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 June 30, 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 |
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95-4783236 |
(State or other jurisdiction of incorporation or organization) |
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(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 |
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¨ |
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Accelerated filer |
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x |
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Non-accelerated filer |
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¨ |
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Smaller reporting company |
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¨ |
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 August 3, 2015, there were 63,802,370 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- AND SIX-MONTH PERIODS ENDED JUNE 30, 2015
TABLE OF CONTENTS
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Page |
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ITEM 1. |
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3 |
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CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JUNE 30, 2015 AND DECEMBER 31, 2014 |
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3 |
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4 |
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5 |
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6 |
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7 |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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18 |
ITEM 3. |
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31 |
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ITEM 4. |
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32 |
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ITEM 1. |
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33 |
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ITEM 1A. |
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33 |
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ITEM 2. |
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33 |
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ITEM 3. |
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33 |
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ITEM 4. |
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33 |
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ITEM 5. |
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33 |
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ITEM 6. |
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34 |
1
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; |
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the extent to which we continue to generate revenue under retransmission consent agreements; |
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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
ITEM 1. FINANCIAL STATEMENTS
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
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June 30, |
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December 31, |
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2015 |
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2014 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ |
50,866 |
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$ |
31,260 |
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Trade receivables, net of allowance for doubtful accounts of $2,875 and $3,100 (including related parties of $4,965 and $10,882) |
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56,232 |
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64,956 |
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Deferred income taxes |
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5,900 |
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5,900 |
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Prepaid expenses and other current assets (including related parties of $274 and $274) |
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5,350 |
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|
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5,295 |
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Total current assets |
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118,348 |
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107,411 |
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Property and equipment, net of accumulated depreciation of $198,726 and $193,532 |
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60,365 |
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56,784 |
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Intangible assets subject to amortization, net of accumulated amortization of $76,465 and $74,697 (including related parties of $15,078 and $16,239) |
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18,424 |
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20,193 |
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Intangible assets not subject to amortization |
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220,701 |
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220,701 |
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Goodwill |
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50,081 |
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50,081 |
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Deferred income taxes |
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60,934 |
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66,558 |
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Other assets |
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5,581 |
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6,039 |
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Total assets |
$ |
534,434 |
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$ |
527,767 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
$ |
3,750 |
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$ |
3,750 |
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Advances payable, related parties |
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118 |
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118 |
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Accounts payable and accrued expenses (including related parties of $3,810 and $3,695) |
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28,275 |
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32,195 |
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Total current liabilities |
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32,143 |
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36,063 |
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Long-term debt, less current maturities |
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334,688 |
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336,563 |
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Other long-term liabilities |
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13,716 |
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9,583 |
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Total liabilities |
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380,547 |
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382,209 |
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Commitments and contingencies (note 4) |
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Stockholders' equity |
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Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2015 63,734,828; 2014 58,893,970 |
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6 |
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6 |
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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 |
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2 |
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2 |
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Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2015 and 2014 9,352,729 |
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1 |
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1 |
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Additional paid-in capital |
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911,161 |
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912,161 |
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Accumulated deficit |
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(753,949 |
) |
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(764,474 |
) |
Accumulated other comprehensive income (loss) |
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(3,334 |
) |
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(2,138 |
) |
Total stockholders' equity |
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153,887 |
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145,558 |
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Total liabilities and stockholders' equity |
$ |
534,434 |
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$ |
527,767 |
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See Notes to Consolidated Financial Statements
3
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
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Three-Month Period |
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Six-Month Period |
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Ended June 30, |
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Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Net revenue |
$ |
59,891 |
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$ |
61,846 |
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$ |
119,441 |
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$ |
114,502 |
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Expenses: |
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Cost of revenue - digital media |
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1,392 |
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- |
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2,752 |
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- |
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Direct operating expenses (including related parties of $2,255, $2,944, $4,422 and $5,236) (including non-cash stock-based compensation of $348, $127, $706 and $217) |
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27,044 |
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26,104 |
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53,729 |
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50,425 |
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Selling, general and administrative expenses |
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10,484 |
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8,897 |
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20,985 |
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18,083 |
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Corporate expenses (including non-cash stock-based compensation of $592, $468, $1,101 and $1,086) |
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5,050 |
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5,261 |
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10,043 |
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10,097 |
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Depreciation and amortization (includes direct operating of $2,555, $2,415, $5,118 and $4,886 selling, general and administrative of $1,046, $907, $2,105 and $1,769 and corporate of $357, $181, $697 and $363) (including related parties of $580, $579, $1,161 and $1,160) |
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3,958 |
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3,503 |
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7,920 |
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7,018 |
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47,928 |
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43,765 |
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95,429 |
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85,623 |
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Operating income (loss) |
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11,963 |
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18,081 |
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24,012 |
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28,879 |
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Interest expense |
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(3,256 |
) |
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(3,469 |
) |
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(6,483 |
) |
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(6,907 |
) |
Interest income |
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11 |
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13 |
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19 |
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25 |
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Income (loss) before income taxes |
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8,718 |
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14,625 |
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17,548 |
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21,997 |
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Income tax (expense) benefit |
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(3,477 |
) |
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(5,890 |
) |
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(7,023 |
) |
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(8,874 |
) |
Net income (loss) |
$ |
5,241 |
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|
$ |
8,735 |
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$ |
10,525 |
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$ |
13,123 |
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Basic and diluted earnings per share: |
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Net income (loss) per share, basic |
$ |
0.06 |
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$ |
0.10 |
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$ |
0.12 |
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$ |
0.15 |
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Net income (loss) per share, diluted |
$ |
0.06 |
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$ |
0.10 |
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$ |
0.12 |
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$ |
0.14 |
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Cash dividends declared per common share |
$ |
0.03 |
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$ |
0.03 |
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$ |
0.05 |
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$ |
0.05 |
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Weighted average common shares outstanding, basic |
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87,832,430 |
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|
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89,276,794 |
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|
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87,682,734 |
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|
|
88,982,009 |
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Weighted average common shares outstanding, diluted |
|
90,091,735 |
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|
|
91,202,732 |
|
|
|
90,089,679 |
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|
|
91,074,937 |
|
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 |
|
|
Six-Month Period |
|
||||||||||
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Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
2015 |
|
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2014 |
|
|
2015 |
|
|
2014 |
|
||||
Net income (loss) |
$ |
5,241 |
|
|
$ |
8,735 |
|
|
$ |
10,525 |
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|
$ |
13,123 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Change in fair value of interest rate swap agreements |
|
(26 |
) |
|
|
(1,139 |
) |
|
|
(1,196 |
) |
|
|
(1,770 |
) |
Total other comprehensive income (loss) |
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(26 |
) |
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(1,139 |
) |
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(1,196 |
) |
|
|
(1,770 |
) |
Comprehensive income (loss) |
$ |
5,215 |
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|
$ |
7,596 |
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|
$ |
9,329 |
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|
$ |
11,353 |
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See Notes to Consolidated Financial Statements
5
ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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Six-Month Period |
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Ended June 30, |
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2015 |
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2014 |
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Cash flows from operating activities: |
|
|
|
|
|
|
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Net income (loss) |
$ |
10,525 |
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|
$ |
13,123 |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
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Depreciation and amortization |
|
7,920 |
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|
|
7,018 |
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Deferred income taxes |
|
6,370 |
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|
|
8,291 |
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Amortization of debt issue costs |
|
393 |
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|
|
404 |
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Amortization of syndication contracts |
|
171 |
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|
244 |
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Payments on syndication contracts |
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(246 |
) |
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|
(312 |
) |
Non-cash stock-based compensation |
|
1,807 |
|
|
|
1,303 |
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Changes in assets and liabilities: |
|
|
|
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|
|
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(Increase) decrease in accounts receivable |
|
11,418 |
|
|
|
(3,632 |
) |
(Increase) decrease in prepaid expenses and other assets |
|
(283 |
) |
|
|
(1,261 |
) |
Increase (decrease) in accounts payable, accrued expenses and other liabilities |
|
(4,204 |
) |
|
|
(5,484 |
) |
Net cash provided by (used in) operating activities |
|
33,871 |
|
|
|
19,694 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
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Purchases of property and equipment and intangibles |
|
(8,583 |
) |
|
|
(4,051 |
) |
Purchases of a business, net of cash acquired |
|
- |
|
|
|
(15,048 |
) |
Net cash provided by (used in) investing activities |
|
(8,583 |
) |
|
|
(19,099 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
1,581 |
|
|
|
1,739 |
|
Payments on long-term debt |
|
(1,875 |
) |
|
|
(1,875 |
) |
Dividends paid |
|
(4,388 |
) |
|
|
(4,464 |
) |
Payment of contingent consideration |
|
(1,000 |
) |
|
|
- |
|
Net cash provided by (used in) financing activities |
|
(5,682 |
) |
|
|
(4,600 |
) |
Net increase (decrease) in cash and cash equivalents |
|
19,606 |
|
|
|
(4,005 |
) |
Cash and cash equivalents: |
|
|
|
|
|
|
|
Beginning |
|
31,260 |
|
|
|
43,822 |
|
Ending |
$ |
50,866 |
|
|
$ |
39,817 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash payments for: |
|
|
|
|
|
|
|
Interest |
$ |
6,090 |
|
|
$ |
8,685 |
|
Income taxes |
$ |
653 |
|
|
$ |
583 |
|
See Notes to Consolidated Financial Statements
6
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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.
Certain amounts in the Company’s prior period consolidated financial statements and notes to the financial statements have been reclassified to conform to current period presentation.
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, as well as 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.
7
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 stations in order to accommodate the operations of telecommunications operators. Revenue from such agreements is recognized when the Company has relinquished all rights to operate the station on the existing channel free from interference 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.
Under the network affiliation agreements, Univision acts as the Company’s exclusive sales representative for the sale of national advertising 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 June 30, 2015 and 2014, the amount the Company paid Univision in this capacity was $2.3 million and $2.9 million, respectively. During the six-month periods ended June 30, 2015 and 2014, the amount the Company paid Univision in this capacity was $4.4 million and $5.2 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 August 31, 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 June 30, 2015, the amount due to the Company from Univision was $5.0 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.
8
Stock-based compensation expense related to grants of stock options and restricted stock units was $0.9 million and $0.6 million for each of the three-month periods ended June 30, 2015 and 2014, respectively. Stock-based compensation expense related to grants of stock options and restricted stock units was $1.8 million and $1.3 million for the six-month periods ended June 30, 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.
The fair value of each stock option granted was estimated using the following weighted-average assumptions:
|
Six-Month Period |
|
|
Fair value of options granted |
$ |
4.10 |
|
Expected volatility |
|
84 |
% |
Risk-free interest rate |
|
1.6 |
% |
Expected lives |
|
6.0 years |
|
Dividend rate |
|
1.6 |
% |
As of June 30, 2015, there was approximately $1.4 million of total unrecognized compensation expense related to grants of stock options that is expected to be recognized over a weighted-average period of 1.6 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.
The following is a summary of non-vested restricted stock units granted (in thousands, except grant date fair value data):
|
Six-Month Period |
|
|||||
|
Ended June 30, 2015 |
|
|||||
|
Number |
|
|
Weighted-Average |
|
||
Restricted stock units |
|
62 |
|
|
$ |
6.76 |
|
As of June 30, 2015, there was approximately $2.3 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 1.5 years.
9
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 |
|
|
Six-Month Period |
|
||||||||||
|
Ended June 30, |
|
|
Ended June 30, |
|
||||||||||
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
5,241 |
|
|
$ |
8,735 |
|
|
$ |
10,525 |
|
|
$ |
13,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
87,832,430 |
|
|
|
89,276,794 |
|
|
|
87,682,734 |
|
|
|
88,982,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
5,241 |
|
|
$ |
8,735 |
|
|
$ |
10,525 |
|
|
$ |
13,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
87,832,430 |
|
|
|
89,276,794 |
|
|
|
87,682,734 |
|
|
|
88,982,009 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
2,259,305 |
|
|
|
1,925,938 |
|
|
|
2,406,945 |
|
|
|
2,092,928 |
|
Diluted shares outstanding |
|
90,091,735 |
|
|
|
91,202,732 |
|
|
|
90,089,679 |
|
|
|
91,074,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
$ |
0.06 |
|
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
$ |
0.14 |
|
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 six-month periods ended June 30, 2015, a total of 34,708 and 71,104 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 six-month periods ended June 30, 2014, a total of 3,898,562 and 3,854,572 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, the 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 six-month period ended June 30, 2015. As of June 30, 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
10
beginning of this program, for an aggregate purchase price of approximately $12.5 million. All shares were retired as of December 31, 2014.
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 then outstanding credit facility, 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 Company’s then outstanding notes (the “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 Notes, the security interests and guaranties of the Company and its Credit Parties under the indenture governing the Notes (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 June 30, 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
11
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.
12
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 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 Facility as of June 30, 2015 were both $338.4 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 period ended June 30, 2015 and 2014 was a loss of $0.0 million and $1.1 million, net of tax, respectively, and was included in other comprehensive income (loss). The change in fair value of the interest rate swap agreements for the six-month period ended June 30, 2015 and 2014 was a loss of $1.2 million and $1.8 million, net of tax, respectively, and was included in other comprehensive income (loss). As of June 30, 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 June 30, 2015 was $5.4 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.
13
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):
|
|
June 30, 2015 |
|
|||||||||||||
|
|
Total Fair Value and Carrying Value on Balance Sheet |
|
Fair Value Measurement Category |
|
|||||||||||
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|||||||
Liabilities: |
|
|
|
|
|
|
|
|
||||||||
Interest rate swap |
|
$ |
5.4 |
|
|
$ |
— |
|
|
$ |
5.4 |
|
|
$ |
— |
|
Contingent Consideration |
|
$ |
0.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six-month periods ended June 30, 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 |
) |
|
|
(2.9 |
) |
Income tax benefit (expense) |
|
0.7 |
|
|
|
1.1 |
|
Other comprehensive income (loss), net of tax |
|
(1.2 |
) |
|
|
(1.8 |
) |
Accumulated other comprehensive income (loss) as of June 30, |
$ |
(3.3 |
) |
|
$ |
(1.6 |
) |
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, 2017. 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.
14
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
As of June 30, 2015, the Company operates in three reportable segments, based upon the type of advertising medium, and which segments are 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 operations 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 six-month period ended June 30, 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.
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- and six-month periods ended June 30, 2015 and 2014. The Company evaluates the performance of its operating segments based on the following (in thousands):
15
Three-Month Period |
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Six-Month Period |
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Ended June 30, |
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% |
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Ended June 30, |
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% |
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2015 |
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2014 |
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Change |
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2015 |
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2014 |
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Change |
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Net revenue |
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Television |
$ |
36,397 |
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$ |
43,151 |
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(16 |
)% |
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$ |
75,899 |
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$ |
80,892 |
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(6 |
)% |
Radio |
|
19,585 |
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|
18,695 |
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5 |
% |
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35,930 |
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33,610 |
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7 |
% |
Digital |
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3,909 |
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- |
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100 |
% |
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7,612 |
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- |
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|
100 |
% |
Consolidated |
|
59,891 |
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|
61,846 |
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(3 |
)% |
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|
119,441 |
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|
114,502 |
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4 |
% |
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Cost of revenue - digital media |
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1,392 |
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- |
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|
100 |
% |
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|
2,752 |
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- |
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100 |
% |
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Direct operating expenses |
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Television |
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14,820 |
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15,503 |
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(4 |
)% |
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29,499 |
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29,904 |
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(1 |
)% |
Radio |
|
10,652 |
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|
10,601 |
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0 |
% |
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20,838 |
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|
20,521 |
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2 |
% |
Digital |
|
1,572 |
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|
|
- |
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|
100 |
% |
|
|
3,392 |
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|
|
- |
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100 |
% |
Consolidated |
|
27,044 |
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|
26,104 |
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4 |
% |
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|
53,729 |
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|
50,425 |
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7 |
% |
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Selling, general and administrative expenses |
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Television |
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4,929 |
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|
4,683 |
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5 |
% |
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|
9,984 |
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|
|
9,733 |
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|
3 |
% |
Radio |
|
4,768 |
|
|
|
4,214 |
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|
13 |
% |
|
|
9,294 |
|
|
|
8,350 |
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|
|
11 |
% |
Digital |
|
787 |
|
|
|
- |
|
|
|
100 |
% |
|
|
1,707 |
|
|
|
- |
|
|
|
100 |
% |
Consolidated |
|
10,484 |
|
|
|
8,897 |
|
|
|
18 |
% |
|
|
20,985 |
|
|
|
18,083 |
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|
16 |
% |
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Depreciation and amortization |
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|
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|
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|
Television |
|
2,830 |
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|
|
2,671 |
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|
6 |
% |
|
|
5,625 |
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|
|
5,386 |
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|
|
4 |
% |
Radio |
|
829 |
|
|
|
832 |
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|
(0 |