NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2017 AND 2016
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 Companys 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 Companys audited financial statements as of and for the year ended December 31, 2016, and filed with the
SEC on February 28, 2017, as part of the Companys 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.
On February 2, 2017, the Company and its newly formed
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 will merge with and into CBS Radio with CBS Radio surviving as the Companys wholly owned subsidiary (the Merger). The Merger is expected to be tax free to CBS and
its shareholders, and will be effected through a stock for stock Reverse Morris Trust transaction. The Merger will make the Company a leading local media and entertainment company with a nationwide footprint of stations including positions in all of
the top 10 markets and 23 of the top 25 markets. The transactions contemplated by the CBS Radio Merger Agreement are subject to approval by the Companys shareholders and customary regulatory approvals. Such approvals will require the
divestiture of stations in certain markets due to FCC ownership limitations.
There have been no material changes from Note 2, Significant
Accounting Policies, as described in the notes to the Companys financial statements contained in its Form
10-K
for the year ended December 31, 2016, that was filed with the SEC on February 28,
2017.
Revision of Prior Period Financial Statements for Digital Revenue Contracts
In connection with the preparation of the Companys consolidated financial statements, the Company identified immaterial errors in prior
periods relating to the netting of certain digital expenses against certain digital revenues. Since the Company acts as a principal in certain digital revenue contracts, the expenses should not have been netted against gross revenues. The impact of
these errors were not material to any prior period. Consequently, the Company corrected the errors in the second quarter of 2017 by increasing net revenues and station operating expenses on the consolidated statements of operations by the amounts
below. As the two line items are adjusted by offsetting amounts, the corrections had no impact on income before taxes, income taxes (benefit), net income, earnings per share or diluted earnings per share, shareholders equity, cash flows from
operations, or working capital. The corrections had no impact on the consolidated balance sheets or statements of cash flows.
6
The following tables include the revisions to the consolidated statements of operations for the
interim and annual periods during 2017, 2016, 2015 and 2014:
|
|
|
|
|
Description
|
|
Three Months
Ended
March 31, 2017
|
|
|
|
(amounts in
thousands)
|
|
Net Revenues:
|
|
|
|
|
Prior to revision
|
|
$
|
97,452
|
|
Revision
|
|
|
1,549
|
|
|
|
|
|
|
As revised
|
|
$
|
99,001
|
|
|
|
|
|
|
Station operating expenses, including
non-cash
compensation expense:
|
|
|
|
|
Prior to revision
|
|
$
|
75,617
|
|
Revision
|
|
|
1,549
|
|
|
|
|
|
|
As revised
|
|
$
|
77,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to revision
|
|
$
|
96,103
|
|
|
$
|
120,478
|
|
|
$
|
120,457
|
|
|
$
|
123,207
|
|
|
$
|
460,245
|
|
Revision
|
|
|
906
|
|
|
|
1,093
|
|
|
|
1,184
|
|
|
|
1,343
|
|
|
|
4,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As revised
|
|
$
|
97,009
|
|
|
$
|
121,571
|
|
|
$
|
121,641
|
|
|
$
|
124,550
|
|
|
$
|
464,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Station operating expenses, including
non-cash
compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to revision
|
|
$
|
71,715
|
|
|
$
|
82,639
|
|
|
$
|
82,905
|
|
|
$
|
81,485
|
|
|
$
|
318,744
|
|
Revision
|
|
|
906
|
|
|
|
1,093
|
|
|
|
1,184
|
|
|
|
1,343
|
|
|
|
4,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As revised
|
|
$
|
72,621
|
|
|
$
|
83,732
|
|
|
$
|
84,089
|
|
|
$
|
82,828
|
|
|
$
|
323,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
2015
|
|
|
|
(amounts in thousands)
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to revision
|
|
$
|
78,420
|
|
|
$
|
100,592
|
|
|
$
|
114,662
|
|
|
$
|
117,704
|
|
|
$
|
411,378
|
|
Revision
|
|
|
589
|
|
|
|
730
|
|
|
|
874
|
|
|
|
910
|
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As revised
|
|
$
|
79,009
|
|
|
$
|
101,322
|
|
|
$
|
115,536
|
|
|
$
|
118,614
|
|
|
$
|
414,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Station operating expenses, including
non-cash
compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to revision
|
|
$
|
59,367
|
|
|
$
|
70,000
|
|
|
$
|
81,241
|
|
|
$
|
77,103
|
|
|
$
|
287,711
|
|
Revision
|
|
|
589
|
|
|
|
730
|
|
|
|
874
|
|
|
|
910
|
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As revised
|
|
$
|
59,956
|
|
|
$
|
70,730
|
|
|
$
|
82,115
|
|
|
$
|
78,013
|
|
|
$
|
290,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
Description
|
|
Year Ended
December 31,
2014
|
|
|
|
(amounts in
thousands)
|
|
Net Revenues:
|
|
|
|
|
Prior to revision
|
|
$
|
379,789
|
|
Revision
|
|
|
587
|
|
|
|
|
|
|
As revised
|
|
$
|
380,376
|
|
|
|
|
|
|
Station operating expenses, including
non-cash
compensation expense:
|
|
|
|
|
Prior to revision
|
|
$
|
259,184
|
|
Revision
|
|
|
587
|
|
|
|
|
|
|
As revised
|
|
$
|
259,771
|
|
|
|
|
|
|
Recent Accounting Pronouncements
All new accounting pronouncements that are in effect that may impact the Companys 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 Companys financial statements contained in its Form
10-K
for the year ended December 31, 2016, that was filed with the SEC on February 28, 2017, that might have a material impact on the Companys financial position, results of operations or cash
flows.
Definition of a Business
In
January 2017, the accounting guidance was amended to modify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance is effective
for the Company as of January 1, 2018, under a prospective application method. The Company is currently in the process of reviewing the new guidance, but based upon its preliminary assessment, which is subject to change, the impact of this
guidance should not be material to the Companys financial position, results of operations or cash flows. The guidance could have an impact in a future period if the Company acquires or disposes of assets that meet the definition of a business
under the amended guidance.
Goodwill Impairment
In January 2017, the accounting guidance was amended to modify the accounting for goodwill impairment by removing the second step of the
goodwill impairment test. The guidance is effective for the Company as of January 1, 2020, on a prospective basis, although early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company elected to early adopt this amended accounting guidance for its annual impairment test during the second quarter of 2017. The results of the Companys annual goodwill impairment test indicated that the carrying
value of the Companys goodwill in one particular market exceeded its appraised enterprise value. As a result, the Company wrote off approximately $0.4 million of goodwill during the second quarter of 2017. Refer to Note 2, Intangible
Assets and Goodwill, for additional information.
Cash Flow Classification
In August 2016, the accounting guidance for classifying elements of cash flow was modified. The guidance is effective for the Company as of
January 1, 2018, under a retrospective application method. Management does not believe the impact of this guidance will be material to the Companys financial position, results of operations or cash flows.
8
Stock-Based Compensation
In May 2017, the accounting guidance was amended to clarify modification accounting for stock-based compensation. The guidance is effective for
the Company as of January 1, 2018, on a prospective basis, although early adoption is permitted for interim periods. Under the amended guidance, the Company will only apply modification accounting for stock-based compensation if there are:
(1) changes in the fair value or intrinsic value of share-based compensation; (2) changes in the vesting conditions of awards; and (3) change in the classification of awards as equity instruments or liability instruments. The Company
is currently in the process of reviewing the new guidance, but based upon its preliminary assessment, which is subject to change, the impact of this guidance should not be material to the Companys financial position, results of operations or
cash flows.
In March 2016, the accounting guidance for stock-based compensation was modified primarily to: (1) record excess tax
benefits or deficiencies on stock-based compensation in the statement of operations, regardless of whether the tax benefits reduce taxes payable in the period; (2) allow an employees use of shares to satisfy the employers statutory
income tax withholding obligation up to the maximum statutory tax rates in the applicable jurisdictions; and (3) allow entities to make an accounting policy election to either estimate the number of award forfeitures or to account for
forfeitures when they occur. The guidance was effective for the Company on January 1, 2017.
As of January 1, 2017, the Company
recorded a cumulative-effect adjustment to its accumulated deficit of $4.6 million on a modified retrospective transition basis. This adjustment was comprised of previously unrecognized excess tax benefits of $4.9 million as adjusted for
the Companys effective income tax rate, offset by a change to recognize stock-based compensation forfeitures when they occur of $0.3 million, net of tax.
Leasing Transactions
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 most notable change in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases with a term of more than twelve months. This change
will apply to the Companys leased assets such as real estate, broadcasting towers and equipment. Additionally, the Company will be required to provide additional disclosures to meet the objective of enabling users of the financial statements
to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company anticipates its accounting for existing capital leases to remain substantially unchanged.
While the Company is currently reviewing the effects of this guidance, the Company believes that this modification would result in:
(1) an increase in the ROU assets and liabilities reflected on the Companys consolidated balance sheets to reflect the rights and obligations created by operating leases with a term of greater than twelve months; and (2) an increase
in amortization expense associated with the ROU assets.
This guidance is effective for the Company as of January 1, 2019, and must
be implemented using a modified retrospective approach, with certain practical expedients available.
Revenue Recognition
In May 2014, the accounting guidance for revenue recognition was modified and subsequently updated with several amendments. Along with these
modifications, most industry-specific revenue guidance was eliminated, including a current broadcasting exemption for reporting revenue from network barter programming. The new guidance provides companies with a revenue recognition model for
recognizing revenue from contracts with customers. The core principle of the new standard is to recognize revenue when promised goods or services are transferred to customers, in an amount that reflects the consideration that the Company expects to
be entitled to in exchange for such goods or services. The new guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance may be implemented using a modified retrospective approach or by using a full retrospective approach. The new guidance was
originally effective for annual reporting periods beginning after December 15, 2016. In July 2015, the effective date was deferred by one year. As a result, the new guidance is effective for the Company as of January 1, 2018.
The Company has completed its initial assessment phase in the implementation process. In connection with this initial phase, the Company
performed the following activities: (1) completed an internal assessment of the
9
Companys operations and identified its significant revenue streams; (2) held revenue recognition conversations with certain of its sales managers and business managers across its
markets for each of the identified revenue streams; and (3) reviewed a representative sample of contracts and documented the key economics of the contracts to identify applicable qualitative revenue recognition changes related to the amended
accounting guidance. The Companys next phase of the implementation process will be to establish and document key accounting policies, assess disclosure requirements, determine the impact on business processes and internal controls, and
determine the quantitative impact resulting from the amended accounting guidance. This second phase is expected to be completed in the third quarter of 2017. The Companys final phase will be to effectively implement the amended accounting
guidance and embed the new accounting treatment into the Companys business processes and internal controls to support the financial reporting requirements. This final phase of the implementation process is expected to be completed in the
fourth quarter of 2017. The Company plans to adopt the amended accounting guidance as of January 1, 2018, using the modified retrospective method.
The Company is still evaluating the impact that the amended accounting guidance will have on the Companys consolidated financial
statements and will be unable to quantify its impact until it completes the final phase of its implementation process. Based upon its preliminary assessment, which is subject to change, the impact of this guidance should not be material to the
Companys financial position, results of operations or cash flows.
2.
|
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 goodwill and certain intangibles (such as broadcasting licenses), then a charge is recorded to the results of operations.
There was no material change in the carrying value of broadcasting licenses or goodwill since the year ended December 31, 2016, other
than as described below.
The Company recorded a $13.5 million loss in the first quarter of 2017 in net gain/loss on sale or disposal
of assets as a result of the Company permanently discontinuing the operation of one of its stations and returning the stations broadcasting license to the FCC for cancellation, in order to facilitate the Merger.
Additionally, the carrying value of the broadcasting licenses at December 31, 2016, included the broadcasting licenses of a consolidated
Variable Interest Entity (VIE) of approximately $15.7 million. These consolidated assets and liabilities of the VIE related to a pending acquisition of four radio stations in Charlotte, North Carolina. On October 17, 2016, the
Company entered into an asset purchase agreement and a time brokerage agreement (TBA) to operate three of the four radio stations that were held in a trust (Charlotte Trust). As such, the amounts of the consolidated VIE at
December 31, 2016, represented only the assets and liabilities of the three stations held in the Charlotte Trust.
Upon the
completion of this transaction on January 6, 2017, the Company deconsolidated broadcasting licenses attributable to the VIE and recorded broadcasting licenses of all four radio stations based upon the preliminary purchase price allocation.
Refer to Note 9, Business Combinations, for additional information.
During the second quarter of 2017, the Company performed its annual
impairment test of its goodwill and determined that the carrying amount of goodwill exceeded its fair value for the Boston, Massachusetts market and recorded an impairment loss of $0.4 million. A contributing factor to the impairment was a
decline in the advertising dollars in the Boston, Massachusetts market and its effect on the Companys operations, coupled with an increase in the carrying value of its assets.
10
The following table presents the changes in broadcasting licenses as described above:
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Licenses
Carrying Amount
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(amounts in thousands)
|
|
Beginning of period balance as of January 1,
|
|
$
|
823,195
|
|
|
$
|
807,381
|
|
Disposition of FCC broadcasting license
|
|
|
(13,500
|
)
|
|
|
|
|
Consolidation (deconsolidation) of a VIE
|
|
|
(15,738
|
)
|
|
|
15,738
|
|
Acquisition of radio stations
|
|
|
17,174
|
|
|
|
|
|
Acquisitions - other
|
|
|
|
|
|
|
112
|
|
Disposition of radio stations previously reflected as held for sale
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Ending period balance
|
|
$
|
811,131
|
|
|
$
|
823,195
|
|
|
|
|
|
|
|
|
|
|
The following table presents the changes in goodwill primarily as a result of acquisitions of radio stations
and the Companys annual impairment test.
|
|
|
|
|
|
|
|
|
|
|
Goodwill Carrying Amount
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(amounts in thousands)
|
|
Goodwill balance before cumulative loss on impairment as of January 1,
|
|
$
|
158,333
|
|
|
$
|
158,244
|
|
Accumulated loss on impairment as of January 1,
|
|
|
(125,615
|
)
|
|
|
(125,615
|
)
|
|
|
|
|
|
|
|
|
|
Goodwill beginning balance after cumulative loss on impairment as of January 1,
|
|
|
32,718
|
|
|
|
32,629
|
|
Loss on impairment during year
|
|
|
(441
|
)
|
|
|
|
|
Acquisition of radio stations
|
|
|
43
|
|
|
|
|
|
Adjustment to acquired goodwill associated with an assumed fair value liability
|
|
|
|
|
|
|
92
|
|
Disposition of radio stations previously reflected as assets held for sale
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Ending period balance
|
|
$
|
32,320
|
|
|
$
|
32,718
|
|
|
|
|
|
|
|
|
|
|
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 direct method.
During the second quarter of the current year and each of the past
several years, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was greater than the amount reflected in the balance sheet for each of the Companys
markets and, accordingly, no impairment was recorded. The annual impairment test in 2017 did not include the new market added during the first quarter of 2017. For the new market added during the first quarter of 2017, similar valuation
techniques that are used in the testing process were applied to the valuation of the broadcasting licenses under purchase price accounting.
11
Each markets broadcasting licenses are combined into a single unit of accounting for
purposes of testing impairment, as the broadcasting licenses in each market are operated as a single asset. The Company determines the fair value of the broadcasting licenses in each of its markets by relying on a discounted cash flow approach (a
10-year income model) assuming a
start-up
scenario in which the only assets held by an investor are broadcasting licenses. The Companys 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. These assumptions include, but are not limited to:
(1) the discount rate; (2) the market share and profit margin of an average station within a market, based upon market size and station type; (3) the forecast growth rate of each radio market; (4) the estimated capital
start-up
costs and losses incurred during the early years; (5) the likely media competition within the market area; (6) the tax rate; and (7) future terminal values.
The methodology used by the Company in determining its key estimates and assumptions was applied consistently to each market. Of the seven
variables identified above, the Company believes that the assumptions in items (1) through (3) above are the most important and sensitive in the determination of fair value.
The following table reflects the estimates and assumptions used in the second quarter of each year (no interim tests were performed in these
years):
|
|
|
|
|
|
|
Estimates And Assumptions
|
|
|
Second
Quarter
2017
|
|
Second
Quarter
2016
|
Discount rate
|
|
9.25%
|
|
9.5%
|
Operating profit margin ranges expected for average stations in the markets where the Company
operates
|
|
19% to 40%
|
|
14% to 40%
|
|
|
|
Long-term revenue growth rate range of the Companys markets
|
|
1.0% to 2.0%
|
|
1.0% to 2.0%
|
The Company has made reasonable estimates and assumptions to calculate the fair value of its broadcasting
licenses. These estimates and assumptions could be materially different from actual results.
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 Companys 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.
Goodwill Impairment Test
The Company performs its annual goodwill impairment test during the second quarter of each year by evaluating its goodwill for each
reporting unit.
12
As described above, the Company elected to early adopt the amended accounting guidance which
simplifies the test for goodwill impairment. The amended guidance eliminates the second step of the goodwill impairment test, which reduces the cost and complexity of evaluating goodwill for impairment. Under the former accounting guidance, the
second step of the impairment test required the Company to compute the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business
combination. Under the amended guidance, if the carrying amount of goodwill of a reporting unit exceeds its fair value, the Company will consider the goodwill to be impaired.
The Company has determined that a radio market is a reporting unit and the Company assesses goodwill in each of the Companys markets.
Under the amended guidance, if the fair value of any reporting unit is less than the amount reflected on the balance sheet, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units
fair value. The loss recognized will not exceed the total amount of goodwill allocated to the reporting unit.
Under the amended guidance,
the Company first assesses qualitative factors to determine whether it is necessary to perform a quantitative assessment for each reporting unit. These qualitative factors include, but are not limited to: (1) macroeconomic conditions;
(2) radio broadcasting industry considerations; (3) financial performance of reporting units; (4) Company-specific events; and (5) a sustained decrease in the Companys share price. If the quantitative assessment is
necessary, the Company determines the fair value of the goodwill allocated to each reporting unit.
To determine the fair value, the
Company uses a market approach and, when appropriate, an income approach in computing the fair value of each reporting unit. The market approach calculates the fair value of each markets radio stations by analyzing recent sales and offering
prices of similar properties expressed as a multiple of cash flow. The income approach utilizes a discounted cash flow method by projecting the subject propertys income over a specified time and capitalizing at an appropriate market rate to
arrive at an indication of the most probable selling price. Management believes that these approaches are commonly used and appropriate methodologies for valuing broadcast radio stations. Factors contributing to the determination of the reporting
units operating performance were historical performance and/or managements estimates of future performance.
The following
table reflects the estimates and assumptions used in the second quarter of each year (no interim tests were performed in these years):
|
|
|
|
|
|
|
Estimates And Assumptions
|
|
|
Second
Quarter
2017
|
|
Second
Quarter
2016
|
Discount rate
|
|
9.25%
|
|
9.5%
|
Long-term revenue growth rate range of the Companys markets
|
|
1.0% to 2.0%
|
|
1.0% to 2.0%
|
Market multiple used in the market valuation approach
|
|
7.5x to 8.0x
|
|
7.5x to 8.0x
|
During the second quarter of the current year, the Companys quantitative assessment indicated that the
goodwill allocated to its Boston, Massachusetts market was impaired.
The Company also performed a reasonableness test on the fair value
results for goodwill on a combined basis by comparing the carrying value of the Companys assets to the Companys enterprise value based upon its stock price, shares outstanding, total debt and preferred stock outstanding, and cash on
hand. The Company determined that the results were reasonable.
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 Companys 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.
13
3.
|
OTHER CURRENT LIABILITIES
|
Other current liabilities consist of the following as of the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(amounts in thousands)
|
|
Accrued compensation
|
|
$
|
9,115
|
|
|
$
|
8,059
|
|
Accounts receivable credits
|
|
|
2,397
|
|
|
|
3,571
|
|
Advertiser obligations
|
|
|
1,118
|
|
|
|
1,102
|
|
Accrued interest payable
|
|
|
1,766
|
|
|
|
3,587
|
|
Other
|
|
|
4,401
|
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
18,797
|
|
|
$
|
19,603
|
|
|
|
|
|
|
|
|
|
|
(A) Senior Debt
The Credit Facility
On November 1,
2016, the Company and its wholly owned subsidiary, Entercom Radio LLC, (Radio) entered into a $540 million credit agreement (the Credit Facility) with a syndicate of lenders that was initially comprised of: (a) a
$60 million revolving credit facility (the Revolver) that matures on November 1, 2021; and (b) a $480 million term B loan (the Term B Loan) that matures on November 1, 2023.
As of June 30, 2017, the amount outstanding under the Term B Loan was $458.0 million and the amount outstanding under the Revolver
was $9.5 million. The amount available under the Revolver, which includes the impact of the outstanding letters of credit, was $49.8 million as of June 30, 2017.
Long-term debt was comprised of the following as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Credit Facility
|
|
|
|
|
|
|
|
|
Revolver, due November 1, 2021
|
|
$
|
9,500
|
|
|
$
|
|
|
Term B Loan, due November 1, 2023
|
|
|
458,000
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467,500
|
|
|
|
480,000
|
|
Other Debt
|
|
|
|
|
|
|
|
|
Capital lease and other
|
|
|
78
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Total debt before deferred financing costs
|
|
|
467,578
|
|
|
|
480,087
|
|
Current amount of long-term debt
|
|
|
(13,618
|
)
|
|
|
(4,817
|
)
|
Deferred financing costs (excludes the revolving credit)
|
|
|
(6,564
|
)
|
|
|
(7,619
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current debt
|
|
$
|
447,396
|
|
|
$
|
467,651
|
|
|
|
|
|
|
|
|
|
|
Outstanding standby letters of credit
|
|
$
|
670
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
The Term B Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, which is defined
within the agreement, subject to incremental step-downs, depending on the Consolidated Leverage Ratio. Beginning in 2018, the Excess Cash Flow payment will be due in the first quarter of each year, and is based on the Excess Cash Flow and Leverage
Ratio for the prior year. The estimated Excess Cash Flow payment due in the first quarter of 2018 is included under the current portion of long-term debt, net of any prepayments.
14
As of June 30, 2017, the Companys Consolidated Leverage Ratio was 4.3 times versus a
covenant limit of 5.0 times and the Consolidated Interest Coverage Ratio was 4.2 times versus a covenant minimum of 2.0 times.
As of
June 30, 2017, the Company was in compliance with all financial covenants and all other terms of the Credit Facility in all material respects. The Companys ability to maintain compliance with its covenants under the Credit Facility is
highly dependent on its results of operations. Management believes that over the next 12 months the Company can continue to maintain compliance.
Management believes that cash on hand, cash from the Revolver and cash from operating activities, together with the proceeds of the committed
financing described below, will be sufficient to permit the Company to meet its liquidity requirements over the next 12 months, including its debt repayments.
Failure to comply with the Companys financial covenants 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 Credit Facility. Any event of default could have a material adverse effect on the Companys business and financial condition. The acceleration of the
Companys debt 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 on its debt.
In connection with the CBS Radio Merger Agreement, CBS Radio entered into a commitment letter with a syndicate of lenders (the
Commitment Parties), pursuant to which the Commitment Parties committed to provide up to $500 million of senior secured term loans (the CBS Radio Financing) as an additional tranche under a credit agreement (the
CBS Radio Credit Agreement) among CBS Radio, the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent. The proceeds of this additional tranche will be used to: (1) refinance the
Companys Credit Facility; (2) redeem the Companys Perpetual Cumulative Convertible Preferred Stock (Preferred); and (3) pay fees and expenses in connection with the refinancing. On March 3, 2017, CBS Radio
entered into an amendment to the CBS Radio Credit Agreement, to, among other things, create a tranche of Term
B-1
Loans in an aggregate principal amount not to exceed $500 million. The Term
B-1
Loans, which replace the commitment, are expected to be funded by the Commitment Parties on the closing date of the Merger, subject to customary conditions. The Term
B-1
Loans will be governed by the CBS Radio Credit Agreement and will mature on the date that is seven years after the closing date of the Merger. The Term
B-1
Loans
will require quarterly principal payments at an annual rate of 1% of the initial principal amount of the Term
B-1
Loans, beginning with the first full fiscal quarter ending after the closing of the
Merger. The Term
B-1
Loans are expected to bear interest at a per annum rate equal to LIBOR plus 2.75%. Interest on the Term
B-1
Loans will be payable at the
end of each interest period, but in no event less frequently than quarterly.
(B) Senior Unsecured Debt
The Senior Notes
In 2016, the Company
issued a call notice to redeem its $220.0 million 10.5% unsecured Senior Notes due December 1, 2019 (the Senior Notes) in full with an effective date of December 1, 2016, that was funded by the proceeds of the Credit
Facility. As a result of the full redemption of the Senior Notes with replacement debt at a lower interest rate, the net interest expense for the first two quarters of 2017 was reduced and does not include amortization of original issue discount of
Senior Notes.
15
(C) Net Interest Expense
The components of net interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Interest expense
|
|
$
|
10,993
|
|
|
$
|
17,057
|
|
Amortization of deferred financing costs
|
|
|
1,166
|
|
|
|
1,319
|
|
Amortization of original issue discount of senior notes
|
|
|
|
|
|
|
184
|
|
Interest income and other investment income
|
|
|
(49
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Total net interest expense
|
|
$
|
12,110
|
|
|
$
|
18,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Interest expense
|
|
$
|
5,579
|
|
|
$
|
8,435
|
|
Amortization of deferred financing costs
|
|
|
580
|
|
|
|
631
|
|
Amortization of original issue discount of senior notes
|
|
|
|
|
|
|
93
|
|
Interest income and other investment income
|
|
|
(26
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Total net interest expense
|
|
$
|
6,133
|
|
|
$
|
9,147
|
|
|
|
|
|
|
|
|
|
|
16
5.
|
NET INCOME (LOSS) PER COMMON SHARE
|
The following tables present the computations of
basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands except per share data)
|
|
Basic Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to the Company
|
|
$
|
6,414
|
|
|
$
|
10,834
|
|
|
$
|
(2,917
|
)
|
|
$
|
15,246
|
|
Preferred stock dividends
|
|
|
550
|
|
|
|
412
|
|
|
|
1,100
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
5,864
|
|
|
$
|
10,422
|
|
|
$
|
(4,017
|
)
|
|
$
|
14,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
38,945
|
|
|
|
38,469
|
|
|
|
38,935
|
|
|
|
38,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share available to common shareholders
|
|
$
|
0.15
|
|
|
$
|
0.27
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to the Company
|
|
$
|
6,414
|
|
|
$
|
10,834
|
|
|
$
|
(2,917
|
)
|
|
$
|
15,246
|
|
Preferred stock dividends
|
|
|
550
|
|
|
|
|
|
|
|
1,100
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
5,864
|
|
|
$
|
10,834
|
|
|
$
|
(4,017
|
)
|
|
$
|
14,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
38,945
|
|
|
|
38,469
|
|
|
|
38,935
|
|
|
|
38,463
|
|
Effect of RSUs and options under the treasury stock method
|
|
|
711
|
|
|
|
738
|
|
|
|
|
|
|
|
811
|
|
Preferred stock under the as if converted method
|
|
|
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
39,656
|
|
|
|
41,130
|
|
|
|
38,935
|
|
|
|
39,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share available to common shareholders
|
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure Of Anti-Dilutive Shares
The following table presents those shares excluded as they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Impact Of Equity Issuances
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands, except per share data)
|
|
Shares excluded as anti-dilutive under the treasury stock method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of options: from
|
|
$
|
11.31
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of options: to
|
|
$
|
11.78
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs with service conditions
|
|
|
328
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs excluded with service and market conditions as market conditions not met
|
|
|
267
|
|
|
|
628
|
|
|
|
267
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs excluded with service and performance conditions as performance conditions not met
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual cumulative convertible preferred stock treated as anti-dilutive under the as if
method
|
|
|
1,962
|
|
|
|
|
|
|
|
1,962
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluded shares as anti-dilutive when reporting a net loss
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
6.
|
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
June 30,
2017
|
|
RSUs outstanding as of:
|
|
|
December 31, 2016
|
|
|
|
2,074,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs awarded
|
|
|
|
|
|
|
206,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs released
|
|
|
|
|
|
|
(455,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs forfeited
|
|
|
|
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs outstanding as of:
|
|
|
June 30, 2017
|
|
|
|
1,817,619
|
|
|
$
|
|
|
|
|
1.5
|
|
|
$
|
18,812,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs vested and expected to vest as of:
|
|
|
June 30, 2017
|
|
|
|
1,817,619
|
|
|
$
|
|
|
|
|
1.5
|
|
|
$
|
18,812,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs exercisable (vested and deferred) as of:
|
|
|
June 30, 2017
|
|
|
|
48,880
|
|
|
$
|
|
|
|
|
|
|
|
$
|
505,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining recognition period in years
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized compensation expense
|
|
|
$
|
9,726,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: (1) the
Companys stock achieves certain shareholder performance targets over a defined measurement period; and (2) 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.
18
The following table presents the changes in outstanding RSUs with market conditions:
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
June 30,
|
|
|
Year
Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands, except per
share data)
|
|
Reconciliation Of RSUs With Market Conditions
|
|
|
|
|
|
|
|
|
Beginning of period balance
|
|
|
630
|
|
|
|
390
|
|
Number of RSUs granted
|
|
|
|
|
|
|
470
|
|
Number of RSUs forfeited
|
|
|
|
|
|
|
|
|
Number of RSUs vested
|
|
|
(50
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
End of period balance
|
|
|
580
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of RSUs granted with market conditions
|
|
$
|
|
|
|
$
|
7.34
|
|
|
|
|
|
|
|
|
|
|
The fair value of RSUs with service conditions is estimated using the Companys 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 Companys determination of the fair value was based on the number of shares granted,
the Companys 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.
The specific assumptions used for these valuations are as follows:
|
|
|
|
|
|
|
Six Months
Ended
June 30,
|
|
Year
Ended
December 31,
|
|
|
2017
|
|
2016
|
Expected Volatility Term Structure
(1)
|
|
34% to 45%
|
|
35% to 45%
|
Risk-Free Interest Rate
(2)
|
|
0.1% to 1.1%
|
|
0.4% to 1.1%
|
Annual Dividend Payment Per Share (Constant)
(3)
|
|
$0.30
|
|
$0.30
|
(1)
|
Expected Volatility Term Structure - The Company estimated the volatility term structure using: (1) the historical volatility of its stock; and (2) the
implied volatility provided by its traded options from a trailing months average of the closing
bid-ask
price quotes.
|
(2)
|
Risk-Free Interest Rate - The Company estimated the risk-free interest rate based upon the implied yield available on U.S. Treasury issues using the Treasury bond
rate as of the date of grant.
|
(3)
|
Annual Dividend Payment Per Share (Constant) The Company assumed a constant annual dividend of $0.30 per share.
|
RSUs With Service And Performance Conditions
In addition to the RSUs included in the table above summarizing the activity in RSUs under the Plan, the Company issued RSUs with both service
and performance conditions. Vesting of performance-based awards, if any, is dependent upon the achievement of certain performance targets. If the performance standards are not achieved, all unvested shares will expire and any accrued expense will be
reversed. The Company determines the requisite service period on a
case-by-case
basis to determine the expense recognition period for
non-vested
performance based RSUs. The fair value is determined based upon the closing price of the Companys common stock on the date of grant. The Company applies a quarterly probability assessment in
computing its
non-cash
compensation expense and any change in the estimate is reflected as a cumulative adjustment to expense in the quarter of the change.
19
The following table reflects the activity of RSUs with service and performance conditions:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands, except per
share data)
|
|
Reconciliation Of RSUs With Service And Performance Conditions
|
|
|
|
|
Beginning of period balance
|
|
|
|
|
|
|
29
|
|
Number of RSUs granted
|
|
|
|
|
|
|
|
|
Number of RSUs that did not meet criteria
|
|
|
|
|
|
|
(29
|
)
|
Number of RSUs vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fair value of RSUs granted with performance conditions
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, no
non-cash
compensation expense was
recognized for RSUs with performance conditions.
Option Activity
The following table provides summary information related to the exercise of stock options:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Option Exercise Data
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Intrinsic value of options exercised
|
|
$
|
58
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from options exercised
(1)
|
|
$
|
23
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
Cash received from exercise price of options exercised
|
|
$
|
22
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount for prior year excludes impact from suspended income tax benefits and/or valuation allowances.
|
20
The following table presents the option activity during the current period under the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Number Of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Intrinsic
Value
As Of
June 30,
2017
|
|
Options outstanding as of:
|
|
|
December 31, 2016
|
|
|
|
329,562
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(6,500
|
)
|
|
|
3.37
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
(125
|
)
|
|
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of:
|
|
|
June 30, 2017
|
|
|
|
322,937
|
|
|
$
|
1.88
|
|
|
|
1.6
|
|
|
$
|
2,753,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and expected to vest as of:
|
|
|
June 30, 2017
|
|
|
|
322,937
|
|
|
$
|
1.88
|
|
|
|
1.6
|
|
|
$
|
2,753,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of:
|
|
|
June 30, 2017
|
|
|
|
322,937
|
|
|
$
|
1.88
|
|
|
|
1.6
|
|
|
$
|
2,753,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
June 30,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
June 30,
|
|
|
Exercise
|
|
From
|
|
To
|
|
|
2017
|
|
|
Life
|
|
|
Price
|
|
|
2017
|
|
|
Price
|
|
$ 1.34
|
|
$
|
1.34
|
|
|
|
300,437
|
|
|
|
1.6
|
|
|
$
|
1.34
|
|
|
|
300,437
|
|
|
$
|
1.34
|
|
$ 2.02
|
|
$
|
11.78
|
|
|
|
22,500
|
|
|
|
1.2
|
|
|
$
|
9.12
|
|
|
|
22,500
|
|
|
$
|
9.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1.34
|
|
$
|
11.78
|
|
|
|
322,937
|
|
|
|
1.6
|
|
|
$
|
1.88
|
|
|
|
322,937
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 our statement of operations:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Station operating expenses
|
|
$
|
577
|
|
|
$
|
590
|
|
Corporate general and administrative expenses
|
|
|
2,494
|
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expenses
|
|
|
3,071
|
|
|
|
3,019
|
|
Income tax benefit
(1)
|
|
|
1,004
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
After-tax
stock-based compensation expense
|
|
$
|
2,067
|
|
|
$
|
1,936
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Station operating expenses
|
|
$
|
372
|
|
|
$
|
363
|
|
Corporate general and administrative expenses
|
|
|
1,105
|
|
|
|
1,174
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expenses
|
|
|
1,477
|
|
|
|
1,537
|
|
Income tax benefit
(1)
|
|
|
495
|
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
After-tax
stock-based compensation expense
|
|
$
|
982
|
|
|
$
|
1,006
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount for prior year excludes impact from suspended income tax benefits and/or valuation allowances.
|
Tax Rates For The Six Months And Three Months Ended June 30, 2017
The effective income tax rates were 72.9% and 37.4% for the six months and three months ended June 30, 2017, respectively. These rates
were impacted by: (1) merger and acquisition costs that result in an increase in the annual estimated effective tax rate; and (2) a discrete windfall income tax benefit, described below. The annual estimated effective tax rate is estimated
to be higher than in previous years primarily due to the amount of merger and acquisition costs forecasted for 2017 as a result of the Merger, as a significant portion of these costs are not deductible for federal and state income tax purposes.
As a result of adopting the amended accounting guidance for stock-based compensation on January 1, 2017, the Company recorded, for the
six months ended June 30, 2017, a discrete windfall income tax benefit of $0.8 million from the vesting of stock-based awards with tax deductions in excess of the compensation expense recorded. Refer to Note 1, Basis of Presentation and
Significant Policies, for additional information.
Tax Rates For The Six Months And Three Months Ended June 30, 2016
The effective income tax rates were 35.9% and 41.2% for the six months and three months ended June 30, 2016, respectively. These rates
were impacted by discrete income tax benefits from recent legislation in certain single member states that allowed for: (1) the reversal of partial valuation allowances; and (2) a retroactive decrease in deferred tax liabilities associated
with
non-amortizable
assets such as broadcasting licenses and goodwill. The income tax rate was also impacted by income tax expense from: (i) an increase in deferred tax liabilities associated with
non-amortizable
assets such as broadcasting licenses and goodwill; (ii) an adjustment for expenses that are not deductible for tax purposes; and (iii) a tax benefit shortfall associated with share-based
awards.
Net Deferred Tax Assets And Liabilities
As of June 30, 2017, and December 31, 2016, net deferred tax liabilities were $79.8 million and $92.9 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 Companys 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.
22
8.
|
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 Companys 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 Companys 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.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements At
Reporting Date
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Description
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deferred compensation - Level 1
(1)
|
|
$
|
11,747
|
|
|
$
|
10,875
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Companys 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. The deferred compensation plan liability is valued at Level 1 as it is based on quoted market prices of the underlying investments.
|
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.
During the quarters ended June 30, 2017 and 2016, the Company reviewed the fair value of its broadcasting licenses,
goodwill and net property and equipment and other intangibles, and concluded that its broadcasting licenses and net property and equipment were not impaired as the fair value of these assets equaled or exceeded their carrying value. The Company
concluded that the carrying value of goodwill allocated to its Boston, Massachusetts market exceeded its fair value. Accordingly, the Company wrote off approximately $0.4 million of goodwill during the second quarter of 2017. Refer to Note 2,
Intangible Assets and Goodwill, 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: (1) cash and cash equivalents; (2) accounts receivable; and (3) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(amounts in thousands)
|
|
Term B Loan
(1)
|
|
$
|
458,000
|
|
|
$
|
460,004
|
|
|
$
|
480,000
|
|
|
$
|
487,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolver
(2)
|
|
$
|
9,500
|
|
|
$
|
9,500
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt
(3)
|
|
$
|
78
|
|
|
|
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)
|
The Companys determination of the fair value of the Term B Loan was based on quoted prices for this instrument and is considered a Level 2 measurement as the pricing inputs are other than quoted prices in
active markets.
|
23
(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 does not believe it is practicable to estimate the fair value of the other debt.
|
The Company consummated acquisitions under the acquisition method
of accounting, and the purchase price was allocated 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.
2017 Charlotte Acquisition
On January 6, 2017, the Company completed a transaction to acquire four radio stations in Charlotte, North Carolina from Beasley Broadcast
Group, Inc. (Beasley) for a purchase price of $24 million in cash. The Company used cash on hand to fund the acquisition. On October 17, 2016, the Company entered into an asset purchase agreement and a TBA with Beasley to
operate three of the four radio stations that were held in the Charlotte Trust. On November 1, 2016, the Company commenced operations of the radio stations held in the Charlotte Trust and began operating the fourth station upon closing on the
acquisition with Beasley in January 2017.
During the period of the TBA, the Company included net revenues, station operating expenses and
monthly TBA fees associated with operating these stations in the Companys consolidated financial statements.
The allocations
presented in the table below are based upon managements 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
managements 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 Companys 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 net assets acquired was reported as goodwill.
The following preliminary purchase price allocations are based upon the valuation of assets and liabilities 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 and liabilities pending finalization include intangible assets and
liabilities. Differences between the preliminary and final valuation could be substantially different from the initial estimates.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
January 6,
|
|
|
Useful Lives In Years
|
Description
|
|
2017
|
|
|
From
|
|
|
To
|
|
|
(amounts in
thousands)
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,539
|
|
|
|
non-depreciating
|
Buildings
|
|
|
217
|
|
|
|
15
|
|
|
25
|
Equipment
|
|
|
4,569
|
|
|
|
3
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
Total property plant and equipment
|
|
|
7,325
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
287
|
|
|
|
life of underlying asset
|
Radio broadcasting licenses and goodwill
|
|
|
17,384
|
|
|
|
non-amortizing
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
24,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Unfavorable lease liabilities
|
|
|
735
|
|
|
|
over remaining lease life
|
Deferred tax liability
|
|
|
261
|
|
|
|
life of underlying liability
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Disposition
In March 2016, the Company sold certain assets of KRWZ AM in Denver, Colorado, for $3.8 million in cash. The Company believes that the
sale of this station, with a marginal market share, did not alter the Companys competitive position in the market. The Company reported a gain, net of expenses, of $0.3 million on the disposition of these assets.
Pending Acquisition of CBS Radio
On
February 2, 2017, the Company and Merger Sub entered into a material definitive agreement with CBS and CBS Radio, and CBS and CBS Radio also entered into an agreement that provides for the separation of CBS Radio from CBS (the Separation
Agreement), which together provide for the combination of the Companys business and CBSs radio business. Prior to February 2, 2017, CBS transferred substantially all of the assets and liabilities of CBSs radio business
to CBS Radio.
At the time of the signing of the CBS Radio Merger Agreement on February 2, 2017, CBS Radio had two classes of common
stock, the Radio Series 1 Common Stock, par value $0.01 per share (the Radio Series 1 Common Stock) and the Radio Series 2 Common Stock, par value $0.01 per share (the Radio Series 2 Common Stock), collectively, (the
Radio Existing Common Stock).
Prior to the Merger, CBS and CBS Radio will first complete a series of internal distributions
and transactions (collectively, the Radio Reorganization). Following the consummation of the Radio Reorganization, CBS will consummate an offer to exchange all of the outstanding shares of Radio Existing Common Stock for outstanding
shares of CBS Class B Common Stock (the Final Distribution). CBS Broadcasting, Inc. will first distribute (the First Distribution) all of the outstanding equity of CBS Radio to Westinghouse CBS Holding Company, Inc.
(Westinghouse). Westinghouse will then distribute all of the outstanding equity of CBS Radio to CBS (the Second Distribution). Following the Second Distribution, CBS Radio will then: (a) combine Radio Series 1 Common
Stock and Radio Series 2 Common stock into a single class of common stock, par value $0.01 per share (the Radio New Common Stock), (b) authorize the issuance of at least 101,407,494 shares of Radio New Common Stock and (c) effect a
stock split of the outstanding shares of Radio New Common Stock, as a result of which, as of immediately prior to the effective time of the Final Distribution, 101,407,494 shares of Radio New Common Stock will be issued and outstanding, all of which
will be owned directly by CBS (collectively, (a) through (c), the Stock Split).
Subject to the terms and conditions of
the CBS Radio Merger Agreement and the Separation Agreement, in the event that holders of CBS Class B Common Stock subscribe for less than all of the outstanding shares of Radio Common Stock held by CBS in the exchange offer, CBS will
distribute the remaining outstanding shares of Radio Common Stock held by CBS on a pro rata basis to holders of CBS Common Stock whose shares of CBS Common Stock remain outstanding after consummation of the exchange offer (the
Spin-Off).
The
Spin-Off
will only occur if the exchange offer is consummated but not fully subscribed, meaning that not all of the outstanding shares of Radio
Common Stock held by CBS would be distributed in the exchange offer, in that scenario.
25
Immediately after the consummation of the Final Distribution, Merger Sub will merge with and into
CBS Radio, with CBS Radio surviving as a wholly owned subsidiary of the Company. In the Merger, all outstanding shares of Radio Common Stock will be converted into the right to receive an equal number of shares of the Companys Class A
common Stock.
It is estimated that the existing Company shareholders will own approximately 28% and CBS Radio shareholders will own
approximately 72% of the combined companys outstanding shares immediately after consummation of the Merger.
The Company will issue
101,407,494 shares of its Class A common Stock in the Merger. At the time of the Merger, each outstanding RSU and stock option with respect to CBS Class B Common Stock held by employees of CBS Radio will be canceled and converted into
equity awards for the Companys Class A Common Stock. The conversion will be based on the ratio of the volume-weighted average per share closing prices of CBS stock on the five trading days prior to the effective date of the Merger and the
Companys stock on the five trading days following the effective date of the Merger. As a result, approximately 4,004,451 shares will be eligible for issuance in respect of equity awards held by CBS Radio employees in consideration of the
replacement of their RSUs and stock options.
In connection with the Merger, CBS Radio received committed financing of up to
$500 million of senior secured term loan from the Commitment Parties as an additional tranche under the CBS Radio Credit Agreement. The proceeds of this loan will be used to: (1) refinance the Companys Credit Facility;
(2) redeem the Companys Preferred; and (3) pay fees and expenses in connection with the refinancing. The committed financing will be an additional tranche under the CBS Radio Credit Agreement. See Note 4, Long-Term Debt, for
additional information with respect to this financing.
The total consideration for the Merger is approximately $1.05 billion, based
on the Companys Class A common stock market price per share of $10.35 on June 30, 2017 and the shares to be issued in connection with the Merger. Transaction costs relating to the Merger, including legal and professional fees, of
$5.8 million and $16.1 million for the three and six months ended June 30, 2017, respectively, were expensed as incurred.
If the CBS Radio Merger Agreement is terminated in certain circumstances prior to the consummation of the transactions contemplated thereby,
the Company will be required to pay CBS a termination fee of $30 million. Either party may terminate the CBS Radio Merger Agreement if the Merger is not consummated on or before November 2, 2017, subject to extension to May 2, 2018,
if necessary.
Upon completion of the Merger, certain required divestitures and the debt refinancing described above, which are all
expected to occur in the fourth quarter of 2017, the combined company will be named Entercom Communications Corp. and will be listed on the NYSE under the current trading symbol for the Companys Class A Common Stock, ETM.
Merger And Acquisition Costs
The Company records merger and acquisition costs whether or not an acquisition occurs. These costs consist primarily of legal, professional and
advisory services and could include restructuring costs.
There were merger and acquisition costs incurred during the first two quarters
of 2017 primarily in connection with the announced CBS Merger.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Merger and acquisition costs
|
|
$
|
16,100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Merger and acquisition costs
|
|
$
|
5,829
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
The restructuring plan related to the Companys acquisitions in 2015 included: (1) costs associated with exiting contractual vendor
obligations as these obligations were duplicative; (2) a workforce reduction and realignment charges that included
one-time
termination benefits and related costs; and (3) lease abandonment costs.
The lease abandonment costs are longer-term as the lease expires in June 2026. The estimated amount of unpaid restructuring charges as of June 30, 2017, after excluding the lease abandonment liability as of June 30, 2017, was included in
accrued expenses as most expenses are expected to be paid within one year.
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Restructuring charges, beginning balance
|
|
$
|
650
|
|
|
$
|
1,686
|
|
Additions through accruals
|
|
|
|
|
|
|
|
|
Deductions through payments
|
|
|
(34
|
)
|
|
|
(1,036
|
)
|
|
|
|
|
|
|
|
|
|
Restructuring charges unpaid and outstanding
|
|
|
616
|
|
|
|
650
|
|
Less lease abandonment costs over a long-term period
|
|
|
(539
|
)
|
|
|
(576
|
)
|
|
|
|
|
|
|
|
|
|
Short-term restructuring charges unpaid and outstanding
|
|
$
|
77
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Summary Of Financial Information
The following pro forma information presents the consolidated results of operations as if the 2017 acquisition in Charlotte, North Carolina,
had occurred as of January 1, 2016, after giving effect to certain adjustments, including: (1) depreciation and amortization of assets; (2) change in the effective tax rate; (3) interest expense on any debt incurred; and
(4) merger and acquisition costs. The pro forma information does not exclude the pro forma impact of any dispositions. 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.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands except share and per share data)
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
Net revenues
|
|
$
|
124,970
|
|
|
$
|
125,343
|
|
|
$
|
223,971
|
|
|
$
|
226,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to the Company
|
|
$
|
6,326
|
|
|
$
|
11,011
|
|
|
$
|
(3,093
|
)
|
|
$
|
13,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
5,776
|
|
|
$
|
10,599
|
|
|
$
|
(4,193
|
)
|
|
$
|
13,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders per common share - basic
|
|
$
|
0.15
|
|
|
$
|
0.28
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders per common share - diluted
|
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
$
|
(0.11
|
)
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding basic
|
|
|
38,944,620
|
|
|
|
38,468,822
|
|
|
|
38,935,161
|
|
|
|
38,462,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares outstanding diluted
|
|
|
39,655,599
|
|
|
|
41,130,418
|
|
|
|
38,935,161
|
|
|
|
39,273,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock for dilutive purposes under the as if method
|
|
|
anti-dilutive
|
|
|
|
dilutive
|
|
|
|
anti-dilutive
|
|
|
|
anti-dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2017, the Company entered into an agreement to sell a parcel of land along with the land improvements, broadcasting tower
and building located on the property, in one of its markets for $3.3 million and classified these assets as assets held for sale. This transaction, which is expected to be completed in the fourth quarter of 2017, is expected to result in a gain
of $0.3 million, net of commissions of $0.2 million.
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. The Company determined that the carrying value of these assets was less than the fair value by utilizing offers from third parties for a bundle of assets. This is
considered a Level 3 measurement.
The major categories of these assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
Assets Held For Sale
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Land and land improvements
|
|
$
|
2,820
|
|
|
$
|
|
|
Building
|
|
|
8
|
|
|
|
|
|
Equipment
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
3,012
|
|
|
|
|
|
Depreciation and amortization
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets held for sale
|
|
$
|
2,817
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
28
Dividend Equivalents
The Companys 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
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Location
|
|
2017
|
|
|
2016
|
|
|
|
|
|
(amounts in thousands)
|
|
Short-term
|
|
Other current liabilities
|
|
$
|
251
|
|
|
$
|
260
|
|
Long-term
|
|
Other long-term liabilities
|
|
|
507
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
758
|
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
The Company adopted the Entercom 2016 Employee Stock Purchase Plan (the ESPP) during the second quarter of 2016 that commenced with
the third quarter of 2016. The ESPP allows participants to purchase the Companys 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 this plan, 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 this plan was designed to meet the requirements
of Section 423(b) of the Internal Revenue Code. The Company recognizes the 15% discount in the Companys consolidated statements of operations as
non-cash
compensation expense.
Pursuant to the CBS Radio Merger Agreement, until the earlier of the termination of the CBS Radio Merger Agreement or the consummation of the
Merger, the Company has agreed not to issue or authorize any shares of its capital stock. 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 three months ended June 30, 2017. The Company plans to resume the ESPP after the consummation of the Merger, which is expected to occur
in the fourth quarter of 2017.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(amounts in thousands)
|
|
Number of shares purchased
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
compensation expense recognized
|
|
$
|
32
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
CONTINGENCIES AND COMMITMENTS
|
Contingencies
If the CBS Radio Merger Agreement is terminated under certain circumstances, the Company will be required to pay CBS a termination fee of
$30 million and the costs for the committed financing.
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 Companys financial
position, results of operations or cash flows. There were no material changes from the contingencies listed in the Companys Form
10-K,
filed with the SEC on February 28, 2017.
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Events occurring after June 30, 2017, 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 July, 10 2017, the Company filed an amendment to a Registration Statement with the SEC on Form
S-4/A
relating to the Merger. The amendment provides that, among other things, immediately following the consummation of the transactions contemplated by the Merger, the Companys board of directors will
be comprised of ten members, including all six directors from the Companys current board of directors and four new directors. Two of the new directors are affiliated with CBS, while the other two are unaffiliated with both the Company and CBS.
On July 12, 2017, the Company filed a proxy statement relating to a special meeting of the shareholders in connection with the
Merger.
On July 26, 2017, the Company purchased a minority ownership interest in DGital Media Inc. (DGital), a leading
creator of premium, personality-based podcasts and other
on-demand
audio content, for $9.7 million. Under the terms of the purchase agreement, the Company also obtained an option to acquire the remaining
ownership interest in DGital in 2021. The Company and DGital entered into a multi-year services agreement under which DGital will dedicate significant resources to create world-class, original
on-demand
audio
content leveraging the Companys deep roster of local talent and relationships in the world of sports, news, politics, music, comedy, and technology. DGital will also serve as the Companys exclusive third party advertisement sales
representative for all of its podcasts and other
on-demand
audio.
On July 28, 2017, the
Company declared a special
one-time
dividend of $0.20 per share payable on August 30, 2017 to shareholders of record on August 15, 2017. This dividend is permitted under the terms of the CBS Radio
Merger Agreement. This special
one-time
dividend will accompany the Companys regular quarterly dividend of $0.075 per share which will be paid on September 15, 2017 to shareholders of record on
August 15, 2017.
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