ACQUISITIONS AND OTHER (Block)

9 Months Ended

Sep. 30, 2017

Mergers Acquisitions And Dispositions Disclosures Text Block

9. BUSINESS COMBINATIONS

The Company consummated acquisitions under the acquisition method of accounting, and the purchase price was allocated to the assets and liabilities based upon their respective fair values as determined as of the acquisition date. Merger and acquisition costs are excluded from the purchase price as these costs are expensed for book purposes and amortized for tax purposes.

2017 Charlotte Acquisition

On January 6, 2017, the Company completed a transaction to acquire four radio stations in Charlotte, North Carolina from Beasley Broadcast Group, Inc. (“Beasley”) for a purchase price of $24 million in cash. The Company used cash on hand to fund the acquisition. On October 17, 2016, the Company entered into an asset purchase agreement and a TBA with Beasley to operate three of the four radio stations that were held in the Charlotte Trust. On November 1, 2016, the Company commenced operations of the radio stations held in the Charlotte Trust and began operating the fourth station upon closing on the acquisition with Beasley in January 2017.

During the period of the TBA, the Company included net revenues, station operating expenses and monthly TBA fees associated with operating these stations in the Company’s consolidated financial statements.

The allocations presented in the table below are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired FCC broadcasting licenses, the fair value estimates are based on, but not limited to, expected future revenue and cash flows that assume an expected future growth rate of 1.0% and an estimated discount rate of 9.0%. The gross profit margins utilized were considered appropriate based on management’s expectations and experience in equivalent sized markets. The Company determines the fair value of the broadcasting licenses by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcasting licenses. The Company’s fair value analysis contains assumptions based upon past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information for an average station within a certain market. Any excess of the purchase price over the net assets acquired was reported as goodwill.

The following preliminary purchase price allocations are based upon the valuation of assets and liabilities and these estimates and assumptions are subject to change as the Company obtains additional information during the measurement period, which may be up to one year from the acquisition date. These assets and liabilities pending finalization include intangible assets and liabilities. Differences between the preliminary and final valuation could be substantially different from the initial estimates.

	January 6,		Useful Lives In Years
Description	2017		From	To
	(amounts in
	thousands)
Assets
Land	$	2,539	non-depreciating
Buildings		217	15	25
Equipment		4,569	3	40
Total property plant and equipment		7,325
Deferred tax asset		287	life of underlying asset
Radio broadcasting licenses and goodwill		17,384	non-amortizing
Total assets		24,996
Liabilities
Unfavorable lease liabilities		735	over remaining lease life
Deferred tax liability		261	life of underlying liability
Total liabilities		996
Net assets	$	24,000

2016 Disposition

In March 2016, the Company sold certain assets of KRWZ AM in Denver, Colorado, for $3.8 million in cash. The Company believes that the sale of this station, with a marginal market share, did not alter the Company’s competitive position in the market. The Company reported a gain, net of expenses, of $0.3 million on the disposition of these assets.

Pending Acquisition of CBS Radio

On February 2, 2017, the Company and Merger Sub entered into a material definitive agreement with CBS and CBS Radio, and CBS and CBS Radio also entered into an agreement that provides for the separation of CBS Radio from CBS (the “Separation Agreement”), which together provide for the combination of the Company’s business and CBS’s radio business. Prior to February 2, 2017, CBS transferred substantially all of the assets and liabilities of CBS’s radio business to CBS Radio.

At the time of the signing of the CBS Radio Merger Agreement on February 2, 2017, CBS Radio had two classes of common stock, the Radio Series 1 Common Stock, par value $0.01 per share (the “Radio Series 1 Common Stock”) and the Radio Series 2 Common Stock, par value $0.01 per share (the “Radio Series 2 Common Stock”), collectively, (the “Radio Existing Common Stock”).

Prior to the Merger, CBS and CBS Radio will first complete a series of internal distributions and transactions (collectively, the “Radio Reorganization”). Following the consummation of the Radio Reorganization, CBS will consummate an offer to exchange all of the outstanding shares of Radio Existing Common Stock for outstanding shares of CBS Class B Common Stock (the “Final Distribution”). CBS Broadcasting, Inc. will first distribute (the “First Distribution”) all of the outstanding equity of CBS Radio to Westinghouse CBS Holding Company, Inc. (“Westinghouse”). Westinghouse will then distribute all of the outstanding equity of CBS Radio to CBS (the “Second Distribution”). Following the Second Distribution, CBS Radio will then: (a) combine Radio Series 1 Common Stock and Radio Series 2 Common stock into a single class of common stock, par value $0.01 per share (the “Radio New Common Stock”), (b) authorize the issuance of at least 101,407,494 shares of Radio New Common Stock and (c) effect a stock split of the outstanding shares of Radio New Common Stock, as a result of which, as of immediately prior to the effective time of the Final Distribution, 101,407,494 shares of Radio New Common Stock will be issued and outstanding, all of which will be owned directly by CBS (collectively, (a) through (c), the “Stock Split”).

Subject to the terms and conditions of the CBS Radio Merger Agreement and the Separation Agreement, in the event that holders of CBS Class B Common Stock subscribe for less than all of the outstanding shares of Radio Common Stock held by CBS in the exchange offer, CBS will distribute the remaining outstanding shares of Radio Common Stock held by CBS on a pro rata basis to holders of CBS Common Stock whose shares of CBS Common Stock remain outstanding after consummation of the exchange offer (the “Spin-Off”). The Spin-Off will only occur if the exchange offer is consummated but not fully subscribed, meaning that not all of the outstanding shares of Radio Common Stock held by CBS would be distributed in the exchange offer, in that scenario.

Immediately after the consummation of the Final Distribution, Merger Sub will merge with and into CBS Radio, with CBS Radio surviving as a wholly owned subsidiary of the Company. In the Merger, all outstanding shares of Radio Common Stock will be converted into the right to receive an equal number of shares of the Company’s Class A common Stock.

It is estimated that the existing Company shareholders will own approximately 28% and CBS Radio shareholders will own approximately 72% of the combined company’s outstanding shares immediately after consummation of the Merger.

The Company will issue 101,407,494 shares of its Class A common Stock in the Merger. At the time of the Merger, each outstanding RSU and stock option with respect to CBS Class B Common Stock held by employees of CBS Radio will be canceled and converted into equity awards for the Company’s Class A Common Stock. The conversion will be based on the ratio of the volume-weighted average per share closing prices of CBS stock on the five trading days prior to the effective date of the Merger and the Company’s stock on the five trading days following the effective date of the Merger.

In connection with the Merger, CBS Radio received committed financing of up to $500 million of senior secured term loan from the Commitment Parties as an additional tranche under the CBS Radio Credit Agreement. The proceeds of this loan will be used to: (1) refinance the Company’s Credit Facility; (2) redeem the Company’s Preferred; and (3) pay fees and expenses in connection with the refinancing. The committed financing will be an additional tranche under the CBS Radio Credit Agreement. See Note 4, Long-Term Debt, for additional information with respect to this financing.

The total consideration for the Merger is approximately $1.16 billion, based on the Company’s Class A common stock market price per share of $11.45 on September 30, 2017 and the shares to be issued in connection with the Merger. Transaction costs relating to the Merger, including legal and professional fees, of $8.8 million and $24.9 million for the three and nine months ended September 30, 2017, respectively, were expensed as incurred.

If the CBS Radio Merger Agreement is terminated in certain circumstances prior to the consummation of the transactions contemplated thereby, the Company will be required to pay CBS a termination fee of $30 million. Either party may terminate the CBS Radio Merger Agreement if the Merger is not consummated on or before January 31, 2018, subject to extension to May 2, 2018, if the approval of the FCC has not been obtained or if the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 has not occurred by November 2, 2017.

Upon completion of the Merger, certain required divestitures and the debt refinancing described above, which are all expected to occur in the fourth quarter of 2017, the combined company will be named Entercom Communications Corp. and will be listed on the NYSE under the current trading symbol for the Company’s Class A Common Stock, “ETM”.

Merger And Acquisition Costs

The Company records merger and acquisition costs whether or not an acquisition occurs. These costs consist primarily of legal, professional and advisory services and could include restructuring costs.

There were merger and acquisition costs incurred during the first three quarters of 2017 primarily in connection with the announced CBS Merger.

	Nine Months Ended
	September 30,
	2017		2016
	(amounts in thousands)

Merger and acquisition costs	$	24,925	$	670

Restructuring Costs

The restructuring plan related to the Company’s acquisitions in 2015 included: (1) costs associated with exiting contractual vendor obligations as these obligations were duplicative; (2) a workforce reduction and realignment charges that included one-time termination benefits and related costs; and (3) lease abandonment costs. The lease abandonment costs are longer-term as the lease expires in June 2026. The estimated amount of unpaid restructuring charges as of September 30, 2017, after excluding the lease abandonment liability as of September 30, 2017, was included in accrued expenses as most expenses are expected to be paid within one year.

	Nine Months		Year
	Ended		Ended
	September 30,		December 31,
	2017		2016
	(amounts in thousands)

Restructuring charges and lease abandonment costs, beginning balance	$	650	$	1,686
Additions through accruals		-		-
Deductions through payments		(56)		(1,036)
Lease abandonment costs unpaid and outstanding		594		650
Less lease abandonment costs over a long-term period		(521)		(576)
Lease abandonment costs over a short-term period	$	73	$	74

Unaudited Pro Forma Summary Of Financial Information

The following pro forma information presents the consolidated results of operations as if the 2017 acquisition in Charlotte, North Carolina, had occurred as of January 1, 2016, after giving effect to certain adjustments, including: (1) depreciation and amortization of assets; (2) change in the effective tax rate; and (3) merger and acquisition costs. The pro forma information does not exclude the pro forma impact of any dispositions. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(amounts in thousands except share and per share data)
	(amounts in thousands except share and per share data)
	Actual		Pro Forma		Pro Forma		Pro Forma

Net revenues	$	122,299	$	125,441	$	346,270	$	351,697
Net income (loss) available to the Company	$	4,100	$	11,364	$	1,516	$	23,946
Net income (loss) available to common shareholders	$	3,437	$	10,838	$	(247)	$	22,595
Net income (loss) available to common shareholders
per common share - basic	$	0.09	$	0.28	$	(0.01)	$	0.59
Net income (loss) available to common shareholders
per common share - diluted	$	0.09	$	0.27	$	(0.01)	$	0.57

Weighted shares outstanding basic		38,954,788		38,484,578		38,947,533		38,457,061
Weighted shares outstanding diluted		39,727,976		41,433,200		38,947,533		39,373,988
Conversion of preferred stock for dilutive purposes
under the as if method	anti-dilutive		dilutive		anti-dilutive		anti-dilutive

Three Months Ended

September 30,

(amounts in thousands)

Merger and acquisition costs