In preparing the discussion and analysis contained in this Item 2, we presume
that readers have read or have access to the discussion and analysis contained
in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") on March 2, 2020. In addition, you should read the
following discussion and analysis of our financial condition and results of
operations in conjunction with our consolidated financial statements and related
notes included elsewhere in this report. The following results of operations
include a discussion of the three months ended March 31, 2020 as compared to the
comparable periods in the prior year. Our results of operations during the
relevant periods represent the operations of the radio stations owned or
operated by us.
The following discussion and analysis contains forward-looking statements about
our business, operations and financial performance based on current expectations
that involve risks, uncertainties and assumptions. You should not place undue
reliance on any of these forward-looking statements. In addition, any
forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement or statements to
reflect events or circumstances after the date on which the statement is made,
to reflect the occurrence of unanticipated events or otherwise, except as
required by law. New factors emerge from time to time, and it is not possible
for us to predict which will arise or to assess with any precision the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
Results of Operations for the Year-To-Date
The following significant factors affected our results of operations for the
three months ended March 31, 2020, as compared to the three months ended
March 31, 2019:
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced in Wuhan,
China and resulted in an outbreak with infections throughout China and abroad.
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.
The COVID-19 pandemic has led to emergency measures to combat its spread,
including government-issued stay-at-home orders, implementation of travel bans,
restrictions and limitations on social gatherings, closures of factories,
schools, public buildings and businesses and has forced the implementation of
alternative work arrangements. These emergency measures have had and are
expected to continue to have an adverse effect on our business and operations.
While the full impact of this outbreak is not yet known, we are closely
monitoring the spread of COVID-19 and continually assessing its effects on our
business, including how it has and will continue to have an impact on
advertisers, professional sports and live events. We experienced strong revenue
growth in January and February. In March 2020, we began to experience adverse
effects due to the pandemic and believe the effect of the pandemic will be more
fully reflected in our results of operations in future periods. We are currently
unable to predict the extent of the impact that the COVID-19 pandemic will have
on our financial condition, results of operations and cash flows in future
periods due to numerous uncertainties, but we believe the impact will be
material.
We presently believe that the COVID-19 pandemic and its related economic impact
has and will continue to:
•cause a decline in national and local advertising revenues;
•cause a decline in revenues on our sports stations as a result of the
suspension of the National Hockey League and National Basketball Association
seasons as well as the delay of Major League Baseball, which will be largely
offset by the pro-rata reduction of our play-by-play sports rights fee
obligations under virtually all of our agreements;
•adversely affect our event revenues due to the cancellation of many of our
events scheduled during the second quarter of 2020, mitigated by the ability to
eliminate the associated event costs;
•increase bad debt expense due to an inability of some of our clients to meet
their payment terms; and
•cause elevated employee medical claims costs
The following proactive actions are being taken by management in an effort to
partially offset the above:
•temporary salary reductions implemented across senior management and the
broader organization;
•temporary freezing of contractual salary increases in 2020;
•furlough and termination of select employees;
                                       36
--------------------------------------------------------------------------------
  Table of Contents
•suspension of new employee hiring, travel and entertainment, 401(k) matching
program, employee stock purchase program, and quarterly dividend program; and
•reduction of sales and promotions spend as well as consulting and other
discretionary expenses.
The extent to which the COVID-19 pandemic impacts our business, operations and
financial results is inherently uncertain and will depend on numerous evolving
factors that we may not be able to accurately predict. Therefore, the results
for the three months ended March 31, 2020, may not be indicative of the results
for the year ending December 31, 2020.
Cadence 13 Acquisition
In October 2019, we completed an acquisition of leading podcaster Cadence 13,
Inc. ("Cadence 13") by purchasing the remaining shares in Cadence 13 that we did
not already own (the "Cadence 13 Acquisition"). We initially acquired a 45%
interest in Cadence 13 in July 2017. This initial investment was accounted for
as an investment under the measurement alternative. In connection with this step
acquisition, we removed our investment in Cadence 13 and recognized a gain of
approximately $5.3 million during the fourth quarter of 2019.
Based on the timing of this transaction, our consolidated financial statements
for the three months ended March 31, 2020, reflect the results of Cadence 13.
Our consolidated financial statements for the three months ended March 31, 2019,
do not reflect the results of Cadence 13.
Pineapple Acquisition
On July 19, 2019, we completed a transaction to acquire the assets of Pineapple
Street Media ("Pineapple") for a purchase price of $14.0 million in cash plus
working capital (the "Pineapple Acquisition"). Our consolidated financial
statements reflect the operations of Pineapple from the date of acquisition.
Based on the timing of this transaction, our consolidated financial statements
for the three months ended March 31, 2020 reflect the results of Pineapple. Our
consolidated financial statements for the three months ended March 31, 2019 do
not reflect the results of Pineapple.
Cumulus Exchange
On February 13, 2019, we entered into an agreement with Cumulus Media Inc.
("Cumulus") under which we exchanged three of our stations in Indianapolis,
Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus
station in New York City, New York (the "Cumulus Exchange"). We began
programming the respective stations under local marketing agreements ("LMAs") on
March 1, 2019. In connection with this exchange, which closed during the second
quarter of 2019, we recognized a loss of approximately $1.8 million.
Based on the timing of this transaction, our consolidated financial statements
for the three months ended March 31, 2020: (i) reflect the results of the
stations acquired in the Cumulus Exchange; and (ii) do not reflect the results
of our divested stations. Our consolidated financial statements for the three
months ended March 31, 2019: (i) reflect the results of the acquired stations
for a portion of the period in which the LMAs were in effect; and (ii) reflect
the results of the divested stations for a portion of the period until the
commencement date of the LMAs.
Integration Costs and Restructuring Charges
On February 2, 2017, we and our wholly-owned subsidiary ("Merger Sub") entered
into an Agreement and Plan of Merger (the "CBS Radio Merger Agreement") with CBS
Corporation ("CBS") and its wholly-owned subsidiary CBS Radio Inc. ("CBS
Radio"). Pursuant to the CBS Radio Merger Agreement, Merger Sub merged with and
into CBS Radio with CBS Radio surviving as our wholly-owned subsidiary (the
"Merger"). The Merger closed on November 17, 2017.
In connection with the Merger, we incurred integration costs, including
transition services, consulting services and professional fees of $0.6 million
and $1.1 million during the three months ended March 31, 2020 and March 31,
2019, respectively. Amounts were expensed as incurred and are included in
integration costs.
In connection with the Merger and the COVID-19 pandemic, we incurred
restructuring charges, including workforce reductions and other restructuring
costs of $4.2 million and $1.0 million during the three months ended March 31,
2020 and March 31, 2019, respectively. Amounts were expensed as incurred and are
included in restructuring charges.
                                       37
--------------------------------------------------------------------------------
  Table of Contents
Note Issuance
During the second quarter of 2019, we issued $325.0 million in aggregate
principal amount of senior secured second-lien notes due 2027 (the "Initial
Notes"). Interest on the Initial Notes accrues at the rate of 6.500% per annum.
We used net proceeds of the offering, along with cash on hand and $89.0 million
borrowed under our $250.0 million revolving credit facility (the "Revolver") to
repay $425.0 million of existing indebtedness under our term loan outstanding at
that time (the "Term B-1 Loan"). Increases in our interest expense due to the
issuance of the Initial Notes, which have a higher interest rate, were partially
offset by reductions in our interest expense due to the partial repayment of our
Term B-1 Loan. In connection with this note issuance: (i) we wrote off $1.6
million of unamortized debt issuance costs and $0.2 million of unamortized
premium to loss on extinguishment of debt; (ii) we incurred third party costs of
$5.8 million, of which approximately $3.9 million was capitalized and
approximately $1.9 million was captured as other expenses related to financing.
On December 13, 2019, we issued $100.0 million of additional 6.500% senior
secured second-lien notes due 2027 (the "Additional Notes"). The Additional
Notes are treated as a single series with the Initial Notes (together with the
Additional Notes, the "Notes") and have substantially the same terms as the
Initial Notes. We used net proceeds of the offering to repay $97.6 million of
existing indebtedness under our Term B-1 Loan. Contemporaneous with this partial
pay-down of the Term B-1 Loan, we replaced the remaining amount outstanding
under the Term B-1 Loan with a Term B-2 loan (the "Term B-2 Loan"). Increases in
our interest expense due to the issuance of the Additional Notes, which have a
higher interest rate, were partially offset by reductions in our interest
expense due to the partial repayment of our Term B-1 Loan and the lower
borrowing rate on the Term B-2 Loan. In connection with this note issuance: (i)
we wrote off $0.3 million of unamortized debt issuance costs to loss on
extinguishment of debt; and (ii) incurred third party costs and lender fees of
approximately $6.3 million, of which approximately $3.8 million was capitalized
and approximately $2.5 million was captured as other expenses related to
financing.

Three Months Ended March 31, 2020 As Compared To The Three Months Ended March 31, 2019



                                                                        THREE MONTHS ENDED MARCH 31,
                                                              2020                 2019                % Change
                                                                           (dollars in millions)
NET REVENUES                                            $      297.0           $   309.0                       (4) %

OPERATING EXPENSE:
Station operating expenses                                     250.1               249.0                        -  %
Depreciation and amortization expense                           12.5                11.1                       13  %
Corporate general and administrative expenses                   17.2                20.9                      (18) %
Integration costs                                                0.6                 1.1                      (45) %
Restructuring charges                                            4.2                 1.0                      320  %
Impairment loss                                                  1.0                   -                      100  %

Other operating (income) expenses                                  -                (4.5)                     100  %
Total operating expense                                        285.6               278.6                        3  %
OPERATING INCOME (LOSS)                                         11.4                30.4                      (63) %

INTEREST EXPENSE                                                23.6                25.2                       (6) %
OTHER (INCOME) EXPENSE                                             -                   -                        -  %

INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)                    (12.2)                5.2                     (335) %

INCOME TAXES (BENEFIT)                                          (3.1)                2.1                     (248) %

NET INCOME (LOSS)                                       $       (9.1)          $     3.1                     (394) %


                                       38

--------------------------------------------------------------------------------
  Table of Contents
Net Revenues
Revenues decreased compared to prior year primarily due to a decrease in
advertising spending in connection with the economic slowdown triggered by the
COVID-19 pandemic. We experienced strong revenue growth in January and February.
In March 2020, we experienced adverse effects due to the pandemic and believe
the effect of the pandemic will be more fully reflected in our results of
operations in future periods.
Partially offsetting this decrease, net revenues were positively impacted by:
(i) the operations of Pineapple; (ii) the operations of Cadence 13; and (iii)
growth in our political spot revenues and network revenues.
Net revenues increased the most for our stations located in the Orlando and
Phoenix markets.
Net revenues decreased the most for our stations located in the Atlanta and New
York City markets.
Station Operating Expenses
Station operating expenses increased compared to prior year primarily due to an
increase in operating costs attributable to recent acquisitions made which were
not reflected in 2019 results. This increase in operating costs was partially
offset by reductions in operating costs from operating our stations more
efficiently due to synergies recognized.
Station operating expenses include non-cash compensation expense of $0.5 million
and $1.4 million for the three months ended March 31, 2020 and March 31, 2019,
respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense increased primarily due to an increase in
capital expenditures in 2019. The increase in capital expenditures in 2019 was
primarily due to the consolidation and relocation of several studio facilities
in larger markets and an increase in our size and capital needs associated with
the integration of common systems across the new markets acquired in the Merger.
Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased primarily as a result of
our integration related cost synergy actions.
Corporate general and administrative expenses include non-cash compensation
expense of $1.3 million and $2.2 million for the three months ended March 31,
2020 and March 31, 2019, respectively.
Integration Costs
Integration costs were incurred during the three months ended March 31, 2020 and
March 31, 2019 as a result of the Merger. These costs primarily consisted of
ongoing costs related to effectively combining and incorporating CBS Radio into
our operations. Based on the timing of the Merger, integration activities
primarily occurred in 2017 and 2018 and were reduced significantly in 2019 and
2020.
Restructuring Charges
We incurred restructuring charges in 2020 primarily in response to the COVID-19
pandemic. These costs primarily included workforce reduction charges. We
incurred restructuring charges in 2019 primarily as a result of the
restructuring of operations for the Merger. These costs primarily included
workforce reduction charges and other charges and were expensed as incurred.
Other Operating (Income) Expenses
During the three months ended March 31, 2019, we completed a sale of land and
land improvements, buildings and equipment and recognized a gain of $4.5
million. During the three months ended March 31, 2020, we had no such sales
activities.
The change in other operating (income) expense is primarily attributable to the
change in these activities between periods.
                                       39
--------------------------------------------------------------------------------
  Table of Contents
Operating Income (Loss)
Operating income in the current period decreased primarily due to: (i) a
decrease in net revenues, net of station operating expenses of $13.0 million;
(ii) a decrease in other operating (income) expenses of $4.6 million; (iii) an
increase in restructuring charges of $3.2 million; (iii) an increase in
depreciation and amortization expense of $1.4 million; and (iv) an increase in
impairment loss of $1.1 million.
These decreases were partially offset by: (i) a decrease corporate, general and
administrative expenses of $3.7 million; and (ii) a decrease in integration
costs of $0.5 million.
Interest Expense
During the three months ended March 31, 2020, we incurred $1.6 million less in
interest expense as compared to the three months ended March 31, 2019. As
discussed above, we issued $425.0 million in Notes in 2019 and used proceeds and
cash on hand to partially repay $521.7 million of existing indebtedness under
our Term B-1 Loan. This reduction in interest expense was primarily attributable
to a reduction in outstanding indebtedness upon which interest is computed.
These reductions were partially offset by the replacement of a portion of our
variable-rate debt with fixed-rate debt at a higher interest rate.
Income (Loss) Before Income Taxes (Benefit)
The decreases in income before income taxes was primarily attributable to
reasons described above under Operating Income (Loss) and Interest Expense.
Income Taxes (Benefit)
Tax Rate for the Three Months Ended March 31, 2020
The effective income tax rate was 25.5% for the three months ended March 31,
2020, which was determined using a forecasted rate based upon taxable income for
the year. The effective income tax rate for the quarter was impacted by a
discrete income tax expense item related to the shortfall associated with
share-based awards.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act"). The CARES Act is an emergency economic
stimulus package that includes spending and tax breaks to strengthen the United
States economy and fund a nationwide effort to curtail the effects of the
COVID-19 pandemic. The CARES Act includes significant business tax provisions
that, among other things, includes the removal of certain limitations on
utilization of net operating losses, increases the loss carry back period for
certain losses to five years, and increases the ability to deduct interest
expense, as well as amending certain provisions of the previously enacted Tax
Cuts and Jobs Act. We continue to evaluate the impact the CARES Act will have on
our tax obligations.
Tax Rate for the Three Months Ended March 31, 2019
The estimated annual effective income tax rate was 39.5%, which was determined
using a forecasted rate based upon taxable income for the year. The effective
income tax rate is typically higher in the first quarter of the year primarily
due to: (i) the seasonality of the business which results in a lower reported
figure for income before income taxes; and (ii) the disproportionate impact that
discrete items may have on such lower reported income before income taxes
figures.
Net Deferred Tax Liabilities
As of March 31, 2020, and December 31, 2019, our net deferred tax liabilities
were $555.5 million and $549.7 million, respectively.
The deferred tax liabilities primarily relate to differences between the book
and tax bases of certain of our indefinite-lived intangible assets (broadcasting
licenses). The amortization of our indefinite-lived assets for tax purposes but
not for book purposes creates deferred tax liabilities. A reversal of deferred
tax liabilities may occur when indefinite-lived intangibles: (i) become
impaired; or (ii) are sold, which would typically only occur in connection with
the sale of the assets of a station or groups of stations or the entire company
in a taxable transaction. Due to the amortization for tax purposes and not book
purposes of our indefinite-lived intangible assets, we expect to continue to
generate deferred tax liabilities in future periods.
                                       40
--------------------------------------------------------------------------------
  Table of Contents
Net Income (Loss)
The change in net income (loss) was primarily attributable to the reasons
described above under Income (Loss) Before Income Taxes (Benefit) and Income
Taxes (Benefit).
Liquidity and Capital Resources
Amendment and Repricing - CBS Radio (Now Entercom Media Corp.) Indebtedness
In connection with the Merger, we assumed CBS Radio's (now Entercom Media
Corp.'s) indebtedness outstanding under: (i) a credit agreement (the "Credit
Facility") among CBS Radio (now Entercom Media Corp.), the guarantors named
therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as
administrative agent; and (ii) the Senior Notes (described below).
2019 Refinancing Activities - The Notes
During the second quarter of 2019, we and our finance subsidiary, Entercom Media
Corp., issued $325.0 million in aggregate principal amount of senior secured
second-lien notes due 2027 (the "Initial Notes") under an indenture dated as of
April 30, 2019 (the "Base Indenture").
Interest on the Initial Notes accrues at the rate of 6.500% per annum and is
payable semi-annually in arrears on May 1 and November 1 of each year. Until May
1, 2022, only a portion of the Initial Notes may be redeemed at a price of
106.500% of their principal amount plus accrued interest. The prepayment premium
continues to decrease over time to 100% of their principal amount plus accrued
interest.
We used net proceeds of the offering, along with cash on hand and $89.0 million
borrowed under our Revolver, to repay $425.0 million of existing indebtedness
under our Term B-1 Loan.
During the fourth quarter of 2019, we and our financing subsidiary, Entercom
Media Corp., issued $100.0 million of additional 6.500% senior secured
second-lien notes due 2027 (the "Additional Notes"). The Additional Notes were
issued as additional notes under the Base Indenture, as supplemented by a first
supplemental indenture dated December 13, 2019, (the "First Supplemental
Indenture"), and, together with the Base Indenture, the "Indenture"). The
Additional Notes are treated as a single series with the $325.0 million Initial
Notes (together, with the Additional Notes, the "Notes") and have substantially
the same terms as the Initial Notes. The Additional Notes were issued at a price
of 105.0% of their principal amount, plus accrued interest from November 1,
2019. The premium on the Notes will be amortized over the term under the
effective interest rate method. As of any reporting period, the unamortized
premium on the Notes is reflected on the balance sheet as an addition to the
$425.0 million Notes.
We used net proceeds of the Additional Notes offering to repay $96.7 million of
existing indebtedness under our Term B-1 Loan. Contemporaneous with this partial
pay-down of the Term B-1 Loan, we replaced the remaining amount outstanding
under the Term B-1 Loan with the Term B-2 Loan.
The Notes are fully and unconditionally guaranteed on a senior secured
second-lien basis by most of the direct and indirect subsidiaries of Entercom
Media Corp. The Notes and the related guarantees are secured on a second-lien
priority basis by liens on substantially all of the assets of Entercom Media
Corp. and the guarantors.
On April 30, 2019, Entercom Media Corp. amended the financial covenant in its
Senior Secured Credit Agreement such that the calculation of Consolidated Net
First Lien Leverage Ratio only includes first lien secured debt. Accordingly,
the Notes are not included in the financial covenant calculation.
A default under our Notes could cause a default under our Credit Facility or
Senior Notes. Any event of default, therefore, could have a material adverse
effect on our business and financial condition.
We may from time to time seek to repurchase and retire our outstanding
indebtedness through open market purchases, privately negotiated transactions or
otherwise. Such repurchases, if any, will depend upon prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.
The Notes are not a registered security and there are no plans to register our
Notes as a security in the future. As a result, Rule 3-10 of Regulation S-X
promulgated by the SEC is not applicable and no separate financial statements
are required for the guarantor subsidiaries.
                                       41
--------------------------------------------------------------------------------
  Table of Contents
Liquidity
Although we expect to be negatively impacted by the COVID-19 pandemic, we
anticipate that our business will continue to generate sufficient cash flow from
operating activities and we believe that these cash flows, together with our
existing cash and cash equivalents and our ability to obtain future external
financing, will be sufficient for us to meet our current and long-term liquidity
and capital requirements. However, our ability to maintain adequate liquidity is
dependent upon a number of factors, including our revenue, macroeconomic
conditions, the length and severity of business disruptions caused by the
COVID-19 pandemic, our ability to contain costs and to collect accounts
receivable, and various other factors, many of which are beyond our control
Moreover, if the COVID-19 pandemic continues to create significant disruptions
in the credit or financial markets, or impacts our credit ratings, it could
adversely affect our ability to access capital on attractive terms, if at all.
We also expect the timing of certain priorities to be impacted, such as the pace
of our debt reduction efforts and the delay of certain capital projects.
Immediately following the refinancing activities described above, the Credit
Facility as amended, is comprised of the $250.0 million Revolver and a $770.0
million Term B-2 Loan. During the three months ended March 31, 2020, we: (i)
borrowed the full amount available under our Revolver as a precautionary measure
to preserve financial flexibility during the COVID-19 pandemic; and (ii) made
required excess cash flow payments and quarterly amortization payments due under
the Term B-2 Loan.
As of March 31, 2020, we had $758.1 million outstanding under the Term B-2 Loan
and $243.7 million outstanding under the Revolver. In addition, we had $6.3
million in outstanding letters of credit.
As of March 31, 2020, we had $189.2 million in cash and cash equivalents. For
the three months ended March 31, 2020, we increased our outstanding debt by
$114.9 million due to the previously discussed draw under our Revolver. As of
March 31, 2020, our Consolidated Net First Lien Leverage Ratio was 2.5 times as
calculated in accordance with the terms of our Credit Facility, which place
restrictions on the amount of cash, cash equivalents and restricted cash that
can be subtracted in determining consolidated first lien net debt.
The Credit Facility
The Credit Facility is comprised of the Revolver and the Term B-2 Loan.
On December 13, 2019, we executed an amendment to the Credit Facility
("Amendment No. 4") which, among other things: (i) replaced the Term B-1 Loan
with the Term B-2 Loan; (ii) established a new class of revolving credit
commitments from a portion of our existing Revolver with a later maturity date;
and (iii) made certain other amendments to the Credit Facility.
We executed Amendment No. 4 which established a new class of revolving credit
commitments from a portion of our existing revolving commitments with a later
maturity date than the revolving credit commitments immediately prior to the
effectiveness of the amendment. All but one of the original lenders in the
Revolver agreed to extend the maturity date from November 17, 2022 to August 19,
2024.
As a result, approximately $227.3 million (the "New Class Revolver") of the $250
million Revolver has a maturity date of August 19, 2024, and approximately $22.7
million (the "Original Class Revolver") of the $250 million Revolver has a
maturity date of November 17, 2022.
The Original Class Revolver provides for interest based upon the Base Rate or
LIBOR, plus a margin. The Base Rate is the highest of: (i) the administrative
agent's prime rate; (ii) the Federal Reserve Bank of New York's Rate plus 0.5%;
or (iii) the one month LIBOR Rate plus 1.0%. The margin may increase or decrease
based upon our Consolidated Net First Lien Leverage Ratio as defined in the
agreement.
The New Class Revolver provides for interest based upon the Base rate or LIBOR,
plus a margin. The margin may increase or decreased based upon our Consolidated
Net First Lien Leverage Ratio as defined in the agreement.
The Term B-2 Loan has a maturity date of November 17, 2024, and provides for
interest based upon the Base Rate or LIBOR, plus a margin. The Term B-2 Loan
amortizes, commencing on March 31, 2020: (i) with equal quarterly installments
of principal in annual amounts equal to 1.0% of the original principal amount of
the Term B-2 Loan; and (ii) mandatory yearly prepayments based upon a percentage
of Excess Cash Flow as defined in the agreement. The Term B-2 Loan requires
mandatory prepayments equal to a percentage of Excess Cash Flow, subject to
incremental step-downs, depending on the
                                       42
--------------------------------------------------------------------------------
  Table of Contents
Consolidated Net Secured Leverage Ratio. The Excess Cash Flow payment is based
on the Excess Cash Flow and the Consolidated Net Secured Leverage Ratio for the
prior year. We made our first Excess Cash Flow payment in the first quarter of
2020.
As of March 31, 2020, we were in compliance with the financial covenant then
applicable and all other terms of the Credit Facility in all material respects.
Our ability to maintain compliance with our financial covenant under the Credit
Facility is highly dependent on our results of operations. Currently given the
impact of COVID-19, the outlook is highly uncertain.
Failure to comply with our financial covenant or other terms of our Credit
Facility and any subsequent failure to negotiate and obtain any required relief
from our lenders could result in a default under the Credit Facility. We will
continue to monitor our liquidity position and covenant obligations and assess
the impact of the COVID-19 pandemic on our ability to comply with the covenants
under the Credit Facility.
Any event of default could have a material adverse effect on our business and
financial condition. We may seek from time to time to amend our Credit Facility
or obtain other funding or additional funding, which may result in higher
interest rates on our debt. However, we may not be able to do so on terms that
are acceptable or to the extent necessary to avoid a default, depending upon
conditions in the credit markets, the length and depth of the market reaction to
the COVID-19 pandemic and our ability to compete in this environment.
The Senior Notes
Simultaneously with entering into the Merger and assuming the Credit Facility on
November 17, 2017, we also assumed the Senior Notes that mature on November 1,
2024 in the amount of $400.0 million (the "Senior Notes"). The Senior Notes,
which were originally issued by CBS Radio (now Entercom Media Corp.) on October
17, 2016, were valued at a premium as part of the fair value measurement on the
date of the Merger. The premium on the Senior Notes will be amortized over the
term under the effective interest rate method. As of any reporting period, the
unamortized premium on the Senior Notes is reflected on the balance sheet as an
addition to the $400.0 million liability.
Interest on the Senior Notes accrues at the rate of 7.250% per annum and is
payable semi-annually in arrears on May 1 and November 1 of each year. The
Senior Notes may be redeemed at any time on or after November 1, 2019 at a
redemption price of 105.438% of their principal amount plus accrued interest.
The redemption price decreases over time to 100% of their principal amount plus
accrued interest.
Most of our existing subsidiaries, other than Entercom Media Corp. (being the
issuer thereof), jointly and severally guaranteed the Senior Notes.
A default under our Senior Notes could cause a default under our Credit
Facility. Any event of default, therefore, could have a material adverse effect
on our business and financial condition.
We may from time to time seek to repurchase or retire our outstanding
indebtedness through open market purchases, privately negotiated transactions or
otherwise. Such repurchases, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.
The Senior Notes are not a registered security and there are no plans to
register our Senior Notes as a security in the future. As a result, Rule 3-10 of
Regulation S-X promulgated by the SEC is not applicable and no separate
financial statements are required for the guarantor subsidiaries.
Operating Activities
Net cash flows provided by operating activities were $68.1 million and $65.7
million for the three months ended March 31, 2020 and March 31, 2019,
respectively.
Despite a reported net loss of $9.1 million for the three months ended March 31,
2020 as compared to a reported net income of $3.1 million for the three months
ended March 31, 2019, and a reduction in the gain on deferred compensation plan
liabilities of $7.7 million, the cash flows from operating activities increased
primarily due to (i) increases in the adjustments for: (a) income tax benefits
of $8.5 million; (b) net (gain) loss on sale or disposals of assets of $4.6
million; and (c) provision for bad debts of $4.0 million; and (ii) a reduction
in net investment in working capital of $4.5 million. The reduction in net
investment in working capital was primarily due to: (i) the timing of
settlements of prepaid expenses; (ii) the timing of
                                       43
--------------------------------------------------------------------------------
  Table of Contents
settlements of accrued interest expense; (iii) the timing of collections of
accounts receivable; (iv) the timing of settlements of other long-term
liabilities; and (v) the timing of settlements of accounts payable and accrued
liabilities.
Investing Activities
Net cash flows used in investing activities were $9.7 million for the three
months ended March 31, 2020, which primarily reflect the purchase of property
and equipment of $8.6 million and the purchase of and intangible assets of $1.1
million.
Net cash flows provided by investment activities were $4.0 million for the three
months ended March 31, 2019, which primarily reflect proceeds received from
dispositions of assets in the amount of $24.5 million, less additions to
property and equipment and intangible assets of $20.5 million.
Financing Activities
Net cash flows provided by financing activities were $110.5 million for the
three months ended March 31, 2020, which primarily reflect: (i) the borrowing
under the Revolver of $146.7 million; (ii) the payments of amounts due under the
Revolver of $20.0 million; (iii) the payments of long term debt of $11.9
million; and (iv) the payment of dividends on common stock of $2.7 million.
Net cash flows used in financing were and $193.7 million for the three months
ended March 31, 2019, which primarily reflect: (i) the payments of long term
debt of $180.0 million; and (ii) the payment of dividends on common stock of
$12.4 million.
Dividends
On November 2, 2017, our Board approved an increase to the annual common stock
dividend program to $0.36 per share, beginning with the dividend paid in the
fourth quarter of 2017. On August 9, 2019, our Board of Directors reduced the
annual common stock dividend program to $0.08 per share of common stock.
Quarterly dividend payments approximate $2.7 million per quarter (without
considering any further reduction in shares from our stock buyback program).
Following the payment of the quarterly dividend payment for the first quarter of
2020, we suspended our quarterly dividend program.
Any future dividends will be at the discretion of the Board based upon the
relevant factors at the time of such consideration, including, without
limitation, compliance with the restrictions set forth in our Credit Facility,
the Senior Notes and the Notes.
Share Repurchase Program
On November 2, 2017, our Board announced a share repurchase program (the "2017
Share Repurchase Program") to permit us to purchase up to $100.0 million of our
issued and outstanding shares of Class A common stock through open market
purchases. Shares repurchased by us under the 2017 Share Repurchase Program will
be at our discretion based upon the relevant factors at the time of such
consideration, including, without limitation, compliance with the restrictions
set forth in our Credit Facility, the Notes and the Senior Notes.
During the three months ended March 31, 2020, we did not repurchase any shares
under the 2017 Share Repurchase Program. As of March 31, 2020, $41.6 million is
available for future share repurchases under the 2017 Share Repurchase Program.
Income Taxes
During the three months ended March 31, 2020, we paid $1.3 million in state
income taxes.
For federal income tax purposes, the acquisition of CBS Radio was treated as a
reverse acquisition which caused us to undergo an ownership change under Section
382 of the Internal Revenue Code ("Code"). This ownership change will limit the
utilization of our net operating losses ("NOLs") for post-acquisition tax years.
We may need to make additional federal and state estimated tax payments during
the remainder of the year.
                                       44
--------------------------------------------------------------------------------
  Table of Contents
Capital Expenditures
Capital expenditures, including amortizable intangibles, for the three months
ended March 31, 2020 were $9.7 million. We anticipate that total capital
expenditures in 2020 will be between $25 million and $30 million. This figure
includes approximately $2 million that will be reimbursed by landlords for
tenant improvement allowances.
Contractual Obligations
As of March 31, 2020, there have been no net material changes in the total
amount from the contractual obligations listed in our Form 10-K for the year
ended December 31, 2019, as filed with the SEC on March 2, 2020, other than as
described below.
As discussed above in the liquidity section, during the three months ended
March 31, 2020, we borrowed the full amount available under the Revolver.
Additionally, we made required Excess Cash Flow payments and quarterly
amortization payments due under the Term B-2 Loan. As a result of this activity,
the amounts outstanding under our long-term debt obligations increased by $114.9
million during the three months ended March 31, 2020.
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any material off-balance sheet
transactions, arrangements or obligations, including contingent obligations.
We do not have any other relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet financial arrangements or other contractually
narrow or limited purposes as of March 31, 2020. Accordingly, we are not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.
Critical Accounting Policies
The SEC defines critical accounting policies as those that are most important to
the portrayal of a company's financial condition and results and that require
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
There have been no material changes to our critical accounting policies from the
information provided in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies, in
our Annual Report on Form 10-K for the year ended December 31, 2019 except as
disclosed in Note 1, Basis of Presentation and Significant Policies to our
consolidated financial statements.

Goodwill Valuation at Risk
After the annual impairment test conducted on our goodwill in the fourth quarter
of 2019, the results indicated that the fair value of goodwill was less than the
carrying value. As a result of the $537.4 million goodwill impairment ($519.6
million, net of tax) booked in the fourth quarter of 2019, we no longer have any
goodwill attributable to the broadcast reporting unit. Our remaining goodwill is
limited to the goodwill attributable to the podcast reporting unit.
Future impairment charges may be required on our goodwill attributable to our
podcast reporting unit, as the discounted cash flow model is subject to change
based upon our performance, peer company performance, overall market conditions,
and the state of the credit markets. We continue to monitor these relevant
factors to determine if an interim impairment assessment is warranted.
A deterioration in our forecasted financial performance, an increase in discount
rates, a reduction in long-term growth rates, a sustained decline in our stock
price, or a failure to achieve analyst expectations could all be potential
indicators of an impairment charge to the remaining goodwill attributable to the
podcasting reporting unit, which could be material, in future periods. The
COVID-19 pandemic increases the uncertainty with respect to such market and
economic conditions and, as such, increases the risk of future impairment.
                                       45
--------------------------------------------------------------------------------
  Table of Contents
As of March 31, 2020, we evaluated whether the facts and circumstances and
available information result in the need for an impairment assessment for any
goodwill, and concluded no assessment was required. We will continue to evaluate
the impacts of the COVID-19 pandemic on our business, including the impacts of
overall economic conditions, which could result in the recognition of an
impairment charge in the future.
Broadcasting License at Risk
The results of the annual impairment test conducted on our broadcasting licenses
in the fourth quarter of 2019 indicated that there were 15 units of accounting
where the fair value exceeded their carrying value by 15% or less. In aggregate,
these 15 units of accounting have a carrying value of $1,406.7 million at
March 31, 2020.
Holding all of the assumptions used in the annual impairment assessment
conducted during the fourth quarter of 2019 constant, changes in the assumptions
below would reduce the fair value of these 15 markets as follows:
                                          Sensitivity Analysis (1)

Percentage change in broadcasting


                                                                               licenses fair value
Increase in the discount rate from 8.5% to 9.5%                                                         5  %

Reduction in forecasted growth rate (including long-term growth rate) to 0%

                                                                              less than 1%
Reduction in operating profit margin by 10%                                                             2  %

(1) Each assumption used in the sensitivity analysis is independent of the other assumptions




If overall market conditions or the performance of the economy deteriorates,
advertising expenditures and radio industry results could be negatively
impacted, including expectations for future growth. This could result in future
impairment charges for these or other of our units of accounting, which could be
material. The COVID-19 pandemic increases the uncertainty with respect to such
market and economic conditions and, as such, increases the risk of future
impairment.
As of March 31, 2020, we evaluated whether the facts and circumstances and
available information result in the need for an impairment assessment for any of
our broadcasting licenses, and concluded no assessment was required. We will
continue to evaluate the impacts of the COVID-19 pandemic on our business,
including the impacts of overall economic conditions, which could result in the
recognition of an impairment charge, which could be material, in the future.
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates on our
variable-rate senior indebtedness (the Term B-2 Loan and Revolver). From time to
time, we may seek to limit our exposure to interest rate volatility through the
use of derivative rate hedging instruments.
As of March 31, 2020, if the borrowing rates under LIBOR were to increase 1%
above the current rates, our interest expense on: (i) our Term B-2 Loan would
increase $7.5 million on an annual basis, including any increase or decrease in
interest expense associated with the use of derivative rate hedging instruments
as described below; and (ii) our Revolver would increase by $2.5 million,
assuming our entire Revolver was outstanding as of March 31, 2020.
Assuming LIBOR remains flat, interest expense in 2020 versus 2019 is expected to
be lower as we anticipate reducing our outstanding debt upon which interest is
computed. We may seek from time to time to amend our Credit Facility or obtain
additional funding, which may result in higher interest rates on our
indebtedness and could increase our exposure to variable-rate indebtedness.
During the quarter ended June 30, 2019, we entered into the following derivative
rate hedging transaction in the notional amount of $560.0 million to hedge our
exposure to fluctuations in interest rates on our variable-rate debt. This rate
hedging transaction is tied to the one-month LIBOR interest rate.
                                       46

--------------------------------------------------------------------------------


  Table of Contents
   Type                                                                                 Fixed                                         Notional               Amount
    Of                Notional              Effective                                   LIBOR                Expiration                Amount                 After
   Hedge               Amount                  Date                Collar                Rate                   Date                 Decreases              Decrease
                      (amounts                                                                                                                              (amounts
                   (in millions)                                                                                                                          (in millions)
                                                                                                                                  Jun. 29, 2020          $      460.0
                                                                Cap                2.75%                                          Jun. 28, 2021          $      340.0
Collar                 $560.0            Jun. 25, 2019          Floor              0.402%                 Jun. 28, 2024           Jun. 28, 2022          $      220.0
                                                                                                                                  Jun. 28, 2023          $       90.0
Total                  $560.0


The fair value (based upon current market rates) of the rate hedging transaction
is included as derivative instruments in long-term liabilities as the maturity
dates on this instrument are greater than one year. The fair value of the
hedging transaction is affected by a combination of several factors, including
the change in the one-month LIBOR rate. Any increase in the one-month LIBOR rate
results in a more favorable valuation, while any decrease in the one-month LIBOR
rate results in a less favorable valuation.
Our credit exposure under our hedging agreement, or similar agreements we may
enter into in the future, is the cost of replacing such agreements in the event
of nonperformance by our counterparty. To minimize this risk, we select high
credit quality counterparties. We do not anticipate nonperformance by such
counterparties, but could recognize a loss in the event of nonperformance. Our
derivative instrument liability as of March 31, 2020 was $3.4 million.
From time to time, we invest all or a portion of our cash in cash equivalents,
which are money market instruments consisting of short-term government
securities and repurchase agreements that are fully collateralized by government
securities. When such investments are made, we do not believe that we have any
material credit exposure with respect to these assets. As of March 31, 2020, we
did not have any investments in money market instruments.
Our credit exposure related to our accounts receivable does not represent a
significant concentration of credit risk due to the quantity of advertisers, the
minimal reliance on any one advertiser, the multiple markets in which we operate
and the wide variety of advertising business sectors.
See also additional disclosures regarding liquidity and capital resources made
under Liquidity and Capital Resources in Part 1, Item 2, above.
ITEM 4. Controls And Procedures
Evaluation of Controls and Procedures
We maintain "disclosure controls and procedures" (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are
designed to ensure that: (i) information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms; and (ii) such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, our management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management is required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
We carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on the foregoing, our
President/Chief Executive Officer and Executive Vice President/Chief Financial
Officer concluded that our disclosure controls and procedures were effective at
the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
                                       47

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses