(3)

Acquisitions and Dispositions

Greater Media Merger

On November 1, 2016, (the “Acquisition Date”), the Company completed the acquisition of Greater Media, Inc. (“Greater Media”), pursuant to the merger agreement, dated as of July 19, 2016 by and among the Company, Greater Media, Beasley Media Group 2, Inc., an indirect wholly-owned subsidiary of the Company (“Merger Sub”), and Peter A. Bordes, Jr., as the Stockholders’ Representative (the “Merger Agreement”). On the Acquisition Date, Merger Sub was merged with and into Greater Media, with Greater Media surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Merger”). As a result of the Merger, the Company added 21 radio stations in the Boston, MA, Detroit, MI, Charlotte, NC, Middlesex, NJ, Monmouth, NJ, Morristown, NJ and Philadelphia, PA markets.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, the Company acquired all of the issued and outstanding common stock of Greater Media for an aggregate purchase price of $239,875,000, subject to a purchase price adjustment related to the sale of Greater Media’s tower assets and other customary post-closing purchase price adjustments and inclusive of the repayment of $82.2 million of Greater Media’s outstanding debt and the payment of certain transaction expenses. The proceeds paid to the stockholders of Greater Media consisted of (i) $94.4 million in cash and (ii) $25.0 million in shares of the Company’s Class A common stock, which equaled 5,422,993 shares at a fixed value of $4.61 per share (the “Merger Shares”). The 5,422,993 shares of Class A common stock were recorded at a fair value of $4.80 per share or $26.0 million on the Acquisition Date. The Merger consideration was subject to adjustment for changes in working capital of Greater Media, outstanding debt of Greater Media and its subsidiaries as of the Acquisition Date and certain other payments and expenses. In addition, the stockholders of Greater Media were to receive the net cash proceeds from the sale of Greater Media’s tower assets, originally estimated to be approximately $24.0 million. The Company incurred transaction expenses of $6.4 million during the year ended December 31, 2016.

The acquisition was accounted for as a business combination. The purchase price allocations were based on a valuation of assets and liabilities and the estimates and assumptions were revised as the Company obtained additional information during the measurement period, which was up to one year from the Acquisition Date.

On the Acquisition Date, in accordance with the Merger Agreement, the Company placed 867,679 shares of the Company’s Class A common stock with a fair value of $4.2 million in escrow. These escrow shares were to be distributed either to the Company for cancellation or to Greater Media based upon a working capital adjustment. As of the Acquisition Date based on the estimated working capital adjustment, the Company estimated that 189,915 shares of Class A common stock would be released to Greater Media and the remainder would be forfeited to the Company for cancellation. The estimated number of shares to be released to greater Media had a fair value of $0.9 million as of the Acquisition Date and were included in the purchase price. The estimated shares to be forfeited were not indexed to the Company’s stock price and therefore were adjusted to fair value based on the Company’s closing stock price on each reporting date with changes in fair value recorded in earnings. The estimated number of shares to be forfeited had a fair value of $3.3 million as of the Acquisition Date and were reported as merger consideration receivable in the accompanying consolidated balance sheet. The estimated number of shares to be forfeited had a fair value of $4.2 million as of December 31, 2016.

Also, in accordance with the Merger Agreement, the purchase price was to be adjusted by certain proceeds from the sale of Greater Media’s towers assets. Based on the proceeds from the tower sale, the former stockholders of Greater Media were required to return a certain number of shares of Class A common stock to the Company for cancellation. The Company accounted for this arrangement as contingent consideration subject to the ultimate sale of the tower assets. As of the Acquisition Date, the Company estimated the sales price of the towers to be $28.0 million which resulted in the expected return of 650,759 shares. As of the Acquisition Date, the estimated number of shares to be returned had a fair value of $3.4 million and were reported as merger consideration receivable in the accompanying consolidated balance sheet. The estimated number of shares to be returned had a fair value of $3.7 million as of December 31, 2016. On February 27, 2017, the former stockholders of Greater Media entered into an asset purchase agreement to sell the towers for $28.0 million.

On December 29, 2017, the Company entered into a settlement agreement with Greater Media regarding the working capital adjustment and proceeds from the tower sale. As a result, all 867,679 shares held in escrow for the working capital adjustment will be forfeited to the Company and canceled during the first quarter of 2018 and the former stockholders of Greater Media will return 470,480 shares related to the tower sale proceeds to the Company which will also be canceled during the first quarter of 2018. The shares held in escrow that will be forfeited had a fair value of $11.6 million as of December 31, 2017 and the shares to be returned had a fair value of $6.3 million as of December 31, 2017.

The Company has engaged a third party to evaluate certain net operating loss carryforwards related to Greater Media, Inc. and several of its subsidiaries to determine the amount of net operating loss carryforwards that may be utilized by the Company in future tax returns. These evaluations have not been finalized, therefore an estimate of $3.6 million for net operating loss carryforwards has been included in the purchase price. The accounting for this item was not finalized before the end of the measurement period and any adjustment will now be recognized in current operations during the period in which the accounting is finalized.

The following table summarizes the purchase price allocation as of the Acquisition Date:


Cash and cash equivalents	$	7,683,950
Accounts receivable		29,889,677
Prepaid expenses		1,710,924
Other current assets		541,460
Property and equipment		40,642,648
FCC broadcasting licenses		263,260,200
Other intangibles, net		2,790,524
Other assets		676,632
Accounts payable		(429,042	)
Other current liabilities		(16,685,309	)
Long-term debt		(82,177,895	)
Deferred tax liabilities		(76,050,112	)
Other long-term liabilities		(13,709,261	)

Net assets acquired		158,144,396
Gain on merger		(44,281,066	)

Purchase price	$	113,863,330

The following table summarizes the components of the purchase price:


Cash	$	94,444,148
Stock issued		21,865,506
Estimated tower sale adjustment		(3,357,916	)
Stock issued in escrow		4,164,859
Estimated working capital adjustment		(3,253,267	)

Purchase price	$	113,863,330

The fair value of the property and equipment acquired in the Merger was estimated using cost and market approaches. Property and equipment for which there are comparable current replacements available, such as radio towers, antenna systems, transmitter equipment, and studio equipment, were valued on the basis of a cost approach. The cost approach allowed for factors such as physical depreciation as well as functional and economic obsolescence. Property and equipment for which an active used market exists, including property for which there is no longer comparable current replacements available but for which there remains an active used market, such as furniture, computer equipment, and vehicles, were valued using a market approach. The market approach is based on the selling prices of similar assets on the used market. As few sales reflect identical assets, the selling prices of similar assets was utilized with adjustments made for any differences such as age, condition, and options.

The fair value of the FCC broadcasting licenses acquired in the Merger was estimated using an income approach. The income approach measures the expected economic benefits the licenses provide and discounts these future benefits using discounted cash flow analyses. The discounted cash flow analyses assume that each license is held by a hypothetical start-up radio station and the value yielded by each discounted cash flow analysis represents the portion of the hypothetical start-up radio station’s value attributable solely to its license. The discounted cash flow model incorporates variables such as radio market revenues; the projected growth rate for radio market revenues; projected radio market revenue share; projected radio station operating income margins; and a discount rate appropriate for the radio broadcasting industry. The variables used in the analyses reflect historical radio station and market growth trends, as well as anticipated radio station performance, industry standards, and market conditions. The discounted cash flow projection period of ten years was determined to be an appropriate time horizon for the analyses. Stable market revenue share and operating margins are expected at the end of year three (maturity). The key assumptions used in the valuation of the FCC broadcasting licenses are as follows:


Revenue growth rates		0.3% - 1.3%
Market revenue shares at maturity		12.6% - 48.0%
Operating income margins at maturity		15.0% - 31.3%
Discount rate		9%

Effective on the Acquisition Date, the Company entered into an agreement with the former CEO of Greater Media to provide consulting services for a period of one year. The costs associated with this agreement are reported in other operating expenses in the accompanying statement of comprehensive income for the year ended December 31, 2017.

Dispositions

On January 6, 2017, the Company completed the sale of substantially all of the assets used or useful in the operations of WBT-AM, WBT-FM, WFNZ-AM and WLNK-FM in Charlotte, NC to Entercom Communications Corp. for $24.0 million in cash. On November 1, 2016, the assets of WBT-AM, WBT-FM and WLNK-FM were contributed to a trust following completion of the Company’s acquisition of Greater Media and were operated by Entercom under a local marketing agreement until completion of the sale. The assets of WBT-AM, WBT-FM and WLNK-FM were reported as a beneficial interest in trust as of December 31, 2016 that was realized upon completion of the sale. The Company repaid a portion of the outstanding balance under its credit facility with the sales proceeds. The Company recorded a $0.3 million loss on disposition during the first quarter of 2017.

On May 1, 2017, the Company completed the sale of substantially all of the assets used in the operations of WIKS-FM, WMGV-FM, WNCT-AM, WNCT-FM, WSFL-FM and WXNR-FM in its Greenville-New Bern-Jacksonville, NC market cluster to CMG Coastal Carolina, LLC for $11.0 million in cash and a translator license and equipment with a fair value of $0.3 million. The Company repaid a portion of the outstanding balance under its credit facility with the cash sales proceeds. The Company no longer has operations in the Greenville-New Bern-Jacksonville, NC market after completion of the disposition. However management determined that the disposition did not represent a strategic shift that will have a major effect on the Company’s operations and financial results, therefore the operations in the Greenville-New Bern-Jacksonville, NC market were not reported as discontinued operations. Income before taxes for the radio stations in the Greenville-New Bern-Jacksonville, NC market was $0.6 million for the year ended December 31, 2016. Income before the gain on disposition of $4.0 million, other disposition related expenses of $0.3 million, and taxes for the radio stations in the Greenville-New Bern-Jacksonville, NC market was $0.1 million for the year ended December 31, 2017. The assets of WIKS-FM, WMGV-FM, WNCT-AM, WNCT-FM, WSFL-FM and WXNR-FM were reported as held for sale as of December 31, 2016. The Company recorded a $4.0 million gain on disposition during the second quarter of 2017.

Asset Exchange

On December 19, 2017, the Company completed an asset exchange with CBS Radio Stations, Inc., Entercom Boston, LLC, and The Entercom Divestiture Trust under which the Company agreed to exchange all of the assets used or useful in the operations of WMJX-FM in Boston, MA for all of the assets used or useful in the operations of WBZ-FM in Boston, MA. In addition, the Company also paid $12.0 million in cash, which was partially financed with $6.0 million in borrowings from our credit facility and partially funded with $6.0 million in cash from operations. The asset exchange broadened and diversified the Company’s local radio broadcasting platform and revenue base in the Boston radio market.

The asset exchange was accounted for as a business combination. The fair value of the assets received in the asset exchange was $48.9 million. The fair value of the assets given up in the asset exchange was $48.9 million which includes the FCC broadcasting license with a fair value of $35.9 million, property and equipment with a fair value of $0.7 million, and a cash payment of $12.0 million. The assets of WMJX-FM were reported as held for sale as of December 31, 2016. The Company recorded a gain on exchange of $11.8 million and incurred transaction expenses of $0.2 million.

The asset allocation is summarized as follows:


Property and equipment	$	806,970
FCC broadcasting license		35,943,600
Goodwill		11,882,030
Other intangibles		267,400

Fair value of assets received		48,900,000
Less cash consideration		(12,000,000	)

		36,900,000
Carrying amount of assets of exchanged radio station		(25,096,415	)

Gain on exchange	$	11,803,585

The fair value of the property and equipment was estimated using cost and market approaches. Property and equipment for which there are comparable current replacements available were valued on the basis of a cost approach. The cost approach allowed for factors such as physical depreciation as well as functional and economic obsolescence. Property and equipment for which an active used market exists, including property for which there is no longer comparable current replacements available but for which there remains an active used market were valued using a market approach. The market approach is based on the selling prices of similar assets on the used market. As few sales reflect identical assets, the selling prices of similar assets was utilized with adjustments made for any differences such as age, condition, and options. If different assumptions or estimates had been used in the cost and market approaches, the fair value of the property and equipment could have been materially different.

The fair value of the FCC broadcasting licenses were estimated using an income approach. The income approach measures the expected economic benefits the licenses provide and discounts these future benefits using discounted cash flow analyses. The discounted cash flow analyses assume that each license is held by a hypothetical start-up radio station and the value yielded by the discounted cash flow analyses represents the portion of the radio station’s value attributable solely to its license. The discounted cash flow model incorporates variables such as radio market revenues; the projected growth rate for radio market revenues; projected radio market revenue share; projected radio station operating income margins; and a discount rate appropriate for the radio broadcasting industry. The variables used in the analyses reflect historical radio station and market growth trends, as well as anticipated radio station performance, industry standards, and market conditions. The discounted cash flow projection period of ten years was determined to be an appropriate time horizon for the analyses. Stable market revenue share and operating margins are expected at the end of year three (maturity). If different assumptions or estimates had been used in the income approach, the fair value of the FCC broadcasting licenses could have been materially different. If actual results are different from assumptions or estimates used in the discounted cash flow analyses, the Company may incur impairment losses in the future and they may be material.

The key assumptions used in the valuation of the FCC broadcasting licenses are as follows:


Revenue growth rates		(0.5)% - 2.4%
Market revenue shares at maturity		5.3%
Operating income margins at maturity		36.0%
Discount rate		9.0%

Goodwill was equal to the amount the purchase price exceeded the values allocated to the tangible and identifiable intangible assets. The $11.9 million allocated to goodwill is deductible for tax purposes.

Other intangibles include a sports rights agreement of $0.3 million which will be amortized over its estimated useful life of 3 years.

A summary of assets held for sale as of December 31, 2016 is as follows:


	WFNZ-AM		Greenville- New Bern- Jacksonville		WMJX		Total
Property and equipment, net	$	1,702,847	$	1,400,615	$	377,193	$	3,480,655
FCC broadcasting licenses		2,166,400		3,998,940		24,759,640		30,924,980
Goodwill		—		1,943,349		—		1,943,349
Other intangibles		108,135		—		—		108,135

	$	3,977,382	$	7,342,904	$	25,136,833	$	36,457,119

The following unaudited pro forma information for the years ended December 31, 2016 and 2017 assumes that the acquisitions and dispositions had occurred on January 1, 2016. The significant pro forma adjustments are depreciation and interest expense. This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable, and is not necessarily indicative of what would have occurred had the acquisition been completed on January 1, 2016 or of results that may occur in the future.


	Year ended December 31,
	2016		2017
Net revenue	$	259,709,074	$	250,610,142
Operating income		37,821,011		38,161,964
Net income		11,042,102		9,459,797
Basic and diluted net income per share		0.39		0.34