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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, 2017
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
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
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
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, 2016, the last business
day of the Registrant’s most recently completed second fiscal quarter, was approximately $40,919,000.
The number of shares outstanding of each of Emmis Communications Corporation’s classes of common stock, as of May 5,
2017, was:
11,345,404 Class A Common Shares, $.01 par value
1,142,366 Class B Common Shares, $.01 par value
0 Class C Common Shares, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
Documents
Proxy Statement for 2017 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 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 or 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 16 FM and 3 AM radio
stations in New York, Los Angeles, St. Louis, Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located
there) and Indianapolis. 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. In addition, Emmis has entered into an agreement to sell its FM radio station in Los Angeles and that
transaction is expected to close in the back half of 2017. 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,
developed NextRadio®, a smartphone application that marries over-the-air FM radio broadcasts with visual and interactive
features on smartphones, and has introduced the Dial ReportTM to give radio advertising buyers and sellers big data analytics
derived from a nationwide radio station network, smartphone usage, location-based data, demographic profiling and listening
data.
In addition to our radio properties, we also publish Indianapolis Monthly and 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 smartphones. 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, interactive mobile advertising
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. We regularly review our business
operations and reduce costs or realign resources as necessary. We have also invested in common technology platforms across
all of our radio stations 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 radio distribution system with digital
systems like HD Radio® and wireless broadband, as well as to enhance radio’s future through advances like TagStation,
NextRadio and the Dial Report.
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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 28, 2017. “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 2017 Nielsen Audio, Inc.
("Nielsen") Portable People Meter results. 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
23
32
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
37
WFNI-AM
WYXB-FM
WLHK-FM
WIBC-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
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
4t
2
4
44t
1
1
9
12t
12
4
1
9
13t
3
18
4
5
10
5.2
7.9
5.4
0.2
9.3
8.5
5.3
4.1
3.1
7.1
9.8
4.1
3.0
7.4
2.1
6.7
5.7
3.6
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 60 affiliated radio stations in Indiana.
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 radio stations and Indianapolis Monthly and to increase distribution to portable devices like
smartphones and tablets.
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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 radio stations and Indianapolis Monthly 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 and in 2016 and WBLS-FM won a national Crystal Award in 2017.
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, 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,” was named Radio
Ink’s “Radio Executive of the Year,” and was recently named the 2017 recipient of the Broadcasters Foundation of America's
"Lowry Mays Excellence in Broadcasting Award." 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
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 or 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 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, 2017,
approximately 15% of our total advertising revenues were derived from national sales, and 85% were derived from local sales.
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EMPLOYEES
As of February 28, 2017, Emmis had approximately 540 full-time employees and approximately 290 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. 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 February 28, 2017:
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Radio Market
Los Angeles, CA
New York, NY
St. Louis, MO
Austin, TX
Indianapolis, IN
Stations
City of License
Frequency
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
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
Expiration Date
of License1
December 2021
June 2022
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
Height Above
Average
Terrain (in
feet)
Power (in
Kilowatts)
FCC Class
B
B
B
B
B
C1
C1
C1
C0
C0
C
C2
B
C
C2
B
B
B
B
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
6
100
92
54
100
100
100
49
5 D / 1 N
97
12.5
50 D / 10 N
23
13.5
50
1 Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application.
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.
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 or newspaper, 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 May 2016 and concerned the FCC's then-pending 2010 and 2014 reviews. In August 2016, the FCC
concluded its 2010 and 2014 reviews, deciding to retain the local radio ownership rule, the radio-television cross-ownership
rule, and the prohibition on newspaper/broadcast cross-ownership without significant alteration. Various parties have appealed
the FCC's August 2016 order, and other parties have filed petitions for reconsideration, all of which remain pending. We cannot
predict whether the appeals or reconsideration 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 a result of the FCC's August 2016 order.
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:
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•
•
•
•
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 its August 2016 order, the FCC declined to make other types of agreements such as “shared services
agreements” (or "SSAs") and/or “local news service” agreements, attributable, and adopted a disclosure requirement for SSAs
between commercial television stations.
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,
98.7 FM, 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
98.7 FM FCC license during the term of the LMA and received 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. Although the Third Circuit vacated the
FCC’s selected definition of small businesses eligible to purchase clusters that exceed the numerical limits in 2011, the FCC
reinstated that definition in its August 2016 order. 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 likely
therefore have to “spin off” one FM station to a separate buyer or to transfer the cluster to an entity meeting the FCC's small
business definition.
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" or "failing station.”
FCC rules also generally prohibit common ownership of a daily newspaper and a radio or television station in the same
local market, subject to an exception for combination involving "failed" or "failing" stations or newspapers.
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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. Although the Third Circuit
vacated the FCC’s selected definition of small businesses eligible to take advantage of these increased limits in 2011, the
FCC reinstated that definition in its August 2016 order.
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.
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 had interpreted this provision to require an affirmative public interest finding to permit
the grant or holding of a license, and had made such a finding 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.
In September 2016, the FCC adopted rules to simplify and streamline the process for requesting authority to exceed the 25%
indirect foreign ownership limit in broadcast licensees and revised the methodology that publicly traded broadcasters must use to
assess their compliance with the foreign ownership restrictions. The foregoing restrictions on alien ownership apply in modified
form to other types of business organizations, including partnerships and limited liability companies. In addition, 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 Second 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.
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
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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.
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 are still 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, and may receive in the future, letters of inquiry or other notifications concerning alleged violations of the
indecency rules at certain of its stations. We cannot predict the outcome of any indecency complaint proceeding or investigation
or the extent or nature of future FCC enforcement actions.
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 any that may
involve 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.
Federal law also imposes sponsorship identification (or “payola”) requirements, which mandate the disclosure of information
concerning programming that is paid for by third parties. The company has received, and may receive in the future, letters of
inquiry or other notifications concerning alleged violations of the sponsorship identification rules at certain of its stations. We
cannot predict the outcome of any sponsorship identification complaint proceeding or investigation or the extent or nature of future
FCC enforcement actions.
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 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, although to date there have been very few, if any, instances of LPFM stations interfering with full-power
radio stations, we cannot predict whether any LPFM stations will actually interfere with the coverage of our radio stations in the
future.
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. In October 2015, the FCC issued an
Order that adopted a two-stage process for AM radio stations to acquire additional FM translators, which began in early 2016 and
is expected to conclude in 2017. The FCC also adopted certain changes to its rules that govern AM radio stations, and sought
comment on additional changes to those rules. The October 2015 proceeding remains pending.
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
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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 an online public file requirement on television stations and, in January
2016, announced that it would extend that requirement to radio stations. 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 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, Broadcast
Music, Inc., and SESAC, Inc.. These rates are set periodically, 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. In 2013 a new performing rights organization,
named Global Music Rights ("GMR"), was formed. GMR has obtained the rights to certain high-value copyrights and is seeking
to negotiate individual licensing agreements with radio stations for songs within its repertoire. GMR and the Radio Music License
Committee, Inc. ("RMLC"), which negotiates music licensing fees with performance rights organizations on behlaf of many radio
stations, have initiated antitrust litigation against one another, which remains pending. In addition, the Department of Justice
("DOJ") has recently disagreed with a federal court regarding whether the DOJ's consent decrees with major performance rights
organizations require so-called "full-work" licenses (which would allow a license-holder to play all of the works in a performance
rights organization's repertoire). If a significant number of musical composition copyright owners withdraw from the established
performing rights organizations, or if new performing rights organizations form to license compositions that are not already
licensed, Emmis’ royalty rates or negotiation costs could increase. Emmis' royalty rates or negotiation costs could also change as
a result of GMR/RMLC litigation or the resolution of the full-work licensing issue.
In order to stream music over the Internet, Emmis must also obtain licenses and pay royalties to the owners of copyrights in
sound recordings (typically, artists and record companies). These royalties are in addition to royalties for Internet streaming that
must also be paid to performance rights organizations. The Copyright Royalty Board (“CRB”) recently completed its proceeding
to set rates for the 2016-2020 license period. The CRB set a rate during this period for performances by non-subscription
noninteractive services of 0.17 cent per listener per song, and a rate for noninteractive subscription services of 0.22 cent per listener
per song, both of which are subject to changes that mirror changes in the Consumer Price Index. The CRB's 2016-2020 rates
represent a decrease from the 2015 CRB rates applicable to broadcasters and other webcasters, but the determination has been
appealed.
In addition, lawsuits have been filed under various state laws challenging the right of digital audio transmission services and
broadcasters to publicly perform or reproduce sound recordings fixed prior to February 15, 1972 (“pre-1972 sound recordings”)
without a license. 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
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protections varies from state to state. Moreover, the existence or scope of any public performance right in pre-1972 sound recordings
is unclear. For example, courts in California have issued decisions in favor of the putative copyright owners against a digital
transmission service. One of these cases is currently pending on appeal in the Ninth Circuit. On the other hand, courts in New
York and Florida have held that there are no public performance rights under the common law in those states. The New York case
was recently resolved in favor of the digital transmission service, while an appeal of the Florida case is pending. If the courts find
that there are public performance rights in pre-1972 recordings 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.
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 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
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 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.
•
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•
•
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.
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.
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Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the
automotive industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising
expenditures if that sector experiences a downturn. If that sector’s spending represents a significant portion of our advertising
revenues, any reduction in its advertising expenditures may affect our revenue.
Radio revenues in the markets in which we operate have been challenged and may remain so.
Radio revenues in the markets in which we operate have lagged the growth of the general United States economy. Our
market revenues, as measured by the accounting firm Miller Kaplan Arase LLP ("Miller Kaplan"), during the years ended February
2015, 2016 and 2017 were down 3.7%, down 1.5%, and up 1.7% respectively. During this same period, the U.S. Bureau of
Economic Analysis reports that U.S. current-dollar gross domestic product growth has been 3% to 4% each year. Our results of
operations could be negatively impacted if radio revenue performance in the markets in which we operate continues to lag general
United States economic growth.
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
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. This development in Los Angeles negatively impacted our financial performance in fiscal 2016 and 2017 and the
early months of fiscal 2018. On May 8, 2017, we entered into an agreement to sell our radio station in Los Angeles, subject to
certain regulatory approvals and closing conditions.
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 50% of our radio revenues in fiscal 2017. Our results from operations can be materially affected
by decreased ratings or resulting revenues in either one of these markets. On May 8, 2017, we entered into an agreement to sell
our radio station in Los Angeles, subject to certain regulatory approvals and closing conditions. Our exposure to the Los
Angeles radio market will be eliminated if we are able to close this transaction, as expected, in the back half of 2017.
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 our
reliance on urban formats in each of these markets, our results from operations can be materially affected by additional urban
format competition by our competitors. On May 8, 2017, we entered into an agreement to sell our radio station in Los Angeles,
subject to certain regulatory approvals and closing conditions. Our exposure to the Los Angeles radio market will be eliminated
if we are able to close this transaction, as expected, in the back half of 2017.
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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, Internet content providers and other digital
audio broadcast formats;
personal digital audio devices (e.g., audio via Wi-Fi, smartphones, 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.
A number of automakers are introducing more advanced, interactive dashboard technology including the introduction of
technologies like Apple CarPlay and Google Android Auto that enable vehicle entertainment systems to more easily interface
with a consumer’s smartphone and include alternative audio entertainment options.
Programmatic buying, which enables an advertiser to purchase advertising inventory through an exchange or other
service and bypass the traditional personal sales relationship, has become widely adopted in the purchase of digital advertising
and is an emerging trend in the radio industry. We cannot predict the impact programmatic buying may have on the radio
industry or our financial condition and results of operations.
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
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
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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 likely 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
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 large and 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. Such on-air
personalities or other key individuals may not remain with our radio stations and we may not retain their audiences, which
could affect our competitive position.
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 a result of recording
noncash impairment charges, mostly related to FCC licenses and goodwill. During the years ended February 28 (29), 2015,
2016 and 2017, we incurred impairment losses of $67.9 million, $9.5 million, and $9.8 million, respectively. As of
February 28, 2017, our FCC licenses and goodwill comprise 70% 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.
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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”),
as amended, 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.
We may fail to consummate dispositions or complete them in a timely manner.
We regularly review our portfolio of assets and periodically dispose of assets when we believe it is appropriate to do so.
In that respect, on August 19, 2016, we announced that we were exploring strategic alternatives for our publishing division
(except Indianapolis Monthly), our radio stations in Terre Haute, Indiana, and WLIB-AM in New York. We completed our sale
of Texas Monthly on November 1, 2016, our sale of radio stations in Terre Haute, Indiana on January 30, 2017, and the sale of
the remainder of our publishing division (except Indianapolis Monthly) on February 28, 2017. We continue to explore our
options with WLIB-AM in New York. In addition, the amendment to our credit agreement that we executed on April 18, 2017,
requires Emmis to divest of assets that will yield at least $80 million of proceeds beyond the transactions that had closed
through February 28, 2017. We have nine months from the date of the amendment to enter into definitive agreements for the
requisite sales and six additional months to close the transactions. The sale and transfer of an FCC license requires approval by
the FCC. While we have entered into an agreement to sell our radio station in Los Angeles for $82.8 million, which satisfies the
requirement to enter into definitive agreements within nine months, the closing is subject to certain regulatory approvals and
closing conditions. Accordingly, we cannot assure investors that necessary regulatory approvals will be obtained and other
closing conditions will be met that will allow the disposition to close by July 18, 2018.
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
that the proceeds from such insurance will be sufficient to offset the costs of rebuilding or repairing our property or the lost
income.
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We have significant obligations relating to our current operating leases.
In February 2016, the Financial Accounting Standards Board released Accounting Standards Update 2016-02, Leases
(Topic 842) ("ASU 2016-02"). This update requires lessees to recognize, on the balance sheet, assets and liabilities for the
rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the income statement.
As of February 28, 2017, we had operating lease commitments of approximately $58.4 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 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. ASU 2016-02 requires 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). This guidance will be effective for the Company as of March 1, 2019 and requires a modified
retrospective implementation. When adopted, ASU 2016-02 will result in an increase in the assets and liabilities reflected on
our consolidated balance sheets.
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 other assets 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 other 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, 2017, our total indebtedness was $221.0 million,
consisting of $152.2 million under our 2014 Credit Agreement, $60.0 million of 98.7FM nonrecourse debt and $8.8 million of
other nonrecourse 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 $36.9 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 contain 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 approximately $12.1 million of our term notes in fiscal
2018 and $4.7 million annually thereafter until maturity 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 5, 2017, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey H. Smulyan,
beneficially owned shares representing approximately 51.6% 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 National Association of Securities Dealers Automated Quotation
("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.
Our Class A common stock may cease to be listed on the Nasdaq Global Select Market.
Our common stock is currently listed on the Nasdaq Global Select Market under the symbol “EMMS.” We may not be
able to meet the continued listing requirements of the Nasdaq Global Select Market, which require, among other things, a
minimum closing price of our common stock and a minimum market capitalization. In the past, we have received written
deficiency notices from The Nasdaq Stock Market advising us that the closing bid price of our Class A common stock did not
meet the continued listing requirements pursuant to NASDAQ Listing Rule 5450(a)(1). In each of these instances, we were
able to satisfy the requirements for continued listing. If we are unable to satisfy the requirements of the Nasdaq Global Select
Market for continued listing, our common stock would be subject to delisting from that market, and we might or might not be
eligible to list our shares on another Nasdaq market.
A delisting of our Class A common stock from the Nasdaq Global Select Market could negatively impact us by, among
other things, reducing the liquidity and market price of our common stock. There can be no assurance that we will be able to
comply with the Minimum Bid Price Rule, or any other requirement in the future.
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 several 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 $58.4 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.
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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
Paul V. Brenner
J. Scott Enright
Ryan A. Hornaday
Gregory T. Loewen
President - TagStation / NextRadio
POSITION
Executive Vice President, General Counsel and Secretary
Executive Vice President, Chief Financial Officer and Treasurer
President - Publishing Division and Chief Strategy Officer
AGE AT
FEBRUARY 28,
2017
48
54
43
45
YEAR
FIRST
ELECTED
OFFICER
2007
1998
2006
2007
Mr. Brenner was appointed as an executive officer of Emmis in July 2016 and has served as President - TagStation /
NextRadio since March 2016. Previously, Mr. Brenner served as Senior Vice President and Chief Technology Officer from
March 2009 to February 2016. Mr. Brenner joined Emmis in 1998.
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. Hornaday was appointed Executive Vice President, Chief Financial Officer and Treasurer in August 2015. Previously,
Mr. Hornaday served as Senior Vice President - Finance and Treasurer from December 2008 to July 2015. Mr. Hornaday joined
Emmis in 1999.
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. On July 8, 2016, we effected a one-for-four reverse stock split for all classes of our common stock.
The following table sets forth the high and low sales prices of the Class A common stock for the periods indicated. Sales
prices have been adjusted for all periods presented to reflect the impact of the reverse stock split.
QUARTER ENDED
May 2015
August 2015
November 2015
February 2016
May 2016
August 2016
November 2016
February 2017
HOLDERS
HIGH
LOW
$
$
$
$
$
$
$
$
8.52
5.96
5.76
3.24
2.76
4.33
4.17
3.68
$
$
$
$
$
$
$
$
4.16
3.96
2.44
1.72
1.92
2.20
3.22
2.76
At May 5, 2017, there were 511 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.
SHARE REPURCHASES
During the three-month period ended February 28, 2017, 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, 2017:
Period
Class A Common Stock
December 1, 2016 - December 31, 2016
January 1, 2017 - January 31, 2017
February 1, 2017 - February 28, 2017
(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)
— $
$
$
24,462
11,411
35,873
—
3.16
2.77
— $
— $
— $
—
—
—
—
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, we are not required to provide this information.
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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 principally own and operate radio 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.
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, revenues related to our TagStation and Digonex businesses, network revenues
and barter. We sold Texas Monthly and our radio stations in Terre Haute, Indiana on November 1, 2016 and January 30, 2017,
respectively, which impacts the comparability of fiscal 2015 and 2016 to fiscal 2017. Our sale of Los Angeles Magazine,
Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine on February 28, 2017 does not affect the comparability of
results in the table below, but will effect comparability of results in future periods.
Net revenues:
Local
National
Political
Publication Sales
Non Traditional
Interactive
LMA Fees
Other
2015
% of Total
2016
% of Total
2017
% of Total
Years ended February 28 (29),
$
136,283
57.3% $
130,486
56.4% $
121,841
29,793
1,434
6,076
23,810
12,894
10,331
17,317
12.5%
0.6%
2.6%
10.0%
5.4%
4.3%
7.3%
26,994
661
5,612
25,683
13,223
10,331
18,443
11.7%
0.3%
2.4%
11.1%
5.7%
4.5%
7.9%
21,706
2,163
4,193
22,936
14,737
10,331
16,661
56.8%
10.1%
1.0%
2.0%
10.7%
6.9%
4.8%
7.7%
Total net revenues
$
237,938
$
231,433
$
214,568
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.
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KNOWN TRENDS AND UNCERTAINTIES
The U.S. radio industry is a mature industry and its growth rate has stalled. 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, audio streaming services and podcasts has led some investors and advertisers to conclude that the
effectiveness of radio advertising has diminished.
The Company and the radio industry are leading 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 have
not historically permitted 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 the perception of the radio industry while offering wireless 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 FM-
enabled smartphones and other wireless devices. Recently, we introduced the Dial ReportTM, an online data portal that enables
advertisers and other users of radio to access rich data about the usage and consumption of radio and the behavior of radio
listeners.
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 on 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 serve as a conduit
for the radio industry 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. NextRadio LLC collected money from the radio industry
and forwarded it to Sprint. During the years ended February 2015 and 2016, Emmis' funding of its share of NextRadio's
payment to Sprint was $0.5 million and $0.4 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, 2017, the NextRadio application had not generated a material amount of revenue.
Since the inception of NextRadio LLC's agreement with Sprint through December 7, 2016, NextRadio LLC had remitted
to Sprint approximately $33.2 million. Effective December 8, 2016, NextRadio LLC and Sprint entered into an amendment of
their original agreement. The amendment called for NextRadio LLC to make installment payments totaling $6.0 million
through March 15, 2017, which have been paid. In exchange, Sprint agreed to forgive the remaining $5.8 million that it was
due under the original agreement, and in return receive a higher share of certain revenue generated by the NextRadio
application. In addition, Sprint agreed, so long as commercially reasonable, to continue to pre-load the NextRadio application
through March 31, 2020 with no additional cash payments from NextRadio (other than revenue share payments). NextRadio
LLC received a loan of $4.0 million for the sole purpose of fulfilling the payment obligations to Sprint under the amendment.
The loan will be repaid out of proceeds from sales of enhanced advertising through the NextRadio application. Through
February 28, 2017, NextRadio LLC received $3.4 million under the loan, which was promptly remitted to Sprint and included
in station operating expenses in the accompanying consolidated statement of operations. The remaining $0.6 million of loan
proceeds was received in March 2017, remitted to Sprint, and included in station operating expenses in the quarter ending May
31, 2017.
On July 27, 2015, NextRadio LLC entered into an agreement with AT&T whereby AT&T agreed to include FM chip
activation in its Android device specifications to wireless device manufacturers. In exchange, AT&T will receive a share of
certain revenue generated by the NextRadio application. This agreement was subsequently assigned to TagStation LLC (the
parent entity of NextRadio LLC and owner of the TagStation and NextRadio applications). In August 2015, T-Mobile expressed
its intent to include FM chip activation in its device specifications. On September 9, 2016, TagStation LLC entered into an
agreement with T-Mobile whereby T-Mobile agreed to include FM chip activation in its Android device specifications to
wireless device manufacturers. In exchange, T-Mobile will receive a share of certain revenue generated by the NextRadio
application. TagStation LLC has been working directly with numerous device manufacturers to accelerate the availability of
NextRadio to consumers. BLU Products, an American mobile phone manufacturer, has chosen to make NextRadio the native
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FM tuner on its Android smartphones. In April 2016, Alcatel entered into a similar arrangement for NextRadio. The Samsung
S7 and S8 family of smartphones are FM-enabled and NextRadio compatible across all major U.S. wireless networks.
TagStation LLC and the radio industry continue 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 through
August 2015. 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.
The Company has also aggressively worked to harness the power of broadband and mobile media distribution in the
development of emerging business opportunities by developing highly interactive websites with content that engages our
listeners, deploying mobile applications and streaming our content, 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 approximately 50% of our radio net revenues. 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, KPWR-FM, 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. This development in Los Angeles negatively impacted our financial performance in fiscal 2016 and 2017, as well as
the early months of fiscal 2018. On May 8, 2017, we entered into an agreement to sell our radio station in Los Angeles, subject
to certain regulatory approvals and closing conditions.
Both the Los Angeles and New York radio markets showed signs of improvement during the year ended February 2017.
Market revenues for Los Angeles and New York as measured by Miller Kaplan Arase LLP ("Miller Kaplan"), an independent
public accounting firm used by the radio industry to compile revenue information, were up 3.3% and 0.2%, respectively, for the
twelve months ended February 28, 2017, as compared to the same period of the prior year. However, during the same period,
our station in Los Angeles, KPWR-FM, and our cluster in New York both lagged their respective market performance. As
discussed above, KPWR-FM has been adversely affected by the introduction of a format competitor. Our New York operations
were negatively impacted by severe weather at our largest outdoor concert in June 2016, as well as intensifying competition for
transactional business in the local market. We have made changes in our local sales organization in New York to derive more
local, direct business and reduce our reliance on transactional, agency business.
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. In that respect, on August 19, 2016, we
announced that we were exploring strategic alternatives for our publishing division (except Indianapolis Monthly), our radio
stations in Terre Haute, Indiana, and WLIB-AM in New York. We completed our sale of Texas Monthly on November 1, 2016,
our sale of radio stations in Terre Haute, Indiana on January 30, 2017, and the sale of the remainder of our publishing division
(except Indianapolis Monthly) on February 28, 2017. We continue to explore our options with WLIB-AM in New York. In
addition, the amendment to our credit agreement that we executed on April 18, 2017, requires that Emmis divest of assets that
will yield at least $80 million of proceeds beyond the transactions that have closed as of February 28, 2017. We have nine
months from the date of the amendment to enter into definitive agreements for these sales. On May 8, 2017, we entered into an
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agreement to sell our radio station in Los Angeles for $82.8 million, which satisfies this requirement. Closing is subject to
certain regulatory approvals and closing conditions, but we expect it to occur in the back half of 2017.
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.
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.
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, 2017, we have recorded approximately $202.3 million in goodwill and FCC licenses,
which represents approximately 70% 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. In recent years, we have reduced
long-term growth rates in 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,
2017.
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Discount Rate
Long-term Revenue Growth Rate
Mature Market Share
Operating Profit Margin
December 1, 2014
December 1, 2015
December 1, 2016
12.1% - 12.5%
12.0% - 12.4%
12.2% - 12.5%
1.5% - 3.0%
1.3% - 2.5%
1.0% - 2.0%
3.2% - 29.2%
3.2% - 29.3%
3.1% - 30.4%
25.1% - 39.2%
25.0% - 39.1%
25.1% - 39.1%
The Company has recorded impairment charges related to FCC licenses in each of the past three years. Impairment
charges recognized as part of our December 1, 2014, 2015 and 2016 annual testing were $9.5 million, $5.4 million and $6.9
million, respectively. These impairments were mostly related to declining market revenues combined with lowered expectations
for future long-term revenue growth rates as noted in the table above.
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, 2016, the Company applied a market multiple of 8.0 times the reporting unit’s operating performance for our
radio reporting units. As of December 1, 2016, all of the Company's goodwill related to our radio reporting units, so no
assessment of goodwill impairment for our publishing reporting units was required. Management believes this methodology for
valuing radio properties is a common approach and believes that the multiples used in the valuation are reasonable given our
peer comparisons and market transactions, including our own recent 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, 2017.
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.
During our December 1, 2015 annual goodwill impairment test, the Company wrote off $0.7 million of goodwill
associated with Digonex, our dynamic pricing business. Emmis acquired a controlling interest in Digonex in June 2014. In
connection with our acquisition of a controlling interest of Digonex, Emmis recorded approximately $2.8 million of goodwill.
Although Emmis still believes that Digonex's long-term prospects remain strong, Digonex's performance since Emmis'
acquisition of a controlling interest has lagged original expectations. Digonex failed the step-one analysis and upon completing
the step-two analysis, Emmis determined that the goodwill of Digonex was partially impaired and recorded a $0.7 million
impairment charge during the three months ended February 29, 2016.
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During the quarter ended August 31, 2016, the Company lowered its growth expectations for Digonex for the next several
years due to slow client adoption of dynamic pricing services. While the Company continues to believe in the long-term growth
prospects of Digonex, the lengthy sales cycle has caused Digonex to perform below expectations to date. Despite lowering
near-term growth expectations for Digonex in connection with our annual impairment review for fiscal 2016, which led to a
goodwill impairment charge of $0.7 million as discussed above, performance in the first six months of fiscal 2017 indicated
that a further revision was appropriate. Our then-current projections assumed that Digonex would generate cash flow losses in
the short and medium-term. The combination of lower-than-expected current period results, coupled with downward revisions
to future revenue projections, resulted in an impairment indicator that caused the Company to assess goodwill and related
intangibles on an interim basis during the quarter ended August 31, 2016. The Company's discounted cash flow analysis for
Digonex indicated a nominal enterprise value. Therefore, in connection with the interim impairment test, Emmis determined
that Digonex's goodwill was fully impaired and recorded an impairment loss of $2.1 million.
Sensitivity Analysis
Based on the results of our December 1, 2016 annual impairment assessment, the fair value of our broadcasting licenses
was approximately $277.3 million, which was in excess of the $198.3 million carrying value by $79.0 million, or 39.8%.
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.
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, 2016
Carrying Value
Fair Value
Percentage by which fair
value exceeds carrying value
71,615
46,390
34,719
24,758
18,166
2,018
643
198,309
101,914
46,390
34,719
24,758
19,064
49,774
643
277,262
42.3%
—%
—%
—%
4.9%
2,366.5%
—%
39.8%
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, 2016, the resulting impairment charge would have been $31.0 million, $22.5 million and
$19.7 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,
2016, 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 either of 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 recorded for financial reporting purposes as compared to 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 $0.7 million and $0.8 million accrued for employee healthcare claims as of February 28 (29),
2016 and 2017, 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.
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ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
The transactions described below impact the comparability of operating results for the three years ended February 28,
2017.
Sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine
On February 28, 2017, Emmis closed on its sale of substantially all of the assets of Los Angeles Magazine, Atlanta
Magazine, Cincinnati Magazine and Orange Coast Magazine (the "Hour Magazines") for gross proceeds of $6.5 million to
Hour Media Group, LLC. The Company previously announced that it was exploring strategic alternatives for its publishing
division, excluding Indianapolis Monthly. Emmis decided to sell most of its publishing assets to reduce debt outstanding.
Emmis received net proceeds of $2.9 million, consisting of the stated purchase price of $6.5 million, less $0.7 million held in
escrow and disposition costs totaling $2.9 million. The $2.9 million of disposition costs primarily relate to $1.6 million of
severance costs and transaction advisory fees of $1.0 million. The funds held in escrow secure Emmis' post closing
indemnification obligations in the purchase agreement and are scheduled to be released six months after the closing of the
transaction. After settling retention bonuses to affected employees, net proceeds were used to repay term loan indebtedness
under Emmis’ senior credit facility. Emmis recorded a $2.7 million gain on the sale of the Hour Magazines. These magazines
had historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation
as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.
Sale of Terre Haute, Indiana radio stations
On January 30, 2017, Emmis closed on its sale of substantially all of the assets of its radio stations in Terre Haute,
Indiana, in two contemporaneous transactions. In one transaction, Emmis sold the assets of WTHI-FM and the intellectual
property of WWVR-FM to Midwest Communications, Inc. In the other transaction, Emmis sold the assets of WFNF-AM,
WFNB-FM, WWVR-FM (other than the intellectual property for that station) and an FM translator to DLC Media, Inc. The
Company previously announced that it was exploring strategic alternatives for these radio stations. Emmis believed that
operating stations in Terre Haute, Indiana was not a core part of its radio strategy and its strong market position in the Terre
Haute market would be attractive to potential buyers. At closing, Emmis received gross proceeds of approximately $5.2 million
for both transactions. After payment of brokerage and other transaction costs, net proceeds totaled $4.8 million and were used
to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $3.5 million gain on the sale of its Terre
Haute radio stations. The Terre Haute radio stations had historically been included in our Radio segment. This disposal did not
qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in
Accounting Standards Codification 205-20-45-1C.
Sale of Texas Monthly
On November 1, 2016, Emmis closed on its sale of Texas Monthly for gross proceeds of $25.0 million in cash to a
subsidiary of Genesis Park, LP. The Company previously announced that it was exploring strategic alternatives for its
publishing division, excluding Indianapolis Monthly. Emmis believed that its publishing portfolio had significant brand value
and planned to use proceeds from the sale of its publishing properties to repay debt. Emmis received net proceeds of $23.4
million, consisting of the stated purchase price of $25.0 million, net of estimated purchase price adjustments totaling $0.7
million and disposition costs totaling $0.9 million. The $0.9 million of disposition costs primarily related to severance costs.
Proceeds were used to repay term and revolving loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $17.4
million gain on the sale of Texas Monthly. Texas Monthly had historically been included in our Publishing segment. This
disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as
described in Accounting Standards Codification 205-20-45-1C.
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. 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. Subsequent to its consolidation of Digonex, Emmis has contributed an additional $6.5 million to Digonex in the
form of convertible debt, which has resulted in Emmis owning rights that are convertible into at least 80% of the common
equity of Digonex.
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RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2016 COMPARED TO YEAR ENDED FEBRUARY 28, 2017
Net revenues:
Net revenues:
Radio
Publishing
Emerging Technologies
Total net revenues
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
$
$
169,228
$
165,148
$
60,992
1,213
48,559
861
231,433
$
214,568
$
(4,080)
(12,433)
(352)
(16,865)
(2.4)%
(20.4)%
(29.0)%
(7.3)%
Radio net revenues decreased during the year ended February 28, 2017 as our radio division underperformed the
aggregate performance of the markets in which we operate. 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. A summary of
market revenue performance and Emmis’ revenue performance in those markets for the year ended February 28, 2017 is
presented below:
Market
New York
Los Angeles
St. Louis
Indianapolis
Austin
All Markets
For the year ended February 28, 2017
Overall Market
Revenue Performance
Emmis
1
Revenue Performance
0.2%
3.3%
1.4%
0.8%
0.3%
1.7%
(2.8%)
(14.7%)
11.0%
(4.3%)
(0.9%)
(3.1%)
1 Emmis revenue performance in New York excludes the results of WEPN-FM which is being operated pursuant to an LMA
Our weak performance in Los Angeles mostly related to a format competitor that began directly competing against our
station there in February 2015. The revenue impact has been most pronounced since the fall of 2015. On May 8, 2017, we
entered into an agreement to sell our radio station in Los Angeles, subject to certain regulatory approvals and closing
conditions. Our exposure to the Los Angeles radio market will be eliminated if we are able to close this transaction, as
expected, in the back half of 2017. Excluding Los Angeles, our radio revenues would have been down 0.3% in markets that
were up 0.5% according to Miller Kaplan.
For the year ended February 28, 2017, as compared to the prior year, our average rate per minute for our domestic radio
stations was down 1.9%, and our minutes sold were down 2.9%.
Publishing net revenues were down for the year ended February 28, 2017 mostly due to the sale of Texas Monthly on
November 1, 2016.
Emerging technologies net revenues, which primarily relate to licensing fees of our TagStation software and pricing
services provided by Digonex, decreased during the year as a large retail customer of Digonex did not renew for fiscal 2017.
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Station operating expenses excluding LMA fees and depreciation and amortization expense:
For the years ended February 28 (29),
2016
2017
$ 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
$
$
116,862
$
115,366
58,891
7,641
51,063
13,656
183,394
$
180,085
$
$
$
(1,496)
(7,828)
6,015
(3,309)
(1.3)%
(13.3)%
78.7 %
(1.8)%
Radio station operating expenses, excluding LMA fees and depreciation and amortization expense decreased due to
nonrecurring severance expenses incurred during Q4 of the prior year.
Station operating expenses excluding depreciation and amortization expense for publishing decreased during the year
ended February 28, 2017 due to the sale of Texas Monthly on November 1, 2016, partially offset by severance and retention
bonuses for employees of the five magazines that were sold in fiscal 2017.
Station operating expenses excluding depreciation and amortization expense for emerging technologies increased during
the year ended February 28, 2017 mostly due to (i) NextRadio funding $3.35 million of its obligation to Sprint with the
proceeds of a third party loan and (ii) increased NextRadio headcount during the year across all departments to support
increased activity expected in the next fiscal year and beyond.
Corporate expenses excluding depreciation and amortization expense:
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
Corporate expenses excluding depreciation and
amortization expense
$
13,023
$
11,359
$
(1,664)
(12.8)%
Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 2017
mostly due to personnel bonuses, which totaled approximately $1.0 million in fiscal 2016, but there were no such bonuses in
fiscal 2017. Also contributing to the decrease in corporate expenses excluding depreciation and amortization expense was the
effect of cost reduction actions taken in January 2016, which were partially offset by costs incurred related to the evaluation of
a go-private offer received by the Company during fiscal 2017.
Impairment loss on intangible assets:
Impairment loss on intangible assets:
Radio
Emerging Technologies
Impairment loss on intangible assets
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
$
$
5,440
4,059
9,499
$
$
6,855
2,988
9,843
$
$
$
1,415
(1,071)
344
26.0 %
(26.4)%
3.6 %
In connection with the annual impairment review conducted on December 1, 2015, the Company concluded that its FCC
license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $5.4
million. The Company also concluded that the goodwill and patents associated with Digonex were impaired and recorded an
impairment loss of $4.1 million related to these assets.
In connection with an interim review for impairment during the quarter ended August 31, 2016, the Company recorded an
impairment loss of $2.1 million related to goodwill and $0.9 million related to definite-lived intangible assets, all of which
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related to Digonex. This impairment loss reduced the carrying value of Digonex goodwill and definite-lived intangible assets
to zero. In connection with the annual impairment review conducted on December 1, 2016, the Company concluded that its its
FCC license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $6.9
million.
We could record impairment charges in future periods if we determine the carrying value of our intangible assets exceeds
their fair value. Our annual impairment test of our broadcasting licenses and goodwill is performed each year as of December 1.
We may be required to retest prior to our next annual evaluation, which could result in additional impairment charges.
Gain on sale of radio and publishing assets, net of disposition costs:
Gain on sale of radio and publishing assets, net of
disposition costs:
Radio
Publishing
Emerging Technologies
Gain on sale of radio and publishing assets, net of
disposition costs
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
$
$
— $
—
—
(3,478) $
(20,079)
— $
(3,478)
(20,079)
—
— $
(23,557) $
(23,557)
N/A
N/A
N/A
N/A
On November 1, 2016, we closed on the sale of Texas Monthly. We recognized a $17.4 million gain on sale of Texas
Monthly. On January 30, 2017, we closed on the sale of our Terre Haute, Indiana radio cluster. We recognized a $3.5 million
gain on sale of the cluster. On February 28, 2017, we closed on the sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati
Magazine and Orange Coast Magazine. We recognized a $2.7 million gain on sale of these magazines.
Depreciation and amortization:
Depreciation and amortization:
Radio
Publishing
Corporate & Emerging Technologies
Total depreciation and amortization
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
$
$
3,345
266
2,186
5,797
$
$
3,462
230
1,114
4,806
$
$
117
(36)
(1,072)
(991)
3.5 %
(13.5)%
(49.0)%
(17.1)%
The increase in depreciation and amortization for the year ended February 28, 2017 for our radio division is mostly due to
depreciation expense associated with broadcasting equipment and other equipment that was placed into service toward the end
of the prior fiscal year.
The decrease in depreciation and amortization for the year ended February 28, 2017 for corporate & emerging
technologies is mostly due to reduced amortization expense of Digonex-related definite-lived intangible assets. The Company
recorded impairment charges related to these definite-lived intangible assets in connection with its annual review of impairment
during fiscal 2016 and with its interim review of impairment as of August 31, 2016, the latter of which reduced the carrying
value of these definite-lived intangibles to zero.
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Operating income (loss):
Operating income (loss):
Radio
Publishing
Corporate & Emerging Technologies
Total operating income (loss)
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
$
$
43,527
1,835
(25,698)
19,664
$
$
42,819
17,345
(28,256)
31,908
$
$
(708)
15,510
(2,558)
12,244
(1.6)%
845.2 %
(10.0)%
62.3 %
Radio operating income decreased for year ended February 28, 2017 principally due to the effect of revenue declines for
all of our markets except St. Louis and larger impairment losses recorded during the year. The gain on sale of our Terre Haute,
Indiana cluster and lower radio operating expenses partially offset the effect of the revenue declines and larger impairment
losses.
Publishing operating income increased due to the gain on sale of the five publications that were sold during the year.
Corporate and Emerging Technologies operating losses increased mostly due to additional investments in TagStation and
NextRadio and proceeds from a third party loan to NextRadio that were remitted to Sprint, as previously discussed. These
increases were partially offset by lower overall corporate expenses.
Interest expense:
Interest expense
$
(18,956) $
(18,018) $
938
4.9%
The decrease in interest expense is attributable to lower debt balances as the Company used the proceeds from its various
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
asset sales during fiscal 2017 to reduce debt outstanding.
Loss on debt extinguishment:
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
Loss on debt extinguishment
$
— $
(620) $
(620)
N/A
The Company repaid outstanding term loans under its credit facility with proceeds from asset sales during fiscal 2017.
The pro-rata portion of unamortized debt discount that was written-off in connection with these repayments was classified as a
loss on debt extinguishment.
Other (expense) income, net:
For the years ended February 28 (29),
2016
2017
$ Change
% Change
Other (expense) income, net
$
(As reported, amounts in thousands)
1,057
(160) $
$
(1,217)
(115.1)%
Other income in fiscal 2016 mostly relates to various nonrecurring recoveries and noncash gains. Other expense in fiscal
2017 mostly relates to a $0.3 million other-than-temporary impairment of an equity method investment that reduced the
carrying value of the investment to zero as of February 28, 2017.
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Provision (benefit) for income taxes:
Provision (benefit) for income taxes
$
For the years ended February 28 (29),
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
2,069
(110) $
$
(2,179)
(105.3)%
The Company has recorded a full valuation allowance against its net deferred tax assets, except for the deferred tax
liabilities related to indefinite-lived intangibles. Although the Company continues to record a full valuation allowance, the
income tax expense related to deferred tax liabilities for indefinite-lived intangibles must still be recorded. Because this amount
is based on tax amortization, the full year amount of associated tax expense is known at the beginning of the year and the
Company recognizes the tax expense related to deferred tax liabilities for indefinite-lived intangibles evenly through the year as
a discrete item. Separately, the company recorded tax benefits of $1.3 million and $2.4 million related to impairment charges
on FCC licenses during the years ended February 29, 2016 and February 28, 2017, respectively.
Consolidated net income (loss):
For the years ended February 28 (29),
2016
2017
$ Change
% Change
Consolidated net income (loss)
$
(As reported, amounts in thousands)
(304) $
13,220
$
13,524
N/M
The increase in consolidated net income (loss) is principally due to the $23.6 million gain on sale associated with the sale
of our Terre Haute, Indiana radio cluster and five magazines during the year ended February 28, 2017. This gain is partially
offset by other items, including lower radio division revenues and higher expenses at our TagStation and NextRadio businesses.
Loss on modification of preferred stock:
Loss on modification of preferred stock
$
2016
2017
$ Change
% Change
(As reported, amounts in thousands)
(162) $
— $
162
(100.0)%
For the years ended February 28 (29),
On February 17, 2016, Emmis filed amendments to its Articles of Incorporation that modified the rights of holders of the
Company's Preferred Stock. The amendments, among other things, modified the conversion ratio for shares of Preferred Stock
into Class A Common Stock from 2.44 shares of Class A Common Stock to 2.80 shares of Class A Common Stock. In
connection with this modification, the Company recorded a loss of $0.2 million.
YEAR ENDED FEBRUARY 28, 2015 COMPARED TO YEAR ENDED FEBRUARY 29, 2016
Net revenues:
Net revenues:
Radio
Publishing
Emerging Technologies
Total net revenues
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
$
$
176,250
$
169,228
61,142
546
60,992
1,213
237,938
$
231,433
$
$
$
(7,022)
(150)
667
(6,505)
(4.0)%
(0.2)%
122.2 %
(2.7)%
Radio net revenues decreased during the year ended February 29, 2016 due to general declines in radio revenues in the
markets where we operate radio stations, coupled with below-market performance for our stations in New York, Los Angeles
and Austin. 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
35
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radio market. A summary of market revenue performance and Emmis’ revenue performance in those markets for the year ended
February 29, 2016 is presented below:
Market
New York
Los Angeles
St. Louis
Indianapolis
Austin
All Markets
For the year ended February 29, 2016
Overall Market
Revenue Performance
Emmis
1
Revenue Performance
(2.5%)
(0.2%)
(3.2%)
(1.2%)
(2.7%)
(1.5%)
(4.8%)
(14.2%)
2.0%
4.5%
(4.3%)
(4.6%)
1 Emmis revenue performance in New York reflects only WQHT-FM and Los Angeles reflects only KPWR-FM
In Los Angeles, our weak performance mostly related to a new format competitor that began directly competing against
our station there in February 2015. The revenue impact was most pronounced in the second half of fiscal 2016.
Publishing net revenues were flat for the year ended February 29, 2016 as strong performance by the division in general,
and Texas Monthly in particular, in the first half of the fiscal year were offset by weakness in the second half of the fiscal year.
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 agreement, 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
revenues of Emerging Technologies for the year ended February 29, 2016 is due to additional stations licensing the TagStation
software as well as Digonex revenues. Since Emmis acquired its controlling interest in Digonex on June 16, 2014, Digonex net
revenues were included in our consolidated results for only a portion of the prior year.
Station operating expenses excluding depreciation and amortization expense:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Station operating expenses, excluding depreciation
and amortization expense:
Radio
Publishing
Emerging Technologies
Total station operating expenses, excluding
depreciation and amortization expense
$
$
117,167
$
116,862
60,083
3,759
58,891
7,641
181,009
$
183,394
$
$
$
(305)
(1,192)
3,882
2,385
(0.3)%
(2.0)%
103.3 %
1.3 %
Radio station operating expenses, excluding LMA fees and depreciation and amortization expense were mostly flat for
the year ended February 29, 2016 due to a variety of offsetting items. These items include (i) increased marketing expenses in
Los Angeles for KPWR-FM, (ii) severance costs of $2.3 million primarily associated with cost reductions implemented in
January 2016, (iii) reduced operating expenses in January 2016 and February 2016 as a result of the January 2016 cost
reductions and (iv) lower commission expense and other revenue-related expenses due to lower revenues.
Station operating expenses excluding depreciation and amortization expense for publishing decreased during the year
ended February 29, 2016 primarily due to lower magazine production costs.
Station operating expenses excluding depreciation and amortization expense for emerging technologies increased during
the year ended February 29, 2016 mostly due to increased headcount and development expenses associated with TagStation and
NextRadio as well as expenses of Digonex, which was acquired in the second quarter of fiscal 2015 and only included in our
consolidated results for a portion of the prior year.
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Corporate expenses excluding depreciation and amortization expense:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Corporate expenses excluding depreciation and
amortization expense
$
14,922
$
13,023
$
(1,899)
(12.7)%
Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 29, 2016
mostly due to lower legal fees associated with our preferred stock litigation coupled with reduced discretionary spending.
Additionally, effective January 2016, our executive officers and other key employees agreed to a 5% pay reduction for calendar
2016.
LMA fees:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
LMA fees
$
4,208
$
— $
(4,208)
(100.0)%
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
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 years ended February 28 (29),
2015
2016
$ Change
% Change
Hungary license litigation expense
$
(As reported, amounts in thousands)
521
— $
$
(521)
(100.0)%
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 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:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Impairment loss on intangible assets
$
67,915
$
9,499
$
(58,416)
(86.0)%
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.
In connection with the annual impairment review conducted on December 1, 2015, the Company concluded that its FCC
license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $5.4
37
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million. The Company also concluded that the goodwill and patents associated with Digonex were impaired and recorded an
impairment loss of $4.1 million related to these assets.
We could record impairment charges in future periods if we determine the carrying value of our intangible assets exceeds
their fair value. Our annual impairment test of our broadcasting licenses and goodwill is performed each year as of December
1. 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 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
$
$
3,143
245
2,538
5,926
$
$
3,345
266
2,186
5,797
$
$
202
21
(352)
(129)
6.4 %
8.6 %
(13.9)%
(2.2)%
The increase in depreciation and amortization for the year ended February 29, 2016 for our radio division is mostly due to
the June 2014 acquisition of WBLS-FM and WLIB-AM. The decrease in Corporate and Emerging Technologies is mostly due
to certain computer equipment and software becoming fully depreciated in fiscal 2015. This decrease in Corporate and
Emerging Technologies depreciation and amortization expense is partially offset by the amortization of Digonex intangibles,
which we began amortizing with the commencement of our consolidation of Digonex in June 2014. See Note 7 of the
accompanying consolidated financial statements for a discussion of our acquisitions.
Gain on contract settlement:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Gain on contract settlement
$
(2,500) $
— $
2,500
(100)%
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 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
$
$
(14,204) $
814
(20,673)
(34,063) $
43,527
1,835
(25,698)
19,664
$
$
57,731
1,021
(5,025)
53,727
(406.4)%
125.4 %
24.3 %
(157.7)%
Radio operating income increased in the year ended February 29, 2016 principally due to the effect of impairment losses
recorded during fiscal 2015 and 2016. Excluding the impairment losses, radio operating income would have decreased $4.7
million mostly due to lower net revenues partially offset by the elimination of LMA fees.
Publishing operating income increased in the year ended February 29, 2016 mostly due to operating expense savings as
discussed above.
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Corporate and Emerging Technologies operating losses increased mostly due to additional investments in TagStation and
NextRadio as previously discussed and the losses of Digonex, which was acquired in June 2014 and only included in our
consolidated results for a portion of the prior year.
Interest expense:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Interest expense
$
(17,101) $
(18,956) $
(1,855)
10.8%
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 7.0% at February 29, 2016. The weighted-average interest rate of debt outstanding under our 2012
Credit Agreement was 4.3% prior to its retirement on June 10, 2014. This increase in interest expense is partially offset by $3.1
million of interest expense related to the accretion of certain liabilities recognized as part of our acquisition of WBLS-FM and
WLIB-AM in fiscal 2015. For more discussion of this transaction, refer to Note 7 of our accompanying consolidated financial
statements.
Loss on debt extinguishment:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Loss on debt extinguishment
$
(1,455) $
— $
1,455
(100.0)%
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 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Other income (expense), net
$
(6,418) $
1,057
$
7,475
116.5%
Other expense for the year ended February 28, 2015 included 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 an unrealized loss on this type of
investment is generally included as a component of other comprehensive income until it is realized, Emmis concluded that this
loss was other-than-temporary and included the loss in its statement of operations. The activity in fiscal 2016 mostly relates to
various nonrecurring recoveries and noncash gains.
Provision for income taxes:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Provision for income taxes
$
36,948
$
2,069
$
(34,879)
(94.4)%
During the fourth quarter of the year ended February 28, 2015, we recorded 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 of that year caused us to be in a three year
cumulative loss position.
Consolidated net loss:
Consolidated net loss
$
(95,985) $
(304) $
95,681
99.7%
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
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The change in consolidated net loss is principally due to the $34.9 million change in our provision for income taxes and
the $58.4 million change in impairment loss, both of which were recorded in the prior year and are discussed above.
Loss on modification of preferred stock:
For the years ended February 28 (29),
2015
2016
$ Change
% Change
(As reported, amounts in thousands)
Loss on modification of preferred stock
$
— $
(162) $
162
N/A
On February 17, 2016, Emmis filed amendments to its Articles of Incorporation that modified the rights of holders of the
Company's Preferred Stock. The amendments, among other things, modified the conversion ratio for shares of Preferred Stock
into Class A Common Stock from 2.44 shares of Class A Common Stock to 2.80 shares of Class A Common Stock. In
connection with this modification, the Company recorded a loss of $0.2 million.
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. Capitalized terms in this
section not defined elsewhere in this 10-K are defined in the 2014 Credit Agreement and related amendments.
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.
As a result of the Fourth Amendment, as discussed below, the Term Loan is due not later than April 18, 2019 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. As a result of the Fourth Amendment, as discussed below, the revolving credit facility expires not later than
August 31, 2018. Prior to the Fourth Amendment, an unused commitment fee of 50 basis points per annum is payable quarterly
on the average unused amount of the revolving credit facility. Prior to the First Amendment, Second Amendment, and Fourth
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 originally capitalized and
included in other assets, net. The Company adopted the provisions of Accounting Standards Update 2015-03 during the year
ended February 29, 2016. As such, the unamortized balance of existing deferred debt fees was reclassified and is now shown as
a direct reduction of the carrying amount of long-term debt. These fees, along with an original issue discount of $9.7 million
($6.1 million incurred in connection with the original issuance of the 2014 Credit Agreement debt on June 10, 2014, $1.0
million incurred in connection with the November 7, 2014 amendment to the 2014 Credit Agreement, $1.1 million incurred in
connection with the April 30, 2015 amendment to the 2014 Credit Agreement, and $1.5 million incurred in connection with the
April 18, 2017 amendment to the 2014 Credit Agreement) are 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) increased the maximum Total Leverage Ratio to 6.00:1.00 for the period February 28, 2015 through
February 29, 2016, (ii) adjusted 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) extended the requirement for Emmis to pay a 1.00% fee on certain
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prepayments of the Term Loan to November 7, 2015, (iv) increased 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) made 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 as interest expense over the remaining life of the 2014
Credit Agreement
On April 30, 2015, Emmis entered into a Second Amendment to our 2014 Credit Agreement. The Second Amendment (i)
increased 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) required 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) increased 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) increased 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 required Emmis to pay a fee of 0.50% of
the Term Loan and Revolving Commitment of each Lender that consented to the Second Amendment. This fee totaled $1.1
million and was recorded as additional original issue discount and is being amortized as interest expense over the remaining life
of the 2014 Credit Agreement.
On August 22, 2016, Emmis entered into the Third Amendment to the 2014 Credit Agreement. The Third Amendment
made certain changes to the Credit Agreement to facilitate the Company's consideration of and, if approved by the Company's
Board of Directors and shareholders, entry into a transaction that would have resulted in the Class A common stock of the
Company ceasing to be registered under the Securities Act of 1934 (such potential transaction, a "Going Private Transaction").
Specifically, the Third Amendment added an exception to the covenant restricting transactions with affiliates that (i) permitted
the Company to enter into a Going Private Transaction with an affiliate of the Company and (ii) permitted the Borrower to pay
any costs incurred or reimbursed by an affiliate of the Company in connection with a Going Private Transaction, whether or not
the transaction was consummated. The Third Amendment also allowed the Company to add certain costs and expenses incurred
in connection with a Going Private Transaction to Consolidated EBITDA, as defined in the Credit Agreement, for purposes of
determining compliance with the financial covenants in the Credit Agreement, subject to caps of (i) $2.5 million if a Going
Private Transaction was not recommended by a special committee of the Company’s Board of Directors and (ii) $8.0 million if
a Going Private Transaction was recommended by a special committee of the Company’s Board of Directors but not
consummated. Finally, the Third Amendment made certain changes to the Credit Agreement that would have been effective
only if a Going Private Transaction was consummated. The Third Amendment also required the Borrower to pay a 50 basis
point fee to the lenders that consented to it either if a Going Private Transaction was consummated or if such a transaction was
recommended by a special committee of the board of directors of the Company but not consummated. The special committee of
the board of directors did not recommend the Going Private Transaction and no such transaction was consummated.
On April 18, 2017, Emmis entered into a Fourth Amendment to our 2014 Credit Agreement. The Fourth Amendment (i)
eliminated the maximum Total Leverage Ratio covenant through May 31, 2018 and replaced it with a minimum Consolidated
EBITDA covenant of $20.0 million, after which it reverts to a Total Leverage Ratio of 4.00:1.00 for the quarters ended August
31, 2018 and thereafter, (ii) reduced the Interest Coverage Ratio from 2.00:1.00 to 1.60:1.00, (iii) required Emmis to enter into
definitive agreements by January 18, 2018 to sell assets that generate at least $80 million of sale proceeds and close such
transactions no later than July 18, 2018, (iv) increased the Applicable Margin throughout the remainder of the term of the
Credit Agreement to 6.00% for ABR Loans (as defined in the Credit Agreement) and 7.00% for Eurodollar Loans (as defined in
the 2014 Credit Agreement) and increased the unused commitment fee on the revolving credit facility to 75 basis points, and
(v) accelerated the maturity of the Term Loans to April 18, 2019 and the Revolving Loans to August 31, 2018. In addition to
tightening or eliminating baskets and other credit enhancements for lenders, the Fourth Amendment contains ratcheting fees
and premiums if the existing credit facility is not refinanced by July 18, 2018. The Fourth Amendment also required Emmis to
pay a fee of 1.0% of the Term Loan and Revolving Commitment of each Lender that consented to the Fourth Amendment. This
fee totaled $1.5 million and was recorded as additional original issue discount and is being amortized as interest expense over
the remaining life of the 2014 Credit Agreement.
On May 8, 2017, Emmis entered into a definitive agreement to sell KPWR-FM in Los Angeles to KWHY-22
Broadcasting, LLC for $82.8 million. As discussed above, under the terms of the Fourth Amendment to the 2014 Credit
Facility, Emmis was required to enter into definitive agreements to sell assets that generated at least $80 million of proceeds by
January 18, 2018. Entering into this definitive agreement satisfies that requirement. Emmis found it more advantageous to sell
its standalone radio station in Los Angeles than to sell other assets to meet this requirement. This transaction is subject to,
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among other things, expiration or early termination of the waiting period under the Hart-Scott-Rodino Act, FCC approval and
other customary closing conditions and is expected to close in the back half of 2017.
2012 CREDIT AGREEMENT
On December 28, 2012, EOC 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, 2017, we had cash and cash equivalents of $11.3 million and net working capital of $(8.1) million. At
February 29, 2016, we had cash and cash equivalents of $4.5 million and net working capital of $0.4 million. The decrease in
net working capital is largely due to a $6.0 million increase of current maturities of long-term debt, which includes $5.5 million
of Digonex non-recourse debt that is classified as current as of February 28, 2017. We are currently in discussion with the
holders of Digonex's non-recourse debt to extend the maturity date of the debt past its current maturity date of December 31,
2017.
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs,
and principal and interest payments on its indebtedness. As of the filing of this Form 10-K, management believes the Company
can meet its liquidity needs through the end of fiscal year 2018 with cash and cash equivalents on hand and projected cash
flows from operations. Based on these projections, management also believes the Company will be in compliance with its debt
covenants through the end of fiscal year 2018.
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 $25.1 million and $19.1 million for the years ended February 28 (29),
2016 and 2017, respectively. The decrease in cash flows provided by operating activities was mainly attributable to lower
operating income (excluding the effect of gains on the sale of businesses) of our radio and publishing businesses.
Cash flows provided by operating activities were $18.5 million and $25.1 million for the years ended February 28 (29),
2015 and 2016, respectively. The increase in cash flows provided by operating activities was mainly attributable to additional
operating cash flows provided by the acquisition of WBLS-FM and WLIB-AM midway through fiscal 2015.
Investing Activities
Cash flows provided by investing activities of $28.5 million for the year ended February 28, 2017 primarily consisted of
$31.3 million of proceeds from the sale of our Terre Haute, Indiana radio cluster and five of our magazines, partially offset by
$2.9 million of capital expenditures.
Cash used in investing activities of $3.3 million for the year ended February 29, 2016 primarily consisted of $3.4 million
of capital expenditures partially offset by $0.1 million of cash distributed from investments.
Cash used in investing activities of $140.2 million for the year ended February 28, 2015 primarily consisted of $136.0
million of cash used in our acquisitions of WBLS-FM and WLIB-AM in New York 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.
Financing Activities
Cash used in financing activities for the year ended February 28, 2017 primarily relates to net payments on our long-term
debt of $34.6 million, distributions to noncontrolling interests of $5.6 million, and the settlement of tax withholding obligations
of $0.5 million.
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Cash used in financing activities for the year ended February 29, 2016 primarily relates to net payments on our long-term
debt of $13.2 million, distributions to noncontrolling interests of $5.8 million, debt-related costs of $1.1 million and the
settlement of tax withholding obligations of $1.0 million.
Cash flows 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.
As of February 28, 2017, Emmis had $152.2 million of borrowings under the 2014 Credit Agreement ($12.1 million
current and $140.1 million long-term) and $68.8 million of non-recourse debt ($11.5 million current and $57.3 million long-
term). Borrowings under the 2014 Credit Agreement bear 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 ranging from 4.0% to 5.0% per annum. As of
February 28, 2017, our weighted average borrowing rate under our 2014 Credit Agreement was approximately 7.0%.
The debt service requirements of Emmis over the next twelve-month period are expected to be $23.9 million related to
our 2014 Credit Agreement, as amended, ($12.1 million of principal repayments and $11.8 million of interest payments) and
$8.3 million related to our 98.7FM non-recourse debt ($6.0 million of principal repayments and $2.3 million of interest
payments). Digonex non-recourse debt ($6.2 million face amount, $5.5 million carrying amount as of February 28, 2017) is due
in December 2017. The Company is currently working with with holders of the debt to extend the maturity date of the debt.
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, 2017 and estimated interest rates
subsequent to the closing of the Fourth Amendment to the Credit Agreement on April 18, 2017 .
The Company's Preferred Stock was delisted by Nasdaq on March 28, 2016. Pursuant to the Company's Articles of
Incorporation, all Preferred Stock was automatically converted to Class A common stock on April 4, 2016 at a ratio of 2.80
shares of Class A common stock for each share of Preferred Stock. The aggregate liquidation preference of the Company's
Preferred Stock as of February 29, 2016 that was eliminated as a result of its conversion to Class A common stock was $43.3
million.
As of May 5, 2017, we had $12.0 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, 2017. 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 acquisitions
and dispositions that occurred during the three years ended February 2017.
INTANGIBLES
As of February 28, 2017, approximately 70% of our total assets consisted of FCC licenses and goodwill, 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.
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 our senior bank debt is
comprised entirely of variable-rate debt.
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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.
As a smaller reporting company, we are not required to provide this information.
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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 (29), 2016 and 2017, and the related consolidated statements of operations, comprehensive income (loss),
changes in deficit, and cash flows for each of the three years in the period ended February 28, 2017. 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. We were not engaged to perform an audit of the Company’s internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and 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 (29), 2016 and 2017, and the consolidated results
of their operations and their cash flows for each of the three years in the period ended February 28, 2017, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
May 11, 2017
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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 $3,984, $4,713, and $3,998 respectively
Corporate expenses excluding depreciation and amortization expense of
$1,942, $1,084, and $808 respectively
LMA fees
Hungary license litigation expense
Impairment loss on intangible assets
Depreciation and amortization
Gain on contract settlement
Gain on sale of radio and publishing assets, net of disposition costs
Loss on sale of assets
Total operating expenses
OPERATING (LOSS) INCOME
OTHER EXPENSE:
Interest expense
Loss on debt extinguishment
Other (expense) income, net
Total other expense
(LOSS) INCOME BEFORE INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES
CONSOLIDATED NET (LOSS) INCOME
NET (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY
LOSS ON MODIFICATION OF PREFERRED STOCK
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS
For the years ended February 28 (29),
2015
2016
2017
$
237,938
$
231,433
$
214,568
181,009
183,394
180,085
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)
3,274
(99,259)
—
13,023
11,359
—
—
9,499
5,797
—
—
56
211,769
19,664
(18,956)
—
1,057
(17,899)
1,765
2,069
(304)
(2,418)
2,114
(162)
—
—
9,843
4,806
—
(23,557)
124
182,660
31,908
(18,018)
(620)
(160)
(18,798)
13,110
(110)
13,220
101
13,119
—
$
(99,259) $
1,952
$
13,119
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)
For the years ended February 28 (29),
2015
2016
2017
Amounts attributable to common shareholders for basic earnings per share
$
Amounts attributable to common shareholders for diluted earnings per share $
(99,259) $
(99,259) $
Basic net (loss) income per share attributable to common shareholders:
Diluted net (loss) income per share attributable to common shareholders:
$
$
(9.33) $
(9.33) $
1,952
1,952
0.18
0.17
$
$
$
$
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
10,634
10,634
11,034
11,316
The accompanying notes to consolidated financial statements are an integral part of these statements.
13,119
13,119
1.09
1.07
12,040
12,229
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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
CONSOLIDATED NET (LOSS) INCOME
OTHER COMPREHENSIVE INCOME:
Change in value of derivative instrument
COMPREHENSIVE (LOSS) INCOME
LESS: COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS
For the year ended February 28 (29),
2015
2016
2017
$
(95,985) $
(304) $
13,220
99
(95,886)
—
(304)
—
13,220
3,274
(2,418)
101
$
(99,160) $
2,114
$
13,119
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 $934 and $903,
respectively
Prepaid expenses
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:
Investments
Deposits and other
Total other assets
Total assets
FEBRUARY 28 (29),
2016
2017
$
4,456
$
1,464
34,906
7,413
3,452
51,691
27,689
13,934
43,926
31,248
544
117,341
83,498
33,843
205,129
14,697
6,224
226,050
2,925
223,125
1,137
6,810
7,947
11,349
2,323
26,484
4,798
1,503
46,457
27,242
13,142
43,566
27,810
1,474
113,234
82,389
30,845
197,666
4,603
3,165
205,434
1,642
203,792
800
7,444
8,244
$
316,606
$
289,338
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 DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Current maturities of long-term debt
Accrued salaries and commissions
Deferred revenue
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’ DEFICIT:
Class A common stock, $0.01 par value; authorized 42,500,000 shares; issued and
outstanding 10,402,400 shares and 11,278,065 shares at February 29, 2016 and
February 28, 2017, respectively
Class B common stock, $0.01 par value; authorized 7,500,000 shares; issued and
outstanding 1,142,366 shares at February 28 (29), 2016 and 2017
Class C common stock, $0.01 par value; authorized 7,500,000 shares; none issued
Series A convertible preferred stock, $.01 par value; $50.00 liquidation preference per
share, aggregate liquidation preference and redemption amount of $43,316 at February
29, 2016; authorized 2,875,000 shares; issued and outstanding 866,319 at February 29,
2016
Additional paid-in capital
Accumulated deficit
Total shareholders’ deficit
NONCONTROLLING INTERESTS
Total deficit
Total liabilities and deficit
FEBRUARY 28 (29),
2016
2017
$
8,127
$
17,573
8,375
11,435
5,775
51,285
228,027
7,728
43,715
330,755
104
11
—
9
589,830
(642,500)
(52,546)
38,397
(14,149)
316,606
$
`
$
13,398
23,600
6,238
4,560
6,807
54,603
190,372
4,842
43,537
293,354
113
11
—
—
592,320
(629,381)
(36,937)
32,921
(4,016)
289,338
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, 2017
(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 28, 2014
9,316,781
$
Net (loss) 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 Plan Trust, net of
taxes
Distributions to noncontrolling interests
Acquisition of noncontrolling interest
Change in value of derivative instrument
BALANCE, FEBRUARY 28, 2015
Net (loss) 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 Preferred Stock to Class A
Common Stock
Distributions to noncontrolling interests
—
198,096
96,978
151,825
—
—
—
9,763,680
$
—
47,500
552,990
38,230
—
BALANCE, FEBRUARY 29, 2016
10,402,400
$
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 Preferred Stock to Class A
Common Stock
Purchase of Class A Common Stock
Distributions to noncontrolling interests
BALANCE, FEBRUARY 28, 2017
—
57,738
213,197
606,423
(1,693)
—
93
—
2
1
2
—
—
—
98
—
—
6
—
—
104
—
1
2
6
—
—
1,142,366
$
—
—
—
—
—
—
—
1,142,366
$
—
—
—
—
1,142,366
$
—
—
—
—
11
—
—
—
—
—
—
—
11
—
—
—
928,991
$
—
—
—
—
—
—
—
928,991
$
—
—
—
— (62,672)
—
—
11
—
—
—
866,319
$
—
—
—
— (866,319)
—
11
—
— $
9
—
—
—
—
—
—
—
9
—
—
—
—
—
9
—
—
—
(9)
—
—
11,278,065
$
113
1,142,366
$
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, 2017
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE, FEBRUARY 28, 2014
Net (loss) 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 Plan Trust, net of
taxes
Distributions to noncontrolling interests
Acquisition of noncontrolling interests
Change in value of derivative instrument
Additional
Paid-in
Capital
581,091
—
417
2,122
2,056
—
—
—
BALANCE, FEBRUARY 28, 2015
585,686
Net (loss) 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 Preferred Stock to Class A
Common Stock
Distributions to noncontrolling interests
—
135
4,008
1
—
BALANCE, FEBRUARY 29, 2016
589,830
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 Preferred Stock to Class A
Common Stock
Purchase of Class A Common Stock
Distributions to noncontrolling interests
—
114
2,372
9
(5)
—
BALANCE, FEBRUARY 28, 2017
592,320
Accumulated
Deficit
(545,355)
(99,259)
—
—
—
—
—
—
(644,614)
2,114
—
—
—
—
(642,500)
13,119
—
—
—
—
—
(629,381)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity (Deficit)
(99)
—
47,618
3,274
—
—
—
—
—
99
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,428)
1,197
—
46,661
(2,418)
—
—
—
(5,846)
38,397
101
—
—
—
—
(5,577)
32,921
83,368
(95,985)
419
2,123
2,058
(5,428)
1,197
99
(12,149)
(304)
135
4,014
1
(5,846)
(14,149)
13,220
115
2,374
6
(5)
(5,577)
(4,016)
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 (loss) income
Adjustments to reconcile net (loss) income to net cash provided by
operating activities—
Gain on sale of radio and publishing assets, net of disposition
costs
Impairment losses on intangible assets
Loss on debt extinguishment
Noncash accretion of debt instruments to interest expense
Amortization of deferred financing costs, including original issue
discount
Depreciation and amortization
Provision for bad debts
Provision (benefit) for deferred income taxes
Noncash compensation
Loss on investments including other-than-temporary impairment
Loss 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 provided by operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Cash paid for acquisitions
Proceeds from the sale of assets
(Cash paid for) received from investments, net
Other
Net cash (used in) provided by investing activities
FOR THE YEARS ENDED FEBRUARY 28 (29),
2015
2016
2017
(95,985)
(304)
13,220
—
67,915
1,455
3,472
1,227
5,926
627
36,719
2,813
6,682
—
(501)
(6,954)
(1,527)
(682)
(373)
62
(30)
(2,390)
18,456
(3,514)
(136,006)
3
(516)
(185)
(140,218)
—
9,499
—
743
1,667
5,797
626
2,100
4,904
—
56
1,276
1,796
1,289
(1,583)
(1,236)
(133)
(117)
(1,266)
25,114
(3,388)
—
—
107
—
(3,281)
(23,557)
9,843
620
743
1,661
4,806
377
(178)
2,920
254
124
(209)
3,460
1,639
(644)
5,131
(294)
(76)
(788)
19,052
(2,850)
—
31,330
54
(35)
28,499
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)
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
Other
Net cash provided by (used in) financing activities
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURES:
Cash paid for —
Interest
Income taxes
Noncash financing transactions—
Value of stock issued to employees under stock
compensation program and to satisfy accrued incentives
FOR THE YEARS ENDED FEBRUARY 28 (29),
2015
2016
2017
(79,541)
214,000
(1,466)
(5,428)
411
(7,849)
—
120,127
(1,635)
(24,228)
11,000
(971)
(5,846)
133
(1,134)
—
(21,046)
787
5,304
3,669
$
3,669
4,456
$
(55,970)
21,350
(539)
(5,577)
115
(32)
(5)
(40,658)
6,893
4,456
11,349
9,781
$
16,742
$
243
216
15,618
112
5,637
4,963
2,920
$
$
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
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.
Organization
We are a diversified media company, principally focused on radio broadcasting. Emmis owns 16 FM and 3 AM radio
stations in New York, Los Angeles, St. Louis, Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located
there) and Indianapolis. 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. In addition, Emmis has entered into an agreement to sell its FM radio station in Los Angeles and that
transaction is expected to close in the back half of 2017. 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,
developed NextRadio®, a smartphone application that marries over-the-air FM radio broadcasts with visual and interactive
features on smartphones, and has introduced the Dial ReportTM to give radio advertising buyers and sellers big data analytics
derived from a nationwide radio station network, smartphone usage, location-based data, demographic profiling and listening
data.
In addition to our radio properties, we also publish Indianapolis Monthly 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.
Common Stock Reverse Split
On July 8, 2016, the Company effected a one-for-four reverse stock split for its Class A, Class B and Class C common
stock. All share and per share information has been retroactively adjusted to reflect the reverse stock split.
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.
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, 2017 was as follows:
Year ended February 28, 2015
Year ended February 29, 2016
Year ended February 28, 2017
Balance At
Beginning
Of Year
Provision
Write-Offs
Balance
At End
Of Year
$
$
574
665
934
$
627
626
377
(536) $
(357)
(408)
665
934
903
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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.
LMA fees recorded as net revenues in the accompanying consolidated statements of operations were as follows for the
years ended February 2015, 2016 and 2017:
98.7FM, New York
Share-based Compensation
For the years ended February 28 (29),
2015
2016
2017
$
10,331
$
10,331
$
10,331
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 Note 4 for more discussion of share-based
compensation.
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.
Restricted Cash
Restricted cash relates to cash on deposit in trust accounts related to our 98.7FM LMA in New York City that services
long-term debt, cash collected by our wholly-owned subsidiary, NextRadio LLC, from other radio broadcasters for payments to
Sprint, and cash held in escrow as part of our sale of four magazines in February 2017. Usage of cash collected by NextRadio
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LLC is restricted for specific purposes by funding agreements. The table below summarizes restricted cash held by the
Company as of February 28 (29), 2016 and 2017:
98.7FM LMA restricted cash (see Note 8)
NextRadio LLC restricted cash (see Note 8)
Cash held in escrow from magazine sale restricted cash (see Note 7)
Total investments
Property and Equipment
For the years ending February 28 (29),
2016
2017
$
$
1,464
$
—
—
1,464
$
1,550
123
650
2,323
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 below for more discussion of impairment policies related to our property and
equipment. Depreciation expense for the years ended February 2015, 2016 and 2017 was $5.0 million, $4.3 million and $4.1
million, respectively.
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, 2017.
Definite-lived Intangibles
The Company’s definite-lived intangible assets primarily consist of 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.
Advertising and Subscription Acquisition Costs
Advertising and subscription acquisition costs are expensed when incurred. Advertising expense for the years ended
February 2015, 2016 and 2017 was $3.2 million, $4.1 million and $5.7 million, respectively.
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, 2017, the Company applies the accounting guidance for certain investments
in debt and equity securities. Emmis’ equity method investment reports on a fiscal year ending December 31, which Emmis
incorporates into its fiscal year ended February 28 (29).
Emmis has two investments, the carrying values of which are summarized in the following table and discussed below:
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Available-for-sale investment
Equity method investment
Total investments
Equity method investment
For the years ending February 28 (29),
2016
2017
$
$
800
337
1,137
$
$
800
—
800
Emmis has a minority interest in a partnership that owns and operates various entertainment websites. During the year
ended February 28, 2017, Emmis recorded a noncash impairment charge of $0.3 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. This impairment charge reduced the carrying value of this investment to zero as of February 28, 2017.
Available for sale investment
Emmis’ available for sale investment is an investment in the preferred shares of a non-public company. During the year
ended February 29, 2016, Emmis received an additional $0.3 million of preferred shares of this non-public company in
exchange for promotional airtime on its various radio stations. This investment is accounted for under the provisions of ASC
320, and as such, is carried at its fair value which Emmis believes approximates its cost basis of $0.8 million.
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.
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.
Deferred Revenue and Barter Transactions
Deferred revenue includes deferred barter, other transactions in which payments are received prior to the performance of
services (i.e. cash-in-advance advertising and prepaid LMA payments), and deferred magazine subscription revenue. Barter
transactions are recorded at the estimated fair value of the product or service received. 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. Magazine subscription revenue is recognized when the publication is shipped.
Barter revenues for the years ended February 2015, 2016 and 2017 were $8.5 million, $8.5 million and $7.8 million,
respectively, and barter expenses were $8.7 million, $8.5 million, and $7.9 million, respectively.
Earnings Per Share
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 2015, 2016 and 2017 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:
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February 28, 2015
For the year ended
February 29, 2016
February 28, 2017
Net Loss
Shares
Net Loss
Per Share
Net Income
Shares
Net Income
Per Share
Net Income
Shares
Net Income
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
$ (99,259)
10,634
$
(9.33) $
1,952
11,034
$
0.18
$ 13,119
12,040
$
1.09
Impact of equity awards
—
—
—
282
—
189
Diluted net income (loss) per common share:
Net income (loss) available to common
shareholders from continuing operations
$ (99,259)
10,634
$
(9.33) $
1,952
11,316
$
0.17
$ 13,119
12,229
$
1.07
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
Income Taxes
For the year ended February 28 (29),
2015
2016
2017
567
1,081
1,648
(shares in 000’s )
607
1,279
1,886
—
1,341
1,341
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.
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.
Noncontrolling Interests
The Company follows Accounting Standards Codification paragraph 810-10-65-1 to report the noncontrolling interests
related to our Austin radio partnership and Digonex. We have a 50.1% controlling interest in our Austin radio partnership. We
do not own any of the common equity of Digonex, but we consolidate the entity because we control its board of directors via
rights granted in convertible preferred stock and convertible debt that we own.
Noncontrolling interests represents the noncontrolling interest holders' proportionate share of the equity of the Austin
radio partnership and Digonex. Noncontrolling interests are adjusted for the noncontrolling interest holders' proportionate share
of the earnings or losses of the applicable entity. The noncontrolling interest continues to be attributed its share of losses even if
that attribution results in a deficit noncontrolling interest balance. Below is a summary of the noncontrolling interest activity for
the years ended February 2016 and 2017:
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Balance, February 28, 2015
Net income (loss)
Payments of dividends and distributions to noncontrolling interests
Balance, February 29, 2016
Net income (loss)
Payments of dividends and distributions to noncontrolling interests
Balance, February 28, 2017
Estimates
Austin radio
partnership
Digonex
$
47,883
$
(1,222) $
5,519
(5,846)
47,556
4,851
(5,577)
(7,937)
—
(9,159)
(4,750)
—
$
46,830
$
(13,909) $
Total
noncontrolling
interests
46,661
(2,418)
(5,846)
38,397
101
(5,577)
32,921
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.
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 at the time 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. At February 28, 2017, the entire balance of this liability is included in other current liabilities in the
accompanying consolidated balance sheets.
Liquidity
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and
principal and interest payments on its indebtedness. As of the filing of this Form 10-K, management believes the Company can
meet its liquidity needs through the end of fiscal year 2018 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 Agreement, which was $20.0
million at February 28, 2017. Based on these projections, management also believes the Company will be in compliance with
its debt covenants through the end of fiscal year 2018.
Recent Accounting Standards Updates
Adoption of New Accounting Standards Updates
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-09,
Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09)
to simplify the accounting for share-based payment transactions, including the income tax consequences, and standardize
certain classifications on the statement of cash flows. As permitted by ASU 2016-09, the Company chose to early adopt the
provisions of this update as of March 1, 2016. The adoption of this guidance did not have any effect on the Company's
consolidated financial statements.
In September 2015, the FASB issued Accounting Standards Update 2015-16, Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments
to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined, including the cumulative effect of the change in the provisional amount as if the accounting had been
completed at the acquisition date. This guidance was effective for the Company as of March 1, 2016. The adoption of this
guidance did not have any effect on the Company's consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-05, Intangibles - Goodwill and Other: Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides
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guidance as to when a company using a cloud computing service that includes a software license should capitalize and
depreciate the software license. This guidance was effective for the Company as of March 1, 2016. The adoption of this
guidance did not have any effect on the Company's consolidated financial statements.
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 update
provides 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 was effective for the fiscal year ending
February 28, 2017, and for annual periods and interim periods thereafter. The adoption of this guidance did not have any effect
on the Company's consolidated financial statements.
Recent Accounting Standards Updates Not Yet Adopted
In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment. This ASU was issued to simplify goodwill impairment by removing the second
step of the goodwill impairment test. This standard is required to be adopted by the Company as of March 1, 2020, but as
permitted by the FASB, the Company plans to early adopt this guidance as of March 1, 2017. The adoption of this guidance
will affect future goodwill impairments which will also be influenced by a number of other factors used by the Company when
assessing the valuation of goodwill.
In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business. This ASU was issued to clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. This guidance will be effective for the Company as of March 1, 2018. The Company does not expect adoption of
this guidance will have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash. This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective
for the Company as of March 1, 2018, and requires a retrospective transition method. The Company does not expect adoption
of this guidance will have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). This update requires
lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than
twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. This guidance will be effective for the Company as of March 1, 2019. A modified
retrospective transition method is required. The Company is currently evaluating the impact the adoption of this guidance will
have on its consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic
606), to clarify the principles used to recognize revenue for all entities. The FASB deferred implementation of this guidance by
one year with the issuance of Accounting Standards Update 2015-14. As such, this guidance will be effective for the Company
as of March 1, 2018. The Company expects to use the modified retrospective method of adoption. The Company has
completed its initial evaluation of potential changes from adopting the new standard on its financial reporting and disclosures,
which included a detailed review of contractual terms for all of its significant revenue streams. The Company will continue to
progress on its implementation plan during the remainder of fiscal 2018. Based on its initial evaluation, the Company does not
expect adoption of this guidance will have a material impact on the Company's consolidated financial statements, but
disclosures related to revenue recognition will likely be expanded.
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 automatically convert to Class A
common stock upon sale or other transfer to a party unaffiliated with Mr. Smulyan. At February 28 (29), 2016 and 2017, no
shares of Class C common stock were issued or outstanding.
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On July 8, 2016, the Company effected a one-for-four reverse stock split. As a result of the reverse stock split, every four
shares of each class of the Company's outstanding common stock were combined into one share of the same class of common
stock and the authorized shares of each class of the Company's common stock were reduced by the same ratio. In lieu of issuing
fractional shares, the Company paid in cash the fair value of such fractions of a share as of July 7, 2016 . Such fair value was
$0.695 for each pre-split share of our outstanding common stock, which was the average closing sales price of the Class A
common stock as reported by the Nasdaq Global Select Market for the thirty trading days preceding such date. The number and
strike price of the Company's outstanding stock options were adjusted proportionally. The par value of the Company's common
stock was not adjusted as a result of the reverse stock split.
3. REDEEMABLE PREFERRED STOCK
The Company's redeemable Preferred Stock was delisted from the Nasdaq Global Select Market on March 28, 2016.
Pursuant to the Company's Articles of Incorporation, all shares of Preferred Stock were converted into shares of Class A
common stock on April 4, 2016. Subsequent to the mandatory conversion on April 4, 2016, no shares of the Company's
redeemable Preferred Stock remain outstanding. On various dates during the year ended February 28, 2017, including the
mandatory conversion date of April 4, 2016, 866,319 shares of Preferred Stock were originally converted into 2,452,692 shares
of Class A common stock (606,423 shares of Class A common stock after the one-for-four reverse stock split).
Each share of redeemable Preferred Stock was convertible into a number of shares of common stock, which was
determined by dividing the liquidation preference of the share of preferred stock ($50.00 per share) by the conversion price.
The conversion price was originally $20.495, which resulted in a conversion ratio of approximately 2.44 shares of common
stock per share of Preferred Stock. On February 17, 2016, shareholders of Emmis' common stock and Preferred Stock approved
amendments to Emmis' Articles of Incorporation which, among other things, modified the conversion ratio to 2.80 shares of
Class A common stock per share of Preferred Stock. In connection with this modification, the Company recorded a loss of $0.2
million.
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 2015, 2016 and 2017:
Risk-Free Interest Rate:
Expected Dividend Yield:
Expected Life (Years):
Expected Volatility:
For the Years Ended February 28 (29),
2015
1.2% - 1.5%
0%
4.3
2016
1.2% - 1.4%
0%
4.3
2017
0.9% - 1.8%
0%
4.3 - 4.4
69.0% - 73.9%
57.2% - 64.6%
52.9% - 60.0%
The following table presents a summary of the Company’s stock options outstanding at February 28, 2017, and stock
option activity during the year ended February 28, 2017 (“Price” reflects the weighted average exercise price per share):
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Outstanding, beginning of period
Granted
Exercised (1)
Forfeited
Expired
Outstanding, end of period
Exercisable, end of period
Options
Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
$
1,948,384
704,678
57,738
12,499
23,182
2,559,643
1,469,268
6.36
2.68
1.98
7.12
36.62
5.17
5.63
7.0
5.4
$
$
346
254
(1) The Company did not record an income tax benefit related to option exercises in the years ended February 2015, 2016 and 2017. Cash received from
option exercises during the years ended February 2015, 2016 and 2017 was $0.4 million, $0.1 million and $0.1 million, respectively.
The weighted average grant date fair value of options granted during the years ended February 2015, 2016 and 2017, was
$6.53, $2.98 and $1.20, respectively.
A summary of the Company’s nonvested options at February 28, 2017, and changes during the year ended February 28,
2017, is presented below:
Nonvested, beginning of period
Granted
Vested
Forfeited
Nonvested, end of period
Options
830,803
704,678
432,607
12,499
1,090,375
Weighted Average
Grant Date
Fair Value
$
3.71
1.20
3.28
3.62
2.26
There were 0.9 million shares available for future grants under the Company’s various equity plans at February 28, 2017
(0.6 million shares under the 2016 Equity Compensation Plan and 0.3 million shares under other plans). The vesting dates of
outstanding options at February 28, 2017 range from March 2017 to July 2019, and expiration dates range from March 2017 to
February 2027.
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 2016 Equity Compensation Plan. The Company may also award, out of
the Company’s 2016 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.
The following table presents a summary of the Company’s restricted stock grants outstanding at February 28, 2017, and
restricted stock activity during the year ended February 28, 2017 (“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
$
212,995
389,084
405,373
—
196,706
7.12
3.11
4.48
—
4.64
The total grant date fair value of shares vested during the years ended February 2015, 2016 and 2017, was $4.1 million,
$3.4 million and $1.8 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 2015, 2016 and 2017:
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 (29),
2015
2016
2017
$
$
720
2,093
2,813
—
2,813
$
$
1,760
3,144
4,904
—
4,904
$
$
1,012
1,908
2,920
—
2,920
As of February 28, 2017, there was $1.7 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 1.2 years.
5. LONG-TERM DEBT
Long-term debt was comprised of the following at February 28 (29), 2016 and 2017:
Revolver
Term Loan
Total 2014 Credit Agreement debt
Other nonrecourse debt (1)
98.7FM nonrecourse debt
Current maturities
Unamortized original issue discount
Total long-term debt
As of February 29,
2016
As of February 28,
2017
3,000
181,762
184,762
4,714
65,411
(17,573)
(9,287)
228,027
$
—
152,245
152,245
8,807
59,958
(23,600)
(7,038)
190,372
$
(1) The face value of other nonrecourse debt was $6.2 million and $9.5 million at February 29, 2016 and February 28, 2017, respectively.
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. Capitalized terms in this
section not defined elsewhere in this Form 10-K are defined in the 2014 Credit Agreement and related amendments.
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
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. See Note 7 for more discussion of our acquisition of WBLS-FM and WLIB-AM.
As a result of the Fourth Amendment to the 2014 Credit Agreement (See Note 16), the Term Loan is due not later than
April 18, 2019 and, prior to the Second Amendment to the 2014 Credit Agreement discussed below, amortized in an amount
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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. As a result of the Fourth Amendment to the 2014 Credit Agreement, the
revolving credit facility expires not later than August 31, 2018. Prior to the Fourth Amendment to the 2014 Credit Agreement,
an unused commitment fee of 50 basis points per annum is 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, as well as
the Fourth Amendment to the 2014 Credit Agreement, 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 originally capitalized and
included in other assets, net. The Company adopted the provisions of Accounting Standards Update 2015-03 during the year
ended February 29, 2016. As such, the unamortized balance of existing deferred debt fees was reclassified and is now shown as
a direct reduction of the carrying amount of long-term debt. These fees, along with an original issue discount of $8.2 million as
of February 28, 2017, ($6.1 million incurred in connection with the original issuance of the 2014 Credit Agreement debt on
June 10, 2014, $1.0 million incurred in connection with the November 7, 2014 amendment to the 2014 Credit Agreement and
$1.1 million incurred in connection with the April 30, 2015 amendment to the 2014 Credit Agreement) are 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) increased the maximum Total Leverage Ratio to 6.00:1.00 for the period February 28, 2015 through
February 29, 2016, (ii) adjusted 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) extended the requirement for the Borrower to pay a 1.00% fee on certain
prepayments of the Term Loan to November 7, 2015, (iv) increased 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) made 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.
On April 30, 2015, Emmis entered into a Second Amendment to our 2014 Credit Agreement. The Second Amendment (i)
increased 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) required 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) increased 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) increased 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 required Emmis to pay a fee of 0.50% of
the Term Loan and Revolving Commitment of each Lender that consented to the Second Amendment. This fee totaled $1.1
million and was recorded as additional original issue discount and is being amortized as interest expense over the remaining life
of the 2014 Credit Agreement.
On August 22, 2016, Emmis entered into the Third Amendment to the 2014 Credit Agreement. The Third Amendment
made certain changes to the Credit Agreement to facilitate the Company's consideration of and, if approved by the Company's
Board of Directors and shareholders, entry into a transaction that would have resulted in the Class A common stock of the
Company ceasing to be registered under the Securities Act of 1934 (such potential transaction, a "Going Private Transaction").
Specifically, the Third Amendment added an exception to the covenant restricting transactions with affiliates that (i) permitted
the Company to enter into a Going Private Transaction with an affiliate of the Company and (ii) permitted the Borrower to pay
any costs incurred or reimbursed by an affiliate of the Company in connection with a Going Private Transaction, whether or not
the transaction was consummated. The Third Amendment also allowed the Company to add certain costs and expenses incurred
in connection with a Going Private Transaction to Consolidated EBITDA, as defined in the Credit Agreement, for purposes of
determining compliance with the financial covenants in the Credit Agreement, subject to caps of (i) $2.5 million if a Going
Private Transaction was not recommended by a special committee of the Company’s Board of Directors and (ii) $8.0 million if
a Going Private Transaction was recommended by a special committee of the Company’s Board of Directors but not
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consummated. Finally, the Third Amendment made certain changes to the Credit Agreement that would have been effective
only if a Going Private Transaction was consummated. The Third Amendment also required the Borrower to pay a 50 basis
point fee to the lenders that consented to it either if a Going Private Transaction was consummated or if such a transaction was
recommended by a special committee of the board of directors of the Company but not consummated. The special committee of
the board of directors did not recommend the Going Private Transaction and no such transaction was consummated. See Note
10 for discussion of the Going Private Transaction.
On April 18, 2017, Emmis entered into the Fourth Amendment to the 2014 Credit Agreement. See Note 16, Subsequent
Events, for more discussion of the Fourth Amendment.
In connection with the closing of the sale of Texas Monthly on November 1, 2016, Emmis repaid $15.0 million of Term
Loans and $8.5 million of Revolver borrowings (see Note 7 for more discussion of the sale of Texas Monthly). Under the terms
of the 2014 Credit Agreement, Emmis was required to use all Net Available Proceeds (as defined in the 2014 Credit
Agreement) from the sale of Texas Monthly to repay Term Loans unless it exercised its right under the 2014 Credit Agreement
to reinvest a portion of the Net Available Proceeds in new long-term assets of the Company. On November 1, 2016, Emmis
exercised this reinvestment right for up to $10.0 million of Net Available Proceeds. This election allows the Company to
reduce the amount of Net Available Proceeds by amounts used to purchase assets within 365 days of the election, or 545 days
of the election so long as the asset purchase is under contract within 365 days. Routine capital expenditures qualify as a
reinvestment under the terms of the 2014 Credit Agreement. Future changes in these estimates will impact the calculation of
Net Available Proceeds. The calculation of Net Available Proceeds was also reduced by working capital and other closing
adjustments and $1.4 million of transaction costs, including severance obligations. The current calculation of Net Available
Proceeds, reinvestments and Term Loan repayments related to the sale of Texas Monthly is as follows:
Gross proceeds from the sale of Texas Monthly
Working capital and other closing adjustments
Transaction costs, including severance
Subtotal
Less: Reinvestments (estimated)
Less: Term Loan repayment on November 1, 2016
Remaining Net Available Proceeds, subject to finalization of reinvestments
$
$
25,000
(747)
(1,378)
22,875
(3,475)
(15,000)
4,400
Term Loan Mandatory Repayment
Texas Monthly Sale
The current estimate of $4.4 million of remaining net available proceeds is included as a current maturity of long-term
debt in the accompanying consolidated balance sheets as of February 28, 2017. The amount is not yet final as reinvestments
are estimated and could change prior to the conclusion of the reinvestment period as described above.
In connection with the closing of our sale of our Terre Haute, Indiana cluster, the Company repaid approximately $4.7
million of Term Loans in January 2017. In connection with the sale Los Angeles Magazine, Atlanta Magazine, Cincinnati
Magazine and Orange Coast Magazine, the Company repaid approximately $1.9 million of Term Loans in March 2017,
subsequent to our fiscal 2017 year-end.
Borrowing under the 2014 Credit Agreement depends upon our continued compliance with certain operating covenants
and financial ratios, including leverage and interest 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
could 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, 2017. 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, 2017 were as follows:
Maximum Total Leverage Ratio
Minimum Interest Coverage Ratio
98.7FM Nonrecourse Debt
As of February 28, 2017
Covenant
Requirement
5.75 : 1.00
2.00 : 1.00
Actual Results
5.20 : 1.00
2.35 : 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%.
Other 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 secured notes on December 1,
2017 and the unsecured notes on December 31, 2017. Digonex is seeking to extend the maturity date of the notes to December
31, 2020. This extension requires the consent of all noteholders. As of May 11, 2017, the holders of the secured notes had
agreed to the extension if the unsecured noteholders also consented, but consent from the unsecured noteholders had not yet
been obtained. See Note 7 for more discussion of the acquisition of Digonex.
During the quarter ended February 28, 2017, NextRadio, LLC issued $3.4 million of notes payable. The notes initially
bear interest at 4.0% with interest due quarterly beginning in August 2018. The notes mature on December 23, 2021 and are to
be repaid through revenues generated by enhanced advertisement revenues earned by NextRadio, LLC. If any portion of the
notes remain unpaid at maturity, the lender has the option to exchange the notes for senior preferred equity of NextRadio,
LLC's parent entity, TagStation, LLC. These notes are obligations of NextRadio, LLC and TagStation, LLC and are non-
recourse to the rest of Emmis' subsidiaries.
Subsequent to the Fourth Amendment to the 2014 Credit Agreement as discussed in Note 16 and based on amounts
outstanding at February 28, 2017, mandatory principal payments of long-term debt for the next five years and thereafter are
summarized below:
Year ended
February 28 (29),
2018
2019
2020
2021
2022
Thereafter
Total
2014 Credit Agreement
Revolver
Term Loan
98.7FM Debt
Other Nonrecourse
Debt
Total
$
$
— $
—
—
—
—
—
— $
12,104
4,717
135,424
—
—
—
152,245
$
$
6,039
6,587
7,150
7,755
8,394
24,033
59,958
$
$
6,199
—
—
—
—
3,350
9,549
$
$
24,342
11,304
142,574
7,755
8,394
27,383
221,752
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
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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
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 (29), 2016 and 2017. 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, 2017
Level 1
Level 2
Level 3
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
$
$
— $
— $
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
— $
— $
800
800
$
$
As of February 29, 2016
Level 1
Level 2
Level 3
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Available for sale securities
Total assets measured at fair value on a recurring
basis
$
$
— $
— $
— $
— $
800
800
$
$
Total
800
800
Total
800
800
Available for sale securities — Emmis’ available for sale securities are comprised of preferred stock of a private company that
is not traded in active markets. The preferred stock is recorded at fair value, which is generally estimated using significant
unobservable market parameters, resulting in a level 3 categorization. The carrying value of our available for sale securities is
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.
The following table shows a reconciliation of the beginning and ending balances for fair value measurements using
significant unobservable inputs:
Beginning Balance
Purchases
Ending Balance
Non-Recurring Fair Value Measurements
Year Ended February 28 (29),
2016
2017
Available
For Sale
Securities
500
300
800
$
$
800
—
800
$
$
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
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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, 2017, the fair value and carrying value, excluding original issue discount, of
the Company's 2014 Credit Agreement debt was $140.0 million and $152.2 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 other 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, 2017
Sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine
On February 28, 2017, Emmis closed on its sale of substantially all of the assets of Los Angeles Magazine, Atlanta
Magazine, Cincinnati Magazine and Orange Coast Magazine (the "Hour Magazines") for gross proceeds of $6.5 million to
Hour Media Group, LLC. The Company previously announced that it was exploring strategic alternatives for its publishing
division, excluding Indianapolis Monthly. Emmis decided to sell most of its publishing assets to reduce debt outstanding.
Emmis received net proceeds of $2.9 million, consisting of the stated purchase price of $6.5 million, less $0.7 million held in
escrow and disposition costs totaling $2.9 million. The $2.9 million of disposition costs primarily relate to $1.6 million of
employee-related costs, including severance, and transaction advisory fees of $1.0 million. The funds held in escrow secure
Emmis' post closing indemnification obligations in the purchase agreement and are scheduled to be released six months after
the closing of the transaction. The funds held in escrow are classified as restricted cash in our accompanying consolidated
balance sheets. After settling retention bonuses to affected employees, substantially all of the net proceeds were used to repay
term loan indebtedness under Emmis' senior credit facility. Emmis recorded a $2.7 million gain on the sale of the Hour
Magazines. The Hour Magazines had historically been included in our Publishing segment. This disposal did not qualify for
reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting
Standards Codification 205-20-45-1C. The following table summarizes certain operating results of the Hour Magazines for all
periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense associated with the required
Term Loan repayment associated with the sale of the Hour Magazines is included in the magazines' results below.
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Net revenues
For the year ended February 28 (29),
2015
2016
2017
$
31,380 $
31,819 $
29,112
Station operating expenses, excluding depreciation and amortization
expense
31,139
31,385
Depreciation and amortization
Gain on sale of publishing assets, net of disposition costs
Operating income
Interest expense
(Loss) income before income taxes
Sale of Terre Haute, Indiana radio stations
106
—
135
136
(1)
125
—
309
173
136
31,076
122
(2,677)
591
176
415
On January 30, 2017, Emmis closed on its sale of substantially all of the assets of its radio stations in Terre Haute,
Indiana, in two contemporaneous transactions. In one transaction, Emmis sold the assets of WTHI-FM and the intellectual
property of WWVR-FM to Midwest Communications, Inc. In the other transaction, Emmis sold the assets of WFNF-AM,
WFNB-FM, WWVR-FM (other than the intellectual property for that station) and an FM translator to DLC Media, Inc. The
Company previously announced that it was exploring strategic alternatives for these radio stations. Emmis believed that
operating stations in Terre Haute, Indiana was not a core part of its radio strategy and its strong market position in the Terre
Haute market would be attractive to potential buyers. At closing, Emmis received gross proceeds of approximately $5.2 million
for both transactions. After payment of brokerage and other transaction costs, net proceeds totaled $4.8 million and were used
to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $3.5 million gain on the sale of its Terre
Haute radio stations. The Terre Haute radio stations had historically been included in our Radio segment. This disposal did not
qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in
Accounting Standards Codification 205-20-45-1C. The following table summarizes certain operating results of the our Terre
Haute radio stations for all periods presented. Pursuant to Accounting Standards Codification 205-20-45-6, interest expense
associated with the required Term Loan repayment associated with the sale of the Terre Haute radio stations is included in the
stations' results below.
Net revenues
Station operating expenses, excluding depreciation and amortization
expense
Depreciation and amortization
Impairment loss
Gain on sale of radio assets, net of disposition costs
Operating (loss) income
Interest expense
(Loss) income before income taxes
Sale of Texas Monthly
For the year ended February 28 (29),
2015
2016
2017
$
2,684 $
2,418 $
2,298
2,607
147
58
—
(128)
254
(382)
2,395
163
39
—
(179)
324
(503)
2,258
117
79
(3,478)
3,322
330
2,992
On November 1, 2016, Emmis closed on its sale of Texas Monthly for gross proceeds of $25.0 million in cash to a
subsidiary of Genesis Park, LP. The Company previously announced that it was exploring strategic alternatives for its
publishing division, excluding Indianapolis Monthly. Emmis decided to sell most of its publishing assets to reduce debt
outstanding. Emmis received net proceeds of $23.4 million, consisting of the stated purchase price of $25.0 million, net of
estimated purchase price adjustments totaling $0.7 million and disposition costs totaling $0.9 million. The $0.9 million of
disposition costs primarily related to severance costs. Proceeds were used to repay term and revolving loan indebtedness under
Emmis’ senior credit facility. Emmis recorded a $17.4 million gain on the sale of Texas Monthly. Texas Monthly had historically
been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not
represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C. The following
table summarizes certain operating results of Texas Monthly for all periods presented. Pursuant to Accounting Standards
Codification 205-20-45-6, interest expense associated with the required Term Loan repayment associated with the sale of Texas
Monthly is included in the magazine's results below. The required Term Loan repayment is preliminary and may be adjusted for
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revisions to estimates and the Company's reinvestment of proceeds of the Texas Monthly transaction. See Note 5 for more
discussion.
Net revenues
For the year ended February 28 (29),
2015
2016
2017
$
24,186 $
23,561 $
14,685
Station operating expenses, excluding depreciation and amortization
expense
22,446
21,527
Depreciation and amortization
Gain on sale of publishing assets, net of disposition costs
Operating income
Interest expense
Other income
Income before income taxes
116
—
1,624
1,047
(15)
592
118
—
1,916
1,334
(370)
952
14,465
84
(17,402)
17,538
1,358
(37)
16,217
Unaudited pro forma summary information is presented below for the years ended February 28 (29), 2016 and 2017,
assuming the dispositions discussed above and related mandatory debt repayments had occurred on the first day of the pro
forma periods presented below.
Net revenues
Station operating expenses, excluding depreciation and amortization
Consolidated net loss
Net income (loss) attributable to the Company
Net income (loss) per share - basic
Net income (loss) per share - diluted
For the year ended February 29, 2016
There were no acquisitions or dispositions during this period.
For the year ended February 28, 2015
Acquisition of WBLS-FM & WLIB-AM
For the year ended February 28 (29),
2016
2017
(unaudited)
(unaudited)
$
$
$
173,635
$
128,087
(889)
1,529
0.12
0.12
$
$
168,473
132,286
(6,404)
(6,505)
(0.54)
(0.54)
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.
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 Stations 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
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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.
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
conducted in December 2014, 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.
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.
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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. 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. Emmis has contributed $6.5 million to Digonex in the form of convertible debt, which
resulted in Emmis owning rights that are convertible into at least 80% of the common equity of Digonex.
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 consolidated into its results of operations for the year ended February 28, 2015
were $0.2 million and $1.4 million, respectively.
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. As part of our annual impairment testing conducted in December 2015, the
Company determined that the goodwill associated with Digonex was partially impaired, and recorded an impairment charge of
$0.7 million. During the year ended February 28, 2017, the Company determined that the remaining goodwill associated with
Digonex was fully impaired and recorded an impairment charge of $2.1 million. See Note 9 for more discussion of the
goodwill impairments.
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 were being amortized over 7 years, the customer list intangible asset was being amortized over 3 years
and the trademarks were being amortized over 15 years. During the year ended February 29, 2016, the Company recorded an
impairment charge of $3.4 million related to the patents of Digonex. During the year ended February 28, 2017, the Company
determined that the patents, customer list, and trademarks of Digonex were fully impaired and recorded an impairment charge
of $0.9 million. See Note 9 for more discussion of the definite-lived intangible impairments.
8. OTHER SIGNIFICANT TRANSACTIONS
Going private offer
On August 18, 2016, the Board of Directors of the Company received a letter from E Acquisition Corporation ("EAC"),
an Indiana corporation owned by Jeffrey H. Smulyan, the Company’s Chairman of the Board, Chief Executive Officer and
controlling shareholder, setting forth a non-binding proposal by which E Acquisition Corporation (the “Proposing Person”),
would acquire all the outstanding shares of Class A Common Stock of the Company that were not owned by the Proposing
Person at a cash purchase price of $4.10 per share (the “Proposal”). The Proposal contemplated that, following the closing of
the proposed transaction, the Company’s shares would no longer be registered with the Securities and Exchange Commission
and the Company would no longer be a reporting company or have any public shares traded on Nasdaq.
The Company’s Board of Directors formed a special committee of independent and disinterested directors (the “Special
Committee”) to review and evaluate the Proposal. The members of the Special Committee were Susan Bayh and Peter Lund.
On October 14, 2016, EAC delivered to the Special Committee a letter (the “Proposal Expiration Letter”) confirming that the
offer had expired on October 14, 2016 and had not been extended.
The Special Committee engaged independent legal counsel and independent financial advisors to assist the Special
Committee in the evaluation of the Proposal. During the year ended February 28, 2017, the Company incurred $0.9 million of
costs associated with the Proposal, which are included in corporate expenses, excluding depreciation and amortization expense
in the accompanying consolidated statements of operations. No further costs are expected to be incurred in connection with the
going private offer as it has expired.
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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,
2017, the NextRadio application had not generated a material amount of revenue.
Nearly all of the largest radio broadcasters and many smaller radio broadcasters expressed support for NextRadio LLC's
agreement with Sprint. Accordingly, NextRadio LLC 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 the 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.
Since the inception of NextRadio LLC's agreement with Sprint through December 7, 2016, NextRadio LLC had remitted
to Sprint approximately $33.2 million. Effective December 8, 2016, NextRadio LLC and Sprint entered into an amendment of
their original agreement. The amendment called for NextRadio LLC to make installment payments totaling $6.0 million
million through March 15, 2017, which have been paid. In exchange, Sprint agreed to forgive the remaining $5.8 million that it
was due under the original agreement, and in return receive a higher share of certain revenue generated by the NextRadio
application. In addition, Sprint agreed to continue to pre-load the NextRadio application through March 31, 2020 with no
additional cash payments from NextRadio (other than revenue share payments). NextRadio LLC received a loan of $4.0
million for the sole purpose of fulfilling the payment obligations to Sprint under the amendment. The loan will be repaid out of
proceeds from sales of enhanced advertising through the NextRadio application. Through February 28, 2017, NextRadio LLC
received $3.4 million under the loan, which was promptly remitted to Sprint and is included in station operating expenses,
excluding depreciation and amortization expense in the accompanying consolidated statement of operations. The remaining
$0.6 million of loan proceeds was received in March 2017 and was promptly remitted to Sprint.
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 (or the amounts funded by NextRadio LLC via the loan discussed above).
Emmis contributed approximately $0.5 million and $0.4 million to NextRadio LLC during the years ended February 2015 and
2016, respectively. These amounts were recorded as station operating expenses, excluding depreciation and amortization
expense. Emmis did not fund any of NextRadio LLC's payments to Sprint during the year ended February 28, 2017 as it had
already fully funded its share through that date.
As of February 28, 2017, the carrying value of assets within NextRadio LLC totaled $0.1 million, which represents cash
collected by NextRadio LLC from other broadcasting companies and other companies in the radio industry. This cash is
restricted because it must be remitted to Sprint. NextRadio LLC had $3.5 million of liabilities at February 28, 2017, which
represents the obligation to remit $0.1 million of cash received from radio industry participants to Sprint along with NextRadio
LLC's nonrecourse debt of $3.4 million. NextRadio LLC remitted all cash collected from other broadcasting companies and
other companies in the radio industry to Sprint as of February 29, 2016, and thus had no assets or liabilities as of that date.
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
retains ownership and control of 98.7FM, including the related FCC license during the term of the LMA and receives an annual
fee from the Disney subsidiary. The fee, initially $8.4 million annually, increases by 3.5% annually until the LMA's
termination.
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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 1 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 years ended February 2015, 2016 and 2017 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),
2015
2016
2017
$
10,331
$
10,331
$
10,331
1,002
9,462
—
3,238
1,000
1,766
21
3,042
1,275
2,907
21
2,827
Assets and liabilities of 98.7FM as of February 28 (29), 2016 and 2017 were as follows:
As of February 28 (29),
2016
2017
$
1,464
$
$
$
545
—
2,009
253
49,297
5,460
55,010
57,019
14
5,453
779
223
6,469
57,728
—
57,728
$
$
$
64,197
$
1,550
445
7
2,002
229
46,390
6,205
52,824
54,826
54
6,039
807
205
7,105
51,954
—
51,954
59,059
Current assets:
Restricted cash
Prepaid expenses
Other
Total current assets
Noncurrent assets:
Property and equipment
Indefinite lived intangibles
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
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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. 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. The table below summarizes the results of our interim and annual impairment testing
for the three years ending February 28, 2017.
Interim Assessment
Annual Assessment
FCC Licenses
Goodwill
Definite-lived
FCC Licenses
Goodwill
Definite-lived
Total
Year Ended February 28, 2015
Year Ended February 29, 2016
Year Ended February 28, 2017
—
—
—
—
—
2,058
—
—
930
9,520
5,440
6,855
58,395
695
—
— 67,915
3,364
9,499
— 9,843
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 into consideration then current economic
conditions.
Below are some of the key assumptions used in our annual impairment assessments. As part of our recent annual
impairment assessments, 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, 2017.
Discount Rate
Long-term Revenue Growth Rate
Mature Market Share
Operating Profit Margin
December 1, 2014
December 1, 2015
December 1, 2016
12.1% - 12.5%
12.0% - 12.4%
12.2% - 12.5%
1.5% - 3.0%
1.3% - 2.5%
1.0% - 2.0%
3.2% - 29.2%
25.1% - 39.2%
3.2% - 29.3%
25.0% - 39.1%
3.1% - 30.4%
25.1% - 39.1%
As of February 28 (29), 2016 and 2017, the carrying amounts of the Company’s FCC licenses were $205.1 million and
$197.7 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 2016 and 2017 for each unit of accounting.
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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
As of
February 28,
2015
Purchase
Impairment
As of
February 29,
2016
Purchase
Sale of
Stations
Impairment
As of
February 28,
2017
Change in FCC License Carrying Values
$
71,616
$
— $
— $
71,616
$
— $
— $
51,063
39,255
27,692
17,654
2,018
759
—
—
—
512
—
—
(1,766)
(2,343)
(1,293)
$
$
$
— $
— $
(38)
$
$
49,297
36,912
26,399
18,166
2,018
721
205,129
$
—
—
34
—
—
—
34
—
—
—
—
—
(642)
—
(2,907)
(2,192)
(1,677)
—
—
(79)
71,616
46,390
34,720
24,756
18,166
2,018
—
Total
$
210,057
$
512
$
(5,440)
$
(642) $
(6,855)
197,666
The FCC license purchase of $0.5 million during the year ended February 29, 2016 solely relates to our purchase of an
FM translator in Indianapolis. In January 2017, we sold all of our stations in Terre Haute, Indiana (see Note 7 for more
discussion).
Impairment was recorded for our New York station being operated pursuant to an LMA during the years ended February
2016 and 2017 along with impairment for our Austin, St. Louis and Terre Haute clusters. Stagnant market revenues in recent
years, coupled with a reduction in the Company's estimate of long-term revenue growth rates, led to a lower estimate of fair
value for these FCC licenses.
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). 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. For the annual assessment performed as of December 1, 2016, the Company applied a market multiple of
8.0 times the reporting unit’s operating performance. Management believes this methodology for valuing radio 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.
The Company used an income approach to determine the enterprise value of Digonex. Digonex is a dynamic pricing
business that does not have well-established industry trading multiples, analyst estimates of valuations, or recently completed
transactions that would indicate fair values of these businesses. As such, the Company used a discounted cash flow method to
determine the fair value of Digonex.
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, 2017.
During the quarter ended August 31, 2016, the Company lowered its growth expectations for Digonex for the next several
years due to slow client adoption of dynamic pricing services. While the Company continues to believe in the long-term growth
prospects of Digonex, the lengthy sales cycle has caused Digonex to perform below expectations to date. Despite lowering
near-term growth expectations for Digonex in connection with our annual impairment review for fiscal 2016 as discussed
below, performance in the first six months of fiscal 2017 indicated that a further revision was appropriate. Our then-current
projections assumed that Digonex would generate cash flow losses in the short and medium-term. The combination of lower-
than-expected current period results, coupled with downward revisions to future revenue projections, resulted in an impairment
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indicator that caused the Company to assess goodwill and related intangibles on an interim basis during the quarter ended
August 31, 2016. The Company's discounted cash flow analysis for Digonex indicated a nominal enterprise value. Therefore, in
connection with the interim impairment test, Emmis determined that Digonex's goodwill was fully impaired and recorded an
impairment loss of $2.1 million. Subsequent to our impairment of Digonex goodwill and the sale of Texas Monthly (see note 7
for more discussion), the Company's goodwill relates entirely to its Radio segment.
During our December 2015 annual goodwill impairment test, the Company wrote off $0.7 million of goodwill associated
with Digonex. Emmis acquired a controlling interest in Digonex in June 2014 and recorded approximately $2.8 million of
goodwill. The performance of Digonex since Emmis acquired its controlling interest has lagged the original assumptions used
when estimating the fair values of the acquired assets and liabilities of the business. This, coupled with a reduction in long-
term growth estimates for Digonex, resulted in a step-one indication of impairment. Upon completion of the step-two analysis,
the Company determined that Digonex goodwill was partially impaired.
During our December 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.
As of February 28 (29), 2016 and 2017, the carrying amount of the Company’s goodwill was $14.7 million and $4.6
million. The table below presents the changes to the carrying values of the Company’s goodwill for the years ended February
2016 and 2017 for each reporting unit. 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. We sold Texas Monthly in
November 2016 (see Note 7 for more discussion).
Reporting Unit (Segment)
Indianapolis Cluster (Radio)
Austin Cluster (Radio)
Texas Monthly (Publishing)
Digonex (Corporate & Emerging Technologies)
Change in Goodwill Carrying Values
As of
February 28,
2015
Impairment
As of
February 29,
2016
Sale of
Entity
Impairment
As of
February 28,
2017
$
265
$
— $
265
$
4,338
8,036
2,753
—
—
(695)
4,338
8,036
2,058
— $
—
(8,036)
— $
—
—
—
(2,058)
265
4,338
—
—
Total
$
15,392
$
(695) $
14,697
$
(8,036) $
(2,058) $
4,603
Definite-lived intangibles
The following table presents the weighted-average remaining useful life at February 28, 2017 and gross carrying amount
and accumulated amortization for each major class of definite-lived intangible assets at February 28 (29), 2016 and 2017:
As of February 29, 2016
As of February 28, 2017
Weighted
Average
Remaining Useful
Life
(in years)
8.5
N/A
4.6
0.3
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
1,240
$
727
$
1,815
2,154
1,015
1,141
514
543
513
674
1,640
472
$
696
$
545
$
—
2,154
315
—
808
289
151
—
1,346
26
$
6,224
$
2,925
$
3,299
$
3,165
$
1,642
$
1,523
Trademarks
Patents
Programming Contract
Customer List
Total
In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i)
determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by
comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by
comparing the long-lived asset's fair value to its current carrying value. In connection with this analysis for the year ended
February 29, 2016, the Company determined that the patents of Digonex were impaired and recorded an impairment charge of
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$3.4 million. As discussed above, performance below the Company's expectations, coupled with a downward revision of long-
term forecasts for Digonex, led the Company to measure impairment for Digonex's definite-lived intangibles during the quarter
ended August 31, 2016. The Company determined that the patents, customer list and trademarks of Digonex were fully
impaired and recorded an impairment loss of $0.9 million.
Total amortization expense from definite-lived intangibles was $0.9 million, $1.5 million and $0.7 million for the years
ended February 2015, 2016 and 2017, respectively. 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)
2018
2019
2020
2021
2022
338
311
311
311
189
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: the 2004 Equity Compensation Plan, the 2010 Equity Compensation Plan,
the 2012 Equity Compensation Plan, the 2015 Equity Compensation Plan and the 2016 Equity Compensation Plan. These
outstanding grants continue to be governed by the terms of the applicable plan.
2016 Equity Compensation Plan
At the 2016 annual meeting, the shareholders of Emmis approved the 2016 Equity Compensation Plan (“the 2016 Plan”).
Under the 2016 Plan, awards equivalent to 1.5 million shares of common stock may be granted. Furthermore, any unissued
awards from prior equity compensation plans (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 2016 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 the 2016 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 the 2016 Plan generally expire not
more than 10 years from the date of grant. Under the 2016 Plan, awards equivalent to approximately 0.6 million shares of
common stock were available for grant as of February 28, 2017.
2017 Equity Compensation Plan
On March 7, 2017, the board of directors of Emmis approved the 2017 Equity Compensation Plan ("the 2017 Plan"). The
2017 Plan won't become effective until it is approved by Emmis' shareholders at the annual meeting in July 2017. However,
Emmis' Chairman and Chief Executive Officer, Jeffrey H. Smulyan, controls more than 50% of the vote on this matter and has
informed the board of directors that he intends to vote in favor of approving the 2017 Plan. Under the 2017 Plan, awards
equivalent to 2.0 million shares of common stock may be granted. Furthermore, any unissued awards from the 2016 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 2017 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 the 2017 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 the 2017 Plan generally expire not more than 10 years from
the date of grant.
b. 401(k) Retirement Savings Plan
Emmis sponsors a Section 401(k) retirement savings plan 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 plan up to 50% of their
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compensation, not to exceed the annual limit prescribed by the Internal Revenue Service (“IRS”). Emmis may make
discretionary matching contributions to the plan in the form of cash or shares of the Company’s Class A common stock.
Emmis has historically matched employee contributions at 33% up to a maximum of 6% of eligible compensation.
Emmis' discretionary contributions were made in cash until March 2015. From March 2015 through December 2015, Emmis'
discretionary contributions were made in the form of Class A common stock. Emmis suspended its discretionary contributions
on January 1, 2016. Emmis’ discretionary contributions to the plan totaled $1.1 million and $0.9 million for the years ended
February 2015 and 2016, respectively. No discretionary matching contributions were made during the year ended February 28,
2017.
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 related to the multi-employer plan were approximately $0.3 million for
each of the years ended February 2015, 2016 and 2017.
11. OTHER COMMITMENTS AND CONTINGENCIES
a. Commitments
The Company has various commitments under the following types of material contracts: (i) operating leases;
(ii) employment agreements and (iii) other contracts with annual commitments (mostly contractual services for audience
measurement information) at February 28, 2017 as follows:
Year ending
February 28 (29),
2018
2019
2020
2021
2022
Thereafter
Total
Operating
Leases
Employment
Agreements
Other
Contracts
Total
$
7,006
$
15,498
$
11,435
$
7,006
7,082
6,960
6,741
23,649
8,019
1,453
37
—
—
10,894
3,631
104
104
70
33,939
25,919
12,166
7,101
6,845
23,719
$
58,444
$
25,007
$
26,238
$
109,689
Emmis leases certain office space, tower space, equipment and automobiles under operating leases expiring at various
dates through March 2032. 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 during the years ended February 2015, 2016 and 2017 was approximately
$9.1 million, $8.9 million and $8.3 million, respectively. The Company recognized approximately $0.3 million, $0.3 million
and $0.4 million of sublease income as a reduction of rent expense for the years ended February 2015, 2016, and 2017
respectively. Total minimum sublease rentals to be received in the future under noncancelable subleases as of February 28,
2017 amounted to $216 thousand, all of which is expected to be received during the year ended February 28, 2018.
b. Litigation
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.
12. INCOME TAXES
United States and foreign income (loss) before income taxes for the years ended February 2015, 2016 and 2017 was as
follows:
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United States
Foreign
(Loss) income before income taxes
2015
2016
2017
$
$
(58,692) $
(345)
(59,037) $
1,765
—
1,765
$
$
13,110
—
13,110
The provision (benefit) for income taxes for the years ended February 2015, 2016, and 2017 consisted of the following:
Current:
State
Total current
Deferred:
Federal
State
Total deferred
2015
2016
2017
$
$
229
229
(31) $
(31)
27,431
9,288
36,719
1,793
307
2,100
(Benefit) provision for income taxes
$
36,948
$
2,069
$
68
68
(152)
(26)
(178)
(110)
The provision (benefit) for income taxes for the years ended February 2015, 2016 and 2017 differs from that computed at
the Federal statutory corporate tax rate as follows:
2015
2016
2017
$
(20,663) $
9,517
$
4,588
618
276
—
—
296
366
—
2,376
(1,932)
(43)
112
$
2,069
$
120
5
122
421
—
50,250
(1,994)
(173)
(657)
36,948
42
—
—
444
366
3,533
(7,387)
(1,698)
(171)
173
(110)
Computed income tax (benefit) provision at 35%
State income tax
Foreign taxes
Tax benefit resulting from swap expiration and related OCI reversal
Nondeductible stock compensation
Entertainment disallowance
Disposal of goodwill with no tax basis
Change in federal valuation allowance
Tax attributed to noncontrolling interest
Federal tax credit
Other
Provision (benefit) for income taxes
$
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The components of deferred tax assets and deferred tax liabilities at February 29, 2016 and February 28, 2017 are as
follows:
Deferred tax assets:
Net operating loss carryforwards
Intangible assets
Compensation relating to stock options
Deferred revenue
Accrued rent
Tax credits
Investments in subsidiaries
Capital loss carryforward
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
2016
2017
$
34,341
$
28,737
1,768
840
2,275
3,265
214
2,740
1,628
(66,674)
9,134
(43,673)
(1,055)
(8,079)
(42)
(52,849)
(43,715) $
$
35,365
22,130
1,942
420
1,892
3,438
396
—
993
(60,379)
6,197
(43,505)
(814)
(5,386)
(29)
(49,734)
(43,537)
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. 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 decreased its valuation allowance by $6.3 million ($5.1 million federal and $1.2 million state), from $66.7
million as of February 29, 2016, to $60.4 million as of February 28, 2017.
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 ("NOLs") of $79 million and state NOLs of $168 million available to
offset future taxable income. The federal net operating loss carryforwards begin expiring in 2030, and the state net operating
loss carryforwards expire between the years ending February 2018 and February 2036. 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 $3.4 million of tax credits at February 28, 2017 primarily relates to alternative minimum tax carryforwards that can
be carried forward indefinitely. This amount also includes tax credits in Illinois, 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,
2017, Digonex has federal NOLs of $45 million and state NOLs of $45 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, if any. As of
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February 28, 2017, the Company was able to determine that at least $15 million of federal NOLs and $15 million of state NOLs
will be fully available to offset future taxable income. These amounts are included in the above consolidated federal and state
NOL totals of $79 million and $168 million, respectively.
Accounting Standards Codification paragraph 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, 2017, the estimated
value of the Company’s net uncertain tax positions is approximately $0.1 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 29, 2016 and February 28, 2017:
Gross unrecognized tax benefit – opening balance
Gross increases – tax positions in prior periods
Gross decreases—settlements with taxing authorities
Gross decreases – lapse of applicable statute of limitations
Gross unrecognized tax benefit – ending balance
For the year ending February 28 (29),
2016
2017
$
$
(172) $
(21)
81
25
(87) $
(87)
—
—
27
(60)
Included in the balance of unrecognized tax benefits are tax benefits that, if recognized, would reduce the Company’s
provision for income taxes totaling $0.1 million and $0.1 million as of February 29, 2016 and February 28, 2017, respectively.
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, 2017 and in total, as of February 28, 2017, has recognized a liability for interest of $8 thousand.
13. SEGMENT INFORMATION
The Company’s operations have historically been 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. 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, 2017. The Company’s segments operate exclusively in the United States.
During the year ended February 28, 2017, we sold our radio cluster in Terre Haute, Indiana and sold five of our six
magazines. See Note 7 for more discussion of our dispositions.
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.
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Year Ended February 28, 2017
Net revenues
Station operating expenses excluding depreciation and
amortization expense
Corporate expenses excluding depreciation and
amortization expense
Impairment loss
Depreciation and amortization
Gain on sale of radio and publishing assets, net of
disposition costs
Loss on disposal of fixed assets
Operating income (loss)
Radio
Publishing
Corporate &
Emerging
Technologies
Consolidated
$
165,148
$
48,559
$
861
$
214,568
115,366
51,063
13,656
180,085
—
6,855
3,462
(3,478)
124
—
—
230
(20,079)
—
$
42,819
$
17,345
$
11,359
2,988
1,114
—
—
(28,256) $
11,359
9,843
4,806
(23,557)
124
31,908
Year Ended February 29, 2016
Net revenues
Station operating expenses excluding depreciation and
amortization expense
Corporate expenses excluding depreciation and
amortization expense
Impairment loss
Depreciation and amortization
(Gain) loss on sale of fixed assets
Operating income (loss)
Radio
Publishing
Corporate &
Emerging
Technologies
Consolidated
$
169,228
$
60,992
$
1,213
$
231,433
116,862
58,891
7,641
183,394
—
5,440
3,345
54
—
—
266
—
13,023
4,059
2,186
2
13,023
9,499
5,797
56
$
43,527
$
1,835
$
(25,698) $
19,664
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)
Total Assets
As of February 29, 2016
As of February 28, 2017
Radio
Publishing
Corporate &
Emerging
Technologies
$
271,336
$
22,060
$
23,210
$
260,228
1,746
27,364
Consolidated
316,606
289,338
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14. OTHER INCOME (EXPENSE), NET
Components of other income (expense), net for the three years ended February 2015, 2016 and 2017 were as follows:
Income (loss) from unconsolidated affiliate, including other-than-
temporary impairment losses
Other-than-temporary impairment loss on investments
Interest income
Other
Total other income (expense), net
For the year ended February 28 (29),
2015
2016
2017
$
$
$
11
(6,682)
78
175
(6,418) $
(82) $
—
36
1,103
1,057
$
(28)
(254)
38
84
(160)
See Note 1 for further discussion of the other-than-temporary impairment loss on investments recorded in the years ended
February 28, 2015 and 2017. Other income in the year ended February 29, 2016 mostly relates to various nonrecurring
recoveries and noncash gains.
15. RELATED PARTY TRANSACTIONS
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.
As previously discussed in Note 8, the Company received an offer from EAC, an Indiana corporation owned by Jeffrey
H. Smulyan, the Company’s Chairman of the Board, Chief Executive Officer and controlling shareholder, setting forth a non-
binding proposal by which EAC would acquire all the outstanding shares of Class A Common Stock of the Company. During
the year ended February 28, 2017, the Company incurred $0.9 of costs associated with the offer, which are included in
corporate expenses, excluding depreciation and amortization expense in the accompanying consolidated statements of
operations. The going private offer expired on October 14, 2016. No further costs are expected to be incurred in connection
with the going private offer as it has expired. See Note 8 for further discussion of the going private offer.
16. SUBSEQUENT EVENTS
Fourth Amendment to the 2014 Credit Facility
On April 18, 2017, Emmis entered into a Fourth Amendment to our 2014 Credit Agreement. The Fourth Amendment (i)
eliminated the maximum Total Leverage Ratio covenant through May 31, 2018 and replaced it with a minimum Consolidated
EBITDA covenant of $20.0 million, after which it reverts to a Total Leverage Ratio of 4.00:1.00 for the quarters ended August
31, 2018 and thereafter, (ii) reduced the Interest Coverage Ratio from 2.00:1.00 to 1.60:1.00, (iii) required Emmis to enter into
definitive agreements by January 18, 2018 to sell assets that generate at least $80 million of sale proceeds and close such
transactions no later than July 18, 2018, (iv) increased the Applicable Margin throughout the remainder of the term of the Credit
Agreement to 6.00% for ABR Loans (as defined in the 2014 Credit Agreement) and 7.00% for Eurodollar Loans (as defined in
the 2014 Credit Agreement) and increased the unused commitment fee on the revolving credit facility to 75 basis points, and (v)
accelerated the maturity of the Term Loans to April 18, 2019 and the Revolving Loans to August 31, 2018. In addition to
tightening or eliminating baskets and other credit enhancements for lenders, the Fourth Amendment contains ratcheting fees and
premiums if the existing credit facility is not refinanced by July 18, 2018. The Fourth Amendment also required Emmis to pay a
fee of 1.0% of the Term Loan and Revolving Commitment of each Lender that consented to the Fourth Amendment. This fee
totaled $1.5 million and was recorded as additional original issue discount and is being amortized as interest expense over the
remaining life of the 2014 Credit Agreement, beginning with the three-month period ending May 31, 2017.
Sale of KPWR-FM
On May 8, 2017, Emmis entered into a definitive agreement to sell KPWR-FM in Los Angeles to KWHY-22 Broadcasting,
LLC for $82.8 million. As discussed above, under the terms of the Fourth Amendment to the 2014 Credit Facility, Emmis was
required to enter into definitive agreements to sell assets that generated at least $80 million of proceeds by January 18, 2018.
Entering into this definitive agreement satisfies that requirement. Emmis found it more advantageous to sell its standalone radio
station in Los Angeles than to sell other assets to meet this requirement. This transaction is subject to, among other things,
expiration or early termination of the waiting period under the Hart-Scott-Rodino Act, FCC approval and other customary
closing conditions and is expected to close in the back half of 2017. KPWR-FM had historically been included in our Radio
85
Table of Contents
segment. The following table summarizes certain operating results of KPWR-FM for all periods presented. Interest expense has
not been allocated to KPWR-FM in the table below as the Company can not yet estimate the amount of required Term Loan
repayments associated with the eventual sale of the radio station.
For the year ended February 28 (29),
2015
2016
2017
Net revenues
$
32,986 $
28,183 $
24,379
Station operating expenses, excluding depreciation and
amortization expense
Depreciation and amortization
Operating income
17,848
570
14,568
16,305
422
11,456
16,933
401
7,045
The carrying amounts of major classes of assets expected to be included in the sale of KPWR-FM as of February 29, 2016
and February 28, 2017 were as follows:
Property and equipment, net
Indefinite-lived intangibles
Other intangibles, net
Other assets, long-term
As of February 28 (29),
2016
2017
1,586
2,018
75
21
1,400
2,018
68
39
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, 2017, 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 2017 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
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Table of Contents
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, 2017, based
on the control criteria established in a report entitled Internal Control—Integrated Framework (2013 Framework), issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, we have concluded that
Emmis Communications Corporation’s internal control over financial reporting is effective as of February 28, 2017.
Jeffrey H. Smulyan
Chairman and Chief Executive Officer
Ryan A. Hornaday
Executive Vice President, Chief Financial Officer and Treasurer
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,” and “Executive Compensation” 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 that may be issued upon the exercise of options, warrants
and rights under our 2004 Equity Compensation Plan, 2010 Equity Compensation Plan, 2012 Equity Compensation Plan, 2015
Equity Compensation Plan, and 2016 Equity Compensation Plan as of February 28, 2017. 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)
2,559,643
$
—
2,559,643
$
5.17
—
5.17
949,996
—
949,996
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.
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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
July 7, 2016
Second Amended and Restated Bylaws of Emmis
Communications Corporation
Form of stock certificate for Class A common stock
Form of Option Grant Agreement ++
Form of Restricted Stock Agreement ++
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
Third Amendment to 2014 Credit Agreement, dated as of
August 18, 2016, 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
Successor agent agreement and amendment to credit
agreement dated as of April 18, 2017 by and among
JPMorgan Chase Bank, N.A., in its capacity as the existing
administrative agent, the Bank of New York Mellon, in its
capacity as successor administrative agent, Emmis
Operating Company, certain other subsidiaries of the
Company and the lenders party thereto.
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 ++
89
Incorporated by Reference
Filed
Herewith
Form
8-K
Period
Ending
Exhibit
3.1
Filing
Date
7/7/2016
10-K 2/28/2013
3.2
5/8/2013
S-1
8-K
8-K
8-K
3.5
10.1
10.1
10.1
12/22/1993
7/7/2016
7/7/2016
6/10/2014
8-K
10.1
11/7/2014
8-K
10.1
4/30/2015
8-K
10.1
8/26/2016
8-K
10.1
4/24/2017
10-K 2/29/2012
10.18
5/10/2012
10-Q 5/31/2012
10.18
7/12/2012
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
10.24
10.25
10.26
21
23
24
Exhibit Description
Employment Agreement, dated as of December 26, 2012,
by and between Emmis Operating Company and Jeffrey H.
Smulyan ++
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 ++
Employment Agreement, dated as of March 1, 2012, by and
between Emmis Operating Company and J. Scott
Enright ++
Employment Agreement, dated as of March 1, 2017, by and
between Emmis Operating Company and J. Scott
Enright ++
X
Change in Control Severance Agreement, dated as of March
8, 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 ++
Emmis Communications Corporation 2015 Equity
Compensation Plan ++
Emmis Communications Corporation 2016 Equity
Compensation Plan ++
Local Programming and Marketing Agreement, dated as of
April 26, 2012, between Emmis Radio License Corporation
of New York and New York AM Radio, LLC
Asset Purchase Agreement, dated as of October 13, 2016,
by and between Emmis Publishing, L.P., Emmis Operating
Company, GP TM Acquisition LLC and Genesis Park II LP
Asset Purchase Agreement, dated as of October 12, 2016,
by and between Emmis Indiana Broadcasting, L.P., Emmis
Radio License, LLC, Emmis Communications Corporation,
and Midwest Communications, Inc.
Asset Purchase Agreement, dated as of October 12, 2016,
by and between Emmis Indiana Broadcasting, L.P., Emmis
Radio License, LLC, Emmis Communications Corporation,
and DLC Media, Inc.
Asset Purchase Agreement between subsidiaries of Emmis
Communications Corporation and Hour Media Group,
LLC, dated February 23, 2017
Asset Purchase Agreement, dated as of May 8, 2017, by and
among Emmis Radio, LLC, Emmis Radio License, LLC
and KWHY-22 Broadcasting, LLC
Local Programming and Marketing Agreement, dated as of
May 8, 2017, by and among Emmis Radio License, LLC
and KWHY-22 Broadcasting, LLC
Subsidiaries of Emmis
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
90
Incorporated by Reference
Filed
Herewith
Form
8-K
Period
Ending
Exhibit
10.1
Filing
Date
12/28/2012
10-Q 11/30/2011
10.2
1/12/2012
8-K
10-K
10-K
10-
K/A
10.1
10/25/2013
10.25
5/10/2012
10.24
5/10/2012
2/28/2009
10.31
10/9/2009
10-K 2/28/2013
10.23
5/8/2013
DEF
14A
DEF
14A
8-K
10-Q
10-Q
5/29/2015
5/26/2016
10.1
4/26/2012
10.1
1/4/2017
10.2
1/4/2017
10-Q
10.3
1/4/2017
10.1
2/28/2017
10.1
5/9/2017
10.2
5/9/2017
8-K
8-K
8-K
X
X
X
Table of Contents
Exhibit
Number
31.1
31.2
32.1
32.2
Exhibit Description
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
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
X
X
X
91
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 11, 2017
EMMIS COMMUNICATIONS CORPORATION
By:
/s/ Jeffrey H. Smulyan
Jeffrey H. Smulyan
Chairman of the Board and Chief Executive Officer
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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.
Date: May 11, 2017
/s/ Jeffrey H. Smulyan
Chairman of the Board, Chief Executive Officer
SIGNATURE
TITLE
Date: May 11, 2007
Jeffrey H. Smulyan
/s/ Patrick M. Walsh
Patrick M. Walsh
and Director (Principal Executive Officer)
President, Chief Operating Officer and Director
Date: May 11, 2017
/s/ Ryan A. Hornaday
Executive Vice President, Chief Financial Officer
Ryan A. Hornaday
and Treasurer (Principal Financial Officer and
Principal Accounting Officer)
Date: May 11, 2017
Date: May 11, 2017
Date: May 11, 2017
Susan B. Bayh*
Susan B. Bayh
James M. Dubin*
James M. Dubin
Gary L. Kaseff*
Gary L. Kaseff
Date: May 11, 2017
Richard A. Leventhal*
Date: May 11, 2017
Richard A. Leventhal
Peter A. Lund*
Peter A. Lund
Date: May 11, 2017
Greg A. Nathanson*
Greg A. Nathanson
Date: May 11, 2017
Lawrence B. Sorrel*
Lawrence B. Sorrel
*By:
/s/ J. Scott Enright
J. Scott Enright
Attorney-in-Fact
Director
Director
Director
Director
Director
Director
Director
93