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 March 31, 2015

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 May 4, 2015, there were 63,503,483 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding, 14,927,613 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-MONTH PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

 

 

 

  

Page
Number

 

 

PART I. FINANCIAL INFORMATION

  

 

ITEM 1.

 

FINANCIAL STATEMENTS

  

3

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF MARCH 31, 2015 AND DECEMBER 31, 2014

  

3

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2015 AND MARCH 31, 2014

  

4

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2015 AND MARCH 31, 2014

 

5

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2015 AND MARCH 31, 2014

  

6

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

7

ITEM 2.

 

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

  

20

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

33

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 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 and the integration of any acquired assets with our existing operations;

·

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 28 of our Annual Report on Form 10-K for the year ended December 31, 2014.

 

 

 

2


 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

49,864

 

 

$

31,260

 

Trade receivables, net of allowance for doubtful accounts of $2,962 and $3,100 (including related parties of $1,140 and $10,882)

 

48,947

 

 

 

64,956

 

Deferred income taxes

 

5,900

 

 

 

5,900

 

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

 

5,776

 

 

 

5,295

 

Total current assets

 

110,487

 

 

 

107,411

 

Property and equipment, net of accumulated depreciation of $196,590 and $193,532

 

56,948

 

 

 

56,784

 

Intangible assets subject to amortization, net of accumulated amortization of $75,581 and $74,697 (including related parties of $15,658 and $16,239)

 

19,309

 

 

 

20,193

 

Intangible assets not subject to amortization

 

220,701

 

 

 

220,701

 

Goodwill

 

50,081

 

 

 

50,081

 

Deferred income taxes

 

64,328

 

 

 

66,558

 

Other assets

 

5,770

 

 

 

6,039

 

Total assets

$

527,624

 

 

$

527,767

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current maturities of long-term debt

$

3,750

 

 

$

3,750

 

Advances payable, related parties

 

118

 

 

 

118

 

Accounts payable and accrued expenses (including related parties of $3,847 and $3,695)

 

27,432

 

 

 

32,195

 

Total current liabilities

 

31,300

 

 

 

36,063

 

Long-term debt, less current maturities

 

335,625

 

 

 

336,563

 

Other long-term liabilities

 

11,451

 

 

 

9,583

 

Total liabilities

 

378,376

 

 

 

382,209

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2015 63,500,483; 2014 58,893,970

 

6

 

 

 

6

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2015 14,927,613; 2014 18,930,035

 

2

 

 

 

2

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2015 and 2014 9,352,729

 

1

 

 

 

1

 

Additional paid-in capital

 

911,737

 

 

 

912,161

 

Accumulated deficit

 

(759,190

)

 

 

(764,474

)

Accumulated other comprehensive income (loss)

 

(3,308

)

 

 

(2,138

)

Total stockholders' equity

 

149,248

 

 

 

145,558

 

Total liabilities and stockholders' equity

$

527,624

 

 

$

527,767

 

 

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

 

 

Ended March 31,

 

 

2015

 

 

2014

 

Net revenue

$

59,550

 

 

$

52,656

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Cost of revenue - digital media

 

1,360

 

 

 

-

 

Direct operating expenses (including related parties of  $2,167 and $2,292) (including non-cash stock-based compensation of $358 and $90)

 

26,685

 

 

 

24,876

 

Selling, general and administrative expenses

 

10,501

 

 

 

8,631

 

Corporate expenses (including non-cash stock-based compensation of $509 and $618)

 

4,993

 

 

 

4,836

 

Depreciation and amortization (includes direct operating of $2,563 and $2,471; selling, general and administrative of $1,059 and $862 and corporate of $340 and $182) (including related parties of $581 and $581)

 

3,962

 

 

 

3,515

 

 

 

47,501

 

 

 

41,858

 

Operating income (loss)

 

12,049

 

 

 

10,798

 

Interest expense

 

(3,227

)

 

 

(3,438

)

Interest income

 

8

 

 

 

12

 

Income (loss) before income taxes

 

8,830

 

 

 

7,372

 

Income tax (expense) benefit

 

(3,546

)

 

 

(2,984

)

Net income (loss)

$

5,284

 

 

$

4,388

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

$

0.06

 

 

$

0.05

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.03

 

 

$

0.03

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

87,531,375

 

 

 

88,683,948

 

Weighted average common shares outstanding, diluted

 

90,085,961

 

 

 

90,943,866

 

 

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

 

 

Ended March 31,

 

 

2015

 

 

2014

 

Net income (loss)

$

5,284

 

 

$

4,388

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Change in fair value of interest rate swap agreements

 

(1,170

)

 

 

(631

)

Total other comprehensive income (loss)

 

(1,170

)

 

 

(631

)

Comprehensive income (loss)

$

4,114

 

 

$

3,757

 

 

See Notes to Consolidated Financial Statements

 

 

 

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Three-Month Period

 

 

Ended March 31,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

5,284

 

 

$

4,388

 

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

   activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

3,962

 

 

 

3,515

 

Deferred income taxes

 

2,959

 

 

 

2,495

 

Amortization of debt issue costs

 

194

 

 

 

201

 

Amortization of syndication contracts

 

86

 

 

 

122

 

Payments on syndication contracts

 

(122

)

 

 

(158

)

Non-cash stock-based compensation

 

867

 

 

 

708

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

15,976

 

 

 

3,510

 

(Increase) decrease in prepaid expenses and other assets

 

(561

)

 

 

(993

)

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

   liabilities

 

(3,840

)

 

 

(7,041

)

Net cash provided by (used in) operating activities

 

24,805

 

 

 

6,747

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment and intangibles

 

(2,972

)

 

 

(1,918

)

Net cash provided by (used in) investing activities

 

(2,972

)

 

 

(1,918

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

900

 

 

 

1,636

 

Payments on long-term debt

 

(938

)

 

 

(938

)

Dividends paid

 

(2,191

)

 

 

(2,224

)

Payment of contingent consideration

 

(1,000

)

 

 

-

 

Net cash provided by (used in) financing activities

 

(3,229

)

 

 

(1,526

)

Net increase (decrease) in cash and cash equivalents

 

18,604

 

 

 

3,303

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning

 

31,260

 

 

 

43,822

 

Ending

$

49,864

 

 

$

47,125

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest

$

3,032

 

 

$

5,420

 

Income taxes

$

587

 

 

$

489

 

 

See Notes to Consolidated Financial Statements

 

 

6


 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2015

 

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, 2014 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. 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, 2015 or any other future period.

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a diversified media company serving Hispanic audiences primarily throughout the United States and the border markets of Mexico with a combination of television, radio, and digital media properties.

Revenue Recognition

Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Revenue for contracts with advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue from contracts directly with the advertisers is recorded at gross revenue and the related commission or national representation fee is recorded in operating expense. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided. Digital related revenue is recognized when display or other digital advertisements record impressions on the websites of our third-party publishers.  

The Company also generates interactive revenue under arrangements that are sold on a standalone basis and those that are sold on a combined basis that are integrated with its broadcast revenue and reported within the television and radio segments. The Company has determined that these integrated revenue arrangements include multiple deliverables and has separated them into different units of accounting based on their relative sales price based upon management’s best estimate. Revenue for each unit of accounting is recognized as it is earned.

In August 2008, the Company entered into a proxy agreement with Univision pursuant to which the Company granted Univision the right to negotiate retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Advertising related to carriage of the Company’s Univision- and UniMás-affiliated television station signals is recognized at the time of broadcast. See more details under the Related Party section below.

The Company also generates revenue from agreements associated with television station channel modifications made by the Company in order to accommodate the operations of telecommunications operators. Revenue from such agreements is recognized when the Company has completed modification to the television station and relinquished all rights to operate the station on the existing channel to the telecommunications operators.  

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.  

7


 

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 the three-month periods ended March 31, 2015 and 2014, the amount the Company paid Univision in this capacity was $2.2 million and $2.3 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, which Univision and the Company have extended through June 30, 2015. 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 March 31, 2015, the amount due to the Company from Univision was $1.1 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.

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 $0.7 million for each of the three-month periods ended March 31, 2015 and 2014, 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.

As of March 31, 2015, there was approximately $1.5 million of total unrecognized compensation expense related to grants of stock options that is expected to be recognized over a weighted-average period of 1.6 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.

 

As of March 31, 2015, there was approximately $2.4 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 1.7 years.

 

8


 

Income (Loss) Per Share

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

 

 

Three-Month Period

 

 

Ended March 31,

 

 

2015

 

 

2014

 

Basic earnings per share:

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

$

5,284

 

 

$

4,388

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

87,531,375

 

 

 

88,683,948

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

Net income (loss) per share

$

0.06

 

 

$

0.05

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

$

5,284

 

 

$

4,388

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

87,531,375

 

 

 

88,683,948

 

Dilutive securities:

 

 

 

 

 

 

 

Stock options and restricted stock units

 

2,554,586

 

 

 

2,259,918

 

Diluted shares outstanding

 

90,085,961

 

 

 

90,943,866

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

Net income (loss) per share

$

0.06

 

 

$

0.05

 

 

 

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-month periods ended March 31, 2015 and 2014, a total of 107,500 and 3,810,582 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.

 

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. On November 25, 2014, our Board of Directors approved an extension of the share repurchase program with a repurchase authorization of up to an additional $10.0 million of the Company’s outstanding common stock, for a total repurchase authorization of up to $20.0 million. 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.

The Company did not repurchase shares during the three-month period ended March 31, 2015. As of March 31, 2015, the Company repurchased to date a total of approximately 2.5 million shares of Class A common stock at an average price of $5.08 since the beginning of this program, for an aggregate purchase price of approximately $12.5 million. All shares were retired as of December 31, 2014.

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.

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.

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.

11


 

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 March 31, 2015, 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 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.

12


 

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.

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

13


 

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 30, 2014, the Company made a prepayment of $20.0 million to reduce the amount of loans outstanding under the Term Loan B facility.

On December 31, 2013, the Company made prepayments 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 March 31, 2015 were both $339.4 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-month periods ended March 31, 2015 and 2014 was a loss of $1.2 million and $0.6 million, net of tax, respectively, and was included in other comprehensive income (loss). As of March 31, 2015, 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 March 31, 2015 was $5.3 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.

14


 

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.

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):

 

 

 

March 31, 2015

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap

 

$

5.3

 

 

$

 

 

$

5.3

 

 

$

 

Contingent Consideration

 

$

0.3

 

 

$

 

 

$

 

 

$

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap

 

$

3.4

 

 

$

 

 

$

3.4

 

 

$

 

Contingent Consideration

 

$

1.3

 

 

$

 

 

$

 

 

$

1.3

 

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 three-month periods ended March 31, 2015 and 2014 (in millions):

 

 

2015

 

 

2014

 

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

$

(2.1

)

 

$

0.2

 

Other comprehensive income (loss)

 

(1.9

)

 

 

(1.0

)

Income tax benefit (expense)

 

0.7

 

 

 

0.4

 

Other comprehensive income (loss), net of tax

 

(1.2

)

 

 

(0.6

)

Accumulated other comprehensive income (loss) as of March 31,

$

(3.3

)

 

$

(0.4

)

15


 

 

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 (the “FASB”) 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, however, the FASB has proposed a one-year deferral. 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.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis which improves consolidation guidance for legal entities. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. It is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs which requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. This ASU requires retrospective adoption and is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

 

3. SEGMENT INFORMATION

The Company operates in three reportable segments, as of March 31, 2015, based upon the type of advertising medium, which consist of television broadcasting, radio broadcasting, and digital media. Through June 30, 2014, the Company 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 reaching Hispanic audiences in the U.S. and Latin America.  Beginning with the third quarter of 2014, the Company created a new operating segment, digital media, which consists of the financial results of Pulpo.  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 digital segment was not significant to our operations prior to the acquisition of Pulpo, and therefore the segment information for same period of the prior year has not been restated.

Included in the television segment net revenue for the three-month period ended March 31, 2015, is approximately $5.0 million of revenue associated with television station channel modifications made by the Company in order to accommodate the operations of a telecommunications operator.

Television Broadcasting

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

16


 

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.

The Company owns and operates a national sales representation firm, Entravision Solutions, through which we sell advertisements and syndicate radio programming to approximately 350 stations across the United States.

Digital Media

The Company owns and operates an online advertising platform that delivers digital advertising in a variety of formats to reach Hispanics audiences on Internet-connected devices.  

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-month periods ended March 31, 2015 and 2014. The Company evaluates the performance of its operating segments based on the following (in thousands):

 

17


 

 

 

Three-Month Period

 

 

 

 

 

 

Ended March 31,

 

 

%

 

 

 

2015

 

 

 

2014

 

 

Change

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

Television

$

39,502

 

 

$

37,741

 

 

 

5

%

Radio

 

16,345

 

 

 

14,915

 

 

 

10

%

Digital

 

3,703

 

 

 

-

 

 

 

100

%

Consolidated

 

59,550

 

 

 

52,656

 

 

 

13

%

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - digital media

 

1,360

 

 

 

-

 

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

 

 

 

 

 

 

 

 

 

 

 

Television

 

14,679

 

 

 

14,956

 

 

 

(2

)%

Radio

 

10,186

 

 

 

9,920

 

 

 

3

%

Digital

 

1,820

 

 

 

-

 

 

 

100

%

Consolidated

 

26,685

 

 

 

24,876

 

 

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

Television

 

5,055

 

 

 

4,495

 

 

 

12

%

Radio

 

4,526

 

 

 

4,136

 

 

 

9

%

Digital

 

920

 

 

 

-

 

 

 

100

%

Consolidated

 

10,501

 

 

 

8,631

 

 

 

22

%

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

Television

 

2,795

 

 

 

2,715

 

 

 

3

%

Radio

 

869

 

 

 

800

 

 

 

9

%

Digital

 

298

 

 

 

-

 

 

 

100

%

Consolidated

 

3,962

 

 

 

3,515

 

 

 

13

%

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating profit (loss)

 

 

 

 

 

 

 

 

 

 

 

Television

 

16,973

 

 

 

15,575

 

 

 

9

%

Radio

 

764

 

 

 

59

 

 

 

1,195

%

Digital

 

(695

)

 

 

-

 

 

 

100

%

Consolidated

 

17,042

 

 

 

15,634

 

 

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expenses

 

4,993

 

 

 

4,836

 

 

 

3

%

Operating income (loss)

 

12,049

 

 

 

10,798

 

 

 

12

%

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,227

)

 

 

(3,438

)

 

 

(6

)%

Interest income

 

8

 

 

 

12

 

 

 

(33

)%

Income (loss) before income taxes

$

8,830

 

 

$

7,372

 

 

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

Television

$

2,071

 

 

$

911

 

 

 

 

 

Radio

 

1,153

 

 

 

923

 

 

 

 

 

Digital

 

18

 

 

 

-

 

 

 

 

 

Consolidated

$

3,242

 

 

$

1,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

Total assets

 

2015

 

 

 

2014

 

 

 

 

 

Television

$

382,134

 

 

$

380,775

 

 

 

 

 

Radio

 

123,702

 

 

 

124,050

 

 

 

 

 

Digital

 

21,788

 

 

 

22,942

 

 

 

 

 

Consolidated

$

527,624

 

 

$

527,767

 

 

 

 

 

 

 

18


 

4. LITIGATION

The Company is subject to various outstanding claims and other legal proceedings that may arise in the ordinary course of business. In the opinion of management, any liability of the Company that may arise out of or with respect to these matters will not materially adversely affect the financial position, results of operations or cash flows of the Company.

 

5. ACQUISITION

On June 18, 2014, the Company completed the acquisition of 100% of the common shares of Pulpo, a leading provider of digital advertising services and solutions focused on Hispanics in the U.S. and Latin America. The Company acquired Pulpo in order to acquire an additional digital media platform that the Company believes will enhance its offerings to the U.S. Hispanic marketplace. The transaction was funded from the Company’s cash on hand, for an aggregate cash consideration of $15.0 million, net of cash acquired of $0.7 million, and contingent consideration with a fair value of $1.4 million as of the acquisition date. The fair value of the contingent consideration recognized on the acquisition date was estimated by applying the real options approach.

The following is a summary of the initial purchase price allocation for the Company’s acquisition of Pulpo (unaudited; in millions):

 

Accounts receivable

$

1.6

 

Prepaids and other assets

 

0.1

 

Property and equipment

 

0.5

 

Intangible assets subject to amortization

 

3.4

 

Goodwill

 

14.1

 

Current liabilities

 

(1.8

)

Deferred income taxes

 

(1.5

)

 

The acquisition of Pulpo includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to Pulpo if certain annual performance benchmarks are achieved over a three-year period. Any such additional consideration is payable 90 days after each fiscal year end beginning December 31, 2014. The range of the total undiscounted amounts the Company could pay under the contingent consideration agreement over the three-year period is between $0 and $3.0 million. Performance targets were achieved for the year ended December 31, 2014, and, accordingly, a payment of $1.0 million was made to the sellers in the first quarter of 2015. As of December 31, 2014, the Company determined Pulpo is less likely to earn the full amount of the contingent consideration for the years 2015 and 2016. Therefore, the Company adjusted the fair value of the contingent consideration in the fourth quarter of 2014 to $1.3 million. As of March 31, 2015, subsequent to the contingent consideration payment related to the year ended December 31, 2014, the fair value of the contingent consideration for the years 2015 and 2016 is $0.3 million.   

The fair value of the assets acquired includes trade receivables of $1.6 million. The gross amount due from advertisers is $1.7 million, of which $0.1 million is expected to be uncollectable.

The goodwill, which is not expected to be deductible for tax purposes, is assigned to the digital media segment and is attributable to Pulpo’s workforce and expected synergies from combining Pulpo’s operations with the Company’s.  

 

Pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Company’s financial condition or results of operations for any of the periods presented.

 

 

 

 

19


 

ITEM 2.

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

Overview

We are a diversified media company utilizing a combination of television, radio, and digital media operations, to reach Hispanic audiences and consumers primarily throughout the United States, as well as the border markets of Mexico. We believe that we are the largest independent public media company focused principally on the U.S. Hispanic audience.

We operate in three reportable segments, television broadcasting, radio broadcasting and digital media. Through June 30, 2014, we operated in two reportable segments, television broadcasting and radio broadcasting.  On June 18, 2014, we acquired 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, we separated the results of Pulpo into a new operating segment, digital media.  We believe that this information regarding our digital media segment is useful to readers of our financial statements. Our net revenue for the three-month period ended March 31, 2015, was $59.6 million. Of that amount, revenue generated by our television segment accounted for approximately 66%, revenue generated by our radio segment accounted for approximately 28%, and revenue generated by our digital segment accounted for approximately 6%, of total revenue for the period.  

As of the date of filing this report, we own and/or operate 58 primary television stations located primarily in California, Colorado, Connecticut, Florida, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. We own and operate 49 radio stations (38 FM and 11 AM) located primarily in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas and a national sales representation firm. Through our digital media operations, we offer mobile, digital and other interactive media platforms and services, including local websites and social media, that provide users with news, information and other content.

We generate revenue primarily from sales of national and local advertising time on television stations, radio stations and digital media platforms, and from retransmission consent agreements. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. We recognize advertising revenue when commercials are broadcast and when display or other digital advertisements record impressions on the websites of our third party publishers. We do not obtain long-term commitments from our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay commissions to agencies for local, regional and national advertising. For contracts directly with agencies, we record net revenue from these agencies. Seasonal revenue fluctuations are common in our industry and are due primarily to variations in advertising expenditures by both local and national advertisers. Our first fiscal quarter generally produces the lowest net revenue for the year. In addition, advertising revenue is generally higher during presidential election years (2016, 2020, etc.) resulting from political advertising.

We also generate revenue from retransmission consent agreements that are entered into with MVPDs. We refer to such revenue as retransmission consent revenue, which represents payments from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming. We recognize retransmission consent revenue when it is accrued pursuant to the agreements we have entered into with respect to such revenue.

We also generate revenue from the provision and sale of online marketing services to our clients.

Our primary expenses are employee compensation, including commissions paid to our sales staff and amounts paid to our national representative firms, as well as expenses for marketing, promotion and selling, technical, local programming, engineering, and general and administrative. Our local programming costs for television consist primarily of costs related to producing a local newscast in most of our markets. Our cost of revenue for digital media consists primarily of the costs of online media acquired from third-party publishers.

Highlights

During the first quarter of 2015, we achieved revenue growth in all three of our television, radio, and digital segments. Net revenue increased to $59.6 million, an increase of $6.9 million, or 13%, over the first quarter of 2014. Our audience shares remained strong in the nation’s most densely populated Hispanic markets.

20


 

Net revenue in our television segment increased to $39.5 million in the first quarter of 2015 from $37.7 million in the first quarter of 2014. This increase of approximately $1.8 million, or 5%, in net revenue was primarily due to approximately $5.0 million of revenue associated with television station channel modifications made by the Company in order to accommodate the operations of a telecommunications operator. This increase was partially offset by decreases in local and national advertising revenue, a decrease in political advertising revenue, which was not material in 2015, and a decrease in retransmission consent revenue. We generated a total of $6.4 million of retransmission consent revenue in the first quarter of 2015. We anticipate that retransmission consent revenue for the full year 2015 will be greater than it was for the full year 2014 and will continue to be a growing source of net revenues in future periods.

Net revenue in our radio segment increased to $16.3 million in the first quarter of 2015 from $14.9 million in the first quarter of 2014. This increase of $1.4 million, or 10% in net revenue was primarily attributable to increases in local and national advertising.

Net revenue in our digital media segment was $3.7 million in the first quarter of 2015. Since our digital media segment was created in the third quarter of 2014, comparisons to the first quarter of 2014 are not possible.

Relationship with Univision

Substantially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation agreements with Univision provide certain of our 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 our consent. Under our Univision network affiliation agreement, we retain 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 our UniMás network affiliation agreement, we retain the right to sell approximately four and a half minutes per hour of the available advertising time on the UniMás network, subject to adjustment from time to time by Univision.

Under the network affiliation agreements, Univision acts as our exclusive sales representative for the sale of national advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees to Univision relating to sales of all advertising for broadcast on our Univision- and UniMás-affiliate television stations. During the three-month periods ended March 31, 2015 and 2014, the amount we paid Univision in this capacity was $2.2 million and $2.3 million, respectively.

We also generate revenue under two marketing and sales agreements with Univision, which give us 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, we entered into a proxy agreement with Univision pursuant to which we granted to Univision the right to negotiate the terms of retransmission consent agreements for our Univision- and UniMás-affiliated television station signals for a term of six years, expiring in December 2014, which Univision and we have extended through June 30, 2015. Among other things, the proxy agreement provides terms relating to compensation to be paid to us by Univision with respect to retransmission consent agreements entered into with MVPDs. 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. It is also our current intention to negotiate with Univision an extension of the current proxy agreement or a new proxy agreement; however, no assurance can be given regarding the terms of any such extension or new agreement or that any such extension or new agreement will be entered into. As of March 31, 2015, the amount due to us from Univision was $1.1 million related to the agreements for the carriage of our Univision and UniMás-affiliated television station signals.

Univision currently owns approximately 10% of our common stock on a fully-converted basis. Our 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 our 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 our Univision-affiliated television stations, among other things. Each share of Class U common stock is automatically convertible into one share of our 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.

21


 

Critical Accounting Policies

For a description of our critical accounting policies, please refer to “Application of Critical Accounting Policies and Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on March 6, 2015. There have been no material changes to any of our critical accounting policies during the three months ended March 31, 2015, except as follows:

Revenue Recognition

Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Revenue for contracts with advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue from contracts directly with the advertisers is recorded at gross revenue and the related commission or national representation fee is recorded in operating expense. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided. Digital related revenue is recognized when display or other digital advertisements record impressions on the websites of our third-party publishers.  

We also generate interactive revenue under arrangements that are sold on a standalone basis and those that are sold on a combined basis that are integrated with its broadcast revenue and reported within the television and radio segments. We have determined that these integrated revenue arrangements include multiple deliverables and has separated them into different units of accounting based on their relative sales price based upon management’s best estimate. Revenue for each unit of accounting is recognized as it is earned.

In August 2008, we entered into a proxy agreement with Univision pursuant to which we granted Univision the right to negotiate retransmission consent agreements for its Univision- and UniMás-affiliated television station signals. Advertising related to carriage of our Univision- and UniMás-affiliated television station signals is recognized at the time of broadcast. See more details under the Related Party section below.

We also generate revenue from agreements associated with television station channel modifications made by us in order to accommodate the operations of telecommunications operators. Revenue from such agreements is recognized when we have completed modification to the television station and relinquished all rights to operate the station on the existing channel to the telecommunications operators.

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, however, the FASB has proposed a one-year deferral. 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. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis which improves consolidation guidance for legal entities. The new standard is intended to improve targeted areas of the consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures. The amendments in the ASU affect the consolidation evaluation for reporting organizations. In addition, the amendments in this ASU simplify and improve current GAAP by reducing the number of consolidation models. It is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs which requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. This ASU requires retrospective adoption and is effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

22


 

Three-Month Periods Ended March 31, 2015 and 2014

The following table sets forth selected data from our operating results for the three-month periods ended March 31, 2015 and 2014 (in thousands):

 

 

Three-Month Period

 

 

 

 

 

 

Ended March 31,

 

 

%

 

 

2015

 

 

2014

 

 

Change

 

Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

Net revenue

$

59,550

 

 

$

52,656

 

 

 

13

%

Cost of revenue - digital media

 

1,360

 

 

 

-

 

 

 

100

%

Direct operating expenses

 

26,685

 

 

 

24,876

 

 

 

7

%

Selling, general and administrative expenses

 

10,501

 

 

 

8,631

 

 

 

22

%

Corporate expenses

 

4,993

 

 

 

4,836

 

 

 

3

%

Depreciation and amortization

 

3,962

 

 

 

3,515

 

 

 

13

%

 

 

47,501

 

 

 

41,858

 

 

 

13

%

Operating income (loss)

 

12,049

 

 

 

10,798

 

 

 

12

%

Interest expense

 

(3,227

)

 

 

(3,438

)

 

 

(6

)%

Interest income

 

8

 

 

 

12

 

 

 

(33

)%

Income (loss) before income taxes

 

8,830

 

 

 

7,372

 

 

 

20

%

Income tax (expense) benefit

 

(3,546

)

 

 

(2,984

)

 

 

19

%

Net income (loss)

$

5,284

 

 

$

4,388

 

 

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

3,242

 

 

 

1,834

 

 

 

 

 

Consolidated adjusted EBITDA (adjusted for non-cash

   stock-based compensation) (1)

 

16,842

 

 

 

14,985

 

 

 

 

 

Net cash provided by (used in) operating activities

 

24,805

 

 

 

6,747

 

 

 

 

 

Net cash provided by (used in) investing activities

 

(2,972

)

 

 

(1,918

)

 

 

 

 

Net cash provided by (used in) financing activities

 

(3,229

)

 

 

(1,526

)

 

 

 

 

 

(1)

Consolidated adjusted EBITDA means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses and syndication programming amortization less syndication programming payments. We use the term consolidated adjusted EBITDA because that measure is defined in our 2013 Credit Facility and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses and syndication programming amortization and does include syndication programming payments.

Since our ability to borrow from our 2013 Credit Facility is based on a consolidated adjusted EBITDA financial covenant, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. Our 2013 Credit Facility contains a total net leverage ratio financial covenant in the event that the revolving credit facility is drawn. The total net leverage ratio, or the ratio of consolidated total debt (net of up to $20 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, affects both our ability to borrow from our 2013 Credit Facility and our applicable margin for the interest rate calculation. Under our 2013 Credit Facility, our maximum total leverage ratio may not exceed 6.50 to 1 in the event that the revolving credit facility is drawn. The total leverage ratio was as follows (in each case as of March 31): 2015, 3.9 to 1; 2014, 4.6 to 1. Therefore, we were in compliance with this covenant at each of those dates.

While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income and net income. As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses and syndication programming amortization and includes syndication programming payments, consolidated adjusted EBITDA has certain limitations because it excludes and includes several

23


 

important non-cash financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.

Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated adjusted EBITDA is cash flows from operating activities. A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):

 

 

Three-Month Period

 

 

Ended March 31,

 

 

 

2015

 

 

 

2014

 

 

 

 

 

 

 

 

 

Consolidated adjusted EBITDA (1)

$

16,842

 

 

$

14,985

 

Interest expense

 

(3,227

)

 

 

(3,438

)

Interest income

 

8

 

 

 

12

 

Income tax (expense) benefit