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AUDACY, INC. - Quarter Report: 2019 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________to ___________

 

Commission File Number:001-14461

 

Entercom Communications Corp.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

23-1701044

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification no.)

 

2400 Market Street, 4th Floor

Philadelphia, Pennsylvania 19103

(Address of principal executive offices and zip code)

 

(610)660-5610

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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 [Ö ] 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 (section 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 [Ö] No [ ]

 

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

Large accelerated filer Accelerated filer Emerging growth company

Non-accelerated filer Smaller reporting 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 provided pursuant to Section 7(a)(2)(B) of the Securities Act and 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 Exchange Act). Yes [ ] No [Ö ]

 

 

 

i


 

 

 

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, par value $.01 per share

 

ETM

 

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class A common stock, $0.01 par value – 133,583,583 Shares Outstanding as of October 31, 2019

(Class A Shares Outstanding include 3,698,010 unvested and vested but deferred restricted stock units)

Class B common stock, $0.01 par value – 4,045,199 Shares Outstanding as of October 31, 2019.

ii


 

ENTERCOM COMMUNICATIONS CORP.

 

INDEX

 

Table of Contents

Page

 

Part I – Financial Information

 

Item 1

Financial Statements

2

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

47

Item 3

Quantitative and Qualitative Disclosures About Market Risk

61

Item 4

Controls and Procedures

62

 

 

 

 

Part II – Other Information

 

Item 1

Legal Proceedings

64

Item 1A

Risk Factors

64

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3

Defaults Upon Senior Securities

64

Item 4

Mine Safety Disclosures

64

Item 5

Other Information

64

Item 6

Exhibits

66

 

 

 

 

Signatures

68

 

Private Securities Litigation Reform Act Safe Harbor Statement

 

In addition to historical information, this report contains statements by us with regard to our expectations as to financial results and other aspects of our business that involve risks and uncertainties and may constitute forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

 

Forward-looking statements are presented for illustrative purposes only and reflect our current expectations concerning future results and events. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, without limitation, any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

 

You can identify forward-looking statements by our use of words such as “anticipates,” “believes,” “continues,” “expects,” “intends,” “likely,” “may,” “opportunity,” “plans,” “potential,” “project,” “will,” “could,” “would,” “should,” “seeks,” “estimates,” “predicts” and similar expressions which identify forward-looking statements, whether in the negative or the affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond our control, which could cause actual results to differ materially from those forecasted or anticipated in such forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report. We undertake no obligation to update these statements or publicly release the result of any revision(s) to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 

Key risks to our company are described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2019, and as may be supplemented by the risks described under Part II, Item 1A, of our quarterly reports on Form 10-Q and in our Current Reports on Form 8-K.

iii


 

PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

SEPTEMBER 30,

 

DECEMBER 31,

 

 

2019

 

2018

 

ASSETS:

 

 

 

 

 

 

Cash

$

45,335

 

$

122,893

 

Restricted cash

 

-

 

 

69,365

 

Accounts receivable, net of allowance for doubtful accounts

 

363,091

 

 

342,766

 

Prepaid expenses, deposits and other

 

29,797

 

 

25,205

 

Total current assets

 

438,223

 

 

560,229

 

Investments

 

12,705

 

 

11,205

 

Net property and equipment

 

355,824

 

 

317,030

 

Operating lease right-of-use assets

 

274,938

 

 

-

 

Radio broadcasting licenses

 

2,518,261

 

 

2,516,625

 

Goodwill

 

549,881

 

 

539,469

 

Assets held for sale

 

1,891

 

 

19,603

 

Other assets, net of accumulated amortization

 

33,725

 

 

56,197

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

4,185,448

 

$

4,020,358

 

 

LIABILITIES:

 

 

 

 

 

 

Accounts payable

$

3,251

 

$

1,858

 

Accrued expenses

 

62,627

 

 

58,449

 

Other current liabilities

 

125,511

 

 

118,438

 

Operating lease liabilities

 

36,543

 

 

-

 

Total current liabilities

 

227,932

 

 

178,745

 

Long-term debt

 

1,723,956

 

 

1,872,203

 

Operating lease liabilities, net of current portion

 

263,084

 

 

-

 

Deferred tax liabilities

 

551,029

 

 

545,982

 

Other long-term liabilities

 

51,577

 

 

89,168

 

Total long-term liabilities

 

2,589,646

 

 

2,507,353

 

Total liabilities

 

2,817,578

 

 

2,686,098

 

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

Class A, B and C common stock

 

1,377

 

 

1,412

 

Additional paid-in capital

 

1,655,690

 

 

1,693,512

 

Accumulated deficit

 

(288,620)

 

 

(360,664)

 

Accumulated other comprehensive income (loss)

 

(577)

 

 

-

 

Total shareholders' equity

 

1,367,870

 

 

1,334,260

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

4,185,448

 

$

4,020,358

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

2

 


 

ENTERCOM COMMUNICATIONS CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(amounts in thousands, except share and per share data)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

SEPTEMBER 30,

 

 

2019

 

2018

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET REVENUES

$

386,141

 

$

378,508

 

 

$

1,075,811

 

$

1,051,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Station operating expenses

 

273,112

 

 

279,651

 

 

 

801,267

 

 

811,214

 

Depreciation and amortization expense

 

11,183

 

 

10,608

 

 

 

33,252

 

 

29,745

 

Corporate general and administrative expenses

 

19,412

 

 

15,897

 

 

 

57,662

 

 

53,598

 

Integration costs

 

689

 

 

2,761

 

 

 

3,280

 

 

21,984

 

Restructuring charges

 

1,577

 

 

852

 

 

 

5,953

 

 

3,019

 

Impairment loss

 

-

 

 

-

 

 

 

-

 

 

28,988

 

Merger and acquisition costs

 

434

 

 

697

 

 

 

476

 

 

2,768

 

Other expenses related to financing

 

-

 

 

-

 

 

 

1,864

 

 

-

 

Net time brokerage agreement (income) fees

 

13

 

 

(150)

 

 

 

106

 

 

(1,242)

 

Net (gain) loss on sale or disposal of assets

 

231

 

 

(10,541)

 

 

 

(2,683)

 

 

(10,856)

 

Total operating expense

 

306,651

 

 

299,775

 

 

 

901,177

 

 

939,218

 

OPERATING INCOME (LOSS)

 

79,490

 

 

78,733

 

 

 

174,634

 

 

111,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

25,256

 

 

25,923

 

 

 

75,420

 

 

75,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

-

 

 

-

 

 

 

1,781

 

 

-

 

OTHER (INCOME) EXPENSE

 

-

 

 

-

 

 

 

1,781

 

 

-

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

 

54,234

 

 

52,810

 

 

 

97,433

 

 

36,941

 

INCOME TAXES (BENEFIT)

 

16,026

 

 

16,220

 

 

 

30,110

 

 

12,960

 

NET INCOME (LOSS) AVAILABLE TO THE COMPANY - CONTINUING OPERATIONS

 

38,208

 

 

36,590

 

 

 

67,323

 

 

23,981

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS - CONTINUING OPERATIONS

 

38,208

 

 

36,590

 

 

 

67,323

 

 

23,981

 

Income from discontinued operations, net of income taxes (benefit)

 

-

 

 

358

 

 

 

-

 

 

1,530

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

$

38,208

 

$

36,948

 

 

$

67,323

 

$

25,511

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations per share available to common shareholders - Basic

$

0.28

 

$

0.26

 

 

$

0.49

 

$

0.17

 

Net income (loss) from discontinued operations per share available to common shareholders - Basic

$

-

 

$

-

 

 

$

-

 

$

0.01

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC

$

0.28

 

$

0.27

 

 

$

0.49

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 


 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - DILUTED

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations per share available to common shareholders - Diluted

$

0.28

 

$

0.26

 

 

$

0.49

 

$

0.17

 

Net income (loss) from discontinued operations per share available to common shareholders - Diluted

$

-

 

$

-

 

 

$

-

 

$

0.01

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - DILUTED

$

0.28

 

$

0.27

 

 

$

0.49

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

136,449,453

 

138,740,243

 

 

137,944,486

 

138,901,037

 

Diluted

136,452,995

 

139,102,560

 

 

138,295,091

 

139,684,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

4

 


 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

38,208

 

$

36,948

 

$

67,323

 

$

25,511

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS),

 

 

 

 

 

 

 

 

 

 

 

NET OF TAXES (BENEFIT):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on derivatives,

 

 

 

 

 

 

 

 

 

 

 

net of taxes (benefit)

 

(353)

 

 

-

 

 

(577)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

$

37,855

 

$

36,948

 

$

66,746

 

$

25,511

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

5

 


 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(amounts in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

Common Stock

 

Additional

 

Earnings

 

 

Other

 

 

 

 

Class A

 

Class B

 

Paid-in

 

(Accumulated

 

Comprehensive

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit)

 

 

Income (Loss)

 

Total

Balance, December 31, 2017

139,675,781

 

$

1,397

 

4,045,199

 

$

40

 

$

1,737,132

 

$

25,791

 

 

$

-

 

$

1,764,360

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

(13,878)

 

 

 

-

 

 

(13,878)

Compensation expense related to granting of stock awards

(157,680)

 

 

(2)

 

-

 

 

-

 

 

3,915

 

 

-

 

 

 

-

 

 

3,913

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

39,196

 

 

-

 

-

 

 

-

 

 

321

 

 

-

 

 

 

-

 

 

321

Exercise of stock options

10,000

 

 

-

 

-

 

 

-

 

 

13

 

 

-

 

 

 

-

 

 

13

Common stock repurchase

(1,833,200)

 

 

(18)

 

-

 

 

-

 

 

(19,361)

 

 

-

 

 

 

-

 

 

(19,379)

Purchase of vested employee restricted stock units

(328,196)

 

 

(3)

 

-

 

 

-

 

 

(3,460)

 

 

-

 

 

 

-

 

 

(3,463)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

(13,036)

 

 

-

 

 

 

-

 

 

(13,036)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

342

 

 

-

 

 

 

-

 

 

342

Balance, March 31, 2018

137,405,901

 

$

1,374

 

4,045,199

 

$

40

 

 

1,705,866

 

$

11,913

 

 

$

-

 

$

1,719,193

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

2,441

 

 

 

-

 

 

2,441

Compensation expense related to granting of stock awards

1,198,734

 

 

12

 

-

 

 

-

 

 

3,728

 

 

-

 

 

 

-

 

 

3,740

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

60,386

 

 

1

 

-

 

 

-

 

 

387

 

 

-

 

 

 

-

 

 

388

Exercise of stock options

38,500

 

 

-

 

-

 

 

-

 

 

52

 

 

-

 

 

 

-

 

 

52

Purchase of vested employee restricted stock units

(176,275)

 

 

(2)

 

-

 

 

-

 

 

(1,707)

 

 

-

 

 

 

-

 

 

(1,709)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

(12,746)

 

 

-

 

 

 

-

 

 

(12,746)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

127

 

 

-

 

 

 

-

 

 

127

Balance, June 30, 2018

138,527,246

 

$

1,385

 

4,045,199

 

$

40

 

$

1,695,707

 

$

14,354

 

 

$

-

 

$

1,711,486

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

36,948

 

 

 

-

 

 

36,948

Compensation expense related to granting of stock awards

(96,321)

 

 

(1)

 

-

 

 

-

 

 

3,769

 

 

-

 

 

 

-

 

 

3,768

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

50,785

 

 

1

 

-

 

 

-

 

 

341

 

 

-

 

 

 

-

 

 

342

Exercise of stock options

1,800

 

 

1

 

-

 

 

-

 

 

2

 

 

-

 

 

 

-

 

 

3

Purchase of vested employee restricted stock units

(857)

 

 

-

 

-

 

 

-

 

 

(7)

 

 

-

 

 

 

-

 

 

(7)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

-

 

 

(12,491)

 

 

 

-

 

 

(12,491)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

(469)

 

 

(190)

 

 

 

-

 

 

(659)

Balance, September 30, 2018

138,482,653

 

$

1,386

 

4,045,199

 

$

40

 

$

1,699,343

 

$

38,621

 

 

$

-

 

$

1,739,390

6

 


 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(amounts in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

Common Stock

 

Additional

 

Earnings

 

 

Other

 

 

 

 

Class A

 

Class B

 

Paid-in

 

(Accumulated

 

 

Comprehensive

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit)

 

 

Income (Loss)

 

Total

Balance, December 31, 2018

137,180,213

 

 

1,372

 

4,045,199

 

 

40

 

 

1,693,512

 

 

(360,664)

 

 

 

-

 

 

1,334,260

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

3,125

 

 

 

-

 

 

3,125

Compensation expense related to granting of stock awards

1,406,722

 

 

14

 

-

 

 

-

 

 

3,559

 

 

-

 

 

 

-

 

 

3,573

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

84,958

 

 

1

 

-

 

 

-

 

 

378

 

 

-

 

 

 

-

 

 

379

Exercise of stock options

180,300

 

 

2

 

-

 

 

-

 

 

242

 

 

-

 

 

 

-

 

 

244

Purchase of vested employee restricted stock units

(204,499)

 

 

(2)

 

-

 

 

-

 

 

(1,424)

 

 

-

 

 

 

-

 

 

(1,426)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

(12,913)

 

 

-

 

 

 

-

 

 

(12,913)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

(463)

 

 

-

 

 

 

-

 

 

(463)

Application of amended leasing guidance

-

 

 

-

 

-

 

 

-

 

 

-

 

 

4,719

 

 

 

-

 

 

4,719

Balance, March 31, 2019

138,647,694

 

$

1,387

 

4,045,199

 

$

40

 

$

1,682,891

 

$

(352,820)

 

 

$

-

 

$

1,331,498

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

25,992

 

 

 

-

 

 

25,992

Compensation expense related to granting of stock awards

(38,774)

 

 

-

 

-

 

 

-

 

 

3,393

 

 

-

 

 

 

-

 

 

3,393

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

73,791

 

 

1

 

-

 

 

-

 

 

363

 

 

-

 

 

 

-

 

 

364

Purchase of vested employee restricted stock units

(216,828)

 

 

(2)

 

-

 

 

-

 

 

(1,298)

 

 

-

 

 

 

-

 

 

(1,300)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

(13,140)

 

 

-

 

 

 

-

 

 

(13,140)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

1,059

 

 

-

 

 

 

-

 

 

1,059

Net unrealized gain (loss) on derivatives

-

 

 

-

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(224)

 

 

(224)

Balance, June 30, 2019

138,465,883

 

$

1,386

 

4,045,199

 

$

40

 

$

1,673,268

 

$

(326,828)

 

 

$

(224)

 

$

1,347,642

Net income (loss) available to the Company

-

 

 

-

 

-

 

 

-

 

 

-

 

 

38,208

 

 

 

-

 

 

38,208

Compensation expense related to granting of stock awards

18,232

 

 

-

 

-

 

 

-

 

 

3,165

 

 

-

 

 

 

-

 

 

3,165

Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP")

100,965

 

 

1

 

-

 

 

-

 

 

287

 

 

-

 

 

 

-

 

 

288

Common stock repurchase

(5,000,000)

 

 

(50)

 

-

 

 

-

 

 

(18,290)

 

 

-

 

 

 

-

 

 

(18,340)

Purchase of vested employee restricted stock units

(1,408)

 

 

-

 

-

 

 

-

 

 

(4)

 

 

-

 

 

 

-

 

 

(4)

Payment of dividends on common stock

-

 

 

-

 

-

 

 

-

 

 

(2,684)

 

 

-

 

 

 

-

 

 

(2,684)

Dividend equivalents, net of forfeitures

-

 

 

-

 

-

 

 

-

 

 

(52)

 

 

-

 

 

 

-

 

 

(52)

Net unrealized gain (loss) on derivatives

-

 

 

-

 

-

 

 

-

 

 

-

 

 

-

 

 

 

(353)

 

 

(353)

Balance, September 30, 2019

133,583,672

 

$

1,337

 

4,045,199

 

$

40

 

$

1,655,690

 

$

(288,620)

 

 

$

(577)

 

$

1,367,870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

7

 


 

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

NINE MONTHS ENDED

 

SEPTEMBER 30,

 

2019

 

2018

OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss) available to common shareholders

$

67,323

 

$

25,511

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

33,252

 

 

29,745

Net amortization of deferred financing costs

 

 

 

 

 

(net of original issue discount and debt premium)

 

(21)

 

 

242

Net deferred taxes (benefit) and other

 

1,596

 

 

(42,424)

Provision for bad debts

 

3,354

 

 

8,679

Net (gain) loss on sale or disposal of assets

 

(2,683)

 

 

(10,856)

Non-cash stock-based compensation expense

 

10,131

 

 

11,421

Net loss on extinguishment of debt

 

1,781

 

 

-

Deferred compensation

 

3,956

 

 

2,262

Impairment loss

 

-

 

 

28,988

Accretion expense (income), net of asset retirement obligation adjustments

 

48

 

 

44

 

 

 

 

 

 

Changes in assets and liabilities (net of effects of acquisitions, dispositions,

 

 

 

 

 

consolidation, and deconsolidation of Variable Interest Entities (VIEs)):

 

 

 

 

 

Accounts receivable

 

(22,715)

 

 

26,699

Prepaid expenses and deposits

 

(4,765)

 

 

2,472

Accounts payable and accrued liabilities

 

5,951

 

 

26,475

Accrued interest expense

 

15,729

 

 

1,532

Accrued liabilities - long-term

 

(8,393)

 

 

(17,610)

Net cash provided by (used in) operating activities

 

104,544

 

 

93,180

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Additions to property and equipment

 

(61,572)

 

 

(23,605)

Proceeds from sale of radio stations

 

 

 

 

 

and other assets

 

27,818

 

 

181,875

Purchases of radio stations

 

(15,767)

 

 

(71,434)

Additions to amortizable intangible assets

 

(2,003)

 

 

(2,350)

Purchases of investments

 

(1,500)

 

 

(1,250)

Proceeds from sale of property reflected as restricted cash

 

-

 

 

70,187

Net cash provided by (used in) investing activities

 

(53,024)

 

 

153,423

 

8

 


 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

NINE MONTHS ENDED

 

SEPTEMBER 30,

 

2019

 

2018

FINANCING ACTIVITIES:

 

 

 

 

 

Borrowing under the revolving senior debt

 

159,000

 

 

83,325

Net proceeds from the notes

 

325,000

 

 

-

Payments of long-term debt

 

(425,000)

 

 

(10,018)

Payments of revolving senior debt

 

(205,000)

 

 

(21,325)

Payment for debt issuance costs

 

(3,910)

 

 

-

Proceeds from issuance of employee stock plan

 

1,031

 

 

1,051

Proceeds from the exercise of stock options

 

244

 

 

68

Purchase of vested employee restricted stock units

 

(2,730)

 

 

(5,179)

Payment of dividends on common stock

 

(27,594)

 

 

(37,403)

Payment of dividend equivalents on vested restricted stock units

 

(1,144)

 

 

(870)

Repurchase of common stock

 

(18,340)

 

 

(20,012)

Net cash provided by (used in) financing activities

 

(198,443)

 

 

(10,363)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(146,923)

 

 

236,240

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR

 

192,258

 

 

34,167

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

$

45,335

 

$

270,407

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

$

61,163

 

$

76,042

Income taxes

$

18,481

 

$

18,821

Dividends on common stock

$

27,594

 

$

37,403

Supplemental cash flow information

 

 

 

 

 

Tenant improvement allowance reimbursement

$

5,508

 

$

2,334

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

9

 


 

ENTERCOM COMMUNICATIONS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 

1.BASIS OF PRESENTATION AND SIGNIFICANT POLICIES

 

The condensed consolidated interim unaudited financial statements included herein have been prepared by Entercom Communications Corp. and its subsidiaries (collectively, the “Company”) in accordance with: (i) generally accepted accounting principles (“U.S. GAAP”) for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.

 

This Form 10-Q should be read in conjunction with the financial statements and related notes included in the Company’s audited financial statements as of and for the year ended December 31, 2018, and filed with the SEC on February 27, 2019, as part of the Company’s Annual Report on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.

 

The Company considers the applicability of any variable interest entities (“VIEs”) that are required to be consolidated by the primary beneficiary. As of September 30, 2019, there were no VIEs requiring consolidation in these financial statements. As of December 31, 2018, there was one VIE that required consolidation in these financial statements. During 2018, the Company entered into an agreement with a third party qualified intermediary (“QI”), under which the Company was primarily responsible for the oversight and completion of certain construction projects. This agreement related to the creation of leasehold improvement assets on property that had already been made available for tenant use. The Company believed it was the primary beneficiary of the VIE as the Company had the power to direct the activities that were most significant to the VIE and the Company had the obligation to absorb losses or the right to receive returns that would be significant to the VIE during the period of the agreement.

 

The use of a QI in a like-kind exchange enabled the Company to reduce its current tax liability in connection with certain asset dispositions. Under Section 1031 of the Internal Revenue Code (the “Code”), the property to be exchanged in the like-kind exchange was required to be received by the Company within 180 days. This period of time lapsed during the first quarter of 2019, at which point, the Company acquired the interests of the QI. This arrangement effectively transformed the QI from a consolidated VIE to a consolidated subsidiary of the Company.

 

Total results of operations of the VIE for the three and nine months ended September 30, 2019 and September 30, 2018 were not significant. The consolidated VIE had a material amount of cash as of December 31, 2018, which was reflected as restricted cash on the consolidated balance sheet. Restrictions on these deposits lapsed during the first quarter of 2019. As a result, the Company does not have restricted cash at September 30, 2019. The VIE had no other assets or liabilities as of December 31, 2018. The assets of the Company’s consolidated VIE could only be used to settle the obligations of the VIE. There was a lack of recourse by the creditors of the VIE against the Company’s general creditors. Refer to Note 15, Contingencies And Commitments, for additional information.

 

There have been no material changes from Note 2, Significant Accounting Policies, as described in the notes to the Company’s financial statements contained in its Form 10-K for the year ended December 31, 2018, that was filed with the SEC on February 27, 2019, other than as described below.

 

Changes in Accounting Policies

 

In February 2016, the accounting guidance was modified to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The new guidance was effective for the Company as of January 1, 2019. The Company implemented the new leasing guidance using a modified retrospective approach at the beginning of the period of adoption with a cumulative-effect adjustment to its accumulated deficit. Refer to Note 4, Leases, for additional information.

10

 


 

 

During the quarter ended June 30, 2019, the Company voluntarily changed the date of its annual broadcasting license and goodwill impairment test dates from April 1 to December 1. This change represents a change in method of applying an accounting principle. Refer to Note 5, Intangible Assets And Goodwill, for additional information.

 

Recent Accounting Pronouncements

 

All new accounting pronouncements that are in effect that may impact the Company’s financial statements have been implemented. The Company does not believe that there are any other new accounting pronouncements that have been issued (other than as noted below or those included in the notes to the Company’s financial statements contained in its Form 10-K for the year ended December 31, 2018, that was filed with the SEC on February 27, 2019) that might have a material impact on the Company’s financial position, results of operations or cash flows.

 

Leasing Transactions

 

As discussed above, the Company implemented the amended accounting guidance for leasing transactions on January 1, 2019. There was no impact to previously reported results of operations for any interim period. The most significant impact of the adoption of the new leasing guidance was the recognition of ROU assets and lease liabilities for operating leases on the balance sheet of $288.7 million and $306.2 million, respectively, on January 1, 2019. The difference between the ROU assets and lease liabilities recorded upon implementation is primarily attributable to deferred rent balances and unfavorable lease liabilities which were combined and presented net within the ROU assets. Refer to Note 4, Leases, for additional information.

 

 

Reclassifications

 

Certain reclassifications have been made to the prior year’s notes to the consolidated financial statements to conform to the presentation in the current year, which did not have a material impact on the Company’s previously reported financial statements.

 

2.BUSINESS COMBINATIONS

 

The Company records acquisitions under the acquisition method of accounting, and allocates the purchase price to the assets and liabilities based upon their respective fair values as determined as of the acquisition date. Merger and acquisition costs are excluded from the purchase price as these costs are expensed for book purposes and amortized for tax purposes.

 

2019 Pineapple Acquisition

On July 19, 2019, the Company completed a transaction to acquire the assets of Pineapple Street Media (“Pineapple”) for a purchase price of $14.0 million in cash plus working capital (the “Pineapple Acquisition”). Upon completion of the Pineapple Acquisition on July 19, 2019, the Company recorded the assets acquired and liabilities assumed at fair value.

Based on this timing, the Company’s consolidated financial statements for the nine and three months ended September 30, 2019 reflect the results of Pineapple’s operations for a portion of the period after the completion of the Pineapple Acquisition. The Company’s consolidated financial statements for the nine and three months ended September 30, 2018 do not reflect the results of Pineapple’s operations.

The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches.

The Company’s fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the fair values of the net assets acquired and the total fair value of assets acquired was recorded as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.

11

 


 

The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as the Company obtains additional information during the measurement period, which may be up to one year from the acquisition date. These assets pending finalization include intangible assets. Differences between the preliminary and final valuation could be substantially different from the initial estimate.

 

 

 

 

 

Useful Lives in Years

 

 

Preliminary Value

 

From

 

To

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Accounts receivable

 

$

997

 

 

 

 

Pineapple Street Media brand

 

 

1,793

 

non-amortizing

Goodwill

 

 

12,445

 

non-amortizing

Total intangible and other assets

 

 

15,235

 

 

 

 

Total assets

 

$

15,235

 

 

 

 

Unearned revenue

 

$

238

 

 

 

 

Accounts payable

 

 

30

 

 

 

 

Total liabilities

 

$

268

 

 

 

 

Preliminary fair value of net assets acquired

 

$

14,967

 

 

 

 

 

2019 Cumulus Exchange

On February 13, 2019, the Company entered into an agreement with Cumulus Media Inc. (“Cumulus”) under which the Company exchanged three of its stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York (the “Cumulus Exchange”). The Company and Cumulus began programming the respective stations under local marketing agreements (“LMAs”) on March 1, 2019. Upon completion of the Cumulus Exchange on May 9, 2019, the Company: (i) removed from its records the assets of the divested stations, which were previously classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a loss on the exchange transaction of approximately $1.8 million.

Based on this timing, the Company’s consolidated financial statements for the nine and three months ended September 30, 2019: (i) reflect the results of the acquired stations for a portion of the period in which the LMAs were in effect and after the completion of the Cumulus Exchange; and (ii) reflect the results of the divested stations for a portion of the period until the commencement date of the LMAs. The Company’s consolidated financial statements for the nine and three months ended September 30, 2018: (i) do not reflect the results of the acquired stations; and (ii) reflect the results of the divested stations.

The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired FCC broadcasting licenses, the fair value estimates are based on, but not limited to, expected future revenue and cash flows that assume an expected future growth rate of 1.0% and an estimated discount rate of 9.0%. The gross profit margins utilized were considered appropriate based on management’s expectations and experience in equivalent sized markets. The Company determines the fair value of the broadcasting licenses by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcasting licenses. The Company’s fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information for an average station within a certain market. Using a residual method, any excess between the fair values of the net assets acquired and the total fair value of stations acquired was recorded as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this exchange provides the Company with an opportunity to benefit from operational efficiencies from combining operations of the acquired

12

 


 

stations with the Company’s existing stations within the Springfield, Massachusetts, and New York City, New York markets.

The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as the Company obtains additional information during the measurement period, which may be up to one year from the acquisition date. These assets pending finalization include intangible assets. Differences between the preliminary and final valuation could be substantially different from the initial estimate.

 

 

 

 

 

Useful Lives in Years

 

 

Preliminary Value

 

From

 

To

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Equipment

 

$

844

 

3

 

7

Total tangible property

 

 

844

 

 

 

 

Radio broadcasting licenses

 

 

19,576

 

non-amortizing

Goodwill

 

 

2,080

 

non-amortizing

Total intangible and other assets

 

 

21,656

 

 

 

 

Total assets

 

$

22,500

 

 

 

 

Preliminary fair value of net assets acquired

 

$

22,500

 

 

 

 

 

2018 WXTU Transaction

 

On July 18, 2018, the Company entered into an agreement with Beasley Broadcast Group, Inc. (“Beasley”) to sell certain assets of WXTU-FM, serving the Philadelphia, Pennsylvania radio market for $38.0 million in cash (the “WXTU Transaction”). The Company also simultaneously entered into a time brokerage agreement (“TBA”) with Beasley where Beasley commenced operations of WXTU-FM on July 23, 2018. During the period of the TBA, the Company excluded net revenues and station operating expenses associated with operating WXTU-FM in the Company’s consolidated financial statements. The Company completed this disposition, which was subject to customary regulatory approvals, during the third quarter of 2018 and recognized a gain of approximately $4.4 million.

 

Based on this timing, the Company’s consolidated financial statements for the nine and three months ended September 30, 2019 do not reflect the results of this divested station, whereas the Company’s consolidated financial statements for the nine and three months ended September 30, 2018 do reflect the results of this divested station for a portion of the period up through the completion of the sale.

 

2018 Jerry Lee Transaction

 

On September 27, 2018, the Company completed a transaction to acquire the assets of WBEB-FM, serving the Philadelphia, Pennsylvania radio market from Jerry Lee Radio, LLC (“Jerry Lee”) for a purchase price of $57.5 million in cash, less certain working capital and other credits (the “Jerry Lee Transaction”). The Company used proceeds from the WXTU Transaction and cash on hand to fund this acquisition. Upon the completion of the WXTU Transaction and the Jerry Lee Transaction, the Company continues to operate six radio stations in the Philadelphia, Pennsylvania market.

 

On August 7, 2018, the Company entered into a TBA with Jerry Lee. During the period of the TBA, the Company included net revenues, station operating expenses and monthly TBA fees associated with operating WBEB-FM in the Company’s consolidated financial statements.

 

Based on this timing, the Company’s consolidated financial statements for the nine and three months ended September 30, 2019 reflect the results of this acquired station, whereas the Company’s consolidated financial

13

 


 

statements for the nine and three months ended September 30, 2018 reflect the results of this acquired station for a portion of the period subsequent to the completion of the acquisition.

 

The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired FCC broadcasting licenses, the fair value estimates are based on, but not limited to, expected future revenue and cash flows that assume an expected future growth rate of 1.0% and an estimated discount rate of 9.0%. The gross profit margins utilized were considered appropriate based on management’s expectations and experience in equivalent sized markets. The Company determines the fair value of the broadcasting licenses by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcasting licenses. The Company’s fair value analysis contains assumptions based upon past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information for an average station within a certain market. Any excess of the purchase price over the assets acquired was reported as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this acquisition provides the Company with an opportunity to benefit from operational efficiencies from combining operations of the acquired station with the Company’s existing stations within the Philadelphia market.

 

The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.

 

 

 

 

 

 

 

Final Value

 

 

 

(amounts in thousands)

 

 

 

 

 

Assets

 

 

 

 

Equipment

 

$

981

 

Total tangible property

 

 

981

 

Advertising contracts

 

 

477

 

Radio broadcasting licenses

 

 

27,346

 

Goodwill

 

 

24,396

 

Net working capital

 

 

3,234

 

Total intangible and other assets

 

 

55,453

 

Total assets

 

$

56,434

 

 

 

 

 

 

Preliminary fair value of net assets acquired

 

$

56,434

 

 

2018 Emmis Acquisition

On April 30, 2018, the Company completed a transaction to acquire two radio stations in St. Louis, Missouri from Emmis Communications Corporation (“Emmis”) for a purchase price of $15.0 million in cash (the “Emmis Acquisition”). The Company borrowed under its revolving credit facility (the “Revolver”) to fund the acquisition. With this acquisition, the Company increased its presence in St. Louis, Missouri, to five radio stations.

On March 1, 2018, the Company entered into an asset purchase agreement and a TBA with Emmis to operate two radio stations. During the period of the TBA, the Company included in net revenues, station operating expenses and monthly TBA fees associated with operating these stations in the Company’s consolidated financial statements.

Based on this timing, the Company’s consolidated financial statements for the nine and three months ended September 30, 2019 reflect the results of these acquired stations, whereas the Company’s consolidated financial statements for the nine and three months ended September 30, 2018 reflect the results of these acquired stations for the portion of the period in which the TBA was in effect and after the completion of the transaction.

The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired FCC

14

 


 

broadcasting licenses, the fair value estimates are based on, but not limited to, expected future revenue and cash flows that assume an expected future growth rate of 1.0% and an estimated discount rate of 9.0%. The gross profit margins utilized were considered appropriate based on management’s expectations and experience in equivalent sized markets. The Company determines the fair value of the broadcasting licenses by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcasting licenses. The Company’s fair value analysis contains assumptions based upon past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information for an average station within a certain market. Any excess of the purchase price over the assets acquired was reported as goodwill.

The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.

 

 

 

 

 

 

Final Value

 

 

(amounts in thousands)

 

 

 

 

Assets

 

 

 

Equipment

 

$

1,558

Total tangible property

 

 

1,558

Advertiser relationships

 

 

207

Advertising contracts

 

 

114

Radio broadcasting licenses

 

 

12,785

Goodwill

 

 

332

Other noncurrent assets

 

 

4

Total intangible and other assets

 

 

13,442

Total assets

 

$

15,000

Fair value of assets acquired

 

$

15,000

 

2017 CBS Radio Business Acquisition

On February 2, 2017, the Company and its wholly-owned subsidiary (“Merger Sub”), entered into an Agreement and Plan of Merger (the “CBS Radio Merger Agreement”) with CBS Corporation (“CBS”) and its wholly-owned subsidiary CBS Radio Inc. (“CBS Radio”). Pursuant to the CBS Radio Merger Agreement, Merger Sub merged with and into CBS Radio with CBS Radio surviving as the Company’s wholly-owned subsidiary (the “Merger”). On November 13, 2018, the Company changed the name of CBS Radio Inc. to Entercom Media Corp. The parties to the Merger believe that the Merger was tax-free to CBS and its shareholders. The Merger was effected through a stock for stock Reverse Morris Trust transaction.

On November 17, 2017, the Company acquired the CBS Radio business from CBS to further strengthen its scale and capabilities to compete more effectively with other media for a larger share of advertising dollars. The purchase price was $2.56 billion and consisted of $1.17 billion of total equity consideration and $1.39 billion of assumed debt.

The CBS Radio business acquisition was completed pursuant to the CBS Radio Merger Agreement, dated February 2, 2017, by and among the Company, CBS, CBS Radio, and Merger Sub. On November 17, 2017, (i) Merger Sub was merged with and into CBS Radio, with CBS Radio continuing as the surviving corporation and a direct, wholly-owned subsidiary of the Company and (ii) each share of CBS Radio common stock was converted into one share of the Company’s common stock.

The Company issued 101,407,494 shares of its Class A common Stock to the former holders of CBS Radio common stock. At the time of the Merger, each outstanding restricted stock unit (“RSU”) and stock option with respect to CBS Class B common stock held by employees of CBS Radio was canceled and converted into equity awards for the Company’s Class A common stock. The conversion was based on the ratio of the volume-weighted average per share closing prices of CBS stock on the five trading days prior to the date of acquisition and the

15

 


 

Company’s stock on the five trading days following the date of acquisition. Entercom Communications Corp. is considered to be the acquiring company for accounting purposes.

To complete the Merger, certain divestitures were required by the FCC in order to comply with the FCC’s ownership rules and policies. These divestitures consisted of: (i) the exchange transaction with iHeartMedia, Inc. (“iHeart”); (ii) a station exchange with Beasley; (iii) a cash sale to Bonneville International Corporation (“Bonneville”); and (iv) a cash sale to Educational Media Foundation (“EMF”).

Due to the structure of the transaction, there was no step-up in tax basis for the assets acquired as the Company assumed the existing tax basis in the assets of CBS Radio. The absence of a step-up in tax basis will limit the Company’s tax deductions in future years and impacts the amount of deferred tax liabilities recorded as part of purchase price accounting. If any of the Internal Distributions or the Final Distribution, each as defined in the CBS Radio Merger Agreement, does not qualify as a transaction that is tax-free for U.S. federal income tax purposes under Section 355 of the Code or the Merger does not qualify as a tax-free “reorganization” under Section 368(a) of the Code, including as a result of actions taken in connection with the distributions made by CBS to facilitate the Merger or as a result of subsequent acquisitions of shares of CBS, Entercom, or CBS Radio, then CBS and/or holders of CBS Common Stock that received Radio Common Stock in the Final Distribution may be required to pay substantial U.S. federal income taxes, and, in certain circumstances, CBS Radio and Entercom may be required to indemnify CBS for any such tax liability.

2017 Local Marketing Agreement: The Bonneville Transaction

On November 1, 2017, the Company assigned assets to a trust and the trust subsequently entered into two LMAs with Bonneville. The LMAs, which were effective upon the closing of the Merger, allowed Bonneville to operate eight radio stations in the San Francisco, California and Sacramento, California markets. Of the eight radio stations operated by Bonneville, three were originally owned by the Company and the remaining five were originally owned by CBS Radio. The Company conducted an analysis and determined the assets of the eight stations satisfied the criteria to be presented as assets held for sale. The stations which were acquired from CBS Radio and were never operated by the Company are included within discontinued operations. On August 2, 2018, the Company entered into an asset purchase agreement with Bonneville to dispose of the eight radio stations in the San Francisco, California and Sacramento, California markets for $141.0 million in cash. During the year ended December 31, 2018, the Company closed on this sale, which resulted in a loss of approximately $0.4 million to the Company. Refer to Note 13, Assets Held for Sale and Discontinued Operations, for additional information.

Restructuring Charges

 

Restructuring charges were expensed as a separate line item in the consolidated statements of operations.

 

The components of restructuring charges are as follows:

 

 

Nine Months Ended

 

September 30,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

Costs to exit duplicative contracts

$

-

 

$

32

Workforce reduction

 

5,283

 

 

2,338

Other restructuring costs

 

670

 

 

649

Total restructuring charges

$

5,953

 

$

3,019

 

16

 


 

 

Three Months Ended

 

September 30,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

Costs to exit duplicative contracts

$

-

 

$

(478)

Workforce reduction

 

1,489

 

 

1,410

Other restructuring costs

 

88

 

 

(80)

Total restructuring charges

$

1,577

 

$

852

 

Restructuring Plan

 

During the fourth quarter of 2017, the Company initiated a restructuring plan as a result of the integration of the CBS Radio stations acquired in November 2017. The restructuring plan included: (i) a workforce reduction and realignment charges that included one-time termination benefits and related costs; (ii) lease abandonment costs; and (iii) costs associated with realigning radio stations within the overlap markets between CBS Radio and the Company. A portion of unpaid restructuring charges as of September 30, 2019 were including in accrued expenses as these expenses are expected to be paid in less than one year.

 

The estimated amount of unpaid restructuring charges as of September 30, 2019 includes amounts in accrued expenses that are expected to be paid in less than one year and long-term restructuring costs for lease abandonment costs covering the remaining non-cancellable lease term.

 

 

Nine Months

 

Twelve Months

 

Ended

 

Ended

 

September 30,

 

December 31,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

Restructuring charges and lease abandonment costs, beginning balance

$

7,077

 

$

16,086

Additions resulting from the integration of CBS Radio

 

5,953

 

 

5,830

Payments

 

(7,553)

 

 

(14,839)

Restructuring charges and lease abandonment costs unpaid and outstanding

 

5,477

 

 

7,077

Restructuring charges and lease abandonment costs - noncurrent portion

 

(188)

 

 

(988)

Restructuring charges and lease abandonment costs - current portion

$

5,289

 

$

6,089

 

Integration Costs

 

The Company incurred integration costs of $3.3 million and $22.0 million during the nine months ended September 30, 2019 and September 30, 2018, respectively. Integration costs were expensed as a separate line item in the consolidated statements of operations. These costs primarily relate to change management consultants and technology-related costs incurred subsequent to the Merger.

 

Unaudited Pro Forma Summary of Financial Information

 

The following unaudited pro forma information for the nine and three months ended September 30, 2019 and September 30, 2018 assumes that the Pineapple Acquisition in 2019 had occurred as of January 1, 2018 and the Jerry Lee Transaction and Emmis Acquisition in 2018 had occurred as of January 1, 2017. The effects of the Cumulus Exchange and the WXTU Transaction are not included in the pro forma information as their impact was immaterial. Refer to information within this Note 2, Business Combinations, and to the financial statements and related notes included in the Company’s audited financial statements as of and for the year ended December 31, 2018, and filed with the SEC on February 27, 2019, for a description of the Company’s acquisition and disposition activities. The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and

17

 


 

(iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.

 

This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

(amounts in thousands except share and per share data)

 

 

Pro Forma

 

Pro Forma

 

Pro Forma

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

$

386,141

 

$

383,975

 

$

1,078,270

 

$

1,064,123

Income (loss) from continuing operations

$

38,208

 

$

38,693

 

$

68,258

 

$

27,140

Income (loss) from discontinued operations

$

-

 

$

358

 

$

-

 

$

1,530

Net income (loss) available to the Company

$

38,208

 

$

39,051

 

$

68,258

 

$

28,670

Net income (loss) available to common shareholders

$

38,208

 

$

39,051

 

$

68,258

 

$

28,670

Income (loss) from continuing operations

 

 

 

 

 

 

 

 

 

 

 

per common share - basic

$

0.28

 

$

0.28

 

$

0.49

 

$

0.20

Income (loss) from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

per common share - basic

$

-

 

$

-

 

$

-

 

$

0.01

Net income (loss) available to common shareholders

 

 

 

 

 

 

 

 

 

 

 

per common share - basic

$

0.28

 

$

0.28

 

$

0.49

 

$

0.21

Income (loss) from continuing operations

 

 

 

 

 

 

 

 

 

 

 

per common share - diluted

$

0.28

 

$

0.28

 

$

0.49

 

$

0.19

Income (loss) from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

per common share - diluted

$

-

 

$

-

 

$

-

 

$

0.01

Net income (loss) available to common shareholders

 

 

 

 

 

 

 

 

 

 

 

per common share - diluted

$

0.28

 

$

0.28

 

$

0.49

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

Weighted shares outstanding basic

 

136,449,453

 

 

138,740,243

 

 

137,944,486

 

 

138,901,037

Weighted shares outstanding diluted

 

136,452,995

 

 

139,102,560

 

 

138,295,091

 

 

139,684,890

 

3.REVENUE

Nature of Goods and Services

The following is a description of principal activities from which the Company generates its revenue.

The Company generates revenue from the sale to advertisers of various services and products, including but not limited to: (i) commercial broadcast time; (ii) digital advertising; (iii) promotional and sponsorship event revenue; (iv) e-commerce revenue; and (v) trade and barter revenue. Services and products may be sold separately or in bundled packages. The typical length of a contract for service is less than 12 months.

Revenue is recognized when or as performance obligations under the terms of a contract with customers are satisfied. This typically occurs at the point in time that advertisements are broadcast, marketing services are provided, or as an event occurs. For commercial broadcast time and digital advertising, the Company recognizes revenue at the point in time when the advertisement is broadcast. For e-commerce revenue transactions, revenue is recognized as each third party sale is made and the advertisers’ good or service is transferred to the end customer. For trade and barter transactions, revenue is recognized at the point in time when the promotional advertising is aired.

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For bundled packages, the Company accounts for each product or performance obligation separately if they are distinct. A product or service is distinct if it is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the commercial broadcast time, digital advertising, or digital product and marketing solutions.

Broadcast Revenues

Commercial broadcast time - The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company’s performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.

Digital advertising - The Company sells digital marketing services to advertisers. The Company’s performance obligations are providing broadcasting advertisements and integrated marketing services for advertisers. The Company recognizes revenue at a point in time when the advertisements are broadcast, the marketing services are provided and the performance obligations are satisfied. Revenues are recorded on a gross basis as the Company acts as a principal in these transactions.

Event and Other Revenues

Promotional and Sponsorship Event revenue - The Company provides promotional advertising to advertisers in exchange for cash proceeds from ticket sales. Performance obligations are broadcasting advertisements for advertisers’ events at specifically identifiable days and dayparts. The Company also sells sponsorships to advertisers at various local events. Performance obligations include providing advertising space at the Company’s event. The Company recognizes revenue at a point in time, as the event occurs. Revenues are recorded on a net basis when the Company acts as an agent in these transactions.

E-Commerce revenue - The Company sells discount certificates to listeners on its websites. Listeners purchase goods and services from the advertiser at a discount to the fair value of the merchandise or service. Performance obligations include the promotion of advertisers’ discount offers on the Company’s website as well as revenue share payments to the advertiser. The Company records revenue on a net basis as it acts as an agent in these transactions.

Trade and Barter Revenues

Trade and barter – The Company provides advertising broadcast time in exchange for certain products, supplies, and services. The term of the exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time on regular terms. Other than network barter programming, which is reflected on a net basis, the Company includes the value of such exchanges in both broadcasting net revenues and station operating expenses. Trade and barter value is based upon management’s estimate of the fair value of the products, supplies and services received.

Contract Balances

Refer to the table below for information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $8.4 million and $11.8 million as of September 30, 2019 and December 31, 2018, respectively.

 

19

 


 

 

 

September 30,

 

December 31,

Description

 

2019

 

2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Receivables, included in "Accounts receivable

 

 

 

 

 

 

net of allowance for doubtful accounts"

 

$

354,702

 

$

330,983

Unearned revenue - current

 

 

16,113

 

 

22,692

Unearned revenue - noncurrent

 

 

2,130

 

 

1,138

 

Changes in Contract Balances

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits (unearned revenue) on the Company’s consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each respective reporting period within the other current liabilities and other long-term liabilities line items.

 

Significant changes in the contract liabilities balances during the period are as follows:

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

Description

 

 

Unearned Revenue

 

 

(amounts in thousands)

 

 

 

 

Beginning balance on January 1, 2019

 

$

23,830

Revenue recognized during the period that was included in the beginning balance of contract liabilities

 

 

(20,104)

Additional amounts recognized during period

 

 

14,517

Ending balance

 

$

18,243

 

Disaggregation of Revenue

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

 

20

 


 

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

2018

Revenue by Source

 

(amounts in thousands)

 

 

 

 

 

 

 

Broadcast revenues

 

$

991,768

 

$

963,118

Event and other revenues

 

 

71,754

 

 

77,252

Trade and barter revenues

 

 

12,289

 

 

10,822

Net revenues

 

$

1,075,811

 

$

1,051,192

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30,

 

 

2019

 

2018

Revenue by Source

 

(amounts in thousands)

 

 

 

 

 

 

 

Broadcast revenues

 

$

356,683

 

$

348,066

Event and other revenues

 

 

25,353

 

 

26,391

Trade and barter revenues

 

 

4,105

 

 

4,051

Net revenues

 

$

386,141

 

$

378,508

 

Performance Obligations

A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer, and is the unit of account under this guidance. A contract’s transaction price is allocated to each distinct performance obligation and is recognized as revenue when the performance obligation is satisfied. Some of the Company’s contracts have one performance obligation which requires no allocation. For other contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.

 

The Company’s performance obligations are either satisfied at a point in time or are satisfied over a period of time. As the Company’s inputs are expended evenly throughout the performance period, the Company recognizes revenue on a straight-line basis over the life of a contract. For performance obligations that are satisfied at a point in time, the Company recognizes revenue when an advertisement is aired and the customer has received the benefits of advertising.

 

Performance obligations for all products and services, with the exception of event revenues, are satisfied over the term of the contracts, which are typically less than 12 months.

 

Practical Expedients

As a practical expedient, when the period of time between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less, the Company will not adjust the promised amount of consideration for the effects of a significant financing component.

 

The Company elected to apply the practical expedient which allows it to not disclose information about remaining performance obligations that have original expected durations of one year or less. The Company has contracts with customers which will result in the recognition of revenue beyond one year. From these contracts, the Company expects to recognize $2.1 million of revenue in excess of one year.

The Company also elected to apply the practical expedient which allows it to not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before January 1, 2018.

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The Company elected to apply the practical expedient which allows the Company to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in station operating expenses on the consolidated statements of operations.

Significant Judgments

For performance obligations satisfied at a point in time, the Company does not estimate when a customer obtains control of the promised goods or services. Rather, the Company recognizes revenues at the point in time in which performance obligations are satisfied.

The Company records a provision against revenues for estimated sales adjustments when information indicates allowances are required.

For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.

For all revenue streams with the exception of barter revenues, the transaction price is contractually determined. Accordingly, no estimates are required and there is no variable consideration. For trade and barter revenues, the Company estimates the consideration by estimating the fair value of the goods and services received.

Net revenues from network barter programming have historically been recorded on a net basis. This treatment will continue to be the Company’s policy under the amended accounting guidance for revenue recognition.

 

4.LEASES

Leasing Guidance

As discussed above, the accounting guidance for leases was modified to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Except for the changes described below, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.

Results for the periods beginning after January 1, 2019 are presented under the amended accounting guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting guidance. Based upon the Company’s assessment, the impact of this guidance had a material impact on the Company’s financial position and the impact to the Company’s results of operations and cash flows through September 30, 2019 was not material.

The Company recognizes the assets and liabilities that arise from leases on the commencement date of the lease. The Company recognizes the liability to make lease payments as a lease liability as well as a ROU asset representing the right to use the underlying asset for the lease term, on the consolidated balance sheet.

Leasing Transactions

The Company’s leased assets primarily include real estate, broadcasting towers and equipment. The Company’s leases have remaining lease terms of less than 1 year up to 30 years, some of which include one or more options to extend the leases, with renewal terms up to fifteen years and some of which include options to terminate the leases within the next year. Many of the Company’s leases include options to extend the terms of the agreements. Generally, renewal options are excluded when calculating the lease liabilities, as the Company does not consider the exercise of such options to be reasonably certain. Unless a renewal option is considered reasonably assured, the optional terms and related payments are not included within the lease liability. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s operating leases are reflected on the Company’s balance sheet within the Operating lease right-of-use assets line item and the related current and non-current liabilities are included within the Operating lease liabilities and Operating lease liabilities, net of current portion line items, respectively. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from leases. Operating lease ROU assets and liabilities are recognized at commencement date

22

 


 

based upon the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.

As the rate implicit in the lease is not readily determinable for the Company’s operating leases, the Company generally uses an incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in similar economic environment. In order to measure the operating lease liability and determine the present value of lease payments, the Company estimated what the incremental borrowing rate was for each lease using an applicable treasury rate compatible to the remaining life of the lease and the applicable margin for the Company’s Revolver.

In determining whether a contract is or contains a lease at inception of a contract, the Company considers all relevant facts and circumstances, including whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This consideration involves judgment with respect to whether the Company has the right to obtain substantially all of the economic benefits from the use of the identified asset and whether the Company has the right to direct the use of the identified asset.

On January 1, 2019, the Company implemented the new leasing guidance using a modified retrospective approach with a cumulative-effect adjustment to its accumulated deficit of $4.7 million, net of taxes of $1.7 million. This adjustment was attributable to the recognition of deferred gains from sale and leaseback transactions under the previous accounting guidance for leases.

Practical Expedients

The Company elected the practical expedient which allows it to: (i) apply the new lease requirements at the effective date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption; (ii) continue to report comparative periods presented in the financial statements in the period of adoption under the former U.S. GAAP; and (iii) provide the required disclosures under former U.S. GAAP for all periods presented under former U.S. GAAP.

The Company elected the package of practical expedients, which were applied consistently to all of its leases, and enable it to not reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.

As a practical expedient, the Company may choose not to separate nonlease components from lease components as an accounting policy election by class of underlying asset. The Company elected this practical expedient by all classes of underlying assets in instances where leases contain common area maintenance. In certain leases, the right to control the use of an asset that meets the lease criteria is combined with the related common area maintenance services provided under the contract into a single lease component.

As an accounting policy election, the Company elected not to apply the recognition requirements to short-term leases for all underlying classes of assets. For these leases which have a term of twelve months or less at lease inception, the Company will recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for these payments is incurred.

Lease Expense

The components of lease expense were as follows:

 

23

 


 

 

 

Nine Months Ended

 

 

September 30,

Lease Cost

 

2019

 

 

(amounts in thousands)

 

 

 

 

Operating lease cost

 

$

37,733

Variable lease cost

 

 

7,029

Short-term lease cost

 

 

182

Total lease cost

 

$

44,944

 

 

 

Three Months Ended

 

 

September 30,

Lease Cost

 

2019

 

 

(amounts in thousands)

 

 

 

 

Operating lease cost

 

$

12,682

Variable lease cost

 

 

2,478

Short-term lease cost

 

 

5

Total lease cost

 

$

15,165

 

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows:

 

 

 

Nine Months Ended

 

 

September 30,

Description

 

2019

 

 

(amounts in thousands)

 

 

 

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

Operating cash flows from operating leases

 

$

38,991

Right-of-use assets obtained in exchange for lease obligations

 

 

 

Operating leases (1)

 

$

304,650

 

(1)ROU assets obtained in exchange for lease obligations include transition liabilities upon implementation of the amended leasing guidance, as well as new leases entered into during the nine months ended September 30, 2019.

 

Balance Sheet

 

Supplemental balance sheet information related to leases was as follows:

 

24

 


 

 

 

September 30,

Description

 

2019

 

 

(amounts in thousands)

 

 

 

 

Operating Leases

 

 

 

Operating leases right-of-use assets

 

$

274,938

 

 

 

 

Operating lease liabilities (current)

 

$

36,543

Operating lease liabilities (noncurrent)

 

 

263,084

Total operating lease liabilities

 

$

299,627

 

Weighted Average Remaining Lease Term

 

 

 

Operating leases

 

 

8 years

 

 

 

 

Weighted Average Discount Rate

 

 

 

Operating leases

 

 

4.9%

 

Maturities

The aggregate maturities of the Company’s lease liabilities are as follows:

 

 

Lease Maturities

 

 

Operating Leases

 

 

(amounts in thousands)

Years ending December 31:

 

 

Remainder of 2019

 

$

13,187

2020

 

 

51,488

2021

 

 

48,869

2022

 

 

43,753

2023

 

 

40,467

Thereafter

 

 

171,226

Total lease payments

 

$

368,990

Less: imputed interest

 

 

(69,363)

Total

 

$

299,627

 

As of September 30, 2019, the Company has not entered into any leases that have not yet commenced.

The aggregate maturities of the Company’s lease liabilities as of December 31, 2018, which were based on the former accounting guidance for leases, were as follows:

25

 


 

 

 

Lease Maturities

 

 

Operating Leases

 

 

(amounts in thousands)

Years ending December 31:

 

 

2019

 

$

51,375

2020

 

 

50,504

2021

 

 

46,847

2022

 

 

41,457

2023

 

 

38,230

Thereafter

 

 

165,905

Total lease payments

 

$

394,318

 

5.INTANGIBLE ASSETS AND GOODWILL

 

Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.

 

The following table presents the changes in the carrying value of broadcasting licenses. Refer to Note 2, Business Combinations, and Note 13, Assets Held For Sale And Discontinued Operations, for additional information.

 

 

 

Broadcasting Licenses

 

 

Carrying Amount

 

 

September 30,

 

December 31,

 

 

2019

 

2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Broadcasting licenses balance as of January 1,

 

$

2,516,625

 

$

2,649,959

Disposition of radio stations (See Notes 2, 13)

 

 

(17,940)

 

 

(24,901)

Acquisition of radio stations (See Note 2)

 

 

19,576

 

 

40,131

Loss on impairment

 

 

-

 

 

(148,564)

Ending period balance

 

$

2,518,261

 

$

2,516,625

 

The following table presents the changes in goodwill. Refer to Note 2, Business Combinations, for additional information.

 

26

 


 

 

 

Goodwill Carrying Amount

 

 

September 30,

 

December 31,

 

 

2019

 

2018

 

 

(amounts in thousands)

Goodwill balance before cumulative loss

 

 

 

 

 

on impairment as of January 1,

$

982,663

 

$

988,056

Accumulated loss on impairment as of January 1,

 

(443,194)

 

 

(126,056)

Goodwill beginning balance after cumulative loss

 

 

 

 

 

on impairment as of January 1,

 

539,469

 

 

862,000

Loss on impairment during year

 

-

 

 

(317,138)

Dispositions (See Note 2)

 

 

(4,862)

 

 

(8,623)

Acquisitions (See Note 2)

 

15,274

 

 

24,728

Measurement period adjustments to acquired goodwill

 

-

 

 

(21,498)

Ending period balance

$

549,881

 

$

539,469

 

Broadcasting Licenses Impairment Test

 

The Company historically performed its annual broadcasting license impairment test during the second quarter of each year by evaluating its broadcasting licenses for impairment at the market level using the Greenfield method.

 

During the second quarter of 2019, however, the Company voluntarily changed the date of its annual broadcasting license impairment test date from April 1 to December 1. The change was made to more closely align the impairment testing date with the Company’s long-term planning and forecasting process. The Company has determined this change in method of applying an accounting principle is preferable and does not result in adjustments to the Company’s financial statements when applied retrospectively.

 

In response to the changing of the annual broadcasting license impairment test date, during the three months ended June 30, 2019, the Company made an evaluation based on factors such as each market’s total market share and changes in operating cash flow margins, and concluded that it was more likely than not that the fair value of each market’s broadcasting licenses exceeded their carrying values at the time of the change in impairment test date. The change in the annual impairment testing date did not delay, accelerate or avoid an impairment charge.

 

If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s broadcasting licenses below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods.

 

 

 

There were no events or circumstances that indicated an interim review of broadcasting licenses was required.

 

Goodwill Impairment Test

 

The Company historically performed its annual goodwill impairment test during the second quarter of each year by assessing goodwill for its single reporting unit on a consolidated basis.

 

During second quarter of 2019, however, the Company voluntarily changed the date of its annual goodwill impairment test date from April 1 to December 1. The change was made to more closely align the impairment testing date with the Company’s long-term planning and forecasting process. The Company has determined this change in method of applying an accounting principle is preferable and does not result in adjustments to the Company’s financial statements when applied retrospectively.

 

In response to the changing of the annual goodwill impairment test date, during the three months ended June 30, 2019, the Company made an evaluation based on factors such as changes in the Company’s long-term growth rate, changes in the Company’s operating cash flow margin, and trends in the Company’s market capitalization, and

27

 


 

concluded that it was more likely than not that the fair value of the Company’s goodwill exceeded its carrying value at the time of the change in impairment test date. The change in the annual impairment testing date did not delay, accelerate or avoid an impairment charge.

 

If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s goodwill below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods.

 

 

 

During the three months ended September 30, 2019, the Company considered key factors and circumstances that could have potentially indicated a need to conduct an interim impairment assessment. Such factors and circumstances included, but were not limited to: (i) forecasted financial information; (ii) discount rates; (iii) long-term growth rates; (iv) the Company’s stock price; and (v) analyst expectations. After giving consideration to all available evidence arising from these facts and circumstances, the Company concluded that it did not have a requirement to perform an interim impairment test for goodwill. However, if there were to be deterioration in the Company’s forecasted financial information, an increase in discount rates, a reduction in long-term growth rates, a sustained decline in the Company’s stock price, or a failure to achieve analyst expectations, these could all be potential indicators of an impairment charge, which could be material, in future periods.

 

There were no events or circumstances that indicated an interim review of goodwill was required.

 

6. OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following as of the periods indicated:

 

 

Other Current Liabilities

 

September 30,

 

December 31,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

Accrued compensation

$

33,633

 

$

31,192

Accounts receivable credits

 

5,579

 

 

5,743

Advertiser obligations

 

6,209

 

 

4,190

Accrued interest payable

 

21,736

 

 

6,007

Unearned revenue

 

16,113

 

 

22,692

Unfavorable lease liabilities

 

-

 

 

2,852

Unfavorable sports liabilities

 

4,634

 

 

4,634

Accrued benefits

 

7,715

 

 

8,646

Non-income tax liabilities

 

6,883

 

 

6,748

Income taxes payable

 

18,977

 

 

10,558

Other

 

4,032

 

 

15,176

Total other current liabilities

$

125,511

 

$

118,438

 

During the third quarter of 2018, the Company disposed of certain property that the Company considered as surplus to its operations and that resulted in significant gains reportable for tax purposes. Upon the successful completion of a like-kind exchange under Section 1031 of the Code, a portion of the income taxes payable generated from these gains were reclassified to a deferred tax liability. Refer to Note 15, Contingencies And Commitments, for additional information.

 

7.LONG-TERM DEBT

 

(A) Senior Debt

28

 


 

 

The Credit Facility

 

On November 17, 2017, in connection with the Merger, the Company refinanced its previously outstanding indebtedness and also assumed CBS Radio’s outstanding indebtedness. As a result of the refinancing activity and the Merger, the Company’s outstanding credit facility (the “Credit Facility”) is comprised of the Revolver and a term loan component (the “Term B-1 Loan”).

 

The $250.0 million Revolver has a maturity date of November 17, 2022. The amount available under the Revolver, which includes the impact of outstanding letters of credit, was $110.1 million as of September 30, 2019.

 

The Term B-1 Loan has a maturity date of November 17, 2024. The Term B-1 Loan amortizes: (i) with equal quarterly installments of principal in annual amounts equal to 1.0% of the original principal amount of the Term B-1 Loan; and (ii) mandatory yearly prepayments based upon a percentage of Excess Cash Flow as defined in the agreement.

 

The Term B-1 Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, as defined within the agreement, subject to incremental step-downs, depending on the Consolidated Net First Lien Leverage Ratio as defined in the agreement. The Excess Cash Flow payment, if any, is due in the first quarter of each year, and is based on the Excess Cash Flow and Consolidated Net First Lien Leverage Ratio for the prior year. Because the Company made voluntary prepayments against the Term B-1 Loan in 2018, which may be applied toward the Excess Cash Flow payment, no Excess Cash Flow payment was due in the first quarter of 2019.

 

The Company expects to use the Revolver to: (i) provide for working capital; and (ii) provide for general corporate purposes, including capital expenditures and any or all of the following (subject to certain restrictions): repurchase of Class A common stock, dividends, investments and acquisitions. In addition, the Credit Facility is secured by a lien on substantially all of the assets (including material real property) of Entercom Media Corp. and its subsidiaries with limited exclusions. All of the Company’s subsidiaries, jointly and severally guaranteed the Credit Facility. The assets securing the Credit Facility are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.

 

The Credit Facility has usual and customary covenants including, but not limited to, a net first lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net First Lien Leverage Ratio that cannot exceed 4.0 times at September 30, 2019. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First Lien Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition. As of September 30, 2019, the Company’s Consolidated Net First Lien Leverage Ratio was 2.7 times.

 

Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.

 

Management believes that over the next 12 months, the Company can continue to maintain compliance with its financial covenant. The Company’s operating cash flow is positive, and management believes that it is adequate to fund the Company’s operating needs and mandatory debt repayments under the Company’s Credit Facility. As of September 30, 2019, the Company is in compliance with the financial covenant and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenant is highly dependent on its results of operations.

 

Management believes that cash on hand, borrowing capacity from the Revolver and cash from operating activities will be sufficient to permit the Company to meet its liquidity requirements over the next 12 months, including its debt repayments. The cash available from the Revolver is dependent on the Company’s Consolidated Net First Lien Leverage Ratio at the time of such borrowing.

29

 


 

 

Long-term debt was comprised of the following:

 

 

 

 

 

Long-Term Debt

 

 

 

 

September 30,

 

December 31,

 

 

 

 

2019

 

2018

 

 

 

 

 

(amounts in thousands)

 

Credit Facility

 

 

 

 

 

 

 

 

Revolver, due November 17, 2022

 

$

134,000

 

$

180,000

 

 

Term B-1 Loan, due November 17, 2024

 

 

866,700

 

 

1,291,700

 

 

Plus unamortized premium

 

 

2,040

 

 

2,470

 

 

 

 

 

1,002,740

 

 

1,474,170

 

Notes

 

 

 

 

 

 

 

 

6.500% notes due May 1, 2027

 

 

325,000

 

 

-

 

 

 

 

 

325,000

 

 

-

 

Senior Notes

 

 

 

 

 

 

 

 

7.250% senior unsecured notes, due October 17, 2024

 

 

400,000

 

 

400,000

 

 

Plus unamortized premium

 

 

12,338

 

 

14,158

 

 

 

 

 

412,338

 

 

414,158

 

 

 

 

 

 

 

 

 

Other debt

 

 

881

 

 

912

Total debt before deferred financing costs

 

 

1,740,959

 

 

1,889,240

 

 

Deferred financing costs (excludes the revolving credit)

 

 

(17,003)

 

 

(17,037)

Total long-term debt

 

$

1,723,956

 

$

1,872,203

Outstanding standby letters of credit

 

$

5,862

 

$

5,862

 

(B) Senior Unsecured Debt

 

The Senior Notes

 

Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and mature on October 17, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio (now Entercom Media Corp) on October 17, 2016. The deferred financing costs and debt premium on the Senior Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the amount of any unamortized debt finance costs and debt premium costs are reflected on the balance sheet as a subtraction and an addition to the $400.0 million liability, respectively.

 

Interest on the Senior Notes accrues at the rate of 7.250% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year.

 

(C) Senior Secured Debt

 

On April 30, 2019, the Company’s finance subsidiary, Entercom Media Corp, issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the “Notes”) under an Indenture dated April 30, 2019 (the “Indenture”).

 

Interest on the Notes accrues at the rate of 6.500% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. Until May 1, 2022, only a portion of the Notes may be redeemed at a price of 106.500% of their principal amount plus accrued interest. On or after May 1, 2022, the Notes may be redeemed, in whole or in part, at a price of 104.875% of their principal amount plus accrued interest. The prepayment premiums continue to decrease over time on May 1 of each year, as described in the Indenture.

 

The Company used net proceeds of the offering, along with cash on hand and $89.0 million under its Revolver to repay $425.0 million of existing indebtedness under its Term B-1 Loan.

 

30

 


 

In connection with the refinancing activity described above, during the second quarter of 2019, the Company: (i) wrote off $1.6 million of unamortized deferred financing costs associated with the Term B-1 Loan; and (ii) recorded $3.9 million of new deferred financing costs which will be amortized over the term of the Notes under the effective interest rate method.

 

The Notes are fully and unconditionally guaranteed on a senior secured second-lien basis by each direct and indirect subsidiary of Entercom Media Corp. The Notes and the related guarantees are secured on a second-priority basis by liens on substantially all of the assets of Entercom Media Corp. and the guarantors. The Notes are not a registered security and there are no plans to register the Notes as a security in the future.

 

On April 30, 2019, Entercom Media Corp. amended the financial covenant in its Senior Secured Credit Agreement such that the calculation of Consolidated Net First Lien Leverage Ratio only includes first lien secured debt.

 

(D) Net Interest Expense

 

The components of net interest expense are as follows:

 

 

 

 

Net Interest Expense

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Interest expense

 

$

76,190

 

$

74,870

Amortization of deferred financing costs

 

 

2,227

 

 

2,389

Amortization of original issue discount (premium) of senior notes

 

 

(2,248)

 

 

(2,147)

Interest income and other investment income

 

 

(749)

 

 

(79)

Total net interest expense

 

$

75,420

 

$

75,033

 

 

 

Net Interest Expense

 

 

Three Months Ended

 

 

September 30,

 

 

2019

 

2018

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Interest expense

 

$

25,203

 

$

25,911

Amortization of deferred financing costs

 

 

755

 

 

798

Amortization of original issue discount (premium) of senior notes

 

 

(678)

 

 

(715)

Interest income and other investment income

 

 

(24)

 

 

(71)

Total net interest expense

 

$

25,256

 

$

25,923

 

(E) Interest Rate Transactions

 

The Company from time to time enters into interest rate transactions with different lenders to diversify its risk associated with interest rate fluctuations of its variable-rate debt. Under these transactions, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount against the variable-rate debt.

 

During the quarter ended June 30, 2019, the Company entered into an interest rate collar transaction in the notional amount of $560.0 million to hedge the Company’s exposure to fluctuations in interest rates on its variable-rate debt. Refer to Note 8, Derivative and Hedging Activities, for additional information.

 

31

 


 

8.DERIVATIVE AND HEDGING ACTIVITIES

 

The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.

 

Accounting For Derivative Instruments and Hedging Activities

 

The Company recognizes at fair value all derivatives, whether designated in hedging relationships or not, in the balance sheet as either net assets or net liabilities. The accounting for changes in the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and the resulting designation. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair value through the statement of operations. Any fees associated with these derivatives are amortized over their term. Cash flows from derivatives are classified in the statement of cash flows within the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. Under these derivatives, the differentials to be received or paid are recognized as an adjustment to interest expense over the life of the contract. In the event the cash flow hedges are terminated early, any amount previously included in comprehensive income (loss) would be reclassified as interest expense to the statement of operations as the forecasted transaction settles.

 

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes ongoing effectiveness assessments by relating all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company’s derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of corporate risk-management policies. The Company reviews the correlation and effectiveness of its derivatives on a periodic basis.

 

The fair value of these derivatives is determined using observable market based inputs (a Level 2 measurement, as described in Note 12, Fair Value Of Financial Instruments) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company’s counterparty for assets and the creditworthiness of the Company for liabilities).

 

Hedge Accounting Treatment

 

During the quarter ended June 30, 2019, the Company entered into a derivative rate hedging transaction in the aggregate notional amount of $560.0 million to manage interest rate risk on the Company’s variable rate debt. During the period of the hedging relationship, the beginning and ending balance of the Company’s variable rate debt was greater than the notional amount of the derivative rate hedging transaction. This transaction is tied to the one-month LIBOR interest rate. Under the Collar transaction, two separate agreements are established with an upper limit, or cap, and a lower limit, or floor, for the Company’s LIBOR borrowing rate. As of September 30, 2019, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:

 

32

 


 

Type

 

 

 

 

 

 

 

 

Fixed

 

 

 

Notional

 

Amount

Of

 

Notional

 

Effective

 

 

 

LIBOR

 

Expiration

 

Amount

 

After

Hedge

 

Amount

 

Date

 

Collar

 

Rate

 

Date

 

Decreases

 

Decrease

 

 

(amounts

 

 

 

 

 

 

 

 

 

 

 

(amounts

 

 

in millions)

 

 

 

 

 

 

 

 

 

 

 

in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[

 

 

 

]

 

 

Jun. 29, 2020

 

$

460.0

 

 

 

 

 

 

Cap

 

2.75%

 

 

Jun. 28, 2021

 

$

340.0

Collar

 

$

560.0

 

Jun. 25, 2019

Floor

 

0.402%

Jun. 28, 2024

 

Jun. 28, 2022

 

$

220.0

 

 

 

 

 

 

 

 

 

 

 

Jun. 28, 2023

 

$

90.0

Total

 

$

560.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2019, the Company recorded the net change in the fair value of this derivative as a loss of $0.6 million (net of a tax benefit of $0.2 million as of September 30, 2019) to the statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of September 30, 2019, the fair value of these derivatives was a liability of $0.8 million, and is recorded as other long-term liabilities on the balance sheet. The Company does not expect to reclassify any portion of this amount to the statement of operations over the next twelve months.

 

During the year ended December 31, 2018, the Company had no derivatives that qualified for hedge accounting treatment.

 

The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of September 30, 2019 and December 31, 2018:

 

 

 

 

Accumulated Derivative Gain (Loss)

 

 

 

September 30,

 

December 31,

Description

 

 

2019

 

2018

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

Accumulated derivative unrealized gain (loss)

 

 

$

(577)

 

$

-

 

The following table presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the nine months ended September 30, 2019:

 

Other Comprehensive Income (Loss)

Net Change in Accumulated Derivative Unrealized Gain (Loss)

 

 

Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations

Nine Months Ended September 30,

2019

 

2018

 

 

2019

 

2018

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

$

(577)

 

$

-

 

$

-

 

$

-

 

The following table presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended September 30, 2019:

 

 

33

 


 

Other Comprehensive Income (Loss)

Net Change in Accumulated Derivative Unrealized Gain (Loss)

 

 

Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations

Three Months Ended September 30,

2019

 

2018

 

 

2019

 

2018

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

$

(353)

 

$

-

 

$

-

 

$

-

 

9.NET INCOME (LOSS) PER COMMON SHARE

 

The following tables present the computations of basic and diluted net income (loss) per share from continuing operations and discontinued operations:

 

34

 


 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(amounts in thousands except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Income (Loss) Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to the Company - continuing operations

 

$

38,208

 

$

36,590

 

$

67,323

 

$

23,981

 

 

Net income available to common shareholders from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

continuing operations

 

 

38,208

 

 

36,590

 

 

67,323

 

 

23,981

 

 

Income (loss) from discontinued operations, net of tax

 

 

-

 

 

358

 

 

-

 

 

1,530

 

 

Net income (loss) available to common shareholders

 

$

38,208

 

$

36,948

 

$

67,323

 

$

25,511

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

136,449

 

 

138,740

 

 

137,944

 

 

138,901

 

 

Net Income (Loss) Per Common Share - Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations per share available to common shareholders - Basic

 

$

0.28

 

$

0.26

 

$

0.49

 

$

0.17

 

 

Net income (loss) from discontinued operations per share available to common shareholders - Basic

 

$

-

 

$

-

 

$

-

 

$

0.01

 

 

Net income (loss) per share available

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to common shareholders - Basic

 

$

0.28

 

$

0.27

 

$

0.49

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Income (Loss) Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to the Company - continuing operations

 

$

38,208

 

$

36,590

 

$

67,323

 

$

23,981

 

 

Net income available to common shareholders from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

continuing operations

 

 

38,208

 

 

36,590

 

 

67,323

 

 

23,981

 

 

Income (loss) from discontinued operations, net of tax

 

 

-

 

 

358

 

 

-

 

 

1,530

 

 

Net income (loss) available to common shareholders

 

$

38,208

 

$

36,948

 

$

67,323

 

$

25,511

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

136,449

 

 

138,740

 

 

137,944

 

 

138,901

 

 

Effect of RSUs and options under the treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

method

 

 

4

 

 

362

 

 

351

 

 

784

 

 

Diluted weighted average shares outstanding

 

 

136,453

 

 

139,102

 

 

138,295

 

 

139,685

 

 

Net Income (Loss) Per Common Share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations per share available to common shareholders - Diluted

 

$

0.28

 

$

0.26

 

$

0.49

 

$

0.17

 

 

Net income (loss) from discontinued operations per share available to common shareholders - Diluted

 

$

-

 

$

-

 

$

-

 

$

0.01

 

 

Net income (loss) per share available

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to common shareholders - Diluted

 

$

0.28

 

$

0.27

 

$

0.49

 

$

0.18

 

Disclosure of Anti-Dilutive Shares

 

The following table presents those shares excluded as they were anti-dilutive:

 

35

 


 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

Impact Of Equity Issuances

2019

 

2018

 

2019

 

2018

 

 

(amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares excluded as anti-dilutive under the treasury stock method:

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

545

 

 

563

 

 

549

 

 

565

 

Price range of options: from

$

6.43

 

$

9.66

 

$

6.43

 

$

9.66

 

Price range of options: to

$

13.98

 

$

13.98

 

$

13.98

 

$

13.98

 

RSUs with service conditions

 

3,555

 

 

1,586

 

 

1,939

 

 

1,415

RSUs excluded with service and market conditions as

 

 

 

 

 

 

 

 

 

 

 

market conditions not met

 

70

 

 

226

 

 

70

 

 

226

 

10.SHARE-BASED COMPENSATION

 

Under the Entercom Equity Compensation Plan (the “Plan”), the Company is authorized to issue share-based compensation awards to key employees, directors and consultants.

 

Restricted Stock Units (“RSUs”) Activity

 

The following is a summary of the changes in RSUs under the Plan during the current period:

 

 

 

 

 

Number

 

 

 

 

Weighted

 

Aggregate

 

 

 

 

of

 

Weighted

 

Average

 

Intrinsic

 

 

 

 

Restricted

 

Average

 

Remaining

 

Value as of

 

 

 

 

Stock

 

Purchase

 

Contractual

 

September 30,

 

Period Ended

 

 

Units

 

Price

 

Term (Years)

 

2019

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs outstanding as of:

December 31, 2018

 

 

3,685

 

 

 

 

 

 

 

 

RSUs awarded

 

 

 

1,696

 

 

 

 

 

 

 

 

RSUs released

 

 

 

(1,373)

 

 

 

 

 

 

 

 

RSUs forfeited

 

 

 

(310)

 

 

 

 

 

 

 

 

RSUs outstanding as of:

September 30, 2019

 

 

3,698

 

$

-

 

1.5

 

$

12,576

RSUs vested and expected

 

 

 

 

 

 

 

 

 

 

 

 

to vest as of:

September 30, 2019

 

 

3,698

 

$

-

 

1.5

 

$

12,575

RSUs exercisable (vested and

 

 

 

 

 

 

 

 

 

 

 

 

deferred) as of:

September 30, 2019

 

 

41

 

$

-

 

-

 

$

141

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

recognition period in years

 

 

 

2.4

 

 

 

 

 

 

 

 

Unamortized compensation

 

 

 

 

 

 

 

 

 

 

 

 

expense

 

$

22,392

 

 

 

 

 

 

 

 

 

RSUs with Service and Market Conditions

 

The Company issued RSUs with service and market conditions that are included in the table above. These shares vest if: (i) the Company’s stock achieves certain shareholder performance targets over a defined measurement period; and (ii) the employee fulfills a minimum service period. The compensation expense is recognized even if the market conditions are not satisfied and are only reversed in the event the service period is not met, as all of the conditions need to be satisfied. These RSUs are amortized over the longest of the explicit, implicit or derived service periods, which range from approximately one to three years.

 

The following table presents the changes in outstanding RSUs with market conditions:

 

36

 


 

 

 

 

Nine Months

 

Year

 

 

 

Ended

 

Ended

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

 

 

(amounts in thousands, except per share data)

 

 

 

Reconciliation of RSUs with Service and Market Conditions

 

 

 

 

 

 

 

Beginning of period balance

 

 

226

 

 

650

 

Number of RSUs granted

 

 

-

 

 

-

 

Number of RSUs forfeited

 

 

(156)

 

 

(110)

 

Number of RSUs vested

 

 

-

 

 

(314)

 

End of period balance

 

 

70

 

 

226

 

Weighted average fair value of RSUs granted

 

 

 

 

 

 

 

with market conditions

 

$

-

 

$

-

 

The fair value of RSUs with service conditions is estimated using the Company’s closing stock price on the date of the grant. To determine the fair value of RSUs with service and market conditions, the Company used the Monte Carlo simulation lattice model. The Company’s determination of the fair value was based on the number of shares granted, the Company’s stock price on the date of grant and certain assumptions regarding a number of highly complex and subjective variables. If other reasonable assumptions were used, the results could differ.

 

Option Activity

 

The following table provides summary information related to the exercise of stock options:

 

 

 

Nine Months Ended September 30,

Option Exercise Data

 

2019

 

2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Intrinsic value of options exercised

 

$

1,272

 

$

418

Tax benefit from options exercised (1)

 

$

73

 

$

111

Cash received from exercise price of options exercised

 

$

244

 

$

68

 

(1)Amounts exclude any impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.

 

The following table presents the option activity during the current period under the Plan:

 

37

 


 

 

 

 

 

 

 

 

 

 

Weighted

 

Intrinsic

 

 

 

 

 

 

Weighted

 

Average

 

Value

 

 

 

 

 

 

Average

 

Remaining

 

as of

 

 

 

Number of

 

Exercise

 

Contractual

 

September 30,

 

Period Ended

 

Options

 

Price

 

Term (Years)

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding as of:

December 31, 2018

 

 

755,210

 

$

9.42

 

 

 

 

 

Options granted

 

 

 

-

 

 

-

 

 

 

 

 

Options exercised

 

 

 

(180,300)

 

 

1.34

 

 

 

 

 

Options forfeited

 

 

 

-

 

 

-

 

 

 

 

 

Options expired

 

 

 

(29,828)

 

 

10.53

 

 

 

 

 

Options outstanding as of:

September 30, 2019

 

 

545,082

 

$

12.03

 

1.1

 

$

-

Options vested and expected to

 

 

 

 

 

 

 

 

 

 

 

 

vest as of:

September 30, 2019

 

 

545,082

 

$

12.03

 

1.1

 

$

-

Options vested and exercisable as of:

September 30, 2019

 

 

545,082

 

$

12.03

 

1.1

 

$

-

Weighted average remaining

 

 

 

 

 

 

 

 

 

 

 

 

recognition period in years

 

 

 

-

 

 

 

 

 

 

 

 

Unamortized compensation expense

 

 

$

-

 

 

 

 

 

 

 

 

 

The following table summarizes significant ranges of outstanding and exercisable options as of the current period:

 

 

 

 

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

 

Number of

 

Weighted

 

 

 

 

Number of

 

 

 

 

 

 

 

 

 

Options

 

Average

 

Weighted

 

Options

 

Weighted

Range of

 

Outstanding

 

Remaining

 

Average

 

Exercisable

 

Average

Exercise Prices

 

September 30,

 

Contractual

 

Exercise

 

September 30,

 

Exercise

From

 

To

 

2019

 

Life

 

Price

 

2019

 

Price

$

6.43

 

$

9.66

 

204,375

 

1.1

 

$

9.62

 

204,375

 

$

9.62

$

13.11

 

$

13.98

 

340,707

 

1.1

 

$

13.48

 

340,707

 

$

13.48

$

6.43

 

$

13.98

 

545,082

 

1.1

 

$

12.03

 

545,082

 

$

12.03

 

Recognized Non-Cash Stock-Based Compensation Expense

 

The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

2018

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Station operating expenses

 

$

3,765

 

$

5,295

Corporate general and administrative expenses

 

 

6,521

 

 

6,126

Stock-based compensation expense included in operating expenses

 

 

10,286

 

 

11,421

Income tax benefit (1)

 

 

2,258

 

 

2,385

After-tax stock-based compensation expense

 

$

8,028

 

$

9,036

 

38

 


 

 

 

Three Months Ended

 

 

September 30,

 

 

2019

 

2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Station operating expenses

 

$

1,107

 

$

1,653

Corporate general and administrative expenses

 

 

2,234

 

 

2,116

Stock-based compensation expense included in operating expenses

 

 

3,341

 

 

3,769

Income tax benefit (1)

 

 

770

 

 

787

After-tax stock-based compensation expense

 

$

2,571

 

$

2,982

1. Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.

 

11.INCOME TAXES

 

Tax Rates for the Nine Months and Three Months Ended September 30, 2019

 

The effective income tax rates were 30.9% and 29.5% for the nine months and three months ended September 30, 2019, respectively, which was determined using a forecasted rate based upon taxable income for the year. The Company estimates that its 2019 annual tax rate before discrete items, will be between 30% and 32%. The Company anticipates that it will be able to utilize certain net operating loss carryforwards to reduce future payments of federal and state income taxes.

 

Tax Rates for the Nine Months and Three Months Ended September 30, 2018

 

The effective income tax rates were 35.1% and 30.7% for the nine months and three months ended September 30, 2018, respectively, which was determined using a forecasted rate based upon taxable income for the year. The income tax rate was estimated to be lower than in previous years primarily due to: (i) an income tax benefit resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate; and (ii) a reduction in non-deductible transaction costs in 2018 due to the closing of the Merger on November 17, 2017.

 

Net Deferred Tax Assets and Liabilities

 

As of September 30, 2019, and December 31, 2018, net deferred tax liabilities were $551.0 million and $546.0 million, respectively. The income tax accounting process to determine the deferred tax liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.

 

12.FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments Subject to Fair Value Measurements

 

Recurring Fair Value Measurements

 

The following table sets forth the Company's financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels. During the periods presented, there were no transfers between fair value hierarchical levels.

39

 


 

 

 

Fair Value Measurements At Reporting Date

 

 

 

 

 

 

 

 

 

 

 

Quoted prices

 

Significant

 

Significant

 

Measured at

 

 

Balance at

 

in active

 

other observable

 

unobservable

 

Net Asset Value

 

 

September 30,

 

markets

 

inputs

 

inputs

 

as a Practical

Description

 

2019

 

Level 1

 

Level 2

 

Level 3

 

Expedient (2)

 

 

(amounts in thousands)

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities (1)

 

$

31,150

 

$

23,746

 

$

-

 

$

-

 

$

7,404

Interest Rate Cash Flow Hedge (3)

 

$

784

 

$

-

 

$

784

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted prices

 

Significant

 

Significant

 

Measured at

 

 

Balance at

 

in active

 

other observable

 

unobservable

 

Net Asset Value

 

 

December 31,

 

markets

 

inputs

 

inputs

 

as a Practical

Description

 

2018

 

Level 1

 

Level 2

 

Level 3

 

Expedient (2)

 

 

(amounts in thousands)

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities (1)

 

$

30,928

 

$

23,476

 

$

-

 

$

-

 

$

7,452

 

(1)The Company’s deferred compensation liability, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options.

 

(2)The fair value of underlying investments in collective trust funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy.

 

(3)The Company’s interest rate collar, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.

 

Non-Recurring Fair Value Measurements

 

The Company has certain assets that are measured at fair value on a non-recurring basis 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 Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.

 

As discussed in Note 5, Intangible Assets And Goodwill, the Company voluntarily changed the date of its annual impairment test for its broadcasting licenses and goodwill. As a result of this change, the Company did not determine the fair value of its broadcasting licenses and goodwill during the quarter ended June 30, 2019. During the quarter ended June 30, 2018, the Company reviewed the fair value of its broadcasting licenses and goodwill, and concluded that its broadcasting licenses were not impaired as the fair value of these assets equaled or exceeded their carrying value. During the second quarter of 2018, the Company concluded that the fair value of goodwill exceeded the carrying value of goodwill and determined that no goodwill impairment charge was required.

40

 


 

 

Subsequent to the annual impairment test conducted during the second quarter of 2018, the Company determined that a sustained decrease in the Company’s share price required the Company to conduct an interim impairment assessment on its broadcasting licenses and goodwill. This interim impairment conducted during the fourth quarter of 2018 indicated that the carrying value of the Company’s goodwill and broadcasting licenses exceeded their respective carrying amount. Accordingly, the Company recorded a $147.9 million impairment charge ($108.8 million, net of tax) on its broadcasting licenses and a $317.1 million impairment ($314.4 million, net of tax) on its goodwill in the fourth quarter of 2018. Refer to Note 5, Intangible Assets and Goodwill, for additional information.

 

There were no events or changes in circumstances which indicated the Company’s investments, property and equipment, or other intangible assets may not be recoverable, other than as described below.

 

During the second quarter of 2018, the Company recorded a $2.1 million impairment charge related to assets expected to be disposed of in one of its markets.

 

During the second quarter of 2018, events or circumstances changed which indicated that a portion of the Company’s assets which had been classified as held for sale may not be recoverable. Accordingly, the Company estimated the fair value of these assets and recognized an impairment charge of $26.9 million. Refer to Note 13, Assets Held For Sale And Discontinued Operations, for additional information.

 

Fair Value of Financial Instruments Subject to Disclosures

 

The carrying amount of the following assets and liabilities approximates fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.

 

The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the periods indicated:

 

 

September 30,

 

December 31,

 

 

2019

 

2018

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

Value

 

Value

 

Value

 

Value

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Term B Loans (1)

 

$

866,700

 

$

867,783

 

$

1,291,700

 

$

1,243,261

Revolver (2)

 

$

134,000

 

$

134,000

 

$

180,000

 

$

180,000

Senior Notes (3)

 

$

400,000

 

$

415,500

 

$

400,000

 

$

378,000

Notes (4)

 

$

325,000

 

$

338,406

 

$

-

 

$

-

Other debt (5)

 

$

881

 

 

 

 

$

912

 

 

 

Letters of credit (5)

 

$

5,862

 

 

 

$

5,862

 

 

 

The following methods and assumptions were used to estimate the fair value of financial instruments:

 

(1)The Company’s determination of the fair value of the Term B-1 Loans was based on quoted prices for these instruments and is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.

 

(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.

 

(3)The Company utilizes a Level 2 valuation input based upon the market trading prices of the Senior Notes to compute the fair value as these Senior Notes are traded in the debt securities market. The Senior Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.

41

 


 

 

(4)The Company utilizes a Level 2 valuation input based upon the market trading prices of the Notes to compute the fair value as these Notes are traded in the debt securities market. The Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.

(5)The Company does not believe it is practicable to estimate the fair value of the other debt or the outstanding standby letters of credit.

 

 

Investments Valued Under the Measurement Alternative

There was no material change in the carrying value of the Company’s investments valued under the measurement alternative since the year ended December 31, 2018, other than as described below.

During the second quarter of 2019, the Company purchased a minority ownership interest in AnalyticOwl, a company whose attribution platform facilitates tracking for broadcast advertising, for $1.5 million.

The following table presents the Company’s investments valued under the measurement alternative:

 

 

 

Investments Valued Under the

 

 

Measurement Alternative

 

 

September 30,

 

December 31,

 

 

2019

 

2018

 

 

 

(amounts in thousands)

Investment balance before cumulative

 

 

 

 

 

 

impairment as of January 1,

 

$

11,205

 

$

9,955

Accumulated impairment as of January 1,

 

 

-

 

 

-

Investment beginning balance after cumulative

 

 

 

 

 

 

impairment as of January 1,

 

 

11,205

 

 

9,955

Acquisition of interest in a privately held company

 

 

1,500

 

 

1,250

Ending period balance

 

$

12,705

 

$

11,205

 

13.ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

Assets Held for Sale

 

Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.

 

As of December 31, 2018, the Company entered into an agreement with a third party to dispose of land and land improvements, buildings and equipment. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets had a carrying value of approximately $19.6 million. In the first quarter of 2019, the Company completed this sale for $24.5 million in cash. The Company recognized a gain on the sale, net of sales commissions and other expenses, of approximately $4.5 million.

 

On February 13, 2019, the Company entered into an agreement with Cumulus Media Inc. (“Cumulus”) under which the Company exchanged three of its stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York. The Company and Cumulus began programming the respective stations under an LMA on March 1, 2019. The Company conducted an analysis and determined the assets exchanged to Cumulus met the criteria to be classified as held for sale at March 31, 2019. The exchange transaction (the “Cumulus Exchange”) closed in the second quarter of 2019 and the Company recognized a loss on the exchange of approximately $1.8 million.

 

42

 


 

On May 1, 2019, the Company entered into an agreement with a third party to dispose of land, buildings, equipment and a broadcasting license in Victor Valley, California. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at June 30, 2019. In aggregate, these assets had a carrying value of $1.1 million. The sale closed in the third quarter of 2019 and the Company recognized a loss of $ 0.1 million.

 

On May 9, 2019, the Company entered into an agreement with a third party to dispose of land and buildings in Miami, Florida. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at June 30, 2019. In aggregate, these assets had a carrying value of $2.2 million. The sale closed in the third quarter of 2019 and the Company recognized a loss of $0.1 million.

 

During the third quarter of 2019, the Company entered into negotiations with a third party to dispose of land and buildings in Miami, Florida. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at September 30, 2019. In aggregate, these assets have a carrying value of $1.9 million. This transaction is expected to close in the fourth quarter of 2019.

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This is considered a Level 3 measurement.

 

The major categories of these assets held for sale are as follows:

 

 

 

Assets Held for Sale

 

 

September 30, 2019

 

 

December 31, 2018

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land and land improvements

 

$

1,208

 

 

$

2,645

Building

 

 

683

 

 

 

1,053

Equipment

 

 

-

 

 

 

15,905

Net property and equipment

 

 

1,891

 

 

 

19,603

Net assets held for sale

 

$

1,891

 

 

$

19,603

 

Discontinued Operations

 

The results of operations for several radio stations acquired from CBS, which were never a part of the Company’s continuing operations as these radio stations have been disposed, were classified as discontinued operations for the period commencing after the Merger.

 

Refer to Note 2, Business Combinations, for additional information on the Bonneville Transaction.

 

The following table presents the results of operations of the discontinued operations:

 

 

Nine Months Ended

 

September 30,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net time brokerage agreement (income) fees

 

-

 

 

2,239

Income before income taxes

 

-

 

 

2,239

Income taxes

 

-

 

 

709

Income from discontinued operations,

 

 

 

 

 

net of income taxes

$

-

 

$

1,530

 

43

 


 

 

Three Months Ended

 

September 30,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Net time brokerage agreement income

 

-

 

 

644

Income before income taxes

 

-

 

 

644

Income taxes

 

-

 

 

286

Income from discontinued operations,

 

 

 

 

 

net of income taxes

$

-

 

$

358

 

14.SHAREHOLDERS’ EQUITY

 

Dividend Equivalents

 

The Company’s grants of RSUs include the right, upon vesting, to receive a cash payment equal to the aggregate amount of dividends, if any, that holders would have received on the shares of common stock underlying their RSUs if such RSUs had been vested during the period.

 

The following table presents the amounts accrued and unpaid on unvested RSUs:

 

 

 

 

 

Dividend Equivalent Liabilities

 

 

Balance Sheet

 

September 30,

 

December 31,

 

 

Location

 

2019

 

2018

 

 

 

 

(amounts in thousands)

Short-term

 

Other current liabilities

 

$

771

 

$

1,279

Long-term

 

Other long-term liabilities

 

 

988

 

 

1,041

Total

 

 

 

$

1,759

 

$

2,320

 

Employee Stock Purchase Plan

 

The Company’s Entercom Employee Stock Purchase Plan (the “ESPP”) allows participants to purchase the Company’s stock at a price equal to 85% of the market value of such shares on the purchase date. The maximum number of shares authorized to be issued under the ESPP is 1.0 million. Pursuant to the ESPP, the Company does not record compensation expense to the employee as income subject to tax on the difference between the market value and the purchase price, as the ESPP was designed to meet the requirements of Section 423(b) of the Code. The Company recognizes the 15% discount in the Company’s consolidated statements of operations as non-cash compensation expense.

 

Pursuant to the CBS Radio Merger Agreement, the Company agreed not to issue or authorize any shares of its capital stock until the earlier of the termination of the CBS Radio Merger Agreement or the consummation of the Merger. As a result, the Company effectively suspended the ESPP during the second quarter of 2017. There were no shares purchased and the Company did not recognize any non-cash compensation expense in connection with the ESPP during the second, third or fourth quarters of 2017. The Company resumed the ESPP in the first quarter of 2018.

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2019

 

2018

 

 

(amounts in thousands)

Number of shares purchased

 

 

260

 

 

150

Non-cash compensation expense recognized

 

$

182

 

$

185

 

Share Repurchase Program

44

 


 

 

On November 2, 2017, the Company’s Board of Directors announced a share repurchase program (the “2017 Share Repurchase Program”) to permit the Company to purchase up to $100.0 million of the Company’s issued and outstanding shares of Class A common stock through open market purchases. Shares repurchased by the Company under the 2017 Share Repurchase Program will be at the discretion of the Company based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in the Company’s Credit Facility and the Senior Notes.

During the nine months ended September 30, 2019, the Company repurchased 5.0 million shares of Class A common stock at an aggregate average price of $3.67 per share for a total of $18.3 million under the 2017 Share Repurchase Program.

 

15.CONTINGENCIES AND COMMITMENTS

 

Contingencies

 

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on February 27, 2019, except as described below.

 

FCC Matter

 

In January 2019, the Company received the first of three letters of inquiry from the FCC staff in response to a complaint from an individual who claimed to have purchased time on three Company stations in Buffalo but was not charged the lowest unit rate. The Company cooperated with the FCC in this matter and timely responded to these letters of inquiry, which also addressed the timeliness of the Company’s compliance with respect to the political file record keeping obligations for its Buffalo stations. On October 10, 2019, the Company met with the FCC staff and was advised that the lowest unit rate inquiry was concluded. At the same meeting, however, the FCC staff advised the Company that it had separately conducted a more extensive investigation into the timeliness of the Company’s compliance with respect to the political file record keeping obligations for all of the Company’s stations. The Company is in discussions with the FCC staff with respect to this investigation. The Company has assessed the FCC staff’s allegations with respect to the Company’s compliance with these filing obligations and the underlying facts and will continue to cooperate with the FCC and engage in discussions as to a potential conclusion or settlement of the matter. Given its preliminary nature, the Company is unable to reasonably estimate the ultimate outcome that will result from this matter at this time. The Company does not currently expect that the final resolution of this matter in future periods will have a material effect on the financial position of the Company and also has an immaterial impact on the current period. However, it is reasonably possible that such a resolution could have a material effect on the Company’s results of operations for a given reporting period.

 

Like-Kind Exchange Proceeds

 

During the third quarter of 2018, the Company disposed of certain property that the Company considered as surplus to its operations and that resulted in significant gains reportable for tax purposes. In order to minimize the tax impact on a certain portion of these taxable gains, the Company created an entity that serves as a QI for tax purposes and that held the net sales proceeds of $70.2 million. The net sales proceeds were deposited into the account of the QI to comply with requirements under Section 1031 of the Code to execute a like-kind exchange and were reflected as restricted cash on the Company consolidated balance sheet at December 31, 2018.

 

The Company used a portion of these funds in a tax-free exchange by using the net sales proceeds from relinquished property for the purchase of replacement property. This QI was treated as a VIE and was included in the Company’s prior year consolidated financial statements as the Company was considered the primary beneficiary.

 

Under Section 1031 of the Code, the property to be exchanged in the like-kind exchange was required to be received by the Company within 180 days. This period of time lapsed during the first quarter of 2019, at which point, the restrictions on the cash balances were released. As a result, the Company does not present restricted cash on its balance sheet at September 30, 2019.

45

 


 

 

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheet that aggregate to the total of the same such amounts shown in the consolidated statement of cash flows:

 

 

Cash, Cash Equivalents and Restricted Cash

 

 

September 30,

 

December 31,

 

2019

 

2018

 

(amounts in thousands)

 

 

 

 

 

 

Cash and cash equivalents

$

45,335

 

$

122,893

Restricted cash

 

-

 

 

69,365

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

$

45,335

 

$

192,258

 

16. SUBSEQUENT EVENTS

 

Events occurring after September 30, 2019, and through the date that these consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included and are as follows:

 

On October 16, 2019, the Company acquired the remaining interest in Cadence13 (“Cadence13”), a leading creator of premium, personality-based podcasts and other on-demand audio content for $24.3 million in cash. As a result, Cadence13 became a wholly-owned subsidiary of the Company. The Company previously purchased a minority ownership interest in Cadence13 in July 2017. The initial accounting for this acquisition is incomplete due to the proximity of the acquisition date to the time of this filing. The Company is unable to provide the amounts recognized as of the acquisition date. This information will be included in future filings.

46

 


 

ITEM 2.Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

In preparing the discussion and analysis contained in this Item 2, we presume that readers have read or have access to the discussion and analysis contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2019. In addition, you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following results of operations include a discussion of the nine and three months ended September 30, 2019 as compared to the comparable periods in the prior year. Our results of operations during the relevant periods represent the operations of the radio stations owned or operated by us.

 

Results of Operations for the Year-To-Date

 

The following significant factors affected our results of operations for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018:

 

Pineapple Acquisition

 

On July 19, 2019, we completed a transaction to acquire the assets of Pineapple Street Media (“Pineapple”) for a purchase price of $14.0 million in cash plus working capital (the “Pineapple Acquisition”). Our consolidated financial statements reflect the operations of Pineapple from the date of acquisition.

 

Based on the timing of this transaction, our consolidated financial statements for the nine months ended September 30, 2019 reflect the results of Pineapple for a portion of the period after the completion of the Pineapple Acquisition. Our consolidated financial statements for the nine months ended September 30, 2018 do not reflect the results of Pineapple.

 

Cumulus Exchange

 

On February 13, 2019, we entered into an agreement with Cumulus Media Inc. (“Cumulus”) under which we exchanged three of our stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York (the “Cumulus Exchange”). We began programming the respective stations under local marketing agreements (“LMAs”) on March 1, 2019. In connection with this exchange, which closed during the second quarter of 2019, we recognized a loss of approximately $1.8 million.

 

Based on the timing of this transaction, our consolidated financial statements for the nine months ended September 30, 2019: (i) reflect the results of the acquired stations for a portion of the period in which the LMAs were in effect and after the completion of the Cumulus Exchange; and (ii) reflect the results of our divested stations for a portion of the period until the commencement date of the LMAs. Our consolidated financial statements for the nine months ended September 30, 2018: (i) do not reflect the results of the acquired stations; and (ii) reflect the results of the divested stations.

 

WXTU Transaction

 

On July 18, 2018, we entered into an agreement with Beasley Broadcast Group, Inc. (“Beasley”) to sell certain assets of WXTU-FM, serving the Philadelphia, Pennsylvania radio market for $38.0 million in cash (the “WXTU Transaction”). In connection with this disposition, which closed during the third quarter of 2018, we recognized a gain of approximately $4.4 million.

 

Based on the timing of this transaction, our consolidated financial statements for the nine months ended September 30, 2019 do not reflect the net revenues, station operating expenses, depreciation and amortization expenses of this divested station, whereas our consolidated financial statements for the nine months ended September 30, 2018 do reflect the net revenues, station operating expenses, depreciation and amortization expenses of this divested station up through the date of sale.

 

Jerry Lee Transaction

 

47

 


 

On September 27, 2018, we completed a transaction to acquire the assets of WBEB-FM, serving the Philadelphia, Pennsylvania radio market from Jerry Lee Radio, LLC (“Jerry Lee”) for a purchase price of $57.5 million in cash, less certain working capital and other credits (the “Jerry Lee Transaction”). We used proceeds from the WXTU Transaction and cash on hand to fund this acquisition.

 

Based on the timing of this transaction, our consolidated financial statements for the nine months ended September 30, 2019 reflect the net revenues, station operating expenses, depreciation and amortization expenses of this acquired station, whereas our consolidated financial statements for the nine months ended September 30, 2018 reflect the net revenues, station operating expenses, depreciation and amortization expenses of this acquired station for a portion of the period.

 

Impairment Loss

 

The reduction in impairment loss was primarily attributable to the non-recurring nature of a non-cash impairment charge recorded in the prior year. In 2018, we recorded the non-cash impairment charge of $25.6 million on assets which had been classified as held for sale.

 

Integration Costs and Restructuring Charges

 

On February 2, 2017, we and our wholly-owned subsidiary (“Merger Sub”) entered into an Agreement and Plan of Merger (the “CBS Radio Merger Agreement”) with CBS Corporation (“CBS”) and its wholly-owned subsidiary CBS Radio Inc. (“CBS Radio”). Pursuant to the CBS Radio Merger Agreement, Merger Sub merged with and into CBS Radio with CBS Radio surviving as our wholly-owned subsidiary (the “Merger”). The Merger closed on November 17, 2017.

 

In connection with the Merger, we incurred integration costs, including transition services, consulting services and professional fees of $3.3 million and $22.0 million during the nine months ended September 30, 2019 and September 30, 2018, respectively. Amounts were expensed as incurred and are included in integration costs.

 

In connection with the Merger, we incurred restructuring charges, including costs to exit duplicative contracts, workforce reductions and other restructuring costs of $6.0 million and $3.0 million during the nine months ended September 30, 2019 and September 30, 2018, respectively. Amounts were expensed as incurred and are included in restructuring charges.

 

Merger and Acquisition Costs

 

During the nine months ended September 30, 2018, transaction costs were $2.8 million, and were expensed as incurred. Due to the reduction in merger and acquisition activity, there was a reduction in merger and acquisition costs in 2019.

 

Note Issuance Increased Our Interest Expense

 

During the second quarter of the current year, we issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the “Notes”). Interest on the Notes accrues at the rate of 6.500% per annum. We used net proceeds of the offering, along with cash on hand and $89.0 million under our Revolver to repay $425.0 million of existing indebtedness under our Term B-1 Loan. Increases in our interest expense due to the issuance of Notes which have a higher interest rate were partially offset by reductions in our interest expense due to the partial repayment of our Term B-1 Loan. In connection with this note issuance, we wrote off $1.6 million of unamortized debt issuance costs and incurred third party costs of $5.8 million.

 

 

Nine Months Ended September 30, 2019 As Compared To The Nine Months Ended September 30, 2018

 

48

 


 

 

 

NINE MONTHS ENDED SEPTEMBER 30,

 

 

2019

 

2018

 

% Change

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

NET REVENUES

 

$

1,075.8

 

$

1,051.2

 

 

2%

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

 

 

Station operating expenses

 

 

801.3

 

 

811.2

 

 

(1%)

Depreciation and amortization expense

 

 

33.3

 

 

29.7

 

 

12%

Corporate general and administrative expenses

 

 

57.6

 

 

53.6

 

 

7%

Integration costs

 

 

3.3

 

 

22.0

 

 

(85%)

Restructuring charges

 

 

6.0

 

 

3.0

 

 

100%

Impairment loss

 

 

-

 

 

29.0

 

 

(100%)

Merger and acquisition costs

 

 

0.5

 

 

2.8

 

 

(82%)

Other expenses related to financing

 

 

1.9

 

 

-

 

 

100%

Other operating (income) expenses

 

 

(2.6)

 

 

(12.1)

 

 

79%

Total operating expense

 

 

901.3

 

 

939.2

 

 

(4%)

OPERATING INCOME (LOSS)

 

 

174.5

 

 

112.0

 

 

56%

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

75.4

 

 

75.0

 

 

1%

OTHER (INCOME) EXPENSE

 

 

1.8

 

 

-

 

 

100%

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

 

 

97.3

 

 

37.0

 

 

163%

 

 

 

 

 

 

 

 

 

 

INCOME TAXES (BENEFIT)

 

 

30.0

 

 

13.0

 

 

131%

NET INCOME (LOSS) AVAILABLE TO THE COMPANY - CONTINUING OPERATIONS

 

 

67.3

 

 

24.0

 

 

180%

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS - CONTINUING OPERATIONS

 

 

67.3

 

 

24.0

 

 

180%

Income from discontinued operations, net of income taxes (benefit)

 

 

-

 

 

1.5

 

 

(100%)

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

 

$

67.3

 

$

25.5

 

 

164%

 

Net Revenues

 

Contributing to the increase in net revenues was: (i) the operation of the station acquired in the Philadelphia market in connection with the Jerry Lee Transaction; (ii) the operation of the stations acquired in the Springfield market and New York City market in connection with the Cumulus Exchange; and (iii) the operations of Pineapple. Offsetting this increase, net revenues were negatively impacted by: (i) the disposal of a radio station in the Philadelphia market in connection with the WXTU Transaction; and (ii) the disposal of radio stations in the Indianapolis market in connection with the Cumulus Exchange.

 

Net revenues increased the most for our stations located in the New York City and Philadelphia markets.

 

Net revenues decreased the most for our stations located in the Chicago and Indianapolis markets.

 

Station Operating Expenses

 

Station operating expenses decreased in the low-single digits for the current period primarily due to a reduction in variable expenses associated with operating our stations more efficiently due to synergies recognized.

 

Station operating expenses include non-cash compensation expense of $3.8 million and $5.3 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

49

 


 

 

Depreciation and Amortization Expense

 

Depreciation and amortization expense increased primarily due to an increase in capital expenditures. The increase in capital expenditures was primarily due to the consolidation and relocation of several studio facilities in larger markets and an increase in our size and capital needs associated with the integration of common systems across the new markets acquired in the Merger.

 

Corporate General and Administrative Expenses

 

Corporate general and administrative expenses increased primarily due to increases in: (i) investments in software and technology; and (ii) various corporate expenditures.

 

Corporate general and administrative expenses include non-cash compensation expense of $6.5 million and $6.1 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

 

Integration Costs

 

Integration costs were incurred during the nine months ended September 30, 2019 and September 30, 2018 as a result of the Merger. These costs primarily consisted of ongoing costs related to effectively combining and incorporating CBS Radio into our operations. Based on the timing of the Merger, integration activities primarily occurred in 2017 and 2018 and were reduced significantly in 2019.

 

Restructuring Charges

 

We incurred restructuring charges in 2019 and 2018 primarily as a result of the restructuring of operations for the Merger. These costs primarily included workforce reduction charges and other charges. We expect to incur restructuring costs in the range of $9.0 million to $12.0 million in 2019 under this plan.

 

Impairment Loss

 

The reduction in impairment loss was primarily attributable to the non-recurring nature of a non-cash impairment charge recorded during the nine months ended September 30, 2018. In 2018, we recorded a non-cash impairment charge on assets which had been classified as held for sale. In connection with the Merger, we entered into two LMAs with Bonneville International Corporation (“Bonneville”) and assigned the assets of eight radio stations in the San Francisco, California and Sacramento, California markets into a trust. Based upon the final offer received in the third quarter of 2018, we determined that the carrying value of these assets was greater than the fair value and recorded a non-cash impairment charge of $25.6 million.

 

Merger and Acquisition Costs

 

There was a significant reduction in the amount of legal, professional, and other advisory services incurred as the volume of merger and acquisition activity decreased in 2019.

 

Other Expenses Related to Financing

 

During the nine months ended September 30, 2019, we issued Notes and used the proceeds, along with cash on hand and borrowings under the Revolver, to repay a portion of our existing indebtedness under our Term B-1 Loan. As a result of this activity, we incurred approximately $5.8 million of third party fees. Of this amount, approximately $1.9 million of costs were expensed and $3.9 million were capitalized and will be amortized over the term of the Notes.

 

Other Operating (Income) Expenses

 

During the nine months ended September 30, 2019, we completed: (i) a sale of land and land improvements, buildings and equipment and recognized a gain of $4.5 million; and (ii) completed an exchange transaction which resulted in a loss of $1.8 million.

 

50

 


 

During the nine months ended September 30, 2018, we disposed of: (i) several radio stations in Sacramento, California and San Francisco, California; (ii) land and land improvements in Chicago, Illinois; (iii) a radio station in Philadelphia, Pennsylvania; (iv) land and land improvements and buildings in Los Angeles, California; and (v) land and land improvements and buildings in San Diego, California. As a result of this disposal activity, we recorded a gain in net gain/loss on sale or disposal of assets of $9.6 million. Additionally, in connection with the purchase and sale of radio stations, we generated time brokerage agreement (“TBA”) income of $1.2 million during the nine months ended September 30, 2018. The change in other operating (income) expense is primarily attributable to the change in these activities between periods.

 

Operating Income (Loss)

 

Operating income in the current period increased primarily due to: (i) an increase in net revenues, net of station operating expenses of $34.6 million; (ii) a decrease in impairment loss of $29.0 million; (iii) a decrease in integration costs of $18.7 million; and (iv) a decrease in merger and acquisition costs of $2.3 million.

 

These increases were partially offset by: (i) a decrease in other operating (income) expenses of $9.5 million; (ii) an increase in corporate, general and administrative expenses of $4.0 million; (iii) an increase in depreciation and amortization expense of $3.5 million; (iv) an increase in restructuring charges of $2.9 million; and (v) an increase in expense related to debt refinancing activities of $1.9 million;

 

Interest Expense

 

During the nine months ended September 30, 2019, we incurred an additional $0.4 million of interest expense primarily due to: (i) the replacement of a portion of our variable-rate debt with fixed-rate debt at a higher interest rate; and (ii) the increase in LIBOR rates associated with our variable-rate debt. The increase in interest expense related to higher interest rates was partially offset by an overall reduction in our outstanding indebtedness upon which interest is computed.

 

Income (Loss) Before Income Taxes (Benefit)

 

The increases in income before income taxes was primarily attributable to reasons described above under Operating Income (Loss) and Interest Expense.

 

 

Income Taxes (Benefit)

Tax Rate for the Nine Months Ended September 30, 2019

 

The effective income tax rate was 30.9% which was determined using a forecasted rate based upon taxable income for the year. We estimate that our 2019 annual tax rate before discrete items, will be between 30% and 32%. We anticipate that we will be able to utilize certain net operating loss carryforwards to reduce future payments of federal and state income taxes.

 

Tax Rate for the Nine Months Ended September 30, 2018

 

The estimated annual effective income tax rate was 35.1%, which was determined using a forecasted rate based upon taxable income for the year. The income tax rate was estimated to be lower than in previous years primarily due to: (i) an income tax benefit resulting from the Tax Cuts and Jobs Act that was enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate; and (ii) a reduction in non-deductible transaction costs in 2018 due to the closing of the Merger on November 17, 2017.

 

Net Deferred Tax Liabilities

 

As of September 30, 2019, and December 31, 2018, our net deferred tax liabilities were $551.0 million and $546.0 million, respectively. The deferred tax liabilities primarily relate to differences between the book and tax bases of certain of our indefinite-lived intangible assets (broadcasting licenses and goodwill). Under accounting guidance, we do not amortize our indefinite-lived intangibles for financial statement purposes, but instead test them annually for impairment. The amortization of our indefinite-lived assets for tax purposes but not for book purposes

51

 


 

creates deferred tax liabilities. A reversal of deferred tax liabilities may occur when indefinite-lived intangibles: (i) become impaired; or (ii) are sold, which would typically only occur in connection with the sale of the assets of a station or groups of stations or the entire company in a taxable transaction. Due to the amortization for tax purposes and not book purposes of our indefinite-lived intangible assets, we expect to continue to generate deferred tax liabilities in future periods (without consideration of any impairment loss in future periods).

 

Net Income (Loss) Available to the Company - Continuing Operations

 

The change in net income available to the Company from continuing operations was primarily attributable to the reasons described above under Income (Loss) Before Income Taxes (Benefit) and Income Taxes (Benefit).

 

Results of Operations for the Quarter

 

The following significant factors affected our results of operations for the three months ended September 30, 2019 as compared to the same period in the prior year:

 

Pineapple Acquisition

 

On July 19, 2019, we completed a transaction to acquire the assets of Pineapple for a purchase price of $14.0 million in cash plus working capital. Our consolidated financial statements reflect the operations of Pineapple from the date of acquisition.

 

Based on the timing of this transaction, our consolidated financial statements for the three months ended September 30, 2019 reflect the results of Pineapple for a portion of the period after the completion of the Pineapple Acquisition. Our consolidated financial statements for the three months ended September 30, 2018 do not reflect the results of Pineapple.

 

Cumulus Exchange

 

On February 13, 2019, we entered into an agreement with Cumulus under which we exchanged three of our stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York. We began programming the respective stations under LMAs on March 1, 2019. In connection with this exchange, which closed during the second quarter of 2019, we recognized a loss of approximately $1.8 million.

 

Based on the timing of this transaction, our consolidated financial statements for the three months ended September 30, 2019: (i) reflect the results of the stations acquired in the Cumulus Exchange; and (ii) do not reflect the results of our divested stations. Our consolidated financial statements for the three months ended September 30, 2018: (i) do not reflect the results of the acquired stations; and (ii) reflect the results of the divested stations.

 

WXTU Transaction

 

On July 18, 2018, we entered into an agreement with Beasley to sell certain assets of WXTU-FM, serving the Philadelphia, Pennsylvania radio market for $38.0 million in cash. In connection with this disposition, which closed during the third quarter of 2018, we recognized a gain of approximately $4.4 million.

 

Based on the timing of this transaction, our consolidated financial statements for the three months ended September 30, 2019 do not reflect the net revenues, station operating expenses, depreciation and amortization expenses of this divested station, whereas our consolidated financial statements for the three months ended September 30, 2018 reflect the net revenues, station operating expenses, depreciation and amortization expenses of this divested station for a portion of the period.

 

Jerry Lee Transaction

 

On September 27, 2018, we completed a transaction to acquire the assets of WBEB-FM, serving the Philadelphia, Pennsylvania radio market from Jerry Lee for a purchase price of $57.5 million in cash, less certain working capital and other credits. We used proceeds from the WXTU Transaction and cash on hand to fund this acquisition.

52

 


 

 

Based on the timing of this transaction, our consolidated financial statements for the three months ended September 30, 2019 reflect the net revenues, station operating expenses, depreciation and amortization expenses of this acquired station for the full period, whereas our consolidated financial statements for the three months ended September 30, 2018 reflect the net revenues, station operating expenses, depreciation and amortization expenses of this acquired station for a portion of the period.

 

Integration Costs and Restructuring Charges

 

On February 2, 2017, we and Merger Sub entered into the CBS Radio Merger Agreement with CBS and CBS Radio. Pursuant to the CBS Radio Merger Agreement, Merger Sub merged with and into CBS Radio with CBS Radio surviving as our wholly-owned subsidiary. The Merger closed on November 17, 2017.

 

In connection with the Merger, we incurred integration costs, including transition services, consulting services and professional fees of $0.7 million and $2.8 million during the three months ended September 30, 2019 and September 30, 2018, respectively. Amounts were expensed as incurred and are included in integration costs.

 

In connection with the Merger, we incurred restructuring charges, including costs to exit duplicative contracts, workforce reductions and other restructuring costs of $1.6 million and $0.9 million during the three months ended September 30, 2019 and September 30, 2018, respectively. Amounts were expensed as incurred and are included in restructuring charges.

 

Merger and Acquisition Costs

 

During the three months ended September 30, 2018, transaction costs were $0.7 million, and were expensed as incurred. Due to the reduction in merger and acquisition activity, there was a reduction in merger and acquisition costs in 2019.

 

Note Issuance Increased Our Interest Expense

 

During the second quarter of the current year, we issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027. Interest on the Notes accrues at the rate of 6.500% per annum. We used net proceeds of the offering, along with cash on hand and $89.0 million under our Revolver to repay $425.0 million of existing indebtedness under our Term B-1 Loan. Increases in our interest expense due to the issuance of Notes which have a higher interest rate were offset by reductions in our interest expense due to the partial repayment of our Term B-1 Loan. In connection with this note issuance, we wrote off $1.6 million of unamortized debt issuance costs and incurred third party costs of $5.8 million.

 

 

Three Months Ended September 30, 2019 As Compared To The Three Months Ended September 30, 2018

 

53

 


 

 

 

THREE MONTHS ENDED SEPTEMBER 30,

 

 

2019

 

2018

 

% Change

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

NET REVENUES

 

$

386.1

 

$

378.5

 

 

2%

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

 

 

Station operating expenses

 

 

273.1

 

 

279.7

 

 

(2%)

Depreciation and amortization expense

 

 

11.2

 

 

10.6

 

 

6%

Corporate general and administrative expenses

 

 

19.4

 

 

15.9

 

 

22%

Integration costs

 

 

0.7

 

 

2.8

 

 

(75%)

Restructuring charges

 

 

1.6

 

 

0.9

 

 

78%

Merger and acquisition costs

 

 

0.4

 

 

0.7

 

 

(43%)

Other operating (income) expense

 

 

0.2

 

 

(10.8)

 

 

(102%)

Total operating expense

 

 

306.6

 

 

299.8

 

 

2%

OPERATING INCOME (LOSS)

 

 

79.5

 

 

78.7

 

 

1%

INTEREST EXPENSE

 

 

25.3

 

 

25.9

 

 

(2%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

 

 

54.2

 

 

52.8

 

 

3%

 

 

 

 

 

 

 

 

 

 

INCOME TAXES (BENEFIT)

 

 

16.0

 

 

16.2

 

 

(1%)

NET INCOME (LOSS) AVAILABLE TO THE COMPANY - CONTINUING OPERATIONS

 

 

38.2

 

 

36.6

 

 

4%

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS - CONTINUING OPERATIONS

 

 

38.2

 

 

36.6

 

 

4%

Income from discontinued operations, net of income taxes (benefit)

 

 

-

 

 

0.4

 

 

(100%)

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

 

$

38.2

 

$

37.0

 

 

3%

 

Net Revenues

 

Contributing to the increase in net revenues was: (i) the operation of the station acquired in the Philadelphia market in connection with the Jerry Lee Transaction; (ii) the operation of the stations acquired in the Springfield market and New York City market in connection with the Cumulus Exchange; and (iii) the operations of Pineapple. Offsetting this increase, net revenues were negatively impacted by: (i) the disposal of a radio station in the Philadelphia market in connection with the WXTU Transaction; and (ii) the disposal of radio stations in the Indianapolis market in connection with the Cumulus Exchange.

 

Net revenues increased the most for our stations located in the New York City and Philadelphia markets.

 

Net revenues decreased the most for our stations located in the Chicago and Indianapolis markets.

 

Station Operating Expenses

 

Station operating expenses decreased in the low-single digits primarily due to a reduction in variable expenses associated with operating our stations more efficiently due to synergies recognized.

 

Station operating expenses include non-cash compensation expense of $1.1 million and $1.7 million for the three months ended September 30, 2019 and September 30, 2018, respectively.

 

Depreciation and Amortization Expense

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Depreciation and amortization expense increased primarily due to an increase in capital expenditures. The increase in capital expenditures was primarily due to the consolidation and relocation of several studio facilities in larger markets and an increase in our size and capital needs associated with the integration of common systems across new markets acquired in the Merger.

Corporate General and Administrative Expenses

 

Corporate general and administrative expenses increased primarily due to increases in: (i) investments in software and technology; and (ii) various corporate expenditures.

 

Corporate general and administrative expenses include non-cash compensation expense of $2.2 million and $2.1 million for the three months ended September 30, 2019 and September 30, 2018, respectively.

 

Integration Costs

 

Integration costs were incurred during the three months ended September 30, 2019 and September 30, 2018 as a result of the Merger. These costs primarily consisted of ongoing costs related to effectively combining and incorporating CBS Radio into our operations. Based on the timing of the Merger, integration activities primarily occurred in 2017 and 2018 and were reduced significantly in 2019.

 

Restructuring Charges

 

We incurred restructuring charges in 2019 and 2018 primarily as a result of the restructuring of operations for the Merger. These costs primarily included workforce reduction charges and other charges.

 

Merger and Acquisition Costs

 

There was a significant reduction in the amount of legal, professional, and other advisory services incurred as the volume of merger and acquisition activity decreased in 2019.

 

Other Operating (Income) Expenses

 

During the three months ended September 30, 2019, we completed: (i) a sale of land and land improvements, buildings and equipment and radio broadcasting licenses in Victor Valley, California and recognized a loss of $0.1 million; and (ii) a sale of land and land improvements and buildings in Miami, Florida and recognized a loss of $0.1 million.

 

During the three months ended September 30, 2018, we disposed of: (i) several radio stations in Sacramento, California and San Francisco, California; (ii) land and land improvements in Chicago, Illinois; (iii) a radio station in Philadelphia, Pennsylvania; (iv) land and land improvements and buildings in Los Angeles, California; and (v) land and land improvements and buildings in San Diego, California. As a result of this disposal activity, we recorded a gain in net gain/loss on sale or disposal of assets of $9.6 million.

 

Operating Income (Loss)

 

Operating income in the current period increased primarily due to: (i) an increase in net revenues, net of station operating expenses of $14.2 million; (ii) a decrease in integration costs of $2.1 million; and (iii) a decrease in merger and acquisition costs of $0.3 million.

 

These increases were partially offset by: (i) a decrease in other operating (income) expenses of $10.9 million; (ii) an increase in corporate, general and administrative expenses of $3.5 million; (iii) an increase in restructuring costs of $0.7 million; and (iv) an increase in depreciation and amortization expense of $0.6 million.

 

Interest Expense

 

During the three months ended September 30, 2019, we incurred $0.6 million less of interest expense. Despite the fact that we replaced a portion of our variable-rate debt with fixed-rate debt at a higher interest, interest expense was reduced primarily due to the overall reduction in our outstanding indebtedness upon which interest is computed.

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Income (Loss) Before Income Taxes (Benefit)

 

The increases in income before income taxes was primarily attributable to reasons described above under Operating Income (Loss) and Interest Expense.

 

Income Taxes (Benefit)

 

For the three months ended September 30, 2019, the effective income tax rate was 29.5%, which was determined using a forecasted rate based upon taxable income for the year along with the impact of discrete items for the quarter.

 

For the three months ended September 30, 2018, the effective income tax rate was 30.7%, which was determined using a forecasted rate based upon taxable income for the year along with the impact of discrete items for the quarter.

 

Net Income (Loss) Available to the Company – Continuing Operations

 

The change in net income available to the Company from continuing operations was primarily attributable to the reasons described above under Income (Loss) Before Income Taxes (Benefit), and Income Taxes (Benefit).

 

Liquidity and Capital Resources

 

Amendment and Repricing – CBS Radio (Now Entercom Media Corp.) Indebtedness

 

In connection with the Merger, we assumed CBS Radio’s (now Entercom Media Corp.’s) indebtedness outstanding under: (i) a credit agreement (the “Credit Facility”) among CBS Radio (now Entercom Media Corp.), the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent; and (ii) the Senior Notes (described below).

 

On March 3, 2017, CBS Radio entered into an amendment to the Credit Facility, to, among other things, create a tranche of Term B-1 Loans (the “Term B-1 Tranche”) in an aggregate principal amount not to exceed $500.0 million. The Term B-1 Tranche is governed by the Credit Facility and will mature on November 17, 2024.

 

Immediately prior to the Merger, the Credit Facility was comprised of a revolving credit facility and a term B loan. On the closing date of the Merger and the refinancing, the term B loan was converted into the Term B-1 Tranche and both were simultaneously refinanced (the Term B-1 Loan”).

 

Refinancing Activity – The Notes

 

During the second quarter of 2019, we and our finance subsidiary, Entercom Media Corp., issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the “Notes”) under an Indenture dated as of April 30, 2019 (the “Indenture”).

 

Interest on the Notes accrues at the rate of 6.500% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. Until May 1, 2022, only a portion of the Notes may be redeemed at a price of 106.500% of their principal amount plus accrued interest. On or after May 1, 2022, the Notes may be redeemed, in whole or in part, at a price of 104.875% of their principal amount plus accrued interest. The prepayment premiums continues to decrease over time to 100% of their principal amount plus accrued interest.

 

We used net proceeds of the offering, along with cash on hand and $89.0 million under our Revolver, to repay $425.0 million of existing indebtedness under our Term B-1 Loan.

 

In connection with the refinancing activity described above, during the second quarter of 2019, we: (i) wrote off $1.6 million of unamortized deferred financing costs associated with the Term B-1 Loan; and (ii) recorded $3.9 million of new deferred financing costs which will be amortized over the term of the Notes under the effective interest rate method.

 

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The Notes are fully and unconditionally guaranteed on a senior secured second-lien basis by each direct and indirect subsidiary of Entercom Media Corp. The Notes and the related guarantees are secured on a second-priority basis by liens on substantially all of the assets of Entercom Media Corp. and the guarantors.

 

On April 30, 2019, Entercom Media Corp. amended the financial covenant in its Senior Secured Credit Agreement such that the calculation of Consolidated Net First Lien Leverage Ratio only includes first lien secured debt. Accordingly, the Notes are not included in the financial covenant calculation.

 

We may from time to time seek to repurchase and retire our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

The Notes are not a registered security and there are no plans to register our Notes as a security in the future. As a result, Rule 3-10 of Regulation S-X promulgated by the SEC is not applicable and no separate financial statements are required for the guarantor subsidiaries.

 

Liquidity

Immediately following the refinancing activities described above, the Credit Facility as amended, is comprised of a $250.0 million revolving credit facility (the “Revolver”) and a $866.7 million Term B-1 Loan.

 

As of September 30, 2019, we had $866.7 million outstanding under the Term B-1 Loan and $134.0 million outstanding under the Revolver. In addition, we had $5.9 million in outstanding letters of credit and $110.1 million undrawn under the Revolver. Our ability to draw additional amounts under the Revolver may be limited due to our Consolidated Net First Lien Leverage Ratio, as defined in the agreement. As of September 30, 2019, we had $45.3 million in cash and cash equivalents. For the nine months ended September 30, 2019, we decreased our outstanding debt by $146.0 million. As of September 30, 2019, our Consolidated Net First Lien Leverage Ratio was 2.7 times as calculated in accordance with the terms of our Credit Facility, which place restrictions on the amount of cash, cash equivalents and restricted cash that can be subtracted in determining consolidated total net debt.

 

The Credit Facility

 

The Credit Facility is comprised of the Revolver and the Term B-1 Loan.

 

The $250.0 million Revolver has a maturity date of November 17, 2022 and provides for interest based upon the prime rate or LIBOR plus a margin. The margin may increase or decrease based upon our Consolidated Net First Lien Leverage Ratio as defined in the agreement.

 

The Term B-1 Loan has a maturity date of November 17, 2024 and provides for interest based upon the Base Rate or LIBOR, plus a margin. The Term B-1 Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, subject to incremental step-downs, depending on our Consolidated Net First Lien Leverage Ratio. The first Excess Cash Flow payment, if any, is due in the first quarter of each year, and is based on the Excess Cash Flow and Consolidated Net First Lien Leverage Ratio for the prior year. Because we made voluntary prepayments against the Term B-1 Loan in 2018, which may be applied toward the Excess Cash Flow payment, no Excess Cash Flow payment was due in the first quarter of 2019.

 

As of September 30, 2019, we were in compliance with the financial covenant then applicable and all other terms of the Credit Facility in all material respects. Our ability to maintain compliance with our covenants under the Credit Facility is highly dependent on our results of operations.

 

Management believes that over the next 12 months we can continue to maintain compliance. Our operating cash flow remains positive, and we believe that it is adequate to fund our operating needs. We believe that cash on hand, cash from the Revolver, and cash from operating activities, will be sufficient to permit us to meet our liquidity requirements over the next 12 months, including our debt repayments.

 

Failure to comply with our financial covenant or other terms of our Credit Facility and any subsequent failure to negotiate and obtain any required relief from our lenders could result in a default under the Credit Facility.

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Any event of default could have a material adverse effect on our business and financial condition. The acceleration of our debt could have a material adverse effect on our business. We may seek from time to time to amend our Credit Facility or obtain other funding or additional funding, which may result in higher interest rates on our debt.

 

The Senior Notes

 

Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, we also assumed the Senior Notes that mature on October 17, 2024 in the amount of $400.0 million (the “Senior Notes”). The Senior Notes, which were originally issued by CBS Radio (now Entercom Media Corp.) on October 17, 2016, were valued at a premium as part of the fair value measurement on the date of the Merger. The premium on the Senior Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the unamortized premium on the Senior Notes is reflected on the balance sheet as an addition to the $400.0 million liability.

 

Interest on the Senior Notes accrues at the rate of 7.250% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. The Senior Notes may be redeemed at any time on or after November 1, 2019 at a redemption price of 105.438% of their principal amount plus accrued interest. The redemption price decreases over time to 100% of their principal amount plus accrued interest.

 

All of our subsidiaries, other than Entercom Media Corp., jointly and severally guaranteed the Senior Notes.

 

A default under our Senior Notes could cause a default under our Credit Facility. Any event of default, therefore, could have a material adverse effect on our business and financial condition.

 

We may from time to time seek to repurchase or retire our outstanding indebtedness through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

The Senior Notes are not a registered security and there are no plans to register our Senior Notes as a security in the future. As a result, Rule 3-10 of Regulation S-X promulgated by the SEC is not applicable and no separate financial statements are required for the guarantor subsidiaries.

 

Perpetual Cumulative Convertible Preferred Stock

 

A portion of the proceeds from the debt refinancing that occurred on November 17, 2017 was used to fully redeem our outstanding perpetual cumulative convertible preferred stock (“Preferred”). As a result of this redemption, we removed the net carrying value of the Preferred from our books and, therefore, did not pay dividends on our Preferred during the nine months ended September 30, 2019 or September 30, 2018.

 

Operating Activities

 

Net cash flows provided by operating activities were $104.5 million and $93.2 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

 

The cash flows from operating activities increased primarily due to an increase in net income available to the Company of $41.8 and a reduction in non-cash charges of $29.0 million. These increases were partially offset by

an increase in net investment in working capital of $53.8 million, primarily due to: (i) the timing of collections of accounts receivable; (ii) the timing of settlements of accounts payable and accrued liabilities; (iii) the timing of settlements of accrued interest expense; (iv) the timing of settlements of prepaid expenses; and (v) the timing of settlements of other long-term liabilities.

Investing Activities

 

Net cash flows used in investing activities were $53.0 million for the nine months ended September 30, 2019, which primarily reflect the purchase of property and equipment and intangible assets of $63.6 million and the purchase of Pineapple and other assets for $15.8 million, which was partially offset by proceeds received from dispositions of assets in the amount of $27.8 million.

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Net cash flows provided by investment activities were $153.4 million for the nine months ended September 30, 2018, which primarily reflect proceeds received from dispositions of assets and radio stations in the amount of $252.1 million, less: (i) cash paid to acquire a radio station in Philadelphia, Pennsylvania from Jerry Lee Radio, LLC (“Jerry Lee”) for $56.4 million in cash (the “Jerry Lee Transaction”); (ii) additions to property and equipment of $23.6 million; and (iii) cash paid to complete the acquisition of two radio stations in St. Louis, Missouri from Emmis Communications Corporation (“Emmis”) for a purchase price of $15.0 million (the “Emmis Acquisition”).

 

Financing Activities

 

Net cash flows used in financing activities were $198.4 million for the nine months ended September 30, 2019, which primarily reflect: (i) the reduction of our net borrowings by $146.0 million; (ii) the payment of dividends on common stock of $27.6 million; (iii) the repurchase of our common stock of $18.3 million; and (iv) the payment of debt issuance costs related to the issuance of our Notes in the amount of $3.9 million.

 

Net cash flows used in financing activities were $10.4 million for the nine months ended September 30, 2018, which primarily reflect: (i) the increase of our net borrowings by $52.0 million; (ii) the payment of dividends on common stock of $37.4 million; and (iii) the payment for repurchases of common stock of $20.0 million.

 

Dividends

 

On November 2, 2017, our Board approved an increase to the annual common stock dividend program to $0.36 per share, beginning with the dividend paid in the fourth quarter of 2017. On August 9, 2019, our Board of Directors reduced the annual common stock dividend program to $0.08 per share of common stock. We estimate quarterly dividend payments to approximate $2.7 million per quarter (without considering any further reduction in shares from our stock buyback program). Any future dividends will be at the discretion of the Board based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in our Credit Facility, the Senior Notes and the Notes.

 

Share Repurchase Program

 

On November 2, 2017, our Board announced a share repurchase program (the “2017 Share Repurchase Program”) to permit us to purchase up to $100.0 million of our issued and outstanding shares of Class A common stock through open market purchases. Shares repurchased by us under the 2017 Share Repurchase Program will be at our discretion based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in our Credit Facility, the Notes and the Senior Notes.

 

During the nine months ended September 30, 2019, we repurchased 5.0 million shares of Class A common stock at an aggregate average price of $3.67 per share for a total of $18.3 million under the 2017 Share Repurchase Program. As of September 30, 2019, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.

 

Income Taxes

 

During the nine months ended September 30, 2019, we paid $18.5 million in federal and state income taxes. As a result of the CBS Radio acquisition, the utilization of our net operating loss carryforwards (“NOLs”) will be limited under Internal Revenue Code (“Code”) Section 382. We may need to make additional federal and state estimated tax payments during the remainder of the year.

 

Capital Expenditures

 

Capital expenditures, including amortizable intangibles, for the nine months ended September 30, 2019 were $63.6 million. We anticipate that total capital expenditures in 2019 will be approximately $80 million. This figure includes approximately $10 million which will be reimbursed by landlords for tenant improvement allowances.

 

Contractual Obligations

 

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As of September 30, 2019, there have been no net material changes in the total amount from the contractual obligations listed in our Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 27, 2019, other than as described below.

 

As discussed above, during the nine months ended September 30, 2019, we decreased our long-term debt obligations outstanding by $146.0 million.

 

Off-Balance Sheet Arrangements

As of September 30, 2019, we did not have any material off-balance sheet transactions, arrangements or obligations, including contingent obligations.

 

During the third quarter of 2018, we disposed of certain property that we considered as surplus to our operations and that resulted in significant gains reportable for tax purposes. In order to minimize the tax impact on a certain portion of these taxable gains, we created an entity that served as a qualified intermediary (“QI”) for tax purposes and that held the net sales proceeds of $70.2 million. The net sales proceeds were deposited into the account of the QI to comply with requirements under Section 1031 of the Code to execute a like-kind exchange and were reflected as restricted cash on our consolidated balance sheet at December 31, 2018.

 

We used a portion of these funds in a tax-free exchange by using the net sale proceeds from relinquished property for the purchase of replacement property. This QI was treated as a variable interest entity (“VIE”) and was included in our prior year consolidated financial statements as we were considered the primary beneficiary.

 

Under Section 1031 of the Code, the property to be exchanged in the like-kind exchange was required to be received by us within 180 days. This period of time lapsed during the first quarter of 2019, at which point, the restrictions on the cash balances were released. As a result, we do not present restricted cash on our balance sheet at September 30, 2019.

 

We do not have any other relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes as of September 30, 2019. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

Critical Accounting Policies

 

The SEC defines critical accounting policies as those that are most important to the portrayal of a company’s financial condition and results and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

There have been no material changes to our critical accounting policies from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2018, other than as described below.

 

Changes in Accounting Policies – Leases

 

In February 2016, the accounting guidance was modified to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet.

 

The guidance was effective for us as of January 1, 2019, and was implemented using a modified retrospective approach at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements.

 

As a result, we changed our accounting policy for leases. Refer to Note 4, Leases, included elsewhere in this report for additional information. Except for this change, we have consistently applied our accounting policies to all periods presented in these consolidated financial statements.

 

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Goodwill Valuation at Risk

 

After the interim impairment test conducted on our goodwill in the fourth quarter of 2018, the results indicated that the carrying value of our goodwill exceeded the fair value. As a result of the goodwill impairment charge booked in the fourth quarter of 2018, the percentage by which fair value of our goodwill exceeded carrying value of our goodwill was 0% as of December 31, 2018.

 

Future impairment charges may be required on our goodwill, as the discounted cash flow model is subject to change based upon our performance, our stock price, peer company performance and their stock prices, overall market conditions, and the state of the credit markets. We continue to monitor these relevant factors to determine if an interim impairment assessment is warranted. If there is a continued and sustained decline in the share price of our common stock, we may need to conduct an interim impairment test which could result in an impairment charge, which could be material, in future periods.

 

During the three months ended September 30, 2019, we considered key factors and circumstances that could have potentially indicated a need to conduct an interim impairment assessment. Such factors and circumstances included, but were not limited to: (i) forecasted financial information; (ii) discount rates; (iii) long-term growth rates; (iv) our stock price; and (v) analyst expectations. After giving consideration to all available evidence arising from these facts and circumstances, we concluded that we did not have a requirement to perform an interim impairment test for goodwill. However, if there were to be deterioration in our forecasted financial information, an increase in discount rates, a reduction in long-term growth rates, a sustained decline in our stock price, or a failure to achieve analyst expectations, these could all be potential indicators of an impairment charge, which could be material, in future periods.

 

If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the fair value of our goodwill below the amount reflected in the balance sheet, we may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods.

 

There were no events or circumstances that indicated an interim review of goodwill was required.

 

Broadcasting License at Risk

 

After the interim impairment test conducted on our broadcasting licenses in the fourth quarter of 2018, the results indicated that the carrying value of our broadcasting licenses in 22 markets exceeded their fair values. As a result of the broadcasting licenses impairment charge booked in the fourth quarter of 2018, the percentage by which fair value of our broadcasting licenses exceed carrying value is 0% in 22 of our 48 markets as of December 31, 2018. These broadcasting licenses had a carrying value of $1,474.4 million as of September 30, 2019.

 

If overall market conditions or the performance of the economy deteriorates, advertising expenditures and radio industry results could be negatively impacted, including expectations for future growth. This could result in an impairment charge, which could be material, in future periods.

 

There were no events or circumstances that indicated an interim review of broadcasting licenses was required.

 

ITEM 3.Quantitative And Qualitative Disclosures About Market Risk

 

We are exposed to market risk from changes in interest rates on our variable-rate senior debt (the Term B-1 Loan and Revolver). From time to time, we may seek to limit our exposure to interest rate volatility through the use of derivative rate hedging instruments.

 

As of September 30, 2019, if the borrowing rates under LIBOR were to increase 1% above the current rates, our interest expense on: (i) our Term B Loan would increase $7.2 million on an annual basis, including any increase or decrease in interest expense associated with the use of derivative rate hedging instruments as described below; and (ii) our Revolver would increase by $2.5 million, assuming our entire Revolver was outstanding as of September 30, 2019.

 

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Assuming LIBOR remains flat, interest expense in 2019 versus 2018 is expected to be higher as we recently issued Notes which carry a higher fixed-rate of interest than the variable rates of the Term B-1 Loan and Revolver. We may seek from time to time to amend our Credit Facility or obtain additional funding, which may result in higher interest rates on our indebtedness and could increase our exposure to variable-rate indebtedness.

 

During the quarter ended June 30, 2019, we entered into the following derivative rate hedging transaction in the notional amount of $560.0 million to hedge our exposure to fluctuations in interest rates on our variable-rate debt. This rate hedging transaction is tied to the one-month LIBOR interest rate.

 

Type

 

 

 

 

 

 

 

 

Fixed

 

 

 

Notional

 

Amount

Of

 

Notional

 

Effective

 

 

 

LIBOR

 

Expiration

 

Amount

 

After

Hedge

 

Amount

 

Date

 

Collar

 

Rate

 

Date

 

Decreases

 

Decrease

 

 

(amounts

 

 

 

 

 

 

 

 

 

 

 

(amounts

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

 

$

560.0

 

Jun. 25, 2019

 

Cap

 

2.75%

 

June 28, 2024

 

Jun. 29, 2020

 

$

460.0

 

 

 

 

Jun. 28, 2021

 

$

340.0

 

 

Floor

 

0.402%

 

Jun. 28, 2022

 

$

220.0

 

 

 

 

Jun. 28, 2023

 

$

90.0

Total

 

$

560.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value (based upon current market rates) of the rate hedging transaction is included as derivative instruments in long-term liabilities as the maturity dates on this instrument are greater than one year. The fair value of the hedging transaction is affected by a combination of several factors, including the change in the one-month LIBOR rate. Any increase in the one-month LIBOR rate results in a more favorable valuation, while any decrease in the one-month LIBOR rate results in a less favorable valuation.

 

Our credit exposure under our hedging agreement, or similar agreements we may enter into in the future, is the cost of replacing such agreements in the event of nonperformance by our counterparty. To minimize this risk, we select high credit quality counterparties. We do not anticipate nonperformance by such counterparties, but could recognize a loss in the event of nonperformance. Our derivative instrument liability as of September 30, 2019 was $0.8 million.

 

From time to time, we invest all or a portion of our cash in cash equivalents, which are money market instruments consisting of short-term government securities and repurchase agreements that are fully collateralized by government securities. When such investments are made, we do not believe that we have any material credit exposure with respect to these assets. As of September 30, 2019, we did not have any investments in money market instruments.

 

Our credit exposure related to our accounts receivable does not represent a significant concentration of credit risk due to the quantity of advertisers, the minimal reliance on any one advertiser, the multiple markets in which we operate and the wide variety of advertising business sectors.

 

See also additional disclosures regarding liquidity and capital resources made under Liquidity and Capital Resources in Part 1, Item 2, above.

 

ITEM 4.Controls And Procedures

 

Evaluation of Controls and Procedures

 

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are designed to ensure that: (i) information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as

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appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our President/Chief Executive Officer and Executive Vice President/Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

 

ITEM 1.Legal Proceedings

 

We currently and from time to time are involved in litigation incidental to the conduct of our business. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material developments relating to the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019. Refer to Note 15, Contingencies And Commitments, for additional information.

 

ITEM 1A.Risk Factors

 

There have been no material changes to the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019.

 

ITEM 2.Unregistered Sales Of Equity Securities And Use Of Proceeds

 

The following table provides information on our repurchases during the quarter ended September 30, 2019:

 

 

 

 

 

 

 

 

(c)

 

(d)

 

 

 

 

 

 

 

Total

 

Maximum

 

 

 

 

 

 

 

Number Of

 

Approximate

 

 

 

 

 

 

 

Shares

 

Dollar Value

 

 

 

 

 

 

 

Purchased

 

Of

 

 

 

 

 

 

 

As

 

Shares That

 

 

(a)

 

(b)

 

Part Of

 

May Yet Be

 

 

Total

 

Average

 

Publicly

 

Purchased

 

 

Number

 

Price

 

Announced

 

Under

 

 

Of Shares

 

Paid

 

Plans Or

 

The Plans

Period (1)(2)

 

Purchased

 

Per Share

 

Programs

 

Or Programs

July 1, 2019 - July 31, 2019

 

1,408

 

$

6.15

 

-

 

$

59,918,176

August 1, 2019 - August 31, 2019

 

5,000,000

 

$

3.67

 

5,000,000

 

$

41,578,230

September 1, 2019 - September 30, 2019

 

-

 

$

-

 

-

 

$

41,578,230

Total

 

5,001,408

 

 

 

 

5,000,000

 

 

 

 

 

(1)We withheld shares upon the vesting of RSUs in order to satisfy employees’ tax obligations. As a result, we are deemed to have purchased 1,408 shares at an average price of $6.15 in July 2019. These shares are included in the table above.

(2)On November 2, 2017, our Board announced a share repurchase program (the “2017 Share Repurchase Program”) to permit us to purchase up to $100.0 million of our issued and outstanding shares of Class A common stock through open market purchases. In connection with the 2017 Share Repurchase Program, we purchased 5,000,000 shares at an average price of $3.67 in August 2019. These shares are included in the table above.

 

 

ITEM 3.Defaults Upon Senior Securities

 

None.

 

ITEM 4.Mine Safety Disclosures

Not applicable.

 

ITEM 5.Other Information

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None.

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ITEM 6.Exhibits

 

Exhibit Number

Description

3.1 #

Amended and Restated Articles of Incorporation of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.01 to Entercom’s Amendment to Registration Statement on Form S-1, as filed on January 27, 1999 (File No. 333-61381))

3.2 #

Articles of Amendment to the Articles of Incorporation of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.1 of Entercom’s Current Report on Form 8-K as filed on December 21, 2007)

3.3 #

Articles of Amendment to the Articles of Incorporation of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.02 to Entercom’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, as filed on August 5, 2009)

3.4 #

Articles of Amendment to the Articles of Incorporation of Entercom Communications Corp. dated November 17, 2017. (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 17, 2017)

3.5 #

Statement with Respect to Shares, filed with the Pennsylvania Department of State on July 16, 2015. (Incorporated by reference to an Exhibit 3.1 to our Current Report on Form 8-K filed on July 17, 2015)

3.6 #

Amended and Restated Bylaws of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 24, 2019)

4.1 #

Indenture for Senior Notes, dated as of October 17, 2016, by and among CBS Radio, Inc., the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. (Incorporated by reference to Exhibit 4.2 of Entercom’s Registration Statement on Form S-4 (File No. 333-217273))

4.2 #

Supplemental Indenture, dated as of November 17, 2017, by and among Entercom Radio, LLC, the other guarantor parties named therein, and Deutsche Bank Trust Company Americas, as trustee. (Incorporated by reference to Exhibit 4.2 to Entercom’s Current Report on Form 8-K filed on November 17, 2017)

4.3 #

Supplemental Indenture, dated December 8, 2017, by and between CBS Radio Inc. and Deutsche Bank Trust Company Americas, as trustee (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on December 11, 2017)

4.4 #

Indenture for Senior Secured Second-Lien Notes due May 1, 2027, by and among Entercom Media Corp., the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. ( Incorporated by reference to Exhibit 4.1 to Entercom’s Current Report on Form 8-K filed on May 1, 2019)

4.5 #

Form of 6.500% Senior Secured Second-Lien Note due 2027 (included in Exhibit 4.1) (Incorporated by reference to Exhibit 4.2 to Entercom’s Current Report on Form 8-K filed on May 1, 2019

31.1 *

Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2 *

Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.1 **

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 **

Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

*

Filed Herewith

66

 


 

#

Incorporated by reference.

**

Furnished herewith. Exhibit is “accompanying” this report and shall not be deemed to be “filed” herewith.

67

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ENTERCOM COMMUNICATIONS CORP.

(Registrant)

 

 

Date: November 12, 2019

/S/ David J. Field

Name: David J. Field

Title: Chairman, Chief Executive Officer and President

(principal executive officer)

 

 

Date: November 12, 2019

/S/ Richard J. Schmaeling

Name: Richard J. Schmaeling

Title: Executive Vice President - Chief Financial Officer (principal financial officer)

 

68