NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
1. BASIS OF PRESENTATION AND SIGNIFICANT POLICIES
The interim unaudited condensed consolidated 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 condensed consolidated 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 consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019, and filed with the SEC on March 2, 2020, 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.
There have been no material changes from Note 2, Significant Accounting Policies, as described in the notes to the Company’s consolidated financial statements contained in its Form 10-K for the year ended December 31, 2019, that was filed with the SEC on March 2, 2020.
COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has led to emergency measures to combat its spread, including government-issued stay-at-home orders, implementation of travel bans, restrictions and limitations on social gatherings, closures of factories, schools, public buildings and businesses and has forced the implementation of alternative work arrangements. These emergency measures have had and are expected to continue to have an adverse effect on the Company's business and operations. While the full impact of this outbreak is not yet known, the Company is closely monitoring the spread of COVID-19 and continually assessing its effects on the Company, including how it has and will continue to impact advertisers, professional sports and live events.
In response to the COVID-19 pandemic, the Company has taken certain measures to mitigate the resultant financial impact, including, but not limited to: (i) temporary salary reductions implemented across senior management and the broader organization; (ii) temporary freezing of contractual salary increases in 2020; (iii) furlough and termination of select employees; (iv) suspension of new employee hiring, travel and entertainment, 401(k) matching program, employee stock purchase program, and quarterly dividend program; and (v) reduction of sales and promotions spend as well as certain consulting and other discretionary expenses.
The COVID-19 pandemic has had, and is expected to continue to have, a material impact on the Company's business operations, financial position, cash flows, liquidity, and capital resources and results of operations. The full extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be accurately estimated at this time.
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 consolidated financial statements contained in its Form 10-K for the year ended December 31, 2019, that was filed with the SEC on March 2, 2020) that might have a material impact on the Company’s financial position, results of operations or cash flows.
Income Taxes
In December 2019, the accounting guidance for income taxes was amended to simplify accounting for certain income tax transactions. The amended accounting guidance made changes to, among other items, accounting for intraperiod tax allocations and interim period tax accounting where the year-to-date loss exceeds the expected annual loss. The Company implemented the amended accounting guidance for income taxes on January 1, 2020, without a need to make an adjustment to retained earnings. There was no impact to previously reported results of operations for any interim period.
Measurement of Credit Losses
In June 2016, the accounting guidance for the measurement of credit losses on financial instruments was amended to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit. The amended guidance replaced the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amended guidance eliminated the probable initial recognition threshold and, in turn, reflects an entity's current estimate of all expected credit losses. The amended guidance does not specify the method for measuring expected credit losses, and the Company is permitted to apply methods that reasonably reflect its expectations of the credit loss estimate. The Company implemented the amended accounting guidance for measurement of credit losses on January 1, 2020, without a need to make an adjustment to retained earnings. There was no impact to previously reported results of operations for any interim period.
Reclassifications
Certain reclassifications have been made to the prior years' notes to the condensed 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 Cadence13 Acquisition
On October 16, 2019, the Company completed its acquisition of Cadence13, Inc. ("Cadence13") by purchasing the remaining shares in Cadence13 that it did not already own. The Company initially acquired a 45% interest in Cadence13 in July 2017. The Company acquired the remaining interest in Cadence13 for a purchase price of $24.3 million in cash plus working capital (the "Cadence13 Acquisition").
In connection with this step acquisition of Cadence13, the Company remeasured its previously held equity interest to fair value and recognized a gain of $5.3 million and removed the investment in Cadence13 from its records. Upon completion of the Cadence13 Acquisition, the Company recorded the assets acquired and liabilities assumed at fair value.
Based on the timing of the Cadence13 Acquisition, the Company's condensed consolidated financial statements for the nine and three months ended September 30, 2020, reflect the results of Cadence13's operations. The Company's condensed consolidated financial statements for the nine and three months ended September 30, 2019, do not reflect the results of Cadence13's operations.
The allocations presented in the table below are based upon management's estimates of the fair values using valuation techniques including income, cost and market approaches.
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|
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|
|
|
|
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|
|
|
|
|
|
Measurement
|
|
|
|
Preliminary Value
|
|
Period Adjustment
|
|
As Adjusted
|
|
(amounts in thousands)
|
Assets
|
|
|
|
|
|
Property, plant and equipment
|
$
|
654
|
|
|
$
|
—
|
|
|
$
|
654
|
|
Total tangible property
|
654
|
|
|
—
|
|
|
654
|
|
Operating lease right-of-use asset
|
62
|
|
|
—
|
|
|
62
|
|
Deferred tax asset
|
2,900
|
|
|
28
|
|
|
2,928
|
|
Cadence13 brand
|
5,977
|
|
|
—
|
|
|
5,977
|
|
Goodwill
|
31,392
|
|
|
(28)
|
|
|
31,364
|
|
Total tangible and other assets
|
40,331
|
|
|
—
|
|
|
40,331
|
|
Operating lease liabilities
|
(985)
|
|
|
—
|
|
|
(985)
|
|
Net working capital
|
(757)
|
|
|
—
|
|
|
(757)
|
|
Preliminary fair value of net assets acquired
|
$
|
39,243
|
|
|
$
|
—
|
|
|
$
|
39,243
|
|
The aggregate fair value purchase price allocation for the assets acquired in the Cadence13 Acquisition as reported on the Company's Form 10-K filed with the SEC on March 2, 2020, was revised during nine months ended September 30, 2020 due to a change to the deferred tax assets associated with the acquired company which resulted in a decrease to acquired goodwill.
2019 Pineapple Street Media Acquisition
On July 19, 2019, the Company completed a transaction to acquire the assets of Pineapple Street Media (“Pineapple”) for a purchase price of $14.0 million in cash plus working capital (the “Pineapple Acquisition”). Upon completion of the Pineapple Acquisition, the Company recorded the assets acquired and liabilities assumed at fair value.
Based on this timing, the Company’s condensed consolidated financial statements for the nine and three months ended September 30, 2020 reflect the results of Pineapple’s operations. The Company’s condensed consolidated financial statements for the nine and three months ended September 30, 2019 reflect the results of Pineapple's operations for the portion of the periods after the completion of the Pineapple Acquisition.
The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.
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|
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|
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|
|
|
|
|
|
Final Value
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Assets
|
|
|
|
|
|
Accounts receivable
|
$
|
997
|
|
|
|
|
|
Pineapple Street Media brand
|
1,793
|
|
|
|
Goodwill
|
12,445
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
15,235
|
|
|
|
|
|
Unearned revenue
|
238
|
|
|
|
|
|
Accounts payable
|
30
|
|
|
|
|
|
Total liabilities
|
$
|
268
|
|
|
|
|
|
Final fair value of net assets acquired
|
$
|
14,967
|
|
|
|
|
|
2019 Cumulus Exchange
On February 13, 2019, the Company entered into an agreement with Cumulus Media Inc. (“Cumulus”) under which the Company exchanged three of its stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York (the “Cumulus Exchange”). The Company and Cumulus began programming the respective stations under local marketing agreements (“LMAs”) on March 1, 2019. Upon completion of the Cumulus Exchange on May 9, 2019, the Company: (i) removed from its records the assets of the divested stations, which were previously classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a loss on the exchange transaction of approximately $1.8 million.
Based on the timing of the Cumulus Exchange, the Company’s condensed consolidated financial statements for the nine and three months ended September 30, 2020: (i) reflect the results of the acquired stations; and (ii) do not reflect the results of the divested stations. The Company’s condensed consolidated financial statements for the nine months ended September 30, 2019: (i) reflect the results of the acquired stations for the 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 the portion of the period until the commencement date of the LMAs. The Company's condensed consolidated financial statements for the three months ended September 30, 2019: (i) reflect the results of the stations acquired in the Cumulus Exchange; and (ii) do not reflect the results of the divested stations.
The following table reflects the final allocation of the purchase price to the assets acquired.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Final Value
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Assets
|
|
|
|
|
|
Equipment
|
$
|
844
|
|
|
|
|
|
Total tangible property
|
844
|
|
|
|
|
|
Radio broadcasting licenses
|
19,576
|
|
|
|
Goodwill
|
2,080
|
|
|
|
Total intangible and other assets
|
21,656
|
|
|
|
|
|
Total assets
|
$
|
22,500
|
|
|
|
|
|
Final fair value of net assets acquired
|
$
|
22,500
|
|
|
|
|
|
Integration Costs
The Company incurred integration costs of $0.5 million and $3.3 million during the nine months ended September 30, 2020 and September 30, 2019, respectively. Integration costs were expensed as a separate line item in the condensed consolidated statements of operations. These costs primarily relate to change management consultants and technology-related costs incurred subsequent to the CBS Radio business acquisition in November 2017 (the "Merger").
Unaudited Pro Forma Summary of Financial Information
The following unaudited pro forma information for the nine and three months ended September 30, 2020 and September 30, 2019 assumes that the acquisitions in 2019 had occurred as of January 1, 2019.
Refer to information within this Note 2, Business Combinations, and to the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019, and filed with the SEC on March 2, 2020, for a description of the Company’s acquisition and disposition activities.
The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.
This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(amounts in thousands except share and per share data)
|
|
Actual
|
|
Pro Forma
|
|
Actual
|
|
Pro Forma
|
Net revenues
|
$
|
268,505
|
|
|
$
|
398,182
|
|
|
$
|
741,403
|
|
|
$
|
1,112,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(16,878)
|
|
|
$
|
40,199
|
|
|
$
|
(79,827)
|
|
|
$
|
66,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
$
|
(0.13)
|
|
|
$
|
0.29
|
|
|
$
|
(0.59)
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - diluted
|
$
|
(0.13)
|
|
|
$
|
0.29
|
|
|
$
|
(0.59)
|
|
|
$
|
0.48
|
|
Weighted shares outstanding basic
|
134,735,075
|
|
|
136,449,453
|
|
|
134,753,276
|
|
|
137,944,486
|
|
Weighted shares outstanding diluted
|
134,735,075
|
|
|
136,452,995
|
|
|
134,753,276
|
|
|
138,295,091
|
|
3. RESTRUCTURING CHARGES
Restructuring Charges
Restructuring charges were expensed as a separate line item in the condensed consolidated statements of operations.
The components of restructuring charges are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
|
|
|
|
Workforce reduction
|
10,218
|
|
|
5,283
|
|
Other restructuring costs
|
92
|
|
|
670
|
|
Total restructuring charges
|
$
|
10,310
|
|
|
$
|
5,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
|
|
|
|
Workforce reduction
|
1,149
|
|
|
1,489
|
|
Other restructuring costs
|
57
|
|
|
88
|
|
Total restructuring charges
|
$
|
1,206
|
|
|
$
|
1,577
|
|
Restructuring Plan
During the first quarter of 2020, the Company initiated a restructuring plan to help mitigate the adverse impact that the COVID-19 pandemic is having on financial results and business operations. The Company continues to evaluate what, if any further actions may be necessary related to the COVID-19 pandemic.
During the fourth quarter of 2017, the Company initiated a restructuring plan as a result of the integration of radio stations acquired from CBS Radio Inc. ("CBS Radio") in November 2017. The restructuring plan included: (i) workforce reduction and realignment charges that included one-time termination benefits and related costs; and (ii) costs associated with realigning radio stations within the overlap markets between CBS Radio and the Company.
The estimated amount of unpaid restructuring charges as of September 30, 2020 includes amounts in accrued expenses that are expected to be paid in less than one year and long-term restructuring costs for lease abandonment costs covering the remaining non-cancellable lease term.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Twelve Months Ended December 31, 2019
|
|
(amounts in thousands)
|
Restructuring charges, beginning balance
|
$
|
4,251
|
|
|
$
|
7,077
|
|
Additions
|
10,310
|
|
|
6,976
|
|
Payments
|
(11,533)
|
|
|
(9,802)
|
|
Restructuring charges unpaid and outstanding
|
3,028
|
|
|
4,251
|
|
Restructuring charges - noncurrent portion
|
(1,052)
|
|
|
(1,483)
|
|
Restructuring charges - current portion
|
$
|
1,976
|
|
|
$
|
2,768
|
|
4. REVENUE
The following is a description of principal activities from which the Company generates its revenue.
Spot Revenues
The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, RADIO.COM and eventful.com, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Cadence13, the Company embeds advertisements in its owned and operated podcasts and other on-demand content. Performance obligations include delivery of advertisements. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Pineapple, the Company creates podcasts, for which it earns production fees. Performance obligations include the delivery of episodes. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the term of the production contract.
Network Revenues
The Company sells air-time on the Company's Entercom Audio Network. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Sponsorships and Event Revenues
The Company sells advertising space at live and local events hosted by the Company across the country. The Company also earns revenues from attendee-driven ticket sales and merchandise sales. Performance obligations include the presentation
of the advertisers' branding in highly visible areas at the event. These revenues are recognized at a point in time, as the event occurs and the performance obligations are satisfied.
The Company also sells sponsorships including, but not limited to, naming rights related to its programs or studios. Performance obligations include the mentioning or displaying of the sponsors' name, logo, product information, slogan or neutral descriptions of the sponsors' goods or services in acknowledgement of their support. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the length of the sponsorship agreement based upon the fair value of the deliverables included.
Other Revenues
The Company earns revenues from on-site promotions and endorsements from talent. Performance obligations include the broadcasting of such endorsement at specifically identifiable days and dayparts or at various local events. The Company recognizes revenue at a point in time when the performance obligations are satisfied.
The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Contract Balances
Refer to the table below for information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $2.2 million and $5.1 million as of September 30, 2020 and December 31, 2019, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
(amounts in thousands)
|
Receivables, included in "Accounts receivable net of allowance for doubtful accounts"
|
|
$
|
231,211
|
|
|
$
|
376,504
|
|
Unearned revenue - current
|
|
11,814
|
|
|
9,894
|
|
Unearned revenue - noncurrent
|
|
1,499
|
|
|
2,113
|
|
Changes in Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and customer advances and deposits (unearned revenue) on the Company’s condensed consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each respective reporting period within the other current liabilities and other long-term liabilities line items.
Significant changes in the contract liabilities balances during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
Description
|
|
Unearned Revenue
|
|
|
(amounts in thousands)
|
Beginning balance on January 1, 2020
|
|
$
|
12,007
|
|
Revenue recognized during the period that was included in the beginning balance of contract liabilities
|
|
(1,936)
|
|
Additional amounts recognized during period
|
|
3,242
|
|
Ending balance
|
|
$
|
13,313
|
|
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
Revenue by Source
|
|
(amounts in thousands)
|
Spot revenues
|
|
$
|
488,891
|
|
|
$
|
805,161
|
|
Digital revenues
|
|
131,188
|
|
|
98,430
|
|
Network revenues
|
|
56,889
|
|
|
56,260
|
|
Sponsorships and event revenues
|
|
32,871
|
|
|
61,684
|
|
Other revenues
|
|
31,564
|
|
|
54,276
|
|
Net revenues
|
|
$
|
741,403
|
|
|
$
|
1,075,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
2020
|
|
2019
|
Revenue by Source
|
|
(amounts in thousands)
|
Spot revenues
|
|
$
|
183,011
|
|
|
$
|
288,927
|
|
Digital revenues
|
|
47,337
|
|
|
33,473
|
|
Network revenues
|
|
18,908
|
|
|
23,035
|
|
Sponsorships and event revenues
|
|
8,776
|
|
|
22,470
|
|
Other revenues
|
|
10,473
|
|
|
18,236
|
|
Net revenues
|
|
$
|
268,505
|
|
|
$
|
386,141
|
|
5. LEASES
Leasing Guidance
The Company recognizes the assets and liabilities that arise from leases on the commencement date of the lease. The Company recognizes the liability to make lease payments as a lease liability as well as a right-of-use ("ROU") asset representing the right to use the underlying asset for the lease term, on the condensed consolidated balance sheet.
Lease Expense
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Lease Cost
|
|
2020
|
|
2019
|
|
|
(amounts in thousands)
|
Operating lease cost
|
|
$
|
36,664
|
|
|
$
|
37,733
|
|
Variable lease cost
|
|
7,808
|
|
|
$
|
7,029
|
|
Short-term lease cost
|
|
—
|
|
|
$
|
182
|
|
Total lease cost
|
|
$
|
44,472
|
|
|
$
|
44,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
Lease Cost
|
|
2020
|
|
2019
|
|
|
(amounts in thousands)
|
Operating lease cost
|
|
$
|
12,351
|
|
|
$
|
12,682
|
|
Variable lease cost
|
|
2,610
|
|
|
2,478
|
|
Short-term lease cost
|
|
—
|
|
|
5
|
|
Total lease cost
|
|
$
|
14,961
|
|
|
$
|
15,165
|
|
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Description
|
|
2020
|
|
2019
|
|
|
(amounts in thousands)
|
Cash paid for amounts included in measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
44,572
|
|
|
$
|
38,991
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
Operating leases (1)
|
|
$
|
6,826
|
|
|
$
|
304,650
|
|
(1)ROU assets obtained in exchange for lease obligations in 2019 include transition liabilities upon implementation of the amended leasing guidance, as well as new leases entered into during the nine months ended September 30, 2019.
As of September 30, 2020, the Company has not entered into any leases that have not yet commenced.
6. INTANGIBLE ASSETS AND GOODWILL
Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.
The following table presents the changes in the carrying value of broadcasting licenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Licenses
Carrying Amount
|
|
September 30,
2020
|
|
December 31,
2019
|
|
(amounts in thousands)
|
Broadcasting licenses balance as of January 1,
|
$
|
2,508,121
|
|
|
$
|
2,516,625
|
|
Disposition of radio stations (See Note 2)
|
—
|
|
|
(17,940)
|
|
Acquisitions (See Note 2)
|
—
|
|
|
19,576
|
|
Loss on impairment
|
(15,957)
|
|
|
—
|
|
Assets held for sale (See Note 14)
|
(432)
|
|
|
(10,140)
|
|
Ending period balance
|
$
|
2,491,732
|
|
|
$
|
2,508,121
|
|
The following table presents the changes in goodwill. Refer to Note 2, Business Combinations, for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Carrying Amount
|
|
September 30,
2020
|
|
December 31,
2019
|
|
(amounts in thousands)
|
Goodwill balance before cumulative loss on impairment as of January 1,
|
$
|
1,024,467
|
|
|
$
|
982,663
|
|
Accumulated loss on impairment as of January 1,
|
(980,547)
|
|
|
(443,194)
|
|
Goodwill beginning balance after cumulative loss on impairment as of January 1,
|
43,920
|
|
|
539,469
|
|
Loss on impairment during year
|
—
|
|
|
(537,353)
|
|
Dispositions (See Note 2)
|
—
|
|
|
(4,862)
|
|
Acquisitions (See Note 2)
|
—
|
|
|
46,666
|
|
Measurement period adjustments to acquired goodwill (See Note 2)
|
(28)
|
|
|
—
|
|
Ending period balance
|
$
|
43,892
|
|
|
$
|
43,920
|
|
Interim Impairment Assessment
In evaluating whether events or changes in circumstances indicate that an interim impairment assessment is required, management considers several factors in determining whether it is more likely than not that the carrying value of the Company’s broadcasting licenses or goodwill exceeds the fair value of the Company’s broadcasting licenses or goodwill. The analysis considers: (i) macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; (ii) industry and market considerations such as deterioration in the environment in which the Company operates, an increased competitive environment, a change in the market for the Company’s products or services, or a regulatory or political development; (iii) cost factors such as increases in labor or other costs that have a negative effect on earnings and cash flows; (iv) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; (v) other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, bankruptcy, or litigation; (vi) events affecting a reporting unit such as a change in the composition or carrying amount of the Company’s net assets; and (vii) a sustained decrease in the Company’s share price.
The Company evaluates the significance of identified events and circumstances on the basis of the weight of evidence along with how they could affect the relationship between the carrying value of the Company’s broadcasting licenses and goodwill and their respective fair value amounts, including positive mitigating events and circumstances.
Subsequent to the annual impairment test conducted during the fourth quarter of 2019, the Company continued to monitor these factors listed above. Due to the current economic and market conditions related to the COVID-19 pandemic, and a contraction in the expected future economic and market conditions utilized in the annual impairment test conducted in the fourth quarter of 2019, the Company determined that the changes in circumstances warranted an interim impairment assessment on its broadcasting licenses during the second quarter of the current year. Due to changes in facts and circumstances, the Company revised its estimates with respect to projected operating performance and discount rates used in the interim impairment assessment.
Subsequent to the interim impairment assessment conducted during the second quarter of the current year, the Company continued to monitor these factors listed above. Due to the current economic and market conditions related to the COVID-19 pandemic, and a further contraction in the expected future economic and market conditions utilized in the interim impairment assessment conducted in the second quarter of the current year, primarily a decrease in market-specific revenue forecasts, the Company determined that changes in circumstances warranted an interim impairment assessment on certain of its broadcasting license during the third quarter of the current year.
After assessing the totality of events and circumstances listed above, the Company determined that it was more likely than not that the fair value of the Company's goodwill, which is solely attributable to the podcasting reporting unit, was greater than its carrying amount. Accordingly, the Company did not conduct an impairment test on its goodwill during the current year.
Broadcasting Licenses Impairment Test
During the second quarter of the current year, the Company completed an interim impairment test for its broadcasting licenses at the market level using the Greenfield method. As a result of this interim impairment assessment, the Company
determined that the fair value of its broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company’s markets and, accordingly, recorded an impairment loss of $4.1 million, ($3.0 million, net of tax).
During the third quarter of the current year, the Company completed an interim impairment test for certain of its broadcasting licenses at the market level using the Greenfield method. As a result of this interim impairment assessment, the Company determined that the fair value of its broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company's markets and, accordingly, recorded an impairment loss of $11.8 million, ($8.7 million, net of tax).
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: (i) the discount rate; (ii) the profit margin of an average station within a market, based upon market size and station type; (iii) the forecast growth rate of each radio market; (iv) the estimated capital start-up costs and losses incurred during the early years; (v) the likely media competition within the market area; (vi) the tax rate; and (vii) 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 (i) through (iii) above are the most important and sensitive in the determination of fair value.
Assumptions and Results - Broadcasting Licenses
The following table reflects the estimates and assumptions used in the interim and annual broadcasting licenses impairment assessments for each respective period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimates And Assumptions
|
|
Third Quarter 2020
|
|
Second Quarter 2020
|
|
Fourth Quarter 2019
|
|
|
|
|
Discount rate
|
7.50
|
%
|
|
8.00
|
%
|
|
8.50
|
%
|
|
|
|
|
Operating profit margin ranges expected for average stations in the markets where the Company operates
|
24% to 36%
|
|
22% to 36%
|
|
18% to 36%
|
|
|
|
|
Forecasted growth rate (including long-term growth rate) range of the Company's markets
|
0.0% to 0.7%
|
|
0.0% to 0.8%
|
|
0.0% to 0.8%
|
|
|
|
|
The Company believes it 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 condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
Goodwill Impairment Test
The Company determined that it was more likely than not that the fair value of the podcasting reporting unit's goodwill exceeded its carrying value. Accordingly, the Company did not proceed with conducting an interim impairment assessment during the current year.
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 condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
|
|
September 30,
2020
|
|
December 31,
2019
|
|
(amounts in thousands)
|
Accrued compensation
|
$
|
22,378
|
|
|
$
|
28,871
|
|
Accounts receivable credits
|
1,733
|
|
|
3,798
|
|
Advertiser obligations
|
3,621
|
|
|
4,095
|
|
Accrued interest payable
|
23,934
|
|
|
9,882
|
|
Unearned revenue
|
11,814
|
|
|
9,894
|
|
|
|
|
|
Unfavorable sports liabilities
|
4,634
|
|
|
4,634
|
|
Accrued benefits
|
4,983
|
|
|
6,321
|
|
Non-income tax liabilities
|
1,723
|
|
|
1,685
|
|
Income taxes payable
|
185
|
|
|
3,925
|
|
Other
|
3,673
|
|
|
3,732
|
|
Total other current liabilities
|
$
|
78,678
|
|
|
$
|
76,837
|
|
8. LONG-TERM DEBT
Long-term debt was comprised of the following as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
September 30,
2020
|
|
December 31,
2019
|
|
(amounts in thousands)
|
Credit Facility
|
|
|
|
Revolver
|
$
|
77,727
|
|
|
$
|
117,000
|
|
Term B-2 Loan, due November 17, 2024
|
755,378
|
|
|
770,000
|
|
Plus unamortized premium
|
1,752
|
|
|
1,968
|
|
|
834,857
|
|
|
888,968
|
|
Notes
|
|
|
|
6.500% notes due May 1, 2027
|
425,000
|
|
|
425,000
|
|
Plus unamortized premium
|
4,489
|
|
|
5,000
|
|
|
429,489
|
|
|
430,000
|
|
Senior Notes
|
|
|
|
7.25% senior unsecured notes, due November 1, 2024
|
400,000
|
|
|
400,000
|
|
Plus unamortized premium
|
9,912
|
|
|
11,732
|
|
|
409,912
|
|
|
411,732
|
|
|
|
|
|
Other debt
|
808
|
|
|
873
|
|
Total debt before deferred financing costs
|
1,675,066
|
|
|
1,731,573
|
|
Current amount of long-term debt
|
(5,488)
|
|
|
(16,377)
|
|
Deferred financing costs (excludes the revolving credit)
|
(15,395)
|
|
|
(18,082)
|
|
Total long-term debt
|
$
|
1,654,183
|
|
|
$
|
1,697,114
|
|
Outstanding standby letters of credit
|
$
|
6,834
|
|
|
$
|
5,862
|
|
(A) Senior Debt
The Company's credit agreement (the "Credit Facility") has usual and customary covenants including, but not limited to, a net first lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net First-Lien Leverage Ratio that cannot exceed 4.0 times. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First-Lien Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition.
Credit Facility - Amendment No. 5
On July 20, 2020, Entercom Media Corp., a wholly-owned subsidiary of the Company, entered into an amendment ("Amendment No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of 1.50% per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
As of September 30, 2020, the Company is in compliance with the financial covenant and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenant is highly dependent on its results of operations. The cash available from the Revolver is dependent on the Company’s Consolidated Net First-Lien Leverage Ratio at the time of such borrowing.
(B) Net Interest Expense
The components of net interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
Interest expense
|
$
|
65,783
|
|
|
$
|
76,190
|
|
Amortization of deferred financing costs
|
2,942
|
|
|
2,227
|
|
Amortization of original issue discount (premium) of senior notes
|
(2,546)
|
|
|
(2,248)
|
|
Interest income and other investment income
|
(70)
|
|
|
(749)
|
|
Total net interest expense
|
$
|
66,109
|
|
|
$
|
75,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
Interest expense
|
$
|
20,723
|
|
|
$
|
25,203
|
|
Amortization of deferred financing costs
|
999
|
|
|
755
|
|
Amortization of original issue discount (premium) of senior notes
|
(849)
|
|
|
(678)
|
|
Interest income and other investment income
|
(27)
|
|
|
(24)
|
|
Total net interest expense
|
$
|
20,846
|
|
|
$
|
25,256
|
|
9. DERIVATIVE AND HEDGING ACTIVITIES
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.
Hedge Accounting Treatment
As of September 30, 2020, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
Of
Hedge
|
|
Notional
Amount
|
|
Effective
Date
|
|
Collar
|
|
Fixed
LIBOR
Rate
|
|
Expiration
Date
|
|
Notional
Amount
Decreases
|
|
Amount
After
Decrease
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap
|
|
2.75%
|
|
|
|
Jun. 28, 2021
|
|
$
|
340.0
|
|
Collar
|
|
$
|
460.0
|
|
|
Jun. 25, 2019
|
|
Floor
|
|
0.402%
|
|
Jun. 28, 2024
|
|
Jun. 28, 2022
|
|
$
|
220.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 28, 2023
|
|
$
|
90.0
|
|
Total
|
|
$
|
460.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2020, the Company recorded the net change in the fair value of this derivative as a loss of $2.9 million (net of a tax benefit of $0.8 million as of September 30, 2020) to the condensed consolidated statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of September 30, 2020, the fair value of these derivatives was a liability of $3.1 million, and is recorded as other long-term liabilities on the condensed consolidated balance sheet. The Company expects to reclassify approximately $1.1 million of this amount to the condensed consolidated statement of operations over the next twelve months.
The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of September 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Derivative Gain (Loss)
|
Description
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
(amounts in thousands)
|
Accumulated derivative unrealized gain (loss)
|
|
$
|
(2,238)
|
|
|
$
|
(139)
|
|
The following tables present the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the nine and three months ended September 30, 2020 and September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
Net Change in Accumulated Derivative Unrealized Gain (Loss)
|
|
Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations
|
Nine Months Ended September 30,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
(amounts in thousands)
|
$
|
(2,099)
|
|
|
$
|
(577)
|
|
|
$
|
364
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
Net Change in Accumulated Derivative Unrealized Gain (Loss)
|
|
Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Condensed Consolidated Statement of Operations
|
Three Months Ended September 30,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
(amounts in thousands)
|
$
|
515
|
|
|
$
|
(353)
|
|
|
$
|
249
|
|
|
$
|
—
|
|
Undesignated Derivatives
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the equity market risks associated with its non-qualified deferred compensation plan liabilities. The Company pays a floating rate, based on LIBOR, on the notional amount of the TRS. The TRS is designed to substantially offset changes in its non-qualified deferred compensation plan's liabilities due to changes in the value of the investment options made by employees. As of September 30, 2020, the notional investments underlying the TRS amounted to $23 million. The contract term of the TRS is through April 2021 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as an accounting hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of its non-qualified deferred compensation plan liabilities.
For the nine months ended September 30, 2020, the Company recorded the net change in the fair value of the TRS in station operating expenses and corporate, general and administrative expenses in the amount of a $3.7 million benefit. Of this amount, a $1.7 million benefit was recorded in corporate, general and administrative expenses and a $2.0 million benefit was recorded in station operating expenses.
10. NET INCOME (LOSS) PER COMMON SHARE
The following tables present the computations of basic and diluted net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(amounts in thousands except per share data)
|
Basic Income (Loss) Per Share
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(16,878)
|
|
|
$
|
38,208
|
|
|
$
|
(79,827)
|
|
|
$
|
67,323
|
|
Denominator
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
134,735
|
|
|
136,449
|
|
|
134,753
|
|
|
137,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Basic
|
$
|
(0.13)
|
|
|
$
|
0.28
|
|
|
$
|
(0.59)
|
|
|
$
|
0.49
|
|
Diluted Income (Loss) Per Share
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(16,878)
|
|
|
$
|
38,208
|
|
|
$
|
(79,827)
|
|
|
$
|
67,323
|
|
Denominator
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
134,735
|
|
|
136,449
|
|
|
134,753
|
|
|
137,944
|
|
Effect of RSUs and options under the treasury stock method
|
—
|
|
|
4
|
|
|
—
|
|
|
351
|
|
Diluted weighted average shares outstanding
|
134,735
|
|
|
136,453
|
|
|
134,753
|
|
|
138,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Diluted
|
$
|
(0.13)
|
|
|
$
|
0.28
|
|
|
$
|
(0.59)
|
|
|
$
|
0.49
|
|
Disclosure of Anti-Dilutive Shares
The following table presents those shares excluded as they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Impact Of Equity Issuances
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(amounts in thousands, except per share data)
|
Shares excluded as anti-dilutive under the treasury stock method:
|
|
|
|
|
|
|
|
Options
|
609
|
|
|
545
|
|
|
609
|
|
|
549
|
|
Price range of options: from
|
$
|
3.54
|
|
|
$
|
6.43
|
|
|
$
|
3.54
|
|
|
$
|
6.43
|
|
Price range of options: to
|
$
|
13.98
|
|
|
$
|
13.98
|
|
|
$
|
13.98
|
|
|
$
|
13.98
|
|
RSUs with service conditions
|
2,464
|
|
|
3,555
|
|
|
2,626
|
|
|
1,939
|
|
RSUs excluded with service and market conditions as market conditions not met
|
199
|
|
|
70
|
|
|
199
|
|
|
70
|
|
Excluded shares as anti-dilutive when reporting a net loss
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
11. 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 year-to-date period ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
Number of Restricted Stock Units
|
|
Weighted Average Purchase Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value as of September 30,
2020
|
|
(amounts in thousands)
|
RSUs outstanding as of:
|
December 31, 2019
|
|
3,861
|
|
|
|
|
|
|
|
RSUs awarded
|
September 30, 2020
|
|
580
|
|
|
|
|
|
|
|
RSUs released
|
September 30, 2020
|
|
(1,599)
|
|
|
|
|
|
|
|
RSUs forfeited
|
September 30, 2020
|
|
(190)
|
|
|
|
|
|
|
|
RSUs outstanding as of:
|
September 30, 2020
|
|
2,652
|
|
|
$
|
—
|
|
|
1.2
|
|
$
|
4,296
|
|
RSUs vested and expected to vest as of:
|
September 30, 2020
|
|
2,652
|
|
|
$
|
—
|
|
|
1.2
|
|
$
|
4,296
|
|
RSUs exercisable (vested and deferred) as of:
|
September 30, 2020
|
|
41
|
|
|
$
|
—
|
|
|
0
|
|
$
|
67
|
|
Weighted average remaining recognition period in years
|
|
|
2.0
|
|
|
|
|
|
|
Unamortized compensation expense
|
|
|
$
|
12,073
|
|
|
|
|
|
|
|
RSUs with Service and Market Conditions
The Company issued RSUs with service and market conditions that are included in the table above.
Option Activity
The following table provides summary information related to the exercise of stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
Option Exercise Data
|
|
2020
|
|
2019
|
|
|
(amounts in thousands)
|
Intrinsic value of options exercised
|
|
$
|
—
|
|
|
$
|
1,272
|
|
Tax benefit from options exercised (1)
|
|
$
|
—
|
|
|
$
|
73
|
|
Cash received from exercise price of options exercised
|
|
$
|
—
|
|
|
$
|
244
|
|
|
|
|
|
|
|
(1)
|
Amounts exclude any impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
|
The following table presents the option activity under the Plan during the current year-to-date period ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Intrinsic Value as of September 30
2020
|
|
(amounts in thousands)
|
Options outstanding as of:
|
December 31, 2019
|
|
543
|
|
|
$
|
12.06
|
|
|
|
|
|
Options granted
|
September 30, 2020
|
|
66
|
|
|
5.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of:
|
September 30, 2020
|
|
609
|
|
|
$
|
11.33
|
|
|
4.0
|
|
$
|
—
|
|
Options vested and expected to vest as of:
|
September 30, 2020
|
|
609
|
|
|
$
|
11.33
|
|
|
4.0
|
|
$
|
—
|
|
Options vested and exercisable as of:
|
September 30, 2020
|
|
543
|
|
|
$
|
12.06
|
|
|
3.5
|
|
$
|
—
|
|
Weighted average remaining recognition period in years
|
|
|
0.7
|
|
|
|
|
|
|
Unamortized compensation expense
|
|
|
$
|
37
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding and exercisable options as of the current period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Number of Options Outstanding September 30,
2020
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number of Options Exercisable September 30,
2020
|
|
Weighted
Average
Exercise
Price
|
From
|
|
To
|
$
|
3.54
|
|
|
7.01
|
|
|
66,775
|
|
|
8.7
|
|
5.40
|
|
|
—
|
|
|
$
|
—
|
|
$
|
9.66
|
|
|
13.98
|
|
|
542,582
|
|
|
3.5
|
|
12.06
|
|
|
542,582
|
|
|
$
|
12.06
|
|
$
|
3.54
|
|
|
13.98
|
|
|
609,357
|
|
|
4.0
|
|
11.33
|
|
|
542,582
|
|
|
$
|
12.06
|
|
Recognized Non-Cash Stock-Based Compensation Expense
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
Station operating expenses
|
$
|
1,552
|
|
|
$
|
3,765
|
|
Corporate general and administrative expenses
|
4,616
|
|
|
6,521
|
|
Stock-based compensation expense included in operating expenses
|
6,168
|
|
|
10,286
|
|
Income tax benefit (1)
|
1,452
|
|
|
2,258
|
|
After-tax stock-based compensation expense
|
$
|
4,716
|
|
|
$
|
8,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
Station operating expenses
|
$
|
524
|
|
|
$
|
1,107
|
|
Corporate general and administrative expenses
|
1,421
|
|
|
2,234
|
|
Stock-based compensation expense included in operating expenses
|
1,945
|
|
|
3,341
|
|
Income tax benefit (1)
|
480
|
|
|
770
|
|
After-tax stock-based compensation expense
|
$
|
1,465
|
|
|
$
|
2,571
|
|
(1) Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
12. INCOME TAXES
Tax Rates for the Nine Months and Three Months Ended September 30, 2020
The Company recognized an income tax benefit for the nine and three months ended September 30, 2020 at effective income tax rates of 20.4% and 20.0%, respectively, which was determined using a forecasted rate based upon projected taxable income for the full year. The effective income tax rate for the period was impacted by a discrete income tax expense item related to the shortfall associated with share-based awards.
The Company estimates that its 2020 annual tax rate before discrete items, will be between 22% and 24%. The Company anticipates that it will be able to utilize certain net operating loss carryforwards to reduce future payments of federal and state income taxes.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of the COVID-19 pandemic. The CARES Act includes significant business tax provisions that, among other things, includes the removal of certain limitations on the utilization of net operating losses, increases the loss carry back period for certain losses to five years, and increases the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company determined the CARES Act will not have a material impact on its overall income tax expense.
Tax Rates for the Nine Months and Three Months Ended September 30, 2019
The effective income tax rates were 30.9% and 29.5% for the nine months and three months ended September 30, 2019, respectively, which was determined using a forecasted rate based upon projected taxable income for the full year.
Net Deferred Tax Assets and Liabilities
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. The Company's net deferred tax liabilities primarily relate to differences between book and tax bases of certain indefinite-lived intangible assets (broadcasting licenses). A reversal of deferred tax liabilities may occur when indefinite-lived intangible assets become impaired or are sold.
13. 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. During the periods presented, there were no transfers between fair value hierarchical levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements At Reporting Date
|
Description
|
|
Balance at September 30,
2020
|
|
Quoted prices
in active
markets
Level 1
|
|
Significant
other observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
Measured at
Net Asset Value
as a Practical
Expedient (2)
|
|
|
(amounts in thousands)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (1)
|
|
$
|
30,728
|
|
|
$
|
24,380
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,348
|
|
Interest Rate Cash Flow Hedge (3)
|
|
$
|
3,051
|
|
|
$
|
—
|
|
|
$
|
3,051
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at December 31,
2019
|
|
Quoted prices
in active
markets
Level 1
|
|
Significant
other observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
Measured at
Net Asset Value
as a Practical
Expedient (2)
|
|
|
(amounts in thousands)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (1)
|
|
$
|
33,229
|
|
|
$
|
25,592
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,637
|
|
Interest Rate Cash Flow Hedge (3)
|
|
$
|
189
|
|
|
$
|
—
|
|
|
$
|
189
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)The Company’s deferred compensation liability, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options.
(2)The fair value of underlying investments in collective trust funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy.
(3)The Company’s interest rate collar, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
During the second quarter of 2020, the Company reviewed the fair value of its broadcasting licenses. As a result of this assessment, the Company concluded that certain of its broadcasting licenses were impaired as the fair value of these assets was less than their carrying value. Accordingly, the Company recorded a $4.1 million impairment charge ($3.0 million, net of tax) on its broadcasting licenses in the second quarter of 2020.
During the third quarter of 2020, the Company reviewed the fair value of certain of its broadcasting licenses. As a result of this assessment, the Company concluded that certain of its broadcasting licenses were impaired as the fair value of these assets was less than their carrying value. Accordingly, the Company recorded an $11.8 million impairment ($8.7 million, net of tax) on its broadcasting licenses in the third quarter of 2020.
The Company performs reviews of its ROU assets for impairment when evidence exists that the carrying value of an asset may not be recoverable. The Company recorded an immaterial impairment charge related to ROU asset impairment during the nine months ended September 30, 2020.
During the nine months ended September 30, 2020, there were no events or changes in circumstances which indicated the Company’s investments, property and equipment, goodwill, other intangible assets, or assets held for sale may not be recoverable.
Fair Value of Financial Instruments Subject to Disclosures
The carrying amount of the following assets and liabilities approximates fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
(amounts in thousands)
|
Term B-2 Loan (1)
|
$
|
755,378
|
|
|
$
|
719,498
|
|
|
$
|
770,000
|
|
|
$
|
774,813
|
|
Revolver (2)
|
$
|
77,727
|
|
|
$
|
77,727
|
|
|
$
|
117,000
|
|
|
$
|
117,000
|
|
Senior Notes (3)
|
$
|
400,000
|
|
|
$
|
335,000
|
|
|
$
|
400,000
|
|
|
$
|
423,250
|
|
Notes (4)
|
$
|
425,000
|
|
|
$
|
366,563
|
|
|
$
|
425,000
|
|
|
$
|
454,750
|
|
Other debt (5)
|
$
|
808
|
|
|
|
|
$
|
873
|
|
|
|
Letters of credit (5)
|
$
|
6,834
|
|
|
|
|
$
|
5,862
|
|
|
|
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company’s determination of the fair value of the Term B-2 Loan was based on quoted prices for these instruments and is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(3)The Company utilizes a Level 2 valuation input based upon the market trading prices of the Senior Notes to compute the fair value as these Senior Notes are traded in the debt securities market. The Senior Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(4)The Company utilizes a Level 2 valuation input based upon the market trading prices of the Notes to compute the fair value as these Notes are traded in the debt securities market. The Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(5)The Company does not believe it is practicable to estimate the fair value of the other debt or the outstanding standby letters of credit.
14. ASSETS HELD FOR SALE
Assets Held for Sale
As of December 31, 2019, the Company entered into an agreement with a third party to dispose of equipment and a broadcasting license in Boston, Massachusetts. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2019. In aggregate, these assets had a carrying value of approximately $10.2 million. In the second quarter of 2020, the Company completed this sale for $10.8 million in cash. The Company recognized a gain on the sale, net of sales commissions and other expenses, of approximately $0.2 million.
During the second quarter of 2020, the Company entered into an agreement with Truth Broadcasting Corporation ("Truth") to dispose of property and equipment and two broadcasting licenses in Greensboro, North Carolina. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at September 30, 2020. In aggregate, these assets had a carrying value of $0.5 million. The Company entered into a time brokerage agreement ("TBA") with Truth where Truth commenced operations of the two stations on September 28, 2020. During the period of the TBA, the Company excluded net revenues and station operating expenses associated with the two stations in the Company's consolidated financial statements. This transaction is expected to close within one year.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This is considered a Level 3 measurement.
The major categories of these assets held for sale are as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Held for Sale
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
77
|
|
|
48
|
|
Radio broadcasting licenses
|
432
|
|
|
10,140
|
|
Total intangibles
|
432
|
|
|
10,140
|
|
Net assets held for sale
|
$
|
509
|
|
|
$
|
10,188
|
|
15. SHAREHOLDERS’ EQUITY
Dividend Equivalents
The following table presents the amounts of accrued and unpaid dividends on unvested RSUs as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Equivalent Liabilities
|
|
Balance Sheet
Location
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
|
(amounts in thousands)
|
Short-term
|
Other current liabilities
|
|
$
|
540
|
|
|
$
|
811
|
|
Long-term
|
Other long-term liabilities
|
|
527
|
|
|
913
|
|
Total
|
|
|
$
|
1,067
|
|
|
$
|
1,724
|
|
Employee Stock Purchase Plan
Following the purchase of shares under the Employee Stock Purchase Plan (the "ESPP") for the first quarter of 2020, the Company temporarily suspended the ESPP.
The following table presents the amount of shares purchased and non-cash compensation expense recognized in connection with the ESPP as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
(amounts in thousands)
|
Number of shares purchased
|
166
|
|
|
260
|
|
Non-cash compensation expense recognized
|
$
|
43
|
|
|
$
|
182
|
|
Share Repurchase Program
During the nine months ended September 30, 2020, the Company did not repurchase any shares under its share repurchase program (the "2017 Share Repurchase Program"). As of September 30, 2020, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.
Shareholder Rights Agreement
On April 20, 2020, the Company entered into a Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (as amended from time to time, the "Rights Agreement"), which was previously approved by the Board of Directors of the Company (the "Board of Directors").
In connection with the Rights Agreement, a dividend was declared of one preferred stock purchase right (each, a "Class A Right") for each share of the Company's Class A common stock, par value $0.01 per share (the "Class A Common Stock"), and one preferred stock purchase right (each, a "Class B Right" and, together with the Class A Rights, the "Rights") for each share of the Company's Class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), outstanding at the close of business on May 5, 2020 (the "Record Date").
Once the Rights become exercisable, each Right will entitle the holder of each Class A Right to purchase one one-thousandth of a share of the Company's Series A Junior Participating Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred"), and, with respect to each Class B Right, one one-thousandth of a share of the Company's Series B Junior Participating Convertible Preferred Stock, par value $0.01 per share (the "Series B Preferred"), at a price of $6.06 per one one-thousandth of a share of Series A Preferred or Series B Preferred, as applicable (in each case, the "Purchase Price"). At the election of the Board of Directors, shares of Series A Preferred and Series B Preferred are convertible into shares of Class A Common Stock and Class B Common Stock, respectively.
The Rights will expire on April 20, 2021, subject to the Company's right to extend such date, unless earlier redeemed or exchanged by the Company or terminated. The rights have an immaterial fair value.
In the event that a person becomes an Acquiring Person (as defined in the Rights Agreement, an "Acquiring Person") or if the Company were the surviving corporation in a merger with an Acquiring Person or any affiliate or associate of, or any person acting in concert with, an Acquiring Person and shares of Common Stock were not changed or exchanged in such merger, each holder of a Right, other than Rights that are or were acquired or beneficially owned by the Acquiring Person (which Rights will thereafter be void), will thereafter have the right to receive upon exercise that number of one-thousandths of a share of Series A Preferred or Series B Preferred, as applicable, equal to the number of shares of Class A Common Stock having a market value of two times the then current Purchase Price of one Right. In the event that, after a person has become an Acquiring Person, the Company were acquired in a merger or other business combination transaction or more than 50% of its assets or earning power were sold, proper provision shall be made so that each holder of a Right shall thereafter have the right to receive, upon exercise at the then current Purchase Price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the then current Purchase Price of one Right.
At any time after a person becomes an Acquiring Person and prior to the earlier of one of the events described in the last sentence of the previous paragraph or the acquisition by such Acquiring Person acquiring 50% or more of the then outstanding Class A Common Stock, the Board of Directors may cause the Company to exchange the Rights (other than Rights owned by an Acquiring Person which have become void), in whole or in part, for shares of Series A Preferred or Series B Preferred, as applicable, at an exchange rate of one one-thousandth of a share of Series A Preferred per Class A Right and one one-thousandth of a share of Series B Preferred per Class B Right.
In the event that the Company receives a Qualifying Offer (as defined in the Rights Agreement), the holders of record of at least 10% or more of the shares of Common Stock then outstanding may submit to the Board of Directors a written demand requesting that the Board of Directors call a special meeting of the Company's shareholders for the purpose of voting on whether or not to exempt such Qualifying Offer from the terms of the Rights agreement. Upon the effective date of the exemption of the Rights, the right to exercise the Rights with respect to the Qualifying Offer will terminate.
The Rights are designed to assure that all of the Company's shareholders receive fair and equal treatment in the event of any proposed takeover of the Company. The Rights will cause substantial dilution to a person or group that acquires 10% (15% in the case of a passive institutional investor) or more of the Class A Common Stock on terms not approved by the Board of Directors. The adoption of the Rights Agreement was not a taxable event and did not have any material impact on the Company's financial reporting.
16. CONTINGENCIES AND COMMITMENTS
Contingencies
The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on March 2, 2020, other than as described below.
FCC Matter
On July 22, 2020, the Company and the FCC entered into a consent decree for the purpose of terminating the FCC's investigation into the timeliness of the Company’s compliance with respect to the political file record keeping obligations for all of the Company’s stations. Under the terms of the consent decree, which constitutes a final settlement with respect to the investigation, the FCC determined that no civil penalty was warranted. Additionally, the Company agreed to implement a comprehensive compliance plan and provide periodic compliance reports to the FCC.
17. SUBSEQUENT EVENTS
Events occurring after September 30, 2020, 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 November 5, 2020, the Company announced that it entered into an exchange agreement with Urban One, Inc. ("Urban One") pursuant to which the Company will exchange its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company and Urban One will begin programming the respective stations under LMAs on November 23, 2020. The Urban One Exchange is expected to close in the first quarter of 2021.
On November 9, 2020, the Company announced that it acquired sports data and iGaming affiliate platform QL Gaming Group ("QLGG") in an all cash deal for approximately $32 million (the "QLGG Acquisition").
The QLGG technology portfolio includes sports betting data and analytical capabilities (BetQL), daily fantasy sports (RotoQL), simulation-based sports outcome predictions and game forecasting (AccuScore), and comprehensive analytical coverage of the Association of Tennis Professionals Tour and the Women's Tennis Association Tour (TennisInsight.com), each with respective subscriber base and licensing opportunities. Upon the completion of the QLGG Acquisition, the Company will record the assets acquired and liabilities assumed at fair value. This information will be included in future filings.