EMMIS COMMUNICATIONS CORP (Form: 10-Q, Received: 01/09/2020 09:20:11)

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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 November 30, 2019

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)

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	EMMS	Nasdaq Global Select 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐		Accelerated filer	☐

Non-accelerated filer	☐	(Do not check if a smaller reporting company)	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 Emmis Communications Corporation’s classes of common stock, as of January 2, 2020, was:


12,060,388		Shares of Class A Common Stock, $.01 Par Value
1,242,366		Shares of Class B Common Stock, $.01 Par Value
—		Shares of Class C Common Stock, $.01 Par Value

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INDEX


	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended November 30, 2018 and 2019	3
Condensed Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended November 30, 2018 and 2019	5
Condensed Consolidated Balance Sheets as of February 28, 2019 and November 30, 2019	6
Condensed Consolidated Statement of Changes in Equity for the three-month and nine-month periods ended November 30, 2018 and 2019	7
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended November 30, 2018 and 2019	9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures about Market Risk	38
Item 4. Controls and Procedures	38
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6. Exhibits	40
Signatures	41

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended November 30,						Nine Months Ended November 30,
	2018			2019			2018			2019
NET REVENUES	$	10,797		$	10,737		$	30,883		$	29,266
OPERATING EXPENSES:
Station operating expenses excluding depreciation and amortization expense of $151, $90, $477 and $302, respectively		10,809			8,199			30,494			23,667
Corporate expenses excluding depreciation and amortization expense of $194, $172, $591 and $564, respectively		2,297			10,437			7,607			15,211
Impairment loss		304			—			509			4,022
Depreciation and amortization		345			263			1,068			866
Loss (gain) on sale of assets, net of disposition costs		235			—			(31,817	)		31
Gain on legal matter		—			(2,153	)		—			(2,153	)
Total operating expenses		13,990			16,746			7,861			41,644
OPERATING (LOSS) INCOME		(3,193	)		(6,009	)		23,022			(12,378	)
OTHER EXPENSE:
Interest expense		(1,307	)		(869	)		(5,206	)		(3,040	)
Loss on debt extinguishment		—			(510	)		(771	)		(510	)
Other income, net		40			121			92			147
Total other expense		(1,267	)		(1,258	)		(5,885	)		(3,403	)
(LOSS) INCOME BEFORE INCOME TAXES		(4,460	)		(7,267	)		17,137			(15,781	)
(BENEFIT) PROVISION FOR INCOME TAXES		(2,747	)		(950	)		6,213			(1,533	)
(LOSS) INCOME FROM CONTINUING OPERATIONS		(1,713	)		(6,317	)		10,924			(14,248	)
DISCONTINUED OPERATIONS, NET OF TAX		3,262			58,921			15,296			77,213
CONSOLIDATED NET INCOME		1,549			52,604			26,220			62,965
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS		837			(121	)		2,396			1,557
NET INCOME ATTRIBUTABLE TO THE COMPANY	$	712		$	52,725		$	23,824		$	61,408

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(Unaudited)

(In thousands, except per share data)

	Three Months Ended November 30,						Nine Months Ended November 30,
	2018			2019			2018		2019
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Net (loss) income attributable to common shareholders - continuing operations	$	(1,161	)	$	(5,828	)	$	12,660	$	(12,758	)
Net income attributable to common shareholders - discontinued operations		1,873			58,553			11,164		74,166
Net income attributable to common shareholders	$	712		$	52,725		$	23,824	$	61,408
BASIC NET (LOSS) INCOME PER SHARE:
Continuing operations	$	(0.09	)	$	(0.45	)	$	1.01	$	(0.99	)
Discontinued operations		0.15			4.53			0.89		5.77
Basic net income per share	$	0.06		$	4.08		$	1.90	$	4.78
Basic weighted average shares outstanding		12,609			12,937			12,565		12,846
DILUTED NET (LOSS) INCOME PER SHARE:
Continuing operations	$	(0.09	)	$	(0.45	)	$	0.94	$	(0.99	)
Discontinued operations		0.15			4.53			0.83		5.77
Diluted net income per share	$	0.06		$	4.08		$	1.77	$	4.78
Diluted weighted average shares outstanding		12,609			12,937			13,486		12,846

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

	Three Months Ended November 30,					Nine Months Ended November 30,
	2018		2019			2018		2019
CONSOLIDATED NET INCOME	$	1,549	$	52,604		$	26,220	$	62,965
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS		837		(121	)		2,396		1,557
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	712	$	52,725		$	23,824	$	61,408

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	February 28, 2019			November 30, 2019
				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,343		$	111,345
Restricted cash		2,504			1,622
Accounts receivable, net		11,919			5,599
Prepaid expenses		3,374			1,845
Other current assets		1,225			10,350
Current assets held for sale		6,629			—
Total current assets		29,994			130,761
PROPERTY AND EQUIPMENT, NET		16,061			15,265
INDEFINITE-LIVED INTANGIBLE ASSETS		72,562			68,540
OPERATING LEASE RIGHT-OF-USE ASSETS		—			8,634
EQUITY METHOD INVESTMENT- MEDIACO CLASS A COMMON STOCK		—			5,485
OTHER ASSETS, NET		8,462			12,822
LONG-TERM ASSETS HELD FOR SALE		110,667			—
Total assets	$	237,746		$	241,507
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	4,160		$	4,637
Current maturities of long-term debt		32,150			7,830
Accrued salaries and commissions		1,919			7,812
Deferred revenue		3,464			2,639
Income taxes payable		11,200			15,657
Operating lease liabilities		—			842
Other current liabilities		2,401			1,868
Current liabilities held for sale		2,072			—
Total current liabilities		57,366			41,285
LONG-TERM DEBT, NET OF CURRENT MATURITIES AND UNAMORTIZED DISCOUNT		48,757			55,662
OPERATING LEASE LIABILITIES, NET OF CURRENT		—			9,372
OTHER NONCURRENT LIABILITIES		3,914			2,328
DEFERRED INCOME TAXES		25,232			18,263
NONCURRENT LIABILITIES HELD FOR SALE		2,110			—
Total liabilities		137,379			126,910
COMMITMENTS AND CONTINGENCIES
EQUITY:
Class A common stock, $.01 par value; authorized 42,500,000 shares; issued and outstanding 11,809,291 shares at February 28, 2019 and 12,060,388 shares at November 30, 2019		118			121
Class B common stock, $.01 par value; authorized 7,500,000 shares; issued and outstanding 1,242,366 shares at February 28, 2019 and November 30, 2019		12			12
Additional paid-in capital		595,984			597,439
Accumulated deficit		(523,900	)		(462,492	)
Total shareholders’ equity		72,214			135,080
NONCONTROLLING INTERESTS		28,153			(20,483	)
Total equity		100,367			114,597
Total liabilities and equity	$	237,746		$	241,507

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

(In thousands, except share data)

	Class A Common Stock					Class B Common Stock				Additional Paid-in		Accumulated			Noncontrolling			Total
	Shares			Amount		Shares		Amount		Capital		Deficit			Interests			Equity
Balance, February 28, 2018		11,649,440		$	116		1,142,366	$	11	$	594,708	$	(547,252	)	$	30,680		$	78,263
Net income													23,485			754			24,239
Issuance of common stock to employees and officers, net		(4,097	)				100,000		1		389								390
Exercise of stock options		45,834			1						119								120
Distributions to noncontrolling interests																(1,721	)		(1,721	)
Balance, May 31, 2018		11,691,177		$	117		1,242,366	$	12	$	595,216	$	(523,767	)	$	29,713		$	101,291
Net (loss) income													(373	)		805			432
Issuance of common stock to employees and officers, net		(26,778	)								125								125
Exercise of stock options		5,000									12								12
Distributions to noncontrolling interests																(1,003	)		(1,003	)
Balance, August 31, 2018		11,669,399		$	117		1,242,366	$	12	$	595,353	$	(524,140	)		29,515			100,857
Net income												712				837			1,549
Issuance of common stock to employees and officers, net		16,780		1						335									336
Exercise of stock options		90,834								212									212
Distributions to noncontrolling interests																(1,068	)		(1,068	)
Balance, November 30, 2018		11,777,013		$	118		1,242,366	$	12	$	595,900	$	(523,428	)	$	29,284		$	101,886

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

(Unaudited)

(In thousands, except share data)

	Class A Common Stock					Class B Common Stock				Additional Paid-in		Accumulated			Noncontrolling			Total
	Shares			Amount		Shares		Amount		Capital		Deficit			Interests			Equity
Balance, February 28, 2019		11,809,291		$	118		1,242,366	$	12	$	595,984	$	(523,900	)	$	28,153		$	100,367
Net income													1,670			846			2,516
Issuance of common stock to employees and officers, net		56,458			1						312								313
Exercise of stock options		16,829									23								23
Distributions to noncontrolling interests																(1,121	)		(1,121	)
Balance, May 31, 2019		11,882,578		$	119		1,242,366	$	12	$	596,319	$	(522,230	)	$	27,878		$	102,098
Net income													7,013			832			7,845
Issuance of common stock to employees and officers, net		(1,724	)								115								115
Exercise of stock options		32,316									78								78
Distributions to noncontrolling interests																(824	)		(824	)
Balance, August 31, 2019		11,913,170		$	119		1,242,366	$	12	$	596,512	$	(515,217	)		27,886			109,312
Net income													52,725			(121	)		52,604
Issuance of common stock to employees and officers, net		(3,280	)							339									339
Exercise of stock options		150,498		2						588									590
Distributions to noncontrolling interests																(272	)		(272	)
Sale of controlling interest in subsidiary																(47,976	)		(47,976	)
Balance, November 30, 2019		12,060,388		$	121		1,242,366	$	12	$	597,439	$	(462,492	)	$	(20,483	)	$	114,597

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Nine Months Ended November 30,
	2018			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income	$	26,220		$	62,965
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities -
Discontinued operations		(15,296	)		(77,213	)
(Gain) loss on sale of assets, net of disposition costs		(31,817	)		31
Depreciation and amortization		1,068			866
Amortization of debt discount		1,000			318
Noncash accretion of debt		62			62
Loss on debt extinguishment		771			510
Impairment of assets		509			4,022
Provision for bad debts		602			93
Deferred income taxes		(3,726	)		(17,658	)
Noncash compensation		1,224			1,107
Net cash provided by operating activities - discontinued operations		12,586			29,369
Changes in assets and liabilities -
Accounts receivable		1,991			(2,412	)
Prepaid expenses and other current assets		1,156			(8,284	)
Other assets		(430	)		(9,158	)
Accounts payable and accrued liabilities		(3,446	)		7,231
Deferred revenue		119			473
Income taxes		10,157			4,434
Other liabilities		330			(1,206	)
Net cash provided by (used in) operating activities		3,080			(4,450	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(67	)		(99	)
Proceeds from the sale of assets		60,171			—
Net cash (used in) provided by investing activities - discontinued operations		(88	)		129,754
Net cash provided by investing activities		60,016			129,655
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt		(57,850	)		(44,619	)
Proceeds from long-term debt		2,500			27,000
Debt-related costs		—			(642	)
Proceeds from the exercise of stock options		343			689
Settlement of tax withholding obligations on stock issued to employees		(437	)		(391	)
Net cash used in discontinued operations - financing activities		(3,792	)		(2,217	)
Net cash used in financing activities		(59,236	)		(20,180	)
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH INCLUDING CASH CLASSIFIED AS HELD FOR SALE		3,860			105,025
(INCREASE) DECREASE IN CASH CLASSIFIED AS HELD FOR SALE		(263	)		1,095
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		3,597			106,120
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		4,491			6,847
End of period	$	8,088		$	112,967
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	4,464		$	2,812
Cash paid for (refund from) income taxes, net		(467	)		11,987
Noncash financing transactions-
Stock issued to employees and directors		1,288			1,160

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

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EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

November 30, 2019

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Preparation of Interim Financial Statements

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), the condensed consolidated interim financial statements included herein have been prepared, without audit, by Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively, “our,” “us,” “we,” “Emmis” or the “Company”). As permitted under the applicable rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, Emmis believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report for Emmis filed on Form 10-K for the year ended February 28, 2019. The Company’s results are subject to seasonal fluctuations. Therefore, results shown on an interim basis are not necessarily indicative of results for a full year.

In the opinion of Emmis, the accompanying condensed consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments, except as otherwise noted) necessary to present fairly the consolidated financial position of Emmis at November 30, 2019, the results of its operations for the three-month and nine-month periods ended November 30, 2018 and 2019, and cash flows for the nine-month periods ended November 30, 2018 and 2019.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019 that have had a material impact on our condensed consolidated financial statements and related notes.

Basic and Diluted Net Income Per Common Share

Basic net income per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at November 30, 2018 and 2019 consisted of stock options and restricted stock awards. The following table sets forth the calculation of basic and diluted net income per share:

	For the Three Months Ended November 30,
	2018						2019
	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 per common share:
Net income available to common shareholders	$	712		12,609	$	0.06	$	52,725		12,937	$	4.08
Impact of equity awards		—		—				—		—
Diluted net income per common share:
Net income available to common shareholders	$	712		12,609	$	0.06	$	52,725		12,937	$	4.08

	For the Nine Months Ended November 30,
	2018						2019
	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 per common share:
Net income available to common shareholders	$	23,824		12,565	$	1.90	$	61,408		12,846	$	4.78
Impact of equity awards		—		921		—		—		—		—
Diluted net income per common share:
Net income available to common shareholders	$	23,824		13,486	$	1.77	$	61,408		12,846	$	4.78

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Shares excluded from the calculation as the effect of their conversion into shares of our common stock would be antidilutive were as follows:

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
	(shares in 000’s )
Equity awards		1,975		2,187		913		2,320
Antidilutive common share equivalents		1,975		2,187		913		2,320

Local Programming and Marketing Agreement Fees

The Company from time to time enters into local programming and marketing agreements (“LMAs”), often pending regulatory approval of transfer of the Federal Communications Commission ("FCC") licenses in connection with acquisitions or dispositions of radio stations. 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.

On April 30, 2018, Emmis closed on the sale of substantially all of its radio station assets in St. Louis. The St. Louis stations were operated pursuant to LMAs from March 1, 2018 through April 30, 2018. The buyers of the stations paid LMA fees totaling $0.7 million during the period, which was recognized as a component of net revenues in the accompanying condensed consolidated statements of operations for the nine-month period ending November 30, 2018.

On April 26, 2012, Emmis entered into an LMA with a subsidiary of Disney Enterprises, Inc. for 98.7FM in New York (formerly WRKS-FM and now WEPN-FM, hereinafter referred to as “98.7FM”). The LMA for this station started on April 30, 2012 and will continue until August 31, 2024. Emmis retains ownership and control of the station, including the related FCC license during the term of the LMA and is scheduled to receive an annual fee until the LMA’s termination. LMA fee revenue is recorded on a straight-line basis over the term of the LMA as a component of net revenues in our accompanying condensed consolidated statements of operations.

The following table summarizes certain operating results of 98.7FM for all periods presented. Net revenues for 98.7FM are solely related to LMA fees. 98.7FM is a part of our radio segment.

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Net revenues	$	2,582	$	2,582	$	7,748	$	7,748
Station operating expenses, excluding depreciation and amortization expense		305		346		901		1,032
Interest expense		574		503		1,775		1,565

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Assets and liabilities of 98.7FM as of February 28, 2019 and November 30, 2019 were as follows:

	As of February 28, 2019		As of November 30, 2019
Current assets:
Restricted cash	$	1,504	$	1,397
Prepaid expenses		394		351
Other current assets		340		620
Total current assets		2,238		2,368
Noncurrent assets:
Property and equipment, net		188		237
Indefinite lived intangibles		46,390		46,390
Operating lease right-of-use assets		—		7,440
Other assets		6,255		5,736
Total noncurrent assets		52,833		59,803
Total assets	$	55,071	$	62,171
Current liabilities:
Accounts payable and accrued expenses	$	15	$	15
Current maturities of long-term debt		7,150		7,601
Deferred revenue		864		894
Operating lease liabilities		—		367
Other current liabilities		162		144
Total current liabilities		8,191		9,021
Noncurrent liabilities:
Long-term debt, net of current portion and unamortized debt discount		38,747		33,177
Operating lease liabilities, net of current		—		8,126
Total noncurrent liabilities		38,747		41,303
Total liabilities	$	46,938	$	50,324

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the same amounts shown in the condensed consolidated statements of cash flows.

	As of February 28, 2019		As of November 30, 2019
Cash and cash equivalents, excluding amounts classified as held for sale	$	4,343	$	111,345
Restricted cash:
98.7FM LMA restricted cash		1,504		1,397
Cash used to secure the Company's purchasing card and travel and expense program		1,000		225
Total cash, cash equivalents and restricted cash	$	6,847	$	112,967

As of February 28, 2019 and November 30, 2019, 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 and cash held by JPMorgan Chase as collateral to secure the Company’s corporate purchasing card and travel and expense program. Cash held by Emmis Austin Radio Broadcasting Company, L.P. is classified as held for sale as of February 28, 2019. See the discussion of our discontinued operations on the subsequent page for more information related to assets held for sale.

Noncontrolling Interests

The Company follows Accounting Standards Codification paragraph 810-10-65-1 to report the noncontrolling interests related to the Austin radio partnership and Digonex Technologies Inc., a dynamic pricing business (hereinafter "Digonex"). We owned a 50.1% controlling interest in the Austin radio partnership until its sale on October 1, 2019. As of November 30, 2019, 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. Emmis owns rights that are convertible into approximately 84% of Digonex's common equity.

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Noncontrolling interests represent the noncontrolling interest holders' proportionate share of the equity of the Austin radio partnership until its sale 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 nine months ended November 30, 2018 and 2019:

	Austin Radio Partnership			Digonex			Total Noncontrolling Interests
Balance, February 28, 2018	$	47,424		$	(16,744	)	$	30,680
Net income (loss)		4,132			(1,736	)		2,396
Distributions to noncontrolling interests		(3,792	)		—			(3,792	)
Balance, November 30, 2018	$	47,764		$	(18,480	)	$	29,284
Balance, February 28, 2019	$	47,146		$	(18,993	)	$	28,153
Net income (loss)		3,047			(1,490	)		1,557
Distributions to noncontrolling interests		(2,217	)		—			(2,217	)
Sale of controlling interest in subsidiary		(47,976	)		—			(47,976	)
Balance, November 30, 2019	$	—		$	(20,483	)	$	(20,483	)

Discontinued Operations

During the quarter ended August 31, 2019, the Company entered into agreements to sell its 50.1% ownership interest in Emmis Austin Radio Broadcasting Company, L.P. (the “Austin Partnership”), as well as a controlling interest in WQHT-FM and WBLS-FM in New York. Both sales closed during the three months ended November 30, 2019. The Company concluded that each of these transactions is a disposal of a business that met the criteria to be classified as held for sale during the three months ended August 31, 2019, and each is a strategic shift that will have a significant impact on the Company’s operations and financial results. As such, the assets and liabilities of these businesses included in the disposal transactions have been classified as held for sale in the February 28 2019, balance sheet, and the results of operations and cash flows of these businesses have been classified as discontinued operations for all periods presented in the accompanying condensed consolidated financial statements. See below for more discussion of each of these transactions.

Summary of Discontinued Operations Activity:

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Income from discontinued operations:
Austin Radio Partnership	$	2,625	$	37,908	$	7,799	$	42,992
WQHT-FM and WBLS-FM		3,286		37,686		9,132		45,088
Total income before income taxes from discontinued operations		5,911		75,594		16,931		88,080
Less: provision for income taxes		2,649		16,673		1,635		10,867
Income from discontinued operations, net of tax	$	3,262	$	58,921	$	15,296	$	77,213

A discussion of each component of discontinued operations follows.

Austin Radio Partnership

On October 1, 2019, a subsidiary of Emmis sold its 50.1% ownership interest in the Austin Partnership to our minority partner, Sinclair Telecable, Inc., for $39.3 million (the “Austin Partnership Transaction”). Emmis recognized a gain on sale of $37.3 million. Gross cash proceeds, inclusive of purchase price adjustments, were approximately $40.7 million. Transaction-related expenses were approximately $0.7 million. $9.9 million of these proceeds were used to repay debt outstanding, with the balance held for general corporate purposes, including capital expenditures, working capital, and potential acquisitions and investments.

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The Austin Partnership has historically been included in our Radio segment. The following table summarizes certain operating results of the Austin Partnership for all periods presented. A portion of Emmis’ mortgage debt was required to be repaid with proceeds of this transaction. In accordance with ASC 205-20-45-6, Emmis has allocated interest on the debt required to be repaid as a result of this disposal transaction to the results of the Austin Radio Partnership.

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Net revenues	$	7,991	$	2,660	$	24,456	$	19,539
Station operating expenses, excluding depreciation and amortization		5,106		2,012		15,848		13,428
Gain on sale of assets, net of disposition costs		—		37,292		—		37,292
Depreciation and amortization		115		—		386		120
Interest expense		145		32		423		291
Income before taxes	$	2,625	$	37,908	$	7,799	$	42,992

Major classes of assets and liabilities of the Austin Partnership that were classified as held for sale in the accompanying condensed consolidated balance sheet as of February 28, 2019 are as follows:

	As of February 28, 2019
Current assets:
Cash and cash equivalents	$	1,095
Accounts receivable, net		4,856
Prepaid expenses		357
Other current assets		121
Total current assets		6,429
Noncurrent assets:
Property and equipment, net		5,060
Indefinite lived intangibles		34,720
Goodwill		4,338
Other assets		25
Total noncurrent assets		44,143
Total assets	$	50,572
Current liabilities:
Accounts payable and accrued expenses	$	291
Accrued salaries and commissions		651
Deferred revenue		591
Income taxes payable		18
Other current liabilities		23
Total current liabilities		1,574
Noncurrent liabilities:
Other noncurrent liabilities		332
Total noncurrent liabilities		332
Total liabilities	$	1,906
Equity:
Noncontrolling interests	$	47,146

WQHT-FM and WBLS-FM

On November 25, 2019, Emmis contributed the assets and liabilities of WBLS-FM and WQHT-FM (the “Stations”) to MediaCo Holding Inc., an Indiana corporation (“MediaCo”) and in return, Emmis received $91.5 million in cash, a convertible promissory note payable to Emmis in the amount of $5.0 million and 1,666,667 shares of MediaCo Class A common stock (the “MediaCo Transaction”). These shares constitute all of the issued and outstanding MediaCo Class A common stock and represent in the aggregate an approximately 23.72% equity ownership interest and 3.02% of the outstanding voting interests of MediaCo immediately following the transaction. We expect that, on January 17, 2020, we will make a taxable pro rata distribution of 0.1265 shares of MediaCo Class A common stock for each outstanding share of Emmis’ Class A and Class B common stock at the close of business of January 3, 2020. The $5.0 million convertible promissory note carries interest at a base rate equal to the interest on MediaCo’s senior credit facility (London Interbank Offered Rate with a 2.0% floor plus 7.5%), or if no senior credit facility is outstanding, 6.00%, plus an additional 1.00% on any payment of interest in kind and, without regard to whether MediaCo pays such interest in kind, an additional increase of 1.00% following the second anniversary of the date of issuance and additional increases of 1.00% following

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each successive anniversary thereafter. The note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance 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 note matures on November 25, 2024. In addition, MediaCo’s net working capital as of the closing date must be reimbursed to Emmis within nine months of the MediaCo Transaction. Emmis has recorded an $8.5 million receivable from MediaCo related to this net working capital. SG Broadcasting LLC, an affiliate of Standard General L.P., a New York-based investment firm that manages event-driven opportunity funds (“Standard General”), purchased all of MediaCo’s Class B common stock, representing a 76.28% equity ownership interest. The common stock of MediaCo acquired by Standard General will be entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders will be 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 initially consists of four directors appointed by Standard General and three directors appointed by Emmis. Emmis will receive an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The shares held by Emmis at November 30, 2019, which will be distributed to Emmis’ shareholders in January 2020, constitute an equity investment as discussed in Note 12.

Gross cash proceeds at closing, inclusive of purchase price adjustments, were $91.8 million, $3.5 million of which was used by Emmis to repay debt outstanding. Transaction-related expenses were approximately $2.2 million. The remaining cash will be used for general corporate purposes, including capital expenditures, working capital, and potential acquisitions and investments. Upon the closing of the transaction, Emmis deconsolidated these stations, recorded the retained investment at fair value, and recognized a gain on sale of $35.6 million.

The Stations have historically been included in our Radio segment. The following table summarizes certain operating results of the Stations for all periods presented. In accordance with ASC 205-20-45-6, Emmis has allocated interest on the debt that was required to be repaid as a result of this disposal transaction to the results of the Stations.

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Net revenues	$	11,535	$	9,795	$	35,046	$	35,947
Station operating expenses, excluding depreciation and amortization		7,809		7,678		24,711		25,844
Gain on sale of assets, net of disposition costs		—		35,616		—		35,616
Depreciation and amortization		346		—		930		417
Interest expense		94		47		273		214
Income before taxes	$	3,286	$	37,686	$	9,132	$	45,088

Major classes of assets and liabilities of the Stations that are classified as held for sale in the accompanying condensed consolidated balance sheet as of February 28, 2019 are as follows:

	As of February 28, 2019
Current assets:
Prepaid expenses	$	100
Other current assets		100
Total current assets		200
Noncurrent assets:
Property and equipment, net		2,356
Indefinite lived intangibles		63,265
Other intangibles, net		758
Other assets		145
Total noncurrent assets		66,524
Total assets	$	66,724
Current liabilities:
Other current liabilities		498
Total current liabilities		498
Noncurrent liabilities:
Other noncurrent liabilities		1,778
Total noncurrent liabilities		1,778
Total liabilities	$	2,276

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Implementation of Recent Accounting Pronouncements

On March 1, 2019, we adopted Accounting Standard Update 2016-02, Leases, using the modified retrospective approach, applied at the beginning of the period of adoption, and we elected the package of transitional practical expedients. The adoption of this standard resulted in recording operating lease liabilities of approximately $28.8 million as of March 1, 2019 along with a corresponding right-of-use asset. A significant portion of these amounts have been sold as part of the Austin Partnership and WBLS and WQHT sales. The implementation of this standard did not have an impact on our condensed consolidated statements of operations. See Note 11 for more discussion of the Company’s leases.

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 March 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated financial statements.

Note 2. Share Based Payments

The amounts recorded as share based compensation expense consist of stock option grants, restricted stock grants, and common stock issued to employees and directors in lieu of cash payments.

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 nine months ended November 30, 2018 and 2019:

	Nine Months Ended November 30,
	2018	2019
Risk-Free Interest Rate:	2.6% - 2.8%	1.7% - 2.6%
Expected Dividend Yield:	0%	0%
Expected Life (Years):	4.9	4.6
Expected Volatility:	51.3% - 53.2%	50.3% - 51.3%

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The following table presents a summary of the Company’s stock options outstanding at November 30, 2019, and stock option activity during the nine months ended November 30, 2019 (“Price” reflects the weighted average exercise price per share; "Aggregate Intrinsic Value" dollars in thousands):

	Options		Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, beginning of period		2,738,087	$	4.72
Granted		604,500		4.94
Exercised		199,643		3.49
Forfeited		—		—
Expired		70,860		6.32
Outstanding, end of period		3,072,084		4.81		6.2	$	2,756
Exercisable, end of period		2,201,843		4.89		5.2	$	2,344

Cash received from option exercises for the nine months ended November 30, 2018 and 2019 was $0.3 million and $0.7 million, respectively. The Company did not record an income tax benefit relating to the options exercised during the nine months ended November 30, 2018 or 2019.

The weighted average per share grant date fair value of options granted during the nine months ended November 30, 2018 and 2019, was $2.27 and $2.19, respectively.

A summary of the Company’s nonvested options at November 30, 2019, and changes during the nine months ended November 30, 2019, is presented below:

	Options		Weighted Average Grant Date Fair Value
Nonvested, beginning of period		608,175	$	1.64
Granted		604,500		2.19
Vested		342,434		1.50
Forfeited		—		—
Nonvested, end of period		870,241		2.08

There were 1.4 million shares available for future grants under the Company’s various equity plans (1.1 million shares under the 2017 Equity Compensation Plan and 0.3 million shares under other plans) at November 30, 2019, not including shares that may become available for future grants upon forfeiture, lapse or surrender for taxes.

The vesting dates of outstanding options at November 30, 2019 range from March 2020 to July 2022, and expiration dates range from December 2020 to August 2029.

Restricted Stock Awards

The Company periodically grants restricted stock awards to directors and employees. Awards to directors were historically granted on the date of our annual meeting of shareholders and vested on the earlier of (i) the completion of the director’s 3-year term or (ii) the third anniversary of the date of grant. No such awards were made to directors at our last annual meeting of shareholders. Awards to employees are typically made pursuant to employment agreements. Restricted stock awards are granted out of the Company’s 2017 Equity Compensation Plan. The Company also awards, out of the Company’s 2017 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.

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The following table presents a summary of the Company’s restricted stock grants outstanding at November 30, 2019, and restricted stock activity during the nine months ended November 30, 2019 (“Price” reflects the weighted average share price at the date of grant):

	Awards		Price
Grants outstanding, beginning of period		265,107	$	3.43
Granted		170,849		4.25
Vested (restriction lapsed)		174,246		3.42
Grants outstanding, end of period		261,710		3.98

The total grant date fair value of shares vested during the nine months ended November 30, 2018 and 2019, was $0.7 million and $0.6 million, respectively.

Recognized Non-Cash Compensation Expense

The following table summarizes stock-based compensation expense recognized by the Company during the three and nine months ended November 30, 2018 and 2019. The Company did not recognize any tax benefits related to stock-based compensation during the periods presented below.

	Three Months Ended November 30,					Nine Months Ended November 30,
	2018		2019			2018		2019
Station operating expenses	$	48	$	21		$	148	$	77
Corporate expenses		318		320			1,076		1,030
Stock-based compensation expense included in operating expenses		366		341			1,224		1,107
Stock-based compensation expense included in discontinued operations		21		(8	)		64		53
Stock-based compensation expense	$	387	$	333		$	1,288	$	1,160

As of November 30, 2019, there was $1.8 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 1.5 years.

Note 3. Intangible Assets and Goodwill

Valuation of Indefinite-lived Broadcasting Licenses

In accordance with 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 $170.5 million and $68.5 million as of February 28, 2019 and November 30, 2019, respectively. The FCC licenses of the Austin radio partnership, WQHT-FM and WBLS-FM totaling $98.0 million were sold during the nine months ended November 30, 2019. These licenses were classified as held for sale as of February 28, 2019. See Note 1 for more discussion of the sale of these radio stations. Pursuant to Emmis’ 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 and are not classified as held for sale. The Company generally performs its annual impairment test of indefinite-lived intangibles as of December 1 of each year. When indicators of impairment are present, the Company will perform an interim impairment test. During the three months ended August 31, 2019, the Company completed an interim impairment test of its Indianapolis market FCC Licenses and the license of WLIB-AM, the Company’s sole station in New York that was not classified as held for sale or being operated pursuant to an LMA. Continued declines in Indianapolis market radio revenues during Fiscal 2020 indicated that an interim impairment test was required for our FCC Licenses in that market. During the three months ended August 31, 2019, the Company classified the FCC Licenses of WQHT-FM and WBLS-FM as held for sale, leaving the license of WLIB-AM as the sole license in our New York unit of accounting not being operated pursuant to an LMA. The Company performed an interim assessment of this remaining station as it had previously been evaluated as part of a larger unit of accounting. These interim impairment tests resulted in an impairment charge of $4.0 million. Future annual and interim impairment tests may result in additional impairment charges in subsequent periods.

Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset 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

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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. 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.

Goodwill and definite-lived intangible assets

The company has no goodwill or definite-lived intangible assets as of November 30, 2019. Goodwill and definite-lived intangible assets, all of which were attributable to our radio division, were $4.3 million and $0.8 million, respectively as of February 28, 2019. The carrying amounts of the Company's goodwill and definite-lived intangibles have been classified as noncurrent assets held for sale in the accompanying condensed consolidated balance sheet as of February 28, 2019 as they relate to assets held by the Austin partnership and WBLS-FM, both of which were sold during the nine months ended November 30, 2019.

The Company ceased recording amortization expense on its definite-lived intangible assets when they were classified as noncurrent assets held for sale during the three months ended August 31, 2019. Total amortization expense from definite-lived intangibles during the nine months ended November 30, 2018 and 2019 was $0.2 million and $0.1 million, respectively, all of which is included in discontinued operations, net of tax in the accompanying condensed consolidated statements of operations.

Note 4. Long-term Debt

Long-term debt was comprised of the following at February 28, 2019 and November 30, 2019:

	February 28, 2019			November 30, 2019
2014 Credit Agreement Term Loan	$	25,000		$	—
Mortgage		—			12,699
Term Loan		—			—
98.7FM non-recourse debt		47,332			42,014
Other non-recourse debt ⁽¹⁾		10,074			10,136
Less: Current maturities		(32,150	)		(7,830	)
Less: Unamortized original issue discount		(1,499	)		(1,357	)
Total long-term debt, net of current portion and debt discount	$	48,757		$	55,662

(1)	The face value of other non-recourse debt was $10.2 million at February 28, 2019 and November 30, 2019

On April 12, 2019, we entered into a $23 million mortgage between Emmis Operating Company and Emmis Indiana Broadcasting, L.P., as borrowers, and Star Financial as lender (the “Mortgage”). The Mortgage expires April 12, 2029, and was originally secured by a perfected first priority security interest in the Company’s headquarters building in Indianapolis, Indiana, and approximately 70 acres of land owned by the Company in Whitestown, Indiana, which currently is used as a tower site for one of the Company’s radio stations. The Mortgage requires monthly principal and interest payments using a 25 year amortization period, with a balloon payment due at expiration and the original annual interest rate was 5.48%.

Pursuant to the terms of the Mortgage, $10 million of combined proceeds from the Austin Partnership Transaction and the MediaCo Transaction were required to be used to repay Mortgage indebtedness. Accordingly, $6.5 million of the proceeds from the Austin Partnership Transaction were used to make a payment on October 4, 2019 and $3.5 million of the proceeds from the MediaCo Transaction were used to make a payment on November 29, 2019. As a result of these repayments, a loss on extinguishment of debt of $0.1 million was recognized in the quarter ended November 30, 2019, and the security interest in the 70 acres of land in Whitestown, Indiana was released by Star Financial.

The Mortgage is carried net of an unamortized original issue discount of $0.1 million as of November 30, 2019. The original issue discount is being amortized as additional interest expense over the life of the Mortgage using the effective interest method.

See Note 13 for discussion of the January 8, 2020 amendment to the Mortgage.

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On April 12, 2019, Emmis entered into a $4 million term loan, by and between Emmis Operating Company, as borrower, and Barrett Investment Partners, LLC, as lender (the “Term Loan”). The Term Loan was due to expire on April 12, 2022 and was secured by a pledge of the Company’s controlling ownership interest in the Austin radio partnership. Proceeds from the Austin Partnership Transaction were required to be used to pay all amounts outstanding under the Term Loan before the proceeds could be used for any other purpose. Emmis paid all debts outstanding under the Term Loan on October 1, 2019 and recognized a loss on extinguishment of debt that was less than $0.1 million in the quarter ended November 30, 2019.

During the three months ended November 30, 2019, Emmis terminated its $12 million revolving credit agreement with Wells Fargo Bank, National Association (the “Revolving Credit Agreement”). The Credit Agreement had been in place since April 12, 2019. There were no drawings on the Revolving Credit Agreement during the time it was outstanding. In connection with this termination, Emmis recognized a loss on extinguishment of debt of $0.4 million in the quarter ended November 30, 2019.

In connection with the execution of the Mortgage, Term Loan, and Revolving Credit Agreement, the 2014 Credit Agreement, by and among the Company, Emmis Operating Company, as borrower, and certain other subsidiaries and the lenders party thereto, was terminated effective April 12, 2019 and all amounts outstanding under that agreement were paid in full.

98.7FM Non-recourse Debt

On May 30, 2012, the Company, through wholly-owned, newly-created subsidiaries, issued $82.2 million of non-recourse 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 ECC and the rest of Emmis’ 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%. The 98.7FM non-recourse notes are carried on our condensed consolidated balance sheets net of an original issue discount. The original issue discount, which was $1.4 million as of February 28, 2019 and $1.2 million as of November 30, 2019, is being amortized as additional interest expense over the life of the notes.

Other Non-recourse Debt

Digonex non-recourse notes payable consist of notes payable issued by Digonex, which were recorded at fair value on June 16, 2014, the date that Emmis acquired a controlling interest in Digonex. The notes payable, some of which are secured by the assets of Digonex, are non-recourse to ECC and the rest of Emmis’ subsidiaries. During the quarter ended August 31, 2017, Digonex noteholders agreed to extend the maturity date of the notes from December 31, 2017 to December 31, 2020. The notes accrue interest at 5.0% per annum with interest due at maturity. The face value of the notes payable is $6.2 million. The Company is accreting the difference between this face value and the original $3.6 million fair value of the notes payable recorded in the acquisition of its controlling interest of the business as interest expense over the remaining term of the notes payable.

Emmis Operating Company, as collateral agent for secured creditors, notified Digonex of a default under its notes payable on October 1, 2019, which was not cured by the October 6, 2019 deadline. The debt was accelerated on December 6, 2019, and Emmis Operating Company, as collateral agent for the secured creditors, foreclosed on Digonex on December 31, 2019, taking possession of substantially all of Digonex’s assets. On January 1, 2020, Emmis Operating Company conveyed the foreclosed assets to a new legal entity that is expected to ultimately be owned by the holders of the Digonex secured debt pro rata to their share of the Digonex secured debt. This new legal entity will be controlled by Emmis Operating Company and is expected to continue to operate the underlying business of Digonex, but with a more rational capital structure. The remaining Digonex debt and related accrued interest is expected to be extinguished in connection with a future dissolution of Dignoex Technologies Inc.

NextRadio, LLC has issued $4.0 million of notes payable. As of November 30, 2019, the notes accrue interest at 2.0%. The first interest payment on these notes was due on August 15, 2018. As of January 9, 2019, NextRadio, LLC has not made any interest payments to the lender. Although there are no penalties for nonpayment of interest or principal, the lender, at its election, may convert the notes and all unpaid interest to senior preferred equity of NextRadio, LLC's parent entity, TagStation, LLC, a wholly-owned subsidiary of ECC. The lender has given notice of its intent to convert the notes to senior preferred equity of TagStation, LLC, but the steps required to effect this conversion as defined in the loan agreement have not yet been completed. These notes are obligations of NextRadio, LLC and TagStation, LLC and are non-recourse to ECC and the rest of Emmis' subsidiaries. TagStation, LLC and Next Radio, LLC have never achieved profitability, with their losses having expanded in recent years as a result of investments in data attribution capabilities. During the year ended February 28, 2019, Emmis decided to cease further investments in TagStation, LLC and NextRadio, LLC. As a result, these businesses have reduced the scale of their operations to absolute minimum functionality, terminated the employment of all of their employees and are exploring strategic alternatives.

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Based on amounts outstanding at November 30, 2019, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:

			98.7FM Non-recourse		Other Non-recourse
Year ended February 28 (29),	Mortgage		Debt		Debt			Total Payments
Remainder of 2020	$	39	$	1,832	$	—		$	1,871
2021		254		7,755		6,239	⁽¹⁾		14,248
2022		271		8,394		4,000	⁽²⁾		12,665
2023		286		9,069		—			9,355
2024		303		9,783		—			10,086
Thereafter		11,546		5,181		—			16,727
Total	$	12,699	$	42,014	$	10,239		$	64,952

(1)	This date represents the contractual maturity date of the notes issued by Digonex Technologies Inc., however this debt is expected to be extinguished in connection with a future dissolution of that entity.

(2)	This date represents the contractual maturity date of the notes issued by NextRadio, LLC, but as discussed above, the failure to make payments under these notes results only in the lender’s ability to convert the notes to senior preferred equity of TagStation, LLC.

Note 5. Fair Value Measurements

As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Recurring Fair Value Measurements

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, 2019 and November 30, 2019. 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.

	As of February 28, 2019 and November 30, 2019
	Level 1		Level 2		Level 3
	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
	(in 000's)
Available for sale securities	$	—	$	—	$	800	$	800
Total assets measured at fair value on a recurring basis	$	—	$	—	$	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 and is included in other assets, net in the accompanying condensed consolidated balance sheets. The investment is recorded at fair value, which was generally estimated using significant unobservable market parameters, resulting in a Level 3 categorization. The carrying value of our preferred stock investment was determined by using implied valuations of recent rounds of financing and by other corroborating evidence, which may include the application of various valuation methodologies including option-pricing and discounted cash flow based models.

Non-Recurring Fair Value Measurements

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 3, Intangible Assets and Goodwill, and are adjusted to fair value only when the carrying values are

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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 3 for more discussion).

During the quarter ended August 31, 2019, the Company performed interim impairment tests of its FCC Licenses in the Indianapolis radio market and WLIB-AM in New York. The Company recorded an impairment charge of $4.0 million to reduce the FCC License carrying values of the Indianapolis radio market and WLIB-AM to their fair values of $15.5 million and $6.7 million, respectively. See Note 3 for more discussion of our interim impairment charge.

During the quarter ended November 30, 2019, the Company completed the MediaCo Transaction, as described in Note 1. As a result of this, Emmis retained an approximately 23.72% equity ownership interest in MediaCo. This equity investment was measured at fair value and is included in Equity Method Investment in the accompanying condensed consolidated balance sheet as of November 30, 2019. The Company expects that, on January 17, 2020, we will make a taxable pro rata distribution of 0.1265 shares of MediaCo Class A common stock for each outstanding share of Emmis’ Class A and Class B common stock at the close of business on January 3, 2020. See Note 12 for more discussion on our equity investment.

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.

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.

- Long-term debt : The Company’s long-term debt is not actively traded and is considered a Level 3 measurement. The Company believes the current carrying value of its long-term debt approximates its fair value.

Note 6. Revenue

The Company generates revenue from the sale of services and products including, but not limited to: (i) on-air commercial broadcast time, (ii) magazine-related display advertising, (iii) magazine circulation and newsstand revenues, (iv) non-traditional revenues including event-related revenues and event sponsorship revenues, (v) revenues generated from LMAs and (vi) 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

On-air broadcast and magazine advertising revenues are 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.

Circulation

Circulation revenue includes revenues for Indianapolis Monthly purchased by readers or distributors. Single copy newsstand sales are recognized when the monthly magazine is distributed, net of provisions for related returns. Circulation revenues from digital and home delivery subscriptions are recognized over the subscription period as the performance obligations are delivered.

Nontraditional

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

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LMA Fees

LMA fee revenue relates to fees that the Company collects from third parties in exchange for the right to program and sell advertising for a specified portion of a radio station's inventory of broadcast time. These revenues are generally recognized ratably over the duration that the third party programs the radio station.

Digital

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

Other

Other revenue includes trade and barter revenues and revenues related to Digonex. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These trade and barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These trade and barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on trade and barter arrangements when the advertising broadcast time has aired. Digonex revenues are recognized when or as performance obligations under the terms of a contract with a customer are satisfied.

Disaggregation of revenue

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

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Revenue by Source:
Advertising	$	5,356	$	5,229	$	14,665	$	13,776
Circulation		93		91		288		280
Nontraditional		1,234		1,037		3,249		2,390
LMA Fees		2,583		2,582		8,467		7,748
Digital		330		675		745		1,915
Other		1,201		1,123		3,469		3,157
Total net revenues	$	10,797	$	10,737	$	30,883	$	29,266

Note 7. Segment Information

The Company’s operations are currently aligned into two business segments, Radio and Publishing. The Company combines the results of all other immaterial business activities in the “all other” category. Revenues of the “all other” category generally consist of revenues associated with dynamic pricing consulting services provided by Digonex. Our determination of reportable segments is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, and planning and forecasting future periods. Corporate expenses are not allocated to reportable segments and are included in the “all other” category. 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 year ended February 28, 2019, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.

Three Months Ended November 30, 2019	Radio		Publishing			All Other			Consolidated
Net revenues	$	9,215	$	1,187		$	335		$	10,737
Station operating expenses excluding depreciation and amortization expense		5,941		1,502			756			8,199
Corporate expenses excluding depreciation and amortization expense		—		—			10,437			10,437
Depreciation and amortization		87		3			173			263
Gain on legal matter		—		—			(2,153	)		(2,153	)
Operating income (loss)	$	3,187	$	(318	)	$	(8,878	)	$	(6,009	)

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Three Months Ended November 30, 2018	Radio		Publishing			All Other			Consolidated
Net revenues	$	9,202	$	1,177		$	418		$	10,797
Station operating expenses excluding depreciation and amortization expense		6,157		1,176			3,476			10,809
Corporate expenses excluding depreciation and amortization expense		—		—			2,297			2,297
Impairment loss		—		—			304			304
Depreciation and amortization		129		4			212			345
Loss on sale of assets, net of disposition costs		235		—			—			235
Operating income (loss)	$	2,681	$	(3	)	$	(5,871	)	$	(3,193	)

Nine Months Ended November 30, 2019	Radio		Publishing			All Other			Consolidated
Net revenues	$	25,321	$	3,083		$	862		$	29,266
Station operating expenses excluding depreciation and amortization expense		18,258		3,582			1,827			23,667
Corporate expenses excluding depreciation and amortization expense		—		—			15,211			15,211
Impairment loss		4,022		—			—			4,022
Depreciation and amortization		288		10			568			866
Loss on sale of assets, net of disposition costs		—		—			31			31
Gain on legal matter		—		—			(2,153	)		(2,153	)
Operating income (loss)	$	2,753	$	(509	)	$	(14,622	)	$	(12,378	)

Nine Months Ended November 30, 2018	Radio			Publishing			All Other			Consolidated
Net revenues	$	26,341		$	3,347		$	1,195		$	30,883
Station operating expenses excluding depreciation and amortization expense		18,661			3,384			8,449			30,494
Corporate expenses excluding depreciation and amortization expense		—			—			7,607			7,607
Impairment loss		205			—			304			509
Depreciation and amortization		393			14			661			1,068
(Gain) loss on sale of assets, net of disposition costs		(32,148	)		331			—			(31,817	)
Operating income (loss)	$	39,230		$	(382	)	$	(15,826	)	$	23,022

Total Assets	Radio		Publishing		All Other		Consolidated
As of February 28, 2019	$	216,473	$	728	$	20,545	$	237,746
As of November 30, 2019	$	95,387	$	834	$	145,286	$	241,507

The decrease in radio assets is mostly due to the Austin Partnership Transaction and the MediaCo Transaction that occurred during the three months ended November 30, 2019. This is partially offset by an increase in operating lease right-of-use assets recorded in connection with the implementation of Accounting Standard Update 2016-02, Leases. See Note 11 for more discussion of leases and Note 1 for more discussion of the sale of our stations in New York and our Austin partnership interest.

Note 8. Regulatory, Legal and Other Matters

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

Emmis filed suit against Illinois National Insurance Company (“INIC”) in 2015 related to INIC’s decision to not cover Emmis’ defense costs under Emmis’ directors and officers insurance policy in a lawsuit related to the Company’s preferred stock in which Emmis was the defendant (the “Prior Litigation”). On March 21, 2018, Emmis was granted summary judgment entitling it to coverage of its defense costs in the Prior Litigation. On October 10, 2018, Emmis and INIC agreed that Emmis' damages were $3.5 million. On November 7, 2018, INIC appealed the District Court's summary judgment determination that the insurance policy covers Emmis' defense costs. On July 2, 2019, the United States Court of Appeals for the Seventh Circuit reversed the District Court’s decision. On July 16, 2019, Emmis filed to seek a panel rehearing on the matter. On August 21, 2019, after considering Emmis’ petition for rehearing, the United States Court of Appeals for the Seventh Circuit withdrew its opinion issued on July 2, 2019 and affirmed the District Court’s decision. INIC filed to seek a panel rehearing on the decision, which the Seventh Circuit denied on September 13,

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2019. INIC paid the agreed-upon damages plus accrued interest on October 7, 2019 and INIC’s right to seek a review of the decision by the Supreme Court of the United States has expired. We recognized a $2.2 million gain related to this matter during the quarter ended November 30, 2019, which is net of $1.4 million of legal fees.

Note 9. Income Taxes

Our effective income tax rate was 36% and (10)% for the nine months ended November 30, 2018 and 2019, respectively. The Company estimates its effective tax rate for the year, which incorporates the reversal of a portion of the valuation allowance, and applies that rate to pre-tax income for the applicable period. This methodology, along with the effect of permanent differences, such as nondeductible meals and entertainment expenses and nondeductible compensation expense, is responsible for the difference between the effective rate and statutory rate. An allocation of this provision or benefit is applied to continuing operations and discontinued operations using the with and without methodology.

Note 10. Restructuring Reserve

In connection with the sale of our St. Louis stations in April 2018, the Company originally recorded $1.2 million of restructuring charges related to the involuntary termination of employees and estimated cease-use costs related to our leased St. Louis office facility, net of estimated sublease rentals. This charge is included in the gain on sale of assets, net of disposition costs in the accompanying condensed consolidated financial statements for the nine months ended November 30, 2018. During the three months ended November 30, 2018, the Company revised its estimate of cease-use costs related to our leased St. Louis office facility, which resulted in an additional charge of $0.2 million. The table below summarizes the activity related to our restructuring charge for the three-month and nine-month periods ended November 30, 2018 and 2019.

	For the Three Months Ended November 30,						For the Nine Months Ended November 30,
	2018			2019			2018			2019
Restructuring charges and estimated lease cease-use costs, beginning balance	$	1,052		$	949		$	—		$	1,099
Restructuring charges and estimated lease cease-use costs- St. Louis radio stations sale		245			—			1,423			—
Payments, net of accretion		(103	)		(60	)		(229	)		(210	)
Restructuring charges and estimated lease cease-use costs unpaid and outstanding	$	1,194		$	889		$	1,194		$	889

Note 11. 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 August 2032. 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 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 our 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 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 nine months ended November 30, 2019, 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 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 nine months ended November 30, 2019, was not material.

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The impact of operating leases, including leases of our discontinued operations, to our condensed consolidated financial statements was as follows:

	Nine Months Ended November 30,
	2019
Lease Cost
Operating lease cost	$	3,451
Other Information
Operating cash flows from operating leases		3,862
Right-of-use assets obtained in exchange for new operating lease liabilities		28,821
Weighted average remaining lease term - operating leases (in years)		10.7
Weighted average discount rate - operating leases		5.9	%

As of November 30, 2019, the annual minimum lease payments of our operating lease liabilities were as follows:

Year ending February 28 (29),
Remainder of 2020	$	380
2021		1,376
2022		1,365
2023		1,372
2024		1,246
After 2024		8,367
Total lease payments		14,106
Less imputed interest		3,892
Total recorded lease liabilities	$	10,214

Note 12: Equity Investment

As discussed in Note 1, on November 25, 2019, Emmis contributed the assets and liabilities of WBLS-FM and WQHT-FM to MediaCo, and in return, Emmis received $91.5 million in cash, a convertible promissory note payable to Emmis in the amount of $5.0 million and 1,666,667 shares of MediaCo Class A common stock. These shares constitute all of the issued and outstanding MediaCo Class A common stock and represent in the aggregate an approximately 23.72% equity ownership interest and 3.02% of the outstanding voting interests of MediaCo immediately following the transaction. We expect that, on January 17, 2020, we will make a taxable pro rata distribution of 0.1265 shares of MediaCo Class A common stock for each outstanding share of Emmis’ Class A and Class B common stock at the close of business of January 3, 2020. This distribution will comprise our entire equity interest held in MediaCo at November 30, 2019.

The fair value per share of the MediaCo Class A common stock held by Emmis on November 30, 2019, was $3.29; therefore, an investment of $5.5 million has been recorded on our November 30, 2019 balance sheet. The investment is recorded at fair value, which was generally estimated using significant unobservable market parameters, resulting in a Level 3 categorization. The fair value was primarily established using the median EBITDA multiple for nine publicly traded radio companies to arrive at the business enterprise valuation. This was then further adjusted for the assets and liabilities of MediaCo. Additionally, a discount was taken to reflect the lack of control given that the shares account for only a 23.72% ownership interest and 3.05% voting interest. The fair value per share of MediaCo Class A common stock recorded as of November 30, 2019, may differ from the taxable fair value of these shares when distributed to Emmis shareholders on January 17, 2020.

The income attributable to Emmis for the period November 25, 2019, to November 30 2019, was immaterial.

Note 13. Subsequent Event

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certain operating covenants included in the Mortgage, including no longer requiring that the Company maintain a fixed charge coverage ratio of at least 1.10:1.00. Additionally, Emmis Indiana Broadcasting, L.P. was removed as a borrower under the Mortgage. The fees incurred in connection with this amendment were immaterial.

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

Note: Certain statements included in this report or in the financial statements contained herein which are not statements of historical fact, including but not limited to those identified with the words “expect,” “should,” “will” or “look” are intended to be, and are, by this Note, identified as “forward-looking statements,” as defined in the Securities and Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement. Such factors include, among others:

•

general economic and business conditions;

•

fluctuations in the demand for advertising and demand for different types of advertising media;

•

our ability to obtain additional capital or to service our outstanding debt;

•

competition from new or different media and technologies;

•

increased competition in our markets and the broadcasting industry, including our competitors changing the format of a station they operate to more directly compete with a station we operate in the same market;

•

our ability to attract and secure programming, on-air talent, writers and photographers;

•

inability to obtain (or to obtain timely) necessary approvals for purchase or sale transactions or to complete the transactions for other reasons generally beyond our control;

•

increases in the costs of programming, including on-air talent;

•

inability to grow through suitable acquisitions or to consummate dispositions;

•

new or changing technologies, including those that provide additional competition for our businesses;

•

new or changing regulations of the Federal Communications Commission or other governmental agencies;

•

war, terrorist acts or political instability; and

•

other factors mentioned in documents filed by the Company with the Securities and Exchange Commission.

For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Annual Report on Form 10-K, for the year ended February 28, 2019. Emmis does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

GENERAL

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 one-half 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 ™, which includes all of our radio stations. Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research and advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.

Our revenues vary throughout the year. As is typical in the broadcasting industry, our revenues and operating income are usually lowest in our fourth fiscal quarter.

In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.

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The following table summarizes the sources of our revenues for the three and nine months ended November 30, 2019 and 2018. The category “Nontraditional” 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 Digonex business, network revenues and barter. We sold our four radio stations in St. Louis on April 30, 2018. The St. Louis radio stations were being operated pursuant to local marketing agreements from March 1, 2018 through their sale. The Company received $0.7 million of fees related to this arrangement which are included in “LMA Fees” below. The table below excludes the results of our stations in Austin, as well as WQHT-FM and WBLS-FM in New York, which have been classified as discontinued operations. See Note 1 to the accompanying condensed consolidated financial statements for more discussion of our discontinued operations.

	Three Months Ended November 30,										Nine Months Ended November 30,
	2018		% of Total			2019		% of Total			2018		% of Total			2019		% of Total
	(Dollars in thousands)
Net revenues:
Local	$	4,368		40.5	%	$	4,242		39.5	%	$	12,175		39.4	%	$	11,540		39.4	%
National		549		5.1	%		828		7.7	%		1,632		5.3	%		2,053		7.0	%
Political		440		4.1	%		159		1.5	%		858		2.8	%		183		0.6	%
Publication Sales		93		0.9	%		91		0.8	%		288		0.9	%		280		1.0	%
Nontraditional		1,234		11.4	%		1,037		9.7	%		3,249		10.5	%		2,390		8.2	%
LMA Fees		2,582		23.9	%		2,582		24.0	%		8,467		27.4	%		7,748		26.5	%
Digital		330		3.1	%		675		6.3	%		745		2.4	%		1,915		6.5	%
Other		1,201		11.0	%		1,123		10.5	%		3,469		11.3	%		3,157		10.8	%
Total net revenues	$	10,797				$	10,737				$	30,883				$	29,266

As discussed earlier, we derive approximately one-half of our net revenues from advertising sales, including digital advertising sales. In the nine months ended November 30, 2019, local sales, excluding political revenues, represented approximately 82% of the advertising revenues for our radio division.

No customer represents more than 10% of our consolidated net revenues. Our top ten categories for radio represent approximately two-thirds of our radio division’s total advertising net revenues for the nine months ended November 30, 2018 and 2019. Home and home-related products was the largest category for our radio division for the nine months ended November 30, 2018 and 2019, representing approximately 10% and 12% of our radio advertising net revenues, respectively.

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.

SIGNIFICANT TRANSACTIONS

On October 1, 2019, a subsidiary of Emmis sold its 50.1% ownership interest in the Austin Partnership to our minority partner, Sinclair Telecable, Inc., for $39.3 million. Emmis recognized a gain on sale of $37.3 million. Gross cash proceeds, inclusive of purchase price adjustments, were approximately $40.7 million. Transaction-related expenses were approximately $0.7 million. $9.9 million of these proceeds were used to repay debt outstanding, with the balance held for general corporate purposes, including capital expenditures, working capital, and potential acquisitions and investments.

The Austin Partnership has historically been included in our Radio segment. The following table summarizes the operating results of the Austin Partnership for all periods presented. In accordance with ASC 205-20-45-6, Emmis has allocated interest on the debt required to be repaid as a result of this disposal transaction to the results of the Austin Partnership.

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Net revenues	$	7,991	$	2,660	$	24,456	$	19,539
Station operating expenses, excluding depreciation and amortization		5,106		2,012		15,848		13,428
Gain on sale of assets, net of disposition costs		—		37,292		—		37,292
Depreciation and amortization		115		—		386		120
Interest expense		145		32		423		291
Income before taxes	$	2,625	$	37,908	$	7,799	$	42,992

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On November 25, 2019, Emmis contributed the assets and liabilities of WBLS-FM and WQHT-FM to MediaCo Holding Inc., an Indiana corporation (“MediaCo”) and in return, Emmis received $91.5 million in cash, a convertible promissory note payable to Emmis in an amount of $5.0 million and 1,666,667 shares of MediaCo Class A common stock (the “MediaCo Transaction”). These shares constitute all of the issued and outstanding MediaCo Class A common stock and represent in the aggregate an approximately 23.72% equity ownership interest and 3.02% of the outstanding voting interests of MediaCo immediately following the transaction. We expect that, on January 17, 2020, we will make a taxable pro rata distribution of 0.1265 shares of MediaCo Class A common stock for each outstanding share of Emmis’ Class A and Class B common stock at the close of business of January 3, 2020. The $5.0 million convertible promissory note carries interest at a base rate equal to the interest on MediaCo’s senior credit facility (London Interbank Offered Rate with a 2.0% floor plus 7.5%), or if no senior credit facility is outstanding, 6.00%, plus an additional 1.00% on any payment of interest in kind and, without regard to whether MediaCo pays such interest in kind, an additional increase of 1.00% following the second anniversary of the date of issuance and additional increases of 1.00% following each successive anniversary thereafter. The note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance 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 note matures on November 25, 2024. In addition, MediaCo’s net working capital as of the closing date must be reimbursed to Emmis within nine months of the MediaCo Transaction. Emmis has recorded an $8.5 million receivable from MediaCo related to this net working capital. SG Broadcasting LLC, an affiliate of Standard General L.P, a New York-based investment firm that manages event-driven opportunity funds, purchased all of MediaCo’s Class B common stock, representing a 76.28% equity ownership interest. The common stock of MediaCo acquired by Standard General will be entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders will be 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 initially consists of four directors appointed by Standard General and three directors appointed by Emmis. Emmis will receive an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The shares held by Emmis at November 30, 2019, which will be distributed to Emmis’ shareholders in January 2020, constitute an equity investment as discussed in Note 12.

Gross cash proceeds at closing, inclusive of purchase price adjustments, were $91.8 million, $3.5 million of which was used by Emmis to repay Mortgage debt outstanding. Transaction-related expenses were approximately $2.2 million. The remaining cash will be used for general corporate purposes, including capital expenditures, working capital, and potential acquisitions and investments. Upon the closing of the transaction, Emmis deconsolidated these stations, recorded the retained equity investment at fair value, and recognized a gain on sale of $35.6 million.

The Stations have historically been included in our Radio segment. The following table summarizes the operating results of the Stations for all periods presented. In accordance with ASC 205-20-45-6, Emmis has allocated interest on the debt required to be repaid as a result of this disposal transaction to the results of the Stations.

	For the Three Months Ended November 30,				For the Nine Months Ended November 30,
	2018		2019		2018		2019
Net revenues	$	11,535	$	9,795	$	35,046	$	35,947
Station operating expenses, excluding depreciation and amortization		7,809		7,678		24,711		25,844
Gain on sale of assets, net of disposition costs		—		35,616		—		35,616
Depreciation and amortization		346		—		930		417
Interest expense		94		47		273		214
Income before taxes	$	3,286	$	37,686	$	9,132	$	45,088

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.

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 traffic and other 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.

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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, streaming our content across a number of platforms, and harnessing the power of digital video on our websites.

The results of our continuing radio operations are heavily dependent on the results of our stations in the Indianapolis market, which account for approximately 60% of our continuing radio net revenues. Market revenues in Indianapolis as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 3.4% for the nine months ended November 30, 2019, as compared to the same period of the prior year. During this period, revenues for our Indianapolis cluster were up 0.4%.

As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. 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, over the past three fiscal years, we have sold radio stations in Terre Haute, Los Angeles and St. Louis, our controlling partnership interest in Austin, and WQHT-FM and WBLS-FM in New York. We have also sold all of our publishing assets, except Indianapolis Monthly. We continue to explore the sale of WLIB-AM in New York and other assets, including land in Indianapolis. With the closing of the sale of our Austin Partnership and WQHT-FM and WBLS-FM, we have begun actively exploring additional businesses to acquire, with the goal of investing the proceeds from these sales into businesses with better growth profiles than we have experienced in recent years in our radio and magazine businesses.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially lead to materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.

Revenue Recognition

The Company generates revenues from the sale of services and products including, but not limited to: (i) on-air commercial broadcast time, (ii) magazine-related display advertising, (iii) magazine circulation and newsstand revenues, (iv) non-traditional revenues including event-related revenues and event sponsorship revenues, (v) revenues generated from LMAs and (vi) 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 financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

Digonex provides a dynamic pricing service to attractions, live event producers and other customers. Revenue is recognized as recommended prices are delivered to customers. In some cases, this is upon initial delivery of prices, such as for implementations, or over the period of the services agreement for fee-based pricing. Revenue pursuant to some service agreements is not earned until tickets or merchandise are sold and, therefore, revenue is recognized as tickets are sold for the related events or as merchandise is sold.

FCC Licenses

We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses. As of November 30, 2019, we have recorded approximately $68.5 million in FCC licenses, which represents approximately 28% 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.

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 an LMA by another broadcaster. Major assumptions involved in the valuation of our FCC licenses 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. A change in one or more of our major assumptions could result in an impairment charge related to our FCC licenses.

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We complete our annual impairment tests as of December 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted. Due to market revenue declines in the Indianapolis radio market and a change in our unit of accounting for WLIB-AM in New York as a result of the pending sale of WQHT-FM and WBLS-FM, we conducted an interim impairment review during the three months ended August 31, 2019. As a result of that interim impairment review, we determined that the carrying value of our FCC licenses for our Indianapolis radio stations and WLIB-AM in New York exceeded their respective fair values by $4.0 million and recorded this amount as an impairment charge during the three months ended August 31, 2019.

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.

Deferred Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.

Results of Operations for the Three-Month and Nine-Month Periods Ended November 30, 2019, Compared to November 30, 2018

Net revenues:

	For the Three Months Ended November 30,										For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change			2018		2019		$ Change			% Change
	(As reported, amounts in thousands)
Net revenues:
Radio	$	9,202	$	9,215	$	13			0.1	%	$	26,341	$	25,321	$	(1,020	)		(3.9	)%
Publishing		1,177		1,187		10			0.8	%		3,347		3,083		(264	)		(7.9	)%
All Other		418		335		(83	)		(19.9	)%		1,195		862		(333	)		(27.9	)%
Total net revenues	$	10,797	$	10,737	$	(60	)		(0.6	)%	$	30,883	$	29,266	$	(1,617	)		(5.2	)%

We entered into LMAs with the buyers of our St. Louis radio stations in the prior year. While we did not recognize any advertising revenues during the period in which the LMAs were in effect through the eventual sale of the stations in April 2018, we did recognize approximately $0.7 million of LMA revenue. Absent this LMA revenue in the prior year, net radio revenues would have been down approximately $0.3 million or 1.2% for the nine months ended November 30, 2019. The decrease in radio revenues for the nine months ended November 30, 2019 is primarily due to declining revenues at WLIB-AM in New York. Our radio stations in the Indianapolis radio market account for approximately 60% of our continuing radio net revenues, and we outperformed the Indianapolis radio market in the three and nine months ended November 30, 2019. Ratings at our Indianapolis radio stations have been strong in recent months, which has enabled us to grow our market share.

We are able to monitor the performance of our stations against the aggregate performance of the markets in which we operate based on reports for the period prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter and syndication arrangements. Miller Kaplan reported gross revenues for the Indianapolis market

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decreased 3.4% for the nine-month period ended November 30, 2019, as compared to the same period of the prior year. Our gross revenues reported to Miller Kaplan for our Indianapolis market was up 0.4% for the nine-month period ended November 30, 2019, as compared to the same period of the prior year.

Publishing net revenues were up 0.8% and down 7.9% in the three-month and nine-month periods ended November 30, 2019 respectively, due to soft demand for print advertising in the Indianapolis market.

All Other represents the results of Digonex and TagStation. During the quarter ended February 28, 2019, the Company ceased investing in TagStation and dramatically reduced its operations. While our dynamic pricing company, Digonex, is doubling its revenues year-over-year, net revenues for TagStation decreased $0.2 million and $0.8 million, respectively, for the three-month and nine-month periods ended November 30, 2019 as compared to the same periods of the prior year and are expected to be minimal in future periods.

Station operating expenses excluding depreciation and amortization expense:

	For the Three Months Ended November 30,										For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change			2018		2019		$ Change			% Change
	(As reported, amounts in thousands)
Station operating expenses excluding depreciation and amortization expense:
Radio	$	6,157	$	5,941	$	(216	)		(3.5	)%	$	18,661	$	18,258	$	(403	)		(2.2	)%
Publishing		1,176		1,502		326			27.7	%		3,384		3,582		198			5.9	%
All Other		3,476		756		(2,720	)		(78.3	)%		8,449		1,827		(6,622	)		(78.4	)%
Total station operating expenses excluding depreciation and amortization expense	$	10,809	$	8,199	$	(2,610	)		(24.1	)%	$	30,494	$	23,667	$	(6,827	)		(22.4	)%

The decrease in station operating expenses excluding depreciation and amortization expense for our radio division in the nine months ended November 30, 2019, is due to expenses incurred in the prior year associated with our St. Louis stations. Our St. Louis stations were sold in April 2018. Excluding these expenses in the prior year, radio operating expenses excluding depreciation and amortization expense would have been flat in the nine-month period ended November 30, 2019. The reduction in radio expenses in the third quarter resulted from the reclassification of transaction fees associated with the Austin Partnership Transaction and the MediaCo Transaction to the gain on sale shown in discontinued operations, but was partly offset by new expenses associated with the launch of our branded podcast company, Sound That Brands.

Our publishing segment experienced abnormally high healthcare costs in the third quarter, leading to the increase in expense for the three and nine-month periods ended November 30, 2019.

All Other represents the results of Digonex and TagStation. During the quarter ended February 28, 2019, the Company ceased investing in TagStation and dramatically reduced its operations. Station operating expenses excluding depreciation and amortization expense for TagStation decreased $2.9 million and $6.8 million for the three-month and nine-month periods ended November 30, 2019, respectively, as compared to the same period of the prior year and are expected to be minimal in future periods.

Corporate expenses excluding depreciation and amortization expense:

	For the Three Months Ended November 30,									For the Nine Months Ended November 30,
	2018		2019		$ Change		% Change			2018		2019		$ Change		% Change
	(As reported, amounts in thousands)
Corporate expenses excluding depreciation and amortization expense	$	2,297	$	10,437	$	8,140		354.4	%	$	7,607	$	15,211	$	7,604		100.0	%

During the three-month period ended November 30, 2019, the Compensation Committee of the Board of Directors approved discretionary bonuses to executive officers totaling $6.5 million, inclusive of payroll taxes. In addition, the Compensation Committee approved higher director fees for the current fiscal year, totaling $1.6 million (an increase of approximately $1.2 million), and a pro rata portion of this increase was accrued through November 30, 2019. Additionally, a bonus for all remaining corporate employees was approved by management, resulting in an additional $0.3 million of expense. We also incurred higher professional fees in the three months ended November 30, 2019, related to various corporate projects.

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Impairment loss:

	For the Three Months Ended November 30,								For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change	2018		2019		$ Change		% Change
	(As reported, amounts in thousands)
Impairment loss	$	304	$	-	$	(304	)	N/A	$	509	$	4,022	$	3,513	N/A

During the three months ended August 31, 2019, the Company performed an interim impairment analysis of its FCC Licenses. The Company recorded an impairment loss of $4.0 million as a result of the interim impairment analysis, which is reflected in the results of the nine months ended November 30, 2019. During the nine months ended November 30, 2018, the Company recorded an impairment loss of $0.5 million. $0.2 million was due to the carrying value of two radio transmission towers in St. Louis classified as held for sale exceeding the Company’s estimate of their fair value less cost to sell. $0.3 million was due to the Company’s decision to dramatically reduce the scale of operations in TagStation, LLC and NextRadio, LLC resulting in impairment of property and equipment of these businesses.

Depreciation and amortization:

	For the Three Months Ended November 30,										For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change			2018		2019		$ Change			% Change
	(As reported, amounts in thousands)
Depreciation and amortization:
Radio	$	129	$	87	$	(42	)		(32.6	)%	$	393	$	288	$	(105	)		(26.7	)%
Publishing		4		3		(1	)		(25.0	)%		14		10		(4	)		(28.6	)%
All Other		212		173		(39	)		(18.4	)%		661		568		(93	)		(14.1	)%
Total depreciation and amortization	$	345	$	263	$	(82	)		(23.8	)%	$	1,068	$	866	$	(202	)		(18.9	)%

The decrease in depreciation and amortization expense for the three-month and nine-month periods ended November 30, 2019 mostly relates to (i) lower depreciation expense for our radio division as a result of certain radio equipment becoming fully depreciated and (ii) the cessation of depreciation expense related to fixed assets of our TagStation business, included in All Other, following their full impairment during the three-month period ended November 30, 2018.

Gain on sale of assets, net of disposition costs:

	For the Three Months Ended November 30,								For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change	2018			2019		$ Change			% Change
	(As reported, amounts in thousands)
Gain on sale of assets, net of disposition costs:
Radio	$	235	$	—	$	(235	)	N/A	$	(32,148	)	$	—	$	32,148		N/A
Publishing		—		—		—		N/A		331			—		(331	)	N/A
All Other		—		—		—		N/A		—			31		31		N/A
Total gain on sale of assets, net of disposition costs	$	235	$	—	$	(235	)	N/A	$	(31,817	)	$	31	$	31,848		N/A

During the nine-month period ended November 30, 2018, the Company sold its four radio stations in St. Louis for $60.0 million in cash and recognized a $32.4 million gain on the sale of these stations. During the three-month period ended November 30, 2018, the Company revised its cease-use reserve related to its former St. Louis office facility by $0.2 million. See Note 10 of the accompanying condensed consolidated financial statements for more discussion. The loss on sale of publishing assets during the nine-month period ended November 30, 2018 relates to the settlement of our dispute with Hour Media and the related legal fees incurred. The gains related to the Austin Partnership Transaction and MediaCo transaction are recognized in discontinued operations for the nine-month period ended November 30, 2019.

Gain on legal matter

	For the Three Months Ended November 30,									For the Nine Months Ended November 30,
	2018		2019			$ Change			% Change	2018		2019			$ Change			% Change
	(As reported, amounts in thousands)
Gain on legal matter	$	-	$	(2,153	)	$	(2,153	)	N/A	$	-	$	(2,153	)	$	(2,153	)	N/A

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As discussed in Note 8, during the three months ended November 30, 2019, we received the settlement proceeds from a legal matter and recognized a gain of $2.2 million.

Operating (loss) income:

	For the Three Months Ended November 30,												For the Nine Months Ended November 30,
	2018			2019			$ Change			% Change			2018			2019			$ Change			% Change
	(As reported, amounts in thousands)
Operating (loss) income:
Radio	$	2,681		$	3,187		$	506			18.9	%	$	39,230		$	2,753		$	(36,477	)		(93.0	)%
Publishing		(3	)		(318	)		(315	)	N/M				(382	)		(509	)		(127	)		33.2	%
All Other		(5,871	)		(8,878	)		(3,007	)		51.2	%		(15,826	)		(14,622	)		1,204			(7.6	)%
Total operating (loss) income:	$	(3,193	)	$	(6,009	)	$	(2,816	)		88.2	%	$	23,022		$	(12,378	)	$	(35,400	)		(153.8	)%

Radio operating income decreased in the nine-month period ended November 30, 2019 due to the sale of our radio stations in St. Louis in April 2018 and the impairment charge in the three-month period ended August, 31, 2019.

Publishing operating loss increased in both the three and nine-month periods ended November 30, 2019, due to higher healthcare costs.

All other operating loss, which includes corporate expenses, increased in the three-month period ended November 30, 2019 due to the discretionary bonuses paid to executive officers and corporate employees, and increased director fees described above. This was partly offset by a legal matter settled in the third quarter which resulted in a gain of $2.2 million. Additionally, all other also includes the results of NextRadio and TagStation. We ceased operation of these money-losing businesses in the quarter ended November 30, 2018. During the three and nine months ended November 30, 2018, these entities had operating losses of $3.0 million and $6.7 million, respectively, which, along with the gain on legal matter, offsets the increase in corporate expenses in the nine-month period ended November 30, 2019.

Interest expense:

	For the Three Months Ended November 30,										For the Nine Months Ended November 30,
	2018		2019		$ Change			% Change			2018		2019		$ Change			% Change
	(As reported, amounts in thousands)
Interest expense	$	1,307	$	869	$	(438	)		(33.5	)%	$	5,206	$	3,040	$	(2,166	)		(41.6	)%

Interest expense decreased in the three-month and nine-month periods ended November 30, 2019 mostly due to lower debt outstanding as compared to the same period of the prior year. On April 30, 2018, the Company sold radio stations in St. Louis and repaid approximately $41.5 million of term loans. During the three months ended November 30, 2019 the Company repaid approximately $10 million of Mortgage indebtedness and $3.3 million of Term Loans. The weighted-average interest rate of all debt outstanding was 9.9% and 4.3% at November 30, 2018 and 2019, respectively.

Loss on debt extinguishment:

	For the Three Months Ended November 30,							For the Nine Months Ended November 30,
	2018		2019		$ Change		% Change	2018		2019		$ Change			% Change
	(As reported, amounts in thousands)
Loss on debt extinguishment	$	-	$	510	$	510	N/A	$	771	$	510	$	(261	)		(33.9	)%

In connection with required term loan repayments associated with the sale of our radio stations in St. Louis in the prior year, the Company wrote-off a pro rata portion of the unamortized debt discount outstanding attributable to the retired term loans. During the three months ended November 30, 2019, pursuant to the terms of the Mortgage, Emmis made prepayments of $10 million, utilizing proceeds from the Austin Partnership Transaction and the MediaCo Transaction, recognizing a loss on extinguishment of debt of $0.1 million. The Company also terminated its Revolving Credit Facility, resulting in a loss on extinguishment of debt of $0.4 million. Additionally, the Barrett Term Loan was fully paid off, resulting in a nominal loss on extinguishment of debt.

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Provision for income taxes:

	For the Three Months Ended November 30,											For the Nine Months Ended November 30,
	2018			2019			$ Change		% Change			2018		2019			$ Change			% Change
	(As reported, amounts in thousands)
Provision for income taxes	$	(2,747	)	$	(950	)	$	1,797		(65.4	)%	$	6,213	$	(1,533	)	$	(7,746	)		(124.7	)%

The Company estimates its effective tax rate for the year, which incorporates the reversal of a portion of the valuation allowance, and applies that rate to pre-tax income for the applicable period. This methodology, along with the effect of permanent differences, such as nondeductible meals and entertainment expenses and nondeductible compensation expense, is responsible for the difference between the effective rate and statutory rate. An allocation of this provision or benefit is applied to continuing operations and discontinued operations using the with and without methodology.

Discontinued operations, net of tax:

	For the Three Months Ended November 30,									For the Nine Months Ended November 30,
	2018		2019		$ Change		% Change			2018		2019		$ Change		% Change
	(As reported, amounts in thousands)
Discontinued operations, net of tax	$	3,262	$	58,921	$	55,659		1706.3	%	$	15,296	$	77,213	$	61,917		404.8	%

The results of operations of our Austin radio stations, as well as WQHT-FM and WBLS-FM in New York, have been classified as discontinued operations. As both the Austin Partnership Transaction and the MediaCo Transaction closed in the three months ended November 30, 2019 the results of discontinued operations include a gain of $37.3 million and $35.6 million relating to the two transactions, respectively.

Consolidated net income:

	For the Three Months Ended November 30,									For the Nine Months Ended November 30,
	2018		2019		$ Change		% Change			2018		2019		$ Change		% Change
	(As reported, amounts in thousands)
Consolidated net income	$	1,549	$	52,604	$	51,055		3296.0	%	$	26,220	$	62,965	$	36,745		140.1	%

Consolidated net income for the nine-month period increased primarily as a result of the gains on sale recognized for the Austin Partnership Transaction and the MediaCo Transaction, offset by the gain on sale of our St. Louis stations in the prior year. Consolidated net income for the three-month period increased mostly due to net income generated by the gains on the current year transactions.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand and cash provided by operations. 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 new businesses. After the closing of the sale of our Austin partnership interest and WQHT-FM and WBLS-FM in New York, we expect to increase the level of investments in new businesses, assuming we are able to identify and execute such new investments. The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and principal and interest payments on its indebtedness.

At November 30, 2019, we had cash and cash equivalents of $111.3 million and net working capital of $89.5 million. At February 28, 2019, we had cash and cash equivalents of $4.3 million and net working capital of $(27.4) million. The increase in net working capital is largely due to the increase in cash as a result of the Austin Partnership Transaction and the MediaCo Transaction.

Operating Activities

Cash provided by operating activities during the nine months ended November 30, 2018 was $3.1 million versus $4.5 million of cash used in operating activities for the nine months ended November 30, 2019. The increase in cash used in operating activities is due to working capital changes during the period.

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Investing Activities

Cash provided by investing activities during the nine months ended November 30, 2018 was $60.0 million versus $129.7 million during the nine months ended November 30, 2019. During the nine-month period ended November 30, 2018, we closed on the sale of four radio stations in St. Louis and received $60.0 million in proceeds. Capital expenditures for the nine-month period ended November 30, 2018, were less than $0.1 million. During the nine-month period ended November 30, 2019, we closed on the Austin Partnership Transaction and the MediaCo Transaction, which generated $40.7 million and $91.8 million of gross cash proceeds, respectively. Capital expenditures for the nine-month period ended November 30, 2019, were less than $0.1 million. We expect capital expenditures related to our continuing operations to be approximately $0.2 million in the current fiscal year, compared to $0.1 million in fiscal 2019. We expect that future requirements for capital expenditures will be limited to capital expenditures incurred during the ordinary course of business. We expect to fund future investing activities with cash on hand and cash generated from operating activities.

Financing Activities

Cash used in financing activities was $59.2 million and $20.2 million for the nine months ended November 30, 2018 and 2019, respectively. During the nine-month period ended November 30, 2018, cash used in financing activities mostly related to net debt repayments of $55.4 million and cash used in discontinued operations of $3.8 million. During the nine-month period ended November 30, 2019, cash used in financing activities mostly related to net debt repayments of $17.6 million, cash used in discontinued operations of $2.2 million and debt-related costs of $0.6 million.

As of November 30, 2019, Emmis had $12.7 million of secured recourse indebtedness under the Mortgage and $52.2 million of non-recourse debt ($42.0 million related to 98.7FM in New York, $6.2 million related to Digonex, and $4.0 million related to NextRadio). As of November 30, 2019, the borrowing rate under our secured recourse indebtedness was 5.5%. The non-recourse debt related to 98.7FM in New York bears interest at 4.1% per annum, the non-recourse debt related to Digonex bears interest at 5.0% per annum, and the non-recourse debt related to NextRadio bears interest at 2.0% per annum.

The debt service requirements of Emmis over the next twelve-month period are expected to be $0.9 million related to our secured indebtedness ($0.2 million of principal repayments and $0.7 million of interest payments) and $9.2 million related to our 98.7FM non-recourse debt ($7.6 million of principal repayments and $1.6 million of interest payments). Digonex non-recourse debt ($6.2 million face amount, $6.1 million carrying amount as of November 30, 2019) is due in December 2020 and NextRadio non-recourse debt is due in December 2021, but the Company does not anticipate that any Company assets will be used to repay this 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. With respect to the Dignoex debt, Emmis Operating Company, as collateral agent for secured creditors, notified Digonex of a default under its notes payable on October 1, 2019, which was not cured by the October 6, 2019 deadline. The debt was accelerated on December 6, 2019, and Emmis Operating Company, as collateral agent for the secured creditors, foreclosed on Digonex on December 31, 2019, taking possession of substantially all of Digonex’s assets. On January 1, 2020, Emmis Operating Company conveyed the foreclosed assets to a new legal entity that is expected to ultimately be owned by the holders of the Digonex secured debt pro rata to their share of the Digonex secured debt. This new legal entity will be controlled by Emmis Operating Company and is expected to continue to operate the underlying business of Digonex, but with a more rational capital structure. The remaining Digonex debt and related accrued interest is expected to be extinguished in connection with a future dissolution of Dignoex Technologies Inc.

On January 8, 2020, Emmis Operating Company and Star Financial entered into an amendment to the Mortgage, whereby Emmis placed $8 million into a restricted cash account with Star to serve as additional collateral for the Mortgage, and Star agreed to remove certain operating covenants included in the Mortgage, including the requirement to maintain a fixed charge coverage ratio of at least 1.10:1.00. Additionally, Emmis Indiana Broadcasting, L.P. was removed as a borrower under the Mortgage. The fees incurred in connection with this amendment were immaterial.

As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, our Credit Agreement substantially limited our ability to make acquisitions and therefore we terminated this agreement during the three-month period ended November 30, 2019. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so.

Intangibles

As of November 30, 2019, approximately 28% of our total assets consisted of FCC broadcast licenses, the values of which depend significantly upon various factors including, among other things, market revenues, market growth rates and 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 our stations’ compliance

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with the various regulatory requirements. Historically, all of our FCC licenses have been renewed at or after the end of their respective periods, and we expect that all FCC licenses will continue to be renewed in the future.

Regulatory, Legal and Other Matters

Emmis is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly 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 November 30, 2019 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

During the period covered by this quarterly report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, during the quarter ended November 30, 2019, we converted our financial management software to a newer, cloud-based system.

It should be noted that any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of various legal proceedings pending against the Company.

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

During the nine months ended November 30, 2019, 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 November 30, 2019.

Period	(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)
Class A Common Stock
September 1, 2019 - September 30, 2019		—	$	—		—	$	—
October 1, 2019 - October 31, 2019		3,280	$	4.95		—	$	—
November 1, 2019 - November 30, 2019		—	$	—		—	$	—
		3,280				—

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Item 6. Exhibits

(a)

Exhibits.

The following exhibits are filed or incorporated by reference as a part of this report:

Exhibit

Incorporated by Reference

Number

Exhibit Description

Filed Herewith

Form

Period Ending

Exhibit

Filing Date

3.1

Second Amended and Restated Articles of Incorporation of Emmis Communications Corporation, as amended effective July 7, 2016

8-K

3.1

7/7/2016

3.2

Second Amended and Restated Bylaws of Emmis Communications Corporation

10-K

2/28/2013

3.2

5/8/2013

10.1

Unsecured Convertible Promissory Note by MediaCo Holding Inc. in favor of Emmis Communications Corporation, dated November 25, 2019.

8-K

10.1

11/25/2019

10.2

Employee Leasing Agreement, between Emmis Operating Company and MediaCo Holding Inc., dated November 25, 2019.#

8-K

10.2

11/25/2019

10.3

Management Agreement, between Emmis Operating Company and MediaCo Holding Inc., dated November 25, 2019.#

8-K

10.3

11/25/2019

10.4

Shared Services Agreement (WLIB), between Emmis Operating Company and MediaCo Holding Inc., dated November 25, 2019.#

8-K

10.4

11/25/2019

10.5

Shared Services Agreement (WEPN), between Emmis Operating Company and MediaCo Holding Inc., dated November 25, 2019.#

8-K

10.5

11/25/2019

10.6

Local Programming and Marketing Agreement between WBLS-WLIB, LLC and MediaCo Holding Inc., dated November 25, 2019.

8-K

10.6

11/25/2019

10.7

Antenna Site Agreement between WBLS-WLIB Tower, LLC and MediaCo Holding Inc., dated November 25, 2019.#

8-K

10.7

11/25/2019

10.8

Amended and Restated Loan Agreement, dated as of January 8, 2020, by and among Emmis Operating Company and Star Financial Bank

31.1

Certification of Principal Executive Officer of Emmis Communications Corporation pursuant to Rule 13a-14(a) under the Exchange Act

31.2

Certification of Principal Financial Officer of Emmis Communications Corporation pursuant to Rule 13a-14(a) under the Exchange Act

32.1

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

32.2

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

Portions of this exhibit, marked by brackets, have been omitted pursuant to Item 601(b)(10) of Regulation S-K because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant undertakes to promptly provide an unredacted copy of the exhibit on a supplemental basis, if requested by the Commission or its staff.

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SIGNATURES

Pursuant to the requirements 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.

	EMMIS COMMUNICATIONS CORPORATION

Date: January 9, 2020	By:	/s/ RYAN A. HORNADAY
		Ryan A. Hornaday
		Executive Vice President, Chief Financial Officer and
		Treasurer

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Exhibit 10.8

AMENDED & RESTATED LOAN AGREEMENT

THIS AMENDED AND RESTATED LOAN AGREEMENT (the “Agreement”), made and entered effective as of the 8th day of January, 2020, by and between EMMIS OPERATING COMPANY, an Indiana corporation, having a mailing address of 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204 (hereinafter referred to as “Borrower”), and STAR FINANCIAL BANK, having an office at 3610 River Crossing Parkway, Indianapolis, Indiana 46240 (hereinafter referred to as “Lender”),

Pursuant to the terms and conditions of that certain Loan Agreement between the Borrower, Emmis Indiana Broadcasting, L.P., an Indiana limited partnership (“EIB”) and Lender dated April 12, 2019 (“Original Loan Agreement”) the Lender made a loan to Borrower and EIB in the original principal amount of Twenty Three Million Dollars ($23,000,000.00) (“Original Loan”).

Borrower has requested that the Lender make a loan to Borrower up to the maximum principal amount of Twelve Million Six Hundred and Fifty-Six Thousand Nine Hundred and Twenty-Five Dollars and 06/100 cents ($12,656,925.06) to refinance the Original Loan and Lender has agreed to make the loan subject to the terms and conditions and set forth herein.

Borrower is the owner of fee simple title to certain real estate and improvements located in Marion County, Indiana, more particularly described in Exhibit “A” attached hereto and by reference made a part of this Agreement (the “Real Estate”);

This Agreement supersedes and completely replaces the Original Loan Agreement.

NOW, THEREFORE, in consideration of these premises and the undertakings of the parties hereto, Borrower and Lender hereby agree as follows:

1.Loan.

Subject to the terms and conditions of this Agreement, Lender shall establish for Borrower a term loan in the maximum principal amount of Twelve Million Six Hundred and Fifty-Six Thousand Nine Hundred and Twenty-Five Dollars and 06/100 cents ($12,656,925.06) (the “Loan”). The Loan shall be payable in the manner specified in the Amended & Restated Promissory Note of Borrower payable to the order of Lender in the principal sum of Twelve Million Six Hundred and Fifty-Six Thousand Nine Hundred and Twenty-Five Dollars and 06/100 cents ($12,656,925.06) (such promissory note as may be modified or amended from time to time and/or any promissory note which is a direct or remote renewal, extension, restatement or replacement of such promissory note is hereinafter referred to as the “Note”) and have a maturity date of April 12, 2029.

2.Collateral.

A.The indebtedness and obligations of Borrower to Lender under the Loan shall be secured by: (a) the lien of a first mortgage covering the Real Estate, a first assignment of all rents and leases with respect to the Real Estate and a first assignment of agreements with respect to the Real Estate granted under the terms of the Mortgage executed by Borrower as to its interest in the Real Estate to Lender (such Mortgage(s) as may be modified or amended from time to time is hereinafter referred to collectively as the “Mortgage”), (b) a first assignment of all rents and leases with respect to the Real Estate and Improvements granted under the terms of the Assignment of Leases executed by Borrower as to its interest in the Real Estate to Lender (such Assignment(s) as may be modified or amended from time to time is hereinafter referred to collectively as the “Assignment of Leases”), (c) an assignment of contracts and agreements relating to the Real Estate, all granted under the terms of an Assignment Agreement executed by Borrower as to its interest in the Real Estate in favor of Lender dated April 12, 2019 (such Assignment Agreement(s) as may

be modified or amended from time to time is hereinafter referred to collectively as the “Assignment Agreement”), (d) an Environmental Indemnity Agreement executed by Borrower as to its interest in the Real Estate dated April 12, 2019, and (such Environmental Indemnity Agreement) as may be modified or amended from time to time is hereinafter referred to collectively as the “Indemnity Agreement”), (e) a Pledge Agreement Deposit Account pursuant to which Borrower shall pledge and deposit with the Lender the sum of Eight Million Dollars ($8,000,000.00) which shall be held as collateral for the Loan (the “Pledge Agreement” (such Pledge Agreement as may be modified or amended from time to time and hereinafter referred collectively as the “Pledge Agreement.”)

The Note, Mortgage, Assignment of Leases, Assignment Agreement, Indemnity Agreement, Pledge Agreement and all other documents in connection with the Loan shall be collectively the “Loan Documents” and the terms and conditions thereof are hereby incorporated by reference and made a part of this Agreement.

3.Conditions Precedent to Advancement of the Loan.

A.Each of the following conditions shall be a condition precedent to the advancement of any part of the Loan by Lender pursuant to this Agreement.

i.Borrower shall execute and deliver the Note and the Pledge Agreement to Lender.

ii.Lender has obtained a mortgagee’s policy of title insurance satisfactory to Lender (the “Title Policy”).

iii.Borrower has delivered to Lender a survey of the Real Estate (the “Existing Survey”).

iv.Borrower has furnished to Lender evidence of hazard insurance coverage for the improvements on the Real Estate (all risk coverage), with a standard mortgage endorsement and loss payee endorsement in favor of Lender, and public liability insurance with Lender named as an additional insured, with copies of endorsements to the policies, all in such amounts and in form consistent with sound business practices.

v.Lender has determined that the Real Estate is not located in a flood hazard area as defined under the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968.

vi.Borrower shall furnish or cause to be furnished to Lender corporate resolutions of the board of directors of EOC authorizing it to obtain the Loan, and the execution and delivery of all documents and instruments in connection therewith.

vii.Borrower has furnished to Lender an opinion of Borrower’s counsel for the State of Indiana which is acceptable to Lender and Lender’s counsel.

viii.Borrower has furnished to Lender environmental inspection reports of the Real Estate prepared by August Mack dated March 21, 2019 (the “Environmental Report”).

ix.Lender obtained an appraisal of the Real Estate and Improvements satisfactory to Lender.

x.The warranties and representations set forth in paragraph 5 of this Agreement shall be and remain true and that there has been full compliance with the covenants set forth in paragraph 6 of this Agreement.

xi.Borrower shall execute and deliver to Lender such other documents, instruments, information and materials as may be reasonably required by Lender in connection with the Loan.

4.Duties of Borrower.

A.In addition to all of the terms and conditions to be performed by Borrower under this Agreement, Borrower shall pay to Lender at the time of the execution of this Agreement, if Borrower has not previously paid, the balance of a commitment and service fee of Five Thousand Dollars ($5,000.00) and shall reimburse Lender for all costs and expenses incurred by it in connection with the Loan, including but not limited to reasonable legal fees and expenses of its counsel, all of which may be deducted by Lender from the advancements made hereunder, and shall deliver to Lender such other documents as it may reasonably require to carry out the terms and provisions of this Agreement.

5.Warranties and Representations. Borrower warrants and represents to Lender that:

a.EOC is a corporation duly organized and in existence under the laws of the State of Indiana, and has full power and authority under its Articles of Incorporation and By-laws, and any amendments thereto, and under all applicable provisions of law to own and operate its business and the EOC Real Estate;

b.EOC is the owner in fee simple of the Real Estate subject only to the encumbrances shown in the Title Policy, a rooftop license agreement EOC has entered into with the City of Indianapolis, an agreement with Hokanson Companies, Inc. related to leasing commissions for leasing of a portion of the Real Estate and a Lease Agreement between Borrower and Lender with respect to a portion of the Property;

c.The Real Estate and Improvements are in compliance in all material respects with all applicable building codes, zoning ordinances and the requirements of regulatory agencies having jurisdiction;

d.All required federal, state and other tax returns have been filed by or on behalf of Borrower and the taxes in connection therewith paid to date and no additional taxes or assessments have been asserted or are anticipated;

e.There is no litigation, or proceeding pending or, to the knowledge of Borrower, threatened against or otherwise affecting the Real Estate before any court or before or by any governmental agency, which if adversely determined, would have a material adverse effect on the Loan or the ability of Borrower to perform its respective obligations under this Agreement and the Loan Documents;

f.None of the representations or warranties of Borrower set forth in this Agreement or in any document or certificate taken together with any related document or certificate furnished pursuant to this Agreement or in connection with the transactions contemplated hereby contains or will contain any untrue statements of a material fact or omits or will omit to state a financial fact necessary to make any statement of fact contained herein or therein, in light of the circumstances under which it was made, not misleading;

g.Upon the execution and delivery of this Agreement and the consummation of any transactions contemplated herein, (i) Borrower will be able to pay its respective debts as they become due, (ii) Borrower will have funds and capital sufficient to carry on its respective business and all businesses in which it is about to engage, and (iii) the assets of Borrower, valued on a fair saleable basis, will be equal to or greater than the sum of all liabilities and contingent liabilities required to be included on Borrower’s balance sheet under GAAP (as defined herein) of Borrower, including for this purpose, unliquidated and disputed claims;

h.The execution of this Agreement and all other agreements, instruments and documents executed by Borrower in connection herewith, the consummation of all transactions connected herewith, and the operating of the improvements on the Real Estate, have been duly authorized by all necessary action required on the part of Borrower;

i.Neither the execution of this Agreement (or the consummation of the transactions contemplated hereby) nor compliance with the terms and provisions hereof or

of any agreements, documents and instruments required of Borrower hereunder conflict with, result in a breach of or constitute a default under the terms, conditions or provisions of the Articles of Incorporation or By-Laws of EOC or any amendments thereto, any agreement to which Borrower is a party or by which Borrower is bound or any law, regulation, order, writ, injunction or decree of any court or governmental agency or instrumentality having jurisdiction;

j.Borrower is in compliance in all material respects with all federal, state and local health, safety, building, zoning, environmental and other statutes, regulations and ordinances;

k.Any and all employee pension plans of Borrower are in compliance in all material respects with the terms and provisions of the Employee Retirement Income Security Act of 1974 and all other federal, state and local statutes, regulations and ordinances governing the establishment and administration of pension plans;

l.All governmental authorizations, permits, certificates, licenses, filings, registrations, approvals or consents have been obtained, received or made by Borrower for it to lawfully (i) make, execute and deliver this Agreement, (ii) perform all of its obligations under this Agreement, and (iii) operate the Real Estate; and

m.(i) Borrower is not now engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System); (ii) no part of the proceeds of any credit hereunder has been or will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock; and (iii) no part of the proceeds of any credit hereunder has been or will be used for any purpose that violates or which is inconsistent with the provisions of Regulations G, U or X of said Board of Governors.

Borrower further warrants, represents and covenants that all warranties and representations shall remain true in all material respects so long as Borrower has any liability to Lender hereunder or under or with respect to the Loan or any agreement, instrument or document executed in connection herewith.

6.Covenants of Borrower. Borrower agrees and covenants that so long as Borrower has any liability to Lender hereunder or under or with respect to the Loan or any agreement, instrument or document executed in connection herewith or so long as Lender may be obligated to make any advancement to Borrower, Borrower shall:

a.Promptly pay and discharge all taxes, assessments and governmental charges which may be lawfully levied, assessed or imposed upon it or its properties, or upon its income or profits, and all lawful claims for labor, material and services which, if unpaid, might become a lien or charge against the Real Estate located thereon; provided, however, that Borrower shall have the right to contest in good faith any such tax, assessment, charge, levy or claim by appropriate proceedings without the prior payment thereof unless payment is required to contest or to avoid any tax sale;

b.Defend, or cause to be defended, at all times any adverse claim by a third party relating to the possession of or any interest in the Real Estate;

c.Furnish, or cause to be furnished, to Lender, at Borrower’s expense, the following financial statements and other information of Borrower:

(1)As soon as available and in any event on or before May 15 of each year, copies of the audited financial reports consisting of a balance sheet and annual statements of income and surplus accounts for Borrower (“Financial Statement”) as of and for the year then ended certified by a certified public accounting firm and prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved in form reasonably acceptable to Lender; provided SEC filed financial statements of Emmis Communications Corporation (“ECC”) are sufficient to satisfy this obligation (and Borrower will have no obligation to provide copies of such SEC filed financial statements) as long as (i) EOC is a wholly owned subsidiary of ECC;

(2)Within forty-five (45) days of the end of each quarter, beginning the quarter ending November 30, 2019, a financial statement as and for the fiscal quarter then ended, prepared and certified by an officer of Borrower, prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved in form reasonably acceptable to Lender; provided SEC filed financial statements of ECC are sufficient to satisfy this obligation (and Borrower will have no obligation to provide copies of such SEC filed financial statements) as long as EOC is a wholly owned subsidiary of ECC;

(3)Within forty-five (45) days of the end of each fiscal quarter of Borrower, beginning with the quarter ending after Borrower satisfies the Fixed Charge Coverage Ratio, a current compliance certificate in the form attached as Exhibit B certified by an Officer of Borrower; and

(4)At such times as Lender may reasonably require, such further information regarding the business affairs and financial conditions of Borrower as Lender may reasonably require.

d.Permit any authorized representative of Lender, including but not limited to its attorneys and inspectors, after prior reasonable notice to Borrower, to enter upon and inspect and examine the Real Estate at reasonable times during normal business hours;

e.Give prompt written notice to Lender of any process or action taken or pending whereby a third party is asserting a claim against the Real Estate, would have a material adverse effect on the value of the Real Estate;

f.Maintain the insurance required by this Agreement and, upon request by Lender, furnish to Lender evidence of such insurance coverage and payment of premiums therefor;

g.Comply in all material respects with all applicable federal, state and local statutes, regulations and ordinances;

Indemnify and hold Lender harmless from and against any and all claims, losses, damages, setoffs, counterclaims or expenses (including reasonable attorneys’ fees and costs) which Lender may sustain as a result of the transactions evidenced by this Agreement, excluding any act or omission of Lender, or because of the material breach of or inaccuracy in any of the representations and warranties contained in this Agreement or in any other document executed in connection herewith or in any other written communication of Borrower to Lender in connection with the transactions secured hereby whether or not any such inaccuracy was known by Borrower to be incorrect;

h.Indemnify, defend and hold Lender harmless from and against any claim, loss or damage to which Lender is subjected as a result of the presence of any hazardous, contaminated or toxic materials, waste or substances (including but not limited to asbestos, ureaformaldehyde foamed in place insulation, polychlorinated biphenyls, and all materials termed hazardous wastes or hazardous substances as defined in the Solid Waste Disposal Act of 1985, as from time to time amended) or the use, handling, storage, transportation or disposal thereof within or upon the Real Estate, excluding any acts of Lender following Lender’s control and possession of the Real Estate, or violation of the covenants, representations and warranties contained in this Agreement. For purposes hereof “hazardous, contaminated or toxic materials, waste or substances” will include but not be limited to substances defined as “hazardous substances,” “hazardous waste,” “hazardous materials,” or “toxic substances” in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9601 et seq. or any similar federal, state or local laws, and/or in the regulations adopted in publications promulgated pursuant to such laws, or as such laws or regulations may be further amended, modified or supplemented;

i.Notify Lender immediately in writing of the initiation of any criminal investigation or proceeding initiated by any federal, state or local agency, department, or instrumentality against (i) Borrower or (ii) any employee of the Borrower if in either (i) or (ii), such investigation or proceeding could have a material adverse effect on the Real Estate or result in the Real Estate being seized pursuant to 18 U.S.C. Sec. 1963,21 U.S.C. Sec. 853,21 U.S.C. Sec. 881, 46 U.S.C. App. Sec. 1904, I.C. 34-4-30.1-1 et seq. or any similar federal, state or local law and/or regulation adopted in publications promulgated pursuant to such laws, or as such laws or regulations may be further amended, modified or supplemented;

j.Permit Lender to advertise in any medium at Lender’s expense indicating Lender as the lender in such form, size and shape as shall be determined by Lender and reasonably approved by Borrower.

k.At such time as Borrower provides Lender with, and Lender certifies the accuracy of, proforma evidence that Borrower complies with and is able to maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1.0 for a twelve (12) month period, Lender shall permit Borrower to withdraw Two Million Dollars ($2,000,000.00) for each twelve (12) month period, measured quarterly, that Borrower satisfies such Fixed Charge Coverage Ratio from the account secured by the Pledge Agreement. Only after all Eight Million Dollars ($8,000,000) has been withdrawn from the account secured by the Pledge Agreement, Borrower shall maintain such Fixed Charge Coverage Ratio for each twelve (12) month period, tested each fiscal quarter thereafter. The term “Fixed Charge Coverage Ratio” means, with respect to a fiscal year for Borrower and certain subsidiaries described on Exhibit “C” but excluding other subsidiaries described on Exhibit “C”, a ratio, the numerator of which is Borrower’s trailing twelve (12) month net income on a consolidated basis before interest, taxes, depreciation and amortization, noncash compensation, and other non-cash items of income or expense, less the sum of unfunded capital expenditures, divided by the amount of scheduled principal and interest payments for long term debt (having a maturity in excess of one year) payable during said trailing twelve (12) month period, all as determined in accordance with generally accepted accounting principles consistently applied (“GAAP”), but adjusted on a pro forma basis reasonably acceptable to Lender for any asset acquisition or disposition that occurs during the period with items paid for in cash from asset disposition activity carved out after satisfaction of the prepayment fee, if any, under the Note. Borrower approved bonuses of Seven Million Seven Hundred Forty-Five Thousand Nine Hundred Fifty-Five Dollars ($7,745,955.00) in November, 2019 shall be excluded from the computation of the Fixed Charge Coverage Ratio for the period ending November 30, 2019.

Borrower shall not, without the prior written consent of Lender:

(1)Create or permit to exist any mortgage, pledge, security interest, title retention device or other encumbrance on any interest of Borrower in the Real Estate, except for (a) any mortgage or security interest held by Lender , and (b) those liens and encumbrances as shall be approved in writing by Lender in its sole discretion, provided however, notwithstanding any other provision in this Agreement or in any of the other Loan Documents, Lender’s consent shall not be required for the leasing of portions of the Real Estate for commercially reasonable rents upon commercially reasonable terms;

(2)Make any financial arrangements for borrowed money or otherwise through any other financial institution entity or party which is secured by the Real Estate; or

(3)Take any action, allow any event to occur or permit a condition to exist which could materially and adversely affect Borrower’s ability to complete

its obligations under the terms of this Agreement, the Note, Mortgage or any other instruments, agreements or documents required of Borrower hereunder.

7.Events of Default and Rights of Lender. Any one (1) or more of the following shall constitute an Event of Default hereunder:

a.Failure to make any payment within ten (10) days of when due of principal or interest required by the Note;

b.A failure to pay or cause to be paid upon demand or within ten (10) days of when due any other amounts due under the Note, Mortgage, Assignment of Leases, Indemnity Agreement, this Agreement or any of the other Loan Documents securing the Loan;

c.Failure to observe or perform any agreement or covenant contained herein or in any of the Loan Documents securing the Loan within thirty (30) days after written notice of such failure, or such other period of time as is reasonably necessary to remedy such failure not to exceed an extra (60) days;

d.A material breach of any warranty, representation, certification or statement contained in this Agreement or in any certification or other agreement or document executed or delivered in connection herewith;

e.Dissolution, liquidation or termination of the business of Borrower;

f.Assignment by Borrower for the benefit of its creditors;

g.With the exception of any Excluded Financial Subsidiaries as listed on Exhibit “C”, appointment of a receiver or a trustee for Borrower or any of its assets, which appointment is consented to or, if not consented to, shall not be removed or discharged within sixty (60) days after such appointment;

h.The filing of a petition for relief under the United States Bankruptcy Code against Borrower, which petition is consented to or, if involuntary, remains undismissed for sixty (60) days after such filing;

i.A determination by Lender, in its sole discretion, that any action, inaction, commission, omission or circumstance has occurred or may occur which may subject any assets of Borrower, including but not limited to the Real Estate, to be seized by any federal, state or local governmental department, agency or instrumentality pursuant to 18 U.S.C. Sec. 1963, 21 U.S.C. Sec. 853, 21 U.S.C. Sec. 881, 46 U.S.C. App. Sec. 1904, I.C. 34-4-30.1-1 et seq. or any similar federal, state or local laws and/or regulations adopted in publications promulgated pursuant to such laws, or as such laws or regulations may be amended, modified or supplemented from time to time;

j.The occurrence and continuance for a period of fifteen (15) days after receipt of notice from Lender of any of the following:

i.Borrower fails to maintain all material licenses, authorizations and approvals required to operate its business; or

ii.The security interest or other lien purported to be created pursuant to the Loan Documents shall for any reason, except to the extent permitted by the terms thereof, cease to be a valid and perfected security interest or other lien, as the case may be, in any of the collateral purported to be covered thereby.

Upon an Event of Default hereunder, at the option of Lender and with further notice to Borrower, all of the indebtedness evidenced by the Note and remaining unpaid shall become immediately due and payable. Anything contained herein or in the Note to the contrary notwithstanding, Lender, at its option and upon demand, shall have the right to perform all acts necessary for the performance, sale, collection and enforcement of the collateral covered by the Mortgage and/or any other agreement or document executed in connection with the Loan. Upon an Event of Default hereunder, at the option of Lender and with notice to Borrower, Lender may order an appraisal of the Real Estate, to be in such form and scope and to be performed by an appraiser as Lender may choose in its sole discretion. All costs and expenses of such appraisal shall be immediately paid by Borrower upon demand by Lender and such amounts shall be added to the indebtedness evidenced by the Loan and secured by the Mortgage. Furthermore, upon an Event of Default hereunder, Borrower, immediately upon demand by Lender, shall assemble the collateral securing the Loan and make it available to Lender at a place or places to be designated by Lender which are reasonably convenient to Lender and Borrower. Borrower recognizes that in the event Borrower fails to perform, observe or discharge any of its obligations under this Agreement or any other documents executed in connection herewith, Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. All rights and remedies of Lender herein specified are cumulative and in addition to, not in limitation of, any rights and remedies which it may have by law or at equity.

8.Additional Rights of Lender. If an Event of Default exists with respect to the Loan, Lender may, at its option and without demand, declare the entire principal sum under the Note to be due and payable immediately and may enter into possession of the Real Estate or any portion thereof and perform any and all work and labor necessary to repair and maintain the Real Estate. All sums so expended by Lender shall be deemed paid to Borrower and secured by all documents executed and delivered pursuant to the Loan. Upon and during the pendency of an Event of Default, each payment to Lender shall be applied to the payment of accrued and unpaid interest and to the reduction of the principal balance in such order and in such amounts as Lender shall determine, in its sole discretion; otherwise, such payments shall be applied first to accrued and unpaid interest and then to principal. Lender may from time to time without notice to Borrower (a) release any collateral or substitute or exchange any collateral, (b) release, modify or compromise any liability of Borrower or any other obligor, or the terms thereof and (c) apply any amounts paid to Lender with such marshalling of security as Lender may, in its sole discretion, determine appropriate to the extent permitted by law; all without the consent of or proper notice to Borrower. The liability of Borrower shall not be released in part or in whole by reason of the foregoing, the addition of co-makers, endorsers, guarantors or sureties, or a failure to perfect any security interest or lien in any collateral or a failure to proceed in any particular manner with respect to any collateral. All rights or remedies of Lender hereunder are cumulative and are in addition to, not in limitation of, any rights or remedies which it may have by law.

9.Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of Lender and Borrower; provided, however, Borrower may not assign this Agreement without the prior written consent of Lender.

10.No Third-Party Beneficiaries. Nothing contained herein shall be deemed or construed to create an obligation on the part of Lender to any third party nor shall any third party have a right to enforce against Lender any rights which Borrower may have under this Agreement.

11.No Waiver. No waiver by Lender of the breach of any term, condition, warranty, representation, covenant or agreement contained herein or in the agreements, instruments, guaranties or documents delivered pursuant thereto shall be considered as a waiver of the same default in the future or any other default and no delay or omission by Lender in exercising any right or remedy hereunder shall impair any such right or remedy or be construed as a waiver of any default. The inclusion of deadlines and the references to dates later than the maturity of any obligation shall not by implication or otherwise obligate Lender to renew or extend any maturity.

12.Waiver of Presentment. Borrower waives presentment, demand and protest and notice of presentment, maturity, release, compromising settlement, extension or renewal of any or all commercial paper, accounts receivable, contract rights, documents, instruments, chattel paper and guaranties entered into by Borrower in connection herewith and at any time held by Lender and on which Borrower may be liable in any way.

13.Amendments. Any modification of or amendment to this Agreement shall be ineffective unless in writing and signed by the duly authorized representatives of Borrower and Lender.

14.Notices. Any notice required or permitted to Lender or Borrower hereunder shall be deemed effective when mailed, certified or registered United States mail, postage prepaid, or when sent by an overnight carrier which provides for a return receipt if to Borrower at 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, Attention: Ryan A. Hornaday, EVP, CFO and Treasurer, with a copy to J. Scott Enright, General Counsel, 40 Monument Circle, Suite

700, Indianapolis, Indiana 46204 or if to Lender at 3610 River Crossing Parkway, Indianapolis, Indiana 46240, Attention John McCreary, with a copy to Taft Stettinius & Hollister LLP, One Indiana Square, Suite 3500, Indianapolis, Indiana 46204, Attn: Jeffrey A. Abrams, or at such other address as either Borrower or Lender may from time to time specify by notice hereunder. Any notice required to be given by Lender of a sale, lease, other disposition of the collateral or any other intended action by Lender, deposited in the United States Mail, certified and registered with postage prepaid duly addressed as specified above no less than ten (10) business days prior to such proposed action, or if sent by overnight carrier no less than five (5) business days prior to such proposed action, shall constitute commercially reasonable and fair notice to Borrower of same.

15.Prior Agreements. This Agreement replaces and supersedes any inconsistent provisions of any agreements heretofore made by Lender and Borrower. This Agreement, the Note and Mortgage and all other documents executed in connection with this Agreement are intended to be complementary and supplementary to one another. In the event of any conflict between the terms of one or more thereof, such terms shall, to the fullest extent reasonably possible, be construed to be complementary. However, if such terms cannot be construed as complementary, then the terms of this Agreement shall govern.

16.No Partnership/Joint Venture. It is hereby acknowledged by Lender and Borrower that the relationship between them created hereby and by any other document executed in connection with the Loan is that of creditor and debtor and is not intended to be and shall not in any way be construed to be that of a partnership, a joint venture or that of principal and agent; and it is hereby further acknowledged that any control of or supervision over the construction of the Improvements by Lender or disbursement of the Loan to anyone other than Borrower shall not be deemed to make Lender a partner, joint venturer or principal or agent of Borrower, but rather shall

be deemed to be solely for the purpose of protecting Lender’s security for the indebtedness evidenced by the Note and other indebtedness of Borrower to Lender.

17.Governing Law. This Agreement has been entered into and shall be governed by and construed in accordance with the laws of the State of Indiana.

18.Survival of Indemnities. All indemnities from Borrower to Lender shall survive this Agreement.

19.Invalidity of any Provision. If any provision of this Agreement or of any other documents executed in connection herewith is held invalid or unenforceable, the remainder of this Agreement or such other documents and the application of such provisions to other persons or circumstances will not be affected hereby and the provisions of this Agreement and such other documents will be severable in such instance.

20.Captions. The captions or headings herein have been inserted solely for the convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement.

21.Consent to Jurisdiction. BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT OF MARION COUNTY, INDIANA OR A UNITED STATES DISTRICT COURT OF INDIANA OR, IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY

LENDER IN ANY OF SUCH COURTS. BORROWER WAIVES ANY CLAIM THAT MARION COUNTY, INDIANAOR A UNITED STATES DISTRICT COURT OF INDIANA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.

22.Waiver of Jury Trial. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS A GREEMENT OR THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES VOLUNTARILY, KNOWINGLY AND INTENTIONALLY AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

23.Sole Discretion of Lender. Except as may otherwise be expressly provided to the contrary, whenever pursuant to this Agreement or any of the Loan Documents, Lender exercises any right given to it to consent or not consent, approve or not approve, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to consent or not consent, or to approve or not to approve, or to decide the arrangements or terms are satisfactory or not satisfactory shall be in the sole and reasonable discretion of Lender and shall be final and conclusive.

24.USA Patriot Act Notice. Lender hereby notifies Borrower that pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Lender to identify Borrower in accordance with the Patriot Act.

25.Emmis Indiana Broadcasting L.P. All references to Emmis Indiana Broadcasting, L.P. (“EIB”) and the real estate owned by EIB in Whitestown, Boone County, Indiana are deleted from the Loan Documents.

IN WITNESS WHEREOF, Borrower and Lender have executed this Loan Agreement.

EMMIS OPERATING COMPANY, an Indiana corporation

By:		/s/ Ryan A. Hornaday
		Ryan A. Hornaday, EVP, CFO & Treasurer

STATE OF INDIANA	)
	)	SS:
COUNTY OF MARION	)

Before me, a Notary Public in and for said County and State, personally appeared Ryan A. Hornaday, EVP, CFO and Treasurer of Emmis Operating Company, an Indiana corporation, who acknowledged the execution of the foregoing Amended and Restated Loan Agreement for and on behalf of such corporation.

Witness my hand and seal this 8^th day of January, 2020.

Karen E. Dynes
Karen E. Dynes		Notary Public

My Commission Expires:		Oct. 18, 2021

My County of Residence:		Johnson

STAR FINANCIAL BANK

By:		/s/ Scott Bove
		Scott Bove, Region President

STATE OF	Indiana	)
		)	SS:
COUNTY OF	Marion	)

Before me, a Notary Public in and for said County and State, personally appeared Scott Bove, Region President of STAR Financial Bank, who, after having been duly sworn, acknowledged the execution of the foregoing Amended and Restated Loan Agreement for and on behalf of such bank.

Witness my hand and seal this 8^th day of January, 2020.

Karen E. Dynes
Karen E. Dynes		Notary Public

Exhibit A

Real Estate
Legal Description

Tract 1 (fee parcel)

Lot 13, and parts of Lots 11 and 12 in Square 55 of the Donation Lands of the City of Indianapolis, Indiana, more particularly described as follows:

Beginning at the Southwest corner of said Lot 13, thence on an assumed bearing of North 00 degrees 00 minutes 16 seconds West along the West line of said Lot 13 a distance of 156.37 feet (156.33 feet, plat) to the Northwest corner of said Lot 13; thence North 62 degrees 06 minutes 17 seconds East along the North line of said Lot 13 a distance of 126.32 feet (126.42 feet, plat) to the Northeast corner of said Lot 13 and a curve, having a radius of 246.65 feet the radius point of which bears North 62 degrees 16 minutes 47 seconds East; thence Southeasterly along the arc of said curve a distance of 141.94 feet to a point which bears South 29 degrees 18 minutes 33 seconds West from said radius; thence South 44 degrees 49 minutes 22 seconds West a distance of 49.86 feet; thence South 00 degrees 06 minutes 46 seconds East a distance of 79.54 feet to the South line of said Lot 11; thence South 89 degrees 55 minutes 38 seconds West along the South line of said Lot 11 and 12 a distance of 174.24 feet to the Point Of Beginning.

AND

Part of Court Street vacated by Declaratory Resolution No. 16366, 1947, recorded December 17, 1947 in Deed Record 1284, page 299 in the Office of the Recorder of Marion County, Indiana, described as follows:

Being that part of Court Street from a point 16 feet above the present surface to an unlimited height upwards, described as follows: Beginning at a point on the North line of Court Street 110 feet West of the West line of Meridian Street, said point being also 110 feet West of the Southeast corner of Lot 11 in Square 55, as recorded in the Marion County Recorder’s Office, Indianapolis, Indiana; thence West along said North line of Court Street for a distance of 50 feet 3 1/8 inches; thence South along a line that is parallel to the West line of Meridian Street for a distance of 15 feet to the intersection of the South line of Court Street; thence East along the South line of Court Street for a distance of 50 feet 3 1/8 inches; thence North along a line that is parallel to the West line of Meridian Street for a distance of 15 feet to the Place Of Beginning.

Tract 2 (easement parcel over leasehold estate)

Non-exclusive easement of use for parking spaces as set forth in Amendment and Restatement of Grant of Easements Agreement dated December 17, 2004, and recorded January 10, 2005, as Instrument 2005-0004191. Amended by Assignment and Assumption of Rights Under G/T Project Agreement, Cross Easement and Parking Agreement and Cross Easement Agreement, dated December 2, 2004, and recorded January 10, 2005, as Instrument 2005-0004198. Further amended by Amendment to Amendment and Restatement of Grant of Easements Agreement dated January 14, 2009, and recorded July 29, 2014, as Instrument A201400069793; by Third Amendment to Grant of Easements Agreement, dated January 1, 2014, and recorded July 29, 2014, as Instrument

A201400069794; and by Fourth Amendment to Grant of Easements 1 0430483v4 4/11/2019 3:44 PM 1989.647 Agreement dated December 21, 2018, and recorded January 15, 2019, as Instrument A201900004819 in the Office of the Recorder of Marion County, Indiana, affecting the following described land:

Lots 3, 4, the South Half of Lot 2 and a part of the 15 foot vacated right-of-way of Bird Street, all situated in Square 55 of the Donation Lands of the City of Indianapolis, Indiana, more particularly described as follows: Beginning at the Southwest corner of said Lot 4; thence on an assumed bearing of North 00 degrees 00 minutes 16 seconds West along the West line of said Lots 4, 3, and 2 a distance of 178.13 feet to the Northwest corner of the South Half of said Lot 2; thence North 89 degrees 55 minutes 38 seconds East along the North line of the South Half of said Lot 2 a distance of 120.00 feet to the Northeast corner of the South Half of said Lot 2; thence South 00 degrees 00 minutes 16 seconds East along the East line of Lot 2 a distance of 21.73 feet; thence North 89 degrees 59 minutes 44 seconds East perpendicular to the East line of said Lot 2 a distance of 15.00 feet to the Northwest corner of Lot 13; thence South 00 degrees 00 minutes 16 seconds East along the West line of Lot 13 a distance of 156.38 feet to the Southwest corner of Lot 13; thence South 89 degrees 55 minutes 38 seconds West along the Easterly extension of the South line of the aforesaid Lot 4 and along the South line of Lot 4 a distance of 135.00 feet to the point of beginning.

Tract 3

Those non-exclusive easements for public access, construction of parking garage, utilities, air rights and encroachment as created and granted in Amendment and Restatement of Grant of Easements Agreement dated December 17, 2004, and recorded January 10, 2005, as Instrument 2005-0004191. Amended by Assignment and Assumption of Rights Under G/T Project Agreement, Cross Easement and Parking Agreement and Cross Easement Agreement, dated December 2, 2004, and recorded January 10, 2005, as Instrument 2005-0004198. Further amended by Amendment to Amendment and Restatement of Grant of Easements Agreement dated January 14, 2009, and recorded July 29, 2014, as Instrument A201400069793; by Third Amendment to Grant of Easements Agreement, dated January 1, 2014, and recorded July 29, 2014, as Instrument A201400069794; and by Fourth Amendment to Grant of Easements Agreement dated December 21, 2018, and recorded January 15, 2019, as Instrument A201900004819 in the Office of the Recorder of Marion County, Indiana

Tract 4

Those non-exclusive easements for access as created and granted in that certain Cross Easement Agreement by and among the Department of Metropolitan Development, Circle Block Partners, LLC, and Goodman Taylor, Inc. dated December 3, 2004 and recorded January 10, 2005 as Instrument No. 2005-4194, as modified by an Assignment and Assumption of Rights Under G/T Project Agreement, Cross Easement and Parking Agreement and Cross Easement Agreement dated December 2, 2004 and recorded January 10, 2005 as Instrument No. 2005-4198 in the Office of the Recorder or Marion County, Indiana.

EXHIBIT B

FORM OF COMPLIANCE CERTIFICATE

[on Borrower’s letterhead]

To:	STAR Financial Bank

3610 River Crossing Parkway

Indianapolis, IN 46240

Attn: Loan Portfolio Manager - Emmis

Re: Compliance Certificate dated _______________________, 202__

Ladies and Gentlemen:

Reference is hereby made to that certain Amended and Restated Loan Agreement, dated as of January 8, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the “Loan Agreement”), by and among EMMIS OPERATING COMPANY, an Indiana corporation (“Borrower”) and STAR Financial Bank, an Indiana bank (“Lender”). Capitalized terms used herein, but not specifically defined herein, shall have the meanings ascribed to them in the Loan Agreement.

Pursuant to Section 6(c)(3) of the Loan Agreement, the undersigned officer of Borrowers hereby certifies as of the date hereof that:

1.The financial information of Borrower and its Subsidiaries described on Exhibit “C” of the Loan Agreement has been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, the Borrower and its Subsidiaries’ consolidated financial condition as of the date thereof and results of operations for the period then ended, except that with respect to unaudited consolidating financial statements (a) shared operating expenses (if applicable) are allocated among business units, as determined by Borrower in good faith and consistently with past practice, and (b) the financial statements do not include income tax expense or benefit, interest income and expense, and non-cash compensation expenses associated with equity compensation arrangements.

2.Such officer has reviewed the terms of the Loan Agreement and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and financial condition of Borrower and its Subsidiaries during the accounting period covered by the financial statements delivered pursuant to Section 6(c)(3) of the Loan Agreement.

3.Such review has not disclosed the existence on and as of the date hereof, and the undersigned does not have knowledge of the existence as of the date hereof, of any event or condition that constitutes an Event of Default, except for such conditions or events listed on Schedule 2 attached hereto, in each case specifying the nature and period of existence thereof and what action Borrower and/or its Subsidiaries have taken, are taking, or propose to take with respect thereto.

4.Except as set forth on Schedule 3 attached hereto, the representations and warranties of Borrower set forth in the Loan Agreement and the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date hereof (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date.

5.As of the date hereof, Borrower and their Subsidiaries are in compliance with the applicable covenants contained in Section 6k of the Loan Agreement as demonstrated on Schedule 4 hereof.

[Signature page follows]

IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned this _____ day of _______________________, 202__

EMMIS OPERATING COMPANY

By:

Name:

Title:

Schedule 1
Financial Information

Schedule 2
Event of Default

Schedule 3
Representations and Warranties

Schedule 4
Financial Covenants

1.Fixed Charge Coverage Ratio.

Borrower and its Subsidiaries’ Fixed Charge Coverage Ratio, measured on a [quarter-end] basis, for the 12 month period ending ________________, 20 __, is :___, which ratio [is/is not] greater than or equal to the ratio set forth in Section 6(k) of the Loan Agreement for the corresponding period.

EXHIBIT C

Subsidiaries

•

Emmis Radio License, LLC

•

Emmis License Corporation of New York

•

Emmis Radio, LLC

•

WBLS-WLIB, LLC

•

WLIB Tower LLC

•

WBLS-WLIB License LLC

•

Emmis Publishing Corporation

•

Emmis Publishing, L.P.

•

WHHL, LLC

Excluded Financial Subsidiaries

•

Emmis New York Radio LLC

•

Emmis New York Radio License LLC

•

Digonex Technologies, Inc.

•

TagStation, LLC

•

NextRadio, LLC

•

NextRadio Sales, LLC

•

Emmis Dynamic Pricing, LLC

•

Other subsidiaries designated is excluded non-guarantor subsidiaries by Borrower In accordance with the loan documents

KD_10566845_3.docx

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Jeffrey H. Smulyan, certify that:

I have reviewed this quarterly report on Form 10-Q of Emmis Communications Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2020
	/s/ JEFFREY H. SMULYAN
	Jeffrey H. Smulyan
	Chairman of the Board and
	Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Ryan A. Hornaday, certify that:

I have reviewed this quarterly report on Form 10-Q of Emmis Communications Corporation;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 9, 2020
	/s/ RYAN A. HORNADAY
	Ryan A. Hornaday
	Executive Vice President, Chief Financial Officer and
	Treasurer

Exhibit 32.1

SECTION 1350 CERTIFICATION

The undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Emmis Communications Corporation (the “Company”), that, to his knowledge:

(1)

the Quarterly Report of the Company on Form 10-Q for the period ended November 30, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 9, 2020
		/s/ JEFFREY H. SMULYAN
		Jeffrey H. Smulyan
		Chairman of the Board and
		Chief Executive Officer

Exhibit 32.2

SECTION 1350 CERTIFICATION

(1)

the Quarterly Report of the Company on Form 10-Q for the period ended November 30, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 9, 2020
		/s/ RYAN A. HORNADAY
		Ryan A. Hornaday
		Executive Vice President, Chief Financial Officer and
		Treasurer