AUDACY, INC. - Quarter Report: 2019 March (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 March 31, 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.)

401 E. City Avenue, Suite 809

Bala Cynwyd, Pennsylvania 19004

(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  ☒    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  ☒    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		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards 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  ☒

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 – 138,563,358 Shares Outstanding as of April 30, 2019

(Class A Shares Outstanding include 4,144,421 unvested and vested but deferred restricted stock units)

Class B common stock, $0.01 par value – 4,045,199 Shares Outstanding as of April 30, 2019.

 

 

 

ENTERCOM COMMUNICATIONS CORP.

INDEX

 

Part I Financial Information
		Item 1.		Financial Statements			2
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			44
		Item 4.		Controls and Procedures			44
Part II Other Information
		Item 1.		Legal Proceedings			46
		Item 1A.		Risk Factors			46
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			46
		Item 3.		Defaults Upon Senior Securities			46
		Item 4.		Mine Safety Disclosures			46
		Item 5.		Other Information			46
		Item 6.		Exhibits			47
Signatures							49

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.

 

i

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

		MARCH 31, 2019				DECEMBER 31, 2018
ASSETS:
Cash		$	68,266			$	122,893
Restricted cash			—				69,365
Accounts receivable, net of allowance for doubtful accounts			269,945				342,766
Prepaid expenses, deposits and other			33,840				25,205
Total current assets			372,051				560,229
Investments			11,205				11,205
Net property and equipment			327,901				317,030
Operating lease right-of-use assets			293,638				—
Radio broadcasting licenses			2,499,490				2,516,625
Goodwill			534,607				539,469
Assets held for sale			22,795				19,603
Other assets, net of accumulated amortization			38,517				56,197
TOTAL ASSETS		$	4,100,204			$	4,020,358
LIABILITIES:
Accounts payable		$	2,826			$	1,858
Accrued expenses			46,890				58,449
Other current liabilities			114,491				118,438
Operating lease liabilities			37,434				—
Total current liabilities			201,641				178,745
Long-term debt, net of current portion			1,692,258				1,872,203
Operating lease liabilities, net of current portion			275,739				—
Deferred tax liabilities			546,971				545,982
Other long-term liabilities			52,097				89,168
Total long-term liabilities			2,567,065				2,507,353
Total liabilities			2,768,706				2,686,098
CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS’ EQUITY:
Class A, B and C common stock			1,427				1,412
Additional paid-in capital			1,682,891				1,693,512
Accumulated deficit			(352,820	)			(360,664	)
Total shareholders’ equity			1,331,498				1,334,260
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	4,100,204			$	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
		MARCH 31,
		2019				2018
NET REVENUES		$	309,005			$	300,560
OPERATING EXPENSE:
Station operating expenses			248,985				255,725
Depreciation and amortization expense			11,104				8,471
Corporate general and administrative expenses			20,935				18,669
Integration costs			1,135				9,729
Restructuring charges			1,014				1,481
Merger and acquisition costs			9				1,383
Net time brokerage agreement (income) fees			40				(426	)
Net (gain) loss on sale or disposal of assets			(4,600	)			(161	)
Total operating expense			278,622				294,871
OPERATING INCOME (LOSS)			30,383				5,689
NET INTEREST EXPENSE			25,220				23,404
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)			5,163				(17,715	)
INCOME TAXES (BENEFIT)			2,038				(3,509	)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS - CONTINUING OPERATIONS			3,125				(14,206	)
Income from discontinued operations, net of income taxes (benefit)			—				328
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS		$	3,125			$	(13,878	)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC AND DILUTED
Net income (loss) from continuing operations per share available to common shareholders - Basic and Diluted		$	0.02			$	(0.10	)
Net income (loss) from discontinued operations per share available to common shareholders - Basic and Diluted		$	—			$	—
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC AND DILUTED		$	0.02			$	(0.10	)
WEIGHTED AVERAGE SHARES:
Basic			138,099,180				138,939,309
Diluted			138,523,371				138,939,309

See notes to condensed consolidated financial statements.

 

3

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2019 AND YEAR ENDED DECEMBER 31, 2018

(amounts in thousands, except share data)

(unaudited)

 

																						Retained
		Common Stock																Additional				Earnings
		Class A								Class B								Paid-in				(Accumulated
		Shares				Amount				Shares				Amount				Capital				Deficit)				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			—				—				—				—				—				(347,557	)			(347,557	)
Compensation expense related to granting of stock awards			1,053,514				11				—				—				11,225				—				11,236
Issuance of common stock related to the Employee Stock Purchase Plan (“ESPP”)			189,031				2				—				—				1,105				—				1,107
Exercise of stock options			103,137				1				—				—				139				—				140
Common stock repurchase			(1,393,100	)			(14	)			—				—				(10,014	)			—				(10,028	)
Purchase of vested employee restricted stock units			(178,270	)			(2	)			—				—				(1,721	)			—				(1,723	)
Payment of dividends on common stock			—				—				—				—				(12,746	)			(24,861	)			(37,607	)
Dividend equivalents, net of forfeitures			—				—				—				—				(342	)			(159	)			(501	)
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

See notes to condensed consolidated financial statements.

 

4

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

		THREE MONTHS ENDED MARCH 31,
		2019				2018
OPERATING ACTIVITIES:
Net income (loss) available to the Company		$	3,125			$	(13,878	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			11,104				8,471
Net amortization of deferred financing costs (net of original issue discount and debt premium)			86				79
Net deferred taxes (benefit) and other			(2,669	)			(5,252	)
Provision for bad debts			326				2,982
Net (gain) loss on sale or disposal of assets			(4,600	)			(161	)
Non-cash stock-based compensation expense			3,573				3,913
Deferred compensation			2,802				126
Accretion expense (income), net of asset retirement obligation adjustments			17				15
Changes in assets and liabilities (net of effects of acquisitions, dispositions, consolidation, and deconsolidation of Variable Interest Entities (VIEs)):
Accounts receivable			72,495				66,692
Prepaid expenses and deposits			(8,808	)			(3,968	)
Accounts payable and accrued liabilities			(12,789	)			206
Accrued interest expense			6,698				7,155
Accrued liabilities - long-term			(5,629	)			(455	)
Prepaid expenses - long-term			—				(40	)
Net cash provided by (used in) operating activities			65,731				65,885
INVESTING ACTIVITIES:
Additions to property and equipment			(18,622	)			(5,413	)
Proceeds from sale of radio stations and other assets			24,503				461
Additions to amortizable intangible assets			(1,888	)			(1,578	)
Purchases of investments			—				(1,250	)
Net cash provided by (used in) investing activities			3,993				(7,780	)

 

5

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

		THREE MONTHS ENDED MARCH 31,
		2019				2018
FINANCING ACTIVITIES:
Payments of long-term debt		$	(180,000	)		$	(21,325	)
Proceeds from issuance of employee stock plan			379				321
Proceeds from the exercise of stock options			244				13
Purchase of vested employee restricted stock units			(1,426	)			(3,463	)
Payment of dividends on common stock			(12,430	)			(12,441	)
Payment of dividend equivalents on vested restricted stock units			(483	)			(595	)
Repurchase of common stock			—				(20,012	)
Net cash provided by (used in) financing activities			(193,716	)			(57,502	)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(123,992	)			603
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR			192,258				34,167
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD		$	68,266			$	34,770
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	18,446			$	16,497
Income taxes		$	1,790			$	45
Dividends on common stock		$	12,430			$	12,441

See notes to condensed consolidated financial statements.

 

6

ENTERCOM COMMUNICATIONS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 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 March 31, 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 months ended March 31, 2019 and the year ended December 31, 2018 were not significant. The VIE had no impact on the Company’s results of operations for the three months ended March 31, 2018. 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 present restricted cash at March 31, 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 14, 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 – 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.

 

7

The guidance was effective for the Company 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, the Company has changed its accounting policy for leases as described below. Except for the changes below, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements. Refer to Note 4, Leases, for additional information.

Under certain practical expedients elected, the Company did not reassess whether any expired or existing contracts are or contain leases. The Company did not reassess lease classification between operating and finance leases for any expired or existing leases. The Company did not reassess initial direct costs for any existing leases.

Results for reporting 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 historic 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 March 31, 2019 was not material. As of January 1, 2019, the Company recorded 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.

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 its right to use the underlying asset for the lease term, on the consolidated balance sheet.

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.

 

8

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 three months ended March 31, 2019 do not reflect the results of this divested station, whereas the Company’s consolidated financial statements for the three months ended March 31, 2018 do reflect the results of this divested station.

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 WTXU Transaction and the Jerry Lee Transaction, the Company will continue 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 three months ended March 31, 2019 reflect the results of this acquired station, whereas the Company’s consolidated financial statements for the three months ended March 31, 2018 do not reflect the results of this acquired station.

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 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 estimates.

 

9

						Useful Lives in Years
		Preliminary Value				From				To
		(amounts in thousands)
Assets
Equipment		$	981				3				7
Total tangible property			981
Advertising contracts			477				1				1
Radio broadcasting licenses			27,346				non-amortizing
Goodwill			24,396				non-amortizing
Net working capital			3,234				not applicable
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 three months ended March 31, 2019 reflect the results of these acquired stations, whereas the Company’s consolidated financial statements for the three months ended March 31, 2018 reflect the results of these acquired stations only for the portion of the period in which the TBA was in effect.

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.

 

10

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 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

 

11

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 local marketing agreements (“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 12, 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:

 

		Three Months Ended March 31,
		2019				2018
		(amounts in thousands)
Costs to exit duplicative contracts		$	—			$	143
Workforce reduction			693				590
Lease abandonment costs			—				257
Other restructuring costs			321				491
Total restructuring charges		$	1,014			$	1,481

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 March 31, 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 March 31, 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.

 

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		Three Months Ended March 31, 2019				Twelve Months Ended December 31, 2018
		(amounts in thousands)
Restructuring charges and lease abandonment costs, beginning balance		$	7,077			$	16,086
Additions resulting from the integration of CBS Radio			1,014				5,830
Payments			(2,659	)			(14,839	)
Restructuring charges and lease abandonment costs unpaid and outstanding			5,432				7,077
Restructuring charges and lease abandonment costs—noncurrent portion			(650	)			(988	)
Restructuring charges and lease abandonment costs—current portion		$	4,782			$	6,089

Integration Costs

The Company incurred integration costs of $1.1 million and $9.7 million during the three months ended March 31, 2019 and March 31, 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 three months ended March 31, 2019 and 2018 assumes that the acquisitions in 2018 had occurred as of January 1, 2017. 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 (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions had been consummated at an earlier time.

For purposes of this presentation, the pro forma data: (i) includes revenue and earnings of stations divested to Bonneville during 2018; and (ii) includes revenue and earnings of the station divested to Beasley during 2018.

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.

 

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		Three Months Ended March 31,
		2019				2018
		(amounts in thousands, except per share data)
		Actual				Pro Forma
Net revenues		$	309,005			$	305,425
Income (loss) from continuing operations		$	3,125			$	(13,681	)
Income (loss) from discontinued operations		$	—			$	328
Net income (loss) available to the Company		$	3,125			$	(13,353	)
Net income (loss) available to common shareholders		$	3,125			$	(13,353	)
Income (loss) from continuing operations per common share—basic		$	0.02			$	(0.10	)
Income (loss) from discontinued operations per common share - basic		$	—			$	—
Net income (loss) available to common shareholders per common share - basic		$	0.02			$	(0.10	)
Income (loss) from continuing operations per common share - diluted		$	0.02			$	(0.10	)
Income (loss) from discontinued operations per common share - diluted		$	—			$	—
Net income (loss) available to common shareholders per common share - diluted		$	0.02			$	(0.10	)
Weighted shares outstanding basic			138,099,180				138,939,309
Weighted shares outstanding diluted			138,523,371				138,939,309

 

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.

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.

 

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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 is not the primary party hosting the event and 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 $9.1 million and $11.8 million as of March 31, 2019 and December 31, 2018, respectively.

 

Description		March 31, 2019				December 31, 2018
		(amounts in thousands)
Receivables, included in “Accounts receivable net of allowance for doubtful accounts”		$	260,857			$	330,983
Unearned revenue - current			21,208				22,692
Unearned revenue - noncurrent			700				1,138

 

15

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:

 

		Three Months Ended March 31, 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			(7,438	)
Additional amounts recognized during period			5,516
Ending balance		$	21,908

Disaggregation of revenue

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

 

		Three Months Ended
		March 31,
		2019				2018
Revenue by Source		(amounts in thousands)
Broadcast revenues		$	284,465			$	274,453
Event and other revenues			19,526				22,609
Trade and barter revenues			5,014				3,498
Net revenues		$	309,005			$	300,560

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.

 

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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 $0.7 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.

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 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 options 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.

 

17

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 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.

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:

 

18

Lease Cost		Three Months Ended March 31, 2019
		(amounts in thousands)
Operating lease cost		$	12,468
Variable lease cost			2,052
Short-term lease cost			98
Total lease cost		$	14,618

Supplemental Cash Flow

Supplemental cash flow information related to leases was as follows:

 

Description		Three Months Ended March 31, 2019
		(amounts in thousands)
Cash paid for amounts included in measurement of lease liabilities
Operating cash flows from operating leases		$	13,109
Right-of-use assets obtained in exchange for lease obligations
Operating leases (1)		$	307,618

 

(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 three months ended March 31, 2019.

Balance Sheet

Supplemental balance sheet information related to leases was as follows:

 

Description		March 31, 2019
		(amounts in thousands)
Operating Leases
Operating Leases right-of-use assets		$	293,638
Operating lease liabilities (current)		$	37,434
Operating lease liabilities (noncurrent)			275,739
Total operating lease liabilities		$	313,173

 

19

Weighted Average Remaining Lease Term
Operating leases			9 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		$	38,695
2020			51,819
2021			48,116
2022			42,763
2023			39,563
Thereafter			168,387
Total lease payments		$	389,343
Less: imputed interest			(76,170	)
Total		$	313,173

As of March 31, 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:

 

		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.

 

20

The following table presents the changes in the carrying value of broadcasting licenses. Refer to Note 12, Assets Held For Sale And Discontinued Operations, for additional information.

 

		Broadcasting Licenses Carrying Amount
		March 31, 2019				December 31, 2018
		(amounts in thousands)
Broadcasting licenses balance as of January 1,		$	2,516,625			$	2,649,959
Acquisition of radio stations - Emmis Acquisition			—				12,785
Acquisition of a radio station - Jerry Lee Transaction			—				27,346
Loss on impairment			—				(148,564	)
Disposition of a radio station - WXTU Transaction			—				(24,901	)
Assets held for sale - (See Note 12)			(17,135	)			—
Ending period balance		$	2,499,490			$	2,516,625

The following table presents the changes in goodwill. Refer to Note 12, Assets Held For Sale And Discontinued Operations, for additional information.

 

		Goodwill Carrying Amount
		March 31, 2019				December 31, 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	)
Disposition of a radio station - WXTU Transaction			—				(8,623	)
Measurement period adjustments to acquired goodwill			—				(21,498	)
Acquisition of radio stations - Emmis Acquisition			—				332
Acquisition of a radio station - Jerry Lee Transaction			—				24,396
Assets held for sale - (See Note 12)			(4,862	)			—
Ending period balance		$	534,607			$	539,469

Broadcasting Licenses Impairment Test

The Company performs 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.

There were no events or circumstances since the Company’s prior year fourth quarter interim broadcasting licenses impairment test that indicated an interim review of broadcasting licenses was required.

Goodwill Impairment Test

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

There were no events or circumstances since the Company’s prior year fourth quarter interim goodwill impairment test that indicated an interim review of goodwill was required.

 

21

6.	OTHER CURRENT LIABILITIES

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

 

		Other Current Liabilities
		March 31, 2019				December 31, 2018
		(amounts in thousands)
Accrued compensation		$	32,618			$	31,192
Accounts receivable credits			5,101				5,743
Advertiser obligations			7,046				4,190
Accrued interest payable			12,705				6,007
Unearned revenue			21,208				22,692
Unfavorable lease liabilities			—				2,852
Unfavorable sports liabilities			4,634				4,634
Accrued benefits			8,183				8,646
Non-income tax liabilities			6,662				6,748
Income taxes payable			11,357				10,558
Other			4,977				15,176
Total other current liabilities		$	114,491			$	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 14, Contingencies And Commitments, for additional information.

 

7.	LONG-TERM DEBT

(A) Senior Debt

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 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 $244.1 million as of March 31, 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 Secured 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 Secured 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.

 

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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 secured 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 Secured Leverage Ratio that cannot exceed 4.0 times at March 31, 2019. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net Secured Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition. As of March 31, 2019, the Company’s Consolidated Net Secured Leverage Ratio was 3.3 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 March 31, 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 Secured Leverage Ratio at the time of such borrowing.

 

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Long-term debt was comprised of the following as of March 31, 2019:

 

		Long-Term Debt
		March 31, 2019				December 31, 2018
		(amounts in thousands)
Credit Facility
Revolver, due November 17, 2022		$	—			$	180,000
Term B-1 Loan, due November 17, 2024			1,291,700				1,291,700
Plus unamortized premium			2,362				2,470
		1,294,062				1,474,170
Senior Notes
7.250% senior unsecured notes, due October 17, 2024			400,000				400,000
Plus unamortized premium			13,551				14,158
			413,551				414,158
Other Debt
Other			889				912
Total debt before deferred financing costs			1,708,502				1,889,240
Current amount of long-term debt			—				—
Deferred financing costs (excludes the revolving credit)			(16,244	)			(17,037	)
Total long-term debt, net of current debt		$	1,692,258			$	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) Net Interest Expense

The components of net interest expense are as follows:

 

		Net Interest Expense
		Three Months Ended March 31,
		2019				2018
		(amounts in thousands)
Interest expense		$	25,734			$	23,334
Amortization of deferred financing costs			801				795
Amortization of original issue discount (premium) of senior notes			(715	)			(716	)
Interest income and other investment income			(600	)			(9	)
Total net interest expense		$	25,220			$	23,404

 

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8.	NET INCOME (LOSS) PER COMMON SHARE

The following table presents the computations of basic and diluted net income (loss) per share:

 

		Three Months Ended March 31,
		2019				2018
		(amounts in thousands except per share data)
Basic Income (Loss) Per Share
Numerator
Net income available to common shareholders from continuing operations		$	3,125			$	(14,206	)
Income (loss) from discontinued operations, net of tax			—				328
Net income (loss) available to common shareholders		$	3,125			$	(13,878	)
Denominator
Basic weighted average shares outstanding			138,099				138,939
Net Income (Loss) Per Common Share - Basic:
Net income (loss) from continuing operations per share available to common shareholders - Basic		$	0.02			$	(0.10	)
Net income (loss) from discontinued operations per share available to common shareholders - Basic			—				—
Net income (loss) per share available to common shareholders - Basic		$	0.02			$	(0.10	)
Diluted Income (Loss) Per Share
Numerator
Net income available to common shareholders from continuing operations		$	3,125			$	(14,206	)
Income (loss) from discontinued operations, net of tax			—				328
Net income (loss) available to common shareholders		$	3,125			$	(13,878	)
Denominator
Basic weighted average shares outstanding			138,099				138,939
Effect of RSUs and options under the treasury stock method			424				—
Diluted weighted average shares outstanding			138,523				138,939
Net Income (Loss) Per Common Share - Diluted:
Net income (loss) from continuing operations per share available to common shareholders - Diluted		$	0.02			$	(0.10	)
Net income (loss) from discontinued operations per share available to common shareholders - Diluted			—				—
Net income (loss) per share available to common shareholders - Diluted		$	0.02			$	(0.10	)

Disclosure of Anti-Dilutive Shares

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

 

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		Three Months Ended
		March 31,
Impact Of Equity Issuances		2019				2018
		(amounts in thousands, except per share data)
Shares excluded as anti-dilutive under the treasury stock method:
Options			553				367
Price range of options: from		$	6.43			$	9.66
Price range of options: to		$	13.98			$	13.98
RSUs with service conditions			1,666				—
RSUs excluded with service and market conditions as market conditions not met			220				226
Excluded shares as anti-dilutive when reporting a net loss			—				1,313

 

9.	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:

 

		Period Ended				Number of Restricted Stock Units				Weighted Average Purchase Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value as of March 31, 2019
		(amounts in thousands)
RSUs outstanding as of:			December 31, 2018				3,685
RSUs awarded							1,489
RSUs released							(636	)
RSUs forfeited							(83	)
RSUs outstanding as of:			March 31, 2019				4,455			$	—				1.6			$	23,350
RSUs vested and expected to vest as of:			March 31, 2019				4,455			$	—				1.6			$	23,347
RSUs exercisable (vested and deferred) as of:			March 31, 2019				41			$	—				—			$	217
Weighted average remaining recognition period in years							2.5
Unamortized compensation expense						$	27,619

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.

 

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		Three Months Ended March 31, 2019				Year Ended December 31, 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			(6	)			(110	)
Number of RSUs vested			—				(314	)
End of period balance			220				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:    

 

		Three Months Ended March 31,
Option Exercise Data		2019				2018
		(amounts in thousands)
Intrinsic value of options exercised		$	1,272			$	101
Tax benefit from options exercised (1)		$	73			$	27
Cash received from exercise price of options exercised		$	242			$	13

 

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

 

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