10-Q 1 evc-10q_20170930.htm 10-Q evc-10q_20170930.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2017

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      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      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

 

 

 

(Do not check if a smaller reporting company)  

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

 

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

Yes      No  

As of November 7, 2017, there were 65,724,502 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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

 

 

 

 

 

Page

Number

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

 

FINANCIAL STATEMENTS

 

3

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

 

3

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016

 

4

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016

 

5

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016

 

6

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

7

ITEM 2.

 

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

 

22

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

38

ITEM 4.

 

CONTROLS AND PROCEDURES

 

39

 

 

PART II. OTHER INFORMATION

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

40

ITEM 1A.

 

RISK FACTORS

 

40

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

40

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

40

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

40

ITEM 5.

 

OTHER INFORMATION

 

40

ITEM 6.

 

EXHIBITS

 

41

 

 

 

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 for our ongoing obligation to disclose material information 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;

 

rapid changes in digital media advertising;

 

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

 

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;

 

consequences of foreign currency exchange;  

 

risks associated with operations located outside the United States; and

 

the effect of proposed changes in broadcast transmission standards by the Advanced Television Systems Committee's 3.0 standard (ATSC 3.0), assuming they are adopted by the Federal Communications Commission, or FCC, that may impact our ability to monetize our spectrum assets

 

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, any executive or regulatory action with respect thereto, and any changes with respect to any of the foregoing in the 115th Congress, including, without limitation, efforts to “repeal and replace” such laws.

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 29 of our Annual Report on Form 10-K for the year ended December 31, 2016 and beginning on page 37 of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017.

 

 

2


 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

55,980

 

 

$

61,520

 

Restricted cash

 

231,096

 

 

 

-

 

Trade receivables, net of allowance for doubtful accounts of $3,474 and $2,550 (including related parties of $3,973 and $7,357)

 

72,651

 

 

 

65,072

 

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

 

6,583

 

 

 

4,870

 

Total current assets

 

366,310

 

 

 

131,462

 

Property and equipment, net of accumulated depreciation of $178,237 and $204,343

 

56,606

 

 

 

55,368

 

Intangible assets subject to amortization, net of accumulated amortization of $86,300 and $81,770 (including related parties of $9,857 and $11,598)

 

25,691

 

 

 

13,120

 

Intangible assets not subject to amortization

 

241,298

 

 

 

220,701

 

Goodwill

 

69,042

 

 

 

50,081

 

Deferred income taxes

 

-

 

 

 

44,677

 

Other assets

 

5,474

 

 

 

2,512

 

Total assets

$

764,421

 

 

$

517,921

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current maturities of long-term debt

$

3,750

 

 

$

3,750

 

Accounts payable and accrued expenses (including related parties of $3,780 and $3,886)

 

49,117

 

 

 

30,810

 

Total current liabilities

 

52,867

 

 

 

34,560

 

Long-term debt, less current maturities, net of unamortized debt issuance costs of $2,252 and $2,365

 

283,998

 

 

 

286,697

 

Other long-term liabilities

 

26,083

 

 

 

13,208

 

Deferred income taxes

 

59,720

 

 

 

-

 

Total liabilities

 

422,668

 

 

 

334,465

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and outstanding 2017 66,145,871; 2016 65,886,256

 

7

 

 

 

7

 

Class B common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2017 and 2016 14,927,613

 

2

 

 

 

2

 

Class U common stock, $0.0001 par value, 40,000,000 shares authorized; shares issued and outstanding 2017 and 2016 9,352,729

 

1

 

 

 

1

 

Additional paid-in capital

 

896,070

 

 

 

904,867

 

Accumulated deficit

 

(552,702

)

 

 

(718,444

)

Accumulated other comprehensive income (loss)

 

(1,625

)

 

 

(2,977

)

Total stockholders' equity

 

341,753

 

 

 

183,456

 

Total liabilities and stockholders' equity

$

764,421

 

 

$

517,921

 

 

See Notes to Consolidated Financial Statements

3


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from advertising and retransmission consent

$

70,612

 

 

$

65,281

 

 

$

198,631

 

 

$

188,223

 

Revenue from spectrum usage rights

 

263,943

 

 

 

-

 

 

 

263,943

 

 

 

-

 

Total Net Revenue

 

334,555

 

 

 

65,281

 

 

 

462,574

 

 

 

188,223

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue - television (spectrum usage rights)

 

12,131

 

 

 

-

 

 

 

12,131

 

 

 

-

 

Cost of revenue - digital media

 

9,910

 

 

 

2,281

 

 

 

20,424

 

 

 

6,493

 

Direct operating expenses (including related parties of $2,404, $2,580, $7,116 and $7,427) (including non-cash stock-based compensation of $276, $79, $806 and $700)

 

30,231

 

 

 

28,238

 

 

 

87,238

 

 

 

84,341

 

Selling, general and administrative expenses

 

12,813

 

 

 

11,949

 

 

 

36,043

 

 

 

34,794

 

Corporate expenses (including non-cash stock-based compensation of $813, $665, $2,343 and $1,934)

 

8,209

 

 

 

5,728

 

 

 

19,695

 

 

 

16,625

 

Depreciation and amortization (includes direct operating of $2,221, $2,240, $6,825 and $6,989; selling, general and administrative of $1,798, $1,234, $4,663 and $3,663; and corporate of $318, $338, $972 and $1,072) (including related parties of  $580, $580, $1,741 and $1,740)

 

4,337

 

 

 

3,812

 

 

 

12,460

 

 

 

11,724

 

Foreign currency (gain) loss

 

(58

)

 

 

-

 

 

 

293

 

 

 

-

 

 

 

77,573

 

 

 

52,008

 

 

 

188,284

 

 

 

153,977

 

Operating income

 

256,982

 

 

 

13,273

 

 

 

274,290

 

 

 

34,246

 

Interest expense

 

(3,756

)

 

 

(3,894

)

 

 

(11,084

)

 

 

(11,619

)

Interest income

 

256

 

 

 

71

 

 

 

475

 

 

 

196

 

Income before income taxes

 

253,482

 

 

 

9,450

 

 

 

263,681

 

 

 

22,823

 

Income tax expense

 

(96,167

)

 

 

(4,035

)

 

 

(100,185

)

 

 

(9,421

)

Income (loss) before equity in net income (loss) of nonconsolidated affiliate

 

157,315

 

 

 

5,415

 

 

 

163,496

 

 

 

13,402

 

Equity in net income (loss) of nonconsolidated affiliate, net of tax

 

(107

)

 

 

-

 

 

 

(175

)

 

 

-

 

Net income

$

157,208

 

 

$

5,415

 

 

$

163,321

 

 

$

13,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share, basic

$

1.74

 

 

$

0.06

 

 

$

1.81

 

 

$

0.15

 

Net income per share, diluted

$

1.71

 

 

$

0.06

 

 

$

1.78

 

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.05

 

 

$

0.03

 

 

$

0.11

 

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

90,517,492

 

 

 

89,590,135

 

 

 

90,370,679

 

 

 

89,208,732

 

Weighted average common shares outstanding, diluted

 

92,161,108

 

 

 

91,489,975

 

 

 

91,985,946

 

 

 

91,188,958

 

 

See Notes to Consolidated Financial Statements

4


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands, except share and per share data)

 

 

Three-Month Period

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

$

157,208

 

 

$

5,415

 

 

$

163,321

 

 

$

13,402

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

4

 

 

 

-

 

 

 

65

 

 

 

-

 

Change in fair value of interest rate swap agreements

 

451

 

 

 

612

 

 

 

1,287

 

 

 

66

 

Total other comprehensive income (loss)

 

455

 

 

 

612

 

 

 

1,352

 

 

 

66

 

Comprehensive income

$

157,663

 

 

$

6,027

 

 

$

164,673

 

 

$

13,468

 

 

See Notes to Consolidated Financial Statements

5


 

ENTRAVISION COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)  

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

163,321

 

 

$

13,402

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

12,460

 

 

 

11,724

 

Cost of revenue - television (spectrum usage rights)

 

12,131

 

 

 

-

 

Deferred income taxes

 

99,514

 

 

 

8,887

 

Amortization of debt issue costs

 

595

 

 

 

579

 

Amortization of syndication contracts

 

311

 

 

 

289

 

Payments on syndication contracts

 

(300

)

 

 

(270

)

Equity in net income (loss) of nonconsolidated affiliate

 

175

 

 

 

-

 

Non-cash stock-based compensation

 

3,149

 

 

 

2,634

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

12,790

 

 

 

5,804

 

(Increase) decrease in prepaid expenses and other assets

 

(1,830

)

 

 

(952

)

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

 

(8,862

)

 

 

(3,192

)

Net cash provided by operating activities

 

293,454

 

 

 

38,905

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of short-term investments

 

-

 

 

 

(30,000

)

Proceeds from maturity of short term investments

 

-

 

 

 

30,000

 

Purchases of property and equipment

 

(9,639

)

 

 

(6,960

)

Purchases of intangible assets

 

(32,588

)

 

 

-

 

Purchases of investments

 

(2,200

)

 

 

(250

)

Deposits on acquisitions

 

(1,240

)

 

 

-

 

Purchase of a business, net of cash acquired

 

(7,489

)

 

 

-

 

Net cash used in investing activities

 

(53,156

)

 

 

(7,210

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Net proceeds from stock option exercises

 

11

 

 

 

1,885

 

Payments on long-term debt

 

(2,813

)

 

 

(2,813

)

Dividends paid

 

(10,179

)

 

 

(8,371

)

Repurchase of Class A common stock

 

(1,778

)

 

 

-

 

Net cash used in financing activities

 

(14,759

)

 

 

(9,299

)

Effect of exchange rates on cash, cash equivalents and restricted cash

 

17

 

 

 

-

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

225,556

 

 

 

22,396

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

Beginning

 

61,520

 

 

 

47,924

 

Ending

 

287,076

 

 

 

70,320

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments for:

 

 

 

 

 

 

 

Interest

 

10,489

 

 

 

11,040

 

Income taxes

 

671

 

 

 

534

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

Capital expenditures financed through accounts payable, accrued expenses and other liabilities

$

604

 

 

$

775

 

Contingent consideration included in accounts payable, accrued expenses and other liabilities

$

18,026

 

 

$

-

 

 

See Notes to Consolidated Financial Statements

 

6


 

ENTRAVISION COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2017

 

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 (the “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 (“GAAP”) 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, 2016 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 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, 2017 or any other future period.

 

 

2. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company is a leading global media company that reaches and engages U.S. Hispanics across acculturation levels and media channels, as well as consumers located primarily in Mexico and other markets in Latin America. The Company’s expansive portfolio encompasses integrated marketing and media solutions, comprised of television, radio and digital properties and data analytics services. The Company’s management has determined that the Company operates in three reportable segments as of September 30, 2017, based upon the type of advertising medium, which segments are television broadcasting, radio broadcasting, and digital media. The television broadcasting segment includes revenue generated from advertising, retransmission consent agreements and the monetization of the Company’s spectrum assets.

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 as 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 revenue is recognized when display or other digital advertisements record impressions on the websites of the Company’s third-party publishers or as the advertiser’s performance goals are delivered.

The Company generates revenue under arrangements that are sold on a stand-alone basis within a specific segment, and those that are sold on a combined basis across multiple segments. The Company has determined that in such revenue arrangements which contain multiple products and services, revenues are allocated based on the relative fair value of each delivered item and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting.

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 “Related Party” below and Note 7 to Notes to Consolidated Financial Statements, “Subsequent Events”.

The Company also generates revenue from agreements associated with its television stations’ spectrum usage rights in order to accommodate the operations of telecommunications operators.  These agreements modify or relinquish the spectrum usage rights of the Company such that the spectrum can be utilized by telecommunications operators free from interference.  Revenue from such agreements is recognized when the Company has relinquished its permanent spectrum usage rights or has relinquished its rights to operate the station on the existing channel free from interference.

Restricted Cash

As of September 30, 2017, the Company’s balance sheet includes $231.1 million in restricted cash, which was deposited into the account of a qualified intermediary to comply with Internal Revenue Code Section 1031 requirements to execute a like-kind exchange.  

7


 

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 no less than four minutes per hour of the available advertising time on Univision’s primary network, subject to adjustment from time to time by Univision. 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 on 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 September 30, 2017 and 2016, the amount the Company paid Univision in this capacity was $2.4 million and $2.6 million, respectively. During the nine-month periods ended September 30, 2017 and 2016, the amount the Company paid Univision in this capacity was $7.1 million and $7.4 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 stations for a term of six years, expiring in December 2014, which Univision and the Company have extended through September 30, 2017. 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”). 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. The Company has entered into multiple short-term extensions of the proxy agreement since its December 2014 expiration, and it is the Company’s current intention to negotiate with Univision one or more further extensions 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 September 30, 2017, the amount due to the Company from Univision was $4.0 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. See also Note 7 to Notes to Consolidated Financial Statements, “Subsequent Events”.

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 $1.1 million and $0.7 million for the three-month periods ended September 30, 2017 and 2016, respectively. Stock-based compensation expense related to grants of stock options and restricted stock units was $3.1 million and $2.6 million for the nine-month periods ended September 30, 2017 and 2016, respectively.   

8


 

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 September 30, 2017, there was approximately $0.1 million of total unrecognized compensation expense related to grants of stock options that is expected to be recognized over a weighted-average period of 1.0 years.

Restricted Stock Units

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

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

 

 

Nine-month Period

 

 

Ended September 30, 2017

 

 

Number
Granted

 

 

Weighted-Average
Fair
Value

 

Restricted stock units

 

61

 

 

$

5.75

 

 

As of September 30, 2017, there was approximately $3.0 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 1.3 years.

Certain of the Company’s management-level employees were granted performance stock units that are contingent upon achievement of specified pre-established performance goals over the performance period, which is fiscal year 2017, and vesting over a period of three years, subject to the recipient's continued service with the Company. The performance goals are based on achievement of net revenue and/or EBITDA goals. Depending on the outcome of the performance goals, the recipient may ultimately earn performance restricted stock units between 0% and 200% of the number of performance restricted stock units granted. For the three- and nine-month periods ended September 30, 2017, there was no share-based compensation expense related to performance restricted stock units.  

9


 

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

 

 

Nine-Month Period

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

157,208

 

 

$

5,415

 

 

$

163,321

 

 

$

13,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

90,517,492

 

 

 

89,590,135

 

 

 

90,370,679

 

 

 

89,208,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

$

1.74

 

 

$

0.06

 

 

$

1.81

 

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

157,208

 

 

$

5,415

 

 

$

163,321

 

 

$

13,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

90,517,492

 

 

 

89,590,135

 

 

 

90,370,679

 

 

 

89,208,732

 

Dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted stock units

 

1,643,616

 

 

 

1,899,840

 

 

 

1,615,267

 

 

 

1,980,226

 

Diluted shares outstanding

 

92,161,108

 

 

 

91,489,975

 

 

 

91,985,946

 

 

 

91,188,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

$

1.71

 

 

$

0.06

 

 

$

1.78

 

 

$

0.15

 

 

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

For the three- and nine-month periods ended September 30, 2017, a total of 277 and 11,346 shares of dilutive securities, respectively, were not included in the computation of diluted income per share because the exercise prices of the dilutive securities were greater than the average market price of the common shares. For the three- and nine-month periods ended September 30, 2016, a total of 509 and 14,331 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

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

On July 13, 2017, the Board of Directors approved the repurchase of up to $15 million of the Company’s common stock.  Under this 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. On the same date, the Board terminated the Company’s previous share repurchase program of up to $20 million of the Company’s common stock.

The Company repurchased 0.3 million shares of Class A common stock at an average price of $5.62, for an aggregate purchase price of approximately $1.8 million, during the three-month period ended September 30, 2017. All such repurchased shares were retired as of September 30, 2017.

10


 

Investments

During the first quarter of 2016, the Company entered into an agreement with a financial institution to purchase a nine-month certificate of deposit (the “CD”) for $30.0 million, which was recorded in “Short-term investments” on the consolidated balance sheets during the term of the CD.  The CD matured during the third quarter of 2016 and the funds returned to “Cash and cash equivalents” on the consolidated balance sheet.

The Company made an investment in Chanclazo Studios, Inc. (“Chanclazo”), a digital production studio that creates and distributes short and long form 3D animation, virtual reality and augmented reality content for Hispanic audiences.  The net investment in Chanclazo totals $1.0 million for a 12.5% ownership interest, as of September 30, 2017.   The investment was recorded in “Other assets” on the consolidated balance sheet and is accounted for using the cost method.

The Company made an investment in Cocina Vista, LLC (“Cocina”), a digital media company focused on Spanish and Latin American food and cooking in the United States, Spain and Latin America, during the second quarter of 2017. The net investment in Cocina totaled $1.7 million for a 34.35% ownership interest. The Company is required to make a second investment of $1.5 million, for a total ownership interest of 51%, if Cocina achieves certain EBITDA goals. As of September 30, 2017, Cocina had not achieved those goals. The investment was recorded in “Other assets” on the consolidated balance sheet and is accounted for using the equity method.

 

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 (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 “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 September 30, 2017, 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

11


 

(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

 

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.

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;

12


 

 

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 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.   

Effective August 1, 2017, the Company entered into the First Amendment (the “Amendment”) to the 2013 Credit Agreement.  Pursuant to this Amendment, among other things, the Company is allowed to make certain restricted payments in an amount not to exceed $40 million, plus, for each anniversary of the effective date of the Amendment, an additional $20 million so long as, in the case of restricted payments made in reliance on any such additional amounts, the total net leverage ratio would not exceed 5.5 to 1 after giving effect to the restricted payment.

The Amendment also makes certain technical and conforming changes to the terms of the 2013 Credit Agreement. All other provisions of the 2013 Credit Agreement remain in full force and effect unless expressly amended or modified pursuant to the Amendment.

In each of December 2014, 2015 and 2016, the Company made a prepayment of $20.0 million, to reduce the amount of loans outstanding under the Term Loan B Facility.

 

 

The carrying amount of the Term Loan B Facility as of September 30, 2017 was $287.7 million, net of $2.3 million of unamortized debt issuance costs. The estimated fair value of the Term Loan B Facility as of September 30, 2017 was $290.0 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.

13


 

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 took 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 September 30, 2017 and 2016 was a gain of $0.5 million and $0.6 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 nine-month periods ended September 30, 2017 and 2016 was a gain of $1.3 million and a gain of $0.1 million, net of tax, respectively, and was included in “Other comprehensive income (loss)”. The Company paid $0.7 million of interest related to the interest rate swap agreements for the three-month period ended September 30, 2017. The Company paid $2.2 million of interest related to the interest rate swap agreements for the nine-month period ended September 30, 2017. As of September 30, 2017, the Company estimates that none of the unrealized gains or losses included in accumulated other comprehensive income or loss related to these interest rate swap agreements will be realized and reported in earnings within the next twelve months.

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

The fair value of the interest rate swap liability as of September 30, 2017 was $2.7 million and was recorded in “Other long-term liabilities” on the consolidated balance sheets.

Fair Value Measurements

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

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

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

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.

14


 

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

 

 

 

September 30, 2017

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

2.7

 

 

$

-

 

 

$

2.7

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Total Fair Value

and Carrying

Value on Balance

Sheet

 

 

Fair Value Measurement Category

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

Interest rate swap

 

$

4.8

 

 

$

-

 

 

$

4.8

 

 

$

-

 

 

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency and the cumulative gains and losses of derivative instruments that qualify as cash flow hedges. The following table provides a roll-forward of accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2017 and 2016 (in millions):

 

 

2017

 

 

2016

 

Accumulated other comprehensive loss as of January 1,

$

(3.0

)

 

$

(4.1

)

Foreign currency translation (gain) loss

$

0.1

 

 

$

-

 

Change in fair value of interest rate swap agreements

$

2.1

 

 

$

0.1

 

Income tax (expense) benefit

$

(0.8

)

 

$

-

 

Other comprehensive income (loss), net of tax

$

1.4

 

 

$

0.1

 

Accumulated other comprehensive loss as of September 30,

$

(1.6

)

 

$

(4.0

)

 

Foreign Currency

The Company’s reporting currency is the U.S. dollar. All transactions initiated in foreign currencies are translated into U.S. dollars in accordance with ASC Topic 830, “Foreign Currency Matters” and the related rate fluctuation on transactions is included in the consolidated statements of operations.

For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date and equity is translated at historical rates. Revenues and expenses are translated at the average exchange rate for the period. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (income) loss.

 

Cost of Revenue

The Company incurs cost of revenue in certain of its operations. In the digital media segment, 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.

In the television segment, cost of revenue consists primarily of the carrying value of spectrum usage rights surrendered in the FCC auction for broadcast spectrum.

 

15


 

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. Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations ; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standards”). The new revenue standards are effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2017. The Company currently expects to adopt the new revenue standards in its first quarter of 2018. Based on the Company’s evaluation performed to date, the Company believes that its revenues will not be materially impacted by the new guidance. Specifically, its television and radio spot advertising contracts are short-term in nature with transaction price consideration agreed upon in advance. The Company expects revenue will continue to be recognized when commercials are aired. Further, the Company expects that revenue earned under retransmission agreements will be recognized under the licensing of intellectual property guidance in the standard, which will not have a material change to its current revenue recognition. The Company will continue to evaluate the impact to its online digital media revenue.

The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company currently plans to adopt this ASU under the modified retrospective method.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires entities to use a current expected credit loss (“CECL”) model which is a new impairment model based on expected losses rather than incurred losses. Under this model an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost. The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts, which will result in recognition of life-time expected credit losses upon loan origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) which provides specific guidance on eight cash flow classification issues arising from certain cash receipts and cash payments. Currently, GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues addressed in this topic. The objective is to reduce current and potential future diversity in practice. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of the ASU to have a material impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory which allows entities to recognize the income tax consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party.  In addition, there has been diversity in the application of the current guidance for transfers of certain intangible and tangible assets. The objective is to reduce complexity in accounting standards. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

16


 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business to provide a more robust framework to use in determining when a set of assets and activities is considered a business. The objective is to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only for certain transactions. The Company does not expect the adoption of the ASU to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The objective is to reduce the cost and complexity of evaluating goodwill for impairment. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.   The Company does not expect the adoption of the ASU to have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, to change the terms and conditions of a share-based payment award. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017. 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 August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), to expand an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment requirements under the previous guidance. ASU 2017-12 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. 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.

Newly Adopted Accounting Standards

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 requires companies to record excess tax benefits and tax deficiencies as a component of the provision for income taxes in the period in which they occur.  The Company has adopted the provisions of ASU 2016-09 on a modified retrospective basis as of January 1, 2017, which resulted in a cumulative-effect adjustment of $2.4 million to “Deferred income taxes” and “Total stockholders’ equity” on the consolidated balance sheets. Additionally, during the three-month period ended September 30, 2017, the Company recorded a benefit in income tax expense of $0.6 million due to the adoption of this new standard. During the nine-month period ended September 30, 2017, the Company recorded a benefit in income tax expense of $0.8 million due to the adoption of this new standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash a Consensus of the FASB Emerging Issues Task Force to enhance and clarify the guidance on the classification and presentation of restricted cash in the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The objective is to reduce diversity in practice. The Company elected to early adopt the provisions of ASU 2016-18 in the third quarter of 2017, which caused $231.1 million of restricted cash to be included within end-of-period cash and cash equivalents on the statement of cash flows.

17


 

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of such amounts in the consolidated statements of cash flows:

 

 

 

 

September 30, 2017

 

 

December 31, 2016

Cash and cash equivalents

 

$

56.0

 

$

61.5

Restricted Cash

 

$

231.1

 

$

-

Cash, cash equivalents and restricted shown in the consolidated statements of cash flows

 

$

287.1

 

$

61.5

 

 

3. SEGMENT INFORMATION

The Company operates in three reportable segments, based upon the type of advertising medium: television broadcasting, radio broadcasting and digital media. The Company’s segments results reflect information presented on the same basis that is used for internal management reporting and it is also how the chief operating decision maker evaluates the business.

 

Television Broadcasting

The Company owns and/or operates 55 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company generates revenue from advertising, retransmission consent agreements and the monetization of spectrum usage rights in these markets.

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 division, Entravision Solutions, through which the Company sells advertisements and syndicates radio programming to more than 300 stations across the United States.  

Digital Media

The Company owns and operates digital media operations, offering mobile, digital and other interactive media platforms and services on Internet-connected devices, including local websites and social media, that provide users with news information and other content.

On April 4, 2017, the Company completed the acquisition of 100% of the stock of several entities collectively doing business as Headway (“Headway”), a provider of mobile, programmatic, data and performance digital marketing solutions primarily in the United States, Mexico and other markets in Latin America. See Note 5 to the Notes to the Consolidated Financial Statements.

18


 

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 and foreign currency (gain) loss. The Company generated 3% and 5% of its revenue outside the United States during the three- and nine-month periods ended September 30, 2017, respectively. There were no significant sources of revenue generated outside the United States during the three- and nine-month periods ended September 30, 2016. The Company evaluates the performance of its operating segments based on the following (in thousands):

 

 

Three-Month Period

 

 

 

 

 

 

Nine-Month Period

 

 

 

 

 

 

Ended September 30,

 

 

%

 

 

Ended September 30,

 

 

%

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

 

Change

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from advertising and retransmission consent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Television

$

36,547

 

 

$

40,363

 

 

 

(9

)%

 

$

112,021

 

 

$

116,143

 

 

 

(4

)%

Radio

 

16,934

 

 

 

19,169

 

 

 

(12

)%

 

 

49,816

 

 

 

55,605

 

 

 

(10

)%

Digital

 

17,131

 

 

 

5,749

 

 

 

198

%

 

 

36,794

 

 

 

16,475

 

 

 

123

%

Total

 

70,612

 

 

 

65,281

 

 

 

8

%

 

 

198,631

 

 

 

188,223

 

 

 

6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from spectrum usage rights

 

263,943

 

 

 

-

 

 

*

 

 

 

263,943

 

 

 

-

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

334,555

 

 

 

65,281

 

 

 

412

%