Quarterly Report (10-q)

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PART I

FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
		JUNE 30,			DECEMBER 31,
		2019			2018
	ASSETS:
	Cash	$	30,331		$	122,893
	Restricted cash		—			69,365
	Accounts receivable, net of allowance for doubtful accounts		325,495			342,766
	Prepaid expenses, deposits and other		32,771			25,205
	Total current assets		388,597			560,229
	Investments		12,705			11,205
	Net property and equipment		344,951			317,030
	Operating lease right-of-use assets		284,400			-
	Radio broadcasting licenses		2,518,261			2,516,625
	Goodwill		536,687			539,469
	Assets held for sale		3,307			19,603
	Other assets, net of accumulated amortization		35,716			56,197
	TOTAL ASSETS	$	4,124,624		$	4,020,358

 

	LIABILITIES:
	Accounts payable	$	8,891		$	1,858
	Accrued expenses		62,439			58,449
	Other current liabilities		98,714			118,438
	Operating lease liabilities		37,979			-
	Total current liabilities		208,023			178,745
	Long-term debt, net of current portion		1,698,894			1,872,203
	Operating lease liabilities, net of current portion		271,263			-
	Deferred tax liabilities		545,808			545,982
	Other long-term liabilities		52,994			89,168
	Total long-term liabilities		2,568,959			2,507,353
	Total liabilities		2,776,982			2,686,098
	CONTINGENCIES AND COMMITMENTS
	SHAREHOLDERS' EQUITY:
	Class A, B and C common stock		1,426			1,412
	Additional paid-in capital		1,673,268			1,693,512
	Accumulated deficit		( 326,828)			( 360,664)
	Accumulated other comprehensive income (loss)		( 224)			-
	Total shareholders' equity		1,347,642			1,334,260
	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	4,124,624		$	4,020,358
	See notes to condensed consolidated financial statements.

 

2

 

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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,
	2019			2018				2019			2018
NET REVENUES	$	380,665		$	372,124			$	689,670		$	672,684
OPERATING EXPENSE:
Station operating expenses		279,170			275,839				528,155			531,563
Depreciation and amortization expense		10,964			10,666				22,069			19,137
Corporate general and administrative expenses		17,315			19,032				38,250			37,701
Integration costs		1,456			9,494				2,591			19,223
Restructuring charges		3,362			686				4,376			2,167
Impairment loss		-			28,988				-			28,988
Merger and acquisition costs		33			687				42			2,071
Other expenses related to financing		1,864			-				1,864			-
Net time brokerage agreement (income) fees		53			( 666)				93			( 1,092)
Net (gain) loss on sale or disposal of assets		1,686			( 154)				( 2,914)			( 315)
Total operating expense		315,903			344,572				594,526			639,443
OPERATING INCOME (LOSS)		64,762			27,552				95,144			33,241
INTEREST EXPENSE		24,944			25,706				50,164			49,110
Loss on extinguishment of debt		1,781			-				1,781			-
OTHER (INCOME) EXPENSE		1,781			-				1,781			-
			1
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)		38,037			1,846				43,199			( 15,869)
INCOME TAXES (BENEFIT)		12,045			249				14,083			( 3,260)
NET INCOME (LOSS) AVAILABLE TO THE COMPANY - CONTINUING OPERATIONS		25,992			1,597				29,116			( 12,609)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS - CONTINUING OPERATIONS		25,992			1,597				29,116			( 12,609)
Income from discontinued operations, net of income taxes (benefit)		-			844				-			1,172
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	25,992		$	2,441			$	29,116		$	( 11,437)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC
Net income (loss) from continuing operations per share available to common shareholders - Basic	$	0.19		$	0.01			$	0.21		$	( 0.09)
Net income (loss) from discontinued operations per share available to common shareholders - Basic	$	-		$	0.01			$	-		$	0.01
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - BASIC	$	0.19		$	0.02			$	0.21		$	( 0.08)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - DILUTED

3

 

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Net income (loss) from continuing operations per share available to common shareholders - Diluted	$	0.19		$	0.01			$	0.21		$	( 0.09)
Net income (loss) from discontinued operations per share available to common shareholders - Diluted	$	-		$	0.01			$	-		$	0.01
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE - DILUTED	$	0.19		$	0.02			$	0.21		$	( 0.08)
WEIGHTED AVERAGE SHARES:
Basic	138,760,483			138,638,554				138,684,845			138,961,728
Diluted	139,074,229			139,263,363				139,221,904			138,961,728
See notes to condensed consolidated financial statements.

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
(unaudited)
	THREE MONTHS ENDED						SIX MONTHS ENDED
	June 30,
	2019			2018			2019			2018
NET INCOME (LOSS)	$	25,992		$	2,441		$	29,116		$	( 11,437)
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAXES (BENEFIT):
Net unrealized gain (loss) on derivatives,
net of taxes (benefit)		( 224)			-			( 224)			-
COMPREHENSIVE INCOME (LOSS)	$	25,768		$	2,441		$	28,892		$	( 11,437)
See notes to condensed consolidated financial statements.

 

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(unaudited)
														Retained				Accumulated
	Common Stock										Additional			Earnings				Other
	Class A					Class B					Paid-in			(Accumulated			Comprehensive
	Shares		Amount			Shares		Amount			Capital			Deficit)				Income (Loss)			Total
Balance, December 31, 2017	139,675,781		$	1,397		4,045,199		$	40		$	1,737,132		$	25,791			$	-		$	1,764,360
Net income (loss) available to the Company	-			-		-			-			-			( 13,878)				-			( 13,878)
Compensation expense related to granting
of stock awards	( 157,680)			( 2)		-			-			3,915			-				-			3,913
Issuance of common stock related to the Employee
Stock Purchase Plan ("ESPP")	39,196			-		-			-			321			-				-			321
Exercise of stock options	10,000			-		-			-			13			-				-			13
Common stock repurchase	( 1,833,200)			( 18)		-			-			( 19,361)			-				-			( 19,379)
Purchase of vested employee restricted
stock units	( 328,196)			( 3)		-			-			( 3,460)			-				-			( 3,463)
Payment of dividends on common stock	-			-		-			-			( 13,036)			-				-			( 13,036)
Dividend equivalents, net of forfeitures	-			-		-			-			342			-				-			342
Balance, March 31, 2018	137,405,901		$	1,374		4,045,199		$	40			1,705,866		$	11,913			$	-		$	1,719,193
Net income (loss) available to the Company	-			-		-			-			-			2,441				-			2,441
Compensation expense related to granting
of stock awards	1,198,734			12		-			-			3,728			-				-			3,740
Issuance of common stock related to the Employee
Stock Purchase Plan ("ESPP")	60,386			1		-			-			387			-				-			388
Exercise of stock options	38,500			-		-			-			52			-				-			52
Purchase of vested employee restricted
stock units	( 176,275)			( 2)		-			-			( 1,707)			-				-			( 1,709)
Payment of dividends on common stock	-			-		-			-			( 12,746)			-				-			( 12,746)
Dividend equivalents, net of forfeitures	-			-		-			-			127			-				-			127
Balance, June 30, 2018	138,527,246		$	1,385		4,045,199		$	40		$	1,695,707		$	14,354			$	-		$	1,711,486

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(unaudited)
														Retained				Accumulated
Balance, December 31, 2018	137,180,213			1,372		4,045,199			40			1,693,512			( 360,664)				-			1,334,260
Net income (loss) available to the Company	-			-		-			-			-			3,125				-			3,125
Compensation expense related to granting
of stock awards	1,406,722			14		-			-			3,559			-				-			3,573
Issuance of common stock related to the Employee
Stock Purchase Plan ("ESPP")	84,958			1		-			-			378			-				-			379
Exercise of stock options	180,300			2		-			-			242			-				-			244
Purchase of vested employee restricted
stock units	( 204,499)			( 2)		-			-			( 1,424)			-				-			( 1,426)
Payment of dividends on common stock	-			-		-			-			( 12,913)			-				-			( 12,913)
Dividend equivalents, net of forfeitures	-			-		-			-			( 463)			-				-			( 463)
Application of amended leasing guidance	-			-		-			-			-			4,719				-			4,719
Balance, March 31, 2019	138,647,694		$	1,387		4,045,199		$	40		$	1,682,891		$	( 352,820)			$	-		$	1,331,498
Net income (loss) available to the Company	-			-		-			-			-			25,992				-			25,992
Compensation expense related to granting
of stock awards	( 38,774)			-		-			-			3,393			-				-			3,393
Issuance of common stock related to the Employee
Stock Purchase Plan ("ESPP")	73,791			1		-			-			363			-				-			364
Purchase of vested employee restricted
stock units	( 216,828)			( 2)		-			-			( 1,298)			-				-			( 1,300)
Payment of dividends on common stock	-			-		-			-			( 13,140)			-				-			( 13,140)
Dividend equivalents, net of forfeitures	-			-		-			-			1,059			-				-			1,059
Net unrealized gain (loss) on derivatives	-			-		-			-			-			-				( 224)			( 224)
Balance, June 30, 2019	138,465,883		$	1,386		4,045,199		$	40		$	1,673,268		$	( 326,828)			$	( 224)		$	1,347,642

 

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
	SIX MONTHS ENDED
	JUNE 30,
	2019			2018
OPERATING ACTIVITIES:
Net income (loss) available to common shareholders	$	29,116		$	( 11,437)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization		22,069			19,137
Net amortization of deferred financing costs
(net of original issue discount and debt premium)		( 97)			159
Net deferred taxes (benefit) and other		( 3,752)			( 2,055)
Provision for bad debts		1,819			5,713
Net (gain) loss on sale or disposal of assets		( 2,914)			( 315)
Non-cash stock-based compensation expense		6,966			7,653
Net loss on extinguishment of debt		1,781			-
Deferred compensation		3,767			972
Impairment loss		-			28,988
Accretion expense (income), net of asset retirement obligation adjustments		34			31
Changes in assets and liabilities (net of effects of acquisitions, dispositions,
consolidation, and deconsolidation of Variable Interest Entities (VIEs)):
Accounts receivable		20,232			42,115
Prepaid expenses and deposits		( 7,739)			( 15,930)
Accounts payable and accrued liabilities		( 8,528)			( 20,981)
Accrued interest expense		3,104			( 5,090)
Accrued liabilities - long-term		( 7,561)			( 13,666)
Prepaid expenses - long-term		-			89
Net cash provided by (used in) operating activities		58,297			35,383
INVESTING ACTIVITIES:
Additions to property and equipment		( 38,710)			( 17,023)
Proceeds from sale of radio stations
and other assets		24,692			476
Purchases of radio stations		-			( 15,000)
Additions to amortizable intangible assets		( 2,003)			( 1,963)
Purchases of investments		( 1,500)			( 1,250)
Net cash provided by (used in) investing activities		( 17,521)			( 34,760)

 

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
	SIX MONTHS ENDED
	JUNE 30,
	2019			2018
FINANCING ACTIVITIES:
Borrowing under the revolving senior debt		119,000			83,325
Net proceeds from the notes		325,000			-
Payments of long-term debt		( 615,000)			( 27,997)
Payment for debt issuance costs		( 3,910)			-
Proceeds from issuance of employee stock plan		743			709
Proceeds from the exercise of stock options		242			65
Purchase of vested employee restricted stock units		( 2,726)			( 5,172)
Payment of dividends on common stock		( 24,917)			( 24,916)
Payment of dividend equivalents on vested restricted stock units		( 1,137)			( 866)
Repurchase of common stock		-			( 20,012)
Net cash provided by (used in) financing activities		( 202,703)			5,136
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		( 161,927)			5,759
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR		192,258			34,167
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	30,331		$	39,926
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	47,794		$	37,726
Income taxes	$	14,546		$	18,836
Dividends on common stock	$	24,917		$	24,916
Supplemental cash flow information
Tenant improvement allowance receivables	$	3,304		$	1,045
See notes to condensed consolidated financial statements.

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ENTERCOM COMMUNICATIONS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 

1. BASIS OF PRESENTATION AND SIGNIFICANT POLICIES

 

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

 

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

 

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

 

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

 

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

 

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

 

Changes in Accounting Policies

 

In February 2016, the accounting guidance was modified to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The new guidance was effective for the Company as of January 1, 2019. The Company implemented the new leasing

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guidance using a modified retrospective approach at the beginning of the period of adoption with a cumulative-effect adjustment to its accumulated deficit. Refer to Note 4, Leases, for additional information.

 

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

 

Recent Accounting Pronouncements

 

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

 

Leasing Transactions

 

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

 

 

Reclassifications

 

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

 

2. BUSINESS COMBINATIONS

 

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

 

2019 Cumulus Exchange

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

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

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

11

 

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

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

 

 

 

					Useful Lives in Years
		Preliminary Value			From		To
		(amounts in thousands)
Assets
Equipment		$	844		3		7
Total tangible property			844
Radio broadcasting licenses			19,576		non-amortizing
Goodwill			2,080		non-amortizing
Total intangible and other assets			21,656
Total assets		$	22,500
Preliminary fair value of net assets acquired		$	22,500

 

2018 WXTU Transaction

 

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

 

Based on this timing, the Company’s consolidated financial statements for the six and three months ended June 30, 2019 do not reflect the results of this divested station, whereas the Company’s consolidated financial statements for the six and three months ended June 30, 2018 do reflect the results of this divested station.

 

2018 Jerry Lee Transaction

 

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

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Transaction and the Jerry Lee Transaction, the Company will continue to operate six radio stations in the Philadelphia, Pennsylvania market.

 

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

 

Based on this timing, the Company’s consolidated financial statements for the six and three months ended June 30, 2019 reflect the results of this acquired station, whereas the Company’s consolidated financial statements for the six and three months ended June 30, 2018 do not reflect the results of this acquired station.

 

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

 

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

 

 

 

 

					Useful Lives in Years
		Preliminary Value			From		To
		(amounts in thousands)
Assets
Equipment		$	981		3		7
Total tangible property			981
Advertising contracts			477		1		1
Radio broadcasting licenses			27,346		non-amortizing
Goodwill			24,396		non-amortizing
Net working capital			3,234		not applicable
Total intangible and other assets			55,453
Total assets		$	56,434
Preliminary fair value of net assets acquired		$	56,434

 

2018 Emmis Acquisition

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

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

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

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

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

 

 

 

		Final Value
		(amounts in thousands)
Assets
Equipment		$	1,558
Total tangible property			1,558
Advertiser relationships			207
Advertising contracts			114
Radio broadcasting licenses			12,785
Goodwill			332
Other noncurrent assets			4
Total intangible and other assets			13,442
Total assets		$	15,000
Fair value of assets acquired		$	15,000

 

2017 CBS Radio Business Acquisition

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

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

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

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

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

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

 

 

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

 

Restructuring Charges

 

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

 

The components of restructuring charges are as follows:

 

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	Six Months Ended
	June 30,
	2019			2018
	(amounts in thousands)
Costs to exit duplicative contracts	$	-		$	510
Workforce reduction		3,793			928
Lease abandonment costs		-			257
Other restructuring costs		583			472
Total restructuring charges	$	4,376		$	2,167

 

	Three Months Ended
	June 30,
	2019			2018
	(amounts in thousands)
Costs to exit duplicative contracts	$	-		$	349
Workforce reduction		3,100			337
Other restructuring costs		262			-
Total restructuring charges	$	3,362		$	686

 

Restructuring Plan

 

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

 

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

 

	Six Months			Twelve Months
	Ended			Ended
	June 30,			December 31,
	2019			2018
	(amounts in thousands)
Restructuring charges and lease abandonment costs, beginning balance	$	7,077		$	16,086
Additions resulting from the integration of CBS Radio		4,376			5,830
Payments		( 3,896)			( 14,839)
Restructuring charges and lease abandonment costs unpaid and outstanding		7,557			7,077
Restructuring charges and lease abandonment costs - noncurrent portion		( 419)