Business Combinations

WBLS-FM & WLIB-AM

On February 11, 2014, subsidiaries of Emmis entered into a Purchase and Sale Agreement with YMF, pursuant to which Emmis agreed to purchase the assets of New York radio stations WBLS-FM and WLIB-AM (collectively, the "Stations") for $131.0 million, subject to customary adjustments and prorations. The purchase of the Stations enhances the Company's scale in New York, the second largest market in the United States as measured by total radio revenues. Additionally, the Stations' adult urban and urban gospel formats complement the hip-hop format of our existing station in New York.

Upon approval of the transaction by the Federal Communications Commission, Emmis and YMF executed the first closing of the transaction on June 10, 2014, whereby YMF transferred the assets of the Stations to Emmis and Emmis paid YMF $55.0 million of cash and transferred to YMF Media New York a 49.9% ownership interest in the Emmis subsidiaries that own the Stations' assets. A second closing is scheduled to occur on or about February 15, 2015 and will involve the payment of the balance of the purchase price of $76.0 million to YMF in exchange for the transfer to Emmis of YMF Media New York's interest in the Emmis subsidiaries that own the Stations' assets.

On February 11, 2014, Emmis and YMF entered into an LMA for the Stations. On March 1, 2014, Emmis began providing programming and selling advertising for the Stations. Under the terms of the LMA, Emmis paid $1.275 million per month 75 days in arrears to YMF for the right to program the station and sell advertising. The monthly LMA fee decreased to approximately $0.74 million after the first closing of the purchase of the Stations on June 10, 2014. The ongoing, reduced monthly LMA fees were recognized as additional purchase price of the Stations on June 10, 2014.

Emmis gained control over the Stations effective with the first closing on June 10, 2014 and consolidated the Stations beginning on that date. YMF is entitled to the remaining purchase price of $76.0 million at the second closing and the $0.74 million monthly LMA fees until the second closing, but does not otherwise share in the income or loss of the Stations subsequent to the first closing.

On June 10, 2014, Emmis entered into a Credit Agreement, by and among the Company, Emmis Operating Company, a wholly owned subsidiary of the Company, the lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and Fifth Third Bank, as syndication agent (the "2014 Credit Agreement"). The 2014 Credit Agreement includes a senior secured term loan facility of $185.0 million and a senior secured revolving credit facility of $20.0 million. Pursuant to the 2014 Credit Agreement, the Company borrowed $185.0 million of the senior secured term loans on June 10, 2014; $109.0 million was disbursed to the Company and the remaining $76.0 million was funded into escrow. The proceeds from the term loan and additional funding from the revolving credit facility were used to fund the first closing of the acquisition described above, settle amounts due under the Company's former credit facility, and pay fees related to the issuance of the Credit Agreement. The $76.0 million of funds in escrow will be used to fund the second closing of the acquisition in February 2015. See Note 5 for more discussion of the 2014 Credit Agreement.

The following table summarizes the preliminary estimates of fair values of the identifiable assets acquired and liabilities assumed in the acquisition of the Stations as of June 10, 2014. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions until management's appraisals and estimates are finalized, which may result in adjustments to the preliminary values presented below.



Other current assets	$	37
Property and equipment	4,054
Indefinite-lived intangibles	69,019
Goodwill	58,945
Other intangibles	2,469
Other current liabilities	(512		)
Total purchase price, including assumed liabilities	$	134,012

Cash paid at first closing on June 10, 2014	$	55,000
Present value of second closing and LMA related liabilities	79,012
Total purchase price	$	134,012

Goodwill is calculated as the excess of the purchase price over the net assets acquired. Management attributes the goodwill recognized in the acquisition of the Stations to the power of the existing WBLS-FM and WLIB-AM brands in the New York marketplace as well as the synergies and growth opportunities expected through the combination of the adult urban and urban gospel stations with the Company's existing hip-hop station. The $58.9 million of goodwill recognized in the transaction is included in our radio segment and is deductible for tax purposes.

The indefinite-lived intangible assets are comprised entirely of the Stations' FCC licenses. FCC broadcasting licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory requirements. Historically, all of our FCC broadcasting licenses have been renewed at or after the end of their respective periods, and we expect that these FCC broadcasting licenses will continue to be renewed in the future. Our indefinite-lived intangibles are not amortized.

Other intangibles consist of a customer list intangible asset of $0.3 million and a syndicated programming intangible asset of $2.2 million. The customer list intangible asset is being amortized over 3 years and the syndicated programming intangible asset is being amortized over 7 years, which is the remaining term of the programming agreement, including renewals which are at the option of the Company.

The results of operations of the Stations are largely included in the Company's results of operations for the six-month period ended August 31, 2014 as the Company began providing programming and selling advertising of the Stations on March 1, 2014 pursuant to an LMA. Net revenues and station operating expenses, excluding LMA fees and depreciation and amortization expense, of the Stations were $13.6 million and $7.1 million for the period March 1, 2014 through August 31, 2014. LMA fees were $4.2 million for the same period.

We incurred acquisition costs related to the Stations totaling $0.3 million and $0.6 million for the three months and six months ended August 31, 2014, respectively. Acquisition costs included in station operating expenses, excluding LMA fees and depreciation and amortization expense, in the accompanying condensed consolidated statements of operations were $0.3 million and $0.4 million for the three months and six months ended August 31, 2014, respectively. Acquisition costs included in corporate expenses, excluding depreciation and amortization expense, in the accompanying condensed consolidated statements of operations were less than $0.1 million and $0.2 million for the three months and six months ended August 31, 2014, respectively. Including acquisition costs incurred during the year ended February 28, 2014 of $0.9 million, cumulative acquisition costs related to the Stations were $1.5 million.

In connection with the first closing, Emmis and YMF executed an amendment to their Asset Purchase Agreement dated April 5, 2012 relating to Emmis' sale of the intellectual property of WRKS-FM. The amendment, executed on June 10, 2014, fixed all future earn-out payments YMF owed to Emmis pursuant to the April 5, 2012 Asset Purchase Agreement based upon the parties' estimate of the earn-out payments that would otherwise be owed to Emmis under this pre-existing contractual relationship. Emmis recognized a gain on settlement of the contract of $2.5 million, which is included in gain on contract settlement in the accompanying condensed consolidated statements of operations. During the three months ended August 31, 2014, Emmis collected $0.5 million of the fixed earn-out payments from YMF. The remaining $2.0 million due from YMF is reflected in other current assets in the accompanying condensed consolidated balance sheets and is to be paid by YMF during the current fiscal year.

The following table presents unaudited pro forma consolidated financial information as if the closing of our acquisition of the Stations had occurred on March 1, 2013 (in thousands, except per share data):



	Three Months Ended August 31,				Six Months Ended August 31,
	2013		2014		2013		2014
	(in 000’s, except per share data)
Net revenues	$	62,912	$	61,824	$	120,703	$	121,548
Net income attributable to common shareholders	$	4,089	$	2,615	$	8,992	$	4,974
Net income per common share attributable to common shareholders:
Basic	$	0.10	$	0.06	$	0.22	$	0.12
Diluted	$	0.09	$	0.06	$	0.19	$	0.10

As mentioned above and in Note 1, Emmis commenced an LMA on both WBLS-FM and WLIB-AM beginning on March 1, 2014. As Emmis programmed the stations and sold the related advertising, the majority of the results of operations for the two stations are included in Emmis' historical results for these 2014 periods. Certain adjustments were made for the three-month and six-month periods ended August 31, 2014 to reflect the elimination of the LMA fee and other purchase accounting adjustments. The pro forma financial information for the three-month and six-month periods ended August 31, 2013 has been prepared by combining our historical results and the historical results of WBLS-FM and WLIB-AM and further reflects the effect of purchase accounting adjustments. This pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the acquisition of the two radio stations occurred on March 1, 2013, or that may result in the future.

Acquisition of a controlling interest in Digonex Technologies, Inc.

On June 16, 2014, Emmis invested $3.0 million in Digonex Technologies, Inc ("Digonex"), an Indiana corporation that provides dynamic pricing solutions to customers in various industries. Emmis believes that its acquisition of Digonex gives it entry into the growing dynamic pricing marketplace which can serve a diverse clientèle, and can possibly help Emmis with yields on its own advertising inventory and special events. Emmis’ initial investment of $3.0 million ($1.0 million in Digonex Preferred Stock and $2.0 million in the form of convertible debt) resulted in Emmis appointing a majority of the board of directors of Digonex and holding rights convertible into 51% of the fully diluted common equity of Digonex. In August 2014, subsequent to the consolidation of Digonex, Emmis contributed an additional $2.0 million to Digonex in the form of convertible debt, which resulted in Emmis owning rights that are convertible into at least 66% of the common equity of Digonex. As Emmis controlled the board of directors of Digonex as of its initial investment on June 16, 2014, Emmis began consolidating the results of Digonex as of that date.

Digonex reports on a calendar year ending December 31, which Emmis consolidates into its fiscal year ending February 28(29). Results of operations of Digonex for the period June 16, 2014 to June 30, 2014, which Emmis consolidates into its results of operations for the period ended August 31, 2014 were insignificant.

The following table summarizes the preliminary estimates of fair values of the identifiable assets acquired and liabilities assumed in the acquisition of Digonex as of June 16, 2014. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions until management's appraisals and estimates are finalized, which may result in adjustments to the preliminary values presented below.



Cash	$	456
Other current and noncurrent assets	10
Goodwill	2,752
Other intangibles	6,180
Accounts payable and accrued expenses	(462		)
Other current liabilities and noncurrent liabilities	(550		)
Long-term debt	(4,189		)
Noncontrolling interests	(1,197		)
Total purchase price, including assumed liabilities	3,000
Less: Cash acquired	(456		)
Total purchase price, net of cash acquired	$	2,544

The goodwill recognized in the acquisition of Digonex is attributable to the assembled workforce and existing business processes. The $2.8 million of goodwill recognized in the transaction is included in our corporate and emerging technologies segment and is not deductible for tax purposes.

Other intangibles consist of patents of $5.2 million, a customer list intangible asset of $0.7 million and trademarks of $0.3 million. The patents are being amortized over 7 years, the customer list intangible asset is being amortized over 3 years and the trademarks are being amortized over 15 years.