Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 6, 2017)
  • 10-Q (Aug 4, 2017)
  • 10-Q (May 9, 2017)
  • 10-Q (Nov 8, 2016)
  • 10-Q (Aug 5, 2016)
  • 10-Q (May 6, 2016)

 
8-K

 
Other

Entercom Communications 10-Q 2017
Form 10-Q
Table of Contents

 

 

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 June 30, 2017

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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  ☒

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 – 33,562,285 Shares Outstanding as of July 21, 2017

(Class A Shares Outstanding include 1,805,869 unvested and vested but deferred restricted stock units)

Class B common stock, $0.01 par value – 7,197,532 Shares Outstanding as of July 21, 2017.

 

 

 


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

INDEX

 

Part I Financial Information   
 

Item 1.

 

Financial Statements

     1  
 

Item 2.

 

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

     31  
 

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  
Exhibit Index      50  

 

 

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 28, 2017, and as may be supplemented by the risks described under Part II, Item 1A, of our quarterly reports on Form 10-Q, in our Current Reports on Form 8-K, on Form S-4 filed with the SEC on April 12, 2017, and on Forms S-4/A filed with the SEC on May 30, 2017, and July 10, 2017.


Table of Contents

PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

     JUNE 30,
2017
    DECEMBER 31,
2016
 

ASSETS:

    

Cash

   $ 8,592     $ 46,843  

Accounts receivable, net of allowance for doubtful accounts

     90,337       92,172  

Prepaid expenses, deposits and other

     8,537       7,670  
  

 

 

   

 

 

 

Total current assets

     107,466       146,685  

Net property and equipment

     65,300       63,375  

Radio broadcasting licenses

     811,131       823,195  

Goodwill

     32,320       32,718  

Assets held for sale

     2,817       —    

Deferred charges and other assets, net of accumulated amortization

     9,922       10,260  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,028,956     $ 1,076,233  
  

 

 

   

 

 

 

LIABILITIES:

    

Accounts payable

   $ 214     $ 481  

Accrued expenses

     24,423       18,857  

Other current liabilities

     18,797       19,603  

Non-controlling interest - variable interest entity

     —         23,959  

Long-term debt, current portion

     13,618       4,817  
  

 

 

   

 

 

 

Total current liabilities

     57,052       67,717  
  

 

 

   

 

 

 

Long-term debt, net of current portion

     447,396       467,651  

Deferred tax liabilities

     79,758       92,898  

Other long-term liabilities

     27,868       26,861  
  

 

 

   

 

 

 

Total long-term liabilities

     555,022       587,410  
  

 

 

   

 

 

 

Total liabilities

     612,074       655,127  
  

 

 

   

 

 

 

CONTINGENCIES AND COMMITMENTS

    

PERPETUAL CUMULATIVE CONVERTIBLE PREFERRED STOCK

     27,732       27,732  
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY:

    

Class A, B and C common stock

     407       407  

Additional paid-in capital

     599,718       605,603  

Accumulated deficit

     (210,975     (212,636
  

 

 

   

 

 

 

Total shareholders’ equity

     389,150       393,374  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   $ 1,028,956     $ 1,076,233  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

1


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(unaudited)

 

     THREE MONTHS ENDED     SIX MONTHS ENDED  
     JUNE 30,  
     2017     2016     2017     2016  

NET REVENUES

   $ 124,970     $ 121,571     $ 223,971     $ 218,580  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSE:

        

Station operating expenses, including non-cash compensation expense

     91,004       83,732       168,170       156,353  

Depreciation and amortization expense

     2,517       2,517       5,164       4,964  

Corporate general and administrative expenses, including non-cash compensation expense

     8,876       8,493       19,441       16,091  

Impairment loss

     441       —         441       62  

Merger and acquisition costs

     5,829       —         16,100       —    

Net time brokerage agreement (income) fees

     —         —         34       —    

Net (gain) loss on sale or disposal of assets

     (76     (755     13,258       (1,219
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expense

     108,591       93,987       222,608       176,251  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     16,379       27,584       1,363       42,329  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INTEREST EXPENSE

     6,133       9,147       12,110       18,539  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

     10,246       18,437       (10,747     23,790  

INCOME TAXES (BENEFIT)

     3,832       7,603       (7,830     8,544  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) AVAILABLE TO THE COMPANY

     6,414       10,834       (2,917     15,246  

Preferred stock dividend

     (550     (412     (1,100     (825
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

   $ 5,864     $ 10,422     $ (4,017   $ 14,421  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.15     $ 0.27     $ (0.10   $ 0.37  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.15     $ 0.26     $ (0.10   $ 0.37  
  

 

 

   

 

 

   

 

 

   

 

 

 

DIVIDENDS DECLARED AND PAID PER COMMON SHARE

   $ 0.075     $ 0.075     $ 0.15     $ 0.075  
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE SHARES:

        

Basic

     38,944,620       38,468,822       38,935,161       38,462,998  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     39,655,599       41,130,418       38,935,161       39,273,532  
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

2


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2017 AND YEAR ENDED DECEMBER 31, 2016

(amounts in thousands, except share data)

(unaudited)

 

                                  Retained
Earnings
(Accumulated
Deficit)
       
    Common Stock     Additional
Paid-in
Capital
      Total  
    Class A     Class B        
    Shares     Amount     Shares     Amount        

Balance, December 31, 2015

    32,480,551     $ 325       7,197,532     $ 72     $ 611,754     $ (250,701   $ 361,450  

Net income (loss) available to the Company

    —         —         —         —         —         38,065       38,065  

Compensation expense related to granting of stock awards

    1,095,759       11       —         —         6,528       —         6,539  

Issuance of common stock related to the Employee Share Purchase Plan (“ESPP”)

    31,933       —         —         —         379       —         379  

Exercise of stock options

    134,238       1       —         —         264       —         265  

Purchase of vested employee restricted stock units

    (232,297     (2     —         —         (2,266     —         (2,268

Payment of dividends on common stock

    —         —         —         —         (8,666     —         (8,666

Payment of dividends on preferred stock

    —         —         —         —         (1,788     —         (1,788

Dividend equivalents, net of forfeitures

    —         —         —         —         (602     —         (602
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2016

    33,510,184       335       7,197,532       72       605,603       (212,636     393,374  

Net income (loss) available to the Company

    —         —         —         —         —         (2,917     (2,917

Compensation expense related to granting of stock awards

    197,978       2       —         —         3,069       —         3,071  

Issuance of common stock related to the Employee Share Purchase Plan (“ESPP”)

    14,833       —         —         —         182       —         182  

Exercise of stock options

    6,500       —         —         —         22       —         22  

Purchase of vested employee restricted stock units

    (163,304     (2     —         —         (2,501     —         (2,503

Payment of dividends on common stock

    —         —         —         —         (5,941     —         (5,941

Dividend equivalents, net of forfeitures

    —         —         —         —         (150     —         (150

Payment of dividends on preferred stock

    —         —         —         —         (1,100     —         (1,100

Modified retrospective application of stock-based compensation guidance

    —         —         —         —         534       4,578       5,112  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2017

    33,566,191     $ 335       7,197,532     $ 72     $ 599,718     $ (210,975   $ 389,150  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

     SIX MONTHS ENDED  
     JUNE 30,  
     2017     2016  

OPERATING ACTIVITIES:

    

Net income (loss) available to the Company

   $ (2,917   $ 15,246  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     5,164       4,964  

Amortization of deferred financing costs (including original issue discount)

     1,166       1,503  

Net deferred taxes (benefit) and other

     (7,830     8,544  

Provision for bad debts

     1,365       743  

Net (gain) loss on sale or disposal of assets

     13,258       (1,219

Non-cash stock-based compensation expense

     3,071       3,019  

Deferred rent

     (134     244  

Deferred compensation

     1,595       730  

Impairment loss

     441       62  

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

     (237     12  

Changes in assets and liabilities (net of effects of acquisitions, dispositions, consolidation, and deconsolidation of Variable Interest Entities (VIEs)):

    

Accounts receivable

     (1,673     (4,898

Prepaid expenses and deposits

     (1,113     (2,227

Accounts payable and accrued liabilities

     5,799       (442

Accrued interest expense

     (1,821     (835

Accrued liabilities - long-term

     (1,033     (1,188

Prepaid expenses - long-term

     (176     340  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     14,925       24,598  
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Additions to property and equipment

     (6,745     (2,038

Proceeds from sale of property, equipment, intangibles and other assets

     18       7,114  

Purchases of radio stations

     (24,000     —    

Additions to intangible assets

     (299     (151

(Deconsolidation) consolidation of a VIE

     (302     —    
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (31,328     4,925  
  

 

 

   

 

 

 

 

4


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

     SIX MONTHS ENDED  
     JUNE 30,  
     2017     2016  

FINANCING ACTIVITIES:

    

Borrowing under the revolving senior debt

     34,500       14,500  

Proceeds from the capital lease obligations and other

     —         102  

Payments of long-term debt

     (47,008     (36,258

Proceeds from issuance of employee stock plan

     182       —    

Proceeds from the exercise of stock options

     22       30  

Purchase of vested employee restricted stock units

     (2,503     (2,193

Payment of dividends on common stock

     (5,837     (2,886

Payment of dividend equivalents on vested restricted stock units

     (104     (91

Payment of dividends on preferred stock

     (1,100     (825
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (21,848     (27,621
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (38,251     1,902  

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

     46,843       9,169  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 8,592     $ 11,071  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for:

    

Interest

   $ 13,254     $ 18,307  
  

 

 

   

 

 

 

Income taxes

   $ 177     $ 208  
  

 

 

   

 

 

 

Dividends on common stock

   $ 5,837     $ 2,886  
  

 

 

   

 

 

 

Dividends on preferred stock

   $ 1,100     $ 825  
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements.

 

5


Table of Contents

ENTERCOM COMMUNICATIONS CORP.

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 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, 2016, and filed with the SEC on February 28, 2017, 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.

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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


Table of Contents

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


Table of Contents

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 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, 2016, that was filed with the SEC on February 28, 2017, that might have a material impact on the Company’s 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 Company’s 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 Company’s annual goodwill impairment test indicated that the carrying value of the Company’s 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 Company’s financial position, results of operations or cash flows.

 

8


Table of Contents

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 Company’s 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 employee’s use of shares to satisfy the employer’s 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 Company’s 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 Company’s 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 Company’s 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


Table of Contents

Company’s 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 Company’s 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 Company’s final phase will be to effectively implement the amended accounting guidance and embed the new accounting treatment into the Company’s 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 Company’s 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 Company’s 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 station’s 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 Company’s operations, coupled with an increase in the carrying value of its assets.

 

10


Table of Contents

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 Company’s 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 Company’s 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


Table of Contents

Each market’s 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 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. 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 Company’s 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 Company’s broadcasting licenses below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods.

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


Table of Contents

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 Company’s 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 unit’s 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 Company’s 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 market’s 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 property’s 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 unit’s operating performance were historical performance and/or management’s 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 Company’s 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 Company’s 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 Company’s assets to the Company’s 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 Company’s goodwill below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods.

 

13


Table of Contents
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  
  

 

 

    

 

 

 

 

4. LONG-TERM DEBT

(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


Table of Contents

As of June 30, 2017, the Company’s 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 Company’s 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 Company’s 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 Company’s business and financial condition. The acceleration of the Company’s 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 Company’s Credit Facility; (2) redeem the Company’s 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


Table of Contents

(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


Table of Contents
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


Table of Contents
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 Company’s 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


Table of Contents

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 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.

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 month’s 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 Company’s 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


Table of Contents

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


Table of Contents

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


Table of Contents
     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.

 

 

 

7. INCOME TAXES

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 Company’s assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.     

 

22


Table of Contents
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 Company’s financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels.

 

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


Table of Contents
(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.

 

 

 

9. BUSINESS COMBINATIONS

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 Company’s consolidated financial statements.

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 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


Table of Contents
     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 Company’s 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 Company’s business and CBS’s radio business. Prior to February 2, 2017, CBS transferred substantially all of the assets and liabilities of CBS’s 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


Table of Contents

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 Company’s 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 company’s 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 Company’s 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 Company’s 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 Company’s Credit Facility; (2) redeem the Company’s 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 Company’s 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 Company’s 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


Table of Contents
     Three Months Ended  
     June 30,  
     2017      2016  
     (amounts in thousands)  

Merger and acquisition costs

   $ 5,829      $ —    
  

 

 

    

 

 

 

Restructuring Costs

The restructuring plan related to the Company’s 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


Table of Contents
     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  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10. ASSETS HELD FOR SALE

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

As of 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


Table of Contents
11. SHAREHOLDERS’ EQUITY

Dividend Equivalents

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

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

 

          Dividend Equivalent Liabilities  
     Balance Sheet    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 Company’s stock at a price equal to 85% of the market value of such shares on the purchase date. The maximum number of shares authorized to be issued under the ESPP is 1.0 million. Pursuant to 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 Company’s 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 Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on February 28, 2017.

 

29


Table of Contents
13. SUBSEQUENT EVENTS

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 Company’s board of directors will be comprised of ten members, including all six directors from the Company’s 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 Company’s deep roster of local talent and relationships in the world of sports, news, politics, music, comedy, and technology. DGital will also serve as the Company’s 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 Company’s regular quarterly dividend of $0.075 per share which will be paid on September 15, 2017 to shareholders of record on August 15, 2017.

 

30


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

In preparing the discussion and analysis contained in this Item 2, we presume that readers have read or have access to the discussion and analysis contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017. In addition, you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following results of operations include a discussion of the six and three months ended June 30, 2017 as compared to the comparable periods in the prior year. Our results of operations during the relevant periods represent the operations of the radio stations owned or operated by us.

Results Of Operations For The Year-To-Date

The following significant factors affected our results of operations for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016:

Merger And Acquisition Costs Incurred Under The CBS Radio Merger Agreement

On February 2, 2017, we and our 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 our 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 us 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 our shareholders and customary regulatory approvals. Such approvals will require the divestiture of stations in certain markets due to FCC ownership limitations.

Transaction costs relating to the Merger, including legal, advisory services and professional fees, of $16.1 million, were expensed as incurred during the first two quarters of 2017 and are included in merger and acquisition costs.

Disposal Of FCC Broadcasting License Related To The Merger

We 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 permanently discontinuing the operation of one of our stations and returning the station’s license to the FCC for cancellation, in order to facilitate the Merger.

Debt Refinancing Lowered Our Interest Expense

On November 1, 2016, we entered into a $540 million credit facility (the “Credit Facility”) and used the proceeds to: (1) refinance our outstanding senior credit facility (the “Former Credit Facility”) that was comprised of: (a) a term loan component (“Former Term B Loan”) with $223.0 million outstanding at the date of the refinancing; and (b) a revolving credit facility (the “Former Revolver”) with $3.0 million outstanding at the date of the refinancing; (2) fund the redemption of the $220.0 million 10.5% Senior Notes due December 1, 2019 (the “Senior Notes”) and discharge the Indenture governing the Senior Notes; (3) fund $11.6 million of accrued interest and a call premium of $5.8 million on the Senior Notes; and (4) pay transaction costs associated with the refinancing. This refinancing lowered our interest expense in the first two quarters of 2017.

Charlotte Acquisition

On January 6, 2017, we completed a transaction with Beasley Broadcast Group, Inc. (“Beasley”) to acquire four radio stations in Charlotte, North Carolina, for a purchase price of $24 million in cash (the “Beasley Acquisition”). We used cash on hand to fund the acquisition. We commenced operations under a time brokerage agreement (“TBA”) for three of the stations on November 1, 2016 and the fourth station upon acquisition on January 6, 2017, that increased our net revenues, station operating expenses and depreciation and amortization expenses.

 

31


Table of Contents

Goodwill Impairment

Our annual goodwill impairment test indicated that the goodwill allocated to our Boston, Massachusetts market was impaired. As a result, we wrote off approximately $0.4 million of goodwill during the second quarter of 2017.

Six Months Ended June 30, 2017 As Compared To The Six Months Ended June 30, 2016

 

     SIX MONTHS ENDED JUNE 30,  
     2017      2016      % Change  
     (dollars in millions)  

NET REVENUES

   $ 224.0      $ 218.6        2
  

 

 

    

 

 

    

OPERATING EXPENSE:

        

Station operating expenses

     168.2        156.4        8

Depreciation and amortization expense

     5.2        5.0        4

Corporate general and administrative expenses

     19.4        16.1        20

Impairment loss

     0.4        0.1        300

Merger and acquisition costs

     16.1        —          nmf  

Other operating (income) expenses

     13.3        (1.3      nmf  
  

 

 

    

 

 

    

Total operating expense

     222.6        176.3        26
  

 

 

    

 

 

    

OPERATING INCOME (LOSS)

     1.4        42.3        (97 %) 
  

 

 

    

 

 

    

NET INTEREST EXPENSE

     12.1        18.5        (35 %) 
  

 

 

    

 

 

    

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

     (10.7      23.8        (145 %) 

INCOME TAXES (BENEFIT)

     (7.8      8.6        (191 %) 
  

 

 

    

 

 

    

NET INCOME (LOSS) AVAILABLE TO THE COMPANY

     (2.9      15.2        (119 %) 

Preferred stock dividend

     (1.1      (0.8      38
  

 

 

    

 

 

    

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

   $ (4.0    $ 14.4        (128 %) 
  

 

 

    

 

 

    

Net Revenues

Contributing to the increase in net revenues was the operation of four stations in the Charlotte market during the current period which were not operated by us during the prior period. Offsetting this increase, net revenues were negatively impacted by several factors including the reduction in political advertising and the return of a broadcasting license to the FCC in the first quarter of 2017 to facilitate the Merger.

Net revenues increased the most for our stations located in the Atlanta and Miami markets. Net revenues decreased the most for our stations located in the Denver market and several of our other larger markets.

Station Operating Expenses

Station operating expenses increased in the high-single digits for the current period primarily due to an increase in costs associated with operating additional stations acquired in Charlotte, North Carolina, and fees associated with new broadcast rights for a major league baseball team in one of our markets.

Station operating expenses include non-cash compensation expense of $0.6 million for the six months ended June 30, 2017 and June 30, 2016.

 

32


Table of Contents

Depreciation And Amortization Expense

Depreciation and amortization expense increased primarily as a result of the depreciation and amortization associated with the stations acquired in Charlotte, North Carolina.

Corporate General And Administrative Expenses

Corporate general and administrative expenses increased primarily due to the increase in costs associated with: (1) certain contractual obligations of $1.3 million to a senior executive as a result of the non-renewal of his employment agreement; (2) an increase in deferred compensation expense of $0.7 million as our deferred compensation liability generally tracks the movements in the stock market; and (3) an increase in corporate marketing capabilities and staff.

Corporate general and administrative expenses include non-cash compensation expense of $2.5 million and $2.4 million for the six months ended June 30, 2017 and June 30, 2016, respectively.

Merger and acquisition costs

Merger and acquisition costs increased due to transaction costs relating to the Merger. These costs primarily consist of legal, professional, and other advisory services.

Other operating (income) expenses

Other operating expenses increased primarily as a result of incurring a $13.5 million loss from permanently discontinuing the operation of one of our stations and returning the station’s license to the FCC for cancellation, in order to facilitate the Merger.

Operating Income (Loss)

Operating income in the current period decreased primarily due to: (1) an increase in merger and acquisition costs of $16.1 million in connection with the Merger; (2) the recognition of a $13.5 million loss from permanently discontinuing the operation of one of our stations and returning the station’s license to the FCC for cancellation, in order to facilitate the Merger; (3) an increase in station operating expenses for the reasons described above; and (4) an increase in corporate, general and administrative expenses for the reasons described above.

Interest Expense

Interest expense declined primarily as a result of the refinancing on November 1, 2016, that included the retirement of our Senior Notes using lower cost bank debt.

As a result of the refinancing, we expect interest expense to decrease in future periods as compared to the prior year.

Income (Loss) Before Income Taxes (Benefit)

The generation of a loss before income taxes was largely attributable to the transaction costs incurred in connection with the Merger and the loss generated as a result of incurring a $13.5 million loss from permanently discontinuing the operation of one of our stations and returning the station’s license to the FCC for cancellation, in order to facilitate the Merger.

Income Taxes (Benefit)

Tax Rate For The Six Months Ended June 30, 2017

The estimated annual effective income tax rate was 72.9% which was determined using a forecasted rate based upon taxable income for the year. The estimated annual effective income tax rate as compared to the expected tax rate of 40% was primarily impacted by significant, non-deductible merger and acquisition costs related to the Merger. The estimated annual 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 amount of these costs are not deductible for federal and state income tax purposes. We estimate that our 2017 estimated annual effective tax rate before discrete items, which may fluctuate from quarter to quarter, will be 64.3%.

 

33


Table of Contents

As a result of adopting the amended accounting guidance for stock-based compensation on January 1, 2017, we recorded a discrete windfall income tax benefit of a $0.8 million for the six months ended June 30, 2017, from the vesting of stock-based awards with tax deductions in excess of the compensation expense recorded.

Tax Rate For The Six Months Ended June 30, 2016

The effective income tax rate was 35.9%, which was 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 our non-amortizable broadcast licenses and goodwill assets. The impact of discrete items to the income tax rate is typically substantially greater in the first quarter of the year as income before income taxes is the lowest as compared to subsequent quarters.

Net Deferred Tax Liabilities

As of June 30, 2017, and December 31, 2016, our net deferred tax liabilities were $79.8 million and $92.9 million, respectively. The deferred tax liabilities primarily relate to differences between the book and tax bases of our broadcasting licenses and goodwill. As a result of adopting the amended accounting guidance for stock-based compensation further described in Note 1, Basis of Presentation and Significant Policies, we recorded a $4.6 million adjustment to equity on January 1, 2017. The corresponding debit was to deferred tax assets, effectively reducing the net deferred tax liabilities by the same amount.

Net Income (Loss) Available To The Company

The decrease in net income available to the Company was primarily attributable to the reasons described above under Income (Loss) Before Income Taxes (Benefit), net of income tax expense.

Results Of Operations For The Quarter

The following significant factors affected our results of operations for the three months ended June 30, 2017 as compared to the same period in the prior year:

Merger And Acquisition Costs Incurred Under The CBS Radio Merger Agreement

Transaction costs relating to the Merger, including legal, advisory services and professional fees of $5.8 million, were expensed as incurred during three months ended June 30, 2017 and are included in merger and acquisition costs.

Charlotte Acquisition

On January 6, 2017, we completed the Beasley Acquisition to acquire four radio stations in Charlotte, North Carolina. We commenced operation of three stations under a TBA on November 1, 2016 and a fourth station upon acquisition on January 6, 2017, which increased our net revenues, station operating expenses, depreciation and amortization and interest expense.

Debt Refinancing Lowered Our Interest Expense

As a result of our debt refinancing completed in the fourth quarter of 2016, we lowered our interest expense for the second quarter of 2017.

Goodwill Impairment

Our annual goodwill impairment test indicated that the goodwill allocated to our Boston, Massachusets market was impaired. As a result, we wrote off approximately $0.4 million of goodwill during the second quarter of 2017.

 

34


Table of Contents

Three Months Ended June 30, 2017 As Compared To The Three Months Ended June 30, 2016

 

     THREE MONTHS ENDED JUNE 30,  
     2017      2016      % Change  
     (dollars in millions)  

NET REVENUES

   $ 125.0      $ 121.6        3
  

 

 

    

 

 

    

OPERATING EXPENSE:

        

Station operating expenses

     91.0        83.7        9

Depreciation and amortization expense

     2.5        2.5        0

Corporate general and administrative expenses

     8.9        8.5        5

Impairment loss

     0.5        —          nmf  

Merger and acquisition costs and restructuring charges

     5.8        —          nmf  

Other operating (income) expenses

     (0.1      (0.7      86
  

 

 

    

 

 

    

Total operating expense

     108.6        94.0        16
  

 

 

    

 

 

    

OPERATING INCOME (LOSS)

     16.4        27.6        (41 %) 
  

 

 

    

 

 

    

NET INTEREST EXPENSE

     6.1        9.2        (34 %) 
  

 

 

    

 

 

    

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)

     10.3        18.4        (44 %) 

INCOME TAXES (BENEFIT)

     3.8        7.6        (50 %) 
  

 

 

    

 

 

    

NET INCOME (LOSS) AVAILABLE TO THE COMPANY

     6.5        10.8        (40 %) 

Preferred stock dividend

     (0.6      (0.4      (50 %) 
  

 

 

    

 

 

    

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

   $ 5.9      $ 10.4        (43 %) 
  

 

 

    

 

 

    

Net Revenues

Contributing to the increase in net revenues was the operation of four stations in the Charlotte market during the quarter which were not operated by us during the same period in the prior year. Offsetting this increase, net revenues was negatively impacted by several factors including the reduction in political advertising and the return of a broadcasting license to the FCC in the first quarter of 2017 to facilitate the Merger.

Net revenues increased the most for our stations located in the Kansas City and Miami markets.

Net revenues decreased the most for our stations located in the Denver market and several of our other larger markets.

Station Operating Expenses

Station operating expenses increased in the high-single digits primarily due to an increase in costs associated with operating additional stations acquired in Charlotte, North Carolina.

Station operating expenses include non-cash compensation expense of $0.4 million for the three months ended June 30, 2017 and June 30, 2016.

Corporate General And Administrative Expenses

Corporate general and administrative expenses increased primarily due to the increase in costs associated with: (1) an increase in deferred compensation expense of $0.2 million as our deferred compensation liability generally tracks the movements in the stock market; and (2) and an increase in corporate marketing capabilities and staff.

 

35


Table of Contents

Corporate general and administrative expenses include non-cash compensation expense of $1.1 million and $1.2 million for the three months ended June 30, 2017 and June 30, 2016, respectively.

Operating Income (Loss)

Operating income decreased primarily due to: (1) an increase in station operating expenses for the reasons described above; (1) an increase in merger and acquisition costs of $5.8 million in connection with the Merger; and (3) an increase in corporate, general, and administrative expenses for the reasons described above.

Interest Expense

Interest expense declined primarily as a result of the refinancing on November 1, 2016, that included the retirement of our Senior Notes using lower cost bank debt.

As a result of the refinancing, we expect interest expense to decrease in future periods as compared to the prior year.

Income (Loss) Before Income Taxes (Benefit)

The decrease in the income before income taxes was primarily attributable to the increase in station operating expenses described above and the transaction costs incurred in connection with the Merger.

Income Taxes (Benefit)

For the three months ended June 30, 2017, the effective income tax rate was 37.4%, which was determined using a forecasted rate based upon taxable income for the year along with the impact of discrete items for the quarter.

The effective tax rate for the quarter, as compared to the estimated annual effective tax rate of 64% was primarily impacted by: (1) significant, non-deductible merger and acquisition costs related to the Merger; and (2) the discrete impact related to the change in the estimated annual effective tax rate from the three months ended March 31, 2017.

For the three months ended June 30, 2016, the effective income tax rate was 41.2%, which primarily reflects adjustments for expenses that are not deductible for tax purposes and an increase in net deferred tax liabilities associated with non-amortizable assets such as broadcasting licenses and goodwill.

Net Income (Loss) Available To The Company

The decrease was primarily attributable to the reasons described above under Income (Loss) Before Income Taxes (Benefit), net of income tax expense.

Liquidity And Capital Resources

Liquidity

As of June 30, 2017, we had $467.5 million outstanding under our Credit Facility, which includes a term B loan of $458.0 million (the “Term B Loan”) and $9.5 million outstanding under a revolving credit facility (the “Revolver”). In addition, we had $0.7 million in outstanding letters of credit and $49.8 million available under the Revolver. As of June 30, 2017, we had $8.6 million in cash and cash equivalents. For the six months ended June 30, 2017, we decreased our outstanding debt by $12.5 million.

 

36


Table of Contents

The Refinancing

The Credit Facility

On November 1, 2016, we and our wholly owned subsidiary Entercom Radio, LLC, entered into a $540 million Credit Facility with a syndicate of lenders and used the proceeds to: (1) refinance our Former Credit Facility that was comprised of: (a) a Former Term B Loan with $223.0 million outstanding at the date of the refinancing; and (b) a Former Revolver with $3.0 million outstanding at the date of the refinancing; (2) fund the redemption effective December 1, 2016, of $220.0 million Senior Notes and discharge the indenture (the “Indenture”) governing the Senior Notes; (3) fund $11.6 million of accrued interest and a call premium of $5.8 million on the Senior Notes; and (4) pay transaction costs associated with the refinancing.

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

The $60 million Revolver has a maturity date of November 1, 2021. The undrawn amount of the Revolver was $49.8 million as of June 30, 2017. The amount of the Revolver available to us is a function of covenant compliance at the time of borrowing.

The $480 million Term B Loan has a maturity date of November 1, 2023.

The Term B 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 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.

As of June 30, 2017, we were in compliance with all financial covenants then applicable and all other terms of the Credit Facility in all material respects. Our ability to maintain compliance with our covenants under the Credit Facility is highly dependent on our results of operations.

As of June 30, 2017, our Consolidated Leverage Ratio was 4.3 times versus a covenant of 5.0 times and our Consolidated Interest Coverage Ratio was 4.2 times versus a covenant of 2.0 times.

Management believes that over the next 12 months we can continue to maintain compliance. Our operating cash flow remains positive, and we believe that cash on hand, cash from the Revolver and cash from operating activities, together with the proceeds of the committed financing, will be sufficient to permit us to meet our liquidity requirements over the next 12 months, including our debt repayments.

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

In connection with the CBS Radio Merger Agreement as described in Note 1, Basis of Presentation and Significant Policies, 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 our Credit Facility as described in Note 4, Long-Term Debt; (2) redeem our Perpetual Cumulative Convertible Preferred Stock; 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.

 

37


Table of Contents

The Former Credit Facility

On November 23, 2011, we entered into our prior credit agreement with a syndicate of lenders for a $425 million Credit Facility, which was initially comprised of: (a) a $50 million Revolver (reduced to $40 million in December 2015) that was set to mature on November 23, 2016; and (b) a $375 million Term B Loan that was set to mature on November 23, 2018.

In connection with the refinancing described above, on December 1, 2016, amounts outstanding under the Former Credit Facility were repaid in full.

The Senior Notes

In connection with the refinancing described above, on November 1, 2016, we issued a call notice to redeem our Senior Notes with an effective date of December 1, 2016. On November 1, 2016, we deposited the following funds in escrow to satisfy our obligation under the Senior Notes and discharge the Indenture governing the Senior Notes: (1) $220.0 million to redeem the Senior Notes in full; (2) $11.6 million for accrued and unpaid interest through December 1, 2016; and (3) $5.8 million for a call premium for the early retirement of the Senior notes.

Perpetual Cumulative Convertible Preferred Stock

On July 16, 2015, the Company acquired under a Stock Purchase Agreement with The Lincoln National Life Insurance Company the stock of one of its subsidiaries, Lincoln Financial Media Company (“Lincoln”) which held through subsidiaries the assets and liabilities of radio stations serving the Atlanta, Denver, Miami, and San Diego markets (the “Lincoln Acquisition”).

Upon closing on the Lincoln Acquisition in 2015, we issued $27.5 million in perpetual cumulative convertible preferred stock (“Preferred”) that, in the event of a liquidation, ranks senior to common stock in our capital structure. The Preferred is convertible by Lincoln into a fixed number of shares after a three-year waiting period, subject to customary anti-dilution provisions. At certain times (including the first three years after issuance), we can redeem the Preferred in cash at a price of 100%. The dividend rate on the Preferred increases over time from 6% to 12%. We declared and paid dividends in each quarter since the Preferred was issued.

As described above, the Preferred is expected to be redeemed in full in connection with the CBS Radio Merger Agreement.

Operating Activities

Net cash flows provided by operating activities were $14.9 million and $24.6 million for the six months ended June 30, 2017 and 2016, respectively. The cash flows from operating activities decreased primarily due to: (1) the increase in merger and acquisition costs of $16.1 million associated with the Merger; and (2) a $6.4 million increase in station operating expenses, net of an increase in net revenues. This increase in costs was partially offset by a $9.2 million decrease in cash available from working capital, primarily due to the timing of our interest expense payments and other accrued expenses.

Investing Activities

Net cash flows used in investing activities were $31.3 million for the six months ended June 30, 2017, which primarily reflected the cash paid to complete the Beasley Acquisition of $24.0 million and additions to property and equipment of $6.7 million.

Net cash flows provided by investing activities were $4.9 million for the six months ended 2016, which primarily reflected the proceeds of $7.1 million from the sale of several properties that were reflected under assets held for sale as of December 31, 2015, offset by additions to property and equipment of $2.0 million.

Financing Activities

Net cash flows used in financing activities were $21.8 million and $27.6 million for the six months ended June 30, 2017 and 2016, respectively.

 

38


Table of Contents

For the six months ended June 30, 2017, the cash flows used in financing activities primarily reflect the reduction of our net borrowings of $12.5 million and the payment of common stock dividends of $5.8 million. For the six months ended June 30, 2016, the cash flows used in financing activities primarily reflect the reduction of our net borrowings of $21.7 million and the payment of a common stock dividend of $2.9 million.

Dividends

During the second quarter of 2016, we commenced an annual $0.30 per share common stock dividend program, with payments that approximate $2.9 million per quarter. Any future dividends will be at the discretion of the Board of Directors based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in our Credit Facility and the CBS Radio Merger Agreement.

Dividends on our Preferred were paid in each quarter commencing in October 2015.

Income Taxes

During the six months ended June 30, 2017, we paid $0.1 million in federal and state income taxes. We expect that our quarterly federal and state corporate net income tax obligations will be minimal for the balance of the year as we have significant net operating loss carryovers available to offset future income. We do expect to make federal alternative minimum tax (“AMT”) payments during subsequent quarters. The AMT payments are available as a credit to offset income tax liabilities in future years.

Capital Expenditures

Capital expenditures for the six months ended June 30, 2017, were $6.7 million. We anticipate that total capital expenditures in 2017 will be between $14.0 million and $16.0 million. Capital expenditures this year are estimated to be higher primarily due to the relocation of studio facilities in several markets.

Contractual Obligations

If the CBS Radio Merger Agreement is terminated under certain circumstances, we will be required to pay CBS a termination fee of $30 million and the costs for the committed financing.

Excluding any contractual obligations associated with the Merger that was entered into on February 2, 2017, as of June 30, 2017, there have been no net material changes in the total amount from the contractual obligations listed in our Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017.

Off-Balance Sheet Arrangements

As of June 30, 2017, we did not have any material off-balance sheet transactions, arrangements or obligations, including contingent obligations.

As of December 31, 2016, we had a Variable Interest Entity (“VIE”) that required consolidation. As of December 31, 2016, we consolidated the assets and liabilities of the VIE within our consolidated financial statements, using fair values for the assets and liabilities as if we had closed on the Beasley Acquisition as of December 31, 2016. The consolidated assets and liabilities of the consolidated VIE at December 31, 2016, represented only the assets and liabilities of the three stations held in a trust (“Charlotte Trust”). Upon the completion of the acquisition from Beasley on January 6, 2017, we reversed the VIE amounts and recorded the assets and liabilities of all four radio stations based upon the preliminary purchase price allocation. Refer to Note 9, Business Combinations, for additional information.

We do not have any other relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes as of June 30, 2017. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

39


Table of Contents

Critical Accounting Policies

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

There have been no material changes to our critical accounting policies from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2016. We have, however, provided additional disclosures related to one of our critical accounting policies for impairment testing of radio broadcasting licenses and goodwill, as we conducted our annual impairment test of broadcasting licenses and goodwill during the second quarter of 2017.

Radio Broadcasting Licenses And Goodwill

We have made acquisitions in the past for which a significant amount of the purchase price was allocated to broadcasting licenses and goodwill assets. As of June 30, 2017, we have recorded approximately $844 million in radio broadcasting licenses and goodwill, which represents 82% of our total assets at that date. We must conduct impairment testing at least annually, or more frequently if events or changes in circumstances indicate that the assets might be impaired, and charge to operations an impairment expense in the periods in which the recorded value of these assets is more than their fair value. Any such impairment could be material. After an impairment expense is recognized, the recorded value of these assets will be reduced by the amount of the impairment expense and that result will be the assets’ new accounting basis. Our most recent impairment loss to our broadcasting licenses was in 2012. As a result of our annual impairment testing during the second quarter of 2017, we recognized an impairment loss on our goodwill of $0.4 million.

We believe our estimate of the value of our radio broadcasting licenses and goodwill assets is a critical accounting estimate as the value is significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future performance of our stations.

Broadcasting Licenses Impairment Test

We completed our annual impairment test for broadcasting licenses during the second quarter of 2017 and determined that the fair value of the broadcasting licenses was more than the carrying value in each of our markets and, as a result, we did not record an impairment loss.

We perform our broadcasting license impairment test by using the direct method at the market level. Each market’s broadcasting licenses are combined into a single unit of accounting for the purpose of testing impairment, as the broadcasting licenses in each market are operated as a single asset. We determine the fair value of broadcasting licenses in each of our 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. Our 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) a tax rate; and (7) future terminal values. Changes in our estimates of the fair value of these assets could result in material future period write-downs in the carrying value of our broadcasting licenses and goodwill assets.

The methodology used by us in determining our key estimates and assumptions was applied consistently to each market. Of the seven variables identified above, we believe that the first three (in items (1) through (3) above) are the most important and sensitive in the determination of fair value.

 

40


Table of Contents

The following table reflects the estimates and assumptions used in 2017 as compared to the second quarter of 2016, the date of the most recent prior impairment test:

 

     Estimates And Assumptions
     Second   Second
     Quarter   Quarter
     2017   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 Company’s markets

   1.0% to 2.0%   1.0% to 2.0%

We believe we have made reasonable estimates and assumptions to calculate the fair value of our broadcasting licenses; however, 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 by us, or if events occur or circumstances change that would reduce the fair value of our broadcasting licenses below the carrying value, we may be required to recognize impairment charges, which could be material, in future periods.

The table below presents the percentage within a range by which the fair value exceeded the carrying value of our radio broadcasting licenses as of June 30, 2017, for 24 units of accounting (24 geographical markets) where the carrying values of the licenses are considered material to our financial statements (three of our 28 markets are considered immaterial). 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 techniques that are used in the testing process were applied to the valuation of the broadcasting licenses under purchase price accounting. Rather than presenting the percentage separately for each unit of accounting, management’s opinion is that this table in summary form is more meaningful to the reader in assessing the recoverability of the broadcasting licenses. In addition, the units of accounting are not disclosed with the specific market name as such disclosure could be competitively harmful to us.

 

     Units Of Accounting As Of June 30, 2017  
     Based Upon The Valuation As Of June 30, 2017  
     Percentage Range By Which Fair Value Exceeds  
     The Carrying Value  
            Greater      Greater      Greater  
     0% To      Than 5%      Than 10%      Than  
     5%      To 10%      To 15%      15%  

Number of units of accounting

     4        6        1        13  

Carrying value (in thousands)

   $ 243,115      $ 260,220      $ 17,135      $ 271,579  

Broadcasting Licenses Valuation At Risk

The second quarter 2017 impairment test of our broadcasting licenses indicated that there were 10 units of accounting where the fair value exceeded their carrying value by 10% or less. In aggregate, these 10 units of accounting have a carrying value of $503.3 million. If overall market conditions or the performance of the economy deteriorates, advertising expenditures and radio industry results could be negatively impacted, including expectations for future growth. This could result in future impairment charges for these or other of our units of accounting.

Goodwill Impairment Test

We perform our annual goodwill impairment test during the second quarter of each year by evaluating our goodwill for each reporting unit. We determined that a radio market is a reporting unit and, in total, we assessed goodwill at 23 separate reporting units (five of our 28 reporting units have no goodwill recorded as of June 30, 2017). 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.

 

41


Table of Contents

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. Under the amended guidance, if the carrying amount of goodwill of any reporting unit reflected in the balance sheet exceeds its fair value, we will consider the goodwill to be impaired. Under the previous accounting guidance, we would be required to perform a second step of the impairment test by comparing the amount reflected in the balance sheet to the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation. We elected to early adopt this amended accounting guidance for our annual impairment test during the second quarter of 2017.

To determine the fair value, we use a market approach and, when appropriate, an income approach for each reporting unit. The market approach calculates the fair value of each market’s 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 property’s income over a specified time and capitalizing at an appropriate market rate to arrive at an indication of the most probable selling price.

In our goodwill analysis, we considered the results of the market and, where appropriate, the income approach in computing the fair value of our reporting units. In the market approach, we applied an estimated market multiple of between seven and a half times and eight times to each reporting unit’s operating performance to calculate the fair value. This multiple was consistent with the multiple applied to all markets in the second quarter of 2016. We also utilized the discounted cash flow method to calculate the fair value of the reporting unit. Management believes that these approaches are an appropriate measurement given the current market valuations of broadcast radio stations together with historical market transactions, including those in recent months. Factors contributing to the determination of the reporting unit’s operating performance were historical performance and management’s estimates of future performance.

The following table reflects certain key estimates and assumptions that applied to our markets and were used in the second quarter of 2017 and in the second quarter of 2016, the date of the most recent prior impairment test:

 

     Estimates And Assumptions  
     Second     Second  
     Quarter     Quarter  
     2017     2016  

Discount rate

     9.25%       9.5%  

Long-term revenue growth rate range of the Company’s 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  

The results of the goodwill impairment test indicated that the carrying value of goodwill for our Boston, Massachusetts market exceeded its fair value by a material amount. The amount by which the carrying value exceeded the fair value was larger than the amount of goodwill allocated to this specific reporting unit. As a result, we determined that the entire carrying amount of goodwill for this specific reporting unit was impaired and recorded and impairment loss during the second quarter of 2017 in the amount of $0.4 million. We performed a reasonableness test by comparing the fair value results for goodwill (by using the implied multiple based on our consolidated cash flow performance and our current stock price) to prevailing radio broadcast transaction multiples.

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

The table below presents the percentage within a range by which the fair value exceeded the carrying value of the reporting unit as of June 30, 2017 for 23 reporting units under the goodwill impairment test during the second quarter of 2017. Rather than presenting the percentage separately for each reporting unit, management’s opinion is that this table in summary form is more meaningful to the reader in assessing the recoverability of the reporting unit, including goodwill. In addition, the reporting units are not disclosed with the specific market name as such disclosure could be competitively harmful to us.

 

42


Table of Contents
     Reporting Units As Of June 30, 2017
Based Upon The Valuation As Of June 30, 2016
Percentage Range By Which Fair Value Exceeds Carrying Value
 
            Greater      Greater      Greater  
     0% To      Than 5%      Than 10%      Than  
     5%      To 10%      To 15%      15%  

Number of reporting units

     2        3        —          17  

Enterprise carrying value (in thousands)

   $ 126,114      $ 188,527      $ —        $ 417,636  

Goodwill carrying value (in thousands)

   $ 1,656      $ 8,968      $ —        $ 23,037  

Goodwill Valuation At Risk

The second quarter 2017 impairment test of our goodwill indicated that there were five reporting units that exceeded the carrying value by 10% or less. In aggregate, these five reporting units have a carrying value of $314.6 million, of which $10.6 million is goodwill.

Future impairment charges may be required on any of our reporting units, as the discounted cash flow and market-based models are subject to change based upon our performance, our stock price, peer company performance and their stock prices, overall market conditions, and the state of the credit markets.

Sensitivity Of Key Broadcasting Licenses And Goodwill Assumptions

If we were to assume a 100 basis point change in certain of our key assumptions (a reduction in the long-term revenue growth rate, a reduction in the operating performance cash flow margin and an increase in the weighted average cost of capital) used to determine the fair value of our broadcasting licenses and goodwill using the income approach during the second quarter of 2017, the following would be the incremental impact:

 

Sensitivity Analysis (1)

 
     Results Of      Results Of      Results Of  
     Long-Term      Operating      Weighted  
     Revenue      Performance      Average  
     Growth      Cash Flow      Cost Of  
     Rate      Margin      Capital  
     Decrease      Decrease      Increase  
     (amounts in thousands)  

Broadcasting Licenses

        

Incremental broadcasting licenses impairment

   $ 23,171      $ 2,059      $ 55,743  
  

 

 

    

 

 

    

 

 

 

Goodwill (2)

        

Incremental goodwill impairment

   $ 18,599      $ 6,905      $ 38,950  
  

 

 

    

 

 

    

 

 

 

 

 

 

(1) Each assumption used in the sensitivity analysis is independent of the other assumptions.
(2)  The sensitivity goodwill analysis is computed using data from testing goodwill using the income approach under step 1.

 

 

To determine the radio broadcasting industry’s future revenue growth rate, management uses publicly available information on industry expectations rather than management’s own estimates, which could be different. In

 

43


Table of Contents

addition, these long-term market growth rate estimates could vary in each of our markets. Using the publicly available information on industry expectations, each market’s revenues were forecasted over a ten-year projection period to reflect the expected long-term growth rate for the radio broadcast industry, which was further adjusted for each of our markets. If the industry’s growth is less than forecasted, then the fair value of our broadcasting licenses could be negatively impacted.

Operating profit is defined as profit before interest, depreciation and amortization, income tax and corporate allocation charges. Operating profit is then divided by broadcast revenues, net of agency and national representative commissions, to compute the operating profit margin. For the broadcast license fair value analysis, the projections of operating profit margin that are used are based upon industry operating profit margin norms, which reflect market size and station type. These margin projections are not specific to the performance of our radio stations in a market, but are predicated on the expectation that a new entrant into the market could reasonably be expected to perform at a level similar to a typical competitor. For the goodwill fair value analysis, the projections of operating margin for each market are based on our actual historical performance. If the outlook for the radio industry’s growth declines, then operating profit margins in both the broadcasting license and goodwill fair value analyses would be negatively impacted, which would decrease the value of those assets.

The discount rate to be used by a typical market participant reflects the risk inherent in future cash flows for the broadcast industry. The same discount rate was used for each of our markets. The discount rate is calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure. The capital structure was estimated based upon data available for publicly traded companies in the broadcast industry.

 

ITEM 3. Quantitative And Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates on our variable rate senior debt (the Term B Loan and Revolver).

As of June 30, 2017, if the borrowing rates under LIBOR were to increase 1% above the current rates, our interest expense on: (1) our Term B Loan would increase $4.6 million on an annual basis as our Term B Loan provides for a minimum LIBOR floor; and (2) our Revolver would increase by $0.6 million, assuming our entire Revolver was outstanding as of June 30, 2017.

From time to time, we may seek to limit our exposure to interest rate volatility through the use of interest rate hedging instruments.

Assuming LIBOR remains flat, interest expense is expected to be lower due to the decrease in our outstanding debt upon which interest is computed.

As of June 30, 2017, there were no interest rate hedging transactions outstanding.

From time to time, we invest in cash equivalents that are money market instruments consisting of short-term government securities and repurchase agreements that are fully collateralized by government securities. When such investments are made, we do not believe that we have any material credit exposure with respect to these assets. As of June 30, 2017, we did not have any investments in money market instruments.

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

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

 

ITEM 4. Controls And Procedures

Evaluation Of Controls And Procedures

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are designed to ensure that: (i) information required to be

 

44


Table of Contents

disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

Changes In Internal Control Over Financial Reporting

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

 

45


Table of Contents

PART II

OTHER INFORMATION

 

ITEM 1. Legal Proceedings

There were no material developments relating to the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on February 28, 2017.

 

ITEM 1A. Risk Factors

There have been no material changes to the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on February 28, 2017.

 

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

The following table provides information on our repurchases during the quarter ended June 30, 2017:

 

Period (1)

   (a)
Total
Number
Of Shares
Purchased
     (b)
Average
Price
Paid
Per Share
     (c)
Total
Number Of
Shares
Purchased
As

Part Of
Publicly
Announced
Plans Or
Programs
     (d)
Maximum
Approximate
Dollar Value
Of

Shares That
May Yet Be
Purchased
Under

The Plans
Or Programs
 

April 1, 2017 - April 30, 2017

     2,789      $ 13.89        —        $ —    

May 1, 2017 - May 31, 2017

     2,528      $ 10.05        —        $ —    

June 1, 2017 - June 30, 2017

     248      $ 10.05        —        $ —    
  

 

 

       

 

 

    

Total

     5,565           —       
  

 

 

       

 

 

    

 

 

 

(1)  As a result of our withholding shares to satisfy employee tax obligations related to the vesting of restricted stock units during the three months ended June 30, 2017, we are deemed to have repurchased the following shares withheld to satisfy employees’ tax obligations: (1) 2,789 shares at an average price of $13.89 per share in April 2017; (2) 2,528 shares at an average price of $10.05 per share in May 2017; and (3) 248 shares at an average price of $10.05 per share in June 2017. These shares are included in the table above.

 

 

 

ITEM 3. Defaults Upon Senior Securities

None.

 

ITEM 4. Mine Safety Disclosures

N/A

 

ITEM 5. Other Information

None.

 

46


Table of Contents
ITEM 6. Exhibits

 

Exhibit
Number

  

Description

    2.1    Agreement and Plan of Merger, dated as of February 2, 2017, by and among CBS Corporation, CBS Radio Inc., Entercom Communications Corp. and Constitution Merger Sub Corp. (Incorporated by reference to Exhibit 2.1 of Entercom’s Current Report on Form 8-K filed on February 3, 2017)
    2.2    Master Separation Agreement, dated as of February 2, 2017, by and between CBS Corporation and CBS Radio Inc. (Incorporated by reference to Exhibit A to Exhibit 2.1 to Entercom’s Current Report on Form 8-K filed on February 3, 2017)
    3.1    Amended and Restated Articles of Incorporation of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.01 to Entercom’s Amendment to Registration Statement on Form S-1, as filed on January 27, 1999 (File No. 333-61381), Exhibit 3.1 of Entercom’s Current Report on Form 8-K as filed on December 21, 2007 and Exhibit 3.02 to Entercom’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, as filed on August 5, 2009).
    3.2    Amended and Restated Bylaws of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.1 to Entercom’s Current Report on Form 8-K filed on February 21, 2008)
    3.3    Amendment to Amended and Restated Bylaws of Entercom Communications Corp. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 3, 2017)
    3.4    Statement with Respect to Shares, filed with the Pennsylvania Department of State on July 16, 2015. (Incorporated by reference to an Exhibit 3.1 to our Current Report on Form 8-K filed on July 17, 2015)
    4.1    Credit Agreement, dated as of November 1, 2016, among Entercom Radio, LLC, as the Borrower, Entercom Communications Corp., as the Parent, Bank of America, N.A. as Administrative Agent and the lenders party thereto. (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on November 2, 2016)
    4.2    Registration Rights Agreement, dated July 16, 2015, by and between Entercom Communications Corp. and The Lincoln National Life Insurance Company. ((Incorporated by reference to an Exhibit 4.1 to our Current Report on Form 8-K filed on July 17, 2015)
  10.1    Entercom Non-Employee Director Compensation Policy Adopted May 10, 2017 (incorporated by reference to Exhibit 10.01 to our Current Report on Form 8-K as filed on May 16, 2017)
  10.2    Employment Agreement, dated May 15, 2017, between Entercom Communications Corp. and Andrew Sutor. (*)
  10.3    Second Amendment to Amended and Restated Employment Agreement, dated May 10, 2017, between Entercom Communications Corp. and Joseph M. Field (*)
  10.4    Tax Gross-Up Waiver Agreement between Entercom Communications Corp. and David J. Field dated as of April 19, 2017 (*)
  31.1    Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (5)
  31.2    Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (5)
  32.1    Certification of President and Chief Executive Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (#)
  32.2    Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (#)
101.INS    XBRL Instance Document (*)
101.SCH    XBRL Taxonomy Extension Schema Document (*)

 

47


Table of Contents

Exhibit
Number

  

Description

101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document (*)
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document (*)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document (*)
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document (*)

 

(#) These exhibits are submitted herewith as “accompanying” this Quarterly Report on Form 10-Q and shall not be deemed to be “filed” as part of such Quarterly Report on Form 10-Q.
(*) Filed herewith.

 

48


Table of Contents

SIGNATURES

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

 

     

ENTERCOM COMMUNICATIONS CORP.

(Registrant)

Date: August 4, 2017      

/S/ David J. Field

Name: David J. Field

Title:   President and Chief Executive Officer

            (principal executive officer)

Date: August 4, 2017      

/S/ Richard J. Schmaeling

Name: Richard J. Schmaeling

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

 

49


Table of Contents

EXHIBIT INDEX

 

Exhibit
Number

  

Description

    2.1    Agreement and Plan of Merger, dated as of February 2, 2017, by and among CBS Corporation, CBS Radio Inc., Entercom Communications Corp. and Constitution Merger Sub Corp. (Incorporated by reference to Exhibit 2.1 of Entercom’s Current Report on Form 8-K filed on February 3, 2017)
    2.2    Master Separation Agreement, dated as of February 2, 2017, by and between CBS Corporation and CBS Radio Inc. (Incorporated by reference to Exhibit A to Exhibit 2.1 to Entercom’s Current Report on Form 8-K filed on February 3, 2017)
    3.1    Amended and Restated Articles of Incorporation of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.01 to Entercom’s Amendment to Registration Statement on Form S-1, as filed on January 27, 1999 (File No. 333-61381), Exhibit 3.1 of Entercom’s Current Report on Form 8-K as filed on December 21, 2007 and Exhibit 3.02 to Entercom’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, as filed on August 5, 2009).
    3.2    Amended and Restated Bylaws of Entercom Communications Corp. (Incorporated by reference to Exhibit 3.1 to Entercom’s Current Report on Form 8-K filed on February 21, 2008)
    3.3    Amendment to Amended and Restated Bylaws of Entercom Communications Corp. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 3, 2017)
    3.4    Statement with Respect to Shares, filed with the Pennsylvania Department of State on July 16, 2015. (Incorporated by reference to an Exhibit 3.1 to our Current Report on Form 8-K filed on July 17, 2015)
    4.1    Credit Agreement, dated as of November 1, 2016, among Entercom Radio, LLC, as the Borrower, Entercom Communications Corp., as the Parent, Bank of America, N.A. as Administrative Agent and the lenders party thereto. (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on November 2, 2016)
    4.2    Registration Rights Agreement, dated July 16, 2015, by and between Entercom Communications Corp. and The Lincoln National Life Insurance Company. ((Incorporated by reference to an Exhibit 4.1 to our Current Report on Form 8-K filed on July 17, 2015)
  10.1    Entercom Non-Employee Director Compensation Policy Adopted May 10, 2017 (incorporated by reference to Exhibit 10.01 to our Current Report on Form 8-K as filed on May 16, 2017)
  10.2    Employment Agreement, dated May 15, 2017, between Entercom Communications Corp. and Andrew Sutor. (*)
  10.3    Second Amendment to Amended and Restated Employment Agreement, dated May 10, 2017, between Entercom Communications Corp. and Joseph M. Field (*)
  10.4    Tax Gross-Up Waiver Agreement between Entercom Communications Corp. and David J. Field dated as of April 19, 2017 (*)
  31.1    Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (5)
  31.2    Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (5)
  32.1    Certification of President and Chief Executive Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (#)
  32.2    Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (#)
101.INS    XBRL Instance Document (*)
101.SCH    XBRL Taxonomy Extension Schema Document (*)

 

50


Table of Contents

Exhibit
Number

  

Description

101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document (*)
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document (*)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document (*)
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document (*)

 

(#) These exhibits are submitted herewith as “accompanying” this Quarterly Report on Form 10-Q and shall not be deemed to be “filed” as part of such Quarterly Report on Form 10-Q.
(*) Filed herewith.

 

51

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki