UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM             TO            

COMMISSION FILE NUMBER 1-15997

 

ENTRAVISION COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-4783236

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2425 Olympic Boulevard, Suite 6000 West

Santa Monica, California 90404

(Address of principal executive offices) (Zip Code)

(310) 447-3870

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨     No  x

As of November 3, 2014, there were 59,520,856 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 18,930,035 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 9,352,729 shares, $0.0001 par value per share, of the registrant’s Class U common stock outstanding.

 

 

 

 

 


ENTRAVISION COMMUNICATIONS CORPORATION

FORM 10-Q FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

 

 

 

 

  

Page
Number

 

 

PART I. FINANCIAL INFORMATION

  

 

ITEM 1.

 

FINANCIAL STATEMENTS

  

3

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

  

3

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

  

4

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

 

5

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND SEPTEMBER 30, 2013

  

6

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

7

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

19

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

32

ITEM 4.

 

CONTROLS AND PROCEDURES

  

33

 

 

PART II. OTHER INFORMATION

  

 

ITEM 1.

 

LEGAL PROCEEDINGS

  

34

ITEM 1A.

 

RISK FACTORS

  

34

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

  

34

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

  

34

ITEM 4.

 

MINE SAFETY DISCLOSURES

  

34

ITEM 5.

 

OTHER INFORMATION

  

34

ITEM 6.

 

EXHIBITS

  

35

 

 

 

1


 

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:

·

risks related to our history of operating losses, our substantial indebtedness or our ability to raise capital;

·

provisions of our debt instruments, including the agreement dated as of May 31, 2013, or the 2013 Credit Agreement, which governs our current credit facility, or the 2013 Credit Facility, the terms of which restrict certain aspects of the operation of our business;

·

our continued compliance with all of our obligations, including financial covenants and ratios, under the 2013 Credit Agreement;

·

cancellations or reductions of advertising due to the then current economic environment or otherwise;

·

advertising rates remaining constant or decreasing;

·

the impact of rigorous competition in Spanish-language media and in the advertising industry generally;

·

the impact on our business, if any, as a result of changes in the way market share is measured by third parties;

·

our relationship with Univision Communications Inc., or Univision;

·

the extent to which we continue to generate revenue under retransmission consent agreements;

·

subject to restrictions contained in the 2013 Credit Agreement, the overall success of our acquisition strategy, which historically has included developing media clusters in key U.S. Hispanic markets, and the integration of any acquired assets with our existing business;

·

industry-wide market factors and regulatory and other developments affecting our operations;

·

economic uncertainty;

·

the impact of any potential future impairment of our assets;

·

risks related to changes in accounting interpretations; and

·

the impact, including additional costs, of mandates and other obligations that may be imposed upon us as a result of new federal healthcare laws, including the Affordable Care Act, the rules and regulations promulgated thereunder and any executive action with respect thereto.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors,” beginning on page 26 of our Annual Report on Form 10-K for the year ended December 31, 2013.

 

 

 

2


 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

46,266

 

 

$

43,822

 

Trade receivables, net of allowance for doubtful accounts of $2,890 and $3,199 (including related parties of $10,791 and $7,102)

 

64,948

 

 

 

57,043

 

Deferred income taxes

 

6,100

 

 

 

6,100

 

Prepaid expenses and other current assets (including related parties of $274 and $274)

 

6,157

 

 

 

4,087

 

Total current assets

 

123,471

 

 

 

111,052

 

Property and equipment, net of accumulated depreciation of $191,336 and $184,084

 

57,372

 

 

 

58,765

 

Intangible assets subject to amortization, net of accumulated amortization of $73,813 and $71,678 (including related parties of $16,819 and $18,559)

 

21,077

 

 

 

19,812

 

Intangible assets not subject to amortization

 

220,701

 

 

 

220,701

 

Goodwill

 

50,456

 

 

 

36,647

 

Deferred income taxes

 

70,747

 

 

 

83,856

 

Other assets

 

6,587

 

 

 

7,404

 

Total assets

$

550,411

 

 

$

538,237

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current maturities of long-term debt

$

4,688

 

 

$

3,750

 

Advances payable, related parties

 

118

 

 

 

118

 

Accounts payable and accrued expenses (including related parties of $3,778 and $3,994)

 

29,583

 

 

 

31,246

 

Total current liabilities

 

34,389

 

 

 

35,114

 

Long-term debt, less current maturities

 

357,500

 

 

 

360,313

 

Other long-term liabilities

 

8,773

 

 

 

6,786

 

Total liabilities

 

400,662

 

 

 

402,213

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2014 60,303,868; 2013 59,793,603

 

6

 

 

 

6

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2014 18,930,035; 2013 18,969,222

 

2

 

 

 

2

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2014 and 2013 9,352,729

 

1

 

 

 

1

 

Additional paid-in capital

 

924,700

 

 

 

927,377

 

Accumulated deficit

 

(770,416

)

 

 

(791,596

)

Treasury stock, Class A common stock, at cost, 2014 772,772; 2013 None

 

(3,482

)

 

 

-

 

Accumulated other comprehensive income (loss)

 

(1,062

)

 

 

234

 

Total stockholders' equity

 

149,749

 

 

 

136,024

 

Total liabilities and stockholders' equity

$

550,411

 

 

$

538,237

 

 

See Notes to Consolidated Financial Statements

 

 

 

3


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net revenue

$

62,274

 

 

$

57,786

 

 

$

176,776

 

 

$

163,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital media

 

1,489

 

 

 

-

 

 

 

1,489

 

 

 

-

 

Direct operating expenses (including related parties of  $2,588, $2,618, $7,824 and $7,560) (including non-cash stock-based compensation of $278, $297, $495 and $776)

 

26,913

 

 

 

25,860

 

 

 

78,542

 

 

 

76,073

 

Selling, general and administrative expenses

 

9,031

 

 

 

8,131

 

 

 

25,910

 

 

 

23,238

 

Corporate expenses (including non-cash stock-based compensation of $611, $979, $1,697 and $2,742)

 

4,899

 

 

 

5,011

 

 

 

14,996

 

 

 

14,244

 

Depreciation and amortization (includes direct operating of $2,585, $2,668, $7,471 and $8,599 selling, general and administrative of $1,020, $723, $2,789 and $2,150 and corporate of $180, $222, $543 and $639 (including related parties of $580, $580, $1,740 and $1,741)

 

3,785

 

 

 

3,613

 

 

 

10,803

 

 

 

11,388

 

 

 

46,117

 

 

 

42,615

 

 

 

131,740

 

 

 

124,943

 

Operating income (loss)

 

16,157

 

 

 

15,171

 

 

 

45,036

 

 

 

38,880

 

Interest expense

 

(3,501

)

 

 

(5,352

)

 

 

(10,408

)

 

 

(21,017

)

Interest income

 

12

 

 

 

12

 

 

 

37

 

 

 

28

 

Loss on debt extinguishment

 

-

 

 

 

(29,404

)

 

 

-

 

 

 

(29,534

)

Income (loss) before income taxes

 

12,668

 

 

 

(19,573

)

 

 

34,665

 

 

 

(11,643

)

Income tax (expense) benefit

 

(4,611

)

 

 

(1,811

)

 

 

(13,485

)

 

 

(5,625

)

Net income (loss)

$

8,057

 

 

$

(21,384

)

 

$

21,180

 

 

$

(17,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic

$

0.09

 

 

$

(0.24

)

 

$

0.24

 

 

$

(0.20

)

Net income (loss) per share, diluted

$

0.09

 

 

$

(0.24

)

 

$

0.23

 

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.03

 

 

$

-

 

 

$

0.08

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

89,179,192

 

 

 

87,959,856

 

 

 

89,048,459

 

 

 

87,170,106

 

Weighted average common shares outstanding, diluted

 

91,239,798

 

 

 

87,959,856

 

 

 

91,130,613

 

 

 

87,170,106

 

 

See Notes to Consolidated Financial Statements

 

 

 

4


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands, except share and per share data)

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net income (loss)

$

8,057

 

 

$

(21,384

)

 

$

21,180

 

 

$

(17,268

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap agreements

 

474

 

 

 

 

 

 

(1,296

)

 

 

 

Total other comprehensive income (loss)

 

474

 

 

 

 

 

 

(1,296

)

 

 

 

Comprehensive income (loss)

$

8,531

 

 

$

(21,384

)

 

$

19,884

 

 

$

(17,268

)

 

See Notes to Consolidated Financial Statements

 

 

 

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

21,180

 

 

$

(17,268

)

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

   activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

10,803

 

 

 

11,388

 

Deferred income taxes

 

12,771

 

 

 

5,055

 

Amortization of debt issue costs

 

611

 

 

 

1,438

 

Amortization of syndication contracts

 

354

 

 

 

450

 

Payments on syndication contracts

 

(441

)

 

 

(995

)

Non-cash stock-based compensation

 

2,192

 

 

 

3,518

 

(Gain) loss on debt extinguishment

 

-

 

 

 

29,534

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

(5,523

)

 

 

(3,701

)

(Increase) decrease in prepaid expenses and other assets

 

(2,168

)

 

 

(1,323

)

Increase (decrease) in accounts payable, accrued expenses and other

   liabilities

 

(5,670

)

 

 

(10,111

)

Net cash provided by (used in) operating activities

 

34,109

 

 

 

17,985

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment and intangibles

 

(6,390

)

 

 

(7,568

)

Purchases of a business, net of cash acquired

 

(15,048

)

 

 

-

 

Net cash provided by (used in) investing activities

 

(21,438

)

 

 

(7,568

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

1,817

 

 

 

2,740

 

Payments on long-term debt

 

(1,875

)

 

 

(365,047

)

Dividends paid

 

(6,687

)

 

 

-

 

Repurchase of Class A common stock

 

(3,482

)

 

 

-

 

Proceeds from borrowings on long-term debt

 

-

 

 

 

375,000

 

Payments of capitalized debt offering and issuance costs

 

-

 

 

 

(5,694

)

Net cash provided by (used in) financing activities

 

(10,227

)

 

 

6,999

 

Net increase (decrease) in cash and cash equivalents

 

2,444

 

 

 

17,416

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning

 

43,822

 

 

 

36,130

 

Ending

$

46,266

 

 

$

53,546

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest

$

11,977

 

 

$

29,175

 

Income taxes

$

714

 

 

$

570

 

 

See Notes to Consolidated Financial Statements

 

 

6


 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2014

 

1. BASIS OF PRESENTATION

Presentation

The consolidated financial statements included herein have been prepared by Entravision Communications Corporation (the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2014 or any other future period.

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a diversified media company utilizing a combination of television, radio, and digital media operations, to reach Hispanic audiences and consumers across the United States, as well as the border markets of Mexico.

Related Party

Substantially all of the Company’s stations are Univision- or UniMás-affiliated television stations. The Company’s network affiliation agreements, as amended, with Univision provide certain of its owned stations the exclusive right to broadcast Univision’s primary network and UniMás network programming in their respective markets. These long-term affiliation agreements each expire in 2021, and can be renewed for multiple, successive two-year terms at Univision’s option, subject to the Company’s consent. Under the Univision network affiliation agreement, the Company retains the right to sell approximately six minutes per hour of the available advertising time on Univision’s primary network, subject to adjustment from time to time by Univision, but in no event less than four minutes. Under the UniMás network affiliation agreement, the Company retains the right to sell approximately four and a half minutes per hour of the available advertising time the UniMás network, subject to adjustment from time to time by Univision.  

Under the network affiliation agreements, Univision acts as the Company’s exclusive sales representative for the sale of national advertising sales on the Company’s Univision- and UniMás-affiliate television stations, and the Company pays certain sales representation fees to Univision relating to sales of all advertising for broadcast on the Company’s Univision- and UniMás-affiliate television stations. During each of the three-month periods ended September 30, 2014 and 2013, the amount the Company paid Univision in this capacity was $2.6 million. During the nine-month periods ended September 30, 2014 and 2013, the amount the Company paid Univision in this capacity was $7.8 million and $7.6 million, respectively.

The Company also generates revenue under two marketing and sales agreements with Univision, which give the Company the right through 2021 to manage the marketing and sales operations of Univision-owned UniMás and Univision affiliates in six markets – Albuquerque, Boston, Denver, Orlando, Tampa and Washington, D.C.

In August 2008, the Company entered into a proxy agreement with Univision pursuant to which the Company granted Univision the right to negotiate the terms of retransmission consent agreements for its Univision- and UniMás-affiliated television station signals for a term of six years, expiring in December 2014. Among other things, the proxy agreement provides terms relating to compensation to be paid to the Company by Univision with respect to retransmission consent agreements entered into with Multichannel Video Programming Distributors (“MVPDs”). As of September 30, 2014, the amount due to the Company from Univision was $10.8 million related to the agreements for the carriage of its Univision and UniMás-affiliated television station signals. The term of the proxy agreement extends with respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy agreement.

7


 

Univision currently owns approximately 10% of the Company’s common stock on a fully-converted basis. The Class U common stock held by Univision has limited voting rights and does not include the right to elect directors. As the holder of all of the Company’s issued and outstanding Class U common stock, so long as Univision holds a certain number of shares, the Company will not, without the consent of Univision, merge, consolidate or enter into another business combination, dissolve or liquidate the Company or dispose of any interest in any Federal Communications Commission, or FCC, license for any of its Univision-affiliated television stations, among other things. Each share of Class U common stock is automatically convertible into one share of Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer to a third party that is not an affiliate of Univision.

Stock-Based Compensation

The Company measures all stock-based awards using a fair value method and recognizes the related stock-based compensation expense in the consolidated financial statements over the requisite service period. As stock-based compensation expense recognized in the Company’s consolidated financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

Stock-based compensation expense related to grants of stock options and restricted stock units was $0.9 million and $1.3 million for the three-month periods ended September 30, 2014 and 2013, respectively. Stock-based compensation expense related to grants of stock options and restricted stock units was $2.2 million and $3.5 million for the nine-month periods ended September 30, 2014 and 2013, respectively.

Stock Options

Stock-based compensation expense related to stock options is based on the fair value on the date of grant using the Black-Scholes option pricing model and is amortized over the vesting period, generally between 1 to 4 years.

The fair value of each stock option granted was estimated using the following weighted-average assumptions:

 

 

Nine-Month Period
Ended September 30,
2014

 

Fair value of options granted

$

3.26

 

Expected volatility

 

117

%

Risk-free interest rate

 

2.0

%

Expected lives

 

6.1 years

 

Dividend rate

 

2.3

%

As of September 30, 2014, there was approximately $2.4 million of total unrecognized compensation expense related to grants of stock options that is expected to be recognized over a weighted-average period of 1.7 years.

Restricted Stock Units

Stock-based compensation expense related to restricted stock units is based on the fair value of the Company’s stock price on the date of grant and is amortized over the vesting period, generally between 1 to 4 years.

The following is a summary of non-vested restricted stock units granted (in thousands, except grant date fair value data):

 

 

Nine-Month Period

 

 

Ended September 30, 2014

 

 

Number
Granted

 

 

Weighted-Average
Fair
Value

 

Restricted stock units

 

1,181

 

 

$

4.51

 

As of September 30, 2014, there was approximately $4.4 million of total unrecognized compensation expense related to grants of restricted stock units that is expected to be recognized over a weighted-average period of 1.6 years.

 

8


 

Income (Loss) Per Share

The following table illustrates the reconciliation of the basic and diluted income (loss) per share computations required by ASC 260-10, “Earnings Per Share” (in thousands, except share and per share data):

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

8,057

 

 

$

(21,384

)

 

$

21,180

 

 

$

(17,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

89,179,192

 

 

 

87,959,856

 

 

 

89,048,459

 

 

 

87,170,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

$

0.09

 

 

$

(0.24

)

 

$

0.24

 

 

$

(0.20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

8,057

 

 

$

(21,384

)

 

$

21,180

 

 

$

(17,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

89,179,192

 

 

 

87,959,856

 

 

 

89,048,459

 

 

 

87,170,106

 

Dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted stock units

 

2,060,606

 

 

 

-

 

 

 

2,082,154

 

 

 

-

 

Diluted shares outstanding

 

91,239,798

 

 

 

87,959,856

 

 

 

91,130,613

 

 

 

87,170,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

$

0.09

 

 

$

(0.24

)

 

$

0.23

 

 

$

(0.20

)

 

 

Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, if any, that could occur from shares issuable through stock options and restricted stock awards.

For the three- and nine-month periods ended September 30, 2014, a total of 1,274,750 and 1,336,750 shares of dilutive securities, respectively, were not included in the computation of diluted income per share because the exercise prices of the dilutive securities were greater than the average market price of the common shares.

For the three- and nine-month periods ended September 30, 2013, all dilutive securities have been excluded as their inclusion would have had an antidilutive effect on loss per share. The number of securities whose conversion would result in an incremental number of shares that would be included in determining the weighted average shares outstanding for diluted earnings per share if their effect was not antidilutive was 2,451,894 and 1,736,783 equivalent shares of dilutive securities for the three- and nine-month periods ended September 30, 2013, respectively.

Treasury Stock

On August 18, 2014, the Board of Directors approved a share repurchase program of up to $10.0 million of the Company’s outstanding common stock. Under the share repurchase program the Company is authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice.

Treasury stock is included as a deduction from equity in the Stockholders’ Equity section of the Consolidated Balance Sheets.

As of September 30, 2014, the Company repurchased approximately 0.8 million shares of Class A common stock at an average price of $4.51, for an aggregate purchase price of approximately $3.5 million.

9


 

Notes

The following discussion pertains to the Company’s 8.75% senior secured first lien notes due 2017, (the “Notes”), and the indenture governing the Notes, (the “Indenture”), as the same existed during the year ended December 31, 2013. This discussion is qualified in its entirety by reference to the full text of the Notes and the Indenture. On August 2, 2013, the Company redeemed the then outstanding Notes and the Indenture was terminated.

On July 27, 2010, the Company completed the offering and sale of $400 million aggregate principal amount of the Notes. The Notes were issued at a discount of 98.722% of their principal amount with a maturity date of August 1, 2017. Interest on the Notes accrued at a rate of 8.75% per annum from the date of original issuance and was payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2011. The Company received net proceeds of approximately $388 million from the sale of the Notes (net of bond discount of $5 million and fees of $7 million), which were used to pay all indebtedness outstanding under the previous syndicated bank credit facility, terminate the related interest rate swap agreements, pay fees and expenses related to the offering of the Notes and for general corporate purposes.

During the fourth quarter of 2011, the Company repurchased Notes on the open market with a principal amount of $16.2 million. The Company recorded a loss on debt extinguishment of $0.4 million primarily due to the write off of unamortized finance costs and unamortized bond discount.

During the second quarter of 2012, the Company repurchased Notes with a principal amount of $20.0 million pursuant to the optional redemption provisions in the Indenture. The redemption price for the redeemed Notes was 103% of the principal amount plus all accrued and unpaid interest. The Company recorded a loss on debt extinguishment of $1.2 million related to the premium paid and the write off of unamortized finance costs and unamortized bond discount.

During the fourth quarter of 2012, the Company repurchased Notes with a principal amount of $40.0 million pursuant to the optional redemption provisions in the Indenture. The redemption price for the redeemed Notes was 103% of the principal amount plus all accrued and unpaid interest. The Company recorded a loss on debt extinguishment of $2.5 million related to the premium paid and the write off of unamortized finance costs and unamortized bond discount.

The Notes were guaranteed on a senior secured basis by all of the existing and future wholly-owned domestic subsidiaries (the “Note Guarantors”). The Notes and the guarantees ranked equal in right of payment to all of the Company’s and the Note Guarantors’ existing and future senior indebtedness and senior in right of payment to all of the Company’s and the Note Guarantors’ existing and future subordinated indebtedness. In addition, the Notes and the guarantees were effectively junior: (i) to the Company’s and the Note Guarantors’ indebtedness secured by assets that are not collateral; (ii) pursuant to a Collateral Trust and Intercreditor Agreement dated July 27, 2010 the Company entered into with Wells Fargo Bank, National Association, as the Trustee under the Indenture, and GE Capital, as the Collateral Trustee and as the administrative agent under the 2013 Credit Facility (the “Intercreditor Agreement”) at the same time that the Company entered into a previous credit facility that the Company entered into in July 2010; and (iii) to all of the liabilities of any of the Company’s existing and future subsidiaries that do not guarantee the Notes, to the extent of the assets of those subsidiaries. The Notes were secured by substantially all of the assets, as well as the pledge of the stock of substantially all of the subsidiaries, including the special purpose subsidiary formed to hold the Company’s FCC licenses.

The Company had the right to redeem:

prior to August 1, 2013, on one or more occasions, up to 10% of the original principal amount of the Notes during each 12-month period beginning on August 1, 2010, at a redemption price equal to 103% of the principal amount of the Notes, plus accrued and unpaid interest;

prior to August 1, 2013, on one or more occasions, up to 35% of the original principal amount of the Notes with the net proceeds from certain equity offerings, at a redemption price of 108.750% of the principal amount of the Notes, plus accrued and unpaid interest; provided that: (i) at least 65% of the aggregate principal amount of all Notes issued under the Indenture remains outstanding immediately after such redemption; and (ii) such redemption occurs within 60 days of the date of closing of any such equity offering;

prior to August 1, 2013, some or all of the Notes, at a redemption price equal to 100% of the principal amount of the Notes plus a “make-whole” premium plus accrued and unpaid interest; and

on or after August 1, 2013, some or all of the Notes, at a redemption price of: (i) 106.563% of the principal amount of the Notes if redeemed during the twelve-month period beginning on August 1, 2013; (ii) 104.375% of the principal amount of the Notes if redeemed during the twelve-month period beginning on August 1, 2014; (iii) 102.188% of the principal amount of the Notes if redeemed during the twelve-month period beginning on August 1, 2015; and (iv) 100% of the principal amount of the Notes if redeemed on or after August 1, 2016, in each case plus accrued and unpaid interest.

10


 

In addition, upon a change of control of the Company, as defined in the Indenture, the Company would have been required to make an offer to repurchase all Notes then outstanding, at a purchase price equal to 101% of the aggregate principal amount of the Notes repurchased, plus accrued and unpaid interest. In addition, the Company had the right at any time and from time to time purchase Notes in the open market or otherwise.

Upon an event of default, as defined in the Indenture, the Notes would have become due and payable: (i) immediately without further notice if such event of default arises from events of bankruptcy or insolvency of the Company, any Note Guarantor or any restricted subsidiary; or (ii) upon a declaration of acceleration of the Notes in writing to the Company by the Trustee or holders representing 25% of the aggregate principal amount of the Notes then outstanding, if an event of default occurs and is continuing. The Indenture contained additional provisions that are customary for an agreement of this type, including indemnification by the Company and the Note Guarantors. In addition, the Indenture contained various provisions that limited the Company’s ability to: (i) apply the proceeds from certain asset sales other than in accordance with the terms of the Indenture; and (ii) restrict dividends or other payments from subsidiaries.

As discussed in more detail below, on August 2, 2013, the Company redeemed the Notes and the Indenture was terminated.

The Company recognized interest expense related to amortization of the bond discount of $0 million and 0.3 million for the three- and nine-month periods ended September 30, 2013, respectively.

2012 Credit Facility

The following discussion pertains to a term loan and revolving credit facility of up to $50.0 million that the Company entered into on December 20, 2012 (the “2012 Credit Facility”), pursuant to an amended and restated agreement dated as of December 20, 2012 (the “2012 Credit Agreement”). The 2012 Credit Facility was terminated on May 31, 2013 when the Company entered into its current term loan and revolving credit facility of up to $405.0 million (the “2013 Credit Facility”). Accordingly, the following discussion summarizes only certain provisions of the 2012 Credit Facility and the 2012 Credit Agreement. This discussion is qualified in its entirety by reference to the full text of the 2012 Credit Agreement.

On December 20, 2012, the Company entered into the 2012 Agreement pursuant to the 2012 Credit Facility. The 2012 Credit Facility had an expiration date of December 20, 2016 and consisted of a four-year $20.0 million term loan facility and a four-year $30.0 million revolving credit facility, which included a $3.0 million sub-facility for letters of credit.

Borrowings under the 2012 Credit Facility bore interest at either: (i) the Base Rate (as defined in the 2012 Credit Agreement) plus the Applicable Margin (as defined in the 2012 Credit Agreement); or (ii) LIBOR plus the Applicable Margin (as defined in the 2012 Credit Agreement).

The 2012 Credit Facility was guaranteed on a senior secured basis by all of the Company’s existing and future wholly-owned domestic subsidiaries (the “Credit Guarantors”), which were also the Note Guarantors (collectively, the “Guarantors”). The 2012 Credit Facility was secured on a first priority basis by the Company’s and the Credit Guarantors’ assets, which also secured the Notes.

The Company’s borrowings, if any, under the 2012 Credit Facility ranked senior to the Notes upon the terms set forth in an Intercreditor Agreement that the Company entered into in connection with the credit facility that was in effect at that time.

The 2012 Credit Agreement also contained additional provisions that are customary for an agreement of this type, including indemnification by the Company and the Credit Guarantors.

In connection with the Company entering into the Indenture and the 2012 Credit Agreement, the Company and the Guarantors also entered into the following agreements:

a Security Agreement, pursuant to which the Company and the Guarantors each granted a first priority security interest in the collateral securing the Notes and the 2012 Credit Facility for the benefit of the holders of the Notes and the lender under the 2012 Credit Facility; and

the Intercreditor Agreement, in order to define the relative rights of the holders of the Notes and the lender under the 2012 Credit Facility with respect to the collateral securing the Company’s and the Guarantors’ respective obligations under the Notes and the 2012 Credit Facility; and

a Registration Rights Agreement, pursuant to which the Company registered the Notes and successfully conducted an exchange offering for the Notes in unregistered form, as originally issued.

11


 

Subject to certain exceptions, either the 2012 Credit Agreement, the Indenture, or both, contained various provisions that limited the Company’s ability, among other things, to engage in certain transactions, make acquisitions and dispose of certain assets, as more fully provided therein.

2013 Credit Facility

On May 31, 2013, the Company entered into the 2013 Credit Facility pursuant to the 2013 Credit Agreement. The 2013 Credit Facility consists of a $20.0 million senior secured Term Loan A Facility (the “Term Loan A Facility”), a $375.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”; and together with the Term Loan A Facility, the “Term Loan Facilities”) which was drawn on August 1, 2013 (the “Term Loan B Borrowing Date”), and a $30.0 million senior secured Revolving Credit Facility (the “Revolving Credit Facility”). In addition, the 2013 Credit Facility provides that the Company may increase the aggregate principal amount of the 2013 Credit Facility by up to an additional $100.0 million, subject to the Company satisfying certain conditions.

Borrowings under the Term Loan A Facility were used on the closing date of the 2013 Credit Facility (the “Closing Date”) (together with cash on hand) to (a) repay in full all of the outstanding obligations of the Company and its subsidiaries under the 2012 Credit Agreement and to terminate the 2012 Credit Agreement, and (b) pay fees and expenses in connection with the 2013 Credit Facility.  As discussed in more detail below, on August 1, 2013, the Company drew on the Company’s Term Loan B Facility to (a) repay in full all of the outstanding loans under the Term Loan A Facility and (b) redeem in full all of the then outstanding Notes. The Company intends to use any future borrowings under the Revolving Credit Facility to provide for working capital, capital expenditures and other general corporate purposes of the Company and from time to time fund a portion of certain acquisitions, in each case subject to the terms and conditions set forth in the 2013 Credit Agreement.

The 2013 Credit Facility is guaranteed on a senior secured basis by all of the Company’s existing and future wholly-owned domestic subsidiaries (the “Credit Parties”). The 2013 Credit Facility is secured on a first priority basis by the Company’s and the Credit Parties’ assets. Upon the redemption of the then outstanding Notes, the security interests and guaranties of the Company and its Credit Parties under the Indenture and the Notes were terminated and released.

The Company’s borrowings under the 2013 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Base Rate (as defined in the 2013 Credit Agreement) plus the Applicable Margin (as defined in the 2013 Credit Agreement); or (ii) LIBOR (as defined in the 2013 Credit Agreement) plus the Applicable Margin (as defined in the 2013 Credit Agreement). As of September 30, 2014, the Company’s effective interest rate was 3.5%. The Term Loan A Facility expired on the Term Loan B Borrowing Date, which was August 1, 2013. The Term Loan B Facility expires on May 31, 2020 (the “Term Loan B Maturity Date”) and the Revolving Credit Facility expires on May 31, 2018 (the “Revolving Loan Maturity Date”).

As defined in the 2013 Credit Facility, “Applicable Margin” means:

(a) with respect to the Term Loans (i) if a Base Rate Loan, one and one half percent (1.50%) per annum and (ii) if a LIBOR Rate Loan, two and one half percent (2.50%) per annum; and

(b) with respect to the Revolving Loans:

(i) for the period commencing on the Closing Date through the last day of the calendar month during which financial statements for the fiscal quarter ending September 30, 2013 are delivered: (A) if a Base Rate Loan, one and one half percent (1.50%) per annum and (B) if a LIBOR Rate Loan, two and one half percent (2.50%) per annum; and

(ii) thereafter, the Applicable Margin for the Revolving Loans shall equal the applicable LIBOR margin or Base Rate margin in effect from time to time determined as set forth below based upon the applicable First Lien Net Leverage Ratio then in effect pursuant to the appropriate column under the table below:

 

First Lien Net Leverage Ratio

  

LIBOR Margin

 

 

Base Rate Margin

 

³ 4.50 to 1.00

  

 

2.50

%

 

 

1.50

%

< 4.50 to 1.00

  

 

2.25

%

 

 

1.25

%

In the event the Company engages in a transaction that has the effect of reducing the yield of any loans outstanding under the Term Loan B Facility within six months of the Term Loan B Borrowing Date, the Company will owe 1% of the amount of the loans so repriced or replaced to the Lenders thereof (such fee, the “Repricing Fee”). Other than the Repricing Fee, the amounts outstanding under the 2013 Credit Facility may be prepaid at the option of the Company without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a LIBOR rate loan. The principal amount of the (i) Term Loan A Facility shall be paid in full on the Term Loan B Borrowing Date, (ii) Term Loan B Facility

12


 

shall be paid in installments on the dates and in the respective amounts set forth in the 2013 Credit Agreement, with the final balance due on the Term Loan B Maturity Date and (iii) Revolving Credit Facility shall be due on the Revolving Loan Maturity Date.

Subject to certain exceptions, the 2013 Credit Agreement contains covenants that limit the ability of the Company and the Credit Parties to, among other things:

incur additional indebtedness or change or amend the terms of any senior indebtedness, subject to certain conditions;

incur liens on the property or assets of the Company and the Credit Parties;

dispose of certain assets;

consummate any merger, consolidation or sale of substantially all assets;

make certain investments;

enter into transactions with affiliates;

use loan proceeds to purchase or carry margin stock or for any other prohibited purpose;

incur certain contingent obligations;

make certain restricted payments; and

enter new lines of business, change accounting methods or amend the organizational documents of the Company or any Credit Party in any materially adverse way to the agent or the lenders.

The 2013 Credit Agreement also requires compliance with a financial covenant related to total net leverage ratio (calculated as set forth in the 2013 Credit Agreement) in the event that the revolving credit facility is drawn.

The 2013 Credit Agreement also provides for certain customary events of default, including the following:

default for three (3) business days in the payment of interest on borrowings under the 2013 Credit Facility when due;

default in payment when due of the principal amount of borrowings under the 2013 Credit Facility;

failure by the Company or any Credit Party to comply with the negative covenants, financial covenants (provided, that, an event of default under the Term Loan Facilities will not have occurred due to a violation of the financial covenants until the revolving lenders have terminated their commitments and declared all obligations to be due and payable), and certain other covenants relating to maintenance of customary property insurance coverage, maintenance of books and accounting records and permitted uses of proceeds from borrowings under the 2013 Credit Facility, each as set forth in the 2013 Credit Agreement;

failure by the Company or any Credit Party to comply with any of the other agreements in the 2013 Credit Agreement and related loan documents that continues for thirty (30) days (or ten (10) days in the case of certain financial statement delivery obligations) after officers of the Company first become aware of such failure or first receive written notice of such failure from any lender;

default in the payment of other indebtedness if the amount of such indebtedness aggregates to $15.0 million or more, or failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such indebtedness can cause such indebtedness to be declared due and payable;

failure of the Company or any Credit Party to pay, vacate or stay final judgments aggregating over $15.0 million for a period of thirty (30) days after the entry thereof;

certain events of bankruptcy or insolvency with respect to the Company or any Credit Party;

certain change of control events;

the revocation or invalidation of any agreement or instrument governing the Notes or any subordinated indebtedness, including the Intercreditor Agreement; and

any termination, suspension, revocation, forfeiture, expiration (without timely application for renewal) or material adverse amendment of any material media license.

In connection with the Company entering into the 2013 Credit Agreement, the Company and the Credit Parties also entered into an Amended and Restated Security Agreement, pursuant to which the Company and the Credit Parties each granted a first priority security interest in the collateral securing the 2013 Credit Facility for the benefit of the lenders under the 2013 Credit Facility.

13


 

On August 1, 2013, the Company drew on borrowings under the Company’s Term Loan B Facility. The borrowings were used to (i) repay in full all of the outstanding loans under the Company’s Term Loan A Facility; (ii) redeem in full and terminate all of its outstanding obligations (the “Redemption”) on August 2, 2013 (the “Redemption Date”) under the Indenture, in an aggregate principal amount of approximately $324 million, and (iii) pay any fees and expenses in connection therewith. The redemption price for the redeemed Notes was 106.563% of the principal amount, plus accrued and unpaid interest thereon to the Redemption Date.

The Redemption constituted a complete redemption of the then outstanding Notes, such that no amount remained outstanding following the Redemption.  Accordingly, the Indenture has been satisfied and discharged in accordance with its terms and the Notes have been cancelled, effective as of the Redemption Date. The Company recorded a loss on debt extinguishment of $29.7 million, primarily due to the premium associated with the redemption of the Notes, the unamortized bond discount and finance costs.

On December 31, 2013, the Company made a prepayment of $10.0 million to reduce the amount of loans outstanding under the Term Loan B facility.

The carrying amount and estimated fair value of the Term Loan B as of September 30, 2014 were both $362.2 million. The estimated fair value is calculated using an income approach which projects expected future cash flows and discounts them using a rate based on industry and market yields.

Derivative Instruments

The Company uses derivatives in the management of its interest rate risk with respect to its variable rate debt. The Company‘s strategy is to eliminate the cash flow risk on a portion of its variable rate debt caused by changes in the benchmark interest rate (LIBOR). Derivative instruments are not entered into for speculative purposes.

As required by the terms of the Company’s 2013 Credit Agreement, on December 16, 2013, the Company entered into three forward-starting interest rate swap agreements with an aggregate notional amount of $186.0 million at a fixed rate of 2.73%, resulting in an all-in fixed rate of 5.23%. The interest rate swap agreements take effect on December 31, 2015 with a maturity date on December 31, 2018. Under these interest rate swap agreements, the Company pays at a fixed rate and receives payments at a variable rate based on three-month LIBOR. The interest rate swap agreements effectively fix the floating LIBOR-based interest of $186.0 million outstanding LIBOR-based debt. The interest rate swap agreements were designated and qualified as a cash flow hedge; therefore, the effective portion of the changes in fair value is recorded in accumulated other comprehensive income. Any ineffective portions of the changes in fair value of the interest rate swap agreements will be immediately recognized directly to interest expense in the consolidated statement of operations. The change in fair value of the interest rate swap agreements for the three- and nine-month periods ended September 30, 2014 was a gain of $0.5 million and a loss of $1.3 million, net of tax, respectively, and was included in other comprehensive income (loss). As of September 30, 2014, we estimate that none of the unrealized gains or losses included in accumulated other comprehensive income or loss related to these interest rate swap agreements will be realized and reported in earnings within the next twelve months.

The carrying amount of the interest rate swap agreements is recorded at fair value, including non-performance risk, when material. The fair value of each interest rate swap agreement is determined by using multiple broker quotes, adjusted for non-performance risk, when material, which estimate the future discounted cash flows of any future payments that may be made under such agreements.

The fair value of the interest rate swap liability as of September 30, 2014 was $1.7 million and was recorded in "Other long-term liabilities" in the consolidated balance sheets.

Fair Value Measurements

ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In accordance with ASC 820, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

Level 1 – Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the company has the ability to access at the measurement date.

Level 2 – Assets and liabilities whose values are based on quoted prices for similar attributes in active markets; quoted prices in markets where trading occurs infrequently; and inputs other than quoted prices that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

14


 

Level 3 – Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets (in millions):

 

 

 

September 30, 2014

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap

 

$

1.7

 

 

$

 

 

$

1.7

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

Interest rate swap

 

$

0.4

 

 

$

 

 

$

0.4

 

 

$

 

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes the cumulative gains and losses of derivative instruments that qualify as cash flow hedges. The following table provides a rollforward of accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2014 and 2013 (in millions):

 

 

2014

 

 

2013

 

Accumulated other comprehensive income (loss) as of January 1,

$

0.2

 

 

$

 

Other comprehensive income (loss)

 

(2.1

)

 

 

 

Income tax benefit (expense)

 

0.8

 

 

 

 

Other comprehensive income (loss), net of tax

 

(1.3

)

 

 

 

Accumulated other comprehensive income (loss) as of September 30,

$

(1.1

)

 

$

 

 

Cost of Revenue

Cost of revenue consists primarily of the costs of online media acquired from third-party publishers. Media cost is classified as cost of revenue in the period in which the corresponding revenue is recognized.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

15


 

In August 2014, the Financial Accounting Standards Board issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update requires management to evaluate whether there is substantial doubt about the Company’s ability to continue as a going concern. This update is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements upon adoption.

 

3. SEGMENT INFORMATION

The Company currently operates in three reportable segments, television broadcasting, radio broadcasting and digital media. The Company had previously operated in two reportable segments, television broadcasting and radio broadcasting.  On June 18, 2014, the Company acquired Pulpo Media Inc. (“Pulpo”), a leading provider of digital advertising services and solutions focused on Hispanics in the U.S. and Latin America.  Beginning with the third quarter of 2014, the Company separated the results of Pulpo into a new operating segment, digital media.  The Company’s segments results reflect information presented on the same basis that is used for internal management reporting and it is also how the chief operating decision maker evaluates the business. The Company believes that this information regarding the digital media segment is useful to readers of our financial statements.  The results of this new segment for the interim period between the acquisition date and the beginning of the third quarter were not considered significant for reclassification.

Television Broadcasting

The Company owns and/or operates 58 primary television stations located primarily in California, Colorado, Connecticut, Florida, Massachusetts, Nevada, New Mexico, Texas and the Washington, D.C. area.

Radio Broadcasting

The Company owns and operates 49 radio stations (38 FM and 11 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas.

Digital Media

The Company owns and operates an online advertising platform reaching online Hispanics with display, video, mobile and social media advertising.   

Separate financial data for each of the Company’s operating segments are provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses. There were no significant sources of revenue generated outside the United States during the three- and nine-month periods ended September 30, 2014 and 2013. The Company evaluates the performance of its operating segments based on the following (in thousands):

 

16


 

 

 

Three-Month Period

 

 

 

 

 

 

Nine-Month Period

 

 

 

 

 

 

Ended September 30,

 

 

%

 

 

Ended September 30,

 

 

%

 

 

 

2014

 

 

 

2013

 

 

Change

 

 

 

2014

 

 

 

2013

 

 

Change

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

$

41,301

 

 

$

39,747

 

 

 

4

%

 

$

122,193

 

 

$

114,289

 

 

 

7

%

Radio

 

18,081

 

 

 

18,039

 

 

 

0

%

 

 

51,691

 

 

 

49,534

 

 

 

4

%

Digital

 

2,892

 

 

 

-

 

 

 

100

%

 

 

2,892

 

 

 

-

 

 

 

100

%

Consolidated

 

62,274

 

 

 

57,786

 

 

 

8

%

 

 

176,776

 

 

 

163,823

 

 

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital media

 

1,489

 

 

 

-

 

 

 

100

%

 

 

1,489

 

 

 

-

 

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

15,777

 

 

 

15,905

 

 

 

(1

)%

 

 

46,885

 

 

 

46,884

 

 

 

0

%

Radio

 

10,131

 

 

 

9,955

 

 

 

2

%

 

 

30,652

 

 

 

29,189

 

 

 

5

%

Digital

 

1,005

 

 

 

-

 

 

 

100

%

 

 

1,005

 

 

 

-

 

 

 

100

%

Consolidated

 

26,913

 

 

 

25,860

 

 

 

4

%

 

 

78,542

 

 

 

76,073

 

 

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

4,346

 

 

 

4,127

 

 

 

5

%

 

 

12,875

 

 

 

11,635

 

 

 

11

%

Radio

 

4,150

 

 

 

4,004

 

 

 

4

%

 

 

12,500

 

 

 

11,603

 

 

 

8

%

Digital

 

535

 

 

 

-

 

 

 

100

%

 

 

535

 

 

 

-

 

 

 

100

%

Consolidated

 

9,031

 

 

 

8,131

 

 

 

11

%

 

 

25,910

 

 

 

23,238

 

 

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

 

2,621

 

 

 

2,918