consider and adopt, new laws, regulations and
policies regarding a wide variety of additional matters that could, directly or indirectly, affect the operation, ownership and
profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and/
or affect our ability to acquire additional broadcast stations or finance such acquisitions. Such matters include, but are not limited
to:
•
proposals to require radio stations to post their public files online rather than keep them in paper format at their main
studios;
proposals to impose spectrum use or other fees on FCC licensees;
proposals to repeal or modify some or all of the FCC’s multiple ownership rules and/or policies;
proposals to change rules relating to political broadcasting;
technical and frequency allocation matters;
•
•
•
•
• AM stereo broadcasting;
•
proposals to modify service and technical rules for digital radio, including possible additional public interest requirements
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for terrestrial digital audio broadcasters;
proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;
proposals to tighten safety guidelines relating to radio frequency radiation exposure;
proposals permitting FM stations to accept formerly impermissible interference;
proposals to reinstate holding periods for licenses;
changes to broadcast technical requirements related to the implementation of SDARS;
proposals to reallocate spectrum associated with TV channels 5 and 6 for FM radio broadcasting;
proposals to modify broadcasters’ public interest obligations;
proposals to limit the tax deductibility of advertising expenses by advertisers; and
proposals to regulate violence and hate speech in broadcasts.
•
•
•
•
•
•
•
•
•
We cannot predict whether any proposed changes will be adopted, what other matters might be considered in the future, or
what impact, if any, the implementation of any of these proposals or changes might have on our business.
The foregoing is only a brief summary of certain provisions of the Communications Act and of specific FCC regulations.
Reference should be made to the Communications Act as well as FCC regulations, public notices and rulings for further information
concerning the nature and extent of federal regulation of broadcast stations.
GEOGRAPHIC FINANCIAL INFORMATION
The Company’s segments operate exclusively in the United States. We formerly operated radio networks in eastern
Europe, all of which were sold or ceased broadcasting as of February 28, 2013. All financial information related to our
international radio operations has been reclassified to discontinued operations in the accompanying consolidated financial
statements.
ITEM 1A. RISK FACTORS.
The risk factors listed below, in addition to those set forth elsewhere in this report, could affect the business and future
results of the Company. Past financial performance may not be a reliable indicator of future performance and historical trends
should not be used to anticipate results or trends in future periods.
Risks Related to our Business
Our results of operations could be negatively impacted by weak economic conditions and instability in financial markets.
We believe that advertising is a discretionary business expense. Spending on advertising tends to decline
disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a
downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of
operations. A recession or downturn in the economy of any individual geographic market, particularly a major market such as
Los Angeles or New York, also generally has a significant effect on us. The 2008 economic recession negatively impacted our
results of operations. While economic conditions have generally improved, the performance of the general economy is still
erratic. Our results of operations could be negatively impacted by delays or reversals in the economic recovery or by future
economic downturns.
Even with a recovery from the 2008 economic recession, an individual business sector (such as the automotive industry)
that tends to spend more on advertising than other sectors might be forced to maintain a reduced level of advertising
expenditures if that sector experiences a slower recovery than the economy in general, or might reduce its advertising
expenditures further if additional downturns occur. If that sector’s spending represents a significant portion of our advertising
revenues, any reduction in its advertising expenditures may affect our revenue.
We may lose audience share and advertising revenue to competing radio stations or other types of media.
We operate in highly competitive industries. Our radio stations compete for audiences and advertising revenue with other
radio stations and station groups, as well as with other media. Shifts in population, demographics, audience tastes, consumer
use of technology and forms of media and other factors beyond our control could cause us to lose market share. Any adverse
change in a particular market, or adverse change in the relative market positions of the stations located in a particular market,
could have a material adverse effect on our revenue or ratings, could require increased promotion or other expenses in that
market, and could adversely affect our revenue in other markets. Other radio broadcasting companies may enter the markets in
which we operate or may operate in the future. These companies may be larger and have more financial resources than we
have. Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenue in the
face of such competition.
We routinely conduct market research to review the competitive position of our stations in their respective markets. If we
determine that a station could improve its operating performance by serving a different demographic within its market, we may
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change the format of that station. Our competitors may respond to our actions by more aggressive promotions of their stations
or by replacing the format we vacate, limiting our options if we do not achieve expected results with our new format.
From time to time, other stations may change their format or programming, a new station may adopt a format to compete
directly with our stations for audiences and advertisers, or stations might engage in aggressive promotional campaigns. These
tactics could result in lower ratings and advertising revenue or increased promotion and other expenses and, consequently,
lower earnings and cash flow for us. Any failure by us to respond, or to respond as quickly as our competitors, could also have
an adverse effect on our business and financial performance. In February 2015, one of our large competitors changed the
format of one of its radio stations in the Los Angeles radio market to more directly compete with our radio station in Los
Angeles. We expect this recent development in Los Angeles to negatively impact our financial performance in fiscal 2016 and
possibly in succeeding years.
Because of the competitive factors we face, we cannot assure investors that we will be able to maintain or increase our
current audience ratings and advertising revenue.
Our radio operations are heavily concentrated in the New York and Los Angeles markets.
Our radio operations in New York and Los Angeles, including the LMA fee we receive from a subsidiary of Disney,
accounted for approximately 54% of our radio revenues in fiscal 2015. Our results from operations can be materially affected
by decreased ratings or resulting revenues in either one of these markets.
Our radio operations lack the scale of some of our competitors, especially in the New York and Los Angeles markets.
We currently own one station in Los Angeles and four stations in New York, one of which is being programmed by
another broadcaster under the terms of an LMA. Some of our competitors in these markets have larger clusters of radio stations.
Our competitors may be able to leverage their market share to extract a greater percentage of available advertising revenues in
these markets and may be able to realize operating efficiencies by programming multiple stations in a market. Also, given the
reliance on single formats in each of these markets, our results from operations can be materially affected by additional format
competition by our competitors.
We must respond to the rapid changes in technology, services and standards that characterize our industry in order to
remain competitive, and changes in technology may increase the risk of material intellectual property infringement claims.
The radio broadcasting industry is subject to rapid technological changes, evolving industry standards and the emergence
of competition from new technologies and services. We cannot assure that we will have the resources to acquire new
technologies or to introduce new services that could compete with these new technologies. Various media technologies and
services that have been developed or introduced include:
•
•
•
satellite-delivered digital audio radio service, which has resulted in subscriber-based satellite radio services with
numerous niche formats;
audio programming by cable systems, direct-broadcast satellite systems, personal communications systems, Internet
content providers and other digital audio broadcast formats;
personal digital audio devices (e.g., audio via Wi-Fi, mobile phones, iPods®, iPhones®, WiMAX, the Internet and MP3
players);
• HD Radio®, which provides multi-channel, multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services; and
•
low-power FM radio, which could result in additional FM radio broadcast outlets, including additional low-power FM
radio signals authorized in December 2010 under the Local Community Radio Act.
New media has resulted in fragmentation in the advertising market, but we cannot predict the impact that additional
competition arising from new technologies may have on the radio broadcasting industry or on our financial condition and
results of operations. We also cannot ensure that our investments in HD Radio®, TagStation®, NextRadio® and other
technologies will produce the desired returns.
Additionally, technological advancements in the operation of radio stations and related businesses have increased the
number of patent and other intellectual property infringement claims brought against broadcasters, including Emmis. While
Emmis has not historically been subject to material patent and other intellectual property claims and takes certain steps to limit
the likelihood of, and exposure to, such claims, no assurance can be given that material claims will not be asserted in the future.
Our business depends heavily on maintaining our licenses with the FCC. We could be prevented from operating a radio
station if we fail to maintain its license.
The radio broadcasting industry is subject to extensive and changing regulation. The Communications Act and FCC rules
and policies require FCC approval for transfers of control and assignments of FCC licenses. The filing of petitions or
complaints against FCC licensees could result in the FCC delaying the grant of, or refusing to grant, its consent to the
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assignment of licenses to or from an FCC licensee or the transfer of control of an FCC licensee. In certain circumstances, the
Communications Act and FCC rules and policies will operate to impose limitations on alien ownership and voting of our
common stock. There can be no assurance that there will be no changes in the current regulatory scheme, the imposition of
additional regulations or the creation of new regulatory agencies, which changes could restrict or curtail our ability to acquire,
operate and dispose of stations or, in general, to compete profitably with other operators of radio and other media properties.
Each of our radio stations operates pursuant to one or more licenses issued by the FCC. Under FCC rules, radio licenses
are granted for a term of eight years. Our licenses expire at various times through June 2022. Although we will apply to renew
these licenses, third parties may challenge our renewal applications. While we are not aware of facts or circumstances that
would prevent us from having our current licenses renewed, there can be no assurance that the licenses will be renewed or that
renewals will not include conditions or qualifications that could adversely affect our business and operations. Failure to obtain
the renewal of any of our broadcast licenses may have a material adverse effect on our business and operations. In addition, if
we or any of our officers, directors or significant stockholders materially violates the FCC’s rules and regulations or the
Communications Act, is convicted of a felony or is found to have engaged in unlawful anticompetitive conduct or fraud upon
another government agency, the FCC may, in response to a petition from a third party or on its own initiative, in its discretion,
commence a proceeding to impose sanctions upon us which could involve the imposition of monetary fines, the revocation of
our broadcast licenses or other sanctions. If the FCC were to issue an order denying a license renewal application or revoking a
license, we would be required to cease operating the applicable radio station only after we had exhausted all rights to
administrative and judicial review without success.
The FCC has engaged in vigorous enforcement of its indecency rules against the broadcast industry, which could have a
material adverse effect on our business.
The FCC’s rules prohibit the broadcast of obscene material at any time and indecent material between the hours of 6 a.m.
and 10 p.m. Broadcasters risk violating the prohibition on the broadcast of indecent material because of the FCC’s broad
definition of such material, coupled with the spontaneity of live programming.
Congress has dramatically increased the penalties for broadcasting obscene, indecent or profane programming and
broadcasters can potentially face license revocation, renewal or qualification proceedings in the event that they broadcast
indecent material. In addition, the FCC’s heightened focus on indecency, against the broadcast industry generally, may
encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. As a
result of these developments, we have implemented certain measures that are designed to reduce the risk of broadcasting
indecent material in violation of the FCC’s rules. These and other future modifications to our programming in an effort to
reduce the risk of indecency violations could have an adverse effect on our competitive position.
Any changes in current FCC ownership regulations may negatively impact our ability to compete or otherwise harm our
business operations.
The FCC is required to review all of its broadcast ownership rules every four years and to repeal or modify any of its
rules that are no longer “necessary in the public interest.” We cannot predict the impact of these reviews on our business or
their effect on our ability to acquire broadcast stations in the future or to continue to own and freely transfer stations that we
have already acquired.
In 2003, we acquired a controlling interest in five FM stations and one AM station in the Austin, Texas market. Under
ownership regulations released after the date of our acquisition, it appears that we would be permitted to own or control only
four FM stations in the Austin market (ownership of one AM station would continue to be allowed). The new rules do not
require divestiture of existing non-conforming station combinations, but do provide that such clusters may be transferred only
to defined small business entities or to buyers that commit to selling any excess stations to such entities within one year.
Consequently, if we wish to sell our interest in the Austin stations, we will have to either sell to an entity that meets those FCC
requirements or exclude at least one FM station from the transaction.
Changes in current Federal regulations could adversely affect our business operations.
Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and
policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress is considering
a revocation of radio’s exemption from paying royalties to performing artists for use of their recordings (radio already pays a
royalty to songwriters). A requirement to pay additional royalties could have an adverse effect on our business operations and
financial performance.
Our business strategy and our ability to operate profitably depend on the continued services of our key employees, the loss of
whom could have a material adverse effect on our business.
Our ability to maintain our competitive position depends to a significant extent on the efforts and abilities of our senior
management team and certain key employees. Although our executive officers are typically under employment agreements,
their managerial, technical and other services would be difficult to replace if we lose the services of one or more of them or
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other key personnel. Our business could be seriously harmed if one of them decides to join a competitor or otherwise competes
directly or indirectly against us.
Our radio stations employ or independently contract with several on-air personalities and hosts of syndicated radio
programs with significant loyal audiences in their respective broadcast areas. These on-air personalities are sometimes
significantly responsible for the ranking of a station and, thus, the ability of the station to sell advertising. Recently, a
competitor hired our morning radio host in Los Angeles to host a morning show on a station that recently changed format to
directly compete with us. The loss of our morning radio host in Los Angeles and the addition of a direct format competitor will
negatively impact our financial performance in fiscal 2016 and possibly succeeding years. Other key individuals may not
remain with our radio stations and we may not retain their audiences.
Impairment losses related to our intangible assets have reduced our earnings.
We have reported significant net losses in our consolidated statement of operations in the past as result of recording non-
cash impairment charges, mostly related to FCC licenses and goodwill. In fiscal 2011, fiscal 2013 and most recently in fiscal
2015, we incurred impairment losses of $7.0 million, $11.4 million and $67.9 million, respectively. In fiscal 2009 during the
US economic recession, we recorded an impairment loss of $373.4 million. As of February 28, 2015, our FCC licenses and
goodwill comprise 67% of our total assets. If events occur or circumstances change that would reduce the fair value of the FCC
licenses and goodwill below the amount reflected on the balance sheet, we may be required to recognize impairment charges,
which may be material, in future periods.
Future operation of our business may require significant additional capital.
The continued development, growth and operation of our businesses may require substantial capital. In particular,
additional acquisitions may require large amounts of capital. We intend to fund our growth, including acquisitions, if any, with
cash generated from operations, borrowings under our Credit Agreement, dated June 10, 2014 (the “2014 Credit Agreement”),
and proceeds from future issuances of debt and equity, both public and private. Currently, the 2014 Credit Agreement
substantially limits our ability to make acquisitions. Our ability to raise additional debt or equity financing is subject to market
conditions, our financial condition and other factors. If we cannot obtain financing on acceptable terms when needed, our
results of operations and financial condition could be adversely impacted.
We may fail to realize any benefits and incur unanticipated losses related to any acquisition.
The success of our strategic acquisitions will depend, in part, on our ability to successfully integrate the acquired assets
with our existing assets. It is possible that the integration process could result in the loss of key employees, the disruption of
ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain
relationships with clients, customers and employees or to achieve the anticipated benefits of the acquisition. Successful
integration may also be hampered by any differences between the operations and corporate culture of the two organizations. If
we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully, or at
all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues
from the acquired business.
Our operating results have been and may again be adversely affected by acts of war, terrorism and natural catastrophes.
Acts of war and terrorism against the United States, and the country’s response to such acts, may negatively affect the
U.S. advertising market, which could cause our advertising revenues to decline due to advertising cancellations, delays or
defaults in payment for advertising time, and other factors. In addition, these events may have other negative effects on our
business, the nature and duration of which we cannot predict.
For example, after the September 11, 2001 terrorist attacks, we decided that the public interest would be best served by
the presentation of continuous commercial-free coverage of the unfolding events on our stations. This temporary policy had a
material adverse effect on our advertising revenues and operating results for the month of September 2001. Future events like
those of September 11, 2001 may cause us to adopt similar policies, which could have a material adverse effect on our
advertising revenues and operating results.
Additionally, the attacks on the World Trade Center on September 11, 2001 resulted in the destruction of the transmitter
facilities that were located there. Although we had no transmitter facilities located at the World Trade Center, broadcasters that
had facilities located in the destroyed buildings experienced temporary disruptions in their ability to broadcast. Since we tend to
locate transmission facilities for stations serving urban areas on tall buildings or other significant structures, such as the Empire
State Building in New York, further terrorist attacks or other disasters could cause similar disruptions in our broadcasts in the
areas affected. If these disruptions occur, we may not be able to locate adequate replacement facilities in a cost-effective or
timely manner or at all. Failure to remedy disruptions caused by terrorist attacks or other disasters and any resulting
degradation in signal coverage could have a material adverse effect on our business and results of operations.
Similarly, hurricanes, floods, tornadoes, earthquakes, wild fires and other natural disasters can have a material adverse
effect on our operations in any given market. While we generally carry insurance covering such catastrophes, we cannot be sure
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that the proceeds from such insurance will be sufficient to offset the costs of rebuilding or repairing our property or the lost
income.
We have significant obligations relating to our current operating leases.
There are proposed changes to the accounting guidance that could require us to recognize our current operating leases on
the balance sheet. As of February 28, 2015, we had operating lease commitments of approximately $60.8 million. These leases
are classified as operating leases and disclosed in Note 11 to our accompanying consolidated financial statements. Currently,
operating leases are classified as off-balance sheet transactions and only the current year operating lease expense is accounted
for in the consolidated statements of operations as rent expense. All of our leases, which have been classified as operating
leases, require us to make certain estimates at the inception of the lease in order to determine whether the lease is operating or
capital. The proposed change would require that substantially all operating leases be recognized as assets (the right to use the
leased property) and liabilities (the present value of future lease payments). The effective date has not been determined and
may require retrospective adoption. If adopted in its present form, this would result in: (1) an increase in the assets and
liabilities reflected on our consolidated balance sheets; and (2) an increase in our interest expense and depreciation and
amortization expense and a decrease to our rent expense reflected on our consolidated statements of operations.
Our business is dependent upon the proper functioning of our internal business processes and information systems and
modification or interruption of such systems may disrupt our business, processes and internal controls.
The proper functioning of our internal business processes and information systems is critical to the efficient operation and
management of our business. If these information technology systems fail or are interrupted, our operations may be adversely
affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable
to support the future growth of our business and may require modifications or upgrades that expose us to a number of
operational risks. Our information technology systems, and those of third party providers, may also be vulnerable to damage or
disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural
disasters, computer system or network failures, viruses or malware, physical or electronic intrusions, unauthorized access and
cyber-attacks. Any material disruption, malfunction or similar challenges with our business processes or information systems,
or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse
effect on our financial position, results of operations and cash flows.
Because of our holding company structure, we depend on our subsidiaries for cash flow, and our access to this cash flow is
restricted.
We operate as a holding company. All of our radio stations and magazines are currently owned and operated by our
subsidiaries. Emmis Operating Company (“EOC”), our wholly-owned subsidiary, is the borrower under our credit facility. All
of our station and magazine operating subsidiaries and FCC license subsidiaries are subsidiaries of EOC. Further, we guarantee
EOC’s obligations under the credit facility and substantially all of EOC’s assets are pledged as collateral under the credit
facility. As a holding company, our only source of cash to pay our obligations, including corporate overhead expenses, is cash
distributed from our subsidiaries. We currently expect that the majority of the net earnings and cash flow of our subsidiaries
will be retained and used by them in their operations, including servicing their debt obligations. Even if our subsidiaries elect to
make distributions to us, we cannot be assured that applicable state law and contractual restrictions, including covenants
contained in our credit facility, would permit such dividends or distributions.
Risks Related to our Indebtedness:
Our substantial indebtedness could adversely affect our financial health.
We have a significant amount of indebtedness. At February 28, 2015, our total indebtedness was $269.6 million,
consisting of $193.0 million under our 2014 Credit Agreement, $70.4 million of 98.7FM nonrecourse debt and $6.2 million of
other long-term debt. The Company expects that proceeds from the LMA in New York with a subsidiary of Disney will be
sufficient to pay all debt service related to the 98.7FM nonrecourse debt. Our shareholders’ deficit was $58.8 million. Our
substantial indebtedness could have important consequences to investors. For example, it could:
• make it more difficult for us to satisfy our obligations with respect to our indebtedness;
•
•
•
increase our vulnerability to generally adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate
purposes;
result in higher interest expense in the event of increases in interest rates because some of our debt is at variable rates
of interest;
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•
•
•
limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;
place us at a competitive disadvantage compared to some of our competitors that have less debt; and
limit, along with the financial and other restrictive covenants in our 2014 Credit Agreement, our ability to borrow
additional funds.
If we cannot continue to comply with the financial covenants in our debt instruments, or obtain waivers or other relief from
our lenders, we may default, which could result in loss of our sources of liquidity and acceleration of our indebtedness.
We have a substantial amount of indebtedness, and the instruments governing such indebtedness contains restrictive
financial covenants. Our ability to comply with the covenants in our debt instruments will depend upon our future performance
and various other factors, such as business, competitive, technological, legislative and regulatory factors, some of which are
beyond our control. We may not be able to maintain compliance with all of these covenants. In that event, we would need to
seek an amendment to our debt instruments, or would need to refinance our debt instruments. There can be no assurance that
we can obtain future amendments or waivers of our debt instruments, or refinance our debt instruments and, even if so, it is
likely that such relief would only last for a specified period, potentially necessitating additional amendments, waivers or
refinancings in the future. In the event that we do not maintain compliance with the covenants under our debt instruments, the
lenders could declare an event of default, subject to applicable notice and cure provisions, resulting in a material adverse
impact on our financial position. Upon the occurrence of an event of default under our debt instruments, the lenders could elect
to declare all amounts outstanding under our 2014 Credit Agreement to be immediately due and payable and terminate all
commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the
collateral granted to them to secure that indebtedness. Our lenders under our 2014 Credit Agreement have taken security
interests in substantially all of our consolidated assets. If the lenders accelerate the repayment of borrowings, we may be forced
to liquidate certain assets to repay all or part of our debt instruments, and we cannot be assured that sufficient assets will remain
for us to continue our business operations after we have paid all of the borrowings under our debt instruments. Our ability to
liquidate assets is affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may
make the market for these assets less liquid and increase the chances that these assets will be liquidated at a significant loss.
Our 98.7FM debt is not subject to these risks to the same degree as the debt under our 2014 Credit Agreement, as certain
rights and payments under the 98.7FM LMA have been assigned to the holder of the 98.7FM debt, the 98.7FM debt is generally
nonrecourse to the rest of Emmis, and the LMA payments have been guaranteed by Disney Enterprises, Inc.
The terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may restrict our current and
future operations, particularly our ability to respond to changes in market conditions or to take some actions.
Our debt instruments impose significant operating and financial restrictions on us. These restrictions significantly limit or
prohibit, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, enter into asset purchase or sale transactions, merge or consolidate with another company,
dispose of all or substantially all of our assets or make certain other payments or investments.
These restrictions currently limit our ability to grow our business through acquisitions and could limit our ability to
respond to market conditions or meet extraordinary capital needs. They also could restrict our corporate activities in other
ways. These restrictions could adversely affect our ability to finance our future operations or capital needs.
To service our indebtedness and other obligations, we will require a significant amount of cash. Our ability to generate cash
depends on many factors beyond our control.
Our 2014 Credit Agreement, as amended, requires us to repay $3.2 million of our term notes in fiscal 2016 and $9/3
million annually thereafter in addition to periodic interest payments. Our ability to make payments on our indebtedness and to
fund capital expenditures will depend on our ability to generate cash in the future. This ability to generate cash, to a certain
extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control. Our businesses might not generate sufficient cash flow from operations. We might not be able to complete future
offerings, and future borrowings might not be available to us in an amount sufficient to enable us to pay our indebtedness or to
fund our other liquidity needs.
Risks Related to our Common Stock:
One shareholder controls a majority of the voting power of our common stock, and his interest may conflict with those of
other shareholders.
As of May 1, 2015, our Chairman of the Board of Directors, Chief Executive Officer and President, Jeffrey H. Smulyan,
beneficially owned shares representing approximately 54.5% of the outstanding combined voting power of all classes of our
common stock, as calculated pursuant to Rule 13d-3 of the Exchange Act. He therefore is in a position to exercise substantial
influence over the outcome of most matters submitted to a vote of our shareholders, including the election of directors.
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The difficulties associated with any attempt to gain control of our company could adversely affect the price of our Class A
common stock.
Jeffrey H. Smulyan has substantial influence over the decision as to whether a change in control will occur for our
company. There are also provisions contained in our articles of incorporation, by-laws and Indiana law that could make it more
difficult for a third party to acquire control of Emmis. In addition, FCC approval for transfers of control of FCC licenses and
assignments of FCC licenses are required. These restrictions and limitations could adversely affect the trading price of our
Class A common stock.
Our stock price and trading volume could be volatile.
Our Class A common stock is currently listed on the Nasdaq Global Select Market under the symbol “EMMS.” The
market price of our Class A common stock and our trading volume have been subject to fluctuations since our initial public
offering in 1994. Accordingly, the market price of our Class A common stock could experience volatility, regardless of our
operating performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The types of properties required to support each of our radio stations include offices, studios and transmitter/antenna
sites. We typically lease our studio and office space, although we do own some of our facilities. Most of our studio and office
space leases contain lease terms with expiration dates of five to fifteen years. A station’s studios are generally housed with its
offices in downtown or business districts. We generally consider our facilities to be suitable and of adequate size for our current
and intended purposes. We own many of our main transmitter/antenna sites and lease the remainder of our transmitter/antenna
sites with lease terms that generally range from five to twenty years. The transmitter/antenna site for each station is generally
located so as to provide maximum market coverage, consistent with the station’s FCC license. In general, we do not anticipate
difficulties in renewing facility or transmitter/antenna site leases or in leasing additional space or sites if required. We have
approximately $60.8 million in aggregate minimum rental commitments under real estate leases. Many of these leases contain
escalation clauses such as defined contractual increases or cost-of-living adjustments.
Our principal executive offices are located at 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, in
approximately 91,500 square feet of owned office space which is shared by our Indianapolis radio stations and our Indianapolis
Monthly publication. This property is subject to a mortgage under our 2014 Credit Agreement.
We own substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio
equipment and general office equipment. The towers, antennae and other transmission equipment used by our stations are
generally in good condition, although opportunities to upgrade facilities are periodically reviewed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of
management of the Company, there are no legal proceedings pending against the Company likely to have a material adverse
effect on the Company.
Emmis and certain of its officers and directors were named as defendants in a lawsuit filed April 16, 2012 by certain
holders of Preferred Stock (the “Lock-Up Group”) in the United States District Court for the Southern District of Indiana
entitled Corre Opportunities Fund, LP, et al. v. Emmis Communications Corporation, et al. The plaintiffs alleged, among other
things, that Emmis and the other defendants violated various provisions of the federal securities laws and breached fiduciary
duties in connection with Emmis’ entry into total return swap agreements and voting agreements with certain holders of Emmis
Preferred Stock, as well as by issuing shares of Preferred Stock to Emmis’ 2012 Retention Plan and Trust (the “Trust”) and
entering into a voting agreement with the trustee of the Trust. The plaintiffs also alleged that Emmis violated certain provisions
of Indiana corporate law by directing the voting of the shares of Preferred Stock subject to the total return swap agreements (the
“Swap Shares”) and the shares of Preferred Stock held by the Trust (the “Trust Shares”) in favor of certain amendments to
Emmis’ Articles of Incorporation.
Emmis filed an answer denying the material allegations of the complaint, and filed a counterclaim seeking a declaratory
judgment that Emmis could legally direct the voting of the Swap Shares and the Trust Shares in favor of the proposed
amendments.
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On August 31, 2012, the U.S. District Court denied the plaintiffs' request for a preliminary injunction. Plaintiffs
subsequently filed an amended complaint seeking monetary damages and dismissing all claims against the individual officer
and director defendants. On February 28, 2014, the U.S. District Court issued a ruling in favor of Emmis on all counts. In
March 2014, the Plaintiffs filed with the U.S. Court of Appeals for the Seventh Circuit an appeal of the U.S. District Court's
decision. The U.S. Court of Appeals for the Seventh Circuit heard oral arguments in this case on December 5, 2014. Emmis is
defending this lawsuit vigorously.
On July 7, 2014, individuals who had been seeking to overturn the FCC’s approval of the transfer of the broadcast
licenses for WBLS-FM and WLIB-AM from entities associated with Inner City Broadcasting to YMF (the entities that
subsequently sold the two stations to Emmis) filed with the U.S. Court of Appeals for the District of Columbia Circuit a Notice
of Appeal of the FCC’s approval of the transfer. Based upon the facts alleged in the case and the extensive precedent of courts
not overturning FCC approvals of transfers of broadcast licenses except in exceedingly rare circumstances. Additionally, in
March 2015, an individual filed a lawsuit in the Federal District Court of New York challenging the transfer of the assets of
WBLS-FM and WLIB-AM from Inner City to YMF, and claimed that Emmis had exerted undue influence in securing the
FCC's consent to the transfer of the FCC licenses of WBLS-FM and WLIB-AM from YMF to Emmis. Emmis believes the
appeal and the claims in the lawsuit are without merit.
Certain groups and individuals have challenged an application for renewal of one of Company's FCC licenses. This
challenge is currently pending before the FCC. Emmis does not expect the challenge to result in the denial of our license
renewal.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below is certain information about the executive officers of Emmis or its affiliates who are not directors or
nominees to be directors.
NAME
Richard F. Cummings
President—Radio Programming
POSITION
J. Scott Enright
Executive Vice President, General Counsel and Secretary
Gregory T. Loewen
President—Publishing Division and Chief Strategy Officer
AGE AT
FEBRUARY 28,
2015
63
52
43
YEAR
FIRST
ELECTED
OFFICER
1984
1998
2007
Set forth below is the principal occupation for the last five years of each executive officer of the Company or its affiliates
who is not also a director.
Mr. Cummings was appointed President – Radio Programming in March 2009. Mr. Cummings served as Radio Division
President from December 2001 to February 2009. Prior to becoming Radio Division President, Mr. Cummings was Executive
Vice President of Programming. Mr. Cummings joined Emmis in 1981.
Mr. Enright was appointed Executive Vice President, General Counsel and Secretary in March 2009. Previously,
Mr. Enright served as Senior Vice President, Associate General Counsel and Secretary of Emmis from September 2006 to
February 2009 and as Vice President, Associate General Counsel and Assistant Secretary from the date he joined Emmis in
October 1998, adding the office of Secretary in 2002.
Mr. Loewen was appointed President – Publishing Division and Chief Strategy Officer in March 2010. Mr. Loewen has
also served as President of Digonex since our acquisition of a controlling interest in June 2014. Previously, Mr. Loewen served
as Chief Strategy Officer from February 2007 to February 2010. Prior to joining Emmis in February 2007, Mr. Loewen served
as Vice President of Digital Media and Strategy for The Toronto Star.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION FOR OUR COMMON STOCK
Emmis’ Class A common stock is traded in the over-the-counter market and is quoted on the Nasdaq Global Select
Market under the symbol EMMS. There is no established public trading market for Emmis’ Class B common stock or Class C
common stock.
The following table sets forth the high and low sales prices of the Class A common stock for the periods indicated.
QUARTER ENDED
May 2013
August 2013
November 2013
February 2014
May 2014
August 2014
November 2014
February 2015
HOLDERS
HIGH
LOW
$
$
$
$
$
$
$
$
1.85
3.44
3.61
3.67
3.63
3.07
2.70
2.22
$
$
$
$
$
$
$
$
1.43
1.58
2.19
2.34
2.74
2.41
1.66
1.67
At May 1, 2015, there were 4,845 record holders of the Class A common stock, and there was one record holder of the
Class B common stock.
DIVIDENDS
Emmis currently intends to retain future earnings for use in its business and has no plans to pay any dividends on shares
of its common stock in the foreseeable future. Emmis’ 2014 Credit Agreement sets forth certain restrictions on our ability to
pay dividends. See Note 5 to the accompanying consolidated financial statements for more discussion of the 2014 Credit
Agreement.
In connection with the September 4, 2012 amendment to the Company’s Articles of Incorporation, all accumulated but
undeclared dividends on our Preferred Stock were canceled and the Preferred Stock was changed from cumulative to
noncumulative. This amendment is the subject of litigation discussed under Part I, Item 3, “Legal Proceedings.”
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SHARE REPURCHASES
During the three-month period ended February 28, 2015, there was withholding of shares of common stock upon vesting
of restricted stock to cover withholding tax obligations. The following table provides information on our repurchases during the
three months ended February 28, 2015:
(a)
Total Number
of Shares
Purchased
(b)
Average Price
Paid Per
Share
(c)
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
(d)
Maximum
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs (in 000’s)
—
2,332
23,548
25,880
$
$
—
—
—
—
N/A
1.82
2.15
N/A
N/A
N/A
— $
— $
— $
—
— $
— $
— $
—
—
—
—
392,875
392,875
392,875
Period
Class A Common Stock
December 1, 2014 - December 31, 2014
January 1, 2015 - January 31, 2015
February 1, 2015 - February 28, 2015
Series A Non-Cumulative Convertible
Preferred Stock
December 1, 2014 - December 31, 2014
January 1, 2015 - January 31, 2015
February 1, 2015 - February 28, 2015
PERFORMANCE GRAPH
The following Performance Graph shall not be deemed incorporated by reference by any general statement incorporating
by reference this Form 10-K into any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, except to the extent that we specifically incorporate this performance graph by reference, and shall not
otherwise be deemed filed under such Acts.
The following line graph compares the yearly percentage change in the cumulative total shareholder return of our Class A
common stock with the cumulative total return of the Nasdaq Stock Market Index and the cumulative total return of an index of
certain peer radio broadcasting companies with which the Company competes from February 28, 2010, to the fiscal year ended
February 28, 2015. The peer group is comprised of Cumulus Media Inc., Entercom Communications Corp., Radio One, Inc. and
Beasley Broadcast Group, Inc. The performance graph assumes that an investment of $100 was made in the Class A common
stock and in each index on February 28, 2010 and that all dividends were reinvested.
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Emmis
NASDAQ
Peer Group
2/28/2010
2/28/2011
2/29/2012
2/28/2013
2/28/2014
2/28/2015
$
$
$
100.00
100.00
100.00
$
$
$
122.22
124.31
138.93
$
$
$
81.11
132.55
83.31
$
$
$
178.89
141.19
95.69
$
$
$
348.89
192.48
185.13
$
$
$
238.89
221.76
121.18
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data as of and for year ended February 28, 2015 and for the four prior years are derived from our
audited consolidated financial statements. The selected financial data for the years ended February 28, 2013, 2014 and 2015
and balance sheets as of February 28, 2014 and 2015 are qualified by reference to, and should be read in conjunction with, the
corresponding audited consolidated financial statements, and the notes thereto, and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this annual report. The selected financial data for the
years ended February 28 (29), 2011 and 2012 and the balance sheets as of February 28 (29), 2011, 2012 and 2013 are derived
from financial statements not included herein.
Our financial results are not comparable from year to year due to acquisitions and dispositions of radio stations and other
businesses, impairments of broadcasting licenses and goodwill and other significant events including:
• During the years ended February 28, 2011, 2013 and 2015, we recorded impairment losses in continuing
operations of $7.0 million, $11.4 million and $67.9 million, respectively. See the notes accompanying the
consolidated financial statements for further discussion of the contributing factors to the impairment;
• On February 11, 2014, we entered into an LMA in connection with an agreement to purchase WBLS-FM and
WLIB-AM in New York. The LMA commenced on March 1, 2014. We completed the acquisition in two
closings, the first of which occurred on June 10, 2014 and the second of which occurred on February 13,
2015. In connection with the first closing, we refinanced our credit agreement debt, so our total debt
outstanding and interest rate both increased;
• The Company historically recorded a full valuation allowance on all U.S. (federal and state) deferred tax
assets. During the year ended February 28, 2014, principally due to improved operating results, the Company
determined that a valuation allowance on most of its deferred tax assets was no longer appropriate and
reversed the valuation allowance on all U.S. deferred tax assets (with the exception of certain state NOL
DTAs). Due to market conditions in fiscal 2015 that were significantly weaker than expected, particularly in
the New York radio market, coupled with significant impairment losses recorded in the year, we reinstated a
full valuation allowance on U.S. (federal and state) deferred tax assets as of February 28, 2015;
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• Throughout the five-year period ending on February 28, 2015, the Company disposed of numerous radio
stations, including both of its stations in Chicago, one station in New York and one station in Los Angeles.
The net proceeds from station sales were generally used to pay down long-term debt. The decrease in our
long-term debt balance coupled with lower rates on outstanding debt balances subsequent to our debt
refinancing in December 2012 substantially decreased our interest expense until our acquisition of WBLS-
FM and WLIB-AM as discussed above; and
• On September 1, 2011, Emmis sold a controlling interest in WRXP-FM (New York), WLUP-FM (Chicago)
and WKQX-FM (Chicago). Emmis retained a preferred equity interest and common equity interest in the
company that purchased the stations. Due to its continued equity interests, the Company did not reclassify the
results of operations of these stations (which includes a gain on sale of controlling interest of $31.9 million
during the year ended February 29, 2012) to discontinued operations, which affects comparability amongst
the periods presented below. During the year ended February 29, 2012, Emmis incurred approximately $2.5
million of equity-method losses related to its retained investment in these stations and recorded an other-than-
temporary impairment loss of $13.9 million, reducing the carrying amount of the investment to zero.
Year ended February 28 (29),
2011
2012
2013
(in 000's, except per share data)
2014
Operating Data:
Net revenues
(Loss) income from continuing operations
(Loss) income from continuing operations per
share (basic)
(Loss) income from continuing operations per
share (diluted)
Balance Sheet Data:
Total assets
Long-term debt, net of current portion
$
$
$
$
$
$
216,486
$
202,218
(3,319) $
35,725
(0.46) $
2.21
(0.46) $
0.69
472,477
327,704
$
$
340,769
229,725
$
$
$
$
$
$
196,084
$
(1,829) $
205,146
48,655
(0.21) $
(0.21) $
1.08
0.94
261,624
131,494
$
$
265,348
114,926
2015
$
$
$
$
$
$
237,938
(95,985)
(2.33)
(2.33)
334,732
254,150
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively,
“Emmis” or the “Company”).
We own and operate radio and publishing properties located in the United States. Our revenues are mostly affected by the
advertising rates our entities charge, as advertising sales represent approximately 70% of our consolidated revenues. These
rates are in large part based on our entities’ ability to attract audiences/subscribers in demographic groups targeted by their
advertisers. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable
People Meter™ and two times a year for markets measured by diaries. Because audience ratings in a station’s local market are
critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain
audiences in each station’s chosen demographic target group.
Our revenues vary throughout the year. As is typical in the broadcasting industry, our revenues and operating income are
usually lowest in our fourth fiscal quarter.
In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services,
which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of
the product or service received. We generally confine the use of such trade transactions to promotional items or services for
which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash
with advertising spots paid for in trade.
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The following table summarizes the sources of our revenues for the past three years. The category “Non Traditional”
principally consists of ticket sales and sponsorships of events our stations and magazines conduct in their local markets. The
category “Other” includes, among other items, network revenues and barter.
Net revenues:
Local
National
Political
Publication Sales
Non Traditional
Interactive
LMA Fees
Other
2013
% of Total
2014
% of Total
2015
% of Total
Year ended February 28,
$
103,089
52.6% $
108,010
52.7% $
130,257
31,253
2,242
6,141
19,653
8,969
8,609
16,128
15.9%
1.1%
3.1%
10.0%
4.6%
4.4%
8.3%
31,995
604
6,312
20,762
11,429
10,331
15,703
15.6%
0.3%
3.1%
10.1%
5.6%
5.0%
7.6%
35,819
1,434
6,076
23,810
12,894
10,331
17,317
54.7%
15.1%
0.6%
2.6%
10.0%
5.4%
4.3%
7.3%
Total net revenues
$
196,084
$
205,146
$
237,938
A significant portion of our expenses varies in connection with changes in revenue. These variable expenses primarily
relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in
relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, syndicated
programming fees, utilities, office expenses and salaries. Lastly, our costs that are highly discretionary are costs in our
marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
Although advertising revenues have stabilized following the 2008 economic recession, radio revenue growth remains
challenged. Management believes this is principally the result of two factors: (1) new media, such as various media distributed
via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising
share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of
the radio audience and time spent listening caused by satellite radio and streaming radio has led some investors and advertisers
to conclude that the effectiveness of radio advertising has diminished.
The Company and the radio industry have begun several initiatives to address these issues. The radio industry is working
aggressively to increase the number of smartphones and other wireless devices that contain an enabled FM tuner. Most
smartphones currently sold in the United States contain an FM tuner. However, most wireless carriers in the United States do
not permit the FM tuner to receive the free over-the-air local radio stations it was designed to receive. Furthermore, in many
countries outside the United States, enabled FM tuners are made available to smartphone consumers; consequently, radio
listening increases. Activating FM as a feature on smartphones sold in the United States has the potential to increase radio
listening and improve perception of the radio industry while offering network providers the benefits of a proven emergency
notification system, reduced network congestion from audio streaming services, and a host of new revenue generating
applications. Emmis is at the leading edge of this initiative and has developed TagStation®, a cloud-based software platform
that allows a broadcaster to manage album art, meta data and enhanced advertising on its various broadcasts, and NextRadio®, a
smartphone application that marries over-the-air FM radio broadcasts with visual and interactive features, as an industry
solution to enrich the user experience of listening to free over-the-air radio broadcasts on their enabled smartphones.
On August 9, 2013, NextRadio LLC, a wholly-owned subsidiary of Emmis, entered into an agreement with Sprint
whereby Sprint agreed to pre-load the Company's NextRadio smartphone application in a minimum of 30 million FM-enabled
wireless devices on the Sprint wireless network over a three-year period. In return, NextRadio LLC agreed to pay Sprint $15
million per year in equal quarterly installments over the three year term and to share with Sprint certain revenue generated by
the NextRadio application. During the years ended February 28, 2014 and 2015, Emmis' funding of NextRadio's obligation to
Sprint was $1.1 million and $0.5 million, respectively. These amounts are included in station operating expenses in the
accompanying consolidated statements of operations. Emmis has not guaranteed NextRadio LLC's performance under this
agreement and Sprint does not have recourse to any Emmis related entity other than NextRadio LLC. Additionally, the
agreement does not limit the ability of NextRadio LLC to place the NextRadio application on FM-enabled devices on other
wireless networks. Through February 28, 2015, the NextRadio application had not generated a material amount of revenue. The
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radio industry continues to work with other leading United States wireless network providers, device manufacturers, regulators
and legislators to cause FM tuners to be enabled in all smartphones.
Emmis granted the U.S. radio industry (as defined in the funding agreements) a call option on substantially all of the
assets used in the NextRadio and TagStation businesses in the United States. The call option may be exercised in August 2017
or August 2019 by paying Emmis a purchase price equal to the greater of (i) the appraised fair market value of the NextRadio
and TagStation businesses, or (ii) two times Emmis' cumulative investments in the development of the businesses. If the call
option is exercised, the businesses will continue to be subject to the operating limitations applicable today, and no radio
operator will be permitted to own more than 30% of the NextRadio and TagStation businesses.
Along with the rest of the radio industry, the majority of our stations have deployed HD Radio®. HD Radio offers
listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. In
addition to offering secondary channels, the HD Radio spectrum allows broadcasters to transmit other forms of data. We are
participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-
based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in
the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the markets in which we
operate.
In addition to our efforts to increase the number of smartphones and other wireless devices that contain an enabled FM
tuner, we are working with iBiquity Digital Corporation, the developer of HD Radio, to innovate the way people interact with
radio in their cars. We are jointly working to develop an integrated automotive platform that combines the technologies and
services of HD Radio, NextRadio, and TagStation. We plan to strengthen radio’s position in the digital dashboard of today’s
vehicles by supplementing the over-the-air audio content people already know and love with synchronous album art, song and
artist information, contesting, advertising, etc., using a data connection either through the vehicle itself or via a connected
mobile device.
The Company has also aggressively worked to harness the power of broadband and mobile media distribution in the
development of emerging business opportunities by becoming one of the fifteen largest streaming audio providers in the United
States, developing highly interactive websites with content that engages our listeners, using SMS texting and deploying mobile
applications, harnessing the power of digital video on our websites and YouTube channels, and delivering real-time traffic to
navigation devices.
The results of our radio operations are heavily dependent on the results of our stations in the New York and Los Angeles
markets. These markets account for more than 50% of our radio net revenues. During the year ended February 28, 2015,
KPWR-FM in Los Angeles and our New York cluster, which includes WQHT-FM, WBLS-FM and WLIB-AM, experienced
revenue performance that was better than their respective markets. While our relative performance was good, the underlying
market trends remain weak in both the Los Angeles and New York radio markets, which were down 2.6% and 7.0%,
respectively, for the twelve months ended February 28, 2015, according to Miller Kaplan Arase LLP ("Miller Kaplan"), an
independent public accounting firm used by the radio industry to compile revenue information.
Our acquisition of WBLS-FM and WLIB-AM in New York in fiscal 2015 enhanced our ability to adapt to competitive
environment shifts in that market, but our single station in the Los Angeles market has less ability to adapt. Furthermore, some
of our competitors that operate larger station clusters in New York and Los Angeles are able to leverage their market share to
extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted
unit rates and may be able to realize operating efficiencies by programming multiple stations in these markets. In February
2015, one of our large competitors changed the format of one of its radio stations in the Los Angeles radio market to more
directly compete with our radio station in Los Angeles. In addition, the new station hired our former KPWR-FM morning radio
host to be its morning radio host. We expect this recent development in Los Angeles to negatively impact our financial
performance in fiscal 2016 and possibly in succeeding years.
As part of our business strategy, we continually evaluate potential acquisitions of radio stations, publishing properties and
other businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, Emmis'
2014 Credit Agreement substantially limits our ability to make acquisitions. We also regularly review our portfolio of assets
and may opportunistically dispose of assets when we believe it is appropriate to do so.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially
derive materially different results under different assumptions and conditions. We believe that our critical accounting policies
are those described below.
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Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of
delivery of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain
conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are
generally met at the time the advertisement is aired for broadcasting revenue and upon delivery of the publication for
publication revenue. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction
of advertising agency fees, usually at a rate of 15% of gross revenues.
Digonex provides a dynamic pricing service to online retailers, attractions, live event producers and other customers.
Revenue is recognized as recommended prices are delivered to customers. In some cases, this is upon initial delivery of prices,
such as for implementations, or over the period of the services agreement for fee-based pricing. Revenue pursuant to some
service agreements is not earned until tickets or merchandise are sold and, therefore, revenue is recognized as tickets are sold
for the related events or as merchandise is sold.
FCC Licenses and Goodwill
We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses
and goodwill assets. As of February 28, 2015, we have recorded approximately $225.4 million in goodwill and FCC licenses,
which represents approximately 67% of our total assets.
In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each
property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the
various regulatory requirements. Historically, all of our FCC licenses have been renewed at the end of their respective periods,
and we expect that all FCC licenses will continue to be renewed in the future. We consider our FCC licenses to be indefinite-
lived intangibles.
We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or
more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting
licenses for impairment, the testing is performed at the unit of accounting level as determined by Accounting Standards
Codification (“ASC”) Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of
accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster.
We complete our annual impairment tests on December 1 of each year and perform additional interim impairment testing
whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC
licenses, the Company uses an income valuation method when it performs its impairment tests. Under this method, the
Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was
commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to
arrive at a value for the FCC license. The Company assumes the competitive situation that exists in each market remains
unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In
doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license.
Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience
share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon
changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may
be beyond our control. The projections incorporated into our license valuations take current economic conditions into
consideration.
Below are some of the key assumptions used in our annual impairment assessments. As part of our December 1, 2014
annual impairment assessment, we reduced long-term growth rates in most of the markets in which we operate based on recent
industry trends and our expectations for the markets going forward. The methodology used to value our FCC licenses has not
changed in the three-year period ended February 28, 2015.
Discount Rate
Long-term Revenue Growth Rate
Mature Market Share
Operating Profit Margin
December 1, 2012
December 1, 2013
December 1, 2014
11.9% - 12.3%
12.0% - 12.4%
12.1% - 12.5%
2.3% - 3.3%
2.3% - 3.1%
1.5% - 3.0%
3.2% - 29.4%
3.5% - 30.2%
3.2% - 29.2%
25.1% - 38.3%
25.0% - 39.1%
25.1% - 39.2%
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In connection with the April 2012 LMA of 98.7FM in New York previously discussed, the Company separated its New
York stations into two separate units of accounting (one consisting of 98.7FM and the other consisting of our remaining stations
in New York). The Company performed an interim impairment test of those licenses during the quarter ended May 31, 2012,
and recorded an interim impairment charge of $11.0 million. As part of the annual impairment testing as of December 1, 2014,
the Company recorded a further impairment charge related to the 98.7FM FCC license of $9.5 million and also recorded $0.1
million of impairment related to our Terre Haute radio cluster. These impairments were mostly related to market revenue
performance during calendar 2014 that was below expectations as well as lowered expectations for future long-term revenue
growth rates.
Valuation of Goodwill
ASC Topic 350 requires the Company to test goodwill for impairment at least annually using a two-step process. The first
step is a screen for potential impairment, while the second step measures the amount of impairment. The Company conducts
the two-step impairment test on December 1 of each fiscal year, unless indications of impairment exist during an interim
period. When assessing its goodwill for impairment, the Company uses an enterprise valuation approach to determine the fair
value of each of the Company’s reporting units (radio stations grouped by market, excluding any stations being operated
pursuant to an LMA, and magazines on an individual basis). Management determines enterprise value for each of its reporting
units by multiplying the two-year average station operating income generated by each reporting unit (current year based on
actual results and the next year based on budgeted results) by an estimated market multiple. The Company uses a blended
station operating income trading multiple of publicly traded radio operators as a benchmark for the multiple it applies to its
radio reporting units. There are no publicly traded publishing companies that are focused predominantly on city and regional
magazines as is our publishing segment. Therefore, the market multiple used as a benchmark for our publishing reporting units
is based on recently completed transactions within the city and regional magazine industry or analyst reports that include
valuations of magazine divisions within publicly traded media conglomerates. For the annual assessment performed as of
December 1, 2014, the Company applied a market multiple of 7.5 to 8.5 times and 6.0 times the reporting unit’s operating
performance for our radio and publishing reporting units, respectively. Management believes this methodology for valuing
radio and publishing properties is a common approach and believes that the multiples used in the valuation are reasonable given
our peer comparisons and market transactions. To corroborate the step-one reporting unit fair values determined using the
market approach described above, management also uses an income approach, which is a discounted cash flow method to
determine the fair value of the reporting unit.
This enterprise valuation is compared to the carrying value of the reporting unit for the first step of the goodwill
impairment test. If the reporting unit exhibits impairment, the Company proceeds to the second step of the goodwill impairment
test. For its step-two testing, the enterprise value is allocated among the tangible assets, indefinite-lived intangible assets (FCC
licenses valued using a direct-method valuation approach) and unrecognized intangible assets, such as customer lists, with the
residual amount representing the implied fair value of the goodwill. To the extent the carrying amount of the goodwill exceeds
the implied fair value of the goodwill, the difference is recorded as an impairment charge in the statement of operations. The
methodology used to value our goodwill has not changed in the three-year period ended February 28, 2015.
During our December 1, 2012 annual goodwill impairment test, the Company wrote off $0.4 million of goodwill
associated with our Indianapolis Monthly publication. Declining operating performance of Indianapolis Monthly resulted in a
step-one indication of impairment for Indianapolis Monthly on both the market and income approaches. Upon completing the
step-two analysis, the Company determined that the full carrying amount of Indianapolis Monthly goodwill of $0.4 million was
impaired. No further impairment of our goodwill was recorded as a result of our December 1, 2013 annual test.
During our December 1, 2014 annual goodwill impairment test, the Company wrote off $58.4 million of goodwill
associated with our WBLS-FM and WLIB-AM radio stations in New York. We began programming these stations on March 1,
2014 pursuant to an LMA and completed our first closing of the stations on June 10, 2014, with the second closing on February
13, 2015. We accounted for the acquisition of the stations as a purchase in June 2014. According to Miller Kaplan, gross
revenues for the New York radio market were down 7.0% during fiscal 2015, which was significantly below our expectations
for the year. Although our New York cluster outperformed the market for the year, financial performance at the newly acquired
stations did not meet the expectations of management and resulted in a step-one indication of impairment on both the market
and income approaches. Upon completing the step-two analysis, the Company determined that the full carrying amount of our
New York cluster goodwill of $58.4 million, all of which related to our acquisition of WBLS-FM and WLIB-AM, was
impaired.
Sensitivity Analysis
Based on the results of our December 1, 2014 annual impairment assessment, the fair value of our broadcasting licenses
was approximately $304.2 million, which was in excess of the $210.1 million carrying value by $94.1 million, or 44.8%. The
fair values exceeded the carrying values of all of our units of accounting. Should our estimates or assumptions worsen, or
should negative events or circumstances occur in the units that have limited fair value cushion, additional license impairments
may be needed.
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Unit of Accounting
New York Cluster
98.7FM (New York)
Austin Cluster
St. Louis Cluster
Indianapolis Cluster
KPWR-FM (Los Angeles)
Terre Haute Cluster
Total
Radio Broadcasting Licenses
As of
December 1, 2014
Carrying Value
December 1, 2014
Fair Value
Percentage by which fair
value exceeds carrying value
71,615
51,063
39,254
27,692
17,654
2,018
761
210,057
113,270
51,063
39,480
27,809
19,770
52,009
761
304,162
58.2%
—%
0.6%
0.4%
12.0%
2,477.3%
—%
44.8%
If we were to assume a 100 basis point change in any of our three key assumptions (a reduction in the long-term revenue
growth rate, a reduction in local commercial share or an increase in the discount rate) used to determine the fair value of our
broadcasting licenses on December 1, 2014, the resulting impairment charge would have been $41.0 million, $28.0 million and
$24.9 million, respectively. Also, if we were to assume a market multiple decrease of one or a 10% decrease in the two-year
average station operating income, two of the key assumptions used to determine the fair value of our goodwill on December 1,
2014, the resulting estimates of enterprise valuations would still exceed the carrying values of the enterprises. As such, step two
of the goodwill impairment testing would not be required, thus no goodwill impairment would be recognized if these two key
assumptions were lowered.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s
financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions
are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between
amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes.
After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some
portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be
realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
Insurance Claims and Loss Reserves
The Company is self-insured for most healthcare claims, subject to stop-loss limits. Claims incurred but not reported are
recorded based on historical experience and industry trends, and accruals are adjusted when warranted by changes in facts and
circumstances. The Company had $0.6 million and $0.8 million accrued for employee healthcare claims as of February 28,
2014 and 2015, respectively. The Company also maintains large deductible programs (ranging from $100 thousand to $250
thousand per occurrence) for workers’ compensation, employment liability, automotive liability and media liability claims.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
The transactions described below impact the comparability of operating results for the three years ended February 28,
2015.
Acquisition of a controlling interest in Digonex Technologies, Inc.
On June 16, 2014, Emmis invested $3.0 million in Digonex Technologies, Inc., an Indiana corporation that provides
dynamic pricing solutions to customers in various industries. Emmis believes that its acquisition of Digonex gives it entry into
the growing dynamic pricing marketplace which can serve a diverse clientèle, and can possibly help Emmis with yields on its
own advertising inventory and special events. Emmis’ initial investment of $3.0 million ($1.0 million in Digonex Preferred
Stock and $2.0 million in the form of convertible debt) resulted in Emmis appointing a majority of the board of directors of
Digonex and holding rights convertible into 51% of the fully diluted common equity of Digonex. In August 2014, subsequent
to the consolidation of Digonex, Emmis contributed an additional $2.0 million to Digonex in the form of convertible debt,
which resulted in Emmis owning rights that are convertible into at least 66% of the common equity of Digonex. On April 21,
2015, Emmis contributed an additional $1.0 million to Digonex in the form of convertible debt which resulted in Emmis
owning rights that are convertible into at least 73% of the common equity of Digonex. As Emmis controlled the board of
directors of Digonex as of its initial investment on June 16, 2014, Emmis began consolidating the results of Digonex as of that
date.
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Acquisition of WBLS-FM and WLIB-AM in New York City
On February 11, 2014, subsidiaries of Emmis entered into a Purchase and Sale Agreement with YMF, pursuant to which
Emmis agreed to purchase the assets of New York radio stations WBLS-FM and WLIB-AM (collectively, the "Stations") for
$131.0 million, subject to customary adjustments and prorations. The purchase of the Stations enhanced the Company's scale in
New York, the second largest market in the United States as measured by total radio revenues. Additionally, the Stations' adult
urban and urban gospel formats complement the hip-hop format of our existing station in New York.
Upon approval of the transaction by the Federal Communications Commission, Emmis and YMF executed the first
closing of the transaction on June 10, 2014, whereby YMF transferred the assets of the Stations to Emmis and Emmis paid
YMF $55.0 million of cash and transferred to YMF Media New York a 49.9% ownership interest in the Emmis subsidiaries that
own the Stations' assets. The second closing occurred on February 13, 2015 and involved the payment of the balance of the
purchase price of $76.0 million to YMF in exchange for the transfer to Emmis of YMF Media New York's interest in the
Emmis subsidiaries that own the Stations' assets.
On February 11, 2014, Emmis and YMF entered into an LMA for the Stations. On March 1, 2014, Emmis began
providing programming and selling advertising for the Stations. Under the terms of the LMA, Emmis paid $1.275 million per
month 75 days in arrears to YMF for the right to program the station and sell advertising. The monthly LMA fee decreased to
approximately $0.74 million after the first closing of the purchase of the Stations on June 10, 2014. The ongoing, reduced
monthly LMA fees were recognized as additional purchase price of the Stations on June 10, 2014. Prior to the first closing of
the purchase, LMA fees were recognized as operating expenses.
Sale of Slovakia radio operations
On February 25, 2013, Emmis completed the sale of its Slovakian radio network to Bauer Ausland 1 GMBH for $21.2
million in cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its
efforts on its domestic radio stations. The sale of our Bulgarian radio network on January 3, 2013 created a one-time tax benefit
that we could use if we sold the Slovakian network on or before February 28, 2013. In connection with the sale, Emmis
recorded a gain on sale of assets of approximately $14.8 million, which is included in income from discontinued operations in
the accompanying consolidated statements of operations. Emmis paid approximately $1.7 million to settle working capital
adjustments and other transaction related costs during the first quarter of fiscal 2014.
Sale of Bulgarian radio operations
On January 3, 2013, Emmis completed the sale of its Bulgarian radio network to Reflex Media EEOD for $1.7 million in
cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its efforts on its
domestic radio stations. In connection with the sale, Emmis recorded a loss on sale of assets of approximately $1.3 million,
which is included in income from discontinued operations in the accompanying consolidated statements of operations. The loss
on disposal primarily resulted from the reclassification of accumulated currency translation adjustments.
Sale of Emmis Interactive Inc.
On October 31, 2012, Emmis completed the sale of Emmis Interactive Inc., a subsidiary of Emmis that provided a
content management system, data analytic tools and related services, to Marketron Broadcast Solutions, LLC (“Marketron”) for
no net proceeds. The sale of Emmis Interactive Inc. allowed Emmis to mitigate expected future operating losses and focus its
efforts on its domestic radio operations and other promising technology initiatives. Marketron had assumed operating control of
Emmis Interactive, Inc., on October 4, 2012. In connection with the sale, Emmis recorded a loss on sale of assets of
approximately $0.7 million, which is primarily related to severance for former employees and is included in income from
discontinued operations in the accompanying consolidated statements of operations.
Sale of Sampler Publications
On October 1, 2012, Emmis completed the sale of Country Sampler magazine, Smart Retailer magazine, and related
publications (altogether the “Sampler Publications”) and certain real estate used in their operations to subsidiaries of DRG
Holdings, LLC. Emmis believed the sale of the Sampler Publications, which were niche crafting publications, would enable it
to more clearly focus on its core city and regional publications. Emmis received gross proceeds from the sale of $8.7 million,
incurred approximately $0.2 million in transaction expenses and tax obligations, and used the remaining $8.5 million to repay
term loans under the Company’s 2006 Credit Agreement. In connection with the sale, Emmis recorded a gain on sale of assets
of approximately $0.7 million, which is included in income from discontinued operations in the accompanying consolidated
statements of operations
Sale of KXOS-FM
On August 23, 2012, Emmis completed the sale of KXOS-FM in Los Angeles for $85.5 million in cash. In connection
with the sale, Emmis recorded a gain on sale of assets of approximately $32.8 million, which is included in income from
discontinued operations in the accompanying consolidated statements of operations. KXOS-FM had previously been operating
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pursuant to a local programming and marketing agreement, which is discussed in more detail in Note 1 to the accompanying
consolidated financial statements.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2014 COMPARED TO YEAR ENDED FEBRUARY 28, 2015
Net revenues:
Net revenues:
Radio
Publishing
Emerging Technologies
Total net revenues
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
$
$
145,276
$
176,250
$
59,747
123
61,142
546
205,146
$
237,938
$
30,974
1,395
423
32,792
21.3%
2.3%
343.9%
16.0%
Radio net revenues increased during the year ended February 28, 2015 mostly due to the commencement of our LMA of
WBLS-FM and WLIB-AM in New York on March 1, 2014 and subsequent acquisition of those stations in fiscal 2015. Net
revenues of WBLS-FM and WLIB-AM for the year ended February 28, 2015 totaled $28.1 million. Excluding net revenues of
WBLS-FM and WLIB-AM, radio net revenues would have increased $2.9 million or 2.0%.
We typically monitor the performance of our stations against the aggregate performance of the markets in which we
operate based on reports for the periods prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross
revenues basis and exclude revenues from barter arrangements. Miller Kaplan reports are not available for the Terre Haute
radio market. A summary of market revenue performance and Emmis’ revenue performance in those markets for the year ended
February 28, 2015 is presented below:
Market
New York
Los Angeles
St. Louis
Indianapolis
Austin
All Markets
For the year ended February 28, 2015
Overall Market
Revenue Performance
Emmis
1
Revenue Performance
(7.0%)
(2.6%)
(2.1%)
(2.0%)
5.0%
(3.7%)
(5.0%)
7.0%
(1.6%)
3.5%
8.3%
1.6%
1 Emmis revenue performance in New York excludes the results of WEPN-FM which is being operated pursuant to an LMA
We principally attribute our better-than-market revenue growth in all of the markets in which we operate to two factors:
(1) our strategic focus on local sales and and programming, which has allowed us to outperform local market performance, and
(2) our Incite group, which caters to the under-served government, not-for-profit, and corporate philanthropy segment of the
local advertising market.
Publishing net revenues increased in the year ended February 28, 2015 as investments in our sales teams have enabled us
to sustain revenue growth at our magazines. In addition, we increased the number of custom publications (e.g., college alumni
magazines, tourism guides, etc.) that we produce.
Emerging Technologies consist of our NextRadio, TagStation, and Digonex businesses. Current revenues primarily relate
to licensing fees of our TagStation software. These fees are recognized as revenue over the life of the license agrement, which is
typically two years. TagStation supplements radio broadcasts with visual content (e.g., album art, artist information, etc.) and
enhanced ads for display on HD Radio dashboards, HD Radio devices, and the NextRadio application. The increase in net
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revenues of Emerging Technologies for the year ended February 28, 2015 is mostly due to additional stations that have licensed
the TagStation software.
Station operating expenses excluding LMA fees and depreciation and amortization expense:
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
Station operating expenses excluding LMA fees and
depreciation and amortization expense:
Radio
Publishing
Emerging Technologies
Total station operating expenses excluding LMA fees
and depreciation and amortization expense
$
$
97,564
$
117,167
59,085
2,360
60,083
3,759
159,009
$
181,009
$
$
$
19,603
998
1,399
22,000
20.1%
1.7%
59.3%
13.8%
The increase in station operating expenses excluding LMA fees and depreciation and amortization expense for our radio
division for the year ended February 28, 2015 is mostly due to the commencement of our LMA of WBLS-FM and WLIB-AM
in New York on March 1, 2014 and subsequent acquisition of those stations in fiscal 2015. Station operating expenses
excluding LMA fees and depreciation and amortization expense of WBLS-FM and WLIB-AM for the year ended February 28,
2015 totaled $16.1 million. Excluding these expenses of WBLS-FM and WLIB-AM, radio station operating expenses excluding
LMA fees and depreciation and amortization would have increased $3.5 million or 3.6%. The remaining increase is mostly
attributable to higher ratings expense as we recently entered into a new long-term agreement with Nielsen, legal fees associated
with the contested departure of our morning radio host in Los Angeles and the non-recurring nature of a songwriter performing
rights organization credit recognized in the prior year.
Station operating expenses excluding depreciation and amortization expense for publishing increased during the year
ended February 28, 2015 mostly due to higher sales-related costs and other customary increases in magazine production costs,
including increases in paper and printing costs.
Station operating expenses excluding depreciation and amortization expense for emerging technologies increased during
the year ended February 28, 2015 mostly due to additional development costs associated with enhancements to the NextRadio
application and operating costs associated with Digonex, the dynamic pricing business we began operating in fiscal 2015.
Corporate expenses excluding depreciation and amortization expense:
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
Corporate expenses excluding depreciation and
amortization expense
$
17,024
$
14,922
$
(2,102)
(12.3)%
Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 2015
mostly due to (i) a decrease in noncash compensation expense associated with a contractual bonus in fiscal 2014 that was
nonrecurring, (ii) a decrease in compensation expense for incentives as certain operating targets were not met in fiscal 2015, but
were met during the same period in fiscal 2014, (iii) a decrease in legal costs associated with our preferred stock litigation, and
(iv) a decrease in consulting fees associated with international and domestic tax consulting.
LMA fees:
LMA fees
For the year ended February 28,
2014
2015
$ Change
(As reported, amounts in thousands)
$
— $
4,208
$
4,208
On February 11, 2014, Emmis and YMF entered into an LMA for WBLS-FM and WLIB-AM in New York. As discussed
in Note 1 to the accompanying consolidated financial statements, on March 1, 2014, Emmis began providing programming and
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selling advertising for the two stations. Under the terms of the LMA, Emmis paid $1.275 million per month to YMF for the
right to program the stations and sell advertising. The monthly LMA fee decreased to approximately $0.74 million after the first
closing of the purchase of the stations, which occurred on June 10, 2014, and ceased effective with the second closing on
February 13, 2015. The LMA fees paid after the first closing were recognized as a liability as of the date of purchase of the
stations on June 10, 2014. Accordingly, LMA fees incurred after June 10, 2014 did not impact our results of operations.
Hungary license litigation expense:
For the year ended February 28,
2014
2015
$ Change
% Change
Hungary license litigation expense
$
(As reported, amounts in thousands)
2,058
521
$
$
(1,537)
(74.7)%
On October 28, 2009, the Hungarian National Radio and Television Board (ORTT) announced that it was awarding to
another bidder the national radio license then held by our majority-owned subsidiary, Slager. Slager ceased broadcasting
effective November 19, 2009. The Company believed that the awarding of the license to the other bidder was unlawful. In
October 2011, Emmis filed for arbitration with the International Centre for Settlement of Investment Disputes (“ICSID”)
seeking resolution of its claim. In April 2014, the ICSID arbitral tribunal ruled that ICSID did not have the jurisdiction to hear
the merits of Emmis' claim. We sold our Hungarian legal entities in October 2014 for a nominal amount and liquidated our
Dutch holding companies in December 2014. We do not expect future Hungary license litigation expenses.
Impairment loss on intangible assets:
Impairment loss on intangible assets
For the year ended February 28,
2014
2015
$ Change
(As reported, amounts in thousands)
$
— $
67,915
$
67,915
In connection with the annual impairment review conducted on December 1, 2014, the Company concluded that its FCC
license for 98.7FM in New York, which is accounted for as a single unit of accounting as it is subject to an LMA, and the
licenses of our Terre Haute radio cluster were impaired by $9.5 million. The Company also concluded that the goodwill
associated with its acquisition of WBLS-FM and WLIB-AM in New York was fully impaired. The Company recorded an
impairment loss of $58.4 million related to this goodwill impairment.
We may determine that it will be necessary to take impairment charges in future periods if we determine the carrying
value of our intangible assets exceed their fair value. Our annual impairment test of our broadcasting licenses and goodwill was
performed as of December 1, 2014. We may be required to retest prior to our next annual evaluation, which could result in
additional impairment charges.
Depreciation and amortization:
Depreciation and amortization:
Radio
Publishing
Corporate & Emerging Technologies
Total depreciation and amortization
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
$
$
2,476
235
2,155
4,866
$
$
3,143
245
2,538
5,926
$
$
667
10
383
1,060
26.9%
4.3%
17.8%
21.8%
The increase in depreciation and amortization for the year ended February 28, 2015 for our radio division is mostly due to
the newly acquired tangible and intangible assets of WBLS-FM and WLIB-AM. The increase in Corporate and Emerging
Technologies is mostly due to depreciation associated with new computer software and equipment and amortization of newly
acquired intangibles of Digonex. See Note 7 of the accompanying consolidated financial statements for a discussion of our
acquisitions.
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Gain on contract settlement:
Gain on contract settlement
For the year ended February 28,
2014
2015
$ Change
(As reported, amounts in thousands)
$
— $
(2,500) $
(2,500)
Emmis and YMF Media executed an amendment to their Asset Purchase Agreement dated April 5, 2012 relating to
Emmis' sale of the intellectual property of WRKS-FM to YMF Media. The amendment, executed on June 10, 2014, fixed all
future earn-out payments YMF Media owed to Emmis pursuant to the April 5, 2012 Asset Purchase Agreement based upon the
parties' estimate of the earn-out payments that would otherwise be owed to Emmis under this pre-existing contractual
relationship. Emmis recognized a gain on settlement of the contract of $2.5 million.
Operating income (loss):
Operating income (loss):
Radio
Publishing
Corporate & Emerging Technologies
Total operating income (loss)
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
$
$
43,188
425
(21,416)
22,197
$
$
(14,204) $
814
(20,673)
(34,063) $
(57,392)
389
743
(56,260)
(132.9)%
(91.5)%
3.5 %
(253.5)%
Radio operating income decreased in the year ended February 28, 2015 principally due to the $67.9 million impairment
loss that was recorded in connection with our December 1, 2014 annual impairment review. Excluding the impairment loss,
radio operating income would have increased $10.5 million mostly due to the acquisition of WBLS-FM and WLIB-AM during
the year.
Publishing operating income increased in the year ended February 28, 2015 mostly due to an increase in the number of
profitable custom publications we produced during the period.
Corporate and Emerging Technologies operating losses decreased by $0.7 million mostly due to lower cash and noncash
incentive-based compensation, lower legal fees and lower consulting fees as previously discussed. These operating expense
reductions were partially offset by continued investment in the development and enhancement of our NextRadio application and
operating expenses associated with Digonex.
Interest expense:
Interest expense
$
(10,033)
(141.9)%
2014
For the years ended February 28,
2015
(As reported, amounts in thousands)
(7,068) $
(17,101) $
$ Change
% Change
The increase in interest expense is attributable to additional debt incurred to finance our acquisition of WBLS-FM and
WLIB-AM and higher rates on amounts borrowed. The weighted-average interest rate of debt outstanding under our 2014
Credit Agreement was 6.0% at February 28, 2015. The weighted-average interest rate of debt outstanding under our 2012
Credit Agreement was 4.3% prior to its retirement on June 10, 2014.
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Loss on debt extinguishment:
Loss on debt extinguishment
For the years ended February 28,
2014
2015
$ Change
% Change
$
(As reported, amounts in thousands)
(653) $
(1,455) $
(802)
(122.8)%
The loss on debt extinguishment for the year ended February 28, 2015 relates to the write-off of unamortized deferred
debt issuance costs and original issue discount related to our 2012 Credit Agreement that was retired on June 10, 2014.
Other income (expense), net:
For the years ended February 28,
2014
2015
$ Change
Other income (expense), net
$
(As reported, amounts in thousands)
116
(6,418) $
$
(6,534)
Other expense for the year ended February 28, 2015 includes a $6.7 million write-off of an investment in preferred stock
of Courseload, Inc, a provider of online textbooks and other course material. While unrealized losses on this type of investment
is generally included as a component of other comprehensive income until it is realized, Emmis concluded that this loss is
other-than-temporary and has thus included the loss in its statement of operations.
(Benefit) provision for income taxes:
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
(Benefit) provision for income taxes
$
(34,063) $
36,948
$
71,011
(208.5)%
During the fourth quarter of the year ended February 28, 2015, we re-established a full valuation allowance for our net
deferred tax assets, including our net operating loss carryforwards, but excluding deferred tax liabilities related to indefinite-
lived intangibles, as substantial impairment losses recorded in the fourth quarter caused us to be in a three year cumulative loss
position. We had released our full valuation allowance during the fourth quarter of the year ended February 28, 2014.
Consolidated net income (loss):
For the years ended February 28,
2014
2015
$ Change
% Change
(As reported, amounts in thousands)
Consolidated net income (loss)
$
48,655
$
(95,985) $
(144,640)
(297.3)%
The change in consolidated net income (loss) is principally due to the $71.0 million change in our provision for income
taxes and the $67.9 million impairment loss, both of which are discussed above.
Gain on extinguishment of preferred stock:
For the years ended February 28,
2014
2015
$ Change
Gain on extinguishment of preferred stock
$
(As reported, amounts in thousands)
325
— $
$
(325)
During the year ended February 28, 2014, the Company purchased 8,650 shares of its preferred stock for an average price
of $12.38 per share. Emmis recognized a gain on extinguishment of the preferred stock equal to the difference between the
acquisition price and the liquidation preference of $50 per share.
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YEAR ENDED FEBRUARY 28, 2013 COMPARED TO YEAR ENDED FEBRUARY 28, 2014
Net revenues:
Net revenues:
Radio
Publishing
Emerging Technologies
Total net revenues
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
$
$
138,630
$
57,454
—
145,276
59,747
123
196,084
$
205,146
$
$
$
6,646
2,293
123
9,062
4.8%
4.0%
N/A
4.6%
Radio net revenues increased during the year ended February 28, 2014 due to low single-digit market revenue growth and
strong operating performance in four of our five measured markets. We typically monitor the performance of our stations
against the aggregate performance of the markets in which we operate based on reports for the periods prepared by Miller
Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements.
Miller Kaplan reports are not available for the Terre Haute radio market. A summary of market revenue performance and
Emmis’ revenue performance in those markets for the year ended February 28, 2014 is presented below:
Market
New York
Los Angeles
St. Louis
Indianapolis
Austin
All Markets
For the year ended February 28, 2014
Overall Market
Revenue Performance
Emmis
1
Revenue Performance
5.5%
1.2%
(1.6%)
(1.6%)
5.0%
2.7%
(2.3%)
8.6%
2.7%
4.2%
10.0%
4.9%
1 Emmis revenue performance in New York reflects only WQHT-FM and Los Angeles reflects only KPWR-FM
We principally attribute our better-than-market revenue growth to three factors: (1) highly focused local sales efforts, (2)
our digital initiatives, which generated revenue growth in excess of 25% over the prior year, and (3) our Incite group, which
caters to the under-served government, not-for-profit, and corporate philanthropy segment of the local advertising market.
Publishing net revenues increased in the year ended February 28, 2014 as investments in our sales teams have helped us
accelerate revenue growth at our magazines. In addition, we have increased the number of custom publications (e.g., college
alumni magazines, tourism guides, etc.) that we produce.
Station operating expenses excluding depreciation and amortization expense:
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
Station operating expenses, excluding depreciation and
amortization expense:
Radio
Publishing
Emerging Technologies
$
95,830
$
58,241
—
97,564
59,085
2,360
Total station operating expenses, excluding depreciation
and amortization expense
$
154,071
$
159,009
$
$
$
1,734
844
2,360
4,938
1.8%
1.4%
N/A
3.2%
The increase in station operating expenses, excluding depreciation and amortization expense for our radio division for the
year ended February 28, 2014 is mainly attributable to increased noncash compensation expense associated with the 2012
Retention Trust Plan, and higher sales-related costs due to the increase in net revenues.
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Station operating expenses excluding depreciation and amortization expense for publishing increased during the year
ended February 28, 2014 mostly due to increased print production costs, increased noncash compensation expense associated
with the 2012 Retention Trust Plan, and continued strategic investments in sales, marketing and digital initiatives.
Station operating expenses excluding depreciation and amortization expense for emerging technologies mostly consists of
expenses related to the development and launch of our smartphone application, NextRadio, and related software.
Corporate expenses excluding depreciation and amortization expense:
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
Corporate expenses excluding depreciation and
amortization expense
$
17,819
$
17,024
$
(795)
(4.5)%
Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 2014
primarily due to a decline in legal expenses associated with our preferred stock litigation and a $1.2 million nonrecurring
expense in the prior year related to the forgiveness of a loan to our CEO. These decreases were partially offset by higher
noncash compensation expense related to the 2012 Retention Trust Plan and contractual bonuses that were paid in stock.
Hungary license litigation expense:
For the year ended February 28,
2013
2014
$ Change
% Change
Hungary license litigation expense
$
(As reported, amounts in thousands)
1,381
2,058
$
$
677
49.0%
On October 28, 2009, the Hungarian National Radio and Television Board (ORTT) announced that it was awarding to
another bidder the national radio license then held by our majority-owned subsidiary, Slager. Slager ceased broadcasting
effective November 19, 2009. The Company believes that the awarding of the license to the other bidder was unlawful. In
October 2011, Emmis filed for arbitration with the International Centre for Settlement of Investment Disputes (“ICSID”)
seeking resolution of its claim. In April 2014, the ICSID arbitral tribunal ruled that ICSID did not have the jurisdiction to hear
the merits of Emmis' claim. The increase in expenses for the year ended February 28, 2014 is mostly due to legal costs incurred
in connection with our preparation for the December 2013 ICSID jurisdictional hearing.
Impairment loss on intangible assets:
For the year ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
Impairment loss on intangible assets
$
11,419
$
— $
11,419
N/A
In connection with our April 2012 LMA of 98.7FM in New York and in accordance with the Company’s accounting
policy, the Company decoupled its two New York FCC licenses into separate units of accounting. The Company performed an
interim impairment test of the 98.7FM FCC license in New York given its carrying value exceeded the fair value of a single
New York FCC license as of our December 2011 impairment test. The Company recorded an $11.0 million impairment loss in
connection with the interim review.
In connection with our annual impairment review conducted on December 1, 2012, the Company determined that the
goodwill of its Indianapolis Monthly publication was fully impaired and recorded a $0.4 million loss.
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Depreciation and amortization:
Depreciation and amortization:
Radio
Publishing
Corporate & Emerging Technologies
Total depreciation and amortization
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
$
$
2,451
318
1,953
4,722
$
$
2,476
235
2,155
4,866
$
$
25
(83)
202
144
1.0 %
(26.1)%
10.3 %
3.0 %
The increase in depreciation and amortization for the year ended February 28, 2014 is mostly due to new computer
equipment and software placed into service this fiscal year.
Loss (gain) on disposal of fixed assets:
Loss (gain) on disposal of fixed assets:
Radio
Publishing
Total loss (gain) on disposal of fixed assets:
For the years ended February 28,
2013
2014
$ Change
(As reported, amounts in thousands)
$
$
(9,897) $
20
(9,877) $
(10) $
2
(8) $
9,887
(18)
9,869
In April 2012, Emmis sold the intellectual property of WRKS-FM in New York for $10.0 million. WRKS-FM’s
intellectual property had no carrying value at the time of sale.
Operating income:
Operating income (loss):
Radio
Publishing
Corporate & Emerging Technologies
Total operating income
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
$
$
37,894
(1,573)
(19,772)
16,549
$
$
43,188
425
(21,416)
22,197
$
$
5,294
1,998
(1,644)
5,648
14.0 %
(127.0)%
8.3 %
34.1 %
Radio operating income increased in the year ended February 28, 2014 principally due to (1) strong operating
performance in most of our radio markets, as discussed above, and (2) the 98.7FM LMA, which greatly reduced our operating
expenses in New York, coupled with severance and contract termination costs incurred in connection with the LMA transaction
in the prior year.
Publishing operating income increased in the year ended February 28, 2014 mostly due to stronger advertising revenue
performance at most of our magazines, as discussed above.
Corporate and emerging technologies operating losses increased in the year ended February 28, 2014 mostly due to
expenses related to the development and launch of our smartphone application and related software, partially offset by a decline
in legal expenses associated with our preferred stock litigation and a $1.2 million nonrecurring expense in the prior year related
to the forgiveness of a loan to our CEO, all of which was previously discussed.
Interest expense:
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
Interest expense
$
(20,899) $
(7,068) $
13,831
(66.2)%
Interest expense decreased due to significant repayments of long-term debt throughout fiscal 2013, coupled with lower
interest rates on long-term debt as a result of our refinancing activity in December 2012.
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Loss on debt extinguishment:
Loss on debt extinguishment
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
(4,508) $
(653) $
$
3,855
(85.5)%
In the year ended February 28, 2013, the Company recorded a loss on debt extinguishment related to the write-off of debt
fees associated with term loans it repaid under our 2006 Credit Agreement. In the year ended February 28, 2014, the Company
recorded a loss on debt extinguishment related to the write-off of debt fees and unamortized debt discount associated with term
loans it repaid under our 2012 Credit Agreement.
Other income (expense), net:
For the years ended February 28,
2013
2014
$ Change
Other income (expense), net
$
(As reported, amounts in thousands)
(10) $
116
$
126
Other income for the year ended February 28, 2014 mostly relates to income from equity method investments.
Benefit from income taxes:
Benefit from income taxes
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
(7,039) $
(34,063) $
$
(27,024)
383.9%
The Company previously recorded a valuation allowance for its net deferred tax assets, including its net operating loss
carryforwards, but excluding deferred tax liabilities related to indefinite-lived intangibles. During the year ended February 28,
2014, due to improved operating results, the Company determined that a valuation allowance on most of its net deferred tax
assets was no longer appropriate, and reversed the valuation allowance. Also, during the year ended February 28, 2014, the
Company recorded a benefit of approximately $0.7 million related to the favorable settlement of a state tax dispute and a
benefit of approximately $0.5 million related to lower than expected state tax liabilities on asset dispositions.
The benefit for income taxes in the year ended February 28, 2013 principally relates to the utilization of previously
reserved net operating losses and the tax benefit associated with our impairment loss on the 98.7FM FCC license.
Income from discontinued operations, net of tax:
For the years ended February 28,
2013
2014
$ Change
(As reported, amounts in thousands)
Income from discontinued operations, net of tax
$
50,080
$
— $
(50,080)
Our international radio operations in Hungary, Slovakia and Bulgaria, our Emmis Interactive operations, our operations
of KXOS-FM and our Country Sampler operations were classified as discontinued operations in the accompanying
consolidated statements. These operations all ceased prior to February 28, 2013. The income from discontinued operations, net
of tax for the year ended February 28, 2013 mostly relates to the gain on sale recorded in connection with the sale of KXOS-
FM and our Slovakian radio operations.
Consolidated net income:
For the years ended February 28,
2013
2014
$ Change
% Change
(As reported, amounts in thousands)
Consolidated net income
$
48,251
$
48,655
$
404
0.8%
Consolidated net income is mostly flat as improved operating results in the current year, coupled with lower interest
expense and the tax benefits associated with the reversal of our valuation allowance, are mostly offset by income from
discontinued operations, net of tax, in the prior year.
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Gain on extinguishment of preferred stock:
Gain on extinguishment of preferred stock
$
— $
325
$
325
During the year ended February 28, 2014, the Company purchased 8,650 shares of its preferred stock for an
average price of $12.38 per share. Emmis recognized a gain on extinguishment of the preferred stock equal to the difference
between the acquisition price and the liquidation preference of $50 per share.
For the years ended February 28,
2013
2014
$ Change
(As reported, amounts in thousands)
LIQUIDITY AND CAPITAL RESOURCES
2014 CREDIT AGREEMENT
On June 10, 2014, Emmis entered into the 2014 Credit Agreement, by and among the Company, EOC, as borrower (the
“Borrower”), certain other subsidiaries of the Company, as guarantors (the “Subsidiary Guarantors”), the lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent.
The 2014 Credit Agreement includes a senior secured term loan facility (the “Term Loan”) of $185.0 million and a senior
secured revolving credit facility of $20.0 million, and contains provisions for an uncommitted increase of up to $20.0 million
principal amount (plus additional amounts so long as a pro forma total net senior secured leverage ratio condition is met) of the
revolving credit facility and/or the Term Loan subject to the satisfaction of certain conditions. The revolving credit facility
includes a sub-facility for the issuance of up to $5.0 million of letters of credit. Pursuant to the 2014 Credit Agreement, the
Borrower borrowed $185.0 million of the Term Loan on June 10, 2014; $109.0 million was disbursed to the Borrower (the
“Initial Proceeds”) and the remaining $76.0 million was funded into escrow (the “Subsequent Acquisition Proceeds”).
The Initial Proceeds, coupled with $13.0 million of revolving credit facility borrowings, were used by the Borrower on
June 10, 2014 to repay all amounts outstanding under the 2012 Credit Agreement, to make a $55.0 million initial payment
associated with our acquisition of WBLS-FM and WLIB-AM, and to pay fees and expenses. The Subsequent Acquisition
Proceeds were used to make the final $76.0 million payment related to the acquisition of WBLS-FM and WLIB-AM on
February 13, 2015.
The Term Loan is due not later than June 10, 2021 and, prior to the Second Amendment to the 2014 Credit Agreement
discussed below, amortized in an amount equal to 1% per annum of the total principal amount outstanding, payable in quarterly
installments commencing April 1, 2015, with the balance payable on the maturity date. The revolving credit facility expires not
later than June 10, 2019. An unused commitment fee of 50 basis points per annum will be payable quarterly on the average
unused amount of the revolving credit facility. Prior to the First Amendment and Second Amendment to the 2014 Credit
Agreement discussed below, the Term Loan and amounts borrowed under the revolving credit facility bore interest, at the
Borrower’s option, at either (i) the Alternate Base Rate (as defined in the 2014 Credit Agreement) (but not less than 2.00%)
plus 3.75% or (ii) the Adjusted LIBO Rate (as defined in the 2014 Credit Agreement) (but not less than 1.00%) plus 4.75%.
Approximately $1.0 million of transaction fees related to the 2014 Credit Agreement were capitalized and are being
amortized over the life of the 2014 Credit Agreement. These deferred debt costs are included in other assets, net in the
accompanying consolidated balance sheets. The 2014 Credit Agreement is carried on our consolidated balance sheets net of an
original issue discount. The original issue discount, which was $6.1 million as of the issuance of the debt on June 10, 2014 and
$6.4 million as of February 28, 2015 (inclusive of the $1.0 million of transaction fees associated with the November 7, 2014
debt amendment discussed below), is being amortized as additional interest expense over the life of the 2014 Credit Agreement.
The obligations under the 2014 Credit Agreement are secured by a perfected first priority security interest in substantially
all of the assets of the Company, the Borrower and the Subsidiary Guarantors.
On November 7, 2014, Emmis entered into the First Amendment (the “First Amendment”) to the 2014 Credit Agreement.
The First Amendment (i) increases the maximum Total Leverage Ratio to 6.00:1.00 for the period February 28, 2015 through
February 29, 2016, (ii) adjusts the definition of Consolidated EBITDA to exclude during the term of the 2014 Credit Agreement
up to $5 million in severance and/or contract termination expenses and up to $2.5 million in losses attributable to the
reformatting of the Company’s radio stations, (iii) extends the requirement for Emmis to pay a 1.00% fee on certain
prepayments of the Term Loan to November 7, 2015, (iv) increases the Applicable Margin by 0.25% for at least six months
from the date of the First Amendment and until the Total Leverage Ratio is less than 5.00:1.00, and (v) makes certain technical
42
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adjustments to the definition of Consolidated Excess Cash Flow and to address the Foreign Account Tax Compliance Act.
Emmis paid a total of approximately $1.0 million of transaction fees to the Lenders that consented to the First Amendment,
which were recorded as original issue discount and are being amortized over the remaining life of the 2014 Credit Agreement.
Capitalized terms in this paragraph not defined elsewhere in this document are defined in the 2014 Credit Agreement.
On April 30, 2015, Emmis entered into a Second Amendment to our 2014 Credit Agreement. The Second Amendment (i)
increases the maximum Total Leverage Ratio to (A) 6.75:1.00 during the period from May 31, 2015 through February 29, 2016,
(B) 6.50:1.00 for the quarter ended May 31, 2016, (C) 6.25:1.00 for the quarter ended August 31, 2016, (D) 6.00:1.00 for the
quarter ended November 30, 2016, and (E) 5.75:1.00 for the quarter ended February 28, 2017, after which it reverts to the
original ratio of 4.00:1.00 for the quarters ended May 31, 2017 and thereafter, (ii) requires Emmis to pay a 2.00% fee on certain
prepayments of the Term Loan prior to the first anniversary of the Second Amendment and requires Emmis to pay a 1.00% fee
on certain prepayments of the Term Loan from the first anniversary of the Second Amendment until the second anniversary of
the Second Amendment, (iii) increases the Applicable Margin throughout the remainder of the term of the Credit Agreement to
5.00% for ABR Loans (as defined in the Credit Agreement) and 6.00% for Eurodollar Loans (as defined in the 2014 Credit
Agreement), and (iv) increases the amortization to 0.50% per calendar quarter through January 1, 2016 and to 1.25% per
calendar quarter thereafter commencing April 1, 2016. The Second Amendment also requires Emmis to pay a fee of 0.50% of
the Term Loan and Revolving Commitment of each Lender that consented to the Second Amendment.
2012 CREDIT AGREEMENT
On December 28, 2012, Emmis Operating Company (“EOC”), a wholly owned subsidiary of Emmis, entered into a credit
facility (the “2012 Credit Agreement”) to provide for total borrowings of up to $100 million, including (i) an $80 million term
loan and (ii) a $20 million revolver, of which $5 million may be used for letters of credit. On June 10, 2014, Emmis entered
into the 2014 Credit Agreement. In connection with the execution of the 2014 Credit Agreement, the 2012 Credit Agreement
was terminated effective June 10, 2014, and all amounts outstanding under that agreement were paid in full. During the three
months ended August 31, 2014, the Company recorded a loss on debt extinguishment of $1.5 million related to the termination
of the 2012 Credit Agreement.
SOURCES OF LIQUIDITY
Our primary sources of liquidity are cash provided by operations and cash available through revolver borrowings under
our credit facility. Our primary uses of capital during the past few years have been, and are expected to continue to be, capital
expenditures, working capital, debt service requirements, repayment of debt and investments in future growth opportunities in
related businesses.
At February 28, 2015, we had cash and cash equivalents of $3.7 million and net working capital of $13.1 million. At
February 28, 2014, we had cash and cash equivalents of $5.3 million and net working capital of $4.8 million. Cash and cash
equivalents held at various European banking institutions at February 28, 2014 was $1.2 million. Since we manage cash on a
consolidated basis, any cash needs of a particular segment or operating entity are met by intercompany transactions. See
Investing Activities below for a discussion of specific segment needs.
Operating Activities
Cash flows provided by operating activities were $24.7 million and $18.5 million for the years ended February 28, 2014
and 2015, respectively. The decrease in cash flows provided by operating activities was attributable to higher interest expense
that was partially offset by additional operating cash flows provided by the acquisition of WBLS-FM and WLIB-AM.
Cash flows provided by operating activities were $1.8 million and $24.7 million for the years ended February 28, 2013
and 2014, respectively. The increase in cash flows provided by operating activities was mainly attributable to lower interest
expense coupled with an increase in radio operating income.
Investing Activities
For the year ended February 28, 2015, cash used in investing activities of $140.2 million primarily consisted of $136.0
million of cash used in our acquisitions of WBLS-FM and WLIB-AM and Digonex Technologies, Inc. In addition, we used
$3.5 million of cash for capital expenditures and made $0.5 million of additional investments, net of distributions from
investments.
For the year ended February 28, 2014, cash used in investing activities of $5.4 million primarily consisted of $3.1 million
of capital expenditures, $1.7 million related to the settlement of transaction fees and working capital adjustments associated
with the sale of our Bulgarian and Slovakian radio operations which are included in discontinued operations and $0.7 million of
additional investments, net of distributions from investments.
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For the year ended February 28, 2013, cash flows provided by investing activities were $114.0 million. This amount
mostly relates to cash generated by our discontinued operations of $113.8 million, most of which related to the sale of Country
Sampler and related publications, KXOS-FM and our Bulgarian and Slovakian radio operations.
Financing Activities
Cash flows used in financing activities were $112.9 million and $22.8 million for the years ended February 28, 2013 and
2014, respectively. Cash flows provided by financing activities were $120.1 million for the year ended February 28, 2015.
Cash provided by financing activities for the year ended February 28, 2015 primarily relates to net borrowings related to
our senior credit agreement of $134.5 million. Partially offsetting our net borrowings were payments of debt-related costs of
$7.8 million, distributions to noncontrolling interests of $5.4 million and the settlement of tax withholding obligations of $1.5
million.
Cash used in financing activities for the year ended February 28, 2014 primarily relates to net payments related to our
senior credit agreement and senior unsecured notes of $17.1 million, distributions to noncontrolling interests of $4.6 million
and the settlement of tax withholding obligations of $1.1 million.
Cash used in financing activities for the year ended February 28, 2013 primarily relates to net payments related to our
senior credit agreement and senior unsecured notes of $98.5 million, payments for other debt-related costs of $9.3 million and
distributions to noncontrolling interests of $5.1 million.
As of February 28, 2015, Emmis had $193.0 million million of borrowings under the 2014 Credit Agreement ($1.9
million current and $191.1 million long-term), $76.6 million of non-recourse debt ($5.0 million current and $71.6 million long-
term) and $46.5 million of Preferred Stock liquidation preference. Borrowings under the 2014 Credit Agreement debt bears
interest, at our option, at a rate equal to the Eurodollar rate or an alternative Base Rate plus a margin. The non-recourse debt
bears interest at 4.1% per annum. As of February 28, 2015, our weighted average borrowing rate under our 2014 Credit
Agreement including the effect of our interest rate exchange agreement was approximately 6.0%.
The debt service requirements of Emmis over the next twelve-month period are expected to be $16.6 million related to
our 2014 Credit Agreement, as amended, ($3.2 million of principal repayments and $13.4 million of interest payments) and
$7.8 million related to our 98.7FM non-recourse debt ($5.0 million of principal repayments and $2.8 million of interest
payments). The Company expects that proceeds from the 98.7FM LMA will be sufficient to pay all debt service related to the
98.7FM non-recourse debt. The 2014 Credit Agreement debt bears interest at variable rates. The Company estimated interest
payments for the 2014 Credit Agreement above by using the amounts outstanding as of February 28, 2015 and the weighted-
average interest rate of the 2014 Credit Agreement debt subsequent to the execution of the Second Amendment of the 2014
Credit Agreement on April 30, 2015.
On September 4, 2012, following approval by the Company’s shareholders, the Company filed amendments to its Articles
of Incorporation that modify the rights of holders of the Company’s Preferred Stock. The amendments:
•
•
•
•
•
•
canceled the amount of undeclared dividends in respect of the Preferred Stock that were accumulated but undeclared
on or prior to the effectiveness of the Proposed Amendments;
changed the designation of the Preferred Stock from “Cumulative” to “Non-Cumulative” and changed the rights of the
holders of the Preferred Stock such that dividends or distributions on the Preferred Stock will not accumulate unless
declared by the board of directors and subsequently not paid (and thereby effectively canceled associated rights to
elect directors in the event of dividend arrearages);
canceled the restrictions on Emmis’ ability to pay dividends or make distributions on, or repurchase, its Common
Stock or other junior stock prior to paying accumulated but undeclared dividends or distributions on the Preferred
Stock;
changed the ability of the holders of the Preferred Stock to require Emmis to repurchase all of such holders’ Preferred
Stock upon certain going-private transactions in which an affiliate of Mr. Smulyan participates that do not constitute a
change of control transaction, to cause the holders of the Preferred Stock to no longer have such ability;
changed the ability of the holders of the Preferred Stock to convert all of such Preferred Stock to Class A Common
Stock upon a change of control at specified conversion prices to cause the holders of the Preferred Stock to no longer
have such ability;
changed the ability of holders of the Preferred Stock to vote as a separate class on a plan of merger, share exchange,
sale of assets or similar transaction to the ability to vote with the Common Stock on an as-converted basis (except as
may otherwise be required by law); and
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•
changed the conversion price adjustment applicable to certain merger, reclassification and other transactions to provide
that the Preferred Stock converts into the right to receive property that would have been receivable had such Preferred
Stock been converted into Class A Common Stock immediately prior to such transaction.
As a result of the elimination of the rights of holders of Preferred Stock to require Emmis to repurchase all of such
holders’ Preferred Stock in certain going-private transactions, the Preferred Stock was reclassified from temporary equity to
permanent equity. Additionally, the cancellation of the cumulative feature of the Preferred Stock and the cancellation of
accumulated but undeclared preferred dividends modified earnings per share calculations as the numerator in the calculation no
longer includes undeclared preferred dividends. Certain holders of our Preferred Stock have challenged the validity of these
amendments. See further discussion under Item 3, Legal Proceedings
As of May 1, 2015, we had $9.0 million available for additional borrowing under our credit facility. Availability under the
credit facility depends upon our continued compliance with certain operating covenants and financial ratios. Emmis was in
compliance with these covenants as of February 28, 2015. As part of our business strategy, we continually evaluate potential
acquisitions of radio stations, publishing properties and other businesses that we believe hold promise for long-term
appreciation in value and leverage our strengths. However, Emmis Operating Company’s credit facility substantially limits our
ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when
we believe it is appropriate to do so. See Note 7 to our consolidated financial statements for a discussion of various dispositions
that occurred during the three years ended February 2015.
SUMMARY DISCLOSURES ABOUT CONTRACTUAL CASH OBLIGATIONS
The following table reflects a summary of our contractual cash obligations as of February 28, 2015:
Contractual cash obligations:
Total
Payments Due by Period
Less than
1 Year
(Amounts in 000's)
1 to 3
Years
3 to 5
Years
More than
5 Years
Long-term debt 1
Operating leases
Purchase obligations 2
Total contractual cash obligations
359,920
60,830
65,017
485,767
24,395
8,675
26,816
59,886
67,903
16,589
32,528
117,020
66,308
14,108
5,634
86,050
201,314
21,458
39
222,811
1 Includes an estimate of interest expense on amounts outstanding related to our 2014 Credit Agreement as of February 28, 2015 using our weighted average
interest rate subsequent to the Second Amendment of our 2014 Credit Agreement as well as interest due under our 98.7FM nonrecourse debt. Includes
mandatory principal payments related to our 2014 Credit Agreement as adjusted by the Second Amendment to the 2014 Credit Agreement. See Note 5 and
Note 17 to the accompanying consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data" for more discussion of our
long-term debt.
2 Includes contractual commitments to purchase goods and services, including employment agreements, radio broadcast agreements, audience measurement
information and music license fees.
INTANGIBLES
As of February 28, 2015, approximately 70% of our total assets consisted of intangible assets, such as FCC broadcast
licenses, goodwill, and trademarks, the value of which depends significantly upon the operational results of our businesses. In
the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property.
FCC licenses are renewed every eight years; consequently, we continually monitor the activities of our stations for compliance
with regulatory requirements. Historically, all of our FCC licenses have been renewed (or a waiver has been granted pending
renewal) at the end of their respective eight-year periods, and we expect that all of our FCC licenses will continue to be
renewed in the future.
SEASONALITY
Our results of operations are usually subject to seasonal fluctuations, which result in higher second and third quarter
revenues and operating income. For our radio operations, this seasonality is due to the younger demographic composition of
many of our stations. Advertisers increase spending during the summer months to target these listeners. In addition, advertisers
generally increase spending across all segments during the months of October and November, which are part of our third
quarter, in anticipation of the holiday season.
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INFLATION
The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate
of inflation in the future would not have an adverse effect on operating results, particularly since of our senior bank debt is
comprised entirely of variable-rate debt.
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than lease commitments, legal contingencies incurred in the normal course of business, contractual commitments to
purchase goods and services and employment contracts for key employees, all of which are discussed in Note 11 to the
consolidated financial statements, the Company does not have any material off-balance sheet financings or liabilities. The
Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated financial
statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not
reflected in the consolidated financial statements or disclosed in the Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
General
Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of Emmis
due to adverse changes in financial and commodity market prices and rates. Emmis is exposed to market risk from changes in
domestic and international interest rates (i.e. prime and LIBOR). To manage interest-rate exposure, Emmis periodically enters
into interest-rate derivative agreements. Emmis does not use financial instruments for trading and is not a party to any
leveraged derivatives.
Interest Rates
Under the terms of its 2014 Credit Agreement, the Company is not required to fix or cap the interest rate on its
outstanding borrowings, and no such instruments were in place as of February 28, 2015. Based on amounts outstanding at
February 28, 2015, if the interest rate on our variable debt were to increase by 1.0%, our annual interest expense would increase
by approximately $0.4 million. The 2014 Credit Agreement provides that our term loan is subject to a minimum LIBOR floor
of 1.0%.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Emmis Communications Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Emmis Communications Corporation and Subsidiaries
as of February 28, 2014 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes
in equity (deficit), and cash flows for each of the three years in the period ended February 28, 2015. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Emmis Communications Corporation and Subsidiaries at February 28, 2014 and 2015, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended February 28, 2015, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Emmis Communications Corporation and Subsidiaries internal control over financial reporting as of February 28, 2015, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) and our report dated May 7, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
May 7, 2015
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES
OPERATING EXPENSES:
Station operating expenses excluding depreciation and amortization
expense of $2,769, $2,711 and $3,388 respectively
Corporate expenses excluding depreciation and amortization expense
of $1,953, $2,155 and $2,538 respectively
LMA fees
Hungary license litigation expense
Impairment loss on intangible assets
Depreciation and amortization
Gain on contract settlement
Gain on sale of assets
Total operating expenses
OPERATING INCOME (LOSS)
OTHER EXPENSE:
Interest expense
Loss on debt extinguishment
Other (expense) income, net
Total other expense
(LOSS) INCOME BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS
(BENEFIT) PROVISION FOR INCOME TAXES
(LOSS) INCOME FROM CONTINUING OPERATIONS
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
CONSOLIDATED NET INCOME (LOSS)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
GAIN ON EXTINGUISHMENT OF PREFERRED STOCK
PREFERRED STOCK DIVIDENDS
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS
For the years ended February 28,
2013
2014
2015
$
196,084
$
205,146
$
237,938
154,071
159,009
181,009
17,819
—
1,381
11,419
4,722
—
(9,877)
179,535
16,549
(20,899)
(4,508)
(10)
(25,417)
(8,868)
(7,039)
(1,829)
50,080
48,251
4,479
43,772
—
(1,806)
17,024
—
2,058
—
4,866
—
(8)
182,949
22,197
(7,068)
(653)
116
(7,605)
14,592
(34,063)
48,655
—
48,655
5,174
43,481
325
—
14,922
4,208
521
67,915
5,926
(2,500)
—
272,001
(34,063)
(17,101)
(1,455)
(6,418)
(24,974)
(59,037)
36,948
(95,985)
—
(95,985)
3,274
(99,259)
—
—
$
41,966
$
43,806
$
(99,259)
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Amounts attributable to common shareholders for basic earnings per share:
Continuing operations
Discontinued operations
Net income attributable to common shareholders
Amounts attributable to common shareholders for diluted earnings per
share:
Continuing operations
Discontinued operations
Net income attributable to common shareholders
Basic net income (loss) per share attributable to common shareholders:
Continuing operations
Discontinued operations, net of tax
Net income (loss) attributable to common shareholders
Basic weighted average common shares outstanding
Diluted net income (loss) per share attributable to common shareholders:
Continuing operations
Discontinued operations, net of tax
Net income (loss) attributable to common shareholders
Diluted weighted average common shares outstanding
$
$
$
$
$
$
$
$
For the years ended February 28 (29),
2013
2014
2015
(8,114) $
50,080
41,966
$
(8,114) $
50,080
41,966
$
(0.21) $
1.29
1.08
$
43,806
—
43,806
43,481
—
43,481
1.08
—
1.08
39,034
40,506
(0.21) $
1.29
1.08
$
0.94
—
0.94
39,034
46,042
$
$
$
$
$
$
$
$
(99,259)
—
(99,259)
(99,259)
—
(99,259)
(2.33)
—
(2.33)
42,537
(2.33)
—
(2.33)
42,537
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
CONSOLIDATED NET INCOME (LOSS)
OTHER COMPREHENSIVE (LOSS) INCOME:
Change in value of derivative instrument
Cumulative translation adjustment
COMPREHENSIVE INCOME (LOSS)
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS
For the year ended February 28,
2013
2014
2015
$
48,251
$
48,655
$
(95,985)
(107)
(1,249)
46,895
8
(8)
48,655
99
—
(95,886)
4,431
5,155
3,274
$
42,464
$
43,500
$
(99,160)
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $574 and $665,
respectively
Prepaid expenses
Deferred tax asset
Other
Total current assets
PROPERTY AND EQUIPMENT:
Land and buildings
Leasehold improvements
Broadcasting equipment
Office equipment and automobiles
Construction in progress
Less-accumulated depreciation and amortization
Total property and equipment, net
INTANGIBLE ASSETS:
Indefinite lived intangibles
Goodwill
Other intangibles
Less-accumulated amortization
Total intangible assets, net
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $577 and $868,
respectively
Investments
Deposits and other
Total other assets, net
Total assets
FEBRUARY 28,
2014
2015
$
5,304
$
2,239
31,000
7,946
4,882
2,641
54,012
25,593
13,860
40,013
31,262
239
110,967
78,736
32,231
150,558
12,639
810
164,007
548
163,459
3,178
7,181
5,287
15,646
3,669
2,740
37,328
8,640
—
3,514
55,891
27,592
13,911
42,995
33,153
41
117,692
82,898
34,794
210,057
15,392
9,589
235,038
1,411
233,627
3,438
1,026
5,956
10,420
$
265,348
$
334,732
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Current maturities of long-term debt
Accrued salaries and commissions
Deferred revenue
Share-based compensation arrangement
Other
Total current liabilities
LONG-TERM DEBT, NET OF CURRENT PORTION
OTHER NONCURRENT LIABILITIES
DEFERRED INCOME TAXES
Total liabilities
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS’ EQUITY (DEFICIT):
Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and
outstanding 37,267,123 shares and 39,054,719 shares at February 28, 2014 and 2015,
respectively
Class B common stock, $0.01 par value; authorized 30,000,000 shares; issued and
outstanding 4,569,464 shares at February 28, 2014 and 2015
Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued
Series A convertible preferred stock. $.01 par value; $50.00 liquidation preference per
share, aggregate liquidation preference and redemption amount of $46,450 at February
28, 2014 and 2015; authorized 2,875,000 shares; issued and outstanding 1,328,991
shares at February 28, 2014, which included 400,000 shares in trust, and 928,991 at
February 28, 2015
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity (deficit)
NONCONTROLLING INTERESTS
Total equity (deficit)
Total liabilities and equity (deficit)
FEBRUARY 28,
2014
2015
$
8,958
$
12,541
8,552
11,506
2,926
4,767
49,250
114,926
8,021
9,783
181,980
9,497
6,840
8,241
11,568
—
6,620
42,766
254,150
8,351
41,614
346,881
`
373
391
46
—
9
580,776
(545,355)
(99)
35,750
47,618
83,368
$
265,348
$
46
—
9
585,358
(644,614)
—
(58,810)
46,661
(12,149)
334,732
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED FEBRUARY 28, 2015
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Class A
Common Stock
Class B
Common Stock
Series A
Preferred Stock
Shares
Amount
Shares
Amount
Shares
Amount
BALANCE, FEBRUARY 29, 2012
34,007,279
$
Net income
Exercise of stock options and related income tax
benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Issuance of Common Stock in exchange for
cancellation of stock options
Payments of dividends and distributions to
noncontrolling interests
Disposition of noncontrolling interests
Reclassify preferred stock from mezzanine
Cumulative translation adjustment
Change in value of derivative instrument
BALANCE, FEBRUARY 28, 2013
Net income
Exercise of stock options and related income tax
benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Conversion of Class B to Class A
Payments of dividends and distributions to
noncontrolling interests
Purchase of preferred stock
Cumulative translation adjustment
Change in value of derivative instrument
BALANCE, FEBRUARY 28, 2014
Net income (loss)
Exercise of stock options and related income tax
benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Distribution of 2012 Retention Trust Plan, net of
taxes
Acquisition of noncontrolling interest
Distributions to noncontrolling interests
Change in value of derivative instrument
—
784,376
605,205
511,065
—
—
—
—
—
35,907,925
$
—
425,800
780,178
153,220
—
—
—
—
37,267,123
$
—
792,385
387,910
607,301
—
—
—
340
—
8
6
5
—
—
—
—
—
359
—
4
9
1
—
—
—
—
373
—
8
4
6
—
—
—
4,722,684
$
—
—
—
—
—
—
—
—
—
4,722,684
$
—
—
—
(153,220)
—
—
—
—
4,569,464
$
—
—
—
—
—
—
—
BALANCE, FEBRUARY 28, 2015
39,054,719
$
391
4,569,464
$
47
—
—
—
—
—
— $
—
—
—
—
—
—
—
— 937,641
—
—
47
—
—
—
(1)
—
—
—
—
46
—
—
—
—
—
—
—
46
—
—
937,641
$
—
—
—
—
—
(8,650)
—
—
928,991
$
—
—
—
—
—
—
—
928,991
$
—
—
—
—
—
—
—
9
—
—
9
—
—
—
—
—
—
—
—
9
—
—
—
—
—
—
—
9
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) – (CONTINUED)
FOR THE THREE YEARS ENDED FEBRUARY 28, 2015
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE, FEBRUARY 29, 2012
Net income
Exercise of stock options and related income
tax benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Issuance of Common Stock in exchange for
cancellation of stock options
Payments of dividends and distributions to
noncontrolling interests
Disposition of noncontrolling interests
Additional
Paid-in
Capital
529,793
—
294
1,595
—
—
—
Reclassify preferred stock from mezzanine
46,873
Cumulative translation adjustment
Change in value of derivative instrument
BALANCE, FEBRUARY 28, 2013
Net income
Exercise of stock options and related income
tax benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Conversion of Class B to Class A
Payments of dividends and distributions to
noncontrolling interests
Purchase of preferred stock
Cumulative translation adjustment
Change in value of derivative instrument
—
—
578,555
—
325
2,003
—
—
(107)
—
—
BALANCE, FEBRUARY 28, 2014
580,776
Net income
Exercise of stock options and related income
tax benefits
Issuance of Common Stock to employees and
officers and related income tax benefits
Distribution of 2012 Retention Trust Plan, net
of taxes
Acquisition of noncontrolling interest
Distributions to noncontrolling interests
Change in value of derivative instrument
—
411
2,119
2,052
—
—
—
BALANCE, FEBRUARY 28, 2015
585,358
Accumulated
Deficit
(632,608)
43,772
—
—
—
—
—
—
—
—
(588,836)
43,481
—
—
—
—
—
—
—
(545,355)
(99,259)
—
—
—
—
—
—
(644,614)
Accumulated
Other
Comprehensive
Income (Loss)
1,190
—
—
—
—
—
—
—
(1,201)
(107)
(118)
—
—
—
—
—
—
11
8
(99)
—
—
—
—
—
—
99
—
Noncontrolling
Interests
Total
Equity (Deficit)
47,842
4,479
(53,396)
48,251
—
—
—
(5,103)
(87)
—
(48)
—
47,083
5,174
—
—
—
(4,620)
—
(19)
—
47,618
3,274
—
—
—
1,197
(5,428)
—
46,661
302
1,601
5
(5,103)
(87)
46,882
(1,249)
(107)
37,099
48,655
329
2,012
—
(4,620)
(107)
(8)
8
83,368
(95,985)
419
2,123
2,058
1,197
(5,428)
99
(12,149)
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES:
Consolidated net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities—
Discontinued operations
Impairment losses on intangible assets
Loss on debt extinguishment
Accretion of debt instruments to interest expense
Amortization of deferred financing costs, including original issue
discount
Depreciation and amortization
Provision for bad debts
(Benefit) provision for deferred income taxes
Noncash compensation
Loss (gain) on equity method investments and other-than-
temporary impairment of available-for-sale investments
Gain on sale of assets
Changes in assets and liabilities—
Restricted cash
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Income taxes
Other liabilities
Net cash used in operating activities—discontinued operations
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Cash paid for acquisitions
Proceeds from the sale of assets
Cash paid for investments, net of distributions
Distributions from equity method investments
Other
Net cash provided by (used in) investing activities—discontinued
operations
Net cash provided by (used in) investing activities
FOR THE YEARS ENDED FEBRUARY 28,
2013
2014
2015
$
48,251
$
48,655
$
(95,985)
(50,080)
11,419
4,508
13,240
953
4,722
86
(6,519)
2,942
302
(9,877)
(1,426)
632
480
(438)
(4,501)
(1,608)
(1,852)
(9,294)
(95)
1,845
(3,364)
—
10,006
(6,489)
73
—
113,760
113,986
—
—
653
—
838
4,866
510
(33,176)
4,884
(96)
(8)
(813)
(3,256)
1,638
(1,831)
1,704
644
(686)
237
(68)
24,695
(3,057)
—
11
(659)
—
—
(1,650)
(5,355)
—
67,915
1,455
3,472
1,227
5,926
627
36,713
2,813
6,682
—
(501)
(6,954)
(1,527)
(682)
(373)
62
(30)
(2,384)
—
18,456
(3,514)
(136,006)
3
(516)
—
(185)
—
(140,218)
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – (CONTINUED)
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED FEBRUARY 28,
2013
2014
2015
FINANCING ACTIVITIES:
Payments on long-term debt
Proceeds from long-term debt
Settlement of tax withholding obligations
Dividends and distributions paid to noncontrolling interests
Proceeds from exercise of stock options and employee stock
purchases
Payments for debt related costs
Acquisition of rights in and purchase of preferred stock
Net cash (used in) provided by financing activities
Effect of exchange rate on cash and cash equivalents
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(279,716)
181,198
(220)
(5,103)
302
(9,343)
—
(112,882)
167
3,116
(24,126)
7,000
(1,071)
(4,620)
325
(164)
(107)
(22,763)
(8)
(3,431)
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURES:
Cash paid for (refund from)—
Interest
Income taxes
$
$
5,619
8,735
$
8,735
5,304
$
21,811
$
2,175
$
6,289
(903)
(79,541)
214,000
(1,466)
(5,428)
411
(7,849)
—
120,127
—
(1,635)
5,304
3,669
9,781
243
Non-cash financing transactions—
Value of stock issued to employees under stock
compensation program and to satisfy accrued incentives
1,798
3,074
5,637
The accompanying notes to consolidated financial statements are an integral part of these statements.
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively,
“Emmis,” the “Company,” or “we”). All significant intercompany balances and transactions have been eliminated.
b. Organization
Emmis is a diversified media company with radio broadcasting and magazine publishing operations. We own and operate
four FM and one AM radio stations serving the nation’s top two markets – New York and Los Angeles, although one station in
New York is operated pursuant to a Local Programming and Marketing Agreement ("LMA") whereby a third party provides the
programming for the station and sells all advertising within that programming. See Note 1e below for more discussion of
LMAs. Additionally, we own and operate fifteen FM and three AM radio stations with strong positions in St. Louis, Austin (we
have a 50.1% controlling interest in our radio stations located there), Indianapolis and Terre Haute. Emmis also developed and
licenses TagStation®, a cloud-based software platform that allows a broadcaster to manage album art, meta data and enhanced
advertising on its various broadcasts, and developed NextRadio®, a smartphone application that marries over-the-air FM radio
broadcasts with visual and interactive features on smartphones.
In addition to our radio businesses, we operate a radio news network in Indiana, publish Texas Monthly, Los Angeles,
Atlanta, Indianapolis Monthly, Cincinnati and Orange Coast, and operate Digonex, a dynamic pricing business.
Substantially all of ECC’s business is conducted through its subsidiaries. Our credit agreement, dated June 10, 2014 (the
“2014 Credit Agreement”), contains certain provisions that may restrict the ability of ECC’s subsidiaries to transfer funds to
ECC in the form of cash dividends, loans or advances.
c. Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of
delivery of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain
conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are
generally met at the time the advertisement is aired for broadcasting revenue and upon delivery of the publication for
publication revenue. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction
of advertising agency fees, usually at a rate of 15% of gross revenues.
Digonex provides a dynamic pricing service to online retailers, attractions, live event producers and other customers.
Revenue is recognized as recommended prices are delivered to customers. In some cases, this is upon initial delivery of prices,
such as for implementations, or over the period of the services agreement for fee-based pricing. Revenue pursuant to some
service agreements is not earned until tickets or merchandise are sold and, therefore, revenue is recognized as tickets are sold
for the related events or as merchandise is sold.
d. Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded based on management’s judgment of the collectability of receivables.
When assessing the collectability of receivables, management considers, among other things, historical loss experience and
existing economic conditions. Amounts are written off after all normal collection efforts have been exhausted. The activity in
the allowance for doubtful accounts for the three years ended February 28, 2015 was as follows:
Year ended February 28, 2013
Year ended February 28, 2014
Year ended February 28, 2015
Balance At
Beginning
Of Year
$
$
1,015
523
574
Provision
Write-Offs
Balance
At End
Of Year
$
86
510
627
(578) $
(459)
(536)
523
574
665
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e. Local Programming and Marketing Agreement Fees
The Company from time to time enters into LMAs in connection with acquisitions and dispositions of radio stations,
pending regulatory approval of transfer of the FCC licenses. Under the terms of these agreements, the acquiring company
makes specified periodic payments to the holder of the FCC license in exchange for the right to program and sell advertising
for a specified portion of the station’s inventory of broadcast time. The acquiring company records revenues and expenses
associated with the portion of the station’s inventory of broadcast time it manages. Nevertheless, as the holder of the FCC
license, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all
programming broadcast on the station.
Active LMA
On April 26, 2012, the Company entered into an LMA with New York AM Radio, LLC (“98.7FM Programmer”)
pursuant to which, commencing April 30, 2012, 98.7FM Programmer purchased from Emmis the right to provide programming
on 98.7FM until August 31, 2024. Disney Enterprises, Inc., the parent company of 98.7FM Programmer, has guaranteed the
obligations of 98.7FM Programmer under the LMA. The Company retains ownership and control of the Station, including the
related FCC license during the term of the LMA and received an annual fee from 98.7FM Programmer of $8.4 million for the
first year of the term under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination. This LMA
fee revenue is recorded on a straight-line basis over the term of the LMA. Emmis retains the FCC license of 98.7FM after the
term of the LMA expires.
Terminated LMAs
On February 11, 2014, the Company entered into an LMA in connection with its agreement to purchase WBLS-FM
and WLIB-AM in New York City from YMF Media New York LLC and YMF Media New York License LLC (collectively,
"YMF"). The LMA, which commenced on March 1, 2014, gave Emmis the right to program and sell advertising for the two
New York stations. Emmis paid YMF $1.3 million per month and reimbursed YMF for certain monthly expenses. The
monthly LMA fee decreased to approximately $0.74 million after the first closing of the purchase of the stations, which
occurred on June 10, 2014, and ceased effective with the second closing on February 13, 2015. The LMA fees paid after the
first closing were recognized as a liability as of the date of purchase of the stations on June 10, 2014. Accordingly, LMA fees
incurred after June 10, 2014 did not impact our results of operations. During the year ended February 28, 2015, Emmis
recorded $4.2 million of LMA expense. See Note 7 for more discussion of the Company's purchase of WBLS-FM and WLIB-
AM from YMF.
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KXOS-FM in Los Angeles with a
subsidiary of Grupo Radio Centro, S.A.B. de C.V (“GRC”), a Mexican broadcasting company. The LMA for KXOS-FM started
on April 15, 2009 and terminated upon the sale of the station on August 23, 2012 (see Note 8 for more discussion of the sale
transaction).
LMA fees recorded as net revenues (except for discontinued operations) in the accompanying consolidated statements of
operations were as follows for the years ended February 2013, 2014 and 2015:
Continuing Operations:
98.7FM, New York
Discontinued Operations:
KXOS-FM, Los Angeles
f. Share-based Compensation
For the years ended February 28,
2013
2014
2015
8,609
$
10,331
$
10,331
3,311
$
— $
—
$
$
The Company determines the fair value of its employee stock options at the date of grant using a Black-Scholes option-
pricing model. The Black-Scholes option pricing model was developed for use in estimating the value of exchange-traded
options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics
significantly different than these traded options. In addition, option pricing models require the input of highly subjective
assumptions, including the expected stock price volatility and expected term of the options granted. The Company relies
heavily upon historical data of its stock price when determining expected volatility, but each year the Company reassesses
whether or not historical data is representative of expected results. See Notes 3 and 4 for more discussion of share-based
compensation.
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Table of Contents
g. Cash and Cash Equivalents
Emmis considers time deposits, money market fund shares and all highly liquid debt investment instruments with original
maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
h. Restricted Cash
Restricted cash generally represents either cash on deposit in trust accounts related to our 98.7FM LMA in New York
City that services long-term debt as discussed in Note 5, or cash collected by our wholly-owned subsidiary, NextRadio LLC.
Usage of cash collected by NextRadio LLC is restricted for specific purposes by funding agreements. For more discussion of
NextRadio LLC, see Note 8.
i. Property and Equipment
Property and equipment are recorded at cost. Depreciation is generally computed using the straight-line method over the
estimated useful lives of the related assets, which are 39 years for buildings, the shorter of economic life or expected lease term
for leasehold improvements, five to seven years for broadcasting equipment, five years for automobiles, and three to five years
for office equipment. Maintenance, repairs and minor renewals are expensed as incurred; improvements are capitalized. On a
continuing basis, the Company reviews the carrying value of property and equipment for impairment. If events or changes in
circumstances were to indicate that an asset carrying value may not be recoverable, a write-down of the asset would be
recorded through a charge to operations. See Note 1r for more discussion of impairment policies related to our property and
equipment. Depreciation expense for the years ended February 2013, 2014 and 2015 was $4.7 million, $4.8 million and $5.0
million, respectively.
j. Intangible Assets and Goodwill
Indefinite-lived Intangibles and Goodwill
In connection with past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting
licenses, goodwill and other intangible assets. Goodwill consists of the excess of the purchase price over the fair value of
tangible and identifiable intangible net assets acquired. In accordance with ASC Topic 350, “Intangibles—Goodwill and
Other,” goodwill and radio broadcasting licenses are not amortized, but are tested at least annually for impairment at the
reporting unit level and unit of accounting level, respectively. We test for impairment annually, on December 1 of each year, or
more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred.
Impairment exists when the asset carrying values exceed their respective fair values, and the excess is then recorded to
operations as an impairment charge. See Note 9, Intangible Assets and Goodwill, for more discussion of our interim and annual
impairment tests performed during the three years ended February 28, 2015.
Definite-lived Intangibles
The Company’s definite-lived intangible assets primarily consist of patents, trademarks, customer lists and radio
programming contracts which are amortized over the period of time the intangible assets are expected to contribute directly or
indirectly to the Company’s future cash flows.
k. Discontinued operations and assets held for sale
The results of operations and related disposal gains and losses for business units that the Company has sold, expects to
sell, or has ceased operations are classified in discontinued operations for all periods presented.
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A summary of the income from discontinued operations is presented below:
Income (loss) from operations:
KXOS-FM (Radio)
Emmis Interactive Inc. (Radio)
Slovakia Radio Network (Radio)
Bulgaria Radio Network (Radio)
Sampler Publications (Publishing)
Total
Provision for income taxes
Loss from operations, net of tax
Gain (loss) on sale of discontinued operations:
KXOS-FM (Radio)
Emmis Interactive Inc. (Radio)
Slovakia Radio Network (Radio)
Bulgaria Radio Network (Radio)
Sampler Publications (Publishing)
Total
Benefit for income taxes
Gain on sale of discontinued operations, net of tax
Year ended February 28,
2013
2014
2015
(223)
(2,815)
782
(810)
(171)
(3,237)
532
(3,769)
32,757
(654)
14,798
(1,254)
695
46,342
(7,507)
53,849
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Income from discontinued operations, net of tax
$
50,080
$
— $
In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated
interest expense to discontinued operations associated with the portion of term loans required to be repaid as a result of
dispositions.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Discontinued Operation – Slovakia Radio
On February 25, 2013, Emmis completed the sale of its Slovakian radio network to Bauer Ausland 1 GMBH for $21.2
million in cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its
efforts on its domestic radio stations. In connection with the sale, Emmis recorded a gain on sale of assets of approximately
$14.8 million, which is included in income from discontinued operations in the accompanying consolidated statements of
operations. Emmis included the results of operations of its Slovakian radio network for the period January 1, 2012 through the
sale of the network on February 25, 2013 in discontinued operations in its year ended February 28, 2013. Net income of the
Slovakia radio network for the period beginning January 1, 2013 through the sale of the network on February 25, 2013 was not
material.
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Table of Contents
The operations of our Slovakian radio network had historically been included in the radio segment. The following table
summarizes certain operating results of our Slovakian radio network for all periods presented:
Net revenues
Station operating expenses, excluding depreciation and amortization
expense
Depreciation and amortization
Gain on sale of assets
Interest expense
Other income, net
Gain on sale of business
Provision for income taxes
For the year ended February 28,
2013
2014
2015
$
11,375
$
— $
8,663
781
244
1,461
(68)
14,798
532
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Discontinued Operation – Bulgaria Radio
On January 3, 2013, Emmis completed the sale of its Bulgarian radio network to Reflex Media EEOD for $1.7 million in
cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its efforts on its
domestic radio stations. In connection with the sale, Emmis recorded a loss on sale of assets of approximately $1.3 million,
which is included in income from discontinued operations in the accompanying consolidated statements of operations. The loss
on disposal primarily resulted from the reclassification of accumulated currency translation adjustments.
The operations of our Bulgarian radio network had historically been included in the radio segment. The following table
summarizes certain operating results of our Bulgarian radio network for all periods presented:
Net revenues
Station operating expenses, excluding depreciation and amortization
expense
Depreciation and amortization
Other expense, net
Loss on sale of business
Discontinued Operation — Emmis Interactive
For the year ended February 28,
2013
2014
2015
$
1,152
$
— $
1,769
174
19
(1,254)
—
—
—
—
—
—
—
—
—
On October 31, 2012, Emmis completed the sale of Emmis Interactive Inc., a subsidiary of Emmis that provided a
content management system, data analytic tools and related services, to Marketron Broadcast Solutions, LLC (“Marketron”) for
no net proceeds. The sale of Emmis Interactive Inc. allowed Emmis to mitigate expected future operating losses and focus its
efforts on its domestic radio operations and other promising technology initiatives. Marketron assumed operating control of
Emmis Interactive, Inc., on October 4, 2012. In connection with the sale, Emmis recorded a loss on sale of assets of
approximately $0.7 million, which is primarily related to severance for former employees and is included in income from
discontinued operations in the accompanying consolidated statements of operations.
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The operations of Emmis Interactive Inc. had historically been included in the radio segment. The following table
summarizes certain operating results of Emmis Interactive Inc. for all periods presented:
Net revenues
Station operating expenses, excluding depreciation and amortization expense
Depreciation and amortization
Other income, net
Impairment loss
Loss on sale of business
$
$
2,743
4,698
257
(134)
737
(654)
— $
—
—
—
—
—
—
—
—
—
—
—
For the year ended February 28,
2013
2014
2015
Discontinued Operation – Country Sampler, Smart Retailer and related publications
On October 1, 2012, Emmis completed the sale of Country Sampler magazine, Smart Retailer magazine, and related
publications (altogether the “Sampler Publications”) and certain real estate used in their operations to subsidiaries of DRG
Holdings, LLC. Emmis believed the sale of the Sampler Publications, which were niche crafting publications, would enable it
to more clearly focus on its core city and regional publications. Emmis received gross proceeds from the sale of $8.7 million,
incurred approximately $0.2 million in transaction expenses and tax obligations, and used the remaining $8.5 million to repay
term loans. In connection with the sale, Emmis recorded a gain on sale of assets of approximately $0.7 million, which is
included in income from discontinued operations in the accompanying consolidated statements of operations.
In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated
interest expense associated with the estimate of term loans required to be repaid as a result of the sale of the Sampler
Publications to its operations for all periods presented.
The operations of the Sampler Publications had historically been included in the publishing segment. The following table
summarizes certain operating results of the Sampler Publications for all periods presented:
For the year ended February 28,
2013
2014
2015
Net revenues
Station operating expenses, excluding depreciation and amortization expense
Depreciation and amortization
Loss on disposal of assets
Interest expense
Gain on sale of business
Benefit for income taxes
$
$
5,298
4,985
44
—
440
695
(2,764)
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
Discontinued Operation – KXOS-FM
On August 23, 2012, Emmis completed the sale of KXOS-FM in Los Angeles for $85.5 million in cash. In connection
with the sale, Emmis recorded a gain on sale of assets of approximately $32.8 million, which is included in income from
discontinued operations in the accompanying consolidated statements of operations. KXOS-FM had previously been operating
pursuant to a local programming and marketing agreement, which is discussed in more detail above.
In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated
interest expense associated with the portion of term loans required to be repaid as a result of the sale of KXOS-FM to its
operations for all periods presented.
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The operations of KXOS-FM had historically been included in the radio segment. The following table summarizes
certain operating results of KXOS-FM for all periods presented:
For the years ended February 28,
2013
2014
2015
Net revenues
Station operating expenses, excluding depreciation and amortization expense
Depreciation and amortization expense
Gain on sale of assets
Interest expense
Gain on sale of station, net of taxes
Benefit for income taxes
$
$
3,331
27
169
—
3,358
32,757
(4,743)
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
l. Advertising and Subscription Acquisition Costs
Advertising and subscription acquisition costs are expensed when incurred. Advertising expense for the years ended
February 2013, 2014 and 2015 was $4.1 million, $2.8 million and $3.2 million, respectively.
m. Investments
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise
significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity
method. For other investments held at February 28, 2015, the Company applies the accounting guidance for certain investments
in debt and equity securities. Emmis’ equity method investments report on a fiscal year ending December 31, which Emmis
incorporates into its fiscal year ended February 28.
Emmis has various investments, the carrying values of which are summarized in the following table and discussed below:
Available-for-sale investments
Equity method investment
Total investments
Equity method investment
For the years ending February 28,
2014
2015
$
$
6,750
431
7,181
$
$
500
526
1,026
Emmis has a minority interest in a partnership that owns and operates various entertainment websites.
Available for sale investments
Emmis’ available for sale investments are investments in the preferred shares of non-public companies. These
investments are accounted for under the provisions of ASC 320.
During the year ended February 28, 2013, Emmis made investments totaling $6.0 million in Courseload, Inc, a provider
of online textbooks and other course material. Emmis made additional investments in Courseload Inc. of $0.3 million and $0.4
million during the years ended February 28, 2014 and 2015, respectively. During the year ended February 28, 2015, Emmis
recorded a noncash impairment charge of $6.7 million in other income (expense), net in the accompanying consolidated
statements of operations as it deemed the investment was impaired and the impairment was other-than-temporary. The
impairment charge recorded during the year ended February 28, 2015 reduced the carrying value of this investment to zero as
of February 28, 2015.
During the year ended February 28, 2013, Emmis made investments totaling $0.5 million in TuneIn, Inc., an on-line
access point for over-the-air radio streams and other on-demand audio programming such as podcasts, interviews and concerts.
This investment is carried at fair value, which the Company believes approximates the original acquisition cost of $0.5 million.
Unrealized gains and losses would be reported in other comprehensive income until realized, at which point they would
be recognized in the consolidated statements of operations. If the Company determines that the value of an investment is other-
than-temporarily impaired, the Company will recognize, through the statements of operations, a loss on the investment.
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n. Deferred Revenue and Barter Transactions
Deferred revenue includes deferred magazine subscription revenue, deferred barter and other transactions in which
payments are received prior to the performance of services (i.e. cash-in-advance advertising and prepaid LMA payments).
Magazine subscription revenue is recognized when the publication is shipped. Barter transactions are recorded at the estimated
fair value of the product or service received. Broadcast revenue from barter transactions is recognized when commercials are
broadcast or a publication is delivered. The appropriate expense or asset is recognized when merchandise or services are used
or received. Barter revenues for the years ended February 2013, 2014 and 2015 were $9.2 million, $8.5 million and $8.5
million, respectively, and barter expenses were $9.2 million, $8.7 million, and $8.7 million, respectively.
o. Foreign Currency Translation
The functional currencies of our international radio entities, all of which have now been sold or have ceased operations,
are shown in the following table. The balance sheets of these entities were translated from their functional currencies to the
U.S. dollar using the current exchange rate in effect at the subsidiaries’ balance sheet date (December 31 for our international
radio entities). The results of operations for our international radio entities were translated using an average exchange rate for
the period. The net translation adjustments reflected in shareholders’ (deficit) equity during the respective periods were as
follows:
Functional
Currency
For the Years Ended February 28,
2013
2014
2015
Foreign currency translation adjustments
Slovakia
Bulgaria
Reclassification due to substantial liquidation
Slovakia
Bulgaria
Euro
Leva
Euro
Leva
p. Earnings Per Share
$
$
$
23
(175)
3,324
(1,971)
1,201
$
$
$
(11) $
—
— $
—
(11) $
—
—
—
—
—
ASC Topic 260 requires dual presentation of basic and diluted income (loss) per share (“EPS”) on the face of the income
statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (loss) attributable to
common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted.
Potentially dilutive securities at February 2013, 2014 and 2015 consisted of stock options, restricted stock awards and preferred
stock.
The following table sets forth the calculation of basic and diluted net income (loss) per share from continuing operations:
February 28, 2013
For the year ended
February 28, 2014
February 28, 2015
Net Loss
Shares
Net Loss
Per Share
Net Income
Shares
Net Income
Per Share
Net Loss
Shares
Net Loss
Per Share
(amounts in 000’s, except per share data)
Basic net income (loss) per common share:
Net income (loss) available to common
shareholders from continuing operations
Impact of equity awards
Impact of conversion of preferred stock into
common stock
Diluted net income (loss) per common share:
Net income (loss) available to common
shareholders from continuing operations
$ (8,114)
39,034
$
(0.21) $ 43,806
40,506
$
1.08
$ (99,259)
42,537
$
(2.33)
—
—
—
—
—
3,264
(325)
2,272
—
—
—
—
$ (8,114)
39,034
$
(0.21) $ 43,481
46,042
$
0.94
$ (99,259)
42,537
$
(2.33)
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Shares excluded from the calculation as the effect of their conversion into shares of our common stock would be
antidilutive were as follows:
Preferred stock
Stock options and restricted stock awards
Antidilutive common share equivalents
q. Income Taxes
For the year ended February 28,
2013
2014
2015
2,288
6,953
9,241
(shares in 000’s )
—
1,995
1,995
2,266
4,324
6,590
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s
financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions
are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between
amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes.
After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some
portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be
realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
r. Long-Lived Tangible Assets
The Company periodically considers whether indicators of impairment of long-lived tangible assets are present. If such
indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the
assets in question are less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of
the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows,
appraisals and other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an
impairment charge to the extent the asset’s carrying value is greater than the fair value. The fair value of the asset then becomes
the asset’s new carrying value, which, if applicable, the Company depreciates or amortizes over the remaining estimated useful
life of the asset.
s. Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses in the financial statements and in disclosures of contingent assets and liabilities. Actual results could differ from those
estimates.
t. National Representation Agreement
On October 1, 2007, Emmis terminated its existing national sales representation agreement with Interep National Radio
Sales, Inc. (“Interep”) and entered into a new agreement with Katz Communications, Inc. (“Katz”) extending through March
2018. Emmis’ existing contract with Interep extended through September 2011. Emmis, Interep and Katz entered into a tri-
party termination and mutual release agreement under which Interep agreed to release Emmis from its future contractual
obligations in exchange for a one-time payment of $15.3 million, which was paid by Katz on behalf of Emmis as an
inducement for Emmis to enter into the new long-term contract with Katz. Emmis measured and recognized the charge
associated with terminating the Interep contract as of the effective termination date, which was recorded as a noncash contract
termination fee in the year ended February 2008. The liability established as a result of the termination represents an incentive
received from Katz that is being recognized as a reduction of our national agency commission expense over the term of the
agreement with Katz. The current portion of this liability is included in other current liabilities and the long-term portion of this
liability is included in other noncurrent liabilities in the accompanying consolidated balance sheets at February 28, 2014 and
2015.
u. Liquidity
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, principal
and interest payments on its indebtedness and preferred stock dividends. As of the filing of this Form 10-K, management
believes the Company can meet its liquidity needs through the end of fiscal year 2016 with cash and cash equivalents on hand,
projected cash flows from operations, and, to the extent necessary, through its borrowing capacity under the 2014 Credit
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Agreement, which was $12.0 million at February 28, 2015. Based on these projections, management also believes the
Company will be in compliance with its debt covenants through the end of fiscal year 2016.
v. Recent Accounting Pronouncements
In June 2013, the FASB issued a new accounting standard that requires the presentation of certain unrecognized tax
benefits as reductions to deferred tax assets rather than as liabilities in the consolidated balance sheets when a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance was effective for the Company beginning
March 1, 2014. The adoption of this guidance did not have any effect on the presentation of the Company’s consolidated
financial statements.
In April 2014, the FASB issued Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205)
and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity, to update the criteria for reporting discontinued operations and enhance related disclosures. Under the
new guidance, only disposals that have a major effect through a strategic shift on an organization’s operations and financial
results should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures that will
provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued
operations. The guidance is effective for the Company as of March 1, 2015. The Company expects that this new guidance will
reduce the number of transactions that will qualify for reporting as discontinued operations.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, to
clarify the principles used to recognize revenue for all entities. In April 2015, the FASB voted to defer the effective date of this
Accounting Standards Update for one year. This guidance will be effective for the Company in the first quarter of its fiscal year
ending February 28, 2019. The Company is currently evaluating the method of adoption and impact, if any, the adoption of this
guidance will have on its financial position and results of operations.
In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements - Going
Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This
updateprovides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods
ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The
adoption of this update is not expected to have an impact on the Company’s consolidated financial statements.
On April 7, 2015, the FASB issued Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs. Entities that have historically presented debt issuance costs as an
asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying
amount of that debt liability. This presentation will result is debt issuance cost being presented the same way debt discounts
have historically been handled. The ASU does not change the recognition, measurement, or subsequent measurement guidance
for debt issuance costs. This guidance is effective for the Company as of March 1, 2016 and may be adopted early. The
Company expects this new guidance will reduce total assets and total long-term debt on its consolidated balance sheets by
amounts classified as deferred debt issuance costs, but does not expect this update to have any other effect on its consolidated
financial statements.
w. Reclassifications
Certain prior year amounts related to the classification of prepaid expenses and other current assets in the consolidated
balance sheets have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on
net income previously reported.
2. COMMON STOCK
Emmis has authorized Class A common stock, Class B common stock, and Class C common stock. The rights of these
three classes are essentially identical except that each share of Class A common stock has one vote with respect to substantially
all matters, each share of Class B common stock has 10 votes with respect to substantially all matters, and each share of Class
C common stock has no voting rights with respect to substantially all matters. Class B common stock is owned by our
Chairman, CEO and President, Jeffrey H. Smulyan. All shares of Class B common stock convert to Class A common stock
upon sale or other transfer to a party unaffiliated with Mr. Smulyan. At February 28, 2014 and 2015, no shares of Class C
common stock were issued or outstanding.
3. REDEEMABLE PREFERRED STOCK
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Each share of redeemable Preferred Stock is convertible into a number of shares of common stock, which is determined
by dividing the liquidation preference of the share of preferred stock ($50.00 per share) by the conversion price. The
conversion price is $20.495, which results in a conversion ratio of approximately 2.44 shares of common stock per share of
Preferred Stock. Emmis may redeem the Preferred Stock for cash at 100% of the liquidation preference per share, which totaled
$46.5 million as of February 28, 2015. Emmis’ 2014 Credit Agreement sets forth certain restrictions on our ability to pay
dividends.
On September 3, 2012, the Company's shareholders approved amendments to the Company's Articles of Incorporation
that, among other things, canceled Preferred Stock undeclared dividends and changed the designation of Preferred Stock from
cumulative to non-cumulative. On May 2, 2013, the Board of the Company approved a repurchase program for the Company’s
Preferred Stock under which the Company may repurchase up to $0.5 million in aggregate purchase price of its Preferred Stock
commencing May 9, 2013. During the year ended February 28, 2014, the Company purchased 8,650 shares of Preferred Stock
at a weighted average price of $12.38 per share. We recorded a gain on extinguishment of preferred stock of $0.3 million, net of
transaction fees and expenses, which was recorded as a decrease to accumulated deficit and included in the computation of net
income available to common shareholders in the accompanying consolidated financial statements. We did not repurchase any of
our Preferred Stock during the year ended February 28, 2015. As of February 28, 2015, there were 928,991 shares of Preferred
Stock outstanding.
The Company may make further repurchases of its Preferred Stock from time to time in amounts and at prices the
management of the Company deems appropriate, based on its evaluation of market conditions and other considerations. The
Company’s repurchases may be executed using a combination of open market purchases, privately negotiated agreements,
written repurchase plans or other transactions. The repurchases will be funded from cash on hand or available borrowings. The
Preferred Stock repurchase program may be modified, extended, suspended or discontinued at any time without prior notice.
2012 Retention Plan and Trust
On April 2, 2012, the shareholders of the Company approved the 2012 Retention Plan at a special meeting of
shareholders. The Company contributed 400,000 shares of its Preferred Stock to the Trust in connection with the approval of
the 2012 Retention Plan. Awards granted under the 2012 Retention Plan entitled the participants to receive a distribution two
years from the date of shareholder approval of the plan, provided the participant was an employee upon inception of the plan
and remained an employee through the vesting date. The Trustee of the plan was Jeffrey H. Smulyan, our Chairman of the
Board, President and Chief Executive Officer.
In connection with the approval of the 2012 Retention Plan, the Trustee and the Trust entered into a Voting and Transfer
Restriction Agreement with Emmis, pursuant to which Emmis had the right to direct the vote of the 400,000 shares of Preferred
Stock contributed to the Trust under the 2012 Retention Plan. The Company also had the right to exchange the 400,000 shares
of Preferred Stock into shares of Class A common stock at the same ratio as the conversion formula in the Preferred Stock
(approximately 2.44 shares of Class A common stock for each share of Preferred Stock).
On March 5, 2014, the Board of Directors of the Company approved the exercise of the Company's repurchase option
under the Voting and Transfer Restriction Agreement with the Trustee of the 2012 Retention Plan and Trust. Pursuant to the
exercise of that option, the Company repurchased 400,000 shares of Preferred Stock from the trustee in exchange for 975,848
shares of the Company's Class A Common Stock. On April 2, 2014, 975,848 shares of Class A Common Stock were distributed
to employees who met the vesting requirements of the plan. The Company recognized approximately $0.7 million, $2.2 million
and $0.4 million of compensation expense related to the 2012 Retention Plan during the years ended February 28, 2013, 2014
and 2015, respectively. The issuance and vesting of these shares is reflected in the restricted stock table in Note 4.
Total Return Swaps and Voting Agreements
On various dates in November 2011 and January 2012, Emmis either purchased or purchased rights in 1,871,529 shares
of Preferred Stock at a weighted average price of $15.64 per share. We purchased 386,850 shares for cash and these shares
were retired. The purchase price for the rights in the remaining shares was also paid in cash, but these shares were subject to
total return swap arrangements. Pursuant to those agreements and arrangements, we had the ability to direct the vote of
1,484,679 shares of Preferred Stock, or approximately 61% of the Preferred Stock outstanding as of February 29, 2012. While
the shares of Preferred Stock subject to total return swap and voting agreements were not retired for record purposes, they were
considered extinguished for accounting purposes.
In order to comply with the terms of a previous credit agreement, Emmis exercised its early termination option under the
total return swap transactions that it had entered into with certain holders of 1,484,679 shares of its Preferred Stock. The
termination was effective on September 19, 2012. As a result, these 1,484,679 shares of Preferred Stock have returned to the
status of authorized but unissued shares.
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4. SHARE BASED PAYMENTS
The amounts recorded as share based compensation expense consist of stock option and restricted stock grants, common
stock issued to employees and directors in lieu of cash payments, and Preferred Stock contributed to the 2012 Retention Plan.
Stock Option Awards
The Company has granted options to purchase its common stock to employees and directors of the Company under
various stock option plans at no less than the fair market value of the underlying stock on the date of grant. These options are
granted for a term not exceeding 10 years and are forfeited, except in certain circumstances, in the event the employee or
director terminates his or her employment or relationship with the Company. Generally, these options either vest annually over
3 years (one-third each year for 3 years), or cliff vest at the end of 3 years. The Company issues new shares upon the exercise
of stock options.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model and
expensed on a straight-line basis over the vesting period. Expected volatilities are based on historical volatility of the
Company’s stock. The Company uses historical data to estimate option exercises and employee terminations within the
valuation model. The Company includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate
through the final vesting date of awards. The risk-free interest rate for periods within the life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. The following assumptions were used to calculate the fair value of the
Company’s options on the date of grant during the years ended February 28, 2013, 2014 and 2015:
Risk-Free Interest Rate:
Expected Dividend Yield:
Expected Life (Years):
Expected Volatility:
For the Years Ended February 28,
2013
0.5% - 0.7%
0%
4.2
2014
0.6% - 1.5%
0%
4.3
2015
1.2% - 1.5%
0%
4.3
128.9% – 131.4%
80.4% - 115.9%
69.0% - 73.9%
The following table presents a summary of the Company’s stock options outstanding at February 28, 2015, and stock
option activity during the year ended February 28, 2015 (“Price” reflects the weighted average exercise price per share):
Options
Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
Outstanding, beginning of period
Granted
Exercised (1)
Forfeited
Expired
Outstanding, end of period
Exercisable, end of period
$
6,984,605
571,219
794,768
40,000
996,610
5,724,446
2,557,363
3.74
2.90
0.57
0.70
17.28
1.76
2.00
6.6
5.2
$
$
5,060
2,447
(1) The Company did not record an income tax benefit related to option exercises in the years ended February 28, 2013, 2014 and 2015. Cash received from
option exercises during the years ended February 2013, 2014 and 2015 was $0.3 million, $0.3 million and $0.4 million, respectively.
The weighted average grant date fair value of options granted during the years ended February 28, 2014 and 2015, was
$1.67 and $1.64, respectively.
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A summary of the Company’s nonvested options at February 28, 2015, and changes during the year ended February 28,
2015, is presented below:
Nonvested, beginning of period
Granted
Vested
Forfeited
Nonvested, end of period
Options
3,325,481
571,219
689,617
40,000
3,167,083
Weighted Average
Grant Date
Fair Value
$
0.98
1.64
1.07
0.57
1.08
There were 3.0 million shares available for future grants under the Company’s various equity plans at February 28, 2015
(1.9 million shares under the 2012 Equity Compensation Plan and 1.1 million shares under other plans). The vesting dates of
outstanding options at February 28, 2015 range from March 2015 to March 2018, and expiration dates range from March 2015
to September 2024.
Restricted Stock Awards
The Company grants restricted stock awards to directors annually, and periodically grants restricted stock to employees in
connection with employment agreements. Awards to directors are granted on the date of our annual meeting of shareholders and
vest on the earlier of (i) the completion of the director’s 3-year term or (ii) the third anniversary of the date of grant. Restricted
stock award grants are granted out of the Company’s 2012 Equity Compensation Plan. The Company may also award, out of
the Company’s 2012 Equity Compensation Plan, stock to settle certain bonuses and other compensation that otherwise would
be paid in cash. Any restrictions on these shares may be immediately lapsed on the grant date.
On January 16, 2013, the Company commenced an option exchange program whereby optionees holding certain fully-
vested underwater stock options were given the opportunity to exchange those stock options into restricted stock with a one-
year vesting term. The exchange ratios were intended to result in little to no incremental accounting cost to the Company
because the fair value of the options was measured immediately prior to the exchange and compared to the fair value of the
restricted stock exchanged. The exchange offer closed February 15, 2013. Pursuant to the exchange offer and based on
participant elections, approximately 2.2 million stock options were canceled and approximately 0.5 million shares of restricted
stock were issued. These shares of restricted stock vested February 19, 2014. The exchange resulted in less than $0.1 million of
incremental accounting cost during the years ended February 28, 2013 and 2014.
The following table presents a summary of the Company’s restricted stock grants outstanding at February 28, 2015, and
restricted stock activity during the year ended February 28, 2015 (“Price” reflects the weighted average share price at the date
of grant):
Grants outstanding, beginning of period
Granted
Vested (restriction lapsed)
Forfeited
Grants outstanding, end of period
Awards
Price
$
590,544
1,437,429
1,350,339
—
677,634
1.79
3.18
3.03
—
2.26
The total grant date fair value of shares vested during the years ended February 28, 2013, 2014 and 2015, was $1.4
million, $2.2 million and $4.1 million, respectively.
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Recognized Non-Cash Compensation Expense
The following table summarizes stock-based compensation expense and related tax benefits recognized by the Company
in the years ended February 28, 2013, 2014 and 2015:
Station operating expenses
Corporate expenses
Stock-based compensation expense included in operating expenses
Tax benefit
Recognized stock-based compensation expense, net of tax
Year Ended February 28,
2013
2014
2015
$
$
852
2,090
2,942
—
2,942
$
$
2,236
2,648
4,884
1,954
2,930
$
$
720
2,093
2,813
—
2,813
As of February 28, 2015, there was $2.1 million of unrecognized compensation cost, net of estimated forfeitures, related
to nonvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of
approximately 1.6 years.
5. LONG-TERM DEBT
Long-term debt was comprised of the following at February 28, 2014 and 2015:
2012 Credit Agreement debt :
Revolver
Term Loan
Total 2012 Credit Agreement debt
2014 Credit Agreement debt :
Revolver
Term Loan
Total 2014 Credit Agreement debt
Digonex nonrecourse debt (1)
98.7FM nonrecourse debt
Current maturities
Unamortized original issue discount
Total long-term debt
(1) The face value of Digonex nonrecourse debt is $6.2 million
2014 Credit Agreement
As of February 28,
2014
As of February 28,
2015
$
— $
54,000
54,000
—
—
—
—
74,942
(12,541)
(1,475)
114,926
$
$
—
—
—
8,000
185,000
193,000
3,971
70,401
(6,840)
(6,382)
254,150
On June 10, 2014, Emmis entered into the 2014 Credit Agreement, by and among the Company, EOC, as borrower (the
“Borrower”), certain other subsidiaries of the Company, as guarantors (the “Subsidiary Guarantors”), the lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent.
The 2014 Credit Agreement includes a senior secured term loan facility (the “Term Loan”) of $185.0 million and a senior
secured revolving credit facility of $20.0 million, and contains provisions for an uncommitted increase of up to $20.0 million
principal amount (plus additional amounts so long as a pro forma total net senior secured leverage ratio condition is met) of the
revolving credit facility and/or the Term Loan subject to the satisfaction of certain conditions. The revolving credit facility
includes a sub-facility for the issuance of up to $5.0 million of letters of credit. Pursuant to the 2014 Credit Agreement, the
Borrower borrowed $185.0 million of the Term Loan on June 10, 2014; $109.0 million was disbursed to the Borrower (the
“Initial Proceeds”) and the remaining $76.0 million was funded into escrow (the “Subsequent Acquisition Proceeds”).
The Initial Proceeds, coupled with $13.0 million of revolving credit facility borrowings, were used by the Borrower on
June 10, 2014 to repay all amounts outstanding under its previous credit agreement, to make a $55.0 million initial payment
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associated with our acquisition of WBLS-FM and WLIB-AM, and to pay fees and expenses. The Subsequent Acquisition
Proceeds were used to make the final $76.0 million payment related to the acquisition of WBLS-FM and WLIB-AM on
February 13, 2015.
The Term Loan is due not later than June 10, 2021 and, prior to the Second Amendment to the 2014 Credit Agreement
discussed below, amortized in an amount equal to 1% per annum of the total principal amount outstanding, payable in quarterly
installments commencing April 1, 2015, with the balance payable on the maturity date. The revolving credit facility expires not
later than June 10, 2019. An unused commitment fee of 50 basis points per annum will be payable quarterly on the average
unused amount of the revolving credit facility. Prior to the First Amendment and Second Amendment to the 2014 Credit
Agreement discussed below, the Term Loan and amounts borrowed under the revolving credit facility bore interest, at the
Borrower’s option, at either (i) the Alternate Base Rate (as defined in the 2014 Credit Agreement) (but not less than 2.00%)
plus 3.75% or (ii) the Adjusted LIBO Rate (as defined in the 2014 Credit Agreement) (but not less than 1.00%) plus 4.75%.
Approximately $1.0 million of transaction fees related to the 2014 Credit Agreement were capitalized and are being
amortized over the life of the 2014 Credit Agreement. These deferred debt costs are included in other assets, net in the
accompanying consolidated balance sheets. The 2014 Credit Agreement is carried on our consolidated balance sheets net of an
original issue discount. The original issue discount, which was $6.1 million as of the issuance of the debt on June 10, 2014 and
$6.4 million as of February 28, 2015 (inclusive of the $1.0 million of transaction fees associated with the November 7, 2014
debt amendment discussed below), is being amortized as additional interest expense over the life of the 2014 Credit Agreement.
The obligations under the 2014 Credit Agreement are secured by a perfected first priority security interest in substantially
all of the assets of the Company, the Borrower and the Subsidiary Guarantors.
On November 7, 2014, Emmis entered into the First Amendment (the “First Amendment”) to the 2014 Credit Agreement.
The First Amendment (i) increases the maximum Total Leverage Ratio to 6.00:1.00 for the period February 28, 2015 through
February 29, 2016, (ii) adjusts the definition of Consolidated EBITDA to exclude during the term of the 2014 Credit Agreement
up to $5 million in severance and/or contract termination expenses and up to $2.5 million in losses attributable to the
reformatting of the Company’s radio stations, (iii) extends the requirement for the Borrower to pay a 1.00% fee on certain
prepayments of the Term Loan to November 7, 2015, (iv) increases the Applicable Margin by 0.25% for at least six months
from the date of the First Amendment and until the Total Leverage Ratio is less than 5.00:1.00, and (v) makes certain technical
adjustments to the definition of Consolidated Excess Cash Flow and to address the Foreign Account Tax Compliance Act.
Emmis paid a total of approximately $1.0 million of transaction fees to the Lenders that consented to the First Amendment,
which were recorded as original issue discount and are being amortized over the remaining life of the 2014 Credit Agreement.
Capitalized terms in this paragraph not defined elsewhere in this document are defined in the 2014 Credit Agreement.
The 2014 Credit Agreement was amended subsequent to February 28, 2015. See Note 17, Subsequent Events, for more
details of the amendment.
Borrowing under the 2014 Credit Agreement depends upon our continued compliance with certain operating covenants
and financial ratios, including leverage and fixed charge coverage as specifically defined. The operating covenants and other
restrictions with which we must comply include, among others, restrictions on additional indebtedness, incurrence of liens,
engaging in businesses other than our primary business, paying certain dividends, redeeming or repurchasing capital stock of
Emmis, acquisitions and asset sales. No default or event of default has occurred or is continuing. The 2014 Credit Agreement
provides that an event of default will occur if there is a “change in control” of Emmis, as defined. The payment of principal,
premium and interest under the 2014 Credit Agreement is fully and unconditionally guaranteed, jointly and severally, by ECC
and most of its existing wholly-owned domestic subsidiaries. Substantially all of Emmis’ assets, including the stock of most of
Emmis’ wholly-owned, domestic subsidiaries are pledged to secure the 2014 Credit Agreement.
2012 Credit Agreement
On December 28, 2012, Emmis entered into a credit facility (the “2012 Credit Agreement”) to provide for total
borrowings of up to $100 million, including (i) an $80 million term loan and (ii) a $20 million revolver, of which $5 million
may be used for letters of credit. On June 10, 2014, Emmis entered into the 2014 Credit Agreement. In connection with the
execution of the 2014 Credit Agreement, the 2012 Credit Agreement was terminated effective June 10, 2014, and all amounts
outstanding under that agreement were paid in full. During the three months ended August 31, 2014, the Company recorded a
loss on debt extinguishment of $1.5 million related to the termination of the 2012 Credit Agreement.
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2014 Credit Agreement Covenants
We were in compliance with all financial and non-financial covenants as of February 28, 2015. Our Total Leverage Ratio
and Minimum Interest Coverage Ratio (each as defined in the 2014 Credit Agreement) requirements and actual amounts as of
February 28, 2015 were as follows:
Maximum Total Leverage Ratio
Minimum Fixed Charge Coverage Ratio
98.7FM Nonrecourse Debt
As of February 28, 2015
Covenant
Requirement
6.00 : 1.00
2.00 : 1.00
Actual Results
5.40 : 1.00
3.08 : 1.00
On May 30, 2012, the Company, through wholly-owned, newly-created subsidiaries, issued $82.2 million of nonrecourse
notes. Teachers Insurance and Annuity Association of America, through a participation agreement with Wells Fargo Bank
Northwest, National Association, is entitled to receive payments made on the notes. The notes are obligations only of the
newly-created subsidiaries, are non-recourse to the rest of the Company’s subsidiaries and are secured by the assets of the
newly-created subsidiaries, including the payments made to the newly-created subsidiary related to the 98.7FM LMA, which
are guaranteed by Disney Enterprises, Inc. The notes bear interest at 4.1%.
Digonex Nonrecourse Debt
Digonex issued $6.2 million of notes payable prior to Emmis’ acquisition of a controlling interest of Digonex on June 16,
2014. Emmis recorded these notes at fair value in its purchase price allocation as of June 16, 2014. The difference between the
fair value recorded on June 16, 2014 and the face value of the notes is being accreted as additional interest expense through the
maturity date of the notes. The notes are obligations of Digonex only and are non-recourse to the rest of Emmis'
subsidiaries. Approximately $1.5 million of the Digonex notes are secured by the assets of Digonex and the remaining $4.7
million are unsecured. The notes bear simple interest at 5% with interest due at maturity of the notes on December 31, 2017.
See Note 7 for more discussion of the acquisition of Digonex.
Based on amounts outstanding at February 28, 2015, mandatory principal payments of long-term debt for the next five
years and thereafter are summarized below:
Year Ended
February 28 (29),
2016
2017
2018
2019
2020
Thereafter
Total
2014 Credit Agreement
Revolver
Term Loan
98.7FM Debt
Digonex Debt
Total
$
$
— $
—
—
—
8,000
—
8,000
$
1,850
1,850
1,850
1,850
1,850
175,750
185,000
$
$
4,990
5,453
6,039
6,587
7,150
40,182
70,401
$
$
— $
—
6,199
—
—
—
6,199
$
6,840
7,303
14,088
8,437
17,000
215,932
269,600
6. FAIR VALUE MEASUREMENTS
As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or
assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally
unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
Recurring Fair Value Measurements
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The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that
were accounted for at fair value on a recurring basis as of February 28, 2014 and 2015. The financial assets and liabilities are
classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the
valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
Available for sale securities
Total assets measured at fair value on a recurring
basis
As of February 28, 2015
Level 1
Level 2
Level 3
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
$
$
— $
— $
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
— $
— $
500
500
$
$
Total
500
500
As of February 28, 2014
Level 1
Level 2
Level 3
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total
Available for sale securities
Total assets measured at fair value on a recurring
basis
Share-based compensation arrangement
Interest rate swap agreement
Total liabilities measured at fair value on a recurring
basis
$
$
$
$
— $
— $
6,750
— $
2,926
$
—
2,926
$
— $
— $
94
94
$
$
$
6,750
— $
—
6,750
6,750
2,926
94
— $
3,020
Available for sale securities — Emmis’ available for sale securities are investments in preferred stock of private companies that
are not traded in active markets. The investments are recorded at fair value, which was generally estimated using significant
unobservable market parameters, resulting in a level 3 categorization. The carrying value of our preferred stock investments
was determined by using implied valuations of recent rounds of financing and by other corroborating evidence, including the
application of various valuation methodologies including option-pricing and discounted cash flow based models. During the
year ended February 28, 2015, the Company determined that its investment in Courseload, Inc. was fully impaired and the
impairment was other-than-temporary. As such, the Company recorded a noncash inpairment charge of $6.7 million. Available
for sale securities are included in investments on our consolidated balance sheets. See Note 1j for more discussion.
Share-based compensation arrangement — Emmis’ 2012 Retention Plan and Trust discussed in Note 3 was recorded at fair
value on a recurring basis. As the fair value of the 2012 Retention Plan and Trust was tied to quoted prices of Emmis stock, it
was considered a level 1 measurement. The share-based compensation arrangement was settled during the three months ended
May 31, 2014.
Interest rate swap agreement — Emmis’ derivative financial instruments consisted solely of an interest rate cash flow hedge in
which the Company paid a fixed rate and received a variable interest rate that was observable based upon a forward interest rate
curve and was therefore considered a level 2 measurement. The interest rate swap agreement was settled during the three
months ended August 31, 2014.
The following table shows a reconciliation of the beginning and ending balances for fair value measurements using
significant unobservable inputs:
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Beginning Balance
Purchases
Other than temporary impairment losses
Ending Balance
Non-Recurring Fair Value Measurements
Year Ended February 28,
2014
2015
Available
For Sale
Securities
6,500
$
250
—
6,750
$
6,750
432
(6,682)
500
$
$
The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events
that include those described in Note 9, Intangible Assets and Goodwill, and are adjusted to fair value only when the carrying
values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3
measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 9 for more
discussion).
Fair Value of Other Financial Instruments
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value
adjustments in certain circumstances, such as when there is evidence of impairment. Assets and liabilities acquired in business
combinations are recorded at their fair value as of the date of acquisition. Refer to Note 7 for the fair values of assets acquired
and liabilities assumed in connection with the Company's acquisitions. The estimated fair value of financial instruments is
determined using the best available market information and appropriate valuation methodologies. Considerable judgment is
necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that
ultimately will be realized upon maturity or disposition. The use of different market assumptions may have a material effect on
the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of financial
instruments:
- Cash and cash equivalents: The carrying amount of these assets approximates fair value because of the short maturity of these
instruments.
- 2014 Credit Agreement debt: As of February 28, 2015, the fair value and carrying value, excluding original issue discount, of
the Company's 2014 Credit Agreement debt was $193.5 million and $193.0 million, respectively. The Company's estimate of
fair value was based on quoted prices of this instrument and is considered a Level 2 measurement.
- Other long-term debt: The Company’s 98.7FM non-recourse debt and Digonex non-recourse debt is not actively traded and is
considered a level 3 measurement. The Company believes the current carrying value of its other long-term debt approximates
its fair value.
7. ACQUISITIONS AND DISPOSITIONS
For the year ended February 28, 2015
WBLS-FM & WLIB-AM
On February 11, 2014, subsidiaries of Emmis entered into a Purchase and Sale Agreement with YMF, pursuant to which
Emmis agreed to purchase the assets of New York radio stations WBLS-FM and WLIB-AM (collectively, the "Stations") for
$131.0 million, subject to customary adjustments and prorations. The purchase of the Stations enhances the Company's scale in
New York, the second largest market in the United States as measured by total radio revenues. Additionally, the Stations' adult
urban and urban gospel formats complement the hip-hop format of our existing station in New York.
Upon approval of the transaction by the Federal Communications Commission, Emmis and YMF executed the first
closing of the transaction on June 10, 2014, whereby YMF transferred the assets of the Stations to Emmis and Emmis paid
YMF $55.0 million of cash and transferred to YMF Media New York a 49.9% ownership interest in the Emmis subsidiaries that
own the Stations' assets. The second closing occurred on February 13, 2015 and involved the payment of the balance of the
purchase price of $76.0 million to YMF in exchange for the transfer to Emmis of YMF Media New York's interest in the
Emmis subsidiaries that own the Stations' assets.
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On February 11, 2014, Emmis and YMF entered into an LMA for the Stations. On March 1, 2014, Emmis began
providing programming and selling advertising for the Stations. Under the terms of the LMA, Emmis paid $1.275 million per
month to YMF for the right to program the station and sell advertising. The monthly LMA fee decreased to approximately
$0.74 million after the first closing of the purchase of the Stations on June 10, 2014. The ongoing, reduced monthly LMA fees
were recognized as additional purchase price of the Stations on June 10, 2014. Prior to the first closing of the purchase, LMA
fees were recognized as operating expenses.
Emmis gained control over the Stations effective with the first closing on June 10, 2014 and consolidated the Stations
beginning on that date. YMF was entitled to the remaining purchase price of $76.0 million at the second closing and the $0.74
million monthly LMA fees until the second closing, but did not otherwise share in the income or loss of the Stations subsequent
to the first closing.
On June 10, 2014, Emmis entered into the 2014 Credit Agreement which included a senior secured term loan facility of
$185.0 million and a senior secured revolving credit facility of $20.0 million. Pursuant to the 2014 Credit Agreement, the
Company borrowed $185.0 million of the senior secured term loans on June 10, 2014; $109.0 million was disbursed to the
Company and the remaining $76.0 million was funded into escrow. The proceeds from the term loan and additional funding
from the revolving credit facility were used to fund the first closing of the acquisition described above, settle amounts due
under the Company's former credit facility, and pay fees related to the issuance of the Credit Agreement. The $76.0 million of
funds in escrow were used to fund substantially all of the second closing of the acquisition on February 13, 2015. See Note 5
for more discussion of the 2014 Credit Agreement.
The following table summarizes the preliminary estimates of fair values of the identifiable assets acquired and liabilities
assumed in the acquisition of the Stations as of June 10, 2014. The second closing liability and the LMA payments made
subsequent to the first closing that were recognized as additional purchase price were discounted as of the first closing on June
10, 2014. The purchase price allocation of WBLS-FM and WLIB-AM was based on the present values of these liabilities.
Accretion of these liabilities totaling $3.1 million was recognized during the year ended February 28, 2015 as additional
interest expense. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to
revisions until management's appraisals and estimates are finalized, which may result in adjustments to the preliminary values
presented below (in thousands).
Other current assets
Property and equipment
Indefinite-lived intangibles
Goodwill
Other intangibles
Other current liabilities
Total purchase price, including assumed liabilities
Cash paid at first closing on June 10, 2014
Cash paid for LMA payments subsequent to first closing and cash paid at second
closing on February 13, 2015
Total cash paid for acquisition
Accretion of LMA payments liability and second closing liability recognized as
interest expense
Adjusted cash paid for acquisition
$
$
$
$
37
4,054
69,019
58,395
2,469
(512)
133,462
55,000
81,563
136,563
(3,101)
133,462
Goodwill was calculated as the excess of the purchase price over the net assets acquired. Management attributed the
goodwill recognized in the acquisition of the Stations to the power of the existing WBLS-FM and WLIB-AM brands in the
New York marketplace as well as the synergies and growth opportunities expected through the combination of the adult urban
and urban gospel stations with the Company's existing hip-hop station. The $58.4 million of goodwill recognized in the
transaction was included in our radio segment and is deductible for tax purposes. As part of our annual impairment testing, the
Company determined that the goodwill associated with this transaction was fully impaired. See Note 9 for more discussion of
the goodwill impairment.
The indefinite-lived intangible assets are comprised entirely of the Stations' FCC licenses. FCC broadcasting licenses are
renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory
requirements. Historically, all of our FCC broadcasting licenses have been renewed at or after the end of their respective
periods, and we expect that these FCC broadcasting licenses will continue to be renewed in the future. Our indefinite-lived
intangibles are not amortized.
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Other intangibles consist of a customer list intangible asset of $0.3 million and a syndicated programming intangible asset
of $2.2 million. The customer list intangible asset is being amortized over 3 years and the syndicated programming intangible
asset is being amortized over 7 years, which is the remaining term of the programming agreement, including renewals which
are at the option of the Company.
The results of operations of the Stations are largely included in the Company's results of operations for the year ended
February 28, 2015 as the Company began providing programming and selling advertising of the Stations on March 1, 2014
pursuant to an LMA. Net revenues and station operating expenses, excluding LMA fees and depreciation and amortization
expense, of WBLS-FM and WLIB-AM were $28.1 million and $20.3 million, respectively, for the year ended February 28,
2015.
We incurred acquisition costs related to the Stations totaling $0.7 million for the year ended February 28, 2015.
Acquisition costs included in station operating expenses, excluding LMA fees and depreciation and amortization expense, in
the accompanying consolidated statements of operations were $0.4 million for the year ended February 28, 2015. Acquisition
costs included in corporate expenses, excluding depreciation and amortization expense, in the accompanying consolidated
statements of operations were $0.3 million for the year ended February 28, 2015. Including acquisition costs incurred during
the year ended February 28, 2014 of $0.9 million, cumulative acquisition costs related to the Stations through February 28,
2015 were $1.6 million.
In connection with the first closing, Emmis and YMF executed an amendment to their Asset Purchase Agreement dated
April 5, 2012 relating to Emmis' sale of the intellectual property of WRKS-FM. The amendment, executed on June 10, 2014,
fixed all future earn-out payments YMF owed to Emmis pursuant to the April 5, 2012 Asset Purchase Agreement based upon
the parties' estimate of the earn-out payments that would otherwise be owed to Emmis under this pre-existing contractual
relationship. Emmis recognized a gain on settlement of the contract of $2.5 million, which is included in gain on contract
settlement in the accompanying consolidated statements of operations. All amounts owed to Emmis pursuant to Emmis' sale of
WRKS-FM intellectual property were collected prior to February 28, 2015.
The following table presents unaudited pro forma consolidated financial information as if the closing of our acquisition of
the Stations and related debt refinancing had occurred on March 1, 2013 (in thousands, except per share data):
Net revenues
Net income attributable to common shareholders
Net income per common share attributable to common shareholders:
Basic
Diluted
(Unaudited)
Year ended February 28,
2014
2015
(in 000’s, except per share data)
$
$
$
$
237,171
48,454
1.20
1.05
$
$
$
$
237,938
(94,035)
(2.21)
(2.21)
As mentioned above and in Note 1, Emmis commenced an LMA on both WBLS-FM and WLIB-AM beginning on March
1, 2014. As Emmis programmed the stations and sold the related advertising, the majority of the results of operations for the
two stations are included in Emmis' historical results for the year ended February 28, 2015. Certain adjustments were made to
reflect the elimination of the LMA fee and other purchase accounting adjustments. The pro forma financial information for the
year ended February 28, 2014 has been prepared by combining our historical results and the historical results of WBLS-FM and
WLIB-AM and further reflects the effect of purchase accounting adjustments. This pro forma information is not necessarily
indicative of the results of operations that actually would have resulted had the acquisition of the two radio stations occurred on
March 1, 2013, or that may result in the future.
Acquisition of a controlling interest in Digonex Technologies, Inc.
On June 16, 2014, Emmis invested $3.0 million in Digonex Technologies, Inc ("Digonex"), an Indiana corporation that
provides dynamic pricing solutions to customers in various industries. Emmis believes that its acquisition of Digonex gives it
entry into the growing dynamic pricing marketplace which can serve a diverse clientèle, and can possibly help Emmis with
yields on its own advertising inventory and special events. Emmis’ initial investment of $3.0 million ($1.0 million in Digonex
Preferred Stock and $2.0 million in the form of convertible debt) resulted in Emmis appointing a majority of the board of
directors of Digonex and holding rights convertible into 51% of the fully diluted common equity of Digonex. In August 2014,
subsequent to the consolidation of Digonex, Emmis contributed an additional $2.0 million to Digonex in the form of
convertible debt, which resulted in Emmis owning rights that are convertible into at least 66% of the common equity of
Digonex. As Emmis controlled the board of directors of Digonex as of its initial investment on June 16, 2014, Emmis began
consolidating the results of Digonex as of that date.
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Digonex reports on a calendar year ending December 31, which Emmis consolidates into its fiscal year ending February
28(29). Net revenues and operating expenses, excluding depreciation and amortization expense, of Digonex for the period June
16, 2014 to December 31, 2014, which Emmis consolidates into its results of operations for the year ended February 28, 2015
were $0.2 million and $1.4 million, respectively. Unaudited pro forma consolidated financial information as if the closing of
Digonex had occurred on March 1, 2013 is not presented as the results of operations of Digonex prior to its acquisition on June
16, 2014 were not material.
The following table summarizes the preliminary estimates of fair values of the identifiable assets acquired and liabilities
assumed in the acquisition of Digonex as of June 16, 2014. The preliminary estimates of the fair value of identifiable assets
acquired and liabilities assumed are subject to revisions until management's appraisals and estimates are finalized, which may
result in adjustments to the preliminary values presented below (in thousands).
Cash
Other current and noncurrent assets
Goodwill
Other intangibles
Accounts payable and accrued expenses
Other current liabilities and noncurrent liabilities
Long-term debt
Noncontrolling interests
Total purchase price, including assumed liabilities
Less: Cash acquired
Total purchase price, net of cash acquired
$
$
456
9
2,753
6,180
(462)
(1,139)
(3,600)
(1,197)
3,000
(456)
2,544
The goodwill recognized in the acquisition of Digonex is attributable to the assembled workforce and existing business
processes. The $2.8 million of goodwill recognized in the transaction is included in our corporate and emerging technologies
segment and is not deductible for tax purposes.
Other intangibles consist of patents of $5.2 million, a customer list intangible asset of $0.7 million and trademarks of $0.3
million. The patents are being amortized over 7 years, the customer list intangible asset is being amortized over 3 years and the
trademarks are being amortized over 15 years.
For the year ended February 28, 2013
Sale of Slovakia radio operations
On February 25, 2013, Emmis completed the sale of its Slovakian radio network to Bauer Ausland 1 GMBH for $21.2
million in cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its
efforts on its domestic radio stations. The sale of our Bulgarian radio network on January 3, 2013 created a one-time tax benefit
that we could use if we sold the Slovakian network on or before February 28, 2013. In connection with the sale, Emmis
recorded a gain on sale of assets of approximately $14.8 million, which is included in income from discontinued operations in
the accompanying consolidated statements of operations. Emmis paid approximately $1.7 million to settle working capital
adjustments and other transaction related costs during the first quarter of fiscal 2014.
Sale of Bulgarian radio operations
On January 3, 2013, Emmis completed the sale of its Bulgarian radio network to Reflex Media EEOD for $1.7 million in
cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its efforts on its
domestic radio stations. In connection with the sale, Emmis recorded a loss on sale of assets of approximately $1.3 million,
which is included in income from discontinued operations in the accompanying consolidated statements of operations. The loss
on disposal primarily resulted from the reclassification of accumulated currency translation adjustments.
Sale of Emmis Interactive Inc.
On October 31, 2012, Emmis completed the sale of Emmis Interactive Inc., a subsidiary of Emmis that provided a
content management system, data analytic tools and related services, to Marketron Broadcast Solutions, LLC (“Marketron”) for
no net proceeds. The sale of Emmis Interactive Inc. allowed Emmis to mitigate expected future operating losses. Marketron had
assumed operating control of Emmis Interactive, Inc., on October 4, 2012. In connection with the sale, Emmis recorded a loss
on sale of assets of approximately $0.7 million, which is primarily related to severance for former employees and is included in
income from discontinued operations in the accompanying consolidated statements of operations.
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Sale of Sampler Publications
On October 1, 2012, Emmis completed the sale of Country Sampler magazine, Smart Retailer magazine, and related
publications (altogether the “Sampler Publications”) and certain real estate used in their operations to subsidiaries of DRG
Holdings, LLC. Emmis believed the sale of the Sampler Publications, which were niche crafting publications, would enable it
to more clearly focus on its core city and regional publications. Emmis received gross proceeds from the sale of $8.7 million,
incurred approximately $0.2 million in transaction expenses and tax obligations, and used the remaining $8.5 million to repay
term loans under the Company’s 2006 Credit Agreement. In connection with the sale, Emmis recorded a gain on sale of assets
of approximately $0.7 million, which is included in income from discontinued operations in the accompanying consolidated
statements of operations
Sale of KXOS-FM
On August 23, 2012, Emmis completed the sale of KXOS-FM in Los Angeles for $85.5 million in cash. In connection
with the sale, Emmis recorded a gain on sale of assets of approximately $32.8 million, which is included in income from
discontinued operations in the accompanying consolidated statements of operations. KXOS-FM had previously been operating
pursuant to a local programming and marketing agreement, which is discussed in more detail in Note 1e to the accompanying
consolidated financial statements.
8. OTHER SIGNIFICANT TRANSACTIONS
Next Radio LLC - Sprint Agreement
On August 9, 2013, NextRadio LLC, a wholly-owned subsidiary of Emmis, entered into an agreement with Sprint
whereby Sprint agreed to pre-load the Company's smartphone application, NextRadio, in a minimum of 30 million FM-enabled
wireless devices on the Sprint wireless network over a three-year period. In return, NextRadio LLC agreed to pay Sprint $15
million per year in equal quarterly installments over the three year term and to share with Sprint certain revenue generated by
the NextRadio application. Emmis has not guaranteed NextRadio LLC's performance under this agreement and Sprint does not
have recourse to any Emmis related entity other than NextRadio LLC. Additionally, the agreement does not limit the ability of
NextRadio LLC to place the NextRadio application on FM-enabled devices on other wireless networks. Through February 28,
2015, the NextRadio application had not generated a material amount of revenue.
Nearly all of the largest radio broadcasters and many smaller radio broadcasters have expressed support for NextRadio
LLC's agreement with Sprint. Accordingly, NextRadio LLC has entered into a number of funding agreements with radio
broadcasters and other participants in the radio industry to collect and remit cash to Sprint to fulfill the quarterly payment
obligation. As part of some of these funding agreements, Emmis agreed to certain limitations on the operation of its NextRadio
and TagStation businesses, including assurances of access to the NextRadio app and to TagStation (the cloud-based engine that
provides data to the NextRadio application), and limitations on sale of the businesses to potential competitors of the U.S. radio
industry. Emmis also granted the U.S. radio industry (as defined in the funding agreements) a call option on substantially all of
the assets used in the NextRadio and TagStation businesses in the United States. The call option may be exercised in August
2017 or August 2019 by paying Emmis a purchase price equal to the greater of (i) the appraised fair market value of the
NextRadio and TagStation businesses, or (ii) two times Emmis' cumulative investments in the development of the businesses. If
the call option is exercised, the businesses will continue to be subject to the operating limitations applicable today, and no radio
operator will be permitted to own more than 30% of the NextRadio and TagStation businesses.
Emmis determined that NextRadio LLC is a variable interest entity (VIE) and that Emmis is the primary beneficiary
because the Company has the power to direct substantially all of the activities of NextRadio LLC, and because the Company
may absorb certain losses and receive certain benefits from the operations of the VIE. Emmis does not record any revenue or
expense related to the amounts that are collected and remitted to Sprint except the portion of any payment to Sprint that was
actually contributed to NextRadio LLC by Emmis, which is recorded as station operating expenses, excluding depreciation and
amortization expense. Emmis contributed approximately $1.1 million and $0.5 million to NextRadio LLC during the years
ended February 28, 2014 and 2015, respectively. These amounts were recorded as station operating expenses, excluding
depreciation and amortization expense.
As of February 28, 2015, the carrying value of assets within NextRadio LLC totaled $1.3 million, which represents cash
collected by NextRadio LLC from other broadcasting companies and other companies in the radio industry, which is considered
restricted for the purpose of a future Sprint payment. NextRadio LLC had $1.3 million of liabilities at February 28, 2015, which
represents the obligation to remit cash received from radio industry participants to Sprint.
LMA of 98.7FM in New York, NY and Related Financing Transaction
On April 26, 2012 Emmis entered into an LMA with a subsidiary of Disney Enterprises, Inc., pursuant to which the
Disney subsidiary purchased the right to provide programming for 98.7FM in New York, NY until August 24, 2024. Emmis
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retains ownership and control of 98.7FM, including the related FCC license during the term of the LMA and receives an annual
fee from from the Disney subsidiary. The fee, initially $8.4 million annually, increases by 3.5% annually until the LMA's
termination.
As discussed in Note 5, Emmis, through newly-created subsidiaries, issued $82.2 million of notes, which are nonrecourse
to the rest of the Company's subsidiaries and are secured by the assets of the newly-created subsidiaries including the payments
made in connection with the 98.7FM LMA. See Notes 1e and 5 for more discussion of the LMA payments and nonrecourse
debt.
The following table summarizes Emmis' operating results of 98.7FM for all periods presented. Emmis programmed
98.7FM until the LMA commenced on April 26, 2012. 98.7FM is a part of our radio segment. Results of operations of 98.7FM
for the three years ended February 28, 2015 were as follows:
Net revenues
Station operating expenses, excluding depreciation and amortization
expense
Impairment loss on intangible assets (Note 9)
Depreciation and amortization
Interest expense
For the year ended February 28 (29),
2013
2014
2015
$
10,589
$
10,331
$
10,331
4,410
—
112
2,689
1,009
—
—
3,416
1,002
9,462
—
3,238
Assets and liabilities of 98.7FM as of February 28, 2014 and 2015 were as follows:
Current assets:
Restricted cash
Prepaid expenses
Total current assets
Noncurrent assets:
Indefinite lived intangibles
Deferred debt issuance costs, net
Deposits and other
Total noncurrent assets
Total assets
Current liabilities:
Accounts payable and accrued expenses
Current maturities of long-term debt
Deferred revenue
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt, net of current portion
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
Sale of WRKS-FM Intellectual Property
As of February 28,
2014
2015
$
1,407
$
$
$
$
$
614
2,021
60,525
2,759
3,082
66,366
68,387
56
4,541
728
256
5,581
70,401
24
70,425
$
76,006
$
1,467
603
2,070
51,063
2,495
4,428
57,986
60,056
22
4,990
753
241
6,006
65,411
27
65,438
71,444
On April 5, 2012, the Company entered into an Asset Purchase Agreement with YMF in which the Company agreed to
sell certain intellectual property rights, described below, to YMF, and YMF agreed to also assume certain liabilities of the
Company. The purchase price was $10.0 million, plus quarterly earn-out payments, if any, equal to 15% of the incremental
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gross revenue over a three-year period in excess of calendar 2011 gross revenues attributable to radio station WBLS-FM,
107.5FM, New York, NY, which is owned by YMF. The assets sold to YMF included intellectual property rights used or held
for use by the Company exclusively in the business or operation of 98.7FM (frequently known as WRKS-FM), and all
assignable registrations, applications, renewals, issuances, extensions, restorations and reversions for, in respect of or relating to
the intellectual property. The Asset Purchase Agreement contained customary representations, warranties, covenants and
indemnities.
The sale of WRKS-FM’s intellectual property became effective on May 7, 2012. The $10.0 million gain was reflected in
gain on sale of assets in the consolidated statements of operations. Emmis collected the $10.0 million intellectual property sale
proceeds on July 6, 2012 and used the entire amount to repay term loans under a previous credit agreement.
In connection with the agreement to purchase WBLS-FM and WLIB-AM from YMF as discussed in Note 7, Emmis and
YMF agreed to modify the quarterly earn-out payments. Effective upon the first closing of the purchase of WBLS-FM and
WLIB-AM, quarterly earn-out payments were fixed at $0.5 million per quarter, retroactive to the first calendar quarter of 2014.
Emmis continued to collect earn-out payments until the second closing of the purchase of WBLS-FM and WLIB-AM on
February 13, 2015, at which time all remaining earn-out payments in the three-year term were accelerated and settled at
closing.
9. INTANGIBLE ASSETS AND GOODWILL
In accordance with ASC Topic 350, Intangibles—Goodwill and Other, the Company reviews goodwill and other
intangibles at least annually for impairment. In connection with any such review, if the recorded value of goodwill and other
intangibles is greater than its fair value, the intangibles are written down and charged to results of operations. FCC licenses are
renewed every eight years at a nominal cost, and historically all of our FCC licenses have been renewed at the end of their
respective eight-year periods. Since we expect that all of our FCC licenses will continue to be renewed in the future, we believe
they have indefinite lives. Radio stations in a geographic market cluster are considered a single unit of accounting, provided
that they are not being operated under a Local Marketing Agreement by another broadcaster.
Impairment testing
The Company generally performs its annual impairment review of indefinite-lived intangibles as of December 1 each
year. At the time of each impairment review, if the fair value of the indefinite-lived intangible is less than its carrying value a
charge is recorded to results of operations. When indicators of impairment are present, the Company will perform an interim
impairment test. In connection with the April 2012 LMA with a subsidiary of Disney Enterprises, Inc. discussed in Note 1e, the
Company separated its two New York stations into separate units of accounting. Concurrent with the separation of the stations
into separate units of accounting, the Company performed an interim impairment test of those licenses. Impairment recorded as
a result of our interim and annual impairment testing is summarized in the table below. We will perform additional interim
impairment assessments whenever triggering events suggest such testing for the recoverability of these assets is warranted.
Interim Assessment
Annual Assessment
FCC Licenses
Goodwill
Definite-lived
FCC Licenses
Goodwill
Definite-lived
Total
Year Ended February 28, 2013
10,971
Year Ended February 28, 2014
Year Ended February 28, 2015
—
—
—
—
—
—
—
—
—
—
448
—
9,520
58,395
—
—
—
11,419
—
67,915
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC
licenses, the Company uses an income valuation method when it performs its impairment tests. Under this method, the
Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was
commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to
arrive at a value for the FCC license. The Company assumes the competitive situation that exists in each market remains
unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In
doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license.
Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience
share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon
changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may
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be beyond our control. The projections incorporated into our license valuations take into consideration then current economic
conditions.
Below are some of the key assumptions used in our annual impairment assessments. As part of our December 1, 2014
annual impairment assessment, we reduced long-term growth rates in most of the markets in which we operate based on recent
industry trends and our expectations for the markets going forward. The methodology used to value our FCC licenses has not
changed in the three-year period ended February 28, 2015.
Discount Rate
Long-term Revenue Growth Rate
Mature Market Share
Operating Profit Margin
December 1, 2012
December 1, 2013
December 1, 2014
11.9% - 12.3%
12.0% - 12.4%
12.1% - 12.5%
2.3% - 3.3%
2.3% - 3.1%
1.5% - 3.0%
3.2% - 29.4%
3.5% - 30.2%
3.2% - 29.2%
25.1% - 38.3%
25.0% - 39.1%
25.1% - 39.2%
As of February 28, 2014 and 2015, the carrying amounts of the Company’s FCC licenses were $150.6 million and $210.1
million, respectively. These amounts are entirely attributable to our radio division. The table below presents the changes to the
carrying values of the Company’s FCC licenses for the years ended February 2014 and 2015 for each unit of accounting.
Unit of Accounting
New York Cluster
98.7FM (New York)
Austin Cluster
St. Louis Cluster
Indianapolis Cluster
KPWR-FM (Los Angeles)
Terre Haute Cluster
Total
Change in FCC License Carrying Values
As of
February 28,
2013
As of
February 28,
2014
Purchases
Purchases
Impairment
As of
February 28,
2015
$
2,597
$
— $
2,597
$
69,019
$
— $
60,525
39,255
27,692
17,654
2,018
781
150,522
—
—
—
—
—
36
36
60,525
39,255
27,692
17,654
2,018
817
—
—
—
—
—
—
150,558
69,019
(9,462)
—
—
—
—
(58)
(9,520)
71,616
51,063
39,255
27,692
17,654
2,018
759
210,057
FCC license purchases of $69.0 million during the year ended February 28, 2015 solely relate to our purchase of WBLS-
FM and WLIB-AM. See Note 7 for more discussion of this acquisition. Impairment recorded during the year ended February
28, 2015 mostly relates to our FCC license in New York that is being operated pursuant to an LMA and this license is assessed
individually since it is the only FCC license in that unit of account. Declining market revenues in calendar 2014 coupled with a
reduction in the Company's estimate of long-term revenue growth rates led to a lower estimate of fair value of a single FM FCC
License in New York.
Valuation of Goodwill
ASC Topic 350 requires the Company to test goodwill for impairment at least annually using a two-step process. The first
step is a screen for potential impairment, while the second step measures the amount of impairment. The Company conducts
the two-step impairment test on December 1 of each fiscal year, unless indications of impairment exist during an interim
period. When assessing its goodwill for impairment, the Company uses an enterprise valuation approach to determine the fair
value of each of the Company’s reporting units (radio stations grouped by market, excluding any stations that are being
operated pursuant to an LMA, and magazines on an individual basis). Management determines enterprise value for each of its
reporting units by multiplying the two-year average station operating income generated by each reporting unit (current year
based on actual results and the next year based on budgeted results) by an estimated market multiple. The Company uses a
blended station operating income trading multiple of publicly traded radio operators as well as recent market transactions as a
benchmark for the multiple it applies to its radio reporting units. There are no publicly traded publishing companies that are
focused predominantly on city and regional magazines as is our publishing segment. Therefore, the market multiple used as a
benchmark for our publishing reporting units is based on recently completed transactions within the city and regional magazine
industry or analyst reports that include valuations of magazine divisions within publicly traded media conglomerates. For the
annual assessment performed as of December 1, 2014, the Company applied a market multiple of 7.5 to 8.5 times and 6.0 times
the reporting unit’s operating performance for our radio and publishing reporting units, respectively. Management believes this
methodology for valuing radio and publishing properties is a common approach and believes that the multiples used in the
valuation are reasonable given our peer comparisons and market transactions. To corroborate the step-one reporting unit fair
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values determined using the market approach described above, management also uses an income approach, which is a
discounted cash flow method to determine the fair value of the reporting unit.
This enterprise valuation is compared to the carrying value of the reporting unit for the first step of the goodwill
impairment test. If the reporting unit exhibits impairment, the Company proceeds to the second step of the goodwill impairment
test. For its step-two testing, the enterprise value is allocated among the tangible assets, indefinite-lived intangible assets (FCC
licenses valued using a direct-method valuation approach) and unrecognized intangible assets, such as customer lists, with the
residual amount representing the implied fair value of the goodwill. To the extent the carrying amount of the goodwill exceeds
the implied fair value of the goodwill, the difference is recorded as an impairment charge in the statement of operations. The
methodology used to value our goodwill has not changed in the three-year period ended February 28, 2015.
During our December 1, 2014 annual goodwill impairment test, the Company wrote off $58.4 million of goodwill
associated with our New York radio cluster. This goodwill related entirely to our purchase of WBLS-FM and WLIB-AM on
June 10, 2014. Declining performance of the entire New York radio market significantly impacted our operating performance
in New York. These declines, combined with lower projected revenue growth rates in the New York market, resulted in a step-
one indication of impairment for our New York cluster on both the market and income approaches. Upon completing the step-
two analysis, the Company determined that the full carrying amount of the New York cluster goodwill of $58.4 million was
impaired.
During our December 1, 2012 annual goodwill impairment test, the Company wrote off $0.4 million of goodwill
associated with our Indianapolis Monthly publication. Declining operating performance of Indianapolis Monthly resulted in a
step-one indication of impairment for Indianapolis Monthly on both the market and income approaches. Upon completing the
step-two analysis, the Company determined that the full carrying amount of Indianapolis Monthly goodwill of $0.4 million was
impaired. No goodwill impairment was recorded in connection with our annual test as of December 1, 2013.
As of February 28, 2014 and 2015, the carrying amount of the Company’s goodwill was $12.6 million and $15.4 million.
The table below presents the changes to the carrying values of the Company’s goodwill for the years ended February 2014 and
2015 for each reporting unit. Goodwill carrying values did not change during the year ended February 28, 2014. As noted
above, each reporting unit is a cluster of radio stations in one geographical market (except for stations being operated pursuant
to LMAs) and magazines on an individual basis.
Reporting Unit
New York Cluster (Radio)
$
Indianapolis Cluster (Radio)
Austin Cluster (Radio)
Texas Monthly
Digonex
Total
As of February 28,
2014
Acquisitions
Impairment
As of February 28,
2015
Change in Goodwill Carrying Values
— $
58,395
$
(58,395) $
265
4,338
8,036
—
12,639
—
—
—
2,753
61,148
—
—
—
—
(58,395)
—
265
4,338
8,036
2,753
15,392
Definite-lived intangibles
The following table presents the weighted-average remaining useful life at February 28, 2015 and gross carrying amount
and accumulated amortization for each major class of definite-lived intangible assets at February 28, 2014 and 2015:
As of February 28, 2014
As of February 28, 2015
Weighted
Average
Remaining Useful
Life
(in years)
7.0
6.5
6.6
2.4
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
810
$
548
$
262
$
1,240
$
—
—
—
—
—
—
—
—
—
5,180
2,154
1,015
$
585
401
220
205
655
4,779
1,934
810
$
810
$
548
$
262
$
9,589
$
1,411
$
8,178
Trademarks
Patents
Programming Contract
Customer List
Total
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Total amortization expense from definite-lived intangibles was less than $0.1 million for the years ended February 28,
2013 and 2014. Total amortization expense from definite-lived intangibles was $0.9 million for the year ended February 28,
2015. The following table presents the Company's estimate of amortization expense for each of the five succeeding fiscal years
for definite-lived intangibles:
Year ended February 28 (29),
Expected Amortization Expense
(in 000's)
2016
2017
2018
2019
2020
1,514
1,514
1,255
1,076
1,076
10. EMPLOYEE BENEFIT PLANS
a. Equity Incentive Plans
The Company has stock options and restricted stock grants outstanding that were issued to employees or non-employee
directors under one or more of the following plans: 2001 Equity Incentive Plan, 2002 Equity Incentive Plan, the 2004 Equity
Compensation Plan, the 2010 Equity Compensation Plan and the 2012 Equity Compensation Plan. These outstanding grants
continue to be governed by the terms of the applicable plan.
2012 Equity Compensation Plan
At the 2012 annual meeting, the shareholders of Emmis approved the 2012 Equity Compensation Plan (“the Plan”).
Under the Plan, awards equivalent to 2.0 million shares of common stock may be granted. Furthermore, any unissued awards
from the 2010 Equity Compensation Plan (or shares subject to outstanding awards that would again become available for
awards under this plan) increases the number of shares of common stock available for grant under the Plan. The awards, which
have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, restricted
stock units, stock appreciation rights or performance units. Under this Plan, all awards are granted with a purchase price equal
to at least the fair market value of the stock except for shares of restricted stock and restricted stock units, which may be
granted with any purchase price (including zero). The stock options under this Plan generally expire not more than 10 years
from the date of grant. Under this Plan, awards equivalent to approximately 1.9 million shares of common stock were available
for grant at February 28, 2015. In March 2015, the Company granted 1.6 million shares in the form of restricted stock,
incentive stock options and nonqualified stock options under the 2012 Equity Compensation Plan, leaving approximately 0.3
million shares of common stock available for grant under this Plan.
b. 401(k) Retirement Savings Plan
Emmis sponsors a Section 401(k) retirement savings plans that is available to substantially all employees age 18 years
and older who have at least 30 days of service. Employees may make pretax contributions to the plans up to 50% of their
compensation, not to exceed the annual limit prescribed by the Internal Revenue Service (“IRS”). Emmis may make
discretionary matching contributions to the plans in the form of cash or shares of the Company’s Class A common stock.
Employee contributions are matched at 33% up to a maximum of 6% of eligible compensation. Emmis’ discretionary
contributions to the plan totaled $0.9 million, $0.9 million and $1.1 million for the years ended February 2013, 2014 and 2015,
respectively. All discretionary contributions were made in cash.
c. Defined Contribution Health and Retirement Plan
Emmis contributes to a multi-employer defined contribution health and retirement plan for employees who are members
of a certain labor union. Amounts charged to expense for continuing operations related to the multi-employer plan were
approximately $0.1 million, $0.1 million and $0.3 million for the years ended February 2013, 2014 and 2015, respectively.
11. OTHER COMMITMENTS AND CONTINGENCIES
a. Commitments of our continuing operations
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The Company has various commitments under the following types of material contracts for its continuing operations:
(i) operating leases; (ii) radio syndicated programming; (iii) employment agreements and (iv) other contracts with annual
commitments (mostly contractual services for audience measurement information) at February 28, 2015 as follows:
Year ending
February 28 (29),
2016
2017
2018
2019
2020
Thereafter
Total
Operating
Leases
Syndicated
Programming
Employment
Agreements
Other
Contracts
Total
$
8,675
$
8,583
8,006
7,123
6,985
21,458
569
442
328
—
—
—
$
14,965
$
11,282
$
8,765
1,886
873
—
—
10,371
10,736
4,722
39
39
35,491
28,161
20,956
12,718
7,024
21,497
$
60,830
$
1,339
$
26,489
$
37,189
$
125,847
Emmis leases certain office space, tower space, equipment and automobiles under operating leases expiring at various
dates through July 2027. Some of the lease agreements contain renewal options and annual rental escalation clauses, as well as
provisions for payment of utilities and maintenance costs. The Company recognizes escalated rents on a straight-line basis over
the term of the lease agreement. Rental expense for continuing operations during the years ended February 2013, 2014 and
2015 was approximately $7.5 million, $8.2 million and $9.1 million, respectively. The Company recognized approximately
$0.9 million, $1.0 million and $0.3 million of sublease income as a reduction of rent expense for the years ended February
2013, 2014, and 2015 respectively. Total minimum sublease rentals to be received in the future under noncancelable subleases
as of February 28, 2015 were as follows:
Year ending
February 28 (29),
2016
2017
2018
2019
2020
Total
b. Litigation
Noncancelable
Sublease rentals
$
$
313
319
216
—
—
848
Emmis is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of
the company, however, there are no legal proceedings pending against the company that we believe are likely to have a material
adverse effect on the company.
Emmis and certain of its officers and directors were named as defendants in a lawsuit filed April 16, 2012 by certain
holders of Preferred Stock (the “Lock-Up Group”) in the United States District Court for the Southern District of Indiana
entitled Corre Opportunities Fund, LP, et al. v. Emmis Communications Corporation, et al. The plaintiffs alleged, among other
things, that Emmis and the other defendants violated various provisions of the federal securities laws and breached fiduciary
duties in connection with Emmis’ entry into total return swap agreements and voting agreements with certain holders of Emmis
Preferred Stock, as well as by issuing shares of Preferred Stock to Emmis’ 2012 Retention Plan and Trust (the “Trust”) and
entering into a voting agreement with the trustee of the Trust. The plaintiffs also alleged that Emmis violated certain provisions
of Indiana corporate law by directing the voting of the shares of Preferred Stock subject to the total return swap agreements (the
“Swap Shares”) and the shares of Preferred Stock held by the Trust (the “Trust Shares”) in favor of certain amendments to
Emmis’ Articles of Incorporation.
Emmis filed an answer denying the material allegations of the complaint, and filed a counterclaim seeking a declaratory
judgment that Emmis could legally direct the voting of the Swap Shares and the Trust Shares in favor of the proposed
amendments.
On August 31, 2012, the U.S. District Court denied the plaintiffs' request for a preliminary injunction. Plaintiffs
subsequently filed an amended complaint seeking monetary damages and dismissing all claims against the individual officer
and director defendants. On February 28, 2014, the U.S. District Court issued a ruling in favor of Emmis on all counts. In
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March 2014, the Plaintiffs filed with the U.S. Court of Appeals for the Seventh Circuit an appeal of the U.S. District Court's
decision. The U.S. Court of Appeals for the Seventh Circuit heard oral arguments in this case on December 5, 2014. Emmis is
defending this lawsuit vigorously.
On July 7, 2014, individuals who had been seeking to overturn the FCC’s approval of the transfer of the broadcast
licenses for WBLS-FM and WLIB-AM from entities associated with Inner City Broadcasting to YMF (the entities that
subsequently sold the two stations to Emmis) filed with the U.S. Court of Appeals for the District of Columbia Circuit a Notice
of Appeal of the FCC’s approval of the transfer. Based upon the facts alleged in the case and the extensive precedent of courts
not overturning FCC approvals of transfers of broadcast licenses except in exceedingly rare circumstances. Additionally, in
March 2015, an individual filed a lawsuit in the Federal District Court of New York challenging the transfer of the assets of
WBLS-FM and WLIB-AM from Inner City to YMF, and claimed that Emmis had exerted undue influence in securing the
FCC's consent to the transfer of the FCC licenses of WBLS-FM and WLIB-AM from YMF to Emmis. Emmis believes the
appeal and the claims in the lawsuit are without merit.
Certain groups and individuals have challenged an application for renewal of one of Company's FCC licenses. This
challenge is currently pending before the FCC. Emmis does not expect the challenge to result in the denial of our license
renewal.
12. INCOME TAXES
United States and foreign income (loss) before income taxes for the years ended February 2013, 2014 and 2015 was as
follows:
United States
Foreign
Income (loss) before income taxes
2013
2014
2015
$
$
(7,518) $
(1,350)
(8,868) $
16,659
(2,067)
14,592
$
$
(58,692)
(345)
(59,037)
The (benefit) provision for income taxes for the years ended February 2013, 2014, and 2015 consisted of the following:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
(Benefit) provision for income taxes
Other Tax Related Information:
Tax benefit of discontinued operations
2013
2014
2015
$
$
(529) $
(152)
161
(520)
(4,589)
(1,930)
—
(6,519)
(7,039) $
— $
(900)
13
(887)
(25,219)
(7,957)
—
(33,176)
(34,063) $
—
229
—
229
27,431
9,288
—
36,719
36,948
(6,975)
—
—
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The (benefit) provision for income taxes for the years ended February 2013, 2014 and 2015 differs from that computed at the
Federal statutory corporate tax rate as follows:
2013
2014
2015
Computed income tax (benefit) provision at 35%
$
State income tax (benefit) provision
Foreign taxes
Tax benefit resulting from swap expiration and related OCI reversal
Allocation of tax benefit from discontinued operations
(3,109) $
(2,082)
639
$
5,110
(8,857)
737
—
(3,007)
127
430
6,966
(1,561)
(5,746)
(529)
—
—
—
55
455
(31,059)
(1,793)
—
—
—
833
(7,039) $
1,289
(34,063) $
$
(20,663)
9,517
120
5
—
122
421
50,250
(1,994)
—
—
(173)
(657)
36,948
Nondeductible stock compensation
Entertainment disallowance
Change in valuation allowance
Tax attributed to noncontrolling interest
Section 165(g) worthless stock deduction
Alternative minimum tax
Federal tax credit
Other
(Benefit) provision for income taxes
The components of deferred tax assets and deferred tax liabilities at February 28, 2014 and February 28, 2015 are as
follows:
Deferred tax assets:
Net operating loss carryforwards
Intangible assets
Compensation relating to stock options
Interest rate exchange agreement
Deferred revenue
Accrued rent
Tax credits
Investments in subsidiaries
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Indefinite-lived intangible assets
Property and equipment
Cancellation of debt income
Other
Total deferred tax liabilities
Net deferred tax liabilities
2014
2015
$
27,963
$
12,127
2,199
38
1,639
1,897
1,927
352
2,181
(970)
49,353
(40,549)
(569)
(13,136)
—
(54,254)
(4,901) $
$
32,627
30,299
1,438
—
1,260
2,071
1,987
2,951
1,875
(62,984)
11,524
(41,576)
(751)
(10,772)
(39)
(53,138)
(41,614)
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset ("DTA") will
not be realized. The Company historically recorded a full valuation allowance on all U.S. (federal and state) deferred tax assets.
During the year ended February 28, 2014, due to improved operating results, the Company determined that a valuation
allowance on most of its deferred tax assets was no longer appropriate and reversed the valuation allowance on all U.S.
deferred tax assets (with the exception of certain state net operating loss deferred DTAs). During the fourth quarter of the year
ended February 28, 2015, the Company lowered its long-term market revenue growth rates, which adversely impacted
expectations of future cash flows. The Company lowered long-term market revenue growth rates based on recent industry
trends and expectations for the markets going forward, as discussed in Note 9. Financial performance in New York in fiscal
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2015 that was below expectations, coupled with reduced estimates for future cash flows, resulted in an impairment loss of
$67.9 million being recorded during the fourth quarter of the year ended February 28, 2015. Accordingly, the Company
reported a pretax loss of $59.0 million for the year ended February 28, 2015. As the Company was in a three year cumulative
loss for income tax purposes as of February 28, 2015, the Company re-established a valuation allowance for the majority of its
U.S. (federal and state) net deferred tax assets as of February 28, 2015. The Company does not benefit its deferred tax assets
based on the deferred tax liabilities ("DTLs") related to indefinite-lived intangibles that are not expected to reverse during the
carry-forward period. Because these DTLs would not reverse until some future indefinite period when the intangibles are either
sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support
realization of the DTAs.
The Company increased its valuation allowance by $62.0 million ($50.3 million federal and $11.7 million state), from
$1.0 million as of February 28, 2014, to $63.0 million as of February 28, 2015.
The Company has considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing
the need for the valuation allowance. The Company will assess quarterly whether it remains more likely than not that the
deferred tax assets will not be realized. In the event the Company determines at a future time that it could realize its deferred
tax assets in excess of the net amount recorded, the Company will reduce its deferred tax asset valuation allowance and
decrease income tax expense in the period when the Company makes such determination.
The Company has federal net operating losses ("NOL's") of $77 million and state NOL's of $192 million available to
offset future taxable income. These NOL's include an unrealized benefit of approximately $2.7 million related to share-based
compensation that will be recorded in equity when realized. The federal net operating loss carryforwards begin expiring in
2028, and the state net operating loss carryforwards expire between the years ending February 2015 and February 2035. A
valuation allowance has been provided for the net operating loss carryforwards related to states in which the Company no
longer has operating results as it is more likely than not that substantially all of these net operating losses will expire unutilized.
The $2.0 million of tax credits at February 28, 2015 relate primarily to alternative minimum tax carryforwards that can be
carried forward indefinitely. This amount also includes tax credits in Illinois, Indiana and Texas and a federal research credit, all
of which have a full valuation allowance.
The activities of Digonex Technologies, Inc., a C Corporation under the Internal Revenue Code, are consolidated for
financial statement purposes, but are not included in the U.S. consolidated income tax return of Emmis. As of February 28,
2015, Digonex has federal NOL's of $40 million and state NOL's of $40 million . If Digonex produces pretax income in the
future, it is possible that the utilization of these NOL carryforwards will be limited due to Section 382 of the Internal Revenue
Code. The Company is in the process of completing a Section 382 study to determine the applicable limitation. As of February
28, 2015, the Company was able to determine that at least $10 million of federal NOLs and $10 million of state NOL's will be
fully available to offset future taxable income. These amounts are included in the above consolidated NOL totals of $77 million
and $192 million.
The Company has adopted FASB Accounting Standards Codification Topic 740-10, Accounting for Uncertainty in
Income Taxes (“ASC 740-10”). ASC 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken within a tax return. For those benefits to be recognized, a tax position must be more-likely-than-
not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest benefit that is
greater than 50 percent likely of being realized upon ultimate settlement. As of February 28, 2015, the estimated value of the
Company’s net uncertain tax positions is approximately $0.2 million, most of which is included in other noncurrent liabilities,
as the Company does not expect to settle the items within the next 12 months.
The following is a tabular reconciliation of the total amounts of gross unrecognized tax benefits for the years ending
February 28, 2014 and February 28, 2015:
Gross unrecognized tax benefit – opening balance
Gross increases – tax positions in prior periods
Gross decreases—settlements with taxing authorities
Gross unrecognized tax benefit – ending balance
87
For the year ending February 28,
2014
2015
$
$
(683) $
—
525
(158) $
(158)
(14)
—
(172)
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Included in the balance of unrecognized tax benefits at both and February 28, 2014 and 2015 are $0.2 million of tax
benefits that, if recognized, would reduce the Company’s provision for income taxes. Due to the uncertain and complex
application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be different
from this estimate. In such case, the Company will record additional tax expense or tax benefit in the tax provision, or
reclassify amounts on the accompanying consolidated balance sheets in the period in which such matter is effectively settled
with the taxing authority.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense.
Related to the uncertain tax benefits noted above, the Company accrued an immaterial amount of interest during the year
ending February 28, 2015 and in total, as of February 28, 2015, has recognized a liability for interest of $26 thousand.
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various international
jurisdictions. The Company has a number of federal, state and foreign income tax years still open for examination as a result of
the net operating loss carryforwards. Accordingly the Company is subject to examination for both U.S. federal and certain state
tax return purposes for the years ending February 29, 2004 to present.
13. SEGMENT INFORMATION
The Company’s operations are aligned into three business segments: (i) Radio, (ii) Publishing and (iii) Corporate &
Emerging Technologies. Emerging Technologies includes our TagStation, NextRadio and Digonex businesses. Results of
Emerging Technologies were reclassified from the Radio segment in the prior periods presented below and are not material.
These business segments are consistent with the Company’s management of these businesses and its financial reporting
structure. Corporate expenses are not allocated to reportable segments. The results of operations of various sold businesses
have been classified as discontinued operations and have been excluded from the segment disclosures below. See Note 1 for
more discussion of our discontinued operations. Our radio operations in New York and Los Angeles, including the LMA fee we
receive from a subsidiary of Disney, accounted for more than 50% of our radio revenues for the year ended February 28, 2015.
The Company’s segments operate exclusively in the United States.
The accounting policies as described in the summary of significant accounting policies included in Note 1 to these
consolidated financial statements, are applied consistently across segments.
Year Ended February 28, 2015
Net revenues
Station operating expenses excluding depreciation and
amortization expense
Corporate expenses excluding depreciation and
amortization expense
LMA fee
Hungary license litigation and related expenses
Impairment loss
Depreciation and amortization
Gain on contract settlement
Operating income (loss)
Radio
Publishing
Corporate &
Emerging
Technologies
Consolidated
$
176,250
$
61,142
$
546
$
237,938
117,167
60,083
3,759
181,009
—
4,208
521
67,915
3,143
(2,500)
(14,204) $
$
—
—
—
—
245
—
814
$
14,922
—
—
—
2,538
—
(20,673) $
14,922
4,208
521
67,915
5,926
(2,500)
(34,063)
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Year Ended February 28, 2014
Net revenues
Station operating expenses excluding depreciation and
amortization expense
Corporate expenses excluding depreciation and
amortization expense
Hungary license litigation and related expenses
Depreciation and amortization
(Gain) loss on sale of fixed assets
Operating income (loss)
Radio
Publishing
Corporate &
Emerging
Technologies
Consolidated
$
145,276
$
59,747
$
123
$
205,146
97,564
59,085
2,360
159,009
—
2,058
2,476
(10)
43,188
$
—
—
235
2
$
425
$
17,024
—
2,155
—
(21,416) $
17,024
2,058
4,866
(8)
22,197
Year Ended February 28, 2013
Net revenues
Station operating expenses excluding depreciation and
amortization expense
Corporate expenses excluding depreciation and
amortization expense
Hungary license litigation and related expenses
Impairment loss
Depreciation and amortization
(Gain) loss on sale of fixed assets
Operating income (loss)
Total Assets
As of February 28, 2014
As of February 28, 2015
Radio
Publishing
Corporate &
Emerging
Technologies
Consolidated
$
138,630
$
57,454
$
— $
196,084
95,830
58,241
—
154,071
—
1,381
10,971
2,451
(9,897)
37,894
$
—
—
448
318
17,819
—
—
1,953
20
(1,573) $
—
(19,772) $
$
17,819
1,381
11,419
4,722
(9,877)
16,549
Radio
Publishing
Corporate &
Emerging
Technologies
$
210,161
$
21,809
$
33,378
$
282,653
21,622
30,457
Consolidated
265,348
334,732
14. OTHER (EXPENSE) INCOME, NET
Components of other (expense) income, net for the three years ended February 2013, 2014 and 2015 were as follows:
(Loss) income from unconsolidated affiliate, including other-than-
temporary impairment losses
Other-than-temporary impairment loss on available for sale investments
Interest income
Other
Total other (expense) income, net
For the year ended February 28,
2013
2014
2015
$
$
(211) $
—
87
114
(10) $
96
—
38
(18)
116
$
$
11
(6,682)
78
175
(6,418)
See Note 1m for further discussion of the other-than-temporary loss related to our available for sale investments.
15. RELATED PARTY TRANSACTIONS
During the year ended February 28, 2013, Emmis forgave a $1.2 million loan receivable from Mr. Jeffrey H. Smulyan,
our Chariman, Chief Executive Officer and President in connection with the execution of a new three-year employment
agreement. This non-cash charge is included in corporate expenses, excluding depreciation and amortization expense, in the
accompanying consolidated statements of operations for the year ending February 28, 2013. The forgiven loan was
grandfathered under the Sarbanes-Oxley Act of 2002. Emmis no longer makes loans to executive officers and directors.
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Prior to 2002, the Company made certain life insurance premium payments for the benefit of Mr. Smulyan. The Company
discontinued making such payments in 2001; however, pursuant to a Split Dollar Life Insurance Agreement and Limited
Collateral Assignment dated November 2, 1997, the Company retains the right, upon Mr. Smulyan’s death, resignation or
termination of employment, to recover all of the premium payments it has made, which total $1.1 million.
16. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited operating results for each quarter within the two most recent years. The Company
believes that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts
stated below to present fairly the following quarterly results when read in conjunction with the financial statements included
elsewhere in this report. Results of operations for any particular quarter are not necessarily indicative of results of operations
for a full year. The Company’s financial results are also not comparable from quarter to quarter due to: (1) the seasonality of
revenues, with revenues usually the lowest in the last quarter of each fiscal year; (2) the LMA and eventual acquisition of
WBLS-FM and WLIB-AM in New York as discussed in Note 1e and Note 7, (3) the refinancing of our Credit Agreement in
June 2014, which resulted in additional debt outstanding and higher overall borrowing rates as described in Note 5, Long-Term
Debt; (4) the impairment of intangible assets in New York recorded in the fourth quarter of fiscal 2015 as described in Note 9,
Intangible Assets and Goodwill; and (5) the reversal of a valuation allowance on most of Emmis' deferred tax assets due to
improved operating results during the quarter ended February 28, 2014 and the subsequent re-establishment of the valuation
allowance during the quarter ended February 28, 2015, as discussed in Note 12, Income Taxes.
Year ended February 28, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(in 000's except per share data)
$
$
$
$
$
59,724
6,641
2,667
0.02
0.02
$
$
$
$
$
61,824
12,524
4,192
0.06
0.06
$
$
$
$
$
62,960
13,106
3,234
0.07
0.06
$
$
$
$
$
53,430
(66,334)
(106,078)
(2.47)
(2.47)
Year ended February 28, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(in 000's except per share data)
$
$
$
$
$
50,586
7,046
4,957
0.09
0.08
$
$
$
$
$
54,967
5,704
3,925
0.06
0.05
$
$
$
$
$
52,621
8,711
5,668
0.11
0.09
$
$
$
$
$
46,972
736
34,105
0.82
0.71
Net revenues
Operating income (loss)
Consolidated net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Net revenues
Operating income
Consolidated net income
Basic earnings per common share
Diluted earnings per common share
17. SUBSEQUENT EVENTS
Additional Investment in Digonex
On April 21, 2015, Emmis invested an additional $1.0 million in Digonex Technologies, Inc. in the form of convertible
debt, which resulted in Emmis owning rights that are convertible into approximately 73% of the common equity of Digonex.
Second Amendment of the 2014 Credit Agreement
On April 30, 2015, Emmis entered into a Second Amendment to our 2014 Credit Agreement. The Second Amendment (i)
increases the maximum Total Leverage Ratio to (A) 6.75:1.00 during the period from May 31, 2015 through February 29, 2016,
(B) 6.50:1.00 for the quarter ended May 31, 2016, (C) 6.25:1.00 for the quarter ended August 31, 2016, (D) 6.00:1.00 for the
quarter ended November 30, 2016, and (E) 5.75:1.00 for the quarter ended February 28, 2017, after which it reverts to the
original ratio of 4.00:1.00 for the quarters ended May 31, 2017 and thereafter, (ii) requires Emmis to pay a 2.00% fee on certain
prepayments of the Term Loan prior to the first anniversary of the Second Amendment and requires Emmis to pay a 1.00% fee
on certain prepayments of the Term Loan from the first anniversary of the Second Amendment until the second anniversary of
the Second Amendment, (iii) increases the Applicable Margin throughout the remainder of the term of the Credit Agreement to
5.00% for ABR Loans (as defined in the Credit Agreement) and 6.00% for Eurodollar Loans (as defined in the 2014 Credit
Agreement), and (iv) increases the amortization to 0.50% per calendar quarter through January 1, 2016 and to 1.25% per
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calendar quarter thereafter commencing April 1, 2016. The Second Amendment also requires Emmis to pay a fee of 0.50% of
the Term Loan and Revolving Commitment of each Lender that consented to the Second Amendment.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, the Company evaluated the effectiveness of the design and
operation of its “disclosure controls and procedures” (“Disclosure Controls”). This evaluation (the “Controls Evaluation”) was
performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”).
Based upon the Controls Evaluation, our CEO and CFO concluded that as of February 28, 2015, our Disclosure Controls
are effective to provide reasonable assurance that information relating to Emmis Communications Corporation and Subsidiaries
that is required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and
communicated to our management, including our principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during
the fourth quarter of fiscal 2015 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures
and internal control over financial reporting must reflect the fact that there are resource constraints and that management is
required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management’s Report on Internal Control Over Financial Reporting
Emmis Communications Corporation’s management is responsible for establishing and maintaining adequate internal
control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal
control over financial reporting is a process designed by, or under the supervision of, Emmis Communications Corporation’s
principal executive and principal financial officers and effected by Emmis Communications Corporation’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of Emmis Communications Corporation;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of Emmis
Communications Corporation are being made only in accordance with authorizations of management and directors of
Emmis Communications Corporation; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
Emmis Communications Corporation’s assets that could have a material effect on the financial statements.
Management has evaluated the effectiveness of its internal control over financial reporting as of February 28, 2015, based
on the control criteria established in a report entitled Internal Control—Integrated Framework (1992 Framework), issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that
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Emmis Communications Corporation’s internal control over financial reporting is effective as of February 28, 2015. The
effectiveness of the Company’s internal control over financial reporting as of February 28, 2015 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as stated in their report which appears on the following page.
Jeffrey H. Smulyan
Chairman, President and Chief Executive Officer
Patrick M. Walsh
Executive Vice President, Chief Operating Officer and Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Emmis Communications Corporation and Subsidiaries
We have audited Emmis Communications Corporation and Subsidiaries internal control over financial reporting as of February
28, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Emmis Communications Corporation and
Subsidiaries management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Emmis Communications Corporation and Subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of February 28, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Emmis Communications Corporation and Subsidiaries as of February 28, 2015 and 2014, and
the related consolidated statements of operations, comprehensive income (loss), changes in equity (deficit), and cash flows for
each of the three years in the period ended February 28, 2015 and our report dated May 7, 2015 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Indianapolis, Indiana
May 7, 2015
ITEM 9B. OTHER INFORMATION
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to directors or nominees to be directors of Emmis is incorporated by
reference from the sections entitled “Proposal 1: Election of Directors,” “Corporate Governance – Certain Committees of the
Board of Directors,” “Corporate Governance – Code of Ethics” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end
of the fiscal year to which this report applies. Information about executive officers of Emmis or its affiliates who are not
directors or nominees to be directors is presented in Part I under the caption “Executive Officers of the Registrant.”
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance –
Compensation of Directors,” “Executive Compensation,” "Compensation Committee Interlocks and Insider Participation,"
"Compensation Discussion and Analysis" and "Compensation Committee Report" in the proxy statement for the Annual
Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Information required by this item is incorporated by reference from the section entitled “Security Ownership of
Beneficial Owners and Management” in the proxy statement for the Annual Meeting of Shareholders expected to be filed
within 120 days after the end of the fiscal year to which this report applies.
Equity Compensation Plan Information
The following table gives information about our common stock and preferred stock that may be issued upon the exercise
of options, warrants and rights under our 2001 Equity Incentive Plan, 2002 Equity Incentive Plan, 2004 Equity Compensation
Plan, 2010 Equity Compensation Plan, and 2012 Equity Compensation Plan as of February 28, 2015. Our shareholders have
approved these plans.
Plan Category
Class A common stock
Equity Compensation Plans
Approved by Security Holders
Equity Compensation Plans
Not Approved by Security Holders
Total
Number of Securities
to be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and
Rights
Number of Securities
Remaining Available
for Future Issuance under
Equity Compensation
Plans (Excluding Securities
Reflected in Column (A))
(A)
(B)
(C)
5,724,446
$
—
5,724,446
$
1.76
—
1.76
2,993,543
—
2,993,543
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance –
Independent Directors” and “Corporate Governance – Transactions with Related Persons” in the proxy statement for the
Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report
applies.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference from the section entitled “Matters Relating to
Independent Registered Public Accountants” in the proxy statement for the Annual Meeting of Shareholders expected to be
filed within 120 days after the end of the fiscal year to which this report applies.
94
Table of Contents
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements
The financial statements filed as a part of this report are set forth under Item 8.
Financial Statement Schedules
No financial statement schedules are required to be filed with this report.
Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
Exhibit
Number
3.1
3.2
4.1
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
Exhibit Description
Second Amended and Restated Articles of Incorporation of
Emmis Communications Corporation, as amended effective
September 4, 2012
Second Amended and Restated Bylaws of Emmis
Communications Corporation
Form of stock certificate for Class A common stock
Credit Agreement, dated as of December 28, 2012, among
Emmis Operating Company, as the Borrower, Emmis
Communications Corporation., as the Parent, JP Morgan
Chase Bank, N.A. as Administrative Agent and the lenders
party thereto
First Amendment to 2012 Credit Agreement, Security
Agreement and Subsidiary Agreement
Incorporated by Reference
Filed
Herewith
Period
Ending
Form
10-Q 8/31/2012
Exhibit
3.1
Filing
Date
10/11/2012
10-K 2/28/2013
3.2
5/8/2013
S-1
8-K
3.5
10.2
12/22/1993
12/28/2012
10-Q 11/30/2013
10.1
10/10/2013
Second Amendment to 2012 Credit Agreement, Security
Agreement and Subsidiary Agreement
10-K 2/28/2014
10.18
5/8/2014
Credit Agreement, dated as of June 10, 2014, among
Emmis Communications Corporation, Emmis Operating
Company, certain other subsidiaries of the Company, the
lenders party thereto, JPMorgan Chase Bank, N.A., as
administrative agent, and Fifth Third Bank, as syndication
agent.
First Amendment to 2014 Credit Agreement, dated as of
November 7, 2014, among Emmis Communications
Corporation, Emmis Operating Company, certain other
subsidiaries of the Company, the lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and
Fifth Third Bank, as syndication agent.
Second Amendment to 2014 Credit Agreement, dated as of
April 30, 2015, among Emmis Communications
Corporation, Emmis Operating Company, certain other
subsidiaries of the Company, the lenders party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and
Fifth Third Bank, as syndication agent.
Change in Control Severance Agreement, dated as of May
7, 2012, by and between Emmis Communications
Corporation and Jeffrey H. Smulyan ++
Change in Control Severance Agreement, dated as of July
10, 2012, by and between Emmis Operating Company and
Jeffrey H. Smulyan ++
Employment Agreement, dated as of December 26, 2012,
by and between Emmis Operating Company and Jeffrey H.
Smulyan ++
95
8-K
10.1
6/10/2014
8-K
10.1
11/7/2014
8-K
10.1
4/30/2015
10-K 2/29/2012
10.18
5/10/2012
10-Q 5/31/2012
10.18
7/12/2012
8-K
10.1
12/28/2012
Table of Contents
Exhibit
Number
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
21
23
24
31.1
31.2
32.1
Exhibit Description
Change in Control Severance Agreement, dated as of
September 4, 2011, by and between Emmis Operating
Company and Patrick M. Walsh ++
Employment Agreement, dated as of September 4, 2013, by
and between Emmis Operating Company and Patrick M.
Walsh ++
Change in Control Severance Agreement, dated as of March
8, 2012, by and between Emmis Operating Company and J.
Scott Enright ++
Employment Agreement, dated as of March 1, 2012, by and
between Emmis Operating Company and J. Scott Enright +
+
Employment Agreement, effective as of March 3, 2009, by
and between Emmis Operating Company and Gary L.
Kaseff ++
Amendment to Employment Agreement, effective as of
March 1, 2013, by and between Emmis Operating
Company and Gary L. Kaseff ++
Employment Agreement, effective as of March 1, 2013, by
and between Emmis Operating Company and Gregory T.
Loewen ++
Change in Control Severance Agreement, dated as of
December 21, 2012, by and between Emmis Operating
Company and Gregory T. Loewen ++
Employment Agreement, effective as of March 1, 2014, by
and between Emmis Operating Company and Richard F.
Cummings ++
Employment Agreement, effective as of March 1, 2015, by
and between Emmis Operating Company and Richard F.
Cummings ++
Change in Control Severance Agreement, dated as of March
1, 2012, by and between Emmis Operating Company and
Richard F. Cummings ++
Purchase and Sale Agreement, dated as of February 11,
2014, by and between YMF Media New York LLC, YMF
Media New York License LLC, and Emmis Radio, LLC.
Exhibit P to Purchase and Sale Agreement: Form of WBLS-
WLIB LLC Operating Agreement
Local Programming and Marketing Agreement, dated as of
February 11, 2014, by and among Emmis Radio, LLC,
YMF Media New York LLC and YMF Media New York
License LLC.
Subsidiaries of Emmis
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
Certification of Principal Executive Officer of Emmis
Communications Corporation pursuant to Rule 13a-14(a)
under the Exchange Act
Certification of Principal Financial Officer of Emmis
Communications Corporation pursuant to Rule 13a-14(a)
under the Exchange Act
Certification of Principal Executive Officer of Emmis
Communications Corporation pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
96
Incorporated by Reference
Filed
Herewith
Period
Ending
Form
10-Q 11/30/2011
Exhibit
10.2
Filing
Date
1/12/2012
8-K
10.1
10/25/2013
10-K 2/29/2012
10.24
5/10/2012
10-K 2/29/2012
10.25
5/10/2012
10-
K/A
2/28/2009
10.31
10/9/2009
10-K 2/28/2013
10.23
5/8/2013
10-K 2/28/2013
10.24
5/8/2013
10-K 2/28/2013
10.25
5/8/2013
10-K 2/28/2014
10.32
5/8/2014
8-K
8-K
8-K
8-K
8-K
10.1
3/10/2015
10.1
3/12/2012
10.1
2/12/2014
10.2
2/12/2014
10.3
2/12/2014
X
X
X
X
X
X
Table of Contents
Exhibit
Number
32.2
Exhibit Description
Certification of Principal Financial Officer of Emmis
Communications Corporation pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase
Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
++ Management contract or compensatory plan or arrangement.
Incorporated by Reference
Form
Period
Ending
Exhibit
Filing
Date
Filed
Herewith
X
X
X
X
X
X
X
97
Table of Contents
Signatures.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 7, 2015
EMMIS COMMUNICATIONS CORPORATION
By:
/s/ Jeffrey H. Smulyan
Jeffrey H. Smulyan
Chairman of the Board,
President and Chief Executive Officer
98
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
Date: May 7, 2015
/s/ Jeffrey H. Smulyan
Date: May 7, 2015
Date: May 7, 2015
Date: May 7, 2015
Date: May 7, 2015
Jeffrey H. Smulyan
/s/ Patrick M. Walsh
Patrick M. Walsh
Susan B. Bayh*
Susan B. Bayh
James M. Dubin*
James M. Dubin
Gary L. Kaseff*
Gary L. Kaseff
Date: May 7, 2015
Richard A. Leventhal*
Richard A. Leventhal
Peter A. Lund*
Peter A. Lund
Greg A. Nathanson*
Greg A. Nathanson
Lawrence B. Sorrel*
Lawrence B. Sorrel
Date: May 7, 2015
Date: May 7, 2015
Date: May 7, 2015
*By:
/s/ J. Scott Enright
J. Scott Enright
Attorney-in-Fact
President, Chairman of the Board and
Director (Principal Executive Officer)
Executive Vice President, Chief Financial Officer,
Chief Operating Officer and Director (Principal
Financial Officer and Principal Accounting
Officer)
Director
Director
Director
Director
Director
Director
Director
99