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 June 30, 2020
Commission File Number 001-39029
MEDIACO HOLDING INC.
(Exact name of registrant as specified in its charter)
INDIANA
(State of incorporation or organization)
84-2427771
(I.R.S. Employer Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE, SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrant’s Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
Class A common stock, $0.01 par value |
MDIA |
Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
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|
Accelerated filer |
☐ |
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|
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|
Non-accelerated filer |
☐ |
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|
Smaller reporting company |
☒ |
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|
Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of August 10, 2020, was:
|
|
|
1,683,263 |
|
Shares of Class A Common Stock, $.01 Par Value |
5,413,197 |
|
Shares of Class B Common Stock, $.01 Par Value |
— |
|
Shares of Class C Common Stock, $.01 Par Value |
PART I — FINANCIAL INFORMATION
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
||||
NET REVENUES |
|
$ |
16,334 |
|
|
$ |
6,996 |
|
|
$ |
24,480 |
|
|
$ |
18,781 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
12,277 |
|
|
|
6,488 |
|
|
|
19,165 |
|
|
|
15,945 |
|
Corporate expenses |
|
|
— |
|
|
|
932 |
|
|
|
— |
|
|
|
2,097 |
|
Depreciation and amortization |
|
|
310 |
|
|
|
1,163 |
|
|
|
651 |
|
|
|
2,190 |
|
Total operating expenses |
|
|
12,587 |
|
|
|
8,583 |
|
|
|
19,816 |
|
|
|
20,232 |
|
OPERATING INCOME (LOSS) |
|
|
3,747 |
|
|
|
(1,587 |
) |
|
|
4,664 |
|
|
|
(1,451 |
) |
OTHER EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
— |
|
|
|
(2,279 |
) |
|
|
— |
|
|
|
(4,517 |
) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
3,747 |
|
|
|
(3,866 |
) |
|
|
4,664 |
|
|
|
(5,968 |
) |
PROVISION FOR INCOME TAXES |
|
|
1,227 |
|
|
|
14,493 |
|
|
|
1,516 |
|
|
|
13,876 |
|
CONSOLIDATED NET INCOME (LOSS) |
|
|
2,520 |
|
|
|
(18,359 |
) |
|
|
3,148 |
|
|
|
(19,844 |
) |
PREFERRED STOCK DIVIDENDS |
|
|
— |
|
|
|
528 |
|
|
|
— |
|
|
|
1,057 |
|
NET INCOME (LOSS) |
|
$ |
2,520 |
|
|
$ |
(18,887 |
) |
|
$ |
3,148 |
|
|
$ |
(20,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share attributable to common shareholders |
|
$ |
1.51 |
|
|
$ |
(2.66 |
) |
|
$ |
1.89 |
|
|
$ |
(2.95 |
) |
Basic and diluted weighted average number of common shares outstanding |
|
|
1,667 |
|
|
|
7,096 |
|
|
|
1,667 |
|
|
|
7,090 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.
- 3 -
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
December 31, 2019 |
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June 30, 2020 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
|
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|
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|
|
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Cash and cash equivalents |
|
$ |
2,083 |
|
|
$ |
4,570 |
|
Accounts receivable, net |
|
|
11,101 |
|
|
|
6,810 |
|
Prepaid expenses |
|
|
1,111 |
|
|
|
1,289 |
|
Other current assets |
|
|
1,798 |
|
|
|
607 |
|
Total current assets |
|
|
16,093 |
|
|
|
13,276 |
|
PROPERTY AND EQUIPMENT, NET |
|
|
31,563 |
|
|
|
27,940 |
|
INTANGIBLE ASSETS, NET |
|
|
78,949 |
|
|
|
80,783 |
|
OTHER ASSETS: |
|
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|
|
|
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Deferred tax assets |
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|
13,863 |
|
|
|
— |
|
Operating lease right of use assets |
|
|
26,339 |
|
|
|
24,988 |
|
Deposits and other |
|
|
359 |
|
|
|
117 |
|
Total other assets |
|
|
40,561 |
|
|
|
25,105 |
|
Total assets |
|
$ |
167,166 |
|
|
$ |
147,104 |
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
11,184 |
|
|
$ |
7,221 |
|
Current maturities of long-term debt |
|
|
3,672 |
|
|
|
3,672 |
|
Accrued salaries and commissions |
|
|
728 |
|
|
|
863 |
|
Deferred revenue |
|
|
1,688 |
|
|
|
1,505 |
|
Operating lease liabilities |
|
|
3,161 |
|
|
|
3,472 |
|
Other current liabilities |
|
|
346 |
|
|
|
1,592 |
|
Total current liabilities |
|
|
20,779 |
|
|
|
18,325 |
|
LONG TERM DEBT, NET OF CURRENT |
|
|
77,668 |
|
|
|
81,122 |
|
OPERATING LEASE LIABILITIES, NET OF CURRENT |
|
|
22,983 |
|
|
|
21,311 |
|
ASSET RETIREMENT OBLIGATIONS |
|
|
5,623 |
|
|
|
6,005 |
|
OTHER NONCURRENT LIABILITIES |
|
|
239 |
|
|
|
311 |
|
Total liabilities |
|
|
127,292 |
|
|
|
127,074 |
|
COMMITMENTS AND CONTINGENCIES |
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SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING |
|
|
22,110 |
|
|
|
23,167 |
|
EQUITY (DEFICIT): |
|
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|
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|
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|
Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 1,666,667 shares and 1,683,263 shares at December 31, 2019, and June 30, 2020, respectively |
|
|
17 |
|
|
|
17 |
|
Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 5,359,753 shares and 5,413,197 shares at December 31, 2019, and June 30, 2020, respectively |
|
|
54 |
|
|
|
54 |
|
Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
20,644 |
|
|
|
20,644 |
|
Accumulated deficit |
|
|
(2,951 |
) |
|
|
(23,852 |
) |
Total equity (deficit) |
|
|
17,764 |
|
|
|
(3,137 |
) |
Total liabilities and equity (deficit) |
|
$ |
167,166 |
|
|
$ |
147,104 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.
- 4 -
CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY (DEFICIT)
(Unaudited)
(In thousands, except share data)
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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||||||||||
|
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Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
APIC |
|
|
Net Parent Investment |
|
|
Accumulated Deficit |
|
|
Total |
|
||||||||
BALANCE, DECEMBER 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
79,810 |
|
|
$ |
— |
|
|
$ |
79,810 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
628 |
|
|
|
— |
|
|
|
628 |
|
Net distributions to Emmis Communications Corp. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,451 |
) |
|
|
— |
|
|
|
(3,451 |
) |
BALANCE, MARCH 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
76,987 |
|
|
$ |
— |
|
|
$ |
76,987 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,520 |
|
|
|
— |
|
|
|
2,520 |
|
Net distributions to Emmis Communications Corp. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,352 |
) |
|
|
— |
|
|
|
(2,352 |
) |
BALANCE, JUNE 30, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
77,155 |
|
|
$ |
— |
|
|
$ |
77,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2019 |
|
|
1,666,667 |
|
|
$ |
17 |
|
|
|
5,359,753 |
|
|
$ |
54 |
|
|
$ |
20,644 |
|
|
$ |
— |
|
|
$ |
(2,951 |
) |
|
$ |
17,764 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,485 |
) |
|
|
(1,485 |
) |
Adjustments related to distribution of common shares |
|
|
16,596 |
|
|
|
— |
|
|
|
53,444 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(529 |
) |
|
|
(529 |
) |
BALANCE, MARCH 31, 2020 |
|
|
1,683,263 |
|
|
$ |
17 |
|
|
|
5,413,197 |
|
|
$ |
54 |
|
|
$ |
20,644 |
|
|
$ |
— |
|
|
$ |
(4,965 |
) |
|
$ |
15,750 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,359 |
) |
|
|
(18,359 |
) |
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(528 |
) |
|
|
(528 |
) |
BALANCE, JUNE 30, 2020 |
|
|
1,683,263 |
|
|
$ |
17 |
|
|
|
5,413,197 |
|
|
$ |
54 |
|
|
$ |
20,644 |
|
|
$ |
— |
|
|
$ |
(23,852 |
) |
|
$ |
(3,137 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.
- 5 -
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2019 |
|
|
2020 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,148 |
|
|
$ |
(19,844 |
) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities - |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
651 |
|
|
|
2,190 |
|
Amortization of debt discount |
|
|
— |
|
|
|
291 |
|
Provision for bad debts |
|
|
103 |
|
|
|
390 |
|
Accretion of asset retirement obligation |
|
|
— |
|
|
|
382 |
|
Provision for deferred income taxes |
|
|
1,295 |
|
|
|
13,652 |
|
Noncash compensation |
|
|
132 |
|
|
|
— |
|
Loss on sale of property and equipment |
|
|
— |
|
|
|
82 |
|
Changes in assets and liabilities - |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
820 |
|
|
|
3,921 |
|
Prepaid expenses and other current assets |
|
|
(1,099 |
) |
|
|
1,040 |
|
Other assets |
|
|
528 |
|
|
|
1,602 |
|
Accounts payable and accrued liabilities |
|
|
609 |
|
|
|
(3,873 |
) |
Deferred revenue |
|
|
58 |
|
|
|
(176 |
) |
Income taxes |
|
|
221 |
|
|
|
— |
|
Other liabilities |
|
|
(478 |
) |
|
|
(87 |
) |
Net cash provided by (used in) operating activities |
|
|
5,988 |
|
|
|
(430 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(148 |
) |
|
|
(246 |
) |
Net cash used in investing activities |
|
|
(148 |
) |
|
|
(246 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payments of long-term debt |
|
|
— |
|
|
|
(1,837 |
) |
Proceeds from long-term debt |
|
|
— |
|
|
|
5,181 |
|
Payments for debt-related costs |
|
|
— |
|
|
|
(181 |
) |
Net transactions with Emmis Communications Corp. |
|
|
(5,840 |
) |
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
(5,840 |
) |
|
|
3,163 |
|
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
— |
|
|
|
2,487 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
— |
|
|
|
2,083 |
|
End of period |
|
$ |
— |
|
|
$ |
4,570 |
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
— |
|
|
$ |
2,952 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.
- 6 -
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)
June 30, 2020
(Unaudited)
Note 1. Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P. (“Standard General”) pursuant to an agreement entered into on June 28, 2019. The sale (the “Transaction”) closed on November 25, 2019. On November 26, 2019, the Company’s Form 10 was declared effective and the Company became subject to SEC periodic filing requirements. As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting. On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis and other businesses owned by MediaCo. Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities. The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.
On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”). Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,300 outdoor advertising displays in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.
On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31.
Note 2. Basis of Presentation and Combination
Our condensed consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.
For the six months ended June 30, 2019, MediaCo was 100% owned by Emmis. Our financial statements for this period are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records. Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures. We consider this expense allocation methodology and results thereof to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for all periods presented. It is impracticable to estimate what the standalone costs of MediaCo would have been in the historical periods.
The equity balance in the condensed consolidated and combined financial statements prior to the Transaction represents the excess of total assets over total liabilities. All transactions between the Stations and Emmis were considered to be effectively settled in the condensed consolidated and combined financial statements at the time the intercompany transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the condensed consolidated and combined statements of cash flow as a financing activity and in the condensed consolidated and combined statements of changes in equity as net parent company investment.
Upon consummation of the Transaction, the debt which the Company assumed in connection with transactions between shareholders was recorded to equity, and the total amount of net parent company investment was reclassified to additional paid in capital in the accompanying condensed consolidated and combined financial statements.
- 7 -
Note 3. Summary of Significant Accounting Policies
Allocation Policies
The following allocation policies were established by management of Emmis for the three and six-month periods ended June 30, 2019. In the opinion of management, the methods for allocating these costs were reasonable. It is not practicable to estimate the costs that would have been incurred by us if we had been operated on a stand‑alone basis.
(i) Specifically Identifiable Operating Expenses
Costs which related entirely to the operations of the Stations were attributed entirely to the Stations. These expenses consisted of costs of personnel who are 100% dedicated to the operations of the Stations, all costs associated with locations that conducted only the business of the Stations and amounts paid to third parties for services rendered to the Stations. In addition, any costs incurred by Emmis, which were specifically identifiable to the operations of the Stations, were attributed to the Stations.
(ii) Shared Operating Expenses
Emmis incurred the cost of certain corporate general and administrative services and shared services that benefited all of its entities, including the Stations. These shared services included radio executive management, legal, accounting, information services, telecommunications, human resources, insurance, and intellectual property compliance and maintenance. These costs were allocated to the Stations based on one of the following allocation methods: (1) percentage of Company revenues, (2) percentage of Company’s radio revenues, (3) headcount, and (4) pro rata portion based on the number of stations owned by Emmis. Management determined which allocation method was appropriate based on the nature of the shared service being provided.
(iii) Taxes
The Stations' allocated share of the consolidated Emmis federal tax provision was determined using the separate return method. Under the separate return method, tax expense or benefit was calculated as if the Stations were subject to their own tax returns. State income taxes generally were allocated in a similar manner. Deferred tax assets and liabilities were determined based on differences between the financial reporting and tax bases of assets and liabilities carried by the Stations, and were measured using the enacted tax rates that are expected to be in effect in the period in which these differences were expected to reverse. The principal components of deferred taxes related to tax amortization of indefinite-lived intangibles, namely FCC licenses, which are not amortized (but subject to impairment testing) for financial reporting purposes.
(iv) Allocated Charges
Allocations of Emmis’ costs were included in the condensed consolidated and combined statements of operations of the Stations as follows:
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
||||
Station operating expenses, excluding depreciation and amortization expense |
$ |
733 |
|
|
$ |
— |
|
|
$ |
1,214 |
|
|
$ |
— |
|
Noncash compensation |
|
75 |
|
|
|
— |
|
|
|
132 |
|
|
|
— |
|
Allocated charges from Emmis |
$ |
808 |
|
|
$ |
— |
|
|
$ |
1,346 |
|
|
$ |
— |
|
Intercompany accounts between the Stations and Emmis were included in combined equity.
Cash and Cash Equivalents
We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
Fair Value Measurements
As defined in Accounting Standards Codification (“ASC”) Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.
- 8 -
The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 4, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 4 for more discussion).
Use of Estimates
The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve. Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments have mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
The preparation of condensed consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company. The extent to which the COVID-19 pandemic and related economic disruptions impact the Company’s business and financial results will depend on future developments including, but not limited to: (i) the continued spread, duration and severity of the COVID-19 pandemic, (ii) the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks after the initial outbreak has subsided, (iii) the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity, (iv) the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event, and (v) how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.
As discussed in Note 8, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, we were unable to conclude that it was more likely than not that we would be able to realize our deferred tax assets as of June 30, 2020; accordingly, we recorded a $15.6 million valuation allowance against these assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s condensed consolidated and combined financial statements in future reporting periods.
Per Share Data
Our basic and diluted net loss per share is computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Series A preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses. We did not have any participating securities for the three and six-month periods ended June 30, 2019, as the preferred stock only became convertible to common stock on May 25, 2020. For the three and six-month periods ended June 30, 2019, only the Class A shares issued to Emmis at the close of the Transaction have been assumed to be outstanding. The following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:
- 9 -
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|||||||||||
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
||||
Net income (loss) |
$ |
2,520 |
|
|
$ |
(18,359 |
) |
|
$ |
3,148 |
|
|
$ |
(19,844 |
) |
Preferred dividends |
|
— |
|
|
|
528 |
|
|
|
— |
|
|
|
1,057 |
|
Net income (loss) attributable to common shareholders |
$ |
2,520 |
|
|
$ |
(18,887 |
) |
|
$ |
3,148 |
|
|
$ |
(20,901 |
) |
Basic and diluted weighted average Class A shares outstanding |
|
1,667 |
|
|
|
1,683 |
|
|
|
1,667 |
|
|
|
1,682 |
|
Net income (loss) per share attributable to Class A shareholders |
$ |
1.51 |
|
|
$ |
(2.66 |
) |
|
$ |
1.89 |
|
|
$ |
(2.95 |
) |
Basic and diluted weighted average Class B shares outstanding |
|
— |
|
|
|
5,413 |
|
|
|
— |
|
|
|
5,408 |
|
Net income (loss) per share attributable to Class B shareholders |
$ |
— |
|
|
$ |
(2.66 |
) |
|
$ |
— |
|
|
$ |
(2.95 |
) |
Because we have incurred a net loss for all periods where the Company had potentially dilutive securities, diluted net loss per common share is the same as basic net loss per common share. The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive. There were no potentially dilutive shares for the three and six-month periods ended June 30, 2019 as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 6, nor the Series A convertible preferred stock, were convertible until May 25, 2020.
|
For the Six Months Ended June 30, |
|
|||||
|
2019 |
|
|
2020 |
|
||
Convertible Emmis promissory note |
$ |
— |
|
|
$ |
1,238 |
|
Convertible Standard General promissory note |
|
— |
|
|
|
2,785 |
|
Series A convertible preferred stock |
|
— |
|
|
|
5,734 |
|
Total |
$ |
— |
|
|
$ |
9,757 |
|
Liquidity and Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Pursuant to ASC Topic 205-40, “Going Concern,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period. In evaluating the Company’s ability to continue as a going concern for this reporting period, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the filing of these financial statements (August 14, 2020). Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before August 14, 2021.
The Company has been and continues to be negatively impacted by COVID-19, which the Company expects to negatively impact revenues and profitability for an undetermined period of time. Management has considered these circumstances in assessing the Company’s liquidity over the next year. Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business. The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control. The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures. The Company generally satisfies its liquidity needs through cash provided by operations. In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.
The Company has debt service obligations of approximately $10.3 million due under its Senior Credit Facility from August 14, 2020, the date of issuance of these financial statements, through August 14, 2021. Additionally, the Company owes $5.0 million to Emmis on August 25, 2020, with such amount guaranteed by Standard General in the event MediaCo is unable to make the payment when due. Because the Company’s operating results and financial condition have been adversely impacted by the COVID-19 pandemic, the Company expects its revenues and profitability to decline over the next several months, as compared to the same periods of the prior year. Because the duration and severity of the impact is unknown as of the filing of this Form 10-Q, management is unable to determine with certainty that the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings. Under the terms of its Senior Credit Facility, the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility). Management is also unable to determine whether the Company will be in compliance with its debt covenants and the limits of its borrowing base for the next twelve months. If necessary, management intends to request a waiver or amendment to its Senior Credit Facility and seek additional
- 10 -
borrowings from Standard General. While the Company has been successful in obtaining waivers and amendments under its Senior Credit Facility and has also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future. Accordingly, there is substantial doubt about our ability to continue as a going concern through August 14, 2021. Furthermore, depending on the duration and severity of the impact the COVID-19 pandemic has on our businesses, we may record impairments of assets in the future.
Recent Accounting Pronouncements Not Yet Implemented
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated and combined financial statements.
Note 4. Intangible Assets
Valuation of Indefinite-lived Broadcasting Licenses
In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” the Company’s FCC licenses are considered indefinite-lived intangibles; therefore, they are not subject to amortization, but are tested for impairment at least annually as discussed below.
The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2019 and June 30, 2020. Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA with another broadcaster. The stations have historically performed an annual impairment test of indefinite-lived intangibles as of December 1 of each year. In connection with our change in fiscal years from one that ends in February to a traditional calendar year end, we plan to perform our annual impairment test of indefinite-lived intangible assets as of October 1 of each year. When indicators of impairment are present, we will perform an interim impairment test. Due to the impact the COVID-19 pandemic has had on our radio operations, we considered the need to perform an interim impairment test during the quarter ended June 30, 2020. However, given the cushion that exists between the most recently-available fair market values and current carrying values, the Company concluded no interim impairment testing was required. These impairment tests may result in additional impairment charges in future periods.
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in its market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take into consideration then current economic conditions. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA.
Valuation of Goodwill
As a result of the Fairway Acquisition discussed in Note 1 and the initial purchase price allocation, goodwill of $11.4 million was recognized in December 2019. We made a number of purchase price allocation adjustments during the six months ended June 30, 2020, resulting in an increase to goodwill of $1.3 million from the initial valuation. The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and June 30, 2020. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. While the COVID-19 pandemic has negatively affected our outdoor operations, as of June 30, 2020, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period. The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill.
- 11 -
As a result of the Fairway Acquisition, the Company acquired the trade name “Fairway”. The trade name is well known in the industry and is being retained for continued market use following the acquisition. This trade name favorably factors into customer purchasing decisions. For the purchase price allocation, the trade name was valued using the relief from royalty method. This method is based on what a company would be willing to pay for a royalty in order to exploit the related benefits of the trade name. The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name. The preliminary valuation assigned to the trade name as a result of the purchase price accounting is $0.7 million. The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward. We will assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.
Definite-lived intangibles
The following table presents the weighted-average useful life at June 30, 2020, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2019, and June 30, 2020:
|
|
As of December 31, 2019 |
|
|
As of June 30, 2020 |
||||||||||||||||||||
|
|
(in 000's, except years) |
|||||||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
Weighted Average Remaining Useful Life (in years) |
||||||
Programming agreement |
|
$ |
2,154 |
|
|
$ |
1,640 |
|
|
$ |
514 |
|
|
$ |
2,154 |
|
|
$ |
1,787 |
|
|
$ |
367 |
|
1.3 |
Customer list |
|
|
3,030 |
|
|
|
14 |
|
|
|
3,016 |
|
|
|
4,540 |
|
|
805 |
|
|
|
3,735 |
|
2.5 |
In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i) determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by comparing the long-lived asset's fair value to its current carrying value.
Total amortization expense from definite-lived intangibles for the six-month periods ended June 30, 2019 and 2020 was $0.1 million and $0.9 million, respectively. The following table presents the Company's estimate of future amortization expense for definite-lived intangibles:
Year ending December 31, |
|
Expected Amortization Expense |
|
|
Remainder of 2020 |
|
$ |
918 |
|
2021 |
|
|
1,734 |
|
2022 |
|
|
1,450 |
|
Note 5. Revenue
The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) display advertising on outdoor structures, (iii) non-traditional revenues including event-related revenues and event sponsorship revenues, and (iv) digital advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the condensed consolidated and combined financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
Radio Advertising
On-air broadcast revenue is recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the condensed consolidated balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.
- 12 -
Our outdoor advertising business has approximately 3,300 faces consisting of bulletins, posters and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. Digital billboards are computer controlled LED displays where six to eight advertisers rotate continuously, each one having seven to ten seconds to display a static image. Digital billboards are generally located on major traffic arteries and streets. A substantial portion of this revenue is lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Rental revenue is recognized on a straight-line basis over the term of the respective lease.
Nontraditional
Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations conduct in their local market. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.
Digital
Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video sponsorships, but excluding digital billboard advertisements) to advertisers. Digital revenues are generally recognized as the digital advertising is delivered.
Other
Other revenue includes barter revenue, network revenue, and production revenue. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on barter arrangements when we broadcast the advertisements. Advertisements delivered under barter arrangements are typically aired during the same period in which the products and services are consumed. The Company also sells certain remnant advertising inventory to third-parties for cash, and we refer to this as network revenue. The third-parties aggregate our remnant inventory with other broadcasters' remnant inventory for sale to third parties, generally to large national advertisers. This network revenue is recognized as we broadcast the advertisements. In connection with certain outdoor advertising arrangements, the customer may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure. This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure.
Disaggregation of revenue
The following table presents the Company's revenues disaggregated by revenue source:
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||||||||||||||
|
|
2019 |
|
% of Total |
|
|
2020 |
|
% of Total |
|
|
2019 |
|
% of Total |
|
|
2020 |
|
% of Total |
|
||||||||
Revenue by Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
|
$ |
7,466 |
|
|
46 |
% |
|
$ |
2,628 |
|
|
38 |
% |
|
$ |
13,508 |
|
|
55 |
% |
|
$ |
9,008 |
|
|
48 |
% |
Outdoor Advertising |
|
|
— |
|
|
0 |
% |
|
|
3,030 |
|
|
43 |
% |
|
|
— |
|
|
0 |
% |
|
|
6,297 |
|
|
34 |
% |
Nontraditional |
|
|
6,714 |
|
|
41 |
% |
|
|
80 |
|
|
1 |
% |
|
|
6,975 |
|
|
29 |
% |
|
|
248 |
|
|
1 |
% |
Digital |
|
|
1,036 |
|
|
6 |
% |
|
|
340 |
|
|
5 |
% |
|
|
1,750 |
|
|
7 |
% |
|
|
1,014 |
|
|
5 |
% |
Other |
|
|
1,118 |
|
|
7 |
% |
|
|
918 |
|
|
13 |
% |
|
|
2,247 |
|
|
9 |
% |
|
|
2,214 |
|
|
12 |
% |
Total net revenues |
|
$ |
16,334 |
|
|
|
|
|
$ |
6,996 |
|
|
|
|
|
$ |
24,480 |
|
|
|
|
|
$ |
18,781 |
|
|
|
|
The decline in nontraditional revenues is due to the cancellation of our largest concert, Summer Jam, due to the pandemic.
- 13 -
Long-term debt was comprised of the following at December 31, 2019, and June 30, 2020:
|
|
December 31, 2019 |
|
|
June 30, 2020 |
|
||
Senior credit facility |
|
$ |
72,527 |
|
|
$ |
70,871 |
|
Notes payable to Emmis |
|
|
5,000 |
|
|
|
5,000 |
|
Notes payable to SG Broadcasting |
|
|
6,250 |
|
|
|
11,250 |
|
Less: Current maturities |
|
|
(3,672 |
) |
|
|
(3,672 |
) |
Less: Unamortized original issue discount |
|
|
(2,437 |
) |
|
|
(2,327 |
) |
Total long-term debt, net of current portion and debt discount |
|
$ |
77,668 |
|
|
$ |
81,122 |
|
Senior Credit Facility
On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent, which included one tranche of additional borrowings of $25.0 million. The Senior Credit Facility provided for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company. The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor. The Senior Credit Facility requires interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount are due on the last day of each calendar quarter. The Senior Credit Facility includes covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions. The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019. Proceeds received were $22.6 million, net of a debt discount of $0.8 million.
On February 28, 2020, the Company entered into Amendment No. 1 to its Senior Credit Facility, in order to, among other things, increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note to $10.3 million.
On March 27, 2020, the Company entered into Amendment No. 2 (“Amendment No. 2”) to its Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note (as defined below) from $10.3 million to $20.0 million. In connection with Amendment No. 2, the Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding. The Senior Credit Facility is carried net of a total unamortized discount of $2.3 million at June 30, 2020.
- 14 -
On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million. The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company has been accruing interest since inception using the rate applicable if the interest will be paid in kind. The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. The Emmis Convertible Promissory Note matures on November 25, 2024.
Notes Payable to SG Broadcasting
On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.3 million for working capital and general corporate purposes. The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.
On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of June 30, 2020 was $11.3 million.
Based on amounts outstanding at June 30, 2020, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Senior Credit Facility |
|
|
Emmis Note |
|
|
SG Broadcasting Note |
|
|
Total Payments |
|
||||
Remainder of 2020 |
|
$ |
1,836 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,836 |
|
2021 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
2022 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
2023 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
2024 |
|
|
58,019 |
|
|
|
5,000 |
|
|
|
— |
|
|
|
63,019 |
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
|
11,250 |
|
|
|
11,250 |
|
Total |
|
$ |
70,871 |
|
|
$ |
5,000 |
|
|
$ |
11,250 |
|
|
$ |
87,121 |
|
Note 7. Regulatory, Legal and Other Matters
From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
- 15 -
As discussed in Note 3, our provision for income taxes for the three and six-month periods ended June 30, 2019 in these condensed consolidated and combined financial statements has been calculated using the separate return basis, as if we filed separate tax returns. The effective tax rate for the six months ended June 30, 2019 and 2020 was 33%, and 233% respectively. During the three-month period ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, the Company was not able to conclude that it was more likely than not that it would be able to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes.
Note 9. Leases
We determine if an arrangement is a lease at inception. We have operating leases for office space, tower space, equipment and automobiles expiring at various dates through October 2049. Some leases have options to extend and some have options to terminate. Beginning March 1, 2019, operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our condensed consolidated 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, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option.
Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred. Variable lease expense recognized in the six months ended June 30, 2020 was not material.
We elected not to apply the recognition requirements of Accounting Standards Codification 842, “Leases”, to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, we recognized lease payments in the condensed consolidated and combined statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. We elected this policy for all classes of underlying assets. Short-term lease expense recognized in the six months ended June 30, 2020, was not material.
The impact of operating leases to our condensed consolidated financial statements was as follows:
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
|
Lease Cost |
|
|
|
|
Operating lease cost |
|
$ |
2,493 |
|
Other Information |
|
|
|
|
Operating cash flows from operating leases |
|
|
2,572 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
— |
|
Weighted average remaining lease term - operating leases (in years) |
|
|
9.2 |
|
Weighted average discount rate - operating leases |
|
|
9.0 |
% |
As of June 30, 2020, the annual minimum lease payments of our operating lease liabilities were as follows:
Year ending December 31, |
|
|
|
|
Remainder of 2020 |
|
$ |
2,690 |
|
2021 |
|
|
5,162 |
|
2022 |
|
|
5,064 |
|
2023 |
|
|
4,090 |
|
2024 |
|
|
2,678 |
|
After 2024 |
|
|
18,701 |
|
Total lease payments |
|
|
38,385 |
|
Less imputed interest |
|
|
13,602 |
|
Total recorded lease liabilities |
|
$ |
24,783 |
|
- 16 -
Our outdoor advertising business generates lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Minimum fixed lease consideration under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease consideration, as of June 30, 2020, is as follows:
Note 10. Asset Retirement Obligations
The Company’s asset retirement obligation includes the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations.
Balance at December 31, 2019 |
|
|
$ |
5,623 |
|
Purchase price allocation adjustment |
|
|
|
44 |
|
Accretion expense |
|
|
|
382 |
|
Liabilities settled |
|
|
|
(44 |
) |
Balance at June 30, 2020 |
|
|
$ |
6,005 |
|
Note 11. Acquisition
On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC from Fairway Outdoor Advertising Group, LLC for a purchase price of $43.1 million, subject to customary working capital adjustments. Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia. The acquisition was funded through $23.4 million of additional borrowings under the Senior Credit Facility as described in Note 6, which were net of a debt discount of $0.8 million, resulting in $22.6 million of proceeds. The remainder was financed by SG Broadcasting through $22.0 million of newly-issued Series A Convertible Preferred Stock. The terms of the Series A convertible preferred stock are described in Note 13. The Company believes this is a highly-scalable business model with attractive operative leverage.
- 17 -
As of June 30 2020, our fair value allocation of the assets acquired and liabilities assumed from Fairway Outdoor is considered preliminary and is subject to revision, which may result in adjustments to this allocation. A number of purchase price adjustments were made in the six-month period ended June 30, 2020 which resulted in an increase to goodwill of $1.3 million. We continue to analyze inputs to the valuation models for all long term assets, including intangibles, as well as estimated asset retirement obligations. We expect to finalize these amounts during 2020. The allocations presented in the table below are based upon management’s estimate of the fair value using valuation techniques including income, cost and market approaches. The most significant asset acquired, property, plant and equipment, was valued using the cost approach. The preliminary purchase price allocation was as follows:
Cash consideration |
$ |
43,108 |
|
Due from Seller |
|
(106 |
) |
Total Consideration |
$ |
43,002 |
|
|
|
|
|
Accounts receivable |
$ |
1,485 |
|
Other current assets |
|
133 |
|
Property, plant and equipment |
|
27,435 |
|
Operating lease, right-of-use assets |
|
15,264 |
|
Goodwill |
|
12,685 |
|
Intangibles (Note 4) |
|
5,270 |
|
Deferred tax asset |
|
1,054 |
|
Other assets |
|
15 |
|
Assets Acquired |
$ |
63,341 |
|
Accounts payable |
$ |
73 |
|
Accrued expenses and other current liabilities |
|
585 |
|
Current portion of operating lease liabilities |
|
822 |
|
Operating lease liabilities, less current portion |
|
12,320 |
|
Asset retirement obligations (Note 10) |
|
5,634 |
|
Deferred revenue |
|
753 |
|
Other noncurrent liabilities |
|
152 |
|
Liabilities Assumed |
$ |
20,339 |
|
Net Assets Acquired |
$ |
43,002 |
|
The Fairway Acquisition was accounted for under the acquisition method of accounting, and, accordingly, the accompanying consolidated and combined financial statements include the results of operations of each acquired entity from the date of acquisition.
The following unaudited pro forma financial information for the Company gives effect to the Fairway Acquisition as if it had occurred on January 1, 2019. These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on such date or to project the Company’s results of operations for any future period.
|
|
Six Months Ended June 30, 2019 |
|
|
Net revenues |
|
$ |
31,291 |
|
Net income attributable to common shareholders |
|
|
1,811 |
|
Goodwill of $12.7 million was recognized as a result of the purchase which represented the excess of the purchase price over the identifiable acquired assets, $10.3 million of which is deductible for tax purposes. The goodwill acquired is assigned to the outdoor advertising segment.
Note 12. Segment Information
The Company’s operations are aligned into two business segments: (i) Radio, and (ii) Outdoor advertising. Radio includes the operations and results of WQHT-FM and WBLS-FM, and outdoor advertising includes the operations and results of the Fairway businesses acquired in December 2019. The Company groups activities that are not considered operating segments in the “All Other” category.
These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses, including transaction costs, are not allocated to reportable segments. The Company’s segments operate exclusively in the United States.
The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the ten months ended December 31, 2019, and in Note 1 to these condensed consolidated and combined financial statements, are applied consistently across segments.
- 18 -
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
|||||
Net revenues |
|
$ |
3,829 |
|
|
$ |
3,167 |
|
|
$ |
— |
|
|
$ |
6,996 |
|
Operating expenses excluding and depreciation and amortization expense |
|
|
4,005 |
|
|
|
2,483 |
|
|
|
— |
|
|
|
6,488 |
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
932 |
|
|
|
932 |
|
Depreciation and amortization |
|
|
232 |
|
|
|
931 |
|
|
|
— |
|
|
|
1,163 |
|
Operating loss |
|
$ |
(408 |
) |
|
$ |
(247 |
) |
|
$ |
(932 |
) |
|
$ |
(1,587 |
) |
Three Months Ended June 30, 2019 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
Net revenues |
|
$ |
16,334 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,334 |
|
Operating expenses excluding depreciation and amortization expense |
|
|
12,277 |
|
|
|
— |
|
|
|
— |
|
|
|
12,277 |
|
Depreciation and amortization |
|
|
310 |
|
|
|
— |
|
|
|
— |
|
|
|
310 |
|
Operating income |
|
$ |
3,747 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,747 |
|
Six Months Ended June 30, 2020 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
Net revenues |
|
$ |
12,168 |
|
|
$ |
6,613 |
|
|
$ |
— |
|
|
$ |
18,781 |
|
Operating expenses excluding depreciation and amortization expense |
|
|
10,936 |
|
|
|
5,009 |
|
|
|
— |
|
|
|
15,945 |
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
2,097 |
|
|
|
2,097 |
|
Depreciation and amortization |
|
|
481 |
|
|
|
1,709 |
|
|
|
— |
|
|
|
2,190 |
|
Operating income (loss) |
|
$ |
751 |
|
|
$ |
(105 |
) |
|
$ |
(2,097 |
) |
|
$ |
(1,451 |
) |
Six Months Ended June 30, 2019 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
Net revenues |
|
$ |
24,480 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,480 |
|
Operating expenses excluding depreciation and amortization expense |
|
|
19,165 |
|
|
|
— |
|
|
|
— |
|
|
|
19,165 |
|
Depreciation and amortization |
|
|
651 |
|
|
|
— |
|
|
|
— |
|
|
|
651 |
|
Operating income |
|
$ |
4,664 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,664 |
|
Total Assets |
|
Radio |
|
|
Outdoor Advertising |
|
|
Consolidated |
|
|||
As of December 31, 2019 |
|
$ |
102,921 |
|
|
$ |
64,245 |
|
|
$ |
167,166 |
|
As of June 30, 2020 |
|
|
84,193 |
|
|
|
62,911 |
|
|
|
147,104 |
|
Note 13. Related Party Transactions
Corporate Overhead and Share-Based Compensation
For the three and six months ended June 30, 2019, MediaCo was 100% owned by Emmis. Our financial statements for this period are derived from the books and records of Emmis. As described below, Emmis provides us certain services, including executive oversight, legal, finance, human resources and information technology. Our condensed consolidated and combined financial statements reflect an allocation of these costs. When specific identification is not practicable, these costs have been allocated on a pro rata basis of revenue, headcount and other measures. In addition, our employees participated in Emmis share-based compensation plans, the costs of which have been allocated to us.
Transaction Agreement with Emmis and SG Broadcasting
On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $91.5 million in cash, a $5.0 million note and 23.72% of the common stock of MediaCo, (ii) Standard General purchased 76.28% of the common stock of MediaCo, and (iii) the common stock of MediaCo received by Emmis was distributed pro rata in a taxable dividend to Emmis’ shareholders on January 17, 2020. The common stock of MediaCo acquired by Standard General is entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to one vote per share. Emmis will continue to
- 19 -
provide management services to the Stations under a Management Agreement, subject to the direction of the MediaCo board of directors which currently consists of four directors appointed by Standard General and three directors appointed by Emmis. MediaCo pays Emmis an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into the management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements.
For the three and six months ended June 30, 2020, MediaCo recorded $0.3 million and $0.6 million of management fee expense, respectively, which is included in corporate expenses in the accompanying condensed consolidated and combined statements of operations. $0.1 million was unpaid as of June 30, 2020 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. Under the Employee Leasing Agreement, the employees of the Stations will remain employees of Emmis and we reimburse Emmis for the cost of these employees, including health and benefit costs. The initial term of the Employee Leasing Agreement will last through December 31, 2020, and will automatically renew for successive six-month periods, unless otherwise terminated upon the occurrence of certain events. Upon termination of the Employee Leasing Agreement, we will hire all of the leased employees and assume employment and collective bargaining agreements related to those employees. Expense related to the Employee Leasing Agreement, which is included in operating expenses, was $1.4 million and $4.5 million for the three and six months ended June 30, 2020, respectively. Approximately $0.5 million of this expense remains unpaid as of June 30, 2020.
Convertible Promissory Notes
As a result of the Transaction, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively. On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of June 30, 2020 was $11.3 million.
The terms of these notes are described in Note 6.
Convertible Preferred Stock
On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.
MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to the Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Preferred Shares, will be subject to certain restrictions, including that (i) the MediaCo Series A Preferred Shares shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Preferred Share could be converted, and (ii) the MediaCo Series A Preferred Shares, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company. Issued and outstanding shares of MediaCo Series A Preferred Shares shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior debt of the Company (see Note 6), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof.
MediaCo Series A Preferred Shares are redeemable for cash at the option of SG Broadcasting at any time on or after June 12, 2025, and so the shares are classified outside of permanent equity. The Series A Preferred Shares are also convertible into shares of Class A common stock at the option of SG Broadcasting at any time after May 25, 2020, with the number of shares of common stock determined by dividing the original contribution, plus accrued dividends, by the 30-day volume weighted average share price of Class A common shares. The Series A Preferred Shares are considered participating securities for the purposes of calculating earnings per share under the two-class method.
- 20 -
Loan Proceeds Participation Agreement
See Note 14 for a description of the Loan Proceeds Participation Agreement entered into with Emmis during the quarter ended June 30, 2020.
Note 14. Loan Proceeds Participation Agreement
On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo (ii) Emmis agreed to waive up to $1.5 million in reimbursement obligations of MediaCo to Emmis under the Employee Leasing Agreement to the extent that the PPP Loan is forgiven, and (iii) MediaCo agreed to promptly pay Emmis an amount equal to 31.56% of the amount of the PPP Loan, if any, that Emmis is required to repay, up to the amount of the reimbursement obligations forgiven under (ii) above. Standard General L.P., on behalf of all of the funds for which it serves as an investment advisor, agreed to guaranty MediaCo’s obligations under the LPPA.
As of the date of these financial statements, Emmis believes that the loan will be forgiven as Emmis believes it has spent the proceeds on qualifying expenditures. Accordingly, $1.5 million of leased employee expense was waived by Emmis during the quarter ended June 30, 2020.
Note 15. Subsequent Events
On August 11, 2020, Fairway Outdoor LLC (“Fairway”) entered into a Management Agreement with Billboards LLC, an affiliate of Standard General L.P., under which Fairway will manage certain billboards owned or operated by Billboards LLC in exchange for $0.1 million per year and reimbursement of direct expenses incurred by Fairway in connection with the management of the billboards.
- 21 -
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:
|
• |
Our relationship with Emmis and Emmis Operating Company’s ability to effectively manage our operations; |
|
• |
Potential conflicts of interest with SG Broadcasting and our status as a “controlled company”; |
|
• |
Our ability to operate as a standalone public company and to execute on our business strategy; |
|
• |
Our ability to compete with, and integrate into our operations, new media channels, such as digital video, YouTube, and real-time media delivery; |
|
• |
Our ability to continue to exchange advertising time for goods or services; |
|
• |
Our ability to use market research, advertising and promotions to attract and retain audiences; |
|
• |
U.S. regulatory requirements for owning and operating media broadcasting channels and our ability to maintain regulatory licenses granted by the FCC; |
|
• |
Industry and economic trends within the U.S. radio industry, generally, and the New York City radio industry, in particular; |
|
• |
Our ability to finance our operations or to obtain financing on terms that are favorable to MediaCo; |
|
• |
Our ability to successfully complete and integrate any future acquisitions; |
|
• |
The impact of COVID-19 and other pandemics; |
|
• |
The accuracy of management’s estimates and assumptions on which the Company’s financial projections are based; 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 Transition Report on Form 10-KT, filed with the Securities and Exchange Commission on March 27, 2020. MediaCo does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.
GENERAL
We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in Southern Georgia and Eastern Kentucky. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales are the primary component of our consolidated revenues. These rates are in large part based on our radio stations’ ability to attract audiences in demographic groups targeted by their advertisers and the number of persons exposed to our billboards. 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, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.
Our revenues vary throughout the year. Revenue and operating income are usually lowest in the first calendar quarter for both our radio and outdoor advertising segments, partly because retailers cut back their advertising spending immediately following the holiday shopping season.
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.
- 22 -
The following table summarizes the sources of our revenues for the three and six months ended June 30, 2019 and 2020. The category “Non Traditional” principally consists of ticket sales and sponsorships of events our stations conduct in their local market. The category “Other” includes, among other items, revenues related to network revenues, production of billboard advertisements and barter.
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||||||||||||||
|
|
2019 |
|
% of Total |
|
|
2020 |
|
% of Total |
|
|
2019 |
|
% of Total |
|
|
2020 |
|
% of Total |
|
||||||||
Revenue by Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
|
$ |
7,466 |
|
|
46 |
% |
|
$ |
2,628 |
|
|
38 |
% |
|
$ |
13,508 |
|
|
55 |
% |
|
$ |
9,008 |
|
|
48 |
% |
Outdoor Advertising |
|
|
— |
|
|
0 |
% |
|
|
3,030 |
|
|
43 |
% |
|
|
— |
|
|
0 |
% |
|
|
6,297 |
|
|
34 |
% |
Nontraditional |
|
|
6,714 |
|
|
41 |
% |
|
|
80 |
|
|
1 |
% |
|
|
6,975 |
|
|
29 |
% |
|
|
248 |
|
|
1 |
% |
Digital |
|
|
1,036 |
|
|
6 |
% |
|
|
340 |
|
|
5 |
% |
|
|
1,750 |
|
|
7 |
% |
|
|
1,014 |
|
|
5 |
% |
Other |
|
|
1,118 |
|
|
7 |
% |
|
|
918 |
|
|
13 |
% |
|
|
2,247 |
|
|
9 |
% |
|
|
2,214 |
|
|
12 |
% |
Total net revenues |
|
$ |
16,334 |
|
|
|
|
|
$ |
6,996 |
|
|
|
|
|
$ |
24,480 |
|
|
|
|
|
$ |
18,781 |
|
|
|
|
We derive a majority of our net revenues from radio advertising sales. Our radio operations represent approximately two-thirds of our consolidated net revenues, with the remaining one-third coming from our outdoor advertising operations. No customer represents more than 10% of our net revenues.
Roughly 20% 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, ratings fees, rent, utilities and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
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 a large portion of the radio industry, our stations have deployed HD Radio®. HD Radio offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. In addition to offering secondary channels, the HD Radio spectrum allows broadcasters to transmit other forms of data. We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the market in which we operate.
Our stations have also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, and harnessing the power of digital video on our websites and YouTube channels.
The results of our radio operations are solely dependent on the results of our stations in the New York market. Some of our competitors that operate larger station clusters in the New York market are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates. Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 35.7% for the six months ended June 30, 2020, as compared to the same period of the prior year. During this period, revenues for our stations were down 50.1%, exceeding the market average in large part due to the cancellation of Summer Jam, our largest concert which is held in June of each year.
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, MediaCo’s long-term debt agreements substantially limit our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so.
- 23 -
The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve. Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments have mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
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
Broadcasting revenue is recognized as advertisements are aired. Both broadcasting revenue and outdoor advertising revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue or displayed for outdoor advertising revenue. Broadcasting advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
FCC Licenses
As of December 31, 2019 and June 30, 2020, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 38% and 43%, respectively, of our total assets. We would not be able to operate our radio stations 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, each of our FCC licenses has been renewed at the end of its respective period, and we expect that each FCC license will continue to be renewed in the future. We consider our FCC licenses to be indefinite-lived intangibles.
We do not amortize indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster. Consequently, our two radio stations in New York are considered a single unit of accounting.
We plan to perform the annual impairment test of our FCC Licenses as of October 1 of each year and to perform additional interim impairment testing whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its 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 the unit of accounting’s market remains unchanged, with the exception that the 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 then current economic conditions into consideration. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value.
- 24 -
As a result of the Fairway Acquisition discussed in Note 1 and the initial purchase price allocation, goodwill of $11.4 million was recognized in December 2019. We made a number of purchase price allocation adjustments during the six months ended June 30, 2020, resulting in an increase to goodwill of $1.3 million from the initial valuation. The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and June 30, 2020. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. While the COVID-19 pandemic has negatively affected our outdoor operations, as of June 30, 2020, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period. The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. During the three-month period ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, the Company was not able to conclude that it was more likely than not that it would be able to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes.
Results of Operations for the Three-Month and Six-Month Periods Ended June 30, 2020, Compared to June 30, 2019
Net revenues:
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(As reported, amounts in thousands) |
|
|||||||||||||||||||||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
16,334 |
|
|
$ |
3,829 |
|
|
$ |
(12,505 |
) |
|
|
(76.6 |
)% |
|
$ |
24,480 |
|
|
$ |
12,168 |
|
|
$ |
(12,312 |
) |
|
|
(50.3 |
)% |
Outdoor Advertising |
|
|
— |
|
|
|
3,167 |
|
|
|
3,167 |
|
|
N/A |
|
|
|
— |
|
|
|
6,613 |
|
|
|
6,613 |
|
|
N/A |
|
||
Total net revenues |
|
$ |
16,334 |
|
|
$ |
6,996 |
|
|
$ |
(9,338 |
) |
|
|
(57.2 |
)% |
|
$ |
24,480 |
|
|
$ |
18,781 |
|
|
$ |
(5,699 |
) |
|
|
(23.3 |
)% |
Net radio revenues decreased for both the three and six-month periods ended June 30, 2020. The decrease is the result of the decline in advertising revenues as a result of the COVID-19 pandemic, coupled with the cancellation of Summer Jam, our largest outdoor concert which is held in June of each year, including the prior year.
We typically 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 our radio markets decreased 35.7% for the six-month period ended June 30, 2020, as compared to the same period of the prior year. Our gross revenues reported to Miller Kaplan were down 50.1% for the six-month period ended June 30, 2020, as compared to the same period of the prior year.
We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019; therefore, there is no comparable information in our reported results for the same periods of the prior year.
- 25 -
Operating expenses excluding depreciation and amortization expense:
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(As reported, amounts in thousands) |
|
|||||||||||||||||||||||||||||
Operating expenses excluding depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
12,277 |
|
|
$ |
4,005 |
|
|
$ |
(8,272 |
) |
|
|
(67.4 |
)% |
|
$ |
19,165 |
|
|
$ |
10,936 |
|
|
$ |
(8,229 |
) |
|
|
(42.9 |
)% |
Outdoor Advertising |
|
|
— |
|
|
|
2,483 |
|
|
|
2,483 |
|
|
N/A |
|
|
|
— |
|
|
|
5,009 |
|
|
|
5,009 |
|
|
N/A |
|
||
Total operating expenses excluding depreciation and amortization expense |
|
$ |
12,277 |
|
|
$ |
6,488 |
|
|
$ |
(5,789 |
) |
|
|
(47.2 |
)% |
|
$ |
19,165 |
|
|
$ |
15,945 |
|
|
$ |
(3,220 |
) |
|
|
(16.8 |
)% |
The decrease in radio operating expenses excluding depreciation and amortization expense for the three and six-month periods ended June 30, 2020 is due to the fact that our largest outdoor concert, Summer Jam, is normally held in June of every year, but due to the COVID-19 pandemic, it was cancelled. Therefore, we did not incur the costs of producing the event this year. Expenses also declined due to lower payroll costs as a result of the Loan Proceeds Participation Agreement with Emmis, described in Note 14, and cost reductions put in place in response to the decline in revenue caused by the COVID-19 pandemic. The prior year, which is presented on a carve-out basis, includes approximately $1.3 million of allocated costs from Emmis.
We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019; therefore, there is no comparable information in our reported results for the same periods of the prior year.
Corporate expenses
MediaCo became a public company in November 2019 and there were no corporate costs in the historical carve-out financial statements. Corporate costs in the six months ended June 30, 2020 principally consist of (1) professional fees associated with being a public company, (2) consulting fees associated with the acquisition of our outdoor advertising businesses and related accounting matters, and (3) management fees paid to Emmis.
Depreciation and amortization:
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(As reported, amounts in thousands) |
|
|||||||||||||||||||||||||||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
310 |
|
|
$ |
232 |
|
|
$ |
(78 |
) |
|
|
(25.2 |
)% |
|
$ |
651 |
|
|
$ |
481 |
|
|
$ |
(170 |
) |
|
|
(26.1 |
)% |
Outdoor Advertising |
|
|
— |
|
|
|
931 |
|
|
$ |
931 |
|
|
N/A |
|
|
|
— |
|
|
|
1,709 |
|
|
|
1,709 |
|
|
N/A |
|
||
Total depreciation and amortization |
|
$ |
310 |
|
|
$ |
1,163 |
|
|
$ |
853 |
|
|
|
275.2 |
% |
|
$ |
651 |
|
|
$ |
2,190 |
|
|
$ |
1,539 |
|
|
|
236.4 |
% |
The increase in depreciation and amortization expense in the three and six-month periods ended June 30, 2020 relates to the acquisition of our outdoor advertising businesses in the quarter ended December 31, 2019. Radio depreciation and amortization expense decreased due to certain assets becoming fully depreciated in the prior year.
- 26 -
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||||||
|
|
(As reported, amounts in thousands) |
|
|||||||||||||||||||||||||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
3,747 |
|
|
$ |
(408 |
) |
|
$ |
(4,155 |
) |
|
|
(110.9 |
)% |
|
$ |
4,664 |
|
|
$ |
751 |
|
|
$ |
(3,913 |
) |
|
|
(83.9 |
)% |
Outdoor Advertising |
|
|
— |
|
|
|
(247 |
) |
|
|
(247 |
) |
|
N/A |
|
|
|
— |
|
|
|
(105 |
) |
|
|
(105 |
) |
|
N/A |
|
||
All Other |
|
|
— |
|
|
|
(932 |
) |
|
|
(932 |
) |
|
N/A |
|
|
|
— |
|
|
|
(2,097 |
) |
|
|
(2,097 |
) |
|
N/A |
|
||
Total operating income (loss) |
|
$ |
3,747 |
|
|
$ |
(1,587 |
) |
|
$ |
(5,334 |
) |
|
|
(142.4 |
)% |
|
$ |
4,664 |
|
|
$ |
(1,451 |
) |
|
$ |
(6,115 |
) |
|
|
(131.1 |
)% |
Radio operating income decreased in both the three and six-month periods ended June 30, 2020, due to the impact of the COVID-19 pandemic. Operating income for radio in the prior year is net of $0.8 and $1.3 million of allocated costs from Emmis associated with the presentation of carve-out financial statements for the three and six-month periods, respectively.
We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019; therefore, there is no comparable information in our reported results for the same periods of the prior year.
There were no stand-alone corporate expenses in the prior year as MediaCo became a public company in November 2019.
Interest expense
For the three and six-month periods ended June 30, 2019 there was no interest expense allocated to MediaCo from Emmis in connection with the presentation of carve-out financial statements. During the quarter ended December 31, 2019, the Company entered into numerous debt instruments to finance SG Broadcasting’s acquisition of a controlling interest in the Company from Emmis in November 2019 and the Fairway Acquisition in December 2019.
Provision for income taxes:
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
||||||
|
|
(As reported, amounts in thousands) |
||||||||||||||||||||||||||
Provision for income taxes |
|
$ |
1,227 |
|
|
$ |
14,493 |
|
|
$ |
13,266 |
|
|
N/M |
|
$ |
1,516 |
|
|
$ |
13,876 |
|
|
$ |
12,360 |
|
|
N/M |
During the quarter ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company concluded that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets. Given the uncertainty in the economy due to the ongoing COVID-19 pandemic, particularly in the New York market, the Company concluded it could not reasonably estimate pre-tax income for the year ended December 31, 2020, so the Company is calculating its provision for income taxes on a discrete basis until there is greater clarity.
Consolidated net income (loss):
|
|
For the Three Months Ended June 30, |
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
|
|
|
|
||||||||||
|
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
2019 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
||||||
|
|
(As reported, amounts in thousands) |
||||||||||||||||||||||||||
Consolidated net income (loss) |
|
$ |
2,520 |
|
|
$ |
(18,887 |
) |
|
$ |
(21,407 |
) |
|
N/M |
|
$ |
3,148 |
|
|
$ |
(20,901 |
) |
|
$ |
(24,049 |
) |
|
N/M |
Net income decreased for the three and six-month periods ended June 30, 2020 primarily due to a decline in operating income, an increase in interest expense and an increase in the provision for income taxes, each as discussed above.
- 27 -
Liquidity and Capital Resources
At June 30, 2020, we had cash and cash equivalents of $4.6 million and net working capital of $(5.0) million. At December 31, 2019, we had cash and cash equivalents of $2.1 million and net working capital of $(4.7) million.
On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of June 30, 2020 was $11.3 million.
On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo (ii) Emmis agreed to waive up to $1.5 million in reimbursement obligations of MediaCo to Emmis under the Employee Leasing Agreement to the extent that the PPP Loan is forgiven, and (iii) MediaCo agreed to promptly pay Emmis an amount equal to 31.56% of the amount of the PPP Loan, if any, that Emmis is required to repay, up to the amount of the reimbursement obligations forgiven under (ii) above. Standard General L.P., on behalf of all of the funds for which it serves as an investment advisor, agreed to guaranty MediaCo’s obligations under the LPPA. As of the date of these financial statements, Emmis believes that the loan will be forgiven as Emmis believes it has spent the proceeds on qualifying expenditures. Accordingly, $1.5 million of leased employee expense was waived by Emmis during the three months ended June 30, 2020.
Cash flows used in operating activities was $0.4 million for the six months ended June 30, 2020 versus cash flows provided by operating activities of $6.0 million for the six months ended June 30, 2019. The decrease was mainly attributable to a decrease in net income due to the COVID-19 pandemic as well as interest on debt that was not allocated to MediaCo from Emmis in connection with the presentation of carve-out financial statements in the prior year.
Cash flows used in investing activities were $0.1 million and $0.2 million for the six months ended June 30, 2019 and June 30, 2020, respectively, attributable to capital expenditures in both periods.
Cash flows provided by financing activities were $3.2 million for the six months ended June 30, 2020, due to $5.2 million of debt proceeds, net of debt payments and debt-related costs of $2.0 million, versus cash flows used in financing activities of $5.9 million for the six months ended June 30, 2019. For the period ended June 30, 2019, the net amount of cash provided by operating activities and cash used in financing activities was swept to and retained by Emmis.
Our primary sources of liquidity are cash on hand, cash provided by operations, and, if received, cash available through borrowings under the SG Broadcasting Promissory Note. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions. As part of the acquisition of SG Broadcasting’s controlling interest in the Company from Emmis on November 25, 2019, Emmis retained the working capital of the stations, but the Company was permitted to collect and use, for a period of nine months, the first $5.0 million of net working capital attributable to the stations as of the closing date. This amount is due to Emmis on the nine month anniversary of the closing date, or August 25, 2020. This right to $5.0 million of retained net working capital was satisfied in January 2020 and used in the operations of the business. MediaCo does not believe it will generate $5.0 million of excess cash from operations by August 25, 2020 to repay this amount to Emmis, but Standard General has guaranteed this payment to Emmis in the event MediaCo is unable to make the payment when due. Additionally, during the quarter ended June 30, 2020, MediaCo elected not to pay certain rent obligations under its studio and broadcast tower leases. The Company remains delinquent in payment of these obligations as of the filing of this Form 10-Q, but is working to make all such payments on or before the expiration of the various executive orders of the Governor of the State of New York that prohibit landlords from taking certain actions against tenants in New York. These executive orders are currently expected to expire on August 20, 2020. The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and principal and interest payments on its indebtedness. As of the filing of this Form 10-Q and as more fully discussed in Note 3 to the accompanying condensed consolidated and combined financial statements, management is unable to determine with certainty that it will be able to meet its liquidity needs for the next twelve months with cash on hand, cash provided by operations, and/or additional borrowings.
- 28 -
As of June 30, 2020, approximately 43% 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. 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, substantially all FCC licenses have been renewed at or after the end of their respective periods, and we expect that our FCC licenses will be renewed in the future.
Regulatory, Legal and Other Matters
From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As an emerging growth 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 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 June 30, 2020, our Disclosure Controls are effective to ensure that information relating to MediaCo Holding Inc. 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.
The Company is in the process of implementing our standardized control procedures within Fairway Outdoor and expects this to be completed during 2020.
There were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Refer to Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In the opinion of management of the Company there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 5. Other Information
Effective August 11, 2020, we appointed Brad A. Tobin, age 38, to the position of Chief Operating Officer of MediaCo Holding Inc. (the “Company”). Patrick Walsh, formerly the Company’s President and Chief Operating Officer, will retain the title of President. Mr. Tobin has over 12 years of legal and operational experience. Prior to joining the Company, Mr. Tobin served as Secretary and General Counsel of Standard Diversified Inc. (an affiliate of the Company), and before that served as the General
- 29 -
Counsel and Senior Vice President of General Wireless Operations Inc. d/b/a RadioShack. Preceding this role, Mr. Tobin served on the distressed debt team at Silver Point Capital, LP. Mr. Tobin holds a Juris Doctor from St. John’s University, School of Law in New York and a B.S. in Economics from the University of Wisconsin-Madison.
Mr. Tobin will receive an annual base salary of $200,000, and an annual performance bonus in such amount as may be determined in the discretion of the compensation committee of the board of directors of the Company. Mr. Tobin will also receive a grant of restricted shares of our Class A common stock having a fair market value of $600,000 on the date of grant, with such shares scheduled to vest on in three equal installments on each anniversary of the date of grant. The restricted stock grant will be made in accordance with the terms of the form of Restricted Stock Agreement that is attached hereto and incorporated herein as Exhibit 10.2, and generally governs the terms of all restricted stock grants under the Company’s 2020 Equity Compensation Plan. Mr. Tobin also retains the right to participate in all of our employee benefit plans for which he is otherwise eligible. The Company expects to memorialize in a formal employment agreement these terms, as well as any others that may be agreed upon between the Company and Mr. Tobin.
Also on August 11, 2020, the board of directors of the Company unanimously authorized the entry into a certain Management Agreement (the “Billboard Agreement”) between Fairway Outdoor LLC (a subsidiary of the Company, “Fairway”) and Billboards LLC (an affiliate of Standard General, “Billboards”). Under the Billboard Agreement, Fairway will manage the billboard business of Billboards in exchange for payments of $25,000 per quarter and reimbursement of all out-of-pocket expenses incurred by Fairway in the performance of its duties under the Billboard Agreement. The Billboard Agreement has an effective date of August 1, 2020, has a term of three years, and has customary provisions on limitation of liability and indemnification. The foregoing description does not purport to be a complete statement of the terms and conditions of the transaction or the rights of the parties to the Billboard Agreement, and is qualified in its entirety by reference to the text of the Billboard Agreement, a copy of which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.
- 30 -
|
(a) |
Exhibits. |
The following exhibits are filed or incorporated by reference as a part of this report:
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Exhibit |
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Incorporated by Reference |
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Number |
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Exhibit Description |
|
Filed Herewith |
|
Form |
|
Period Ending |
|
Exhibit |
|
Filing Date |
||
3.1 |
|
Amended and Restated Articles of Incorporation of MediaCo Holding Inc., as amended |
|
|
|
10-KT |
|
12/31/2019 |
|
3.1 |
|
3/27/2020 |
||
3.2 |
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|
|
10-12B/A |
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3.2 |
|
11/22/2019 |
|||
10.1 |
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|
8-K |
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|
10.1 |
|
4/27/2020 |
|||
10.2 |
|
Form of Restricted Stock Agreement under 2020 Equity Compensation Plan. |
|
X |
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|
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||
10.3 |
|
Management Agreement, effective August 1, 2020, between Fairway Outdoor LLC and Billboards LLC. |
|
X |
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||
31.1 |
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X |
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31.2 |
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X |
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32.1 |
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X |
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32.2 |
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X |
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|||
101.INS |
|
XBRL Instance Document |
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X |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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X |
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101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
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X |
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101.LAB |
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XBRL Taxonomy Extension Labels Linkbase Document |
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X |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
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||
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
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X |
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- 31 -
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.
|
MEDIACO HOLDING INC. |
|
|
|
|
Date: August 14, 2020 |
By: |
/s/ RYAN A. HORNADAY |
|
|
Ryan A. Hornaday |
|
|
Executive Vice President, Chief Financial Officer and |
|
|
Treasurer |
- 32 -
Exhibit 10.2
RESTRICTED STOCK AGREEMENT
Shares of Restricted Stock are awarded, effective as of the Date of Grant (as defined below), by MediaCo Holding Inc. (the “Company”) to the person named below (the “Grantee”) upon the following terms and conditions. The Grantee will be deemed to have accepted the Restricted Stock unless the Grantee delivers a written notice of rejection to the Company within 120 days of the Date of Grant. The Restricted Stock grant evidenced by this Restricted Stock Agreement (the “Agreement”) is made pursuant to the MediaCo Holding 2020 Equity Compensation Plan (the “Plan”), which is incorporated in this Agreement by reference. A prospectus for the Plan is located __________________.
1. Definitions. For purposes of this Agreement and any amendments hereto, the terms defined in Section 2 of the Plan, when capitalized in this Agreement, shall have the same meanings as the meanings ascribed to them by the Plan, unless a different meaning is specified in this Agreement, or unless a different meaning is plainly required by the context. For purposes of this Agreement and any amendments hereto, the following terms, when capitalized, have the following meanings, unless a different meaning is plainly required by the context:
Grantee:
Restricted Stock:
Date of Grant:
Vesting Date:
2. Reference to Plan. The Restricted Stock is granted pursuant to the Plan in effect on the Date of Grant. No amendment of the Plan adopted after the Date of Grant shall apply to the Restricted Stock unless, by its express provisions, the amendment is effective retroactive to the Date of Grant or some earlier date. No such retroactive amendment may, without the consent of the Grantee, adversely affect the rights of the Grantee under this Agreement.
3. Share Award. The Company hereby awards to the Grantee, subject to the terms and conditions of the Plan and subject to the terms and conditions of this Agreement, the Restricted Stock in the form of Class A Common Stock of the Company.
4. Vesting and Restrictions on Transfer. The Restricted Stock will vest on the Vesting Date or such earlier date as may be determined pursuant to this Agreement or the Plan unless the Restricted Stock has been forfeited pursuant to Section 5. During the time from the Date of Grant to the Vesting Date or such earlier date as may be determined pursuant to this Agreement or the Plan (the “Restricted Period”), the Grantee may not sell, assign, transfer, pledge or otherwise encumber the Restricted Stock, except as hereinafter provided, and any action or omission by the Grantee in violation of this prohibition shall be void and will not be recognized as effective. The Committee shall have the authority, in its discretion, to waive the provisions of Section 5 and to shorten the Restricted Period as to any or all of the Restricted Stock, and thereby to cause such Restricted Stock to vest at an earlier date.
5. Forfeiture and Early Vesting.
(a) The Restricted Stock shall be forfeited and returned to the Company if the Grantee has a Termination of Employment prior to the Vesting Date, unless the Termination of Employment is: (i) due to the death of the Grantee; or (ii) due to the Disability of the Grantee; or (iii) effected by the Company or a Subsidiary due to the elimination of the Grantee’s position (other than in connection with the sale or disposition of one or more stations, magazines or other business units); or (iv) effected by the Company or a Subsidiary in connection with the sale or disposition of one or more stations, magazines or other business units; or (v) due to the Retirement (as defined below) of the Grantee. However, the provisions of this Section shall not be deemed to limit the
authority of the Committee to declare the Restricted Stock fully vested whenever the Committee may determine that such action is appropriate pursuant to the Plan or this Agreement.
(b) If the Grantee has a Termination of Employment prior to the Vesting Date due to the death, Disability or Retirement of the Grantee or in connection with the sale or disposition of one or more stations, magazines or other business units, all of the Restricted Stock shall vest immediately prior to such Termination of Employment. For purposes of this Agreement, “Retirement” shall mean a Termination of Employment other than for Cause at a time when either:
|
(i) |
the sum of the Grantee’s years of service to the Company plus the Grantee’s age upon Termination of Employment is not less than sixty-five, or |
|
(ii) |
the Grantee is not less than fifty-five years of age and the Grantee has provided not less than ten years of service to the Company. |
For purposes of Section 5(b), years of service to the Company, whether completed before or after the Date of Grant, shall be included.
(c) If the Grantee has a Termination of Employment that is effected by the Company or a Subsidiary due to the elimination of the Grantee’s position (other than in connection with the sale or disposition of one or more stations, magazines or other business units) prior to the Vesting Date, then the portion of the Restricted Stock that shall vest immediately prior to such Termination of Employment is equal to the total number of shares of Restricted Stock times a fraction, the numerator of which is the number of days from the Date of Grant to the date of the Termination of Employment and the denominator of which is the number of days between the Date of Grant and the Vesting Date. If the calculation in the preceding sentence results in a fractional share, the number of shares which are not forfeited will be rounded up to the next whole share. The remaining shares of Restricted Stock shall be forfeited and returned to the Company.
(d) Following the forfeiture of a share of Restricted Stock, the Grantee shall no longer hold any rights as a shareholder with respect to the forfeited shares of the Restricted Stock, and such forfeited shares shall no longer be outstanding.
6. Certificates for Restricted Stock. Following the Date of Grant, the Company may issue a certificate in respect of the Restricted Stock in the name of the Grantee and, if so, shall hold such certificate of deposit for the account of the Grantee until the expiration of the Restricted Period. Each such certificate shall bear the following legend:
The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) contained in the MediaCo Holding Inc. 2020 Equity Compensation Plan and an Agreement entered into between the registered owner and MediaCo Holding Inc. Copies of such Plan and Agreement are on file in the office of the Secretary of MediaCo Holding Inc., One Emmis Plaza, 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204.
Upon issuance of such certificate, the Grantee shall be deemed to have appointed the Company as its agent to sell, transfer or assign the Restricted Stock in such manner as the Company deems appropriate, provided that such sale, transfer or assignment is not prohibited by the terms of this Agreement or the Plan. In addition, if requested by the Company, following the issuance of such certificate, the Grantee shall execute a stock power endorsed in blank and shall promptly deliver such stock power to the Company.
7. Grantee's Rights as Stockholder. If a certificate is issued for the Restricted Stock, then during the Restricted Period: (i) the Grantee shall have the right to vote any Restricted Stock which has not been forfeited hereunder; and (ii) the Grantee shall have the right to receive any declared distribution (provided, however, that if the distribution is in the form of Stock or other securities, the Stock or other securities shall be subject to the
2
same restrictions as the Restricted Stock). Except as otherwise provided in this Agreement, the Grantee shall have none of the rights of a shareholder in respect of the Restricted Stock.
8. Delivery of Shares Upon Expiration of Restricted Period. Upon the expiration of the Restricted Period, the Company shall issue a certificate in respect to the Restricted Stock in the name of the Grantee. Such certificate shall be free from any restrictive legend. If the Company issued a certificate pursuant to Section 6, the Company shall (i) exchange the previously issued certificate in respect of the Restricted Stock for a new certificate in respect of such shares that does not bear the legend provided for in Section 6 above, (ii) deliver such new certificate to the Grantee and (iii) relinquish to the Grantee the stock power held by the Company pursuant to Section 6.
9. Adjustments for Changes in Capitalization of the Company. If the Company is involved in any reorganization, reclassification, recapitalization, stock split, reverse stock split, stock dividend, share combination, merger, consolidation, asset spin‑off or similar event, the Committee will make equitable adjustments of the number of shares of Restricted Stock and all other matters relating to the Plan and the Restricted Stock (including the type of security or property to be delivered upon vesting), all in such manner as may be determined by the Committee in its discretion, in order to prevent dilution or enlargement of the Grantee’s rights under this Agreement. The Committee’s determination is conclusive in these matters. Any shares of Stock or other securities received by the Grantee as a result of any of the foregoing shall be subject to the same restrictions as the Restricted Stock.
10. Delivery and Registration of Shares of Stock. The Company's obligation to deliver shares of Stock hereunder shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Grantee or any other person to whom such shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933, as amended, or any other federal, State or local securities legislation. In requesting any such representation, it may be provided that such representation requirement shall become inoperative upon a registration of such shares or other action eliminating the necessity of such representation under such Securities Act or other securities legislation. The Company shall not be required to deliver any shares under this Agreement prior to (i) the admission of such shares to listing on any stock exchange on which the shares of Stock may then be listed, and (ii) the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable.
11. Section 83(b) Election. The Grantee is not prohibited from making the election permitted under Section 83(b) of the Code (i.e., an election to include in such Grantee’s gross income in the year of transfer the amounts specified in Section 83(b) of the Code), provided Grantee notifies the Company of such election within ten days of filing notice of the election with the Internal Revenue Service.
12. Withholding Tax. Upon vesting of the Restricted Stock (or at such earlier time if an election is made by the Grantee under Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the value of the Restricted Stock in taxable income), the Company shall have the right to require the Grantee or other person receiving the Restricted Stock to pay the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Stock or, in lieu thereof, to retain, or sell without notice, a sufficient number of shares of the Restricted Stock held by it to cover the amount of tax required to be withheld. Furthermore, the Company shall have the right to defer the delivery of shares and the release of the stock power, as provided in Section 8, following the expiration of the Restricted Period until arrangements satisfactory to the Company have been made with respect to any withholding obligations. The Company shall also have the right to deduct from all dividends paid with respect to the Restricted Stock the amount of any taxes which the Company or any Affiliate is required to withhold with respect to such dividend payments.
13. Notices. All notices hereunder to the Company shall be delivered or mailed to it addressed to the Secretary, MediaCo Holding Inc., One Emmis Plaza, 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204. All notices hereunder to the Grantee shall be delivered personally or mailed to the address of the Grantee's personal residence on file with the Company. Such addresses for the service of notices may be changed at any time provided written notice of the change is furnished in advance to the other party.
3
14. Plan and Plan Interpretations as Controlling. The Restricted Stock and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Plan, which are controlling. All determinations and interpretations of the Committee shall be binding and conclusive upon the Grantee or Grantee’s legal representatives with regard to any question arising hereunder or under the Plan.
15. Grantee's Service. Nothing in this Agreement shall: (i) limit the right of the Company or any of its Affiliates to terminate the Grantee's service as a director, officer or employee, for any or no reason or (ii) otherwise impose upon the Company or any of its Affiliates any obligation to employ or accept the services of the Grantee.
16. Compliance with Laws and Regulations.
(a) This Award of the Restricted Stock and the transactions described in the Plan and this Agreement are subject to compliance by the Company and the Grantee with all applicable requirements of law, including but not limited to federal and state securities laws, and with all applicable regulations of The Nasdaq Stock Market (or any other stock exchange, if applicable) on which the Stock may be designated or listed for trading at the time of the Award or the subsequent issuance of the Stock certificate following the expiration of the Restricted Period.
(b) It is further intended that the Restricted Stock is exempt from the requirements of Internal Revenue Code Section 409A. Therefore, as otherwise provided in the Plan, this Agreement shall be administered, interpreted, and construed to carry out such intention, and any provision of this Agreement that cannot be so administered, interpreted, and construed shall to that extent be disregarded and of no effect.
17. Entire Agreement; Governing Law; Attorneys’ Fees. The Plan is incorporated into this Agreement by reference as if it appeared here in full. The Plan and this Agreement together make up the entire agreement of the Company and Grantee with respect to the subject matter of this Agreement and supersede in their entirety all prior promises and agreements of the Company and Grantee with respect to the subject matter of this Agreement. This Agreement is to be construed, administered and governed in all respects under and by the internal laws (but not the choice of law rules) of the State of Indiana. Each of the Company and Grantee hereby submits to jurisdiction before any state or federal court of record in Marion County, Indiana.
IN WITNESS WHEREOF, this Restricted Stock Agreement is effective as of the Date of Grant.
Note: The Grantee will be deemed to have accepted the Restricted Stock unless the Grantee delivers a written notice of rejection to the Company within 120 days of the Date of Grant.
4
Exhibit 10.3
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT (the “Agreement”) effective August 1, 2020 (the “Agreement Date”) by and between Billboards LLC, a Delaware limited liability company (the “Billboards LLC”), and Fairway Outdoor LLC, a Delaware limited liability company (“Manager”).
BACKGROUND
Billboards LLC wishes to retain and engage Manager to provide management services to Billboards LLC and its subsidiaries, including Standard Outdoor LLC, a Delaware limited liability company, and its respective subsidiaries (collectively, the “Company”), pursuant to the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties hereby agree as follows:
1.Agreement; Term.
1.1Billboards LLC hereby retains Manager to perform, and Manager agrees to perform, on the terms set forth herein, management services regarding the business of, and such other services relating to, the Company as may from time to time be reasonably requested by the executive officers of the Company and agreed to by Manager. The services shall initially include the services set forth on Exhibit A hereto, and also may include, but which will not in any way be limited to, management and consulting with respect to the following: (a) general executive and management services; (b) finance functions, including assistance in the preparation of financial projections, and monitoring of compliance with financing agreements; (c) marketing functions, including monitoring of marketing plans and strategies; (d) human resource functions, including searching and hiring of executives; and (e) other services for the Company upon which the Company and Manager agree.
1.1The initial term of this Agreement shall be three (3) years following the Agreement Date, and the term shall renew automatically thereafter unless terminated by either party upon thirty (30) days’ prior written notice to the other party; provided that the obligations of Billboards LLC to pay amounts due under this Agreement with respect to periods prior to the termination hereof and the provisions of Sections 6 and 7 shall survive any termination of this Agreement.
1.2Manager shall consult with the manager and officers of the Company as Manager, from time to time, as it shall deem necessary or appropriate to fulfill its obligations hereunder. The parties understand and agree that Manager shall devote only so much time, and shall consult with and advise the manager and officers of the Company only to such extent and at such times and places as may be mutually convenient to the Company and Manager.
1.3The Company hereby grants to Manager such powers and authority which are or may be necessary to enable Manager to discharge its obligations hereunder.
1.4Manager shall not be required to advance any funds or obligate itself in any manner to third parties for or on behalf of the Company.
2.1The Company shall cooperate with Manager in the performance of Manager’s obligations under this Agreement and shall make available to Manager all books, records and other information which Manager may request in order to perform such obligations.
2.2The Company shall not take or fail to take any action that would adversely affect the performance of Manager’s obligations hereunder.
3.No Exclusivity. Neither this Agreement, nor the provision of services by Manager pursuant to the terms hereof, shall in any way limit the ability of Manager to enter into similar agreements or provide similar services to or with other persons.
4.Management Fee.
4.1In consideration of the services provided by Manager under this Agreement, the Company shall pay to Manager a Management Fee (the “Management Fee”) of $25,000 each calendar quarter payable on the first (1st) day of each calendar quarter following the quarter. For any partial quarter for which management services are rendered, the Company shall pay the associated pro rata portion of the Management Fee.
4.2In addition to the Management Fee, the Company shall reimburse Manager for all reasonable out-of-pocket expenses incurred by Manager in the performance of its duties hereunder, which shall include, but not be limited to the reimbursement of: (i) salary and associated compensation for those Company employees that are hired by the Manager to provide services for the benefit of the Company; (ii) incremental information technology and licensing costs attributable to the Company; and (iii) any other incremental costs associated with its performance under the Agreement.
5.Nature of Relationship between Parties. The relationship between the parties hereto shall be that of independent contractors. Nothing contained in this Agreement shall be deemed to make Manager an employee, partner, co-venturer or other participant in the business or operations of the Company, or in any manner render Manager liable, as principal, surety, guarantor, agent or otherwise, for any of the debts, obligations or liabilities of the Company, whether incurred directly by the Company or by Manager on behalf of the Company in accordance with this Agreement; it being understood that such debts, obligations and liabilities are and shall be and remain solely those of the Company.
6.Limitation of Liability; Indemnification.
6.1Neither Manager nor any of its affiliates, members, managers, partners, directors, officers, employees, agents and controlling persons (collectively, the “Manager Parties”) shall be liable to the Company or any of its affiliates or any security holder or creditor of the Company for any and all liabilities, losses, claims, damages (including, without limitation, punitive, direct and indirect and consequential damages, diminution in value and lost revenue and income), actions, suits, proceedings, demands, fines, penalties, assessments, adjustments, settlement payments, deficiencies, diminution in value, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) suffered, sustained, incurred or paid by the Manager Parties in connection with, resulting from or arising out of, directly or indirectly, the performance of services contemplated by this Agreement.
6.2The Company shall indemnify, defend and hold the Manager Parties harmless from and against and in respect of any and all losses arising from, in connection with or relating to (a) any act or omission of, or on behalf of, the Company, Manager or any of the Manager Parties, or (b) any act or omission made at the direction of the Company.
7.Miscellaneous.
7.1Governing Law. This Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law and choice of law that would cause the laws of any other jurisdiction to apply.
7.2Amendment and Waiver. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of the parties hereto. Any amendment or waiver effected in accordance this section shall be binding upon the parties hereto.
7.3Entire Agreement. This Agreement constitutes the entire agreement between the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement.
7.4Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by e-mail if sent during normal business hours of the recipient, if not, then on the next business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) the next business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to each party at the address or e-mail address set forth on the signature page hereof, or at such other address as each party may designate by ten (10) days’ advance written notice to the other party hereto.
7.5Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
7.6Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
7.7Successors and Assigns. This Agreement may not be assigned by either party without the prior written consent of the other party hereto. The provisions hereof shall inure to the benefit of, and be binding upon, the successors and assigns of the parties hereto.
7.8Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
7.9Confidentiality. The parties hereto shall use reasonable commercial efforts not to disclose any monetary terms or conditions contained in this Agreement to any parties other than (i) their attorneys, accountants, agents, brokers and similar personnel providing professional services or advice and (ii) as required by law.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on August 11, 2020 as of the effective date set forth in the first paragraph hereof.
BILLBOARDS LLC
By: /s/ Soohyung Kim
Name: Soohyung Kim
Title: Chief Investment Officer/Portfolio Manager
Address:
767 Fifth Avenue, 12th Floor
New York, NY 10153
Attention: General Counsel
E-mail: legal@standgen.com
FAIRWAY OUTDOOR LLC
By: /s/ J. Scott Enright
Name:J. Scott Enright
Title:Secretary
Address:
40 Monument Circle, Suite 700
Indianapolis, IN 46204
Attention: Legal Department
E-mail: legal@mediacoholding.com
Exhibit A
Initial Management Services
1.Financial administrative services necessary and appropriate for the Company’s operations, including accounting, bookkeeping, capital and operating budgets, tax matters, accounts receivable and accounts payable processing.
2.Insurance and risk management service (including with general liability, product liability and other customary insurance policies).
3.Scheduling.
4.Banking.
5.Litigation management and legal services, including negotiations with third parties.
6.Use and application of Manager’s software and related business management systems.
7.Business technology support.
8.Budgeting.
9.Day-to-day administrative services (secretarial, security, etc.).
10.Marketing, communications and public relations support; special events.
11.Permitting/Licensing
12.Sales and Marketing
13.Origination and management of Leasing and License activities and related real estate services as activities
14.Property and billboard management activities, including construction and maintenance
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jeffrey H. Smulyan, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of MediaCo Holding Inc.; |
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2. |
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; |
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3. |
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; |
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4. |
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: |
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(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; |
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(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; |
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(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 |
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(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 |
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5. |
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): |
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(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 |
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(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: August 14, 2020 |
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/s/ JEFFREY H. SMULYAN |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Ryan A. Hornaday, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of MediaCo Holding Inc.; |
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2. |
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; |
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3. |
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; |
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4. |
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: |
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(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; |
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(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; |
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(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 |
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(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 |
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5. |
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): |
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(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 |
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(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: August 14, 2020 |
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/s/ RYAN A. HORNADAY |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and |
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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 MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2020, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 14, 2020 |
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/s/ JEFFREY H. SMULYAN |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 32.2
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 MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2020, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 14, 2020 |
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/s/ RYAN A. HORNADAY |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and |
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Treasurer |