UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

Commission File Number 001-39029

 

MEDIACO HOLDING INC.

(Exact name of registrant as specified in its charter)

 

INDIANA

(State of incorporation or organization)

84-2427771

(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)

NOT APPLICABLE

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value

MDIA

Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all 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 every Interactive Data File required to be submitted 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 such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-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 number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of May 11, 2020, was:

 

 

 

1,683,263

 

Shares of Class A Common Stock, $.01 Par Value

5,413,197

 

Shares of Class B Common Stock, $.01 Par Value

 

Shares of Class C Common Stock, $.01 Par Value

 

 


INDEX

 

 

Page

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

3

Condensed Consolidated and Combined Statements of Operations for the three-month periods ended March 31, 2019 and 2020

3

Condensed Consolidated Balance Sheets as of December 31, 2019 and March 31, 2020

4

Condensed Consolidated and Combined Statement of Changes in Equity for the three-month periods ended March 31, 2019 and 2020

5

Condensed Consolidated and Combined Statements of Cash Flows for the three-month periods ended March 31, 2019 and 2020

6

Notes to Condensed Consolidated and Combined Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures about Market Risk

26

Item 4. Controls and Procedures

26

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 6. Exhibits

27

Signatures

28

 

 


PART I — FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2020

 

NET REVENUES

 

$

8,146

 

 

$

11,785

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Operating expenses excluding depreciation and amortization expense

 

 

6,888

 

 

 

9,457

 

Corporate expenses

 

 

 

 

 

1,165

 

Depreciation and amortization

 

 

341

 

 

 

1,027

 

Total operating expenses

 

 

7,229

 

 

 

11,649

 

OPERATING INCOME

 

 

917

 

 

 

136

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(2,238

)

INCOME (LOSS) BEFORE INCOME TAXES

 

 

917

 

 

 

(2,102

)

PROVISION (BENEFIT) FOR INCOME TAXES

 

 

289

 

 

 

(617

)

CONSOLIDATED NET INCOME (LOSS)

 

 

628

 

 

 

(1,485

)

PREFERRED STOCK DIVIDENDS

 

 

 

 

 

529

 

NET INCOME (LOSS)

 

$

628

 

 

$

(2,014

)

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per share attributable to common shareholders

 

$

0.38

 

 

$

(0.28

)

Basic and diluted weighted average common shares outstanding

 

 

1,667

 

 

 

7,084

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 3 -


 

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

2019

 

 

March 31,

2020

 

 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,083

 

 

$

4,405

 

Accounts receivable, net

 

 

11,101

 

 

 

10,393

 

Prepaid expenses

 

 

1,111

 

 

 

1,627

 

Other current assets

 

 

1,798

 

 

 

373

 

Total current assets

 

 

16,093

 

 

 

16,798

 

PROPERTY AND EQUIPMENT, NET

 

 

31,563

 

 

 

31,009

 

INTANGIBLE ASSETS, NET

 

 

78,949

 

 

 

78,640

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

13,863

 

 

 

14,480

 

Operating lease right of use assets

 

 

26,339

 

 

 

25,708

 

Deposits and other

 

 

359

 

 

 

358

 

Total other assets

 

 

40,561

 

 

 

40,546

 

Total assets

 

$

167,166

 

 

$

166,993

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,184

 

 

$

8,574

 

Current maturities of long-term debt

 

 

3,672

 

 

 

3,672

 

Accrued salaries and commissions

 

 

728

 

 

 

555

 

Deferred revenue

 

 

1,688

 

 

 

1,506

 

Operating lease liabilities

 

 

3,161

 

 

 

3,079

 

Other current liabilities

 

 

346

 

 

 

1,085

 

Total current liabilities

 

 

20,779

 

 

 

18,471

 

LONG TERM DEBT, NET OF CURRENT

 

 

77,668

 

 

 

81,890

 

OPERATING LEASE LIABILITIES, NET OF CURRENT

 

 

22,983

 

 

 

22,182

 

ASSET RETIREMENT OBLIGATIONS

 

 

5,623

 

 

 

5,805

 

OTHER NONCURRENT LIABILITIES

 

 

239

 

 

 

256

 

Total liabilities

 

 

127,292

 

 

 

128,604

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING

 

 

22,110

 

 

 

22,639

 

EQUITY:

 

 

 

 

 

 

 

 

Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 1,666,667 shares and 1,683,263 shares at December 31, 2019, and March 31, 2020, respectively

 

 

17

 

 

 

17

 

Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 5,359,753 shares and 5,413,197 shares at December 31, 2019, and March 31, 2020, respectively

 

 

54

 

 

 

54

 

Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued

 

 

 

 

 

 

Additional paid-in capital

 

 

20,644

 

 

 

20,644

 

Accumulated deficit

 

 

(2,951

)

 

 

(4,965

)

Total equity

 

 

17,764

 

 

 

15,750

 

Total liabilities and equity

 

$

167,166

 

 

$

166,993

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 4 -


MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(In thousands, except share data)

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

APIC

 

 

Net Parent Investment

 

 

Accumulated Deficit

 

 

Total

 

BALANCE, DECEMBER 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

79,810

 

 

$

 

 

$

79,810

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

628

 

 

 

 

 

 

628

 

Net distributions to Emmis Communications Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,451

)

 

 

 

 

 

(3,451

)

BALANCE, MARCH 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

76,987

 

 

$

 

 

$

76,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2019

 

 

1,666,667

 

 

$

17

 

 

 

5,359,753

 

 

$

54

 

 

$

20,644

 

 

$

 

 

$

(2,951

)

 

$

17,764

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,485

)

 

 

(1,485

)

Adjustments related to distribution of common shares

 

 

16,596

 

 

 

 

 

 

53,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(529

)

 

 

(529

)

BALANCE, MARCH 31, 2020

 

 

1,683,263

 

 

$

17

 

 

 

5,413,197

 

 

$

54

 

 

$

20,644

 

 

$

 

 

$

(4,965

)

 

$

15,750

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 5 -


MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

628

 

 

$

(1,485

)

Adjustments to reconcile net income to net cash provided by (used in) operating activities -

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

341

 

 

 

1,027

 

Amortization of debt discount

 

 

 

 

 

140

 

Provision for bad debts

 

 

20

 

 

 

373

 

Accretion of asset retirement obligation

 

 

 

 

 

182

 

Provision for deferred income taxes

 

 

246

 

 

 

(617

)

Noncash compensation

 

 

57

 

 

 

 

Loss on sale of property and equipment

 

 

 

 

 

78

 

Changes in assets and liabilities -

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,709

 

 

 

335

 

Prepaid expenses and other current assets

 

 

(676

)

 

 

909

 

Other assets

 

 

62

 

 

 

587

 

Accounts payable and accrued liabilities

 

 

79

 

 

 

(2,783

)

Deferred revenue

 

 

199

 

 

 

(182

)

Income taxes

 

 

43

 

 

 

 

Other liabilities

 

 

(120

)

 

 

(127

)

Net cash provided by (used in) operating activities

 

 

3,588

 

 

 

(1,563

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(80

)

 

 

(197

)

Net cash used in investing activities

 

 

(80

)

 

 

(197

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of long-term debt

 

 

 

 

 

(918

)

Proceeds from long-term debt

 

 

 

 

 

5,181

 

Payments for debt-related costs

 

 

 

 

 

(181

)

Net transactions with Emmis Communications Corp.

 

 

(3,508

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(3,508

)

 

 

4,082

 

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

 

 

 

2,322

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

 

 

 

 

 

 

 

 

Beginning of period

 

 

 

 

 

2,083

 

End of period

 

$

 

 

$

4,405

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

1,148

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 6 -


MEDIACO HOLDING INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)

March 31, 2020

(Unaudited)

Note 1. Organization

MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P. (“Standard General”) pursuant to an agreement entered into on June 28, 2019. The sale (the “Transaction”) closed on November 25, 2019. On November 26, 2019, the Company’s Form 10 was declared effective and the Company became subject to SEC periodic filing requirements. As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting. On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.

Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis and other businesses owned by MediaCo. Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities. The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.

On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”). Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.

Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,300 advertising structures in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.

On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31.

Note 2. Basis of Presentation and Combination

Our condensed consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.

For the three months ended March 31, 2019, MediaCo was 100% owned by Emmis. Our financial statements for this period are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records. Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures. We consider this expense allocation methodology and results thereof to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for all periods presented. It is impracticable to estimate what the standalone costs of MediaCo would have been in the historical periods.

The equity balance in the condensed consolidated and combined financial statements prior to the Transaction represents the excess of total assets over total liabilities. All transactions between the Stations and Emmis were considered to be effectively settled in the consolidated and combined financial statements at the time the intercompany transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity and in the consolidated and combined statements of changes in equity as net parent company investment.

Upon consummation of the Transaction, the debt which the Company assumed in connection with transactions between shareholders was recorded to equity, and the total amount of net parent company investment was reclassified to additional paid in capital in the accompanying consolidated and combined financial statements.

- 7 -


Note 3. Summary of Significant Accounting Policies

 

Allocation Policies

The following allocation policies were established by management of Emmis for the three-month period ended March 31, 2019. In the opinion of management, the methods for allocating these costs were reasonable. It is not practicable to estimate the costs that would have been incurred by us if we had been operated on a stand‑alone basis.

(i)  Specifically Identifiable Operating Expenses

Costs which related entirely to the operations of the Stations were attributed entirely to the Stations. These expenses consisted of costs of personnel who are 100% dedicated to the operations of the Stations, all costs associated with locations that conducted only the business of the Stations and amounts paid to third parties for services rendered to the Stations. In addition, any costs incurred by Emmis, which were specifically identifiable to the operations of the Stations, were attributed to the Stations.

(ii)  Shared Operating Expenses

Emmis incurred the cost of certain corporate general and administrative services and shared services that benefited all of its entities, including the Stations. These shared services included radio executive management, legal, accounting, information services, telecommunications, human resources, insurance, and intellectual property compliance and maintenance.  These costs were allocated to the Stations based on one of the following allocation methods: (1) percentage of Company revenues, (2) percentage of Company’s radio revenues, (3) headcount, and (4) pro rata portion based on the number of stations owned by Emmis. Management determined which allocation method was appropriate based on the nature of the shared service being provided.

(iii)  Taxes

The Stations' allocated share of the consolidated Emmis federal tax provision was determined using the separate return method. Under the separate return method, tax expense or benefit was calculated as if the Stations were subject to their own tax returns. State income taxes generally were allocated in a similar manner. Deferred tax assets and liabilities were determined based on differences between the financial reporting and tax bases of assets and liabilities carried by the Stations, and were measured using the enacted tax rates that are expected to be in effect in the period in which these differences were expected to reverse. The principal components of deferred taxes related to tax amortization of indefinite-lived intangibles, namely FCC licenses, which are not amortized (but subject to impairment testing) for financial reporting purposes.

(iv)  Allocated Charges

Allocations of Emmis’ costs were included in the condensed consolidated and combined statements of operations of the Stations as follows:

 

For the Three Months

Ended March 31,

 

 

2019

 

 

2020

 

Operating expenses, excluding depreciation and amortization expense

$

481

 

 

$

 

Noncash compensation

 

57

 

 

 

 

Allocated charges from Emmis

$

538

 

 

$

 

Intercompany accounts between the Stations and Emmis were included in combined equity.

Cash and Cash Equivalents

We consider 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.

Fair Value Measurements

As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.

- 8 -


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 4, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 4 for more discussion).

Use of Estimates

We prepared the accompanying condensed consolidated and combined financial statements in accordance with GAAP. GAAP requires us 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.

Per Share Data

ASC Topic 260, “Earnings Per Share,” requires presentation of basic income per share (“EPS”) on the face of the income statement for all entities with simple capital structures. Basic EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. For entities with complex capital structures, diluted EPS is also required. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The 1,666,667 Class A shares issued to Emmis have been assumed to have been outstanding for all periods through March 31, 2020. There were no potentially dilutive securities during the three-month periods ended March 31, 2019 and 2020, as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 6, nor the Series A convertible preferred stock described in Note 13, are convertible until May 25, 2020.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Pursuant to ASC Topic 205-40, “Going Concern,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period. In evaluating the Company’s ability to continue as a going concern for this reporting period, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the filing of these financial statements (May 15, 2020). Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before May 15, 2021.

The Company has been and continues to be negatively impacted by COVID-19, which the Company expects to negatively impact revenues and profitability for an undetermined period of time.  Management has considered these circumstances in assessing the Company’s liquidity over the next year.  Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business. The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control. The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures. The Company generally satisfies its liquidity needs through cash provided by operations.  In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.

The Company has debt service obligations of approximately $10.5 million due under its Senior Credit Facility in the next twelve months.  Additionally, the Company owes $5.0 million to Emmis in August 2020, with such amount guaranteed by Standard General in the event MediaCo is unable to make the payment when due. Because the Company’s operating results and financial condition have been adversely impacted by the COVID-19 pandemic, the Company expects its revenues and profitability to decline over the next several months. Because the duration and severity of the impact is unknown as of the filing of this Form 10-Q, management is unable to determine with certainty that the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings. Under the terms of its Senior Credit Facility, the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility). Management is also unable to determine whether the Company will be in compliance with its debt covenants and the limits of its borrowing base for the next twelve months. If necessary, management intends to request a waiver or amendment to its Senior Credit Facility and seek additional borrowings from Standard General; however, no assurances can be made that the Company will be successful. While the Company had been successful in obtaining waivers and amendments under its Senior Credit Facility and had also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future. Accordingly, there is substantial doubt about our ability to continue as a going concern through May 15, 2021. Furthermore, depending on the duration and severity of the impact the COVID-19 pandemic has on our businesses, we may record future impairments of assets or valuation allowances against our deferred tax assets.

- 9 -


 

Recent Accounting Pronouncements Not Yet Implemented

 

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated and combined financial statements.

Note 4. Intangible Assets

Valuation of Indefinite-lived Broadcasting Licenses

In accordance with Accounting Standards Codification ("ASC") Topic 350, “Intangibles—Goodwill and Other,” the Company’s FCC licenses are considered indefinite-lived intangibles. These assets, which the Company determined were its only indefinite-lived intangibles, are not subject to amortization, but are tested for impairment at least annually as discussed below.

The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2019 and March 31, 2020. Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA with another broadcaster. The stations have historically performed an annual impairment test of indefinite-lived intangibles as of December 1 of each year. In connection with our change in fiscal years from one that ends in February to a traditional calendar year end, we plan to perform our annual impairment test of indefinite-lived intangible assets as of October 1 of each year. When indicators of impairment are present, we will perform an interim impairment test. During the three months ended March 31, 2020, the emergence of the COVID-19 pandemic only had a modest impact on our radio operations; hence, no interim impairment testing was warranted. These impairment tests may result in additional impairment charges in future periods.

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 considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its 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 its 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. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by 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 an LMA.

Valuation of Goodwill

As a result of the Fairway Acquisition discussed in Note 1, goodwill of $11.4 million was recognized in December 2019. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. The acquisition closed on December 13, 2019 and all assets acquired and liabilities assumed were valued as of that date, resulting in a goodwill valuation of $11.4 million. We made a purchase price allocation adjustment during the three months ended March 31, 2020 resulting in an increase to goodwill of $0.1 million. The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and March 31, 2020. During the three months ended March 31, 2020, the emergence of the COVID-19 pandemic had a minimal impact on our outdoor operations; hence, no interim impairment testing was warranted. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period. The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill.

- 10 -


Valuation of Trade Name

As a result of the Fairway Acquisition, the Company acquired the trade name “Fairway”. The trade name is well known in the industry and is being retained for continued market use following the acquisition. This trade name favorably factors into customer purchasing decisions. For the purchase price allocation, the trade name was valued using the relief from royalty method. This method is based on what a company would be willing to pay for a royalty in order to exploit the related benefits of the trade name. The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name. The preliminary valuation assigned to the trade name as a result of the purchase price accounting is $0.7 million. The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward. We will assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.

Definite-lived intangibles

The following table presents the weighted-average useful life at March 31, 2020, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December, 31 2019, and March 31, 2020:

 

 

 

As of December 31, 2019

 

 

As of March 31, 2020

 

 

(in 000's, except years)

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

Weighted

Average

Remaining

Useful Life

(in years)

Programming agreement

 

$

2,154

 

 

$

1,640

 

 

$

514

 

 

$

2,154

 

 

$

1,713

 

 

$

441

 

1.5

Customer List

 

 

3,030

 

 

 

14

 

 

 

3,016

 

 

 

3,030

 

 

295

 

 

 

2,735

 

2.7

 

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.

Total amortization expense from definite-lived intangibles for the three-month periods ended March 31, 2019 and 2020 was $0.1 million and $0.4 million, respectively. The following table presents the Company's estimate of future amortization expense for definite-lived intangibles:

 

Year ending December 31,

 

Expected Amortization Expense

 

Remainder of 2020

 

$

978

 

2021

 

 

1,230

 

2022

 

 

968

 

 

 

 

 

 

 

Note 5. Revenue

The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) display advertising on outdoor structures, (iii) non-traditional revenues including event-related revenues and event sponsorship revenues, and (iv) digital advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the condensed consolidated and combined financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

Radio Advertising

On-air broadcast revenue is recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the condensed consolidated balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.

- 11 -


Outdoor Advertising

Our outdoor advertising business has approximately 3,300 faces consisting of bulletins, posters and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. Digital billboards are computer controlled LED displays where six to eight advertisers rotate continuously, each one having seven to ten seconds to display a static image. Digital billboards are generally located on major traffic arteries and streets.

Nontraditional

Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations conduct in their local market. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.

Digital

Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video sponsorships, but excluding digital billboard advertisements) to advertisers. Digital revenues are generally recognized as the digital advertising is delivered.

Other

Other revenue includes barter revenue, network revenue, and production revenue. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on barter arrangements when we broadcast the advertisements. Advertisements delivered under barter arrangements are typically aired during the same period in which the products and services are consumed. The Company also sells certain remnant advertising inventory to third-parties for cash, and we refer to this as network revenue. The third-parties aggregate our remnant inventory with other broadcasters' remnant inventory for sale to third parties, generally to large national advertisers. This network revenue is recognized as we broadcast the advertisements. In connection with certain outdoor advertising arrangements, the customer may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure. This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure.

Disaggregation of revenue

The following table presents the Company's revenues disaggregated by revenue source:

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

% of Total

 

 

2020

 

% of Total

 

Revenue by Source:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Radio Advertising

 

$

6,042

 

 

74

%

 

$

6,380

 

 

54

%

Outdoor Advertising

 

 

 

 

0

%

 

 

3,267

 

 

28

%

Nontraditional

 

 

261

 

 

3

%

 

 

168

 

 

1

%

Digital

 

 

714

 

 

9

%

 

 

674

 

 

6

%

Other

 

 

1,129

 

 

14

%

 

 

1,296

 

 

11

%

Total net revenues

 

$

8,146

 

 

 

 

 

$

11,785

 

 

 

 

 

Note 6. Long Term Debt

Long-term debt was comprised of the following at December 31, 2019, and March 31, 2020:

 

 

December 31,

2019

 

 

March 31,

2020

 

Senior credit facility

 

$

72,527

 

 

$

71,789

 

Notes payable to Emmis

 

 

5,000

 

 

 

5,000

 

Notes payable to SG Broadcasting

 

 

6,250

 

 

 

11,250

 

Less: Current maturities

 

 

(3,672

)

 

 

(3,672

)

Less: Unamortized original issue discount

 

 

(2,437

)

 

 

(2,477

)

Total long-term debt, net of current portion and debt discount

 

$

77,668

 

 

$

81,890

 

- 12 -


Senior Credit Facility

On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent, which included one tranche of additional borrowings of $25.0 million. The Senior Credit Facility provided for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company. The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor. The Senior Credit Facility requires interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount are due on the last day of each calendar quarter. The Senior Credit Facility includes covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions. The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019. Proceeds received were $22.6 million, net of a debt discount of $0.8 million.

On February 28, 2020, the Company entered into Amendment No. 1 to its Senior Credit Facility, in order to, among other things, increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note to $10.3 million.

On March 27, 2020, the Company entered into Amendment No. 2 (“Amendment No. 2”) to its Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note (as defined below) from $10.3 million to $20.0 million. In connection with Amendment No. 2, the Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding. The Senior Credit Facility is carried net of a total unamortized discount of $2.5 million at March 31, 2020.

Notes Payable to Emmis

On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million. The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company has been accruing interest since inception using the rate applicable if the interest will be paid in kind. The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. The Emmis Convertible Promissory Note matures on November 25, 2024.

Notes Payable to SG Broadcasting

On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.3 million for working capital and general corporate purposes. The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.

On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. Amounts in excess of $6.3 million may not be converted into Class A common stock unless the issuance of such shares is approved by the Company’s shareholders. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working

- 13 -


capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of March 31, 2020 was $11.3 million.

Based on amounts outstanding at March 31, 2020, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

Senior Credit Facility

 

 

Emmis Note

 

 

SG Broadcasting Note

 

 

Total Payments

 

Remainder of 2020

 

$

2,754

 

 

$

 

 

$

 

 

$

2,754

 

2021

 

 

3,672

 

 

 

 

 

 

 

 

 

3,672

 

2022

 

 

3,672

 

 

 

 

 

 

 

 

 

3,672

 

2023

 

 

3,672

 

 

 

 

 

 

 

 

 

3,672

 

2024

 

 

58,019

 

 

 

5,000

 

 

 

 

 

 

63,019

 

Thereafter

 

 

 

 

 

 

 

 

11,250

 

 

 

11,250

 

Total

 

$

71,789

 

 

$

5,000

 

 

$

11,250

 

 

$

88,039

 

 

Note 7. Regulatory, Legal and Other Matters

From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.

Note 8. Income Taxes

As discussed in Note 3, our provision for income taxes for the three-month period ended March 31, 2019 in these condensed consolidated and combined financial statements has been calculated using the separate return basis, as if we filed separate tax returns. The effective tax rate for the three months ended March 31, 2019 and 2020 was 32% and (29)% respectively, which approximates the combined federal, state and local statutory rate of 30%.

 

Note 9. Leases

We determine if an arrangement is a lease at inception. We have operating leases for office space, tower space, equipment and automobiles expiring at various dates through October 2049. Some leases have options to extend and some have options to terminate. Beginning March 1, 2019, operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our condensed consolidated and combined balance sheet.

Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use Emmis’ incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include options to extend or terminate the lease, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option.

Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred. Variable lease expense recognized in the three months ended March 31, 2020 was not material.

We elected not to apply the recognition requirements of Accounting Standards Codification 842, “Leases”, to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, we recognized lease payments in the condensed consolidated and combined statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. We elected this policy for all classes of underlying assets. Short-term lease expense recognized in the three months ended March 31, 2020, was not material.

- 14 -


The impact of operating leases to our condensed consolidated financial statements was as follows:

 

 

Three Months Ended

March 31,

 

 

 

2020

 

Lease Cost

 

 

 

 

Operating lease cost

 

$

1,248

 

Other Information

 

 

 

 

Operating cash flows from operating leases

 

 

1,490

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

 

Weighted average remaining lease term - operating leases (in years)

 

 

9.1

 

Weighted average discount rate - operating leases

 

 

10.5

%

As of March 31, 2020, the annual minimum lease payments of our operating lease liabilities were as follows:

Year ending December 31,

 

 

 

 

Remainder of 2020

 

$

3,549

 

2021

 

 

5,211

 

2022

 

 

5,105

 

2023

 

 

4,123

 

2024

 

 

2,712

 

After 2024

 

 

18,968

 

Total lease payments

 

 

39,668

 

Less imputed interest

 

 

14,407

 

Total recorded lease liabilities

 

$

25,261

 

Our outdoor advertising business generates lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Minimum fixed lease consideration under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease consideration, as of March 31, 2020, is as follows:

Year ending December 31,

 

 

 

Remainder of 2020

$

6,456

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

After 2024

 

 

 

Note 10. Asset Retirement Obligations

The Company’s asset retirement obligation includes the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations.

Balance at December 31, 2019

 

 

$

5,623

 

Purchase price allocation adjustment

 

 

 

44

 

Accretion expense

 

 

 

182

 

Liabilities settled

 

 

 

(44

)

Balance at March 31, 2020

 

 

$

5,805

 

 

Note 11. Acquisition

On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC from Fairway Outdoor Advertising Group, LLC for a purchase price of $43.1 million, subject to customary working capital adjustments. Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia. The acquisition was funded through $23.4 million of additional borrowings under the Senior Credit Facility as described in Note 6, which were net of a debt discount of $0.8 million, resulting in $22.6 million of proceeds. The remainder was financed by SG Broadcasting through $22.0 million of newly-issued Series A Convertible Preferred Stock. The terms of the Series A convertible preferred stock are described in Note 13. The Company believes this is a highly-scalable business model with attractive operative leverage.

- 15 -


As of March 31 2020, our fair value allocation of the assets acquired and liabilities assumed from Fairway Outdoor is considered preliminary and is subject to revision, which may result in adjustments to this allocation. An adjustment was made in the three-month period ended March 31, 2020 which resulted in an increase to both goodwill and the asset retirement obligation of less than $0.1 million. We continue to analyze inputs to the valuation models for all long term assets, including intangibles, as well as estimated asset retirement obligations. We expect to finalize these amounts during 2020. The allocations presented in the table below are based upon management’s estimate of the fair value using valuation techniques including income, cost and market approaches. The most significant asset acquired, property, plant and equipment, was valued using the cost approach. The preliminary purchase price allocation was as follows:

 

Cash consideration

$

43,108

 

Due from Seller

 

(106

)

Total Consideration

$

43,002

 

 

 

 

 

Accounts receivable

$

1,676

 

Other current assets

 

105

 

Property, plant and equipment

 

29,971

 

Operating lease, right-of-use assets

 

15,267

 

Goodwill

 

11,468

 

Intangibles (Note 4)

 

3,760

 

Deferred tax asset

 

1,040

 

Other assets

 

16

 

Assets Acquired

$

63,303

 

Accounts payable

$

73

 

Accrued expenses and other current liabilities

 

539

 

Current portion of operating lease liabilities

 

822

 

Operating lease liabilities, less current portion

 

12,320

 

Asset retirement obligations (Note 10)

 

5,634

 

Deferred revenue

 

760

 

Other noncurrent liabilities

 

153

 

Liabilities Assumed

$

20,301

 

Net Assets Acquired

$

43,002

 

The Fairway Acquisition was accounted for under the acquisition method of accounting, and, accordingly, the accompanying consolidated and combined financial statements include the results of operations of each acquired entity from the date of acquisition.

The following unaudited pro forma financial information for the Company gives effect to the Fairway Acquisition as if it had occurred on January 1, 2019. These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on such date or to project the Company’s results of operations for any future period.

 

 

Three Months Ended March 31, 2019

 

Net revenues

 

$

11,470

 

Net loss attributable to common shareholders

 

 

40

 

Goodwill of $11.5 million was recognized as a result of the purchase which represented the excess of the purchase price over the identifiable acquired assets, $9.0 million of which is deductible for tax purposes. The goodwill acquired is assigned to the outdoor advertising segment.

 

Note 12. Segment Information

The Company’s operations are aligned into two business segments: (i) Radio, and (ii) Outdoor advertising. Radio includes the operations and results of WQHT-FM and WBLS-FM, and outdoor advertising includes the operations and results of the Fairway businesses acquired in December 2019. The Company groups activities that are not considered operating segments in the “All Other” category.

These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses, including transaction costs, are not allocated to reportable segments. The Company’s segments operate exclusively in the United States.

The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the ten months ended December 31, 2019, and in Note 1 to these condensed consolidated and combined financial statements, are applied consistently across segments.

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Three Months Ended March 31, 2020

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

8,339

 

 

$

3,446

 

 

$

 

 

$

11,785

 

Operating expenses excluding and depreciation and amortization expense

 

 

6,931

 

 

 

2,526

 

 

 

 

 

 

9,457

 

Corporate expenses excluding depreciation and amortization expense

 

 

 

 

 

 

 

 

1,165

 

 

 

1,165

 

Depreciation and amortization

 

 

249

 

 

 

778

 

 

 

 

 

 

1,027

 

Operating income (loss)

 

$

1,159

 

 

$

142

 

 

$

(1,165

)

 

$

136

 

 

Three Months Ended March 31, 2019

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

8,146

 

 

$

 

 

$

 

 

$

8,146

 

Operating expenses excluding depreciation and amortization expense

 

 

6,888

 

 

 

 

 

 

 

 

 

6,888

 

Depreciation and amortization

 

 

341

 

 

 

 

 

 

 

 

 

341

 

Operating income

 

$

917

 

 

$

 

 

$

 

 

$

917

 

 

Total Assets

 

Radio

 

 

Outdoor Advertising

 

 

Consolidated

 

As of December 31, 2019

 

$

102,921

 

 

$

64,245

 

 

$

167,166

 

As of March 31 2020

 

 

104,251

 

 

 

62,742

 

 

 

166,993

 

 

Note 13. Related Party Transactions

 

Corporate Overhead and Share-Based Compensation

 

For the three months ended March 31, 2019, MediaCo was 100% owned by Emmis. Our financial statements for this period are derived from the books and records of Emmis. As described below, Emmis provides us certain services, including executive oversight, legal, finance, human resources and information technology. Our condensed consolidated and combined financial statements reflect an allocation of these costs. When specific identification is not practicable, these costs have been allocated on a pro rata basis of revenue, headcount and other measures. In addition, our employees participated in Emmis share-based compensation plans, the costs of which have been allocated to us.

 

Transaction Agreement with Emmis and SG Broadcasting

 

On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $91.5 million in cash, a $5.0 million note and 23.72% of the common stock of MediaCo, (ii) Standard General purchased 76.28% of the common stock of MediaCo, and (iii) the common stock of MediaCo received by Emmis was distributed pro rata in a taxable dividend to Emmis’ shareholders on January 17, 2020. The common stock of MediaCo acquired by Standard General is entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to one vote per share. Emmis will continue to provide management services to the Stations under a Management Agreement, subject to the direction of the MediaCo board of directors which currently consists of four directors appointed by Standard General and three directors appointed by Emmis. MediaCo will pay Emmis an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into the management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements.

For the three months ended March 31, 2020, MediaCo recorded $0.3 million of management fee expense, which is included in corporate expenses in the accompanying condensed consolidated and combined statements of operations. $0.1 million was unpaid as of March 31, 2020 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated and combined balance sheets. Under the Employee Leasing Agreement, the employees of the Stations will remain employees of Emmis and we reimburse Emmis for the cost of these employees, including health and benefit costs. The initial term of the Employee Leasing Agreement will last through December 31, 2020, and will automatically renew for successive six-month periods, unless otherwise terminated upon the occurrence of certain events. Upon termination of the Employee Leasing Agreement, we will hire all of the leased employees and assume employment and collective bargaining agreements related to those employees. Expense related to the Employee Leasing Agreement was $3.1 million for the three months ended March 31, 2020. This expense is recognized in operating expenses, $0.3 million remains unpaid as of March 31, 2020.

 

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Convertible Promissory Notes

As a result of the Transaction, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively. On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.

On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of March 31, 2020 was $11.3 million.

The terms of these notes are described in Note 6.

 

Convertible Preferred Stock

On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.

MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to the Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Preferred Shares, will be subject to certain restrictions, including that (i) the MediaCo Series A Preferred Shares shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Preferred Share could be converted, and (ii) the MediaCo Series A Preferred Shares, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a p