NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021, 2020, AND 2019
1. BASIS OF PRESENTATION
Nature of Business – Audacy, Inc. (formerly Entercom Communications Corp.) (the “Company”) was formed as a Pennsylvania corporation in 1968. On April 9, 2021, the Company changed its name to Audacy, Inc. and changed its New York Stock Exchange ticker symbol from "ETM" to "AUD". The Company is the second-largest radio broadcasting company in the United States. The Company is also a leading local media and entertainment company with a nationwide footprint of stations including positions in all of the top 16 markets and 21 of the top 25 markets.
The Company’s strategy focuses on providing compelling content in the communities it serves to enable the Company to offer its advertisers an effective marketing platform to reach a large targeted local audience. The principal components of the Company’s strategy are to: (i) focus on creating effective integrated marketing solutions for its customers that incorporate its audio, digital and experiential assets; (ii) build strongly-branded radio stations with highly compelling content; (iii) develop market leading station clusters; and (iv) recruit, develop, motivate and retain superior employees.
COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world, which has affected operations and global supply chains. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. While the full impact of this pandemic is not yet known, the Company took proactive actions in an effort to mitigate its effects and is continually assessing its effects on the Company's business, including how it has and will continue to impact advertisers, professional sports and live events.
In response to the COVID-19 pandemic, the Company took certain measures to mitigate the resultant financial impact, including, but not limited to: (i) temporary salary reductions implemented across senior management and the broader organization; (ii) temporary freezing of contractual salary increases in 2020; (iii) furlough and termination of select employees; (iv) temporary suspension of new employee hiring, travel and entertainment, 401(k) matching program, and employee stock purchase program; (v) suspension of quarterly dividend program; and (vi) temporary reduction of sales and promotions spend as well as certain consulting and other discretionary expenses.
The COVID-19 pandemic has had, and is expected to continue to have, a material impact on the Company's business operations, financial position, cash flows, liquidity, and capital resources and results of operations. The full extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be accurately estimated at this time.
Reclassifications
Certain reclassifications have been made to the prior years’ statements of cash flow to conform to the presentation in the current year, which did not have a material impact on the Company’s previously reported financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned by the Company. All intercompany transactions and balances have been eliminated in consolidation. The Company also considers the applicability of any variable interest entities (“VIEs”) that are required to be consolidated by the primary beneficiary. From time to time, the Company may enter into a time brokerage agreement (“TBA”) or local marketing agreement (“LMA”) in connection with a pending acquisition or disposition of radio stations and the requirement to consolidate or deconsolidate a VIE or separately present activity as discontinued operations may apply, depending on the facts and circumstances related to each transaction.
Consolidated VIE - On July 15, 2021, the Company and certain of its subsidiaries entered into a $75.0 million accounts receivable securitization facility (the "Receivables Facility") to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Company's Credit Facility (as defined in Note 12, Long-Term Debt, below).
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement (the “Receivables Purchase Agreement”) entered into by and among Audacy Operations, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Audacy Operations”), Audacy Receivables, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, as seller (“Audacy Receivables”), the investors party thereto (the “Investors”), and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, as agent (“DZ BANK”); (ii) a Sale and Contribution Agreement (the “Sale and Contribution Agreement”), by and among Audacy Operations, Audacy New York, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Audacy NY”), and Audacy Receivables; and (iii) a Purchase and Sale Agreement (the “Purchase and Sale Agreement,” and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Audacy Receivables is considered a special purpose vehicle ("SPV") as it is an entity that has a special, limited purpose and it was created to sell accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
The SPV is a bankruptcy remote, limited liability company wholly owned by Audacy NY and its assets are not available to creditors of the Company, Audacy Operations or Audacy NY. Pursuant to the Receivables Facility, Audacy NY sells certain of its receivables and certain related rights to payment and obligations of Audacy NY with respect to such receivables, and certain other related rights to Audacy Receivables, LLC, which, in turn, obtains loans secured by the receivables from financial institutions (the “Lenders”). Amounts received from the Lenders, the pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Consolidated Balance Sheets. The aggregate principal amount of the loans made by the Lenders cannot exceed $75.0 million outstanding at any time. The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended.
The SPV is considered a Variable Interest Entity ("VIE") (the "SPV VIE") because its equity capitalization is insufficient to support its operations. The most significant activities that impact the economic performance of the SPV are decisions made to manage receivables. Audacy NY is considered the primary beneficiary and consolidates the SPV as it makes these decisions. No additional financial support was provided to the SPV during the year ended December 31, 2021 or is expected to be provided in the future that was not previously contractually required. As of December 31, 2021, the SPV has $239.5 million of net accounts receivable and has outstanding borrowings of $75.0 million under the Receivables Facility.
As of December 31, 2020, there were no VIEs requiring consolidation in these financial statements. As of December 31, 2018, there was one VIE (the "2018 VIE") that required consolidation in these consolidated financial statements. During 2018, the Company entered into an agreement with a third party qualified intermediary (“QI”), under which the Company was primarily responsible for the oversight and completion of certain construction projects. This agreement related to the creation of leasehold improvement assets on property that had already been made available for tenant use. The Company believed it was the primary beneficiary of the VIE as the Company had the power to direct the activities that were most significant to the VIE and the Company had the obligation to absorb losses or the right to receive returns that would be significant to the VIE during the period of the agreement.
Total results of operations of the SPV VIE for the year ended December 31, 2021 were not significant. The 2018 VIE had a material amount of cash as of December 31, 2018, which was reflected as restricted cash and is included in the 2019 beginning of year cash balance on the statement of cash flows. Restrictions on these deposits lapsed during the first quarter of 2019. As a result, the Company does not have restricted cash as of December 31, 2021, 2020 and 2019. The 2018 VIE had no other assets or liabilities aside from the restricted cash balances and capitalized leasehold improvements as of December 31, 2018. The assets of the Company’s consolidated 2018 VIE could only be used to settle the obligations of the 2018 VIE. There was a lack of recourse by the creditors of the 2018 VIE against the Company’s general creditors.
Reportable Segment – The Company operates under one reportable business segment for which segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measuring of performance.
Operating Segment - On February 2, 2017, the Company and its 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 the Company's wholly-owned subsidiary (the "Merger"). The Merger closed on November 17, 2017. Following the Merger, the Company's radio broadcasting operations increased from 28 radio markets to 48 radio markets. In connection with the Merger, management further considered its operating segment and reportable segment conclusions. Management considered factors including, but not limited to: (i) the favorable impact of the significant synergies
generated through more centralized operating activities; and (ii) how the value of the portfolio of radio markets is greater than the sum of the value of the individual radio markets in that portfolio. These factors impact how the Chief Operating Decision Maker ("CODM") evaluates the results of a significantly larger company and how operating decisions are made, which are now performed at the Company level.
This approach is consistent with how operating and capital investment decisions are made as needed, at the Company level, irrespective of any given market's size or location. Furthermore, technological enhancements and systems integration decisions are reached at the Company level and applied to all markets rather than to specific or individual markets to ensure that each market has the same tools and opportunities as every other market. Management also considered its organizational structure in assessing its operating segments and reportable segments. Managers at the market level are often responsible for the operational oversight of multiple markets, the assignment of which is neither dependent upon geographical region nor size. Managers at the market level do not report to the CODM and instead report to other senior management, who are responsible for the operational oversight of radio markets and for communication of results to the CODM. The Company has one operating segment and one reportable segment.
Management’s Use of Estimates – The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to: (i) asset impairments, including broadcasting licenses and goodwill; (ii) income tax valuation allowances for deferred tax assets; (iii) allowance for doubtful accounts and allowance for sales reserves; (iv) self-insurance reserves; (v) fair value of equity awards; (vi) estimated lives for tangible and intangible assets; (vii) contingency and litigation reserves; (viii) fair value measurements; (ix) acquisition purchase price asset and liability allocations; and (x) uncertain tax positions. The Company’s accounting estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The accounting estimates may change as new events occur, as more experience is acquired and as more information is obtained. The Company evaluates and updates assumptions and estimates on an ongoing basis and may use outside experts to assist in the Company’s evaluation, as considered necessary. Actual results could differ from those estimates.
Income Taxes – The Company applies the asset and liability method to the accounting for deferred income taxes. Deferred income taxes are recognized for all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recorded for a net deferred tax asset balance when it is more likely than not that the benefits of the tax asset will not be realized. The Company reviews on a continuing basis the need for a deferred tax asset valuation allowance in the jurisdictions in which it operates. Any adjustment to the deferred tax asset valuation allowance is recorded in the consolidated statements of operations in the period that such an adjustment is required.
The Company applies the guidance for income taxes and intra-period allocation to the recognition of uncertain tax positions. This guidance clarifies the recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. The guidance requires that any liability created for unrecognized tax benefits is disclosed. The application of this guidance may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. This guidance also clarifies the method to allocate income taxes (benefit) to the different components of income (loss), such as: (i) income (loss) from continuing operations; (ii) income (loss) from discontinued operations; (iii) other comprehensive income (loss); (iv) the cumulative effects of accounting changes; and (v) other charges or credits recorded directly to shareholders’ equity. See Note 18, Income Taxes, for a further discussion of income taxes.
Property and Equipment – Property and equipment are carried at cost. Major additions or improvements are capitalized, including interest expense when material, while repairs and maintenance are charged to expense when incurred. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is recognized in the statement of operations. Depreciation expense on property and equipment is determined on a straight-line basis.
Depreciation expense for property and equipment is reflected in the following table: | | | | | | | | | | | | | | | | | |
| Property And Equipment |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Depreciation expense | $ | 32,847 | | | $ | 33,618 | | | $ | 31,866 | |
As of December 31, 2021, the Company had capital expenditure commitments outstanding of $1.8 million.
The following is a summary of the categories of property and equipment along with the range of estimated useful lives used for depreciation purposes: | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation Period | | Property And Equipment |
| In Years | | December 31, |
| From | | To | | 2021 | | 2020 |
| Land, land easements and land improvements | 0 | | 15 | | $ | 105,514 | | | $ | 104,671 | |
| Buildings | 20 | | 40 | | 37,177 | | | 36,101 | |
| Equipment | 3 | | 40 | | 227,824 | | | 216,347 | |
| Furniture and fixtures | 5 | | 10 | | 20,619 | | | 19,896 | |
| Other | | * | | * | 44 | | | 44 | |
| Leasehold improvements | | * | | * | 119,930 | | | 106,642 | |
| | | | | 511,108 | | | 483,701 | |
| Accumulated depreciation | | | | | (223,378) | | | (192,147) | |
| | | | | 287,730 | | | 291,554 | |
| Capital improvements in progress | | | | | 88,298 | | | 48,764 | |
| Net property and equipment | | | | | $ | 376,028 | | | $ | 340,318 | |
* Shorter of economic life or lease term
Long-Lived Assets - The Company evaluates the recoverability of its long-lived assets, which include property and equipment, broadcasting licenses (subject to an eight-year renewal cycle), goodwill, deferred charges, and other assets. See Note 8, Intangible Assets And Goodwill, for further discussion. Certain of the Company’s equipment, such as broadcast towers, can provide economic benefit over a longer period of time resulting in the use of longer lives of up to 40 years.
If events or changes in circumstances were to indicate that an asset’s carrying value is not recoverable, a write-down of the asset would be recorded through a charge to operations. The determination and measurement of the fair value of long-lived assets requires the use of significant judgments and estimates. Future events may impact these judgments and estimates.
Revenue Recognition – The Company generates revenue from the sale to advertisers of various services and products, including but not limited to: (i) spot revenues; (ii) digital advertising; (iii) network revenues; (iv) sponsorship and event revenues; and (v) other revenues.
Revenue from services and products is recognized when delivered. Advertiser payments received in advance of when the products or services are delivered are recorded on the Company’s balance sheet as unearned revenue.
Revenues presented in the consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. The Company also evaluates when it is appropriate to recognize revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
Refer to Note 5, Revenue, for additional information on the Company’s revenue. Refer to Note 5, Revenue, Note 10, Other Current Liabilities, and Note 11, Other Long-Term Liabilities, for additional information on unearned revenue.
The following table presents the amounts of unearned revenues as of the periods indicated: | | | | | | | | | | | | | | | | | |
| | | Unearned Revenues |
| | | December 31, |
| Balance Sheet Location | | 2021 | | 2020 |
| | | (amounts in thousands) |
| Current | Other current liabilities | | $ | 10,638 | | | $ | 15,651 | |
Long-term | Other long-term liabilities | | $ | 474 | | | $ | 1,294 | |
Concentration of Credit Risk – The Company’s revenues and accounts receivable relate primarily to the sale of advertising within its radio stations’ broadcast areas. Credit is extended based on an evaluation of the customers’ financial condition and, generally, collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management’s expectations. Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance
for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The balance in the Company’s allowance for doubtful accounts is based on the Company’s historical collections, the age of the receivables, specific customer information, and current economic conditions. Delinquent accounts are written off if collections efforts have been unsuccessful and the likelihood of recovery is considered remote.
Debt Issuance Costs and Original Issue Discount – The costs related to the issuance of debt are capitalized and amortized over the lives of the related debt and such amortization is accounted for as interest expense. See Note 12, Long-Term Debt, for further discussion for the amount of deferred financing expense that was included in interest expense in the accompanying consolidated statements of operations.
In 2019, the Company issued senior secured second-lien notes and used proceeds to partially repay amounts outstanding under existing indebtedness. In connection with this refinancing activity, a portion of the unamortized deferred financing costs associated with the Company's former term loan was written off and included in the statement of operations under loss on extinguishment of debt.
In the first quarter of 2021, the Company issued senior secured second-lien notes and used proceeds to partially repay amounts outstanding under existing indebtedness and fully redeem all of its senior notes due 2024. In connection with this refinancing activity, a portion of the unamortized deferred financing costs and unamortized premium associated with the senior notes due 2024 as well as unamortized deferred financing costs associated with the Company's term loan was written off and included in the statement of operations under loss on extinguishment of debt.
In the fourth quarter of 2021, the Company issued senior secured second-lien notes and used proceeds to partially repay amounts outstanding under existing indebtedness.
Lender fees and third party fees incurred during the refinancing activities described above were capitalized or expensed as appropriate based on accounting guidance for debt modifications and extinguishments. Refer to Note 12, Long-Term Debt, for further discussion of the refinancing activities.
Extinguishment of Debt – The Company may amend, append or replace, in part or in full, its outstanding debt. The Company reviews its unamortized financing costs associated with its outstanding debt to determine the amount subject to extinguishment under the accounting provisions for an exchange of debt instruments with substantially different terms or changes in a line-of-credit or revolving-debt arrangement.
During the second quarter of 2019, the fourth quarter of 2019, the first quarter of 2021 and the fourth quarter of 2021, the Company refinanced certain of its outstanding debt. In each refinancing event, a portion of the Company’s outstanding debt was accounted for as an extinguishment. See Note 12, Long-Term Debt for a discussion of the Company’s long-term debt.
Time Brokerage Agreement (Income) Fees – Time Brokerage Agreement ("TBA") fees or income consists of fees paid or received under agreements that permit an acquirer to program and market stations prior to an acquisition. The Company sometimes enters into a TBA prior to the consummation of station acquisitions and dispositions. The Company may also enter into a Joint Sales Agreement to market, but not to program, a station for a defined period of time. TBA fees or income earned from continuing operations are recorded as a separate line item in the Company’s consolidated statement of operations.
Trade and Barter Transactions – The Company provides advertising broadcast time in exchange for certain products, supplies and services. The terms of the exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time on regular terms. The Company includes the value of such exchanges in both broadcasting net revenues and station operating expenses. Trade and Barter valuation is based upon management’s estimate of the fair value of the products, supplies and services received. See Note 19, Supplemental Cash Flow Disclosures On Non-Cash Activities, for a summary of the Company’s barter transactions.
Business Combinations – Accounting guidance for business combinations provides the criteria to recognize intangible assets apart from goodwill. Other than goodwill, the Company uses an income or cost method to determine the fair value of all intangible assets required to be recognized for business combinations. For a discussion of impairment testing of those assets acquired in a business combination, including goodwill, see Note 8, Intangible Assets And Goodwill. Cash, Cash Equivalents and Restricted Cash – Cash consists primarily of amounts held on deposit with financial institutions. The Company’s cash deposits with banks are insured by the Federal Deposit Insurance Corporation up to $250,000 per account. At times, the cash balances held by the Company in financial institutions may exceed these insured limits. The risk of loss
attributable to these uninsured balances is mitigated by depositing funds in high credit quality financial institutions. The Company has not experienced any losses in such accounts. From time to time, the Company may invest in cash equivalents, which consists of investments in immediately available money market accounts and all highly liquid debt instruments with initial maturities of three months or less. The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Restricted cash balances consist of amounts that the Company may be restricted in its ability to access or amounts that are reserved for a specific purpose and therefore not available for immediate or general business use.
The Company does not have restricted cash on its balance sheet at December 31, 2021 or December 31, 2020. As of December 31, 2021, and December 31, 2020, the Company had no other cash equivalents on hand.
Leases – The Company follows accounting guidance for its leases, which includes the recognition of escalated rents on a straight-line basis over the term of the lease agreement, as described further in Note 11, Other Long-Term Liabilities.
The operating lease obligations represent scheduled future minimum operating lease payments under non-cancellable operating leases, including rent obligations under escalation clauses that are defined increases and not escalations that depend on variable indices. The minimum lease payments do not include common area maintenance, variable real estate taxes, insurance and other costs for which the Company may be obligated as most of these payments are primarily variable rather than fixed. See Note 23, Contingencies and Commitments, for a discussion of the Company’s leases.
Share-Based Compensation – The Company records compensation expense for all share-based payment awards made to employees and directors, at estimated fair value. The Company also uses the simplified method in developing an estimate of the expected term of certain stock options. For further discussion of share-based compensation, see Note 17, Share-Based Compensation.
Investments – For those investments in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. At December 31, 2021, and 2020, the Company held no equity method investments. For those investments in which the Company does not have such significant influence, the Company applies the accounting guidance for certain investments in debt and equity securities. An investment is classified into one of three categories: held-to-maturity, available-for-sale, or trading securities, and, depending upon the classification, is carried at fair value based upon quoted market prices or historical cost when quoted market prices are unavailable.
The Company has minority equity investments in privately held companies that are separately presented in the Investments line item. The Company monitors these investments for impairment and makes appropriate reductions to the carrying value when events and circumstances indicate that the carrying value of the investments may not be recoverable. In determining whether a decline in fair value exists, the Company considers various factors, including market price (when available), investment ratings, the financial condition and near-term prospects of the investee, the length of time and the extent to which the fair value has been less than the Company’s cost basis, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The Company also provides certain quantitative and qualitative disclosures for those investments that are impaired at the balance sheet date and for those investments for which an impairment has not been recognized. The Company's investments continue to be carried at their original cost. There have been no impairments in the investments valued under the measurement alternative, returns of capital, or any adjustments resulting from observable price changes in orderly transactions for the investments. Refer to Note 21, Fair Value Of Financial Instruments, for additional information on the Company’s investments valued under the measurement alternative.
Advertising and Promotion Costs – Costs of media advertising and associated production costs are expensed when incurred. For the years ended December 31, 2021, 2020, and 2019, the costs incurred were $2.3 million, $1.2 million, and $7.1 million.
Insurance and Self-Insurance Liabilities – The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’ compensation, general liability, property, director and officers’ liability, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering claims experience, demographic factors, severity factors, outside expertise and other actuarial assumptions. For any legal costs expected to be incurred in connection with a loss contingency, the Company recognizes the expense as incurred.
Recognition of Insurance Claims and Other Recoveries – The Company recognizes insurance recoveries and other claims when all contingencies have been satisfied.
Sports Programming Costs and Unfavorable/Favorable Sports Liabilities/Assets – Sports programming costs which are for a specified number of events are amortized on an event-by-event basis, and programming costs which are for a specified season are amortized over the season on a straight-line basis. Prepaid expenses which are not directly allocable to any one particular season are amortized on a straight-line basis over the life of the agreement. In connection with certain acquisitions, the Company assumed contracts at above or below market rates. These liabilities and assets are being amortized over the life of the contracts and are reflected within current and long-term assets and liabilities.
Accrued Litigation - The Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party and records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are subjective, based on the status of such legal or regulatory proceedings, the merits of the Company’s defenses and consultation with corporate and external legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from the Company’s estimates. The Company expenses legal costs as incurred in professional fees. See Note 23, Contingencies and Commitments.
Software Costs – The Company capitalizes direct internal and external costs incurred to develop internal-use software during the application development stage. Internal-use software includes website development activities such as the planning and design of additional functionality and features for existing sites and/or the planning and design of new sites. Costs related to the maintenance, content development and training of internal-use software are expensed as incurred. Capitalized costs are amortized over the estimated useful life of three years using the straight-line method.
Recent Accounting Pronouncements
All new accounting pronouncements that are in effect that may impact the Company’s financial statements have been implemented. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on the Company’s financial position or results of operations.
3. BUSINESS COMBINATIONS AND EXCHANGES
The Company records acquisitions under the acquisition method of accounting and allocates the purchase price to the acquired 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.
2021 WideOrbit Streaming Acquisition
On October 20, 2021, the Company completed an acquisition of WideOrbit's digital audio streaming technology and the related assets and operations of WideOrbit Streaming for approximately $40.0 million (the "WideOrbit Streaming Acquisition"), which included certain employees. The assets acquired included $31.5 million of developed technology and $8.0 million of intangible licenses. The Company determined this acquisition was a business combination. The Company will operate WideOrbit Streaming under the name AmperWave ("AmperWave"). The Company funded this acquisition through a draw on its revolving credit facility (the "Revolver"). Based upon the timing of the WideOrbit Streaming Acquisition, the Company's consolidated financial statements for the year ended December 31, 2021, reflect the results of AmperWave for the portion of the period after the completion of the WideOrbit Streaming Acquisition. The Company's consolidated financial statements for the years ended December 31, 2020 and 2019 do not reflect the results of AmperWave.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books. Management believes that this acquisition provides the Company with an opportunity to benefit from acquired technology, technical knowledge and trade secrets.
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. The following preliminary purchase price allocations are based upon the valuation of assets 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. The final valuation could be substantially different from the initial estimate.
| | | | | | | | | | | | | | | | | |
| | | Useful Lives in Years |
| Preliminary Value | | From | | To |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Operating lease right-of-use assets | $ | 142 | | | | | |
| Net property and equipment | 38 | | | 3 | | 7 |
| | | |
| Other assets, net of accumulated amortization | 39,532 | | | 3 | | 15 |
| Goodwill | 520 | | | non-amortizing |
| Total intangible and other assets | 40,052 | | | |
| | | | | |
| Operating lease liabilities | (142) | | | | | |
| | | |
| Preliminary fair value of net assets acquired | $ | 40,090 | | | | | |
2021 Urban One Exchange
On April 20, 2021, the Company completed a transaction with Urban One, Inc. ("Urban One") under which the Company exchanged its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company and Urban One began programming the respective stations under local marketing agreements ("LMAs") on November 23, 2020. During the period of the LMAs, the Company's consolidated financial statements excluded net revenues and station operating expenses associated with the four station cluster in Charlotte, North Carolina (the "divested stations") and included net revenues and station operating expenses associated with the stations in St. Louis, Missouri, Washington, D.C., and Philadelphia, Pennsylvania (the "acquired stations").
Upon completion of the Urban One Exchange, the Company: (i) removed from its consolidated balance sheet the assets of the divested stations, which were previously classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a gain on the exchange of approximately $4.0 million. Based upon the timing of the Urban One
Exchange, the Company's consolidated financial statements for the year ended December 31, 2021: (a) reflect the results of the acquired stations for the portion of the period in which the LMAs were in effect and after the completion of the Urban One Exchange; and (b) do not reflect the results of the divested stations. The Company's consolidated financial statements for the year ended December 31, 2020: (x) reflect the results of the acquired stations for the portion of the period in which the LMAs were in effect; and (y) reflect the results of the divested stations until the commencement date of the LMAs. The Company's consolidated financial statements for the year ended December 31, 2019 : (i) do not reflect the results of the acquired stations; and (ii) reflect the results of the divested stations.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. 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.
| | | | | | | | | | | |
| | Useful Lives in Years |
| Preliminary Value | From | To |
| (amounts in thousands) | | |
| Assets | | | |
| Net property and equipment | $ | 2,254 | | 0 | 40 |
| Total tangible property | 2,254 | | | |
| Radio broadcasting licenses | 23,233 | | non-amortizing |
| Total intangible assets | $ | 23,233 | | | |
| Total assets | $ | 25,487 | | | |
2021 Podcorn Acquisition
On March 9, 2021, the Company completed the acquisition of podcast influencers marketplace, Podcorn Media, Inc. ("Podcorn") for $14.6 million in cash plus working capital and a performance-based earnout over the next two years (the "Podcorn Acquisition"). The Company's consolidated financial statements for the year ended December 31, 2021 reflect the results of Podcorn for the portion of the period after the completion of the Podcorn Acquisition. The Company's consolidated financial statements for the years ended December 31, 2020 and 2019 do not reflect the results of Podcorn.
The Podcorn Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to Podcorn based upon the achievement of certain annual performance benchmarks over a two-year period. A portion of the contingent consideration could be paid out in 2023 and a portion of the contingent consideration could be paid out in 2024. The timing of the payment of the contingent consideration is dependent upon Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement. The range of the total undiscounted amounts the Company could pay under the contingent consideration agreement over the two-year period is between $0 and $45.2 million. The fair value of the contingent consideration recognized on the acquisition date of $7.7 million was estimated by applying probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values, as defined in the purchase agreement, for 2022 and 2023, and the discount rate. Since the acquisition date, fluctuation in the market-based inputs used to develop the discount rate resulted in a reduction in the discount rate. As a result, the fair value of the contingent consideration at December 31, 2021 increased to $8.8 million. Changes in the fair value of the contingent considerations are recorded to the Station Operating Expenses line item on the Statement of Operations.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.
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. The following preliminary purchase price allocations are based upon the valuation of assets 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. The final valuation could be substantially different from the initial estimate.
| | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Preliminary Value | | Measurement Period Adjustment | | As Adjusted | | |
| (amounts in thousands) | | |
| Assets | | | | | | | |
| Cash | $ | 702 | | | $ | — | | | $ | 702 | | | |
| Prepaid expenses, deposits and other | 18 | | | — | | | 18 | | |
| Other assets, net of accumulated amortization | 2,545 | | | — | | | 2,545 | | | |
| Goodwill | 19,579 | | | 58 | | | 19,637 | | |
| Deferred tax asset | 72 | | | — | | | 72 | | | |
| | | | | | | |
| | | | | | | |
| Net working capital | 95 | | | (32) | | | 63 | | | |
| Preliminary fair value of net assets acquired | $ | 23,011 | | | $ | 26 | | | $ | 23,037 | | | |
The aggregate fair value purchase price allocation for the assets acquired in the Podcorn Acquisition as previously reported was revised during the year ended December 31, 2021 due to: (i) a change to the net working capital amounts associated with the acquired company which resulted in an increase to acquired goodwill; and (ii) the filing of the final pre-acquisition tax return for Podcorn, which resulted in an increase to goodwill.
2020 QL Gaming Group Acquisition
On November 9, 2020, the Company completed the acquisition of sports data and iGaming affiliate platform QL Gaming Group ("QLGG") in an all cash deal for approximately $32 million (the "QLGG Acquisition"). Based upon the timing of the QLGG Acquisition, the Company's consolidated financial statements for the year ended December 31, 2021 reflect the results of QLGG and the Company's consolidated financial statements for the year ended December 31, 2020, reflect the results of QLGG for the portion of the period after the completion of the QLGG Acquisition. The Company's consolidated financial statements for the year ended December 31, 2019 do not reflect the results of QLGG.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books. Management believes that this acquisition provides the Company with an opportunity to benefit from acquired technology, customer relationships, technical knowledge and trade secrets.
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. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed. | | | | | | | | | | | | | | | | | |
| | | Useful Lives in Years |
| Final Value | | From | | To |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Net property and equipment | $ | 8 | | | 3 | | 7 |
| | | |
| Other assets, net of accumulated amortization | 14,608 | | | 3 | | 10 |
| Goodwill | 18,127 | | | non-amortizing |
| Total intangible and other assets | 32,735 | | | |
| Deferred tax liabilities | (1,152) | | | | | |
| Net working capital | 12 | | | |
| Preliminary fair value of net assets acquired | $ | 31,603 | | | | | |
2020 Dispositions
During the second quarter of 2020, the Company entered into an agreement with Truth Broadcasting Corporation ("Truth") to dispose of property and equipment and two broadcasting licenses in Greensboro, North Carolina. During the fourth quarter of 2020, the Company completed this sale for $0.4 million in cash. The Company reported a loss, net of expenses, of approximately $0.1 million. As a result of this sale, the Company no longer maintains a presence in the Greensboro, North Carolina market. Refer to Note 22, Assets Held For Sale, for additional information.
2019 Cadence13 Acquisition
On October 16, 2019, the Company completed its acquisition of Cadence13, Inc. ("Cadence13") by purchasing the remaining shares in Cadence13 that it did not already own. The Company initially acquired a 45% interest in Cadence13 in July 2017. The Company acquired the remaining interest in Cadence13 for a purchase price of $24.3 million in cash plus working capital (The "Cadence13 Acquisition").
In connection with this step acquisition of Cadence13, the Company remeasured its previously held equity interest to fair value and recognized a gain of $5.3 million and removed the investment in Cadence13 from its records. Upon completion of the Cadence13 Acquisition, the Company recorded the assets acquired and liabilities assumed at fair value.
Based on the timing of the Cadence13 Acquisition, the Company's consolidated financial statements for the year ended December 31, 2021 and 2020 reflect the results of Cadence13's operations. The Company's consolidated financial statements for the year ended December 31, 2019, reflect the results of Cadence13's operations for the portion of the period after the completion of the Cadence13 Acquisition.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.
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. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.
| | | | | | | | | |
| | | |
| Final Value | | | | |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Net property and equipment | $ | 654 | | | | | |
| Total tangible property | 654 | | | |
| Operating lease right-of-use asset | 62 | | | | | |
| Deferred tax asset | 2,900 | | | | | |
| Other assets, net of accumulated amortization | 5,977 | | | | | |
| Goodwill | 31,392 | | | |
| Total intangible and other assets | 40,331 | | | |
| Operating lease liabilities | (985) | | | | | |
| Net working capital | (757) | | | |
| Final fair value of net assets acquired | $ | 39,243 | | | | | |
2019 Pineapple Acquisition
On July 19, 2019, the Company 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"). Upon completion of the Pineapple Acquisition, the Company recorded the assets acquired and liabilities assumed at fair value.
Based on the timing of the Pineapple Acquisition, the Company's consolidated financial statements for the year ended December 31, 2021 and 2020, reflect the results of Pineapple's operations. The Company's consolidated financial statements for the year ended December 31, 2019, reflect the results of Pineapple's operations for the portion of the period after the completion of the Pineapple Acquisition.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.
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. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed. | | | | | | | | | |
| | | |
| Final Value | | | | |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Accounts receivable, net of allowance for doubtful accounts | $ | 997 | | | | | |
| Other assets, net of accumulated amortization | 1,793 | | | |
| Goodwill | 12,445 | | | |
| | | |
| Total assets | 15,235 | | | |
| Other current liabilities | 238 | | | |
| Accounts payable | 30 | | | | | |
| Total liabilities | $ | 268 | | | | | |
| Final fair value of net assets acquired | $ | 14,967 | | | | | |
2019 Cumulus Exchange
On February 13, 2019, the Company entered into an agreement with Cumulus Media Inc. ("Cumulus") under which the Company exchanged three of its stations in Indianapolis, Indiana for two Cumulus stations in Springfield, Massachusetts, and one Cumulus station in New York City, New York (the "Cumulus Exchange"). The Company and Cumulus began programming the respective stations under local marketing agreements ("LMAs") on March 1, 2019. Upon completion of the Cumulus Exchange on May 9, 2019, the Company: (i) removed from its records the assets of the divested stations, which were previously classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a loss on the exchange transaction of approximately $1.8 million.
Based on the timing of the Cumulus Exchange, the Company's consolidated financial statements for the year ended December 31, 2021 and 2020: (i) reflect the results of the acquired stations; and (ii) do not reflect the results of the divested stations. The Company's consolidated financial statements for the year ended December 31, 2019: (i) reflect the results of the acquired stations for the portion of the period in which the LMAs were in effect and after the completion of the Cumulus Exchange; and (ii) reflect the results of the divested stations for the portion of the period until the commencement date of the LMAs.
The Company's fair value analysis contains assumptions based on 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. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books, which is fully deductible for income tax purposes. Management believes that this exchange provides the Company with an opportunity to benefit from operational efficiencies from combining the operation of the acquired stations with the Company's existing stations within the Springfield, Massachusetts, and New York City, New York markets.
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. The following table reflects the final allocation of the purchase price to the assets acquired.
| | | | | | | | | |
| | | |
| Final Value | | | | |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Net property and equipment | $ | 844 | | | | | |
| Total tangible property | 844 | | | | | |
| Radio broadcasting licenses | 19,576 | | | |
| Goodwill | 2,080 | | | |
| Total intangible and other assets | 21,656 | | | | | |
| Total assets | $ | 22,500 | | | | | |
| Final fair value of net assets acquired | $ | 22,500 | | | | | |
Merger and Acquisition Costs
Merger and acquisition costs were expensed and are included within Other expenses in the statement of operations. The Company records merger and acquisition costs whether or not an acquisition occurs. Merger and acquisition costs incurred consist primarily of legal, professional and advisory services related to the acquisition activities described above.
Integration Costs
The Company incurred integration costs of $0.0 million, $0.5 million, and $4.3 million during the years ended December 31, 2021, December 31, 2020, and December 31, 2019, respectively. Integration costs were expensed as a separate line item in the consolidated statements of operations. These costs primarily relate to change management consultants and technology-related costs incurred subsequent to 2017 merger and acquisition activity.
Unaudited Pro Forma Summary of Financial Information
The following unaudited pro forma information for the years ended December 31, 2021, December 31, 2020, and December 31, 2019, assumes that: (i) the acquisitions in 2021 had occurred as of January 1, 2020; (ii) the acquisition in 2020 had occurred as of January 1, 2019; and (iii) the acquisitions in 2019 had occurred as of January 1, 2018.
Refer to information within this Note 3, Business Combinations, for a description of the Company’s acquisition and disposition activities. The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.
This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable. 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. | | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands, except per share data) |
| Pro Forma | | Pro Forma | | Pro Forma |
| Net revenues | $ | 1,223,008 | | | $ | 1,069,040 | | | $ | 1,530,523 | |
| | | | | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (8,670) | | | $ | (254,443) | | | $ | (426,935) | |
| | | | | |
| | | | | |
| Net income (loss) per common share - basic | $ | (0.06) | | | $ | (1.89) | | | $ | (3.12) | |
| | | | | |
| | | | | |
| Net income (loss) per common share - diluted | $ | (0.06) | | | $ | (1.89) | | | $ | (3.12) | |
| Weighted shares outstanding basic | 135,981 | | | 134,571 | | | 136,967 | |
| Weighted shares outstanding diluted | 135,981 | | | 134,571 | | | 136,967 | |
4. RESTRUCTURING CHARGES
Restructuring Charges
The following table presents the components of restructuring charges. | | | | | | | | | | | | | | | | | |
| Years Ended December 31 |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| | | | | |
| Workforce reduction | $ | 5,521 | | | $ | 11,885 | | | $ | 6,171 | |
| Other restructuring costs | 150 | | | 96 | | | 805 | |
| | | | | |
| Total restructuring charges | $ | 5,671 | | | $ | 11,981 | | | $ | 6,976 | |
Restructuring Plan
During the first quarter of 2020, the Company initiated a restructuring plan to help mitigate the adverse impact that the COVID-19 pandemic is having on financial results and business operations. The Company continues to evaluate what, if any, further actions may be necessary related to the COVID-19 pandemic.
During the fourth quarter of 2017, the Company initiated a restructuring plan as a result of the integration of radio stations acquired from CBS Radio Inc. ("CBS Radio") in November 2017. The restructuring plan included: (i) a workforce reduction and realignment charges that included one-time termination benefits and related costs; and (ii) costs associated with realigning radio stations within the overlap markets between CBS Radio and the Company.
In connection with the sale of a radio station and the consolidation of studio facilities in a few markets, the Company abandoned certain leases. The Company computed the present value of the remaining lease payments of the lease and recorded lease abandonment costs. These lease abandonment costs include future lease liabilities offset by estimated sublease income. Due to the timing of the lease expirations, the Company assumed there is minimal sublease income. Of the restructuring charges unpaid and outstanding at December 31, 2021, no amount relates to the CBS Radio restructuring plan. | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Restructuring charges and lease abandonment costs, beginning balance | $ | 2,988 | | | $ | 4,251 | |
| Additions | 5,671 | | | 11,981 | |
| Payments | (6,036) | | | (13,244) | |
| Restructuring charges and lease abandonment costs unpaid and outstanding | 2,623 | | | 2,988 | |
| Restructuring charges and lease abandonment costs - noncurrent portion | — | | | (812) | |
| Restructuring charges and lease abandonment costs - current portion | $ | 2,623 | | | $ | 2,176 | |
5. REVENUE
Nature Of Goods And Services
The Company generates revenue from the sale to advertisers of various services and products, including but not limited to: (i) spot revenues; (ii) digital advertising; (iii) network revenues; (iv) sponsorship and event revenues; and (v) other revenue. Services and products may be sold separately or in bundled packages. The typical length of a contract for service is less than 12 months.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, in an amount that reflects the consideration it expects to be entitled to in exchange for those products or services.
Revenues presented in the consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. The Company also evaluates when it is appropriate to recognizes revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
Revenue is recognized when or as performance obligations under the terms of a contract with customers are satisfied. This typically occurs at the point in time that advertisements are broadcast, marketing services are provided, or as an event occurs. For spot revenues, digital advertising, and network revenues, the Company recognizes revenue at the point in time when the advertisement is broadcast. For event revenues, the Company recognizes revenues at a point in time, as the event occurs. For sponsorship revenues, the Company recognizes revenues over the length of the sponsorship agreement. For trade and barter transactions, revenue is recognized at the point in time when the promotional advertising is aired.
For bundled packages, the Company accounts for each product or performance obligation separately if they are distinct. A product or service is distinct if it is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the commercial broadcast time, digital advertising, or digital product and marketing solutions.
Spot Revenues
The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, audacy.com and eventful.com, the Audacy app, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Cadence13, the Company embeds advertisements in its owned and operated podcasts and other on-demand content. Performance obligations include delivery of advertisements. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Pineapple, the Company creates podcasts, for which it earns production fees. Performance obligations include the delivery of episodes. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the term of the production contract.
Network Revenues
The Company sells air-time on the Company's Audacy Audio Network. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a
point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Sponsorship and Event Revenues
The Company sells advertising space at live and local events hosted by the Company across the country. The Company also earns revenues from attendee-driven ticket sales and merchandise sales. Performance obligations include the presentation of the advertisers' branding in highly visible areas at the event. These revenues are recognized at a point in time, when the event occurs and the performance obligations are satisfied.
The Company also sells sponsorships including, but not limited to, naming rights related to its programs or studios. Performance obligations include the mentioning or displaying of the sponsors' name, logo, product information, slogan or neutral descriptions of the sponsors' goods or services in acknowledgement of their support. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the length of the sponsorship agreement based upon the fair value of the deliverables included.
Other Revenues
The Company earns revenues from on-site promotions and endorsements from talent. Performance obligations include the broadcasting of such endorsement at specifically identifiable days and dayparts or at various local events. The Company recognizes revenue at a point in time when the performance obligations are satisfied.
The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Contract Balances
Refer to the table below for information about receivables, contract assets (unbilled receivables) and contract liabilities (unearned revenue) from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $2.8 million and $3.8 million as of December 31, 2021, and December 31, 2020, respectively. | | | | | | | | | | | | | | |
| | December 31, |
| Description | | 2021 | | 2020 |
| | (amounts in thousands) |
Receivables, included in “Accounts receivable net of allowance for doubtful accounts” | | $ | 273,217 | | | $ | 272,321 | |
| Unearned revenue - current | | 10,638 | | | 15,651 | |
| Unearned revenue - noncurrent | | 474 | | | 1,294 | |
Changes in Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (billed or unbilled), and customer advances and deposits (unearned revenue) on the Company’s consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each respective reporting period within the other current liabilities and other long-term liabilities line items.
Significant changes in the contract liabilities balances during the period are as follows: | | | | | | | | |
| | Year Ended December 31,
2021 |
| Description | | Unearned Revenue |
| | (amounts in thousands) |
| Beginning balance on January 1, 2021 | | $ | 16,945 | |
Revenue recognized during the period that was included in the beginning balance of contract liabilities | | (16,945) | |
| Additions, net of revenue recognized during period | | 11,112 | |
| Ending balance | | $ | 11,112 | |
Disaggregation of revenue
The following table presents the Company’s revenues disaggregated by revenue source: | | | | | | | | | | | | | | | | | | | | |
| | Years Ended |
| | December 31, |
| | 2021 | | 2020 | | 2019 |
| Revenue by Source | | (amounts in thousands) |
| Spot revenues | | $ | 799,687 | | | $ | 705,743 | | | $ | 1,092,029 | |
| Digital revenues | | 237,824 | | | 189,988 | | | 146,274 | |
| Network revenues | | 84,089 | | | 80,346 | | | 75,629 | |
| Sponsorships and event revenues | | 52,319 | | | 42,478 | | | 102,385 | |
| Other revenues | | 45,485 | | | 42,343 | | | 73,612 | |
| Net revenues | | $ | 1,219,404 | | | $ | 1,060,898 | | | $ | 1,489,929 | |
Performance obligations
A contract’s transaction price is allocated to each distinct performance obligation and is recognized as revenue when the performance obligation is satisfied. Some of the Company’s contracts have one performance obligation which requires no allocation. For other contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.
The Company’s performance obligations are primarily satisfied at a point in time and revenue is recognized when an advertisement is aired and the customer has received the benefits of advertising. In rare instances, the Company will enter into contracts when performance obligations are satisfied over a period of time. In these instances, inputs are expended evenly throughout the performance period and the Company recognizes revenue on a straight line basis over the life of the contract. Contract lives are typically less than 12 months.
Practical expedients
As a practical expedient, when the period of time between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less, the Company will not adjust the promised amount of consideration for the effects of a significant financing component.
The Company has contracts with customers which will result in the recognition of revenue beyond one year. From these contracts, the Company expects to recognize $0.5 million of revenue in excess of one year.
The Company elected to apply the practical expedient which allows the Company to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in station operating expenses on the consolidated statements of operations.
Significant judgments
For performance obligations satisfied at a point in time, the Company does not estimate when a customer obtains control of the promised goods or services. Rather, the Company recognizes revenues at the point in time in which performance obligations are satisfied. The Company records a provision against revenues for estimated sales adjustments when information indicates allowances are required. Refer to Note 6, Accounts Receivable And Related Allowance For Doubtful Accounts And Sales Reserves, for additional information.
For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.
For all revenue streams with the exception of barter revenues, the transaction price is contractually determined. For trade and barter revenues, the Company estimates the consideration by estimating the fair value of the goods and services received. Net revenues from network barter programming are recorded on a net basis.
6. ACCOUNTS RECEIVABLE AND RELATED ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RESERVES
Accounts receivable are primarily attributable to advertising which has been provided and for which payment has not been received from the advertiser. Accounts receivable are net of agency commissions and an estimated allowance for doubtful accounts and sales reserves. Estimates of the allowance for doubtful accounts and sales reserves are recorded based on management’s judgment of the collectability of the accounts receivable based on historical information, relative improvements or deterioration in the age of the accounts receivable, changes in current economic conditions, and expectations of future credit losses.
The accounts receivable balances, and the allowance for doubtful accounts and sales reserves, are presented in the following table: | | | | | | | | | | | |
| Net Accounts Receivable |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Accounts receivable | $ | 291,128 | | | $ | 295,013 | |
| Allowance for doubtful accounts and sales reserves | (15,084) | | | (18,911) | |
| Accounts receivable, net of allowance for doubtful accounts and sales reserves | $ | 276,044 | | | $ | 276,102 | |
See the table in Note 10, Other Current Liabilities, for accounts receivable credits outstanding as of the periods indicated.
The following table presents the changes in the allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes In Allowance For Doubtful Accounts |
Year Ended | | Balance At Beginning Of Year | | Additions Charged To Costs And Expenses | | Deductions From Reserves | | Balance At End Of Year |
| | (amounts in thousands) |
| December 31, 2021 | | $ | 14,458 | | | $ | 3,173 | | | $ | (7,682) | | | $ | 9,949 | |
| December 31, 2020 | | $ | 8,265 | | | $ | 16,349 | | | $ | (10,156) | | | $ | 14,458 | |
| December 31, 2019 | | $ | 9,419 | | | $ | 4,549 | | | $ | (5,703) | | | $ | 8,265 | |
In the course of arriving at practical business solutions to various claims arising from the sale to advertisers of various services and products, the Company estimates sales allowances. The Company records a provision against revenue for estimated sales adjustments in the same period the related revenues are recorded or when current information indicates additional allowances are required. These estimates are based on the Company’s historical experience, specific customer information and current economic conditions. If the historical data utilized does not reflect management’s expected future performance, a change in the allowance is recorded in the period such determination is made. The balance of sales reserves is reflected in the accounts receivable, net of allowance for doubtful accounts line item on the consolidated balance sheets.
The following table presents the changes in the sales reserves: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in Allowance for Sales Reserves |
Year Ended | | Balance At Beginning Of Year | | Additions Charged To Revenues | | Deductions From Reserves | | Balance At End Of Year |
| | (amounts in thousands) |
| December 31, 2021 | | $ | 4,452 | | | $ | 5,586 | | | $ | (4,903) | | | $ | 5,135 | |
| December 31, 2020 | | $ | 9,250 | | | $ | 8,768 | | | $ | (13,566) | | | $ | 4,452 | |
| December 31, 2019 | | $ | 7,271 | | | $ | 11,394 | | | $ | (9,415) | | | $ | 9,250 | |
7. LEASES
Leasing Guidance
The accounting guidance for leases was modified in 2019 to increase transparency and comparability among organizations by requiring the recognition of Right-of-Use ("ROU") assets and lease liabilities on the consolidated balance sheets. Based upon the Company's assessment, the impact of this guidance had a material impact on the Company's financial position and the impact to the Company's results of operations and cash flows through December 31, 2021, was not material.
Leasing Transactions
The Company’s leased assets primarily include real estate, broadcasting towers and equipment. The Company’s leases have remaining lease terms of less than 1 year up to 30 years, some of which include one or more options to extend the leases, with renewal terms up to fifteen years and some of which include options to terminate the leases within the next year. Many of the Company’s leases include options to extend the terms of the agreements. Generally, renewal options are excluded when calculating the lease liabilities, as the Company does not consider the exercise of such options to be reasonably certain. Unless a renewal option is considered reasonably assured, the optional terms and related payments are not included within the lease liability. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s operating leases are reflected on the Company’s balance sheet within the Operating lease right-of-use assets line item and the related current and non-current liabilities are included within the Operating lease liabilities and Operating lease liabilities, net of current portion line items, respectively. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from leases. Operating lease ROU assets and liabilities are recognized at commencement date based upon the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.
As the rate implicit in the lease is not readily determinable for the Company’s operating leases, the Company generally uses an incremental borrowing rate based upon information available at the commencement date to determine the present value of future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In order to measure the operating lease liability and determine the present value of lease payments, the Company estimated what the incremental borrowing rate was for each lease using an applicable treasury rate compatible to the remaining life of the lease and the applicable margin for the Company’s Revolver.
In determining whether a contract is or contains a lease at inception of a contract, the Company considers all relevant facts and circumstances, including whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This consideration involves judgment with respect to whether the Company has the right to obtain substantially all of the economic benefits from the use of the identified asset and whether the Company has the right to direct the use of the identified asset.
On January 1, 2019, the Company implemented the new leasing guidance using a modified retrospective approach with a cumulative-effect adjustment to its accumulated deficit of $4.7 million, net of taxes of $1.7 million. This adjustment was attributable to the recognition of deferred gains from sale and leaseback transactions under the previous accounting guidance for leases.
Lease Expense
The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Lease Cost |
| | For the Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | (amounts in thousands) |
| Operating lease cost | | $ | 48,999 | | | $ | 49,061 | | | $ | 50,169 | |
| Variable lease cost | | 11,517 | | | 10,575 | | | 9,691 | |
| Short-term lease cost | | — | | | — | | | 182 | |
| Total lease cost | | $ | 60,516 | | | $ | 59,636 | | | $ | 60,042 | |
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| Description | | 2021 | | 2020 | | 2019 |
| | (amounts in thousands) |
| | | | | | |
| Cash paid for amounts included in measurement of lease liabilities | | $ | 53,838 | | | $ | 53,237 | | | $ | 52,056 | |
| | | | | | |
Lease liabilities arising from obtaining right-of-use assets (1) | | $ | 28,608 | | | $ | 11,851 | | | $ | 315,377 | |
(1)ROU assets obtained in exchange for lease obligations in 2019 include transition liabilities upon implementation of the amended leasing guidance, as well as new leases entered into during the year ended December 31, 2019.
Balance Sheet
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | | | | |
| Description | | December 31, 2021 | | December 31, 2020 |
| | (amounts in thousands) |
| Operating Leases | | | | |
| Operating leases right-of-use assets | | $ | 229,607 | | | $ | 236,903 | |
| | | | |
| Operating lease liabilities (current) | | $ | 39,598 | | | $ | 40,439 | |
| Operating lease liabilities (noncurrent) | | $ | 217,281 | | | $ | 229,400 | |
| Total operating lease liabilities | | $ | 256,879 | | | $ | 269,839 | |
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Weighted Average Remaining Lease Term | | | | |
| Operating leases | | 7 years | | 8 years |
| | | | |
| Weighted Average Discount Rate | | | | |
| Operating leases | | 4.7 | % | | 4.9 | % |
Maturities
The aggregate maturities of the Company’s lease liabilities as of December 31, 2021, are as follows:
| | | | | |
| Lease Maturities |
| Operating Leases |
| (amounts in thousands) |
| Years ending Years ending December 31: | |
| 2022 | $ | 53,134 | |
| 2023 | 49,959 | |
| 2024 | 44,483 | |
| 2025 | 38,386 | |
| 2026 | 32,099 | |
| Thereafter | 84,982 | |
| Total lease payments | 303,043 | |
| Less: imputed interest | (46,164) | |
| Total | $ | 256,879 | |
As of December 31, 2021, the Company has not entered into any leases that have not yet commenced.
8. INTANGIBLE ASSETS AND GOODWILL
(A) Indefinite-Lived Intangibles
Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.
For goodwill, the Company uses qualitative and quantitative approaches when testing goodwill for impairment. The Company performs a qualitative evaluation of events and circumstances impacting each reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if the Company determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise, the Company performs a quantitative goodwill impairment test. The Company performs quantitative goodwill impairment tests for reporting units at least once every three years.
The annual impairment assessment conducted during the fourth quarter of the current year indicated that the fair value of the Company's broadcasting licenses and reporting units exceeded their respective carrying amounts. Accordingly, the Company was not required to record an impairment loss in the current year.
The annual impairment assessment conducted during the fourth quarter of the prior year indicated that the fair value of the Company's broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company's markets. Accordingly, the Company recorded a $246.0 million impairment charge ($180.4 million, net of tax) on its broadcasting licenses during the fourth quarter of 2020.
There were material changes in the carrying value of broadcasting licenses and goodwill during the year ended December 31, 2021 and 2020, primarily as a result of: (i) the impairment losses recorded in the second, third and fourth quarters of 2020; (ii) assets held for sale activities described further in Note 22, Assets Held For Sale; and (iii) acquisitions described further in Note 3, Business Combinations.
The Company may only write down the carrying value of its indefinite-lived intangibles. The Company is not permitted to increase the carrying value if the fair value of these assets subsequently increases.
The following table presents the changes in the carrying value of broadcasting licenses: | | | | | | | | | | | |
| Broadcasting Licenses Carrying Amount |
| December 31,
2021 | | December 31,
2020 |
| (amounts in thousands) |
| Broadcasting licenses balance as of January 1, | $ | 2,229,016 | | | $ | 2,508,121 | |
| Disposition of radio stations (see Note 3, 22) | — | | | (432) | |
| Acquisitions (see Note 3) | 23,233 | | | — | |
| Loss on impairment (See Note 14) | — | | | (261,929) | |
| Assets held for sale (see Note 22) | (703) | | | (16,744) | |
| Ending period balance | $ | 2,251,546 | | | $ | 2,229,016 | |
The following table presents the changes in goodwill. | | | | | | | | | | | |
| Goodwill Carrying Amount |
| December 31,
2021 | | December 31,
2020 |
| (amounts in thousands) |
| Goodwill balance before cumulative loss on impairment as of January 1, | $ | 1,042,762 | | | $ | 1,024,467 | |
| Accumulated loss on impairment as of January 1, | (980,547) | | | (980,547) | |
Goodwill beginning balance after cumulative loss on impairment as of January 1, | 62,215 | | | 43,920 | |
| | | |
| | | |
| Acquisitions (see Note 3) | 20,099 | | | 18,323 | |
| Measurement period adjustments to acquired goodwill | (138) | | | (28) | |
| Ending period balance | $ | 82,176 | | | $ | 62,215 | |
| Goodwill balance before cumulative loss on impairment as of December 31, | $ | 1,062,723 | | | $ | 1,042,762 | |
| Accumulated loss on impairment as of December 31, | (980,547) | | | (980,547) | |
| Goodwill ending balance as of December 31, | $ | 82,176 | | | $ | 62,215 | |
Broadcasting Licenses Impairment Test
During the second quarter of 2019, the Company voluntarily changed the date of its annual broadcasting license impairment test date from April 1 to December 1. In response to the changing of the annual broadcasting license impairment test date, during the three months ended June 30, 2019, the Company made an evaluation based on factors such as each market's total market share and changes in operating cash flow margins, and concluded that it was more likely than not that the fair value of each market's broadcasting licenses exceeded their carrying values at the time of the change in impairment test date. The change in the annual impairment testing date did not delay, accelerate or avoid an impairment charge.
During the fourth quarter of 2019, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was greater than the amount reflected in the balance sheet for each of the Company’s markets and, accordingly, no impairment was recorded.
In evaluating whether events or changes in circumstances indicate that an interim impairment assessment is required, management considers several factors in determining whether it is more likely than not that the carrying value of the Company’s broadcasting licenses or goodwill exceeds the fair value of the Company’s broadcasting licenses or goodwill, respectively. The analysis considers: (i) macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; (ii) industry and market considerations such as deterioration in the environment in which the Company operates, an increased competitive environment, a change in the market for the Company’s products or services, or a regulatory or political development; (iii) cost factors such as increases in labor or other costs that have a negative effect on earnings and cash flows; (iv) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; (v) other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, bankruptcy, or litigation; (vi) events affecting a reporting unit such as a change in the composition or carrying amount of the Company’s net assets; and (vii) a sustained decrease in the Company’s share price.
The Company evaluates the significance of identified events and circumstances on the basis of the weight of evidence along with how they could affect the relationship between the carrying value of the Company’s broadcasting licenses and their respective fair value amounts, including positive mitigating events and circumstances.
Subsequent to the annual impairment test conducted during the fourth quarter of 2019, the Company continued to monitor these factors listed above. Due to the economic and market conditions related to the COVID-19 pandemic, and a contraction in the expected future economic and market conditions utilized in the annual impairment test conducted in the fourth quarter of 2019, the Company determined that the changes in circumstances warranted an interim impairment assessment on its broadcasting licenses during the second quarter of the prior year. Due to changes in facts and circumstances, the Company revised its estimates with respect to projected operating performance and discount rates used in the interim impairment assessment. During the second quarter 2020, the Company completed an interim impairment test for its broadcasting licenses at the market level using the Greenfield method. As a result of this interim impairment assessment, the Company determined that the fair value of its broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company’s markets and, accordingly, recorded an impairment loss of $4.1 million, ($3.0 million, net of tax).
Subsequent to the interim impairment assessment conducted during the second quarter of the prior year, the Company continued to monitor these factors listed above. Due to the current economic and market conditions related to the COVID-19 pandemic, and a further contraction in the expected future economic and market conditions utilized in the interim impairment assessment conducted in the second quarter of 2020, primarily a decrease in market-specific revenue forecasts, the Company determined that changes in circumstances warranted an interim impairment assessment on certain of its broadcasting licenses during the third quarter of 2020. During the third quarter of 2020, the Company completed an interim impairment test for certain of its broadcasting licenses at the market level using the Greenfield method. As a result of this interim impairment assessment, the Company determined that the fair value of its broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company's markets and, accordingly, recorded an impairment loss of $11.8 million, ($8.7 million, net of tax).
In connection with the Company's annual impairment assessment conducted during the fourth quarter of 2020, the Company continued to evaluate the appropriateness of the key assumptions used to develop the fair values of its broadcasting licenses. After further consideration of the impact that the COVID-19 pandemic continues to have on the broadcast industry, the Company concluded it was appropriate to revise the discount rate used. This change, which resulted in an increase to the discount rate used, was made to reflect current rates that a market participant could expect and further addressed forecast risk that exists as a result of the COVID-19 pandemic.
During the fourth quarter of 2020, the Company completed its annual impairment test for broadcasting licenses at the market level using the Greenfield method. As a result of this annual impairment assessment, the Company determined that the fair value of its broadcasting licenses was less than the amount reflected in the balance sheet for certain of the Company's markets and, accordingly, recorded an impairment loss of $246.0 million, ($180.4 million, net of tax).
The Company determined that an interim impairment assessment was not required in the current year. During the fourth quarter of 2021, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was greater than the amount reflected in the balance sheet for each of the Company’s markets and, accordingly, no impairment was recorded.
Methodology - Broadcasting Licenses
The Company performs its broadcasting license impairment test by using the Greenfield method at the market level. Each market’s broadcasting licenses are combined into a single unit of accounting for purposes of testing impairment, as the broadcasting licenses in each market are operated as a single asset. The broadcasting licenses are assessed for recoverability at the market level. Potential impairment is identified by comparing the fair value of a market's broadcasting licenses to its carrying value. The Greenfield method is a discounted cash flow approach (a ten-year income model) 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. The cash flow projections for the broadcasting licenses include significant judgments and assumptions relating to the market share and profit margin of an average station within a market based upon market size and station type, the forecasted growth rate of each radio market (including long-term growth rate) and the discount rate. Changes in the Company's estimates of the fair value of these assets could result in material future period write-downs of the carrying value of the Company's broadcasting licenses.
The methodology used by the Company in determining its key estimates and assumptions was applied consistently to each market. The Company believes that the assumptions identified above are the most important and sensitive in the determination of fair value.
Assumptions and Results – Broadcasting Licenses
The following table reflects the estimates and assumptions used in the interim and annual broadcasting licenses impairment assessments of each year. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimates And Assumptions |
| Fourth Quarter
2021 | | Fourth Quarter 2020 | | Third Quarter
2020 | | Second Quarter 2020 | | Fourth Quarter 2019 | | |
| Discount rate | 8.50 | % | | 8.50 | % | | 7.50 | % | | 8.00 | % | | 8.5 | % | | |
| Operating profit margin ranges for average stations in markets where the Company operates | 20% to 33% | | 20% to 36% | | 24% to 36% | | 22% to 36% | | 18% to 36% | | |
| Forecasted growth rate (including long-term growth rate) range of the Company's markets | 0.0% to 0.6% | | 0.0% to 0.6% | | 0.0% to 0.7% | | 0.0% to 0.8% | | 0.0% to 0.8% | | |
The Company believes it has made reasonable estimates and assumptions to calculate the fair value of its broadcasting licenses. These estimates and assumptions could be materially different from actual results.
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s broadcasting licenses below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may 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.
Goodwill Impairment Test
During the second quarter of 2019, the Company voluntarily changed the date of its annual goodwill impairment test date from April 1 to December 1. In response to the changing of the annual goodwill impairment test date, during the three months ended June 30, 2019, the Company made an evaluation based on factors such as changes in the Company's long-term growth rate, changes in the Company's operating cash flow margin, and trends in the Company's market capitalization, and concluded that it was more likely than not that the fair value of the Company's goodwill exceeded its carrying value at the time of the change in impairment test date. The change in the annual impairment testing date did not delay, accelerate or avoid an impairment charge.
During the three months ended September 30, 2019, the Company considered key factors and circumstances that could have potentially indicated a need to conduct an interim impairment assessment. Such factors and circumstances included, but were not limited to: (i) forecasted financial information; (ii) discount rates; (iii) long-term growth rates; (iv) the Company's stock price; and (v) analyst expectations. After giving consideration to all available evidence arising from these facts and circumstances, the Company concluded that it did not have a requirement to perform an interim impairment test for goodwill.
As a result of disposition activity in 2019, the Company was operating in 47 radio markets as of the fourth quarter 2019 impairment assessment. Each market was a component one level beneath the single operating segment. Since each market was economically similar, all 47 markets were aggregated into a single broadcast reporting unit for the fourth quarter 2019 goodwill impairment assessment. As a result of the acquisition of Pineapple and Cadence13 in 2019, the Company significantly increased its podcasting operations. Cadence13 and Pineapple represented a single podcasting division one level beneath the single operating segment. Since the operations were economically similar, Cadence13 and Pineapple were aggregated into a single podcasting reporting unit.
All of the Company's goodwill was subject to the annual impairment test conducted in the fourth quarter of 2019. The annual impairment assessment indicated the fair value of the Company's goodwill attributable to the broadcast reporting unit was less than its carrying value. Accordingly, the Company recorded a $537.4 million impairment charge ($519.6 million, net of tax) on its goodwill during the fourth quarter of 2019. As a result of this impairment charge, the Company no longer has any
goodwill attributable to its broadcasting reporting unit. For the goodwill acquired in the Cadence13 Acquisition and the Pineapple Acquisition, similar valuation techniques that were applied to the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired goodwill approximated fair value.
After assessing the totality of events and circumstances listed above, the Company determined that it was more likely than not that the fair value of the Company's reporting units was greater than their respective carrying amounts. Accordingly, the Company did not conduct an interim impairment test on its goodwill during 2020.
In November 2020, the Company completed the QLGG Acquisition. QLGG represents a separate division one level beneath the single operating segment and its own reporting unit. For the goodwill acquired in the QLGG Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired goodwill approximated fair value.
The podcast reporting unit goodwill, primarily consisting of acquired goodwill from the Cadence13 Acquisition and the Pineapple Acquisition, was subject to a qualitative annual impairment test conducted in the fourth quarter of the 2020. As a result of the qualitative impairment test, the Company determined it was more likely than not that the fair value of the podcast reporting unit, consisting of goodwill acquired in the Cadence13 Acquisition and the Pineapple Acquisition exceeded their respective carrying amounts. Accordingly, no quantitative impairment assessment was conducted and no impairment was recorded.
After assessing the totality of events and circumstances listed above, the Company determined that it was more likely than not that the fair value of its reporting units was greater than their respective carrying amounts. Accordingly, the Company did not conduct an interim impairment test on its goodwill during 2021.
In March 2021, the Company completed the Podcorn Acquisition. Cadence13, Pineapple and Podcorn represent a single podcasting division one level beneath the single operating segment. Since the operations are economically similar, Cadence13, Pineapple and Podcorn were aggregated into a single podcasting reporting unit for the quantitative impairment assessment conducted in the fourth quarter of 2021. During the fourth quarter of 2021, the Company completed its annual impairment test for its podcasting reporting unit and determined that the fair value of its podcast reporting unit was greater than the carrying value and, accordingly, no impairment was recorded.
During the fourth quarter of 2021, the Company completed its annual impairment test for the QLGG reporting unit and determined that the fair value of its QLGG reporting unit was greater than the carrying value and, accordingly, no impairment was recorded.
In October 2021, the Company completed the WideOrbit Streaming Acquisition. AmperWave represents a separate division one level beneath the single operating segment and its own reporting unit. For the goodwill acquired in the WideOrbit Streaming Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired goodwill approximated fair value.
Methodology - Goodwill
In connection with the Company’s 2019 annual goodwill impairment assessments at the broadcasting reporting unit, the Company used an income approach in computing the fair value of the Company's goodwill. This approach utilized a discounted cash flow method by projecting the Company’s income over a specified time and capitalizing at an appropriate market rate to arrive at an indication of the most probable selling price. Potential impairment is identified by comparing the fair value of the Company's reporting unit to its carrying value, including goodwill. Cash flow projections for the reporting unit include significant judgments and assumptions relating to projected operating profit margin (including revenue and expense growth rates) and the discount rate. Management believes that this approach is commonly used and is an appropriate methodology for valuing the Company. Factors contributing to the determination of the Company’s operating performance were historical performance and/or management’s estimates of future performance. As discussed above, as a result of the impairment assessment conducted in the fourth quarter of 2019, the Company no longer has goodwill attributable to the broadcast reporting unit.
The Company elected to bypass the qualitative assessment for the annual impairment tests of its podcast reporting unit and QLGG reporting unit and proceeded directly to the quantitative goodwill impairment test by using a discounted cash flow
approach (a 5-year income model). Potential impairment is identified by comparing the fair value of each reporting unit to its carrying value. 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. The cash flow projections for the reporting units include significant judgments and assumptions relating to the revenue, operating expenses, projected operating profit margins, and the discount rate. Changes in the Company's estimates of the fair value of these assets could result in material future period write-downs of the carrying value of the Company's goodwill
Assumptions And Results - Goodwill
The following table reflects the estimates and assumptions used in the annual goodwill impairment assessments of each year:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimates And Assumptions |
| | | Fourth Quarter 2021 | | Fourth Quarter 2020 | | Fourth Quarter 2019 | | |
| Discount rate - broadcast reporting unit | | | not applicable | | not applicable | | 8.50 | % | | |
| Discount rate - podcast reporting unit | | | 9.50 | % | | not applicable | | not applicable | | |
| Discount rate - QLGG reporting unit | | | 12.00 | % | | not applicable | | not applicable | | |
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s goodwill below the amount reflected in the balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges on its goodwill, which could be material, in future periods.
(B) Definite-Lived Intangibles
The Company has definite-lived intangible assets that consist of advertiser lists and customer relationships, and acquired advertising contracts. These assets are amortized over the period for which the assets are expected to contribute to the Company’s future cash flows and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For 2021, 2020 and 2019, the Company reviewed the carrying value and the useful lives of these assets and determined they were appropriate.
See Note 9, Other Assets, for: (i) a listing of the assets comprising definite-lived assets, which are included in other assets on the balance sheets; (ii) the amount of amortization expense for definite-lived assets; and (iii) the Company’s estimate of amortization expense for definite-lived assets in future periods.
9. OTHER ASSETS
Other assets consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Assets | | |
| December 31, | | |
| 2021 | | 2020 | | |
| Asset | | Accumulated Amortization | | Net | | Asset | | Accumulated Amortization | | Net | | Period Of Amortization |
| (amounts in thousands) | | |
| Deferred contracts | $ | 1,362 | | | $ | 1,313 | | | $ | 49 | | | $ | 1,362 | | | $ | 1,263 | | | $ | 99 | | | Term of contract |
| | | | | | | | | | | | | |
| Advertiser lists and customer relationships | 31,674 | | | 26,066 | | | 5,608 | | | 31,674 | | | 20,405 | | | 11,269 | | | 3 to 5 years |
| Other definite-lived assets | 26,922 | | | 12,302 | | | 14,620 | | | 16,199 | | | 9,543 | | | 6,656 | | | Term of contract |
| Total definite-lived intangibles | 59,958 | | | 39,681 | | | 20,277 | | | 49,235 | | | 31,211 | | | 18,024 | | | |
| Debt issuance costs | 3,550 | | | 501 | | | 3,049 | | | 3,122 | | | 405 | | | 2,717 | | | Term of debt |
| Prepaid assets - long-term | 2,002 | | | — | | | 2,002 | | | 2,009 | | | — | | | 2,009 | | | |
| Software costs and other | 73,093 | | | 23,556 | | | 49,537 | | | 34,203 | | | 15,930 | | | 18,273 | | | |
| $ | 138,603 | | | $ | 63,738 | | | $ | 74,865 | | | $ | 88,569 | | | $ | 47,546 | | | $ | 41,023 | | | |
The following table presents the various categories of amortization expense, including deferred financing costs which are reflected as interest expense:
| | | | | | | | | | | | | | | | | |
| Amortization Expense |
| Other Assets |
| For The Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Definite-lived assets | $ | 10,140 | | | $ | 8,861 | | | $ | 7,140 | |
| Deferred financing expense | 5,613 | | | 3,981 | | | 4,866 | |
| Software costs | 9,251 | | | 7,752 | | | 6,325 | |
| Total | $ | 25,004 | | | $ | 20,594 | | | $ | 18,331 | |
The following table presents the Company’s estimate of amortization expense, for each of the five succeeding years for: (i) other assets; and (ii) definite-lived assets:
| | | | | | | | | | | | | | | | | |
| Future Amortization Expense |
| Total | | Other | | Definite-Lived Assets |
| Years ending December 31, | (amounts in thousands) |
| 2022 | $ | 20,569 | | | $ | 12,825 | | | $ | 7,744 | |
| 2023 | 12,499 | | | 10,614 | | | 1,885 | |
| 2024 | 9,466 | | | 8,304 | | | 1,162 | |
| 2025 | 7,209 | | | 6,047 | | | 1,162 | |
| 2026 | 5,122 | | | 4,384 | | | 738 | |
| Thereafter | 14,131 | | | 8,339 | | | 5,792 | |
| Total | $ | 68,996 | | | $ | 50,513 | | | $ | 18,483 | |
10. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of the periods indicated: | | | | | | | | | | | |
| Other Current Liabilities |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Accrued compensation | $ | 35,917 | | | $ | 25,264 | |
| Accounts receivable credits | 2,506 | | | 1,683 | |
| Advertiser obligations | 2,504 | | | 4,844 | |
| Accrued interest payable | 14,662 | | | 9,804 | |
| Unearned revenue | 10,638 | | | 15,651 | |
| Unfavorable sports liabilities | 4,492 | | | 4,634 | |
| Accrued benefits | 6,894 | | | 6,944 | |
| Non-income tax liabilities | 1,897 | | | 1,332 | |
| | | |
| Other | 4,620 | | | 3,841 | |
| Total other current liabilities | $ | 84,130 | | | $ | 73,997 | |
11. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following as of the periods indicated: | | | | | | | | | | | |
| Other Long-Term Liabilities |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Deferred compensation | $ | 32,730 | | | $ | 33,474 | |
| Unfavorable sports liabilities | 3,867 | | | 8,359 | |
| Unearned revenue | 474 | | | 1,294 | |
| Other | 11,761 | | | 14,617 | |
| Total other long-term liabilities | $ | 48,832 | | | $ | 57,744 | |
12. LONG-TERM DEBT
Long-term debt was comprised of the following as of December 31, 2021: | | | | | | | | | | | |
| Long-Term Debt |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Credit Facility | | | |
| Revolver | $ | 97,727 | | | $ | 114,727 | |
| | | |
| Term B-2 Loan, due November 17, 2024 | 632,415 | | | 754,006 | |
| Plus unamortized premium | 1,397 | | | 1,681 | |
| 731,539 | | | 870,414 | |
| 2027 Notes | | | |
6.500% notes due May 1, 2027 | 470,000 | | | 425,000 | |
| Plus unamortized premium | 3,964 | | | 4,318 | |
| 473,964 | | | 429,318 | |
| 2029 Notes | | | |
6.750% notes, due March 31, 2029 | 540,000 | | | — | |
| 540,000 | | | — | |
| | | |
| Accounts receivable facility | 75,000 | | | — | |
| | | |
| Senior Notes | | | |
7.250% senior unsecured notes, due November 1, 2024 | — | | | 400,000 | |
| Plus unamortized premium | — | | | 9,306 | |
| — | | | 409,306 | |
| | | |
| Other debt | 764 | | | 808 | |
| Total debt before deferred financing costs | 1,821,267 | | | 1,709,846 | |
| Current amount of long-term debt | (22,727) | | | (5,488) | |
| Deferred financing costs (excludes the revolving credit) | (16,409) | | | (14,409) | |
| Total long-term debt, net of current debt | $ | 1,782,131 | | | $ | 1,689,949 | |
| Outstanding standby letters of credit | $ | 6,069 | | | $ | 6,229 | |
(A) Senior Debt
The 2027 Notes
During the second quarter of 2019, the Company and its finance subsidiary, Audacy Capital Corp. (formerly, Entercom Media Corp.) ("Audacy Capital Corp."), issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the "Initial 2027 Notes") under an Indenture dated as of April 30, 2019 (the "Base Indenture").
Interest on the Initial 2027 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 2027 Notes may be redeemed at a price of 106.500% of their principal amount plus accrued interest. On or after May 1, 2022, the Initial 2027 Notes may be redeemed, in whole or in part, at a price of 104.875% of their principal amount plus accrued interest. The prepayment premium continues to decrease over time to 100% of their principal amount plus accrued interest.
The Company used net proceeds of the offering, along with cash on hand and $89.0 million borrowed under its Revolver, to repay $425.0 million of existing indebtedness under the Company's term loan outstanding at that time (the "Term B-1 Loan").
In connection with this refinancing activity described above, during the second quarter of 2019, the Company: (i) wrote off $1.6 million of unamortized deferred financing costs associated with the Term B-1 Loan; (ii) wrote off $0.2 million of unamortized premium associated with the Term B-1 Loan; and (iii) recorded $3.9 million of new deferred financing costs which will be amortized over the term of the Initial 2027 Notes under the effective interest rate method.
During the fourth quarter of 2019, the Company and its finance subsidiary, Audacy Capital 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"). As of December 31, 2020, the Additional Notes were treated as a single series with the $325.0 million Initial 2027 Notes (together, with the Additional Notes, the "Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional Notes were issued at a price of 105.0% of their principal amount, plus accrued interest from November 1, 2019. As of December 31, 2020, the unamortized premium on the Notes was reflected on the balance sheet as an addition to the $425.0 million Notes.
The Company used net proceeds of the Additional Notes offering to repay $96.7 million of existing indebtedness under the Company's Term B-1 Loan. Contemporaneous with this partial pay-down of the Term B-1 Loan, the Company replaced the remaining amount outstanding under the Term B-1 Loan with a Term B-2 loan (the "Term B-2 Loan").
In connection with this refinancing activity described above, during the fourth quarter of 2019, the Company: (i) wrote off $0.3 million of unamortized deferred financing costs associated with the Term B-1 Loan; and (ii) recorded $3.8 million of new deferred financing costs.
During the fourth quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $45.0 million of additional 6.500% senior secured second-lien notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes were issued as additional notes under the Indenture. The Additional 2027 Notes are treated as a single series with the $325.0 million Initial 2027 Notes and the $100.0 million Additional Notes (collectively, the "2027 Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional 2027 Notes were issued at a price of 100.750% of their principal amount. The premium on the Additional 2027 Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the unamortized premium on the 2027 Notes is reflect on the balance sheet as an addition to the $470.0 million 2027 Notes.
The Company used net proceeds of the Additional 2027 Notes offering to repay $44.6 million of existing indebtedness under the Company's Term B-2 Loan.
In connection with this refinancing activity described above, during the fourth quarter of 2021, the Company recorded $0.8 million of new deferred financing costs which will be amortized over the term of the 2027 Notes under the effective interest rate method. The Company also incurred $0.4 million of costs which were classified within refinancing expenses.
The 2027 Notes are fully and unconditionally guaranteed on a senior secured second-lien basis by most of the direct and indirect subsidiaries of Audacy Capital Corp. The 2027 Notes and the related guarantees are secured on a second-lien priority basis by liens on substantially all of the assets of Audacy Capital Corp. and the guarantors.
A default under the Company's 2027 Notes could cause a default under the Company's Credit Facility or 2029 Notes. Any event of default, therefore, could have a material adverse effect on the Company's business and financial condition.
The 2027 Notes are not a registered security and there are no plans to register the 2027 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 as of December 31, 2021, and 2020 and for the years ended December 31, 2021, 2020 and 2019.
The Credit Facility
The Company's credit agreement (the "Credit Facility"), as amended, is comprised of a $250.0 million Revolver and the Term B-2 Loan.
On December 13, 2019, the Company executed an amendment to the Credit Facility ("Amendment No. 4") which, among other things: (i) replaced the Term B-1 Loans with the Term B-2 Loan; (ii) established a new class of revolving credit commitments from a portion of its existing Revolver with a later maturity date; and (iii) made certain other amendments to the Credit Facility.
The Company executed Amendment No. 4 which established a new class of revolving credit commitments from a portion of its 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 $250.0 million Revolver has a maturity date of August 19, 2024, and approximately $22.7 million (the "Original Class Revolver") of the $250.0 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 the Consolidated Net Secured Leverage Ratio as defined in the agreement. The initial margin is at LIBOR plus 2.25% or the Base Rate plus 1.25%.
The New Class Revolver provides for interest based upon the Base Rate or LIBOR plus a margin. The margin may increase or decrease based upon the Consolidated Net First-Lien Leverage Ratio as defined in the agreement. The initial margin is LIBOR plus 2.00% or the prime rate plus 1.00%.
In addition, the Original Class Revolver and the New Class Revolver require the payment of a commitment fee ranging from 0.375% per annum to 0.5% per annum on the undrawn amount. As of December 31, 2020, the amount available under the Revolver, which includes the impact of outstanding letters of credit, was $146.3 million.
The Company expects to use the Revolver to: (i) provide for working capital; and (ii) provide for general corporate purposes, including capital expenditures and any or all of the following (subject to certain restrictions): repurchase of Class A common stock, dividends, investments and acquisitions. In addition, the Credit Facility is secured by a lien on substantially all of the assets (including material real property) of Audacy Capital Corp. and its subsidiaries with limited exclusions. Most of the Company’s subsidiaries, jointly and severally guaranteed the Credit Facility. The assets securing the Credit Facility are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.
The Term B-2 Loan has a maturity date of November 17, 2024 and provides for interest based upon LIBOR plus 2.5% or the Base Rate plus 1.5%.
The Term B-2 Loan amortizes: (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, subject to incremental step-downs, depending on the Consolidated Net Secured Leverage Ratio. The Excess Cash Flow payment is based on the Excess Cash Flow and Consolidated Net Secured Leverage Ratio for the prior year.
The Credit Facility has usual and customary covenants including, but not limited to, a net first-lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net First-Lien Leverage Ratio that cannot exceed 4.0 times. In certain limited circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First-Lien Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
Audacy Capital Corp., which is a wholly-owned subsidiary of the Company, holds the ownership interest in various subsidiary companies that own the operating assets, including broadcasting licenses, permits, authorizations and cash royalties.
Audacy Capital Corp. is the borrower under the Credit Facility. The assets securing the Credit Facility are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.
Under certain covenants, the Company’s subsidiary guarantors are restricted from paying dividends or distributions in excess of amounts defined under the Credit Facility, and the subsidiary guarantors are limited in their ability to incur additional indebtedness under certain restrictive covenants.
The 2029 Notes
During the first quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
The Company used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $40.0 million of drawings under the Revolver; and (iii) fully redeem all of its $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, the Company: (i) recorded $6.6 million of new debt issuance costs attributable to the 2029 Notes which will be amortized over the term of the 2029 Notes under the effective interest method; and (ii) $0.4 million of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. The Company also incurred $0.5 million of costs which were classified within refinancing expenses.
The 2029 Notes are fully and unconditionally guaranteed on a senior secured second priority basis by each of the direct and indirect subsidiaries of Audacy Capital Corp. A default under the Company's 2029 Notes could cause a default under the Company's Credit Facility or the 2027 Notes. Any event of default, therefore, could have a material adverse effect on the Company's business and financial condition.
The 2029 Notes are not a registered security and there are no plans to register the 2029 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.
The Credit Facility - Amendment No. 5
On July 20, 2020, Audacy Capital Corp., a wholly-owned subsidiary of the Company, entered into an amendment ("Amendment No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of 1.50% per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage
Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
As of December 31, 2021, the Company is in compliance with the financial covenant and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenant is highly dependent on its results of operations. The cash available from the Revolver is dependent on the Company’s Consolidated Net First-Lien Leverage Ratio at the time of such borrowing.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp., a wholly owned subsidiary of the Company, entered into an amendment ("Amendment No. 6") to the Credit Agreement, dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment No. 6, the “Credit Agreement”), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company is subject to a $75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries and Non-Guarantor Subsidiaries (each as defined in the Existing Credit Agreement) (the “Covenant Relief Period Investment Limitation”). Amendment No. 6, among other things, excludes from the Covenant Relief Period Investment Limitation any investments made in connection with a permitted receivables financing facility.
Accounts Receivable Facility
On July 15, 2021, the Company and certain of its subsidiaries entered into a $75.0 million Receivables Facility to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Credit Facility.
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement entered into by and among Audacy Operations, Audacy Receivables as seller, the Investors, and DZ BANK, as agent; (ii) a Sale and Contribution Agreement, by and among Audacy Operations, Audacy NY, and Audacy Receivables; and (iii) a Purchase and Sale Agreement and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Pursuant to the Purchase and Sale Agreement, the Originators (other than Audacy NY) have sold, and will continue to sell on an ongoing basis, their accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy NY. Pursuant to the Sale and Contribution Agreement, Audacy NY has sold and contributed, and will continue to sell and contribute on an ongoing basis, its accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy Receivables. Pursuant to the Receivables Purchase Agreement, Audacy Receivables has sold and will continue to sell on an ongoing basis such accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
Yield is payable to Investors under the Receivables Purchase Agreement at a variable rate based on either one-month LIBOR or commercial paper rates plus a margin. Collections on the accounts receivable: (x) will be used to either: (i) satisfy the obligations of Audacy Receivables under the Receivables Facility; or (ii) purchase additional accounts receivable from the Originators; or (y) may be distributed to Audacy NY, the sole member of Audacy Receivables. Audacy Operations acts as the servicer under the Agreements.
The Agreements contain representations, warranties and covenants that are customary for bankruptcy-remote securitization transactions, including covenants requiring Audacy Receivables to be treated at all times as an entity separate from the Originators, Audacy Operations, the Company or any of its other affiliates and that transactions entered into between Audacy Receivables and any of its affiliates shall be on arm’s-length terms. The Receivables Purchase Agreement also contains customary default and termination provisions which provide for acceleration of amounts owed under the Receivables Purchase
Agreement upon the occurrence of certain specified events with respect to Audacy Receivables, Audacy Operations, the Originators, or the Company, including, but not limited to: (i) Audacy Receivables’ failure to pay yield and other amounts due; (ii) certain insolvency events; (iii) certain judgments entered against the parties; (iv) certain liens filed with respect to assets; and (v) breach of certain financial covenants and ratios.
The Company has agreed to guarantee the performance obligations of Audacy Operations and the Originators under the Receivables Facility documents. The Company has not agreed to guarantee any obligations of Audacy Receivables or the collection of any of the receivables and will not be responsible for any obligations to the extent the failure to perform such obligations by Audacy Operations or any Originator results from receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness or other financial inability to pay of the related obligor.
In general, the proceeds from the sale of the accounts receivable are used by the SPV to pay the purchase price for accounts receivables it acquires from Audacy NY and may be used to fund capital expenditures, repay borrowings on the Credit Facility, satisfy maturing debt obligations, as well as fund working capital needs and other approved uses.
Although the SPV is a wholly owned consolidated subsidiary of Audacy NY, the SPV is legally separate from Audacy NY. The assets of the SPV (including the accounts receivables) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivables are not legally assets of Audacy NY, Audacy Operations or the Company. The Receivables Facility is accounted for as a secured financing. The pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Consolidated Balance Sheets. Refer to Note 2, Significant Accounting Policies, for additional information on the consolidated VIE.
The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended pursuant to the terms of the Receivables Purchase Agreement. At December 31, 2021, the Company had outstanding borrowings of $75.0 million under the Receivables Facility.
(B) Senior Unsecured Debt
The Senior Notes
Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and were set to mature on November 1, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio (now Audacy Capital Corp.) on October 17, 2016. The deferred financing costs and debt premium on the Senior Notes were amortized over the term under the effective interest rate method. As of any reporting period, the amount of any unamortized debt finance costs and debt premium costs were reflected on the balance sheet as a subtraction and an addition to the $400.0 million liability, respectively.
Interest on the Senior Notes accrued at the rate of 7.250% per annum and was payable semi-annually in arrears on May 1 and November 1 of each year.
In connection with the redemption of the Senior Notes during the first quarter of 2021, the Company wrote off the following amounts to gain/loss on extinguishment of debt: (i) $14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $8.7 million of unamortized premium attributable to the Senior Notes; (iii) $1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $1.3 million of unamortized debt issuance costs attributable to the Term B-2 Loan.
(C) Net Interest Expense
The components of net interest expense are as follows: | | | | | | | | | | | | | | | | | |
| Net Interest Expense |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Interest expense | $ | 87,530 | | | $ | 86,579 | | | $ | 100,757 | |
| Amortization of deferred financing costs | 5,613 | | | 3,981 | | | 3,085 | |
| Amortization of original issue discount (premium) of senior notes | (1,582) | | | (3,395) | | | (2,928) | |
| Interest income and other investment income | (50) | | | (69) | | | (811) | |
| Total net interest expense | $ | 91,511 | | | $ | 87,096 | | | $ | 100,103 | |
The weighted average interest rate under the Credit Facility (before taking into account the fees on the unused portion of the Revolver) was: (i) 2.6% as of December 31, 2021; and (ii) 2.6% as of December 31, 2020.
(D) Interest Rate Transactions
During the quarter ended June 30, 2019, the Company entered into an interest rate collar transaction in the notional amount of $560.0 million to hedge the Company's exposure to fluctuations in interest rates on its variable-rate debt. Refer to Note 13, Derivative and Hedging Activities, for additional information.
The Company from time to time enters into interest rate transactions with different lenders to diversify its risk associated with interest rate fluctuations of its variable rate debt. Under these transactions, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount against the variable debt.
(E) Aggregate Principal Maturities
The minimum aggregate principal maturities on the Company’s outstanding debt (excluding any impact from required principal payments based upon the Company’s future operating performance) are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal Debt Maturities |
| Term B-2
Loan | | Revolver | | 2027 Notes | | 2029 Notes | | Accounts Receivable Facility | | Other | | Total |
| (amounts in thousands) |
| Years ending December 31 | | | | | | | | | | | | | |
| 2022 | $ | — | | | $ | 22,727 | | | $ | — | | | $ | — | | | — | | | $ | 30 | | | $ | 22,757 | |
| 2023 | — | | | — | | | — | | | — | | | — | | | 30 | | | 30 | |
| 2024 | 632,415 | | | 75,000 | | | — | | | — | | | 75,000 | | | 30 | | | 707,445 | |
| 2025 | — | | | — | | | — | | | — | | | — | | | 30 | | | 30 | |
| 2026 | — | | | — | | | — | | | — | | | — | | | 30 | | | 30 | |
| Thereafter | — | | | — | | | 470,000 | | | 540,000 | | | — | | | 615 | | | 1,010,615 | |
| Total | $ | 632,415 | | | $ | 97,727 | | | $ | 470,000 | | | $ | 540,000 | | | $ | 75,000 | | | $ | 765 | | | $ | 1,740,907 | |
(F) Outstanding Letters of Credit
The Company is required to maintain standby letters of credit in connection with insurance coverage as described in Note 23, Contingencies And Commitments.
(G) Guarantor and Non-Guarantor Financial Information
As of December 31, 2021, most of the direct and indirect subsidiaries of Audacy Capital Corp. are guarantors of Audacy Capital Corp.’s obligations under the Credit Facility, the Notes and the Senior Notes. Under certain covenants, the Company’s
subsidiary guarantors are restricted from paying dividends or distributions in excess of amounts defined under the 2027 Notes and the 2029 Notes, and the subsidiary guarantors are limited in their ability to incur additional indebtedness under certain restricted covenants.
The Company’s borrowing agreements contain restrictions on its ability to pay dividends to its parent under certain facts and circumstances. As of December 31, 2021, these restrictions did not apply.
Under the Credit Facility, Audacy Capital Corp. is permitted to make distributions to Audacy, Inc., which are required to pay Audacy, Inc.’s reasonable overhead costs, including income taxes, and other costs associated with conducting the operations of Audacy Capital Corp. and its subsidiaries.
13. DERIVATIVE AND HEDGING ACTIVITIES
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.
Accounting For Derivative Instruments and Hedging Activities
The Company recognizes at fair value all derivatives, whether designated in hedging relationships or not, in the balance sheet as either net assets or net liabilities. The accounting for changes in the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and the resulting designation. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair value through the statement of operations. Any fees associated with these derivatives are amortized over their term. Cash flows from derivatives are classified in the statement of cash flows within the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. Under these derivatives, the differentials to be received or paid are recognized as an adjustment to interest expense over the life of the contract. In the event the cash flow hedges are terminated early, any amount previously included in comprehensive income (loss) would be reclassified as interest expense to the statement of operations as the forecasted transaction settles.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes ongoing effectiveness assessments by relating all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company’s derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of corporate risk-management policies. The Company reviews the correlation and effectiveness of its derivatives on a periodic basis.
The fair value of these derivatives is determined using observable market based inputs (a Level 2 measurement, as described in Note 21, Fair Value Of Financial Instruments) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company’s counterparty for assets and the creditworthiness of the Company for liabilities).
Hedge Accounting Treatment
During the quarter ended June 30, 2019, the Company entered into a derivative rate hedging transaction in the aggregate notional amount of $560.0 million to manage interest rate risk on the Company’s variable rate debt. During the period of the hedging relationship, the beginning and ending balance of the Company’s variable rate debt was greater than the notional amount of the derivative rate hedging transaction. This transaction is tied to the one-month LIBOR interest rate. Under the Collar transaction, two separate agreements are established with an upper limit, or cap, and a lower limit, or floor, for the Company’s LIBOR borrowing rate. As of December 31, 2021, the Company had the following derivative outstanding, which
was designated as a cash flow hedge that qualified for hedge accounting treatment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Type
Of
Hedge | | Notional
Amount | | Effective
Date | | Collar | | Fixed
LIBOR
Rate | | Expiration
Date | | Notional
Amount
Decreases | | Amount
After
Decrease |
| | (amounts
in millions) | | | | | | | | | | | | (amounts
in millions) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Collar | | $ | 340.0 | | | Jun. 25, 2019 | | Cap | | 2.75% | | Jun. 28, 2024 | | Jun. 28, 2022 | | $ | 220.0 | |
| | | | | | Floor | | 0.402% | | | | Jun. 28, 2023 | | $ | 90.0 | |
| Total | | $ | 340.0 | | | | | | | | | | | | | |
For the year ended December 31, 2021, the Company recorded the net change in the fair value of this derivative as a gain of $2.0 million (net of a tax benefit of $0.6 million as of December 31, 2021) to the statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of December 31, 2021, the fair value of these derivatives was a liability of $0.4 million, and is recorded as other long-term liabilities on the balance sheet. The Company expects to reclassify $0.3 million of this amount to the consolidated statement of operations over the next twelve months.
The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of December 31, 2021, and December 31, 2020:
| | | | | | | | | | | | | | |
| | Accumulated Derivative Gain (Loss) |
| Description | | December 31,
2021 | | December 31,
2020 |
| | (amounts in thousands) |
| Accumulated derivative unrealized gain (loss) | | $ | (289) | | | $ | (1,789) | |
The following table presents the accumulated net derivative gain (loss) recorded in accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Comprehensive Income (Loss) |
| Net Change in Accumulated Derivative Unrealized Gain (Loss) | | Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | 2019 |
| (amounts in thousands) |
| $ | 1,500 | | | $ | (1,650) | | | $ | (139) | | | $ | 1,176 | | | $ | 663 | | $ | — | |
Undesignated Derivatives
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the equity market risks associated with its non-qualified deferred compensation plan liabilities. The Company pays a floating rate, based on LIBOR, on the notional amount of the TRS. The TRS is designed to substantially offset changes in its non-qualified deferred compensation plan's liabilities due to changes in the value of the investment options made by employees. As of December 31, 2021, the notional investments underling the TRS amounted to $27.1 million. The contract term of the TRS is through March 2022 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as an accounting hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of its non-qualified deferred compensation plan liabilities.
For the year ended December 31, 2021, the Company recorded the net change in the fair value of the TRS in station operating expenses and corporate, general and administrative expenses in the amount of a $4.5 million benefit. Of this amount, a $1.5 million benefit was recorded in corporate, general and administrative expenses and a $3.0 million benefit was recorded in station operating expenses.
14. IMPAIRMENT LOSS
The following table presents the various categories of impairment loss: | | | | | | | | | | | | | | | | | |
| Impairment Loss |
| For The Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Broadcasting licenses | $ | — | | | $ | 261,929 | | | $ | — | |
| Goodwill | — | | | — | | | 537,353 | |
| ROU Asset | 556 | | | 1,064 | | | 5,956 | |
| Property and equipment and other | 1,658 | | | 1,439 | | | 2,148 | |
| Total | $ | 2,214 | | | $ | 264,432 | | | $ | 545,457 | |
Refer to Note 8, Intangible Assets And Goodwill, and Note 21, Fair Value Of Financial Instruments, for additional information on impairment losses recognized.
15. SHAREHOLDERS’ EQUITY
Class B Common Stock
Shares of Class B common stock are transferable only to Joseph M. Field, David J. Field, certain of their family members, their estates and trusts for any of their benefit. Upon any other transfer, shares of Class B common stock automatically convert into shares of Class A common stock on a one-for-one basis.
Dividends
On August 9, 2019, the Company's Board of Directors reduced the annual stock dividend program to $0.08 per share. Quarterly dividend payments approximated $2.7 million per quarter. Following the payment of the quarterly dividend for the first quarter of 2020, the Company suspended its quarterly dividend program. Any future dividends will be at the discretion of the Board of Directors based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in the Company's Credit Facility, the Notes and the Senior Notes.
Under the Credit Facility, the 2027 Notes and the 2029 Notes, the Company may be restricted in the amount available for dividends, share repurchases, investments, and debt repurchases in the future based upon its Consolidated Net First-Lien Leverage Ratio. The amount available can increase over time based upon the Company’s financial performance and used when its Consolidated Net First-Lien Leverage Ratio is less than or equal to the maximum Secured Leverage Ratio permitted at the time. There are certain other limitations that apply to its use.
The following table presents a summary of the Company’s dividend activity during the past two years ending December 31, 2021: | | | | | | | | | | | | | | | | | | | | |
| Equity Type | | Payment
Date | | Dividends
per Share | | Aggregate
Payment
Amount |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Common stock | | March 27, 2020 | | $ | 0.020 | | | $ | 2,692,213 | |
| | | | | | |
| | | | | | |
| | | | | | |
Dividend Equivalents
The Company’s grants of restricted stock units ("RSUs") include the right, upon vesting, to receive a cash payment equal to the aggregate amount of dividends, if any, that holders would have received on the shares of common stock underlying their RSUs if such RSUs had been vested during the period.
The following table presents the amounts accrued and unpaid on unvested RSUs: | | | | | | | | | | | | | | | | | |
| Balance Sheet
Location | | Dividend Equivalent Liabilities |
| | December 31, |
| | 2021 | | 2020 |
| | | (amounts in thousands) |
| Short-term | Other current liabilities | | $ | 351 | | | $ | 437 | |
| Long-term | Other long-term liabilities | | 92 | | | 477 | |
| Total | | | $ | 443 | | | $ | 914 | |
Deemed Stock Repurchase When RSUs Vest
Upon vesting of RSUs, a tax obligation is created for both the employer and the employee. Unless employees elect to pay their tax withholding obligations in cash, the Company withholds shares of stock in an amount sufficient to cover their tax withholding obligations. The withholding of these shares by the Company is deemed to be a repurchase of its stock. The following table provides summary information on the deemed repurchase of vested RSUs: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Shares of stock deemed repurchased | 386 | | | 510 | | | 459 | |
| Amount recorded as financing activity | $ | 2,066 | | | $ | 1,527 | | | $ | 2,905 | |
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (the “ESPP”) allows participants to purchase the Company’s stock at a price equal to 85% of the market value of such shares on the purchase date. The maximum number of shares authorized to be issued under the ESPP is 1.0 million. Pursuant to this plan, the Company does not record compensation expense to the employee as income subject to tax on the difference between the market value and the purchase price, as this plan was designed to meet the requirements of Section 423(b) of the Internal Revenue Code (the "Code"). The Company recognizes the 15% discount in the Company’s consolidated statements of operations as non-cash compensation expense. Following the purchase of shares under the ESPP for the first quarter of 2020, the Company temporarily suspended the ESPP. The ESPP resumed on July 1, 2021. The following table presents the amount of shares purchased and non-cash compensation expense recognized in connection with the ESPP: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Number of shares purchased | 106 | | | 166 | | | 335 | |
Non-cash compensation expense recognized | $ | 47 | | | $ | 43 | | | $ | 234 | |
Share Repurchase Program
On November 2, 2017, the Company’s Board of Directors announced a share repurchase program (the “2017 Share Repurchase Program”) to permit the Company to purchase up to $100.0 million of the Company’s issued and outstanding shares of Class A common stock through open market purchases. Shares repurchased by the Company under the 2017 Share Repurchase Program will be at the discretion of the Company based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in the Company’s Credit Facility, the 2027 Notes and the 2029 Notes.
During the year ended December 31, 2021 and 2020, the Company did not repurchase any shares under the 2017 Share Repurchase Program. During the year ended December 31, 2019, the Company repurchased 5.0 million shares of Class A common stock at an aggregate average price of $3.67 per share for a total of $18.3 million. As of December 31, 2021, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.
Shareholder Rights Agreement
On April 20, 2020, the Company entered into a Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (as amended from time to time, the "Rights Agreement"), which was previously approved by the Board of Directors of the Company (the "Board of Directors").
The Rights expired on April 20, 2021.
16. NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is calculated as basic net income per share and diluted net income per share. Basic net income per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed in the same manner as basic net income after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes the potential dilution that could occur: (i) if the RSUs with service conditions were fully vested (using the treasury stock method); (ii) if all of the Company’s outstanding stock options that are in-the-money were exercised (using the treasury stock method); (iii) if the RSUs with service and market conditions were considered contingently issuable; and (iv) if the RSUs with service and performance conditions were considered contingently issuable. The Company considered whether the options to purchase Class A common stock in connection with the ESPP were potentially dilutive and concluded there were no dilutive shares as all options are automatically exercised at the balance sheet date.
The Company considered the allocation of undistributed net income for multiple classes of common stock and determined that it was appropriate to allocate undistributed net income between the Company’s Class A and Class B common stock on an equal basis. For purposes of making this determination, the Company’s charter provides that the holders of Class A and Class B common stock have equal rights and privileges except with respect to voting on most other matters where Class B shares voted by Joseph Field or David Field have a 10 to 1 super vote.
The following tables present the computations of basic and diluted net income (loss) per share from continuing operations and discontinued operations: | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands, except share and per share
data) |
| Basic Income (Loss) Per Share | | | | | |
| Numerator | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (3,572) | | | $ | (242,224) | | | $ | (420,212) | |
| Denominator | | | | | |
| Basic weighted average shares outstanding | 135,981,419 | | | 134,570,672 | | | 136,967,455 | |
| | | | | |
| | | | | |
| | | | | |
| Net income (loss) per share - Basic | $ | (0.03) | | | $ | (1.80) | | | $ | (3.07) | |
| Diluted Income (Loss) Per Share | | | | | |
| Numerator | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net income (loss) | $ | (3,572) | | | $ | (242,224) | | | $ | (420,212) | |
| Denominator | | | | | |
| Basic weighted average shares outstanding | 135,981,419 | | | 134,570,672 | | | 136,967,455 | |
| Effect of RSUs and options under the treasury stock method | — | | | — | | | — | |
| Diluted weighted average shares outstanding | 135,981,419 | | | 134,570,672 | | | 136,967,455 | |
| | | | | |
| | | | | |
| | | | | |
| Net income (loss) per share - Diluted | $ | (0.03) | | | $ | (1.80) | | | $ | (3.07) | |
Disclosure of Anti-Dilutive Shares
The following table presents those shares excluded as they were anti-dilutive: | | | | | | | | | | | | | | | | | |
| Impact Of Equity Awards |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands, except per share data) |
| Dilutive or anti-dilutive for all potentially dilutive equivalent shares | anti-dilutive | | anti-dilutive | | anti-dilutive |
| Excluded shares as anti-dilutive under the treasury stock method: | | | | | |
| Options excluded | 609 | | | 609 | | | 543 | |
| Price range of options excluded: from | $ | 3.54 | | | $ | 3.54 | | | $ | 9.66 | |
| Price range of options excluded: to | $ | 13.98 | | | $ | 13.98 | | | $ | 13.98 | |
| RSUs with service conditions | 464 | | | 2,689 | | | 2,953 | |
| Excluded RSUs with service and market conditions as market conditions not met | 75 | | | — | | | 70 | |
| | | | | |
| | | | | |
| Excluded shares as anti-dilutive when reporting a net loss | 2,206 | | | 139 | | | 331 | |
17. SHARE-BASED COMPENSATION
Equity Compensation Plan
Under the Audacy Equity Compensation Plan (the “Plan”), the Company is authorized to issue share-based compensation awards to key employees, directors and consultants. The RSUs and options that have been issued generally vest over periods of up to four years. The options expire ten years from the date of grant. The Company issues new shares of Class A common stock upon the exercise of stock options and the later of vesting or issuance of RSUs.
On January 1 of each year, the number of shares of Class A common stock authorized under the Plan is automatically increased by 1.5 million, or a lesser number as may be determined by the Company’s Board of Directors. The amount of shares available for grant automatically increased by 1.5 million on January 1, 2021, January 1, 2020, and January 1, 2019. As of December 31, 2021, the shares available for grant were (1.4) million shares.
The Plan included certain performance criteria for purposes of satisfying expense deduction requirements for income tax purposes. This expense deduction exemption does not apply under the new tax legislation that was enacted during the fourth quarter of 2017 and was effective as of January 1, 2018.
The Audacy Acquisition Equity Compensation Plan
In connection with the QLGG Acquisition, the Company assumed an equity compensation plan that was in place at QLGG. This plan (the "QLGG 2017 Incentive Compensation Plan") (together with the Plan, the "Plans") was assumed pursuant to New York Stock Exchange Listed Company Manual Rule 303A.08 and did not require approval by the Company's shareholders. Outstanding RSUs and options under the QLGG 2017 Incentive Compensation Plan are included in the amounts below.
Accounting for Share-Based Compensation
The measurement and recognition of compensation expense, for all share-based payment awards made to employees and directors, is based on estimated fair values. The fair value is determined at the time of grant: (i) using the Company’s stock price for RSUs; and (ii) using the Black Scholes model for options. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. Forfeitures are recognized as they occur.
RSU Activity
The following is a summary of the changes in RSUs under the Plans during the current period: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period Ended | | Number of Restricted Stock Units | | Weighted Average Purchase Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value as of December 31, 2021 |
| (amounts in thousands) |
| RSUs outstanding as of: | December 31, 2020 | | 5,539 | | | | | | | |
| RSUs awarded | December 31, 2021 | | 3,513 | | | | | | | |
| RSUs released | December 31, 2021 | | (1,477) | | | | | | | |
| RSUs forfeited | December 31, 2021 | | (233) | | | | | | | |
| RSUs outstanding as of: | December 31, 2021 | | 7,342 | | | $ | — | | | 1.3 | | $ | 18,028 | |
| RSUs vested and expected to vest as of: | December 31, 2021 | | 7,342 | | | $ | — | | | 1.3 | | $ | 18,028 | |
| RSUs exercisable (vested and deferred) as of: | December 31, 2021 | | 5 | | | $ | — | | | 0 | | $ | 13 | |
| Weighted average remaining recognition period in years | | | 2.0 | | | | | | |
| Unamortized compensation expense | | | $ | 17,218 | | | | | | | |
The following table presents additional information on RSU activity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| (amounts in thousands, except per share data) |
| RSUs issued | 3,513 | | | $ | 10,836 | | | 3,793 | | | $ | 10,073 | | | 1,955 | | | $ | 12,926 | |
| RSUs forfeited - service based | (233) | | | (678) | | | (403) | | | (624) | | | (323) | | | (1,753) | |
| Net RSUs issued and increase (decrease) to paid-in capital | 3,280 | | | $ | 10,158 | | | 3,390 | | | $ | 9,449 | | | 1,632 | | | $ | 11,173 | |
| Weighted average grant date fair value per share | $ | 3.08 | | | | | $ | 2.66 | | | | | $ | 6.61 | | | |
| Fair value of shares vested per share | $ | 7.49 | | | | | $ | 7.55 | | | | | $ | 10.72 | | | |
| RSUs vested and released | 1,477 | | | | | 1,712 | | | | | 1,456 | | | |
RSUs With Service and Market Conditions
The Company issued RSUs with service and market conditions that are included in the table above. These shares vest if: (i) the Company’s stock achieves certain shareholder performance targets over a defined measurement period; and (ii) the employee fulfills a minimum service period. The compensation expense is recognized even if the market conditions are not satisfied and are only reversed in the event the service period is not met. These RSUs are amortized over the longest of the explicit, implicit or derived service periods, which range from approximately one to three years.
The following table presents the changes in outstanding RSUs with market conditions: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands, except per share data) |
| Reconciliation of RSUs with Service And Market Conditions | | | | | |
| Beginning of period balance | — | | | 70 | | | 226 | |
| Number of RSUs granted | 31 | | | — | | | — | |
| Number of RSUs forfeited | — | | | (70) | | | (156) | |
| Number of RSUs vested | — | | | — | | | — | |
| End of period balance | 31 | | | — | | | 70 | |
| Weighted average fair value of RSUs granted with market conditions | $ | 3.27 | | | $ | — | | | $ | — | |
The fair value of RSUs with service conditions is estimated using the Company’s closing stock price on the date of the grant. To determine the fair value of RSUs with service and market conditions, the Company used the Monte Carlo simulation lattice model. The Company’s determination of the fair value was based on the number of shares granted, the Company’s stock price on the date of grant and certain assumptions regarding a number of highly complex and subjective variables. If other reasonable assumptions were used, the results could differ.
| | | | | |
| Years Ended December 31, |
| 2021 |
| Expected Volatility Structure (1) | 97 | % |
| Risk Free Interest Rate (2) | 0.05 | % |
| Annual Dividend Payment Per Share (Constant) (3) | — | % |
(1)Expected Volatility Term Structure - The Company estimated the volatility term structure using: (i) the historical volatility of its stock.
(2)Risk-Free Interest Rate - The Company estimated the risk-free interest rate based upon the implied yield available on U.S. Treasury issues using the Treasury bond rate as of the date of grant.
(3)Annual Dividend Payment Per Share (Constant) - The Company assumed the historical dividend yield in effect at the date of the grant.
RSUs with Service and Performance Conditions
In addition to the RSUs included in the table above summarizing the activity in RSUs under the Plans, the Company issued RSUs with both service and performance conditions. Vesting of performance-based awards, if any, is dependent upon the achievement of certain performance targets. If the performance standards are not achieved, all unvested shares will expire and any accrued expense will be reversed. The Company determines the requisite service period on a case-by-case basis to determine the expense recognition period for non-vested performance based RSUs. The fair value is determined based upon the closing price of the Company’s common stock on the date of grant. The Company applies a quarterly probability assessment in computing its non-cash compensation expense and any change in the estimate is reflected as a cumulative adjustment to expense in the quarter of the change.
There was no activity in 2021, 2020, or 2019. As of December 31, 2021, no non-cash compensation expense was recognized for RSUs with performance conditions.
Option Activity
The following table presents the option activity during the current year ended: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period Ended | | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Intrinsic Value as of December 31, 2021 |
| (amounts in thousands, except per share data) |
| Options outstanding as of: | December 31, 2020 | | 809 | | | $ | 8.63 | | | | | |
| | | | | | | | | |
| Options exercised | December 31, 2021 | | (200) | | | 0.42 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Options outstanding as of: | December 31, 2021 | | 609 | | | $ | 11.33 | | | 2.8 | | $ | — | |
| Options vested and expected to vest as of: | December 31, 2021 | | 609 | | | $ | 11.33 | | | 2.8 | | $ | — | |
| Options vested and exercisable as of: | December 31, 2021 | | 609 | | | $ | 11.33 | | | 2.8 | | $ | — | |
| Weighted average remaining recognition period in years | | | 0 | | | | | | |
| Unamortized compensation expense | | | $ | — | | | | | | | |
The following table summarizes significant ranges of outstanding and exercisable options as of the current period: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Range of Exercise Prices | | Options Outstanding | | Options Exercisable |
| Number of Options Outstanding December 31, 2021 | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Number of Options Exercisable December 31, 2021 | | Weighted Average Exercise Price |
| | | | |
| | | | |
From | | To | | | | | |
| $3.54 | | $ | 7.01 | | | 66,775 | | | 7.5 | | $ | 5.40 | | | 66,775 | | | $ | 5.40 | |
| $9.66 | | $ | 13.98 | | | 542,582 | | | 2.2 | | $ | 12.06 | | | 542,582 | | | $ | 12.06 | |
| $0.17 | | $ | 13.98 | | | 609,357 | | | 2.8 | | $ | 11.33 | | | 609,357 | | | $ | 11.33 | |
The following table provides summary information on the granting and vesting of options: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
Option Issuance and Exercise Data | | 2021 | | 2020 | | 2019 |
| | (amounts in thousands except for per share and years) |
| | From | | To | | From | | To | | From | | To |
| Exercise price range of options issued | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1.34 | | | $ | 1.34 | |
| Upon vesting, period to exercise in years | | 0 | | 0 | | 0 | | 0 | | 1 | | 10 |
| Fair value per share upon grant | | $ | — | | | | | $ | — | | | | | $ | — | | | |
| Number of options granted | | — | | | | | — | | | | | — | | | |
| Intrinsic value per share upon exercise | | $ | 4.07 | | | | | $ | — | | | | | $ | 7.06 | | | |
| Intrinsic value of options exercised | | $ | 814 | | | | | $ | — | | | | | $ | 1,272 | | | |
| Tax benefit from options exercised | | $ | 217 | | | | | $ | — | | | | | $ | 73 | | | |
| Cash received from exercise price of options exercised | | $ | 86 | | | | | $ | — | | | | | $ | 244 | | | |
Valuation Of Options
The Company estimates the fair value of option awards on the date of grant using an option-pricing model. The Company used the straight-line single option method for recognizing compensation expense, which was reduced for estimated forfeitures based on awards ultimately expected to vest. The Company’s determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-
pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. The Company’s stock options have certain characteristics that are different from traded options, and changes in the subjective assumptions could affect the estimated value.
For options granted, the Company used the Black-Scholes option-pricing model and determined: (i) the term by using the simplified plain-vanilla method as the Company’s employee exercise history may not be indicative for estimating future exercises; (ii) a historical volatility over a period commensurate with the expected term, with the observation of the volatility on a daily basis; (iii) a risk-free interest rate that was consistent with the expected term of the stock options and based on the U.S. Treasury yield curve in effect at the time of the grant; and (iv) an annual dividend yield based upon the Company’s most recent quarterly dividend at the time of grant.
In connection with the QLGG Acquisition in 2020, the Company applied the above described valuation methodologies to determine the fair value for those options assumed.
Recognized Non-Cash Stock-Based Compensation Expense
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Station operating expenses | $ | 4,181 | | | $ | 2,348 | | | $ | 4,673 | |
| Corporate general and administrative expenses | 8,753 | | | 6,907 | | | 11,511 | |
| Stock-based compensation expense included in operating expenses | 12,934 | | | 9,255 | | | 16,184 | |
Income tax benefit (1) | 2,929 | | | 2,222 | | | 3,703 | |
| After-tax stock-based compensation expense | $ | 10,005 | | | $ | 7,033 | | | $ | 12,481 | |
(1)Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
18. INCOME TAXES
Effective Tax Rate - Overview
The Company’s effective income tax rate may be impacted by: (i) changes in the level of income in any of the Company’s taxing jurisdictions; (ii) changes in the statutes, rules and tax rates applicable to taxable income in the jurisdictions in which the Company operates; (iii) changes in the expected outcome of income tax audits; (iv) changes in the estimate of expenses that are not deductible for tax purposes; (v) income taxes in certain states where the states’ current taxable income is dependent on factors other than the Company’s consolidated net income; and (vi) adding facilities in states that on average have different income tax rates from states in which the Company currently operates and the resulting effect on previously reported temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities. The Company’s annual effective tax rate may also be materially impacted by tax expense associated with non-amortizable assets such as broadcasting licenses and goodwill and changes in the deferred tax valuation allowance.
An impairment loss for financial statement purposes will result in an income tax benefit during the period incurred as the amortization of some portion of the Company’s broadcasting licenses and goodwill is deductible for income tax purposes.
Expected and Reported Income Taxes (Benefit)
Income tax expense (benefit) from continuing operations computed using the United States federal statutory rates is reconciled to the reported income tax expense (benefit) from continuing operations as follows: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Federal statutory income tax rate | 21 | % | | 21 | % | | 21 | % |
Computed tax expense at federal statutory rates on income before income
taxes | $ | (800) | | | $ | (68,602) | | | $ | (80,432) | |
| State income tax expense, net of federal benefit | (502) | | | (18,538) | | | 13,661 | |
| Goodwill impairment | — | | | — | | | 98,910 | |
| Valuation allowance current year activity | — | | | — | | | (321) | |
| Tax impact of share-based awards | 626 | | | 1,424 | | | 950 | |
| Transaction costs | 43 | | | 19 | | | 105 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Rate change related to NOL carryback | (2,353) | | | — | | | — | |
| Nondeductible expenses and other | 2,748 | | | 1,818 | | | 4,333 | |
| Income taxes | $ | (238) | | | $ | (83,879) | | | $ | 37,206 | |
Effective Income Tax Rates
The Company recognized an income tax benefit at an effective income tax rate of 6.20% for 2021. This rate was lower than the federal statutory rate of 21% primarily due to the impact of nondeductible expenses and discrete income tax expense items related to the shortfall associated with share-based awards.
The Company recognized an income tax benefit at an effective income tax rate of 25.70% for 2020. This rate was higher than the federal statutory rate of 21% primarily due to the impact of state and local income taxes.
The effective income tax rate was (9.70)% for 2019. This rate was lower than the federal statutory rate of 21% primarily due to an impairment on the Company’s goodwill during the fourth quarter of 2019 which is not deductible for income tax purposes. The income tax rate is lower than in previous years primarily due to an increase in the impairment charge recorded on the Company's goodwill in 2019.
Income Tax Expense
Income tax expense (benefit) for each year is summarized in the table below. | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Current: | (amounts in thousands) |
| Federal | $ | (15,135) | | | $ | (5,542) | | | $ | 20,751 | |
| State | 934 | | | (1,359) | | | 11,685 | |
| Total current | (14,201) | | | (6,901) | | | 32,436 | |
| Deferred: | | | | | |
| Federal | 15,545 | | | (54,886) | | | (837) | |
| State | (1,582) | | | (22,092) | | | 5,607 | |
| Total deferred | 13,963 | | | (76,978) | | | 4,770 | |
| Total income taxes (benefit) | $ | (238) | | | $ | (83,879) | | | $ | 37,206 | |
Deferred Tax Assets and Deferred Tax Liabilities
The income tax accounting process to determine the Company’s deferred tax assets and liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities based on tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. These estimates
include assessing the likely future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Changes to these estimates could have a future impact on the Company’s financial position or results of operations.
The components of deferred tax assets and liabilities as of December 31, 2021 and 2020, are as detailed below. | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Deferred tax assets: | | | |
| Federal and state income tax loss carryforwards | $ | 72,600 | | | $ | 88,815 | |
| Share-based compensation | 3,636 | | | 3,432 | |
| Investments - impairments | 350 | | | 350 | |
| Lease rental obligations | 2,232 | | | 3,469 | |
| Deferred compensation | 8,756 | | | 8,938 | |
| Interest Expense Limitation Carryforward | 13,580 | | | — | |
| Debt fair value adjustment | 1,429 | | | 4,081 | |
| Reserves | 551 | | | 514 | |
| | | |
| Lease liability | 68,512 | | | 71,968 | |
| Employee benefits | 2,046 | | | 1,673 | |
| Provision for doubtful accounts | 4,023 | | | 5,043 | |
| Other non-current | 5,106 | | | 8,193 | |
| Total deferred tax assets before valuation allowance | 182,821 | | | 196,476 | |
| Valuation allowance | (21,249) | | | (24,399) | |
| Total deferred tax assets | $ | 161,572 | | | $ | 172,077 | |
| Deferred tax liabilities: | | | |
| | | |
| Lease ROU asset | (61,240) | | | (63,186) | |
| Property, equipment and certain intangibles | (46,668) | | | (49,908) | |
| Broadcasting licenses and goodwill | (541,329) | | | (532,381) | |
| Total deferred tax liabilities | $ | (649,237) | | | $ | (645,475) | |
| Total net deferred tax liabilities | $ | (487,665) | | | $ | (473,398) | |
Valuation Allowance for Deferred Tax Assets
Judgment is required in estimating valuation allowances for deferred tax assets. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the carryforward periods under tax law. The Company periodically assesses the need for valuation allowances for deferred tax assets based on more-likely-than-not realization threshold criteria. In the Company’s assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, forecasts of future profitability, the duration of statutory carryforward periods and any ownership change limitations under Section 382 of the Code on the Company’s future income that can be used to offset historic losses.
For 2021, the Company’s ability to utilize net operating loss carryforwards (“NOLs”) will be limited under Section 382 of the Code as a result of the Merger. For federal income tax purposes, the acquisition of CBS Radio (now Audacy Capital Corp.) was treated as a reverse acquisition which caused the Company to undergo an ownership change under Section 382 of the Code. The utilization of these NOLs in future years will be subject to an annual limitation. In addition, Audacy Capital Corp. has federal NOLs that are subject to a separate IRC Section 382 annual limitation.
As changes occur in the Company’s assessments regarding its ability to recover its deferred tax assets, the Company’s tax provision is increased in any period in which the Company determines that the recovery is not probable.
The following table presents the changes in the deferred tax asset valuation allowance for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Balance at
Beginning
of Year | | Increase
(Decrease)
Charged
(Credited)
to Income
Taxes
(Benefit) | | Increase
(Decrease)
Charged
(Credited)
to
Balance
Sheet | | Purchase
Accounting | | Balance At
End Of
Year |
| | (amounts in thousands) |
| December 31, 2021 | | $ | 24,399 | | | $ | (3,151) | | | $ | — | | | $ | — | | | $ | 21,249 | |
| December 31, 2020 | | 25,440 | | | (1,041) | | | — | | | — | | | 24,399 | |
| December 31, 2019 | | 25,761 | | | (321) | | | — | | | — | | | 25,440 | |
Liabilities for Uncertain Tax Positions
The Company recognizes liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to estimate the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.
The Company classifies interest and penalties that are related to income tax liabilities as a component of income tax expense. The income tax liabilities and accrued interest and penalties are presented as non-current liabilities, as payments are not anticipated within one year of the balance sheet date. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheets.
The Company’s liabilities for uncertain tax positions are reflected in the following table: | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Liabilities for uncertain tax positions | | | |
| | | |
| Interest and penalties | $ | 156 | | | $ | 868 | |
| Total | $ | 156 | | | $ | 868 | |
The amounts for interest and penalties expense reflected in the statements of operations were eliminated in the statements of cash flows under net deferred taxes (benefit) and other as no cash payments were made during these periods.
The following table presents the expense (income) for uncertain tax positions, which amounts were reflected in the consolidated statements of operations as an increase (decrease) to income tax expense: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| | | | | |
| Interest and penalties (income) | 156 | | | 868 | | | — | |
| Total income taxes (benefit) from uncertain tax positions | $ | 156 | | | $ | 868 | | | $ | — | |
The following table presents the gross amount of changes in unrecognized tax benefits: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Beginning of year balance | $ | (6,488) | | | $ | (6,719) | | | $ | (7,285) | |
| Prior year positions | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Reductions due to statute lapse | 284 | | | 231 | | | 566 | |
| End of year balance | $ | (6,204) | | | $ | (6,488) | | | $ | (6,719) | |
Ending liability balance included above that was reflected as an offset to
deferred tax assets | $ | (6,204) | | | $ | (6,488) | | | $ | (6,719) | |
The gross amount of the Company’s unrecognized tax benefits is reflected in the above table which, if recognized, may impact the Company’s effective income tax rate in the period of recognition. The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for a number of reasons including the expiration of statutes of limitations, audit settlements and tax examination activities.
As of December 31, 2021, there were no significant unrecognized net tax benefits (exclusive of interest and penalties) that over the next 12 months are subject to the expiration of various statutes of limitation. Interest and penalties accrued on uncertain tax positions are released upon the expiration of statutes of limitations.
Federal and State Income Tax Audits
The Company is subject to federal, state and local income tax audits from time to time that could result in proposed assessments. Management believes that the Company has made sufficient tax provisions for tax periods that are within the statutory period of limitations not previously audited and that are potentially open for examination by the taxing authorities. Potential liabilities associated with these years will be resolved when an event occurs to warrant closure, primarily through the completion of audits by the taxing jurisdictions, or if the statute of limitations expires. To the extent audits or other events result in a material adjustment to the accrued estimates, the effect would be recognized during the period of the event. There can be no assurance, however, that the ultimate outcome of audits will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.
The Company cannot predict with certainty how these audits will be resolved and whether the Company will be required to make additional tax payments, which may include penalties and interest. For most states where the Company conducts business, the Company is subject to examination for the preceding three to six years. In certain states, the period could be longer.
Income Tax Payments, Refunds and Credits
For federal taxation purposes, the TCJA repealed the Alternative Minimum Tax (“AMT”) for corporations. Accordingly, the Company did not make any AMT payments in 2019, 2020 or 2021. The Company is now subject to regular corporate income tax.
The following table provides the amount of income tax payments and income tax refunds for the periods indicated: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Federal and state income tax payments (refunds) | $ | (300) | | | $ | 2,724 | | | $ | 39,100 | |
Net Operating Loss Carryforwards
As a result of the Merger with CBS Radio on November 17, 2017, changes in the cumulative ownership percentages triggered a significant limitation in its NOL carryforward utilization.
The Company’s ability to use its federal NOL and credit carryforwards is subject to annual limitations as defined in Section 382 of the Code. Audacy Capital Corp. also had federal NOLs that are subject to a separate IRS Section 382 limitation. As a result, the Company has recorded a valuation allowance against a portion of its federal NOLs as it anticipates utilizing $211.3 million of its NOL carryovers.
The Company has recorded a valuation allowance for its pre-Merger state NOLs as the Company does not expect to obtain a benefit in future periods. In addition, utilization in future years of the NOL carryforwards may be subject to limitations due to the changes in ownership provisions under Section 382 of the Code and similar state provisions. The Company will continue to assess the ability of these carryforwards to be realized in subsequent periods.
The NOLs in the following table reflect an estimate of the NOLs for the 2021 tax filing year as these returns will not be filed until later in 2022: | | | | | | | | | | | |
| Net Operating Losses |
| December 31, 2021 |
| NOLs | | NOL Expiration Period |
| (amounts in
thousands) | | (in years) |
| Federal NOL carryforwards | $ | 217,396 | | | 2030 to indefinite |
| State NOL carryforwards | $ | 526,646 | | | 2022 to indefinite |
| Interest Expense limitation carryforward | $ | 50,917 | | | Indefinite |
19. SUPPLEMENTAL CASH FLOW DISCLOSURES ON NON-CASH ACTIVITIES
The following table provides non-cash disclosures during the periods indicated: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Operating Activities | | | | | |
| Barter revenues | $ | 10,107 | | | $ | 9,616 | | | $ | 16,914 | |
| Barter expenses | $ | 10,094 | | | $ | 9,604 | | | $ | 16,741 | |
| | | | | |
| | | | | |
| Financing Activities | | | | | |
| Increase in paid-in capital from the issuance of RSUs | $ | 10,836 | | | $ | 10,073 | | | $ | 12,926 | |
| Decrease in paid-in capital from the forfeiture of RSUs | (678) | | | (624) | | | (1,753) | |
| Net paid-in capital of RSUs issued (forfeited) | $ | 10,158 | | | $ | 9,449 | | | $ | 11,173 | |
| | | | | |
| | | | | |
| Investing Activities | | | | | |
| | | | | |
| Noncash additions to property and equipment and intangibles | $ | (1,813) | | | $ | 2,901 | | | $ | 803 | |
| Net radio station assets given up in a market | $ | (21,407) | | | $ | — | | | $ | (22,795) | |
| Net radio station assets acquired in a market | $ | 25,487 | | | $ | — | | | $ | 22,500 | |
| Contingent Consideration | $ | 7,714 | | | $ | — | | | $ | — | |
| | | | | |
20. EMPLOYEE SAVINGS AND BENEFIT PLANS
Deferred Compensation Plans
The Company provides certain of its employees and the Board of Directors with an opportunity to defer a portion of their compensation on a tax-favored basis. The obligations by the Company to pay these benefits under the deferred compensation plans represent unsecured general obligations that rank equally with the Company’s other unsecured indebtedness. Amounts deferred under these plans were included in other long-term liabilities in the consolidated balance sheets. Any change in the deferred compensation liability for each period is recorded to corporate general and administrative expenses and to station
operating expenses in the statement of operations. Further contributions under these plans have been frozen. | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
Benefit Plan Disclosures | | 2021 | | 2020 | | 2019 |
| | (amounts in thousands) |
| Deferred compensation | | | | | | |
| Beginning of period balance | | $ | 33,474 | | | $ | 33,229 | | | $ | 30,928 | |
| | | | | | |
| Employee compensation deferrals | | — | | | — | | | 15 | |
| Employee compensation payments | | (5,113) | | | (3,333) | | | (3,826) | |
| Increase (decrease) in plan fair value | | 4,369 | | | 3,578 | | | 6,112 | |
| End of period balance | | $ | 32,730 | | | $ | 33,474 | | | $ | 33,229 | |
401(k) Savings Plan
The Company has a savings plan which is intended to be qualified under Section 401(k) of the Code. The plan is a defined contribution plan, available to all eligible employees, and allows participants to contribute up to the legal maximum of their eligible compensation, not to exceed the maximum tax-deferred amount allowed by the Internal Revenue Service. The Company’s discretionary matching contribution is subject to certain conditions. The Company’s contributions for 2020 and 2019 were $2.2 million and $5.6 million, respectively. As discussed above, in response to the COVID-19 pandemic, the Company temporarily suspended its 401(k) matching program in 2020. The 401(k) match resumed on January 1, 2022.
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments Subject to Fair Value Measurements
The Company has determined the types of financial assets and liabilities subject to fair value measurement are: (i) certain tangible and intangible assets subject to impairment testing as described in Note 8, Intangible Assets And Goodwill; (ii) financial instruments as described in Note 12, Long-Term Debt; (iii) deemed deferred compensation plans as described in Note 20, Employee Savings And Benefit Plans; (iv) lease abandonment liabilities ; and (v) interest rate derivative transactions that are outstanding from time to time as described in Note 13, Derivative And Hedging Activities.
The fair value is the price that would be received upon the sale of an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent to the inputs of the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 – Pricing inputs include significant inputs that are generally less observable than objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.
Recurring Fair Value Measurements
The following table sets forth the Company’s financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels. During the periods
presented, there were no transfers between fair value hierarchical levels. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements At Reporting Date | | |
Description | | Balance at December 31,
2021 | | Quoted prices in active markets Level 1 | | Significant other observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Measured at Net Asset Value as a Practical Expedient (2) |
| | (amounts in thousands) |
| Liabilities | | | | | | | | | | |
Deferred compensation plan liabilities (1) | | $ | 32,730 | | | $ | 26,839 | | | $ | — | | | $ | — | | | $ | 5,891 | |
Interest rate cash flow hedge (3) | | $ | 394 | | | $ | — | | | $ | 394 | | | $ | — | | | $ | — | |
Contingent Consideration (4) | | $ | 8,783 | | | $ | — | | | $ | — | | | $ | 8,783 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Balance at December 31,
2020 | | Quoted prices in active markets Level 1 | | Significant other observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Measured at Net Asset Value as a Practical Expedient (2) |
| | (amounts in thousands) |
| Liabilities | | | | | | | | | | |
Deferred compensation plan liabilities (1) | | $ | 33,474 | | | $ | 27,040 | | | $ | — | | | $ | — | | | $ | 6,434 | |
Interest rate cash flow hedge (3) | | $ | 2,439 | | | $ | — | | | $ | 2,439 | | | $ | — | | | $ | — | |
(1)The Company’s deferred compensation liability, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options.
(2)The fair value of underlying investments in collective trust funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy.
(3)The Company's interest rate collar, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company's creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
(4)In connection with the Podcorn Acquisition, the Company recorded a liability for contingent consideration payable based upon the achievement of certain annual performance benchmarks over 2 years. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates using a scenario based model, and remeasured quarterly. The significant unobservable inputs (Level 3) used to estimate the fair value included the projected Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement, and the discount rate. Using an initial discount rate of 10.5%, the fair value of the contingent consideration was $7.7 million at the acquisition date. Due to fluctuation in the market-based inputs used to develop the discount rate, the discount rate decreased to 9.0% at December 31, 2021. As a result, the fair value of the contingent consideration at December 31, 2021 increased to $8.8 million. This balance is included in other long-term liabilities.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
During the second, third and fourth quarters of 2020, the Company conducted interim and annual impairment assessments on its broadcasting licenses. As a result of these impairment assessments, the Company determined the fair values of the broadcasting licenses were less than their respective carrying values. Accordingly, the Company recorded impairment charges in the second, third and fourth quarters of 2020. Refer to Note 8, Intangible Assets and Goodwill, for additional information.
During the fourth quarter of 2020, the Company conducted a qualitative impairment assessment on its goodwill attributable to the podcast reporting unit. As a result of the qualitative impairment test, the Company determined it was more likely than not that the fair value of the podcast reporting unit exceeded its respective carrying amount. Refer to Note 8, Intangible Assets and Goodwill, for additional information.
For the goodwill acquired in the QLGG Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired reporting unit approximated fair value. Refer to Note 8, Intangible Assets and Goodwill, for additional information.
As discussed in Note 8, Intangible Assets And Goodwill, the Company voluntarily changed the date of its annual impairment test for its broadcasting licenses and goodwill. As a result of this change, the Company did not determine the fair value of its broadcasting licenses and goodwill during the quarter ended June 30, 2019.
During the fourth quarter of 2019, the Company conducted an annual impairment assessment on its broadcasting licenses and goodwill. As a result of this impairment assessment, the Company concluded that its broadcasting licenses were not impaired as the fair value of these assets exceeded their carrying value. However, the Company concluded that its goodwill attributable to its broadcast reporting unit was impaired as the fair value was less than its carrying value. Accordingly, the Company recorded an impairment charge on its goodwill in the fourth quarter of 2019. Refer to Note 8, Intangible Assets And Goodwill, for additional information.
There were no events or changes in circumstances which indicated the Company’s investments, property and equipment, or other intangible assets may not be recoverable, other than as described below.
The Company performs review of its ROU assets for impairment when evidence exists that the carrying value of an asset may not be recoverable. During the first, second and third quarters of 2021, the Company recorded a $0.3 million impairment charge, a $0.2 million impairment charge, and a $0.1 million impairment charge, respectively, related to ROU asset impairment.
During the first quarter of 2021, the Company recorded a $0.1 million impairment charge related to abandoned furniture and fixtures and a $0.2 million impairment charge related to abandoned computers and equipment. During the second quarter of 2021, the Company recorded a $0.5 million impairment charge related to abandoned computers and equipment. During the fourth quarter of 2021, the Company recorded a $0.9 million impairment charge related to abandoned computers software and disposed property, plant and equipment.
During the first quarter of 2020, the Company recorded a $1.1 million impairment charge related to ROU asset impairment. The impairment charge was recognized within the impairment loss line item on the consolidated statement of operations. Refer to Note 14, Impairment Loss, for additional information.
During the fourth quarter of 2020, the Company recorded a $1.4 million impairment charge related to computer software. The impairment charge was recognized within the impairment loss line item on the consolidated statement of operations. Refer to Note 14, Impairment Loss, for additional information.
During the fourth quarter of 2019, the Company recorded a $6.0 million impairment charge related to ROU asset impairment. and a $2.2 million impairment charge related to impairment of property and equipment. The impairment charges were recorded within the impairment loss line item on the consolidated statement of operations. Refer to Note 14, Impairment Loss, for additional information.
Fair Value of Financial Instruments Subject to Disclosures
The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. Considerable judgment is necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition. The use of different market assumptions may have a material effect on the estimated fair value amounts.
The carrying amount of the following assets and liabilities approximates fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (amounts in thousands) |
Term B Loans (1) | $ | 632,415 | | | $ | 626,881 | | | $ | 754,006 | | | $ | 737,041 | |
Revolver (2) | $ | 97,727 | | | $ | 97,727 | | | $ | 114,727 | | | $ | 114,727 | |
Senior Notes (3) | $ | — | | | $ | — | | | $ | 400,000 | | | $ | 398,000 | |
2029 Notes (3) | $ | 540,000 | | | $ | 527,850 | | | $ | — | | | $ | — | |
2027 Notes (3) | $ | 470,000 | | | $ | 460,600 | | | $ | 425,000 | | | $ | 429,250 | |
Accounts receivable facility (4) | $ | 75,000 | | | | | $ | — | | | |
Other debt (4) | $ | 764 | | | | | $ | 808 | | | |
Letters of credit (4) | $ | 6,069 | | | | | $ | 6,229 | | | |
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company’s determination of the fair value of the Term B-2 Loan was based on quoted prices for these instruments and is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(3)The Company utilizes a Level 2 valuation input based upon the market trading prices of the Senior Notes, 2029 Notes and 2027 Notes to compute the fair value as these Senior Notes, 2029 Notes and 2027 Notes are traded in the debt securities market. The Senior Notes, 2029 Notes and 2027 Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets. The Senior Notes were redeemed during 2021.
(4)The Company does not believe it is practicable to estimate the fair value of the accounts receivable facility, other debt or the outstanding standby letters of credit.
Investments Valued Under the Measurement Alternative
The Company holds investments in privately held companies that are not exchange-traded and therefore not supported with observable market prices. The Company does not have significant influence over the investees. The amended accounting guidance for financial instruments, provides an alternative to measure equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer (the “measurement alternative”). The Company elected the measurement alternative for its qualifying equity securities.
The Company’s investments are recognized on the consolidated balance sheet at their cost basis, which represents the amount the Company paid to acquire the investments.
The Company periodically evaluates the carrying value of its investments, when events and circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers investee financial performance and other information received from the investee companies, as well as any other available estimates of the fair value of the investee companies in its evaluation.
If certain impairment indicators exist, the Company determines the fair value of its investments. If the Company determines the carrying value of an investment exceeds its fair value, the Company writes down the value of the investment to its fair value. The fair value of the investments is not adjusted if there are no identified adverse events or changes in circumstances that may have a material effect on the fair value of the investment.
Since its initial date of investment, the Company has not identified any events or changes in circumstances which would require the Company to estimate the fair value of its investments. Accordingly, there has been no impairment in the Company’s investments measured under the measurement alternative. Additionally, there have been no returns of capital or changes
resulting from observable price changes in orderly transactions. As a result, the investments measured under the measurement alternative continue to be presented at their original cost basis on the consolidated balance sheets.
There was no change in the carrying value of the Company’s cost-method investments since the year ended December 31,2020 other than as described below.
During the second quarter of 2021, the Company disposed of its investment in The Action Network, a media company featuring news, information and an industry-leading app focused on sports betting and fantasy content for proceeds of $1.2 million. As a result of the sale, the Company recognized a gain on the disposal of $0.9 million.
The following table presents the Company’s investments valued under the measurement alternative: | | | | | | | | | | | |
| Investments Valued Under the Measurement Alternative |
| December 31, |
| 2021 | | 2020 |
| (amounts in thousands) |
| Investment balance before cumulative impairment as of January 1, | $ | 3,305 | | | $ | 3,305 | |
| Accumulated impairment as of January 1, | — | | | — | |
| Investment beginning balance after cumulative impairment as of January 1, | 3,305 | | | 3,305 | |
| Disposal of investment in a privately held company | (300) | | | — | |
| | | |
| Ending period balance | $ | 3,005 | | | $ | 3,305 | |
22. ASSETS HELD FOR SALE
Assets Held for Sale
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
During the fourth quarter of 2019, the Company entered into an agreement with a third party to dispose of equipment and a broadcasting license in Boston, Massachusetts. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2019. In aggregate, these assets had a carrying value of $10.2 million. In the second quarter of 2020, the Company completed this sale for $10.8 million in cash. The Company recognized a gain on the sale, net of commissions and other expenses, of approximately $0.2 million.
During the second quarter of 2020, the Company entered into an agreement with Truth Broadcasting Corporation ("Truth") to dispose of property and equipment and two broadcasting licenses in Greensboro, North Carolina. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets had a carrying value of $0.5 million. The Company entered into a time brokerage agreement ("TBA") with Truth where Truth commenced operations of the two stations on September 28, 2020. During the period of the TBA, the Company excluded net revenues and station operating expenses associated with the two stations in the Company's consolidated financial statements. In the fourth quarter of 2020, the Company completed this sale for $0.4 million in cash. The Company recognized a loss on the sale, net of expenses, of approximately $0.1 million.
During the fourth quarter of 2020, the Company announced that it entered into an exchange agreement with Urban One, Inc. ("Urban One") pursuant to which the Company would exchange its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2020. In aggregate, these assets had a carrying value of $21.4 million.
Upon the closing of the Urban One Exchange on April 20, 2021, the Company: (i) removed the assets which had been classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a gain on the exchange of approximately $4.0 million. Refer to Note 3, Business Combinations, for additional information.
During the second quarter of 2021, the Company entered into an agreement with a third party to dispose of land and land improvements, and equipment in Sacramento, California. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets had a carrying value of approximately $0.5 million. In the fourth quarter of 2021, the Company completed this sale. The Company recognized a gain on the sale, net of commissions and other expenses, of approximately $4.6 million.
During the fourth quarter of 2021, the Company entered into an agreement with a third party to dispose of land, equipment and an FCC license in connection with a sale of a station in San Francisco, California. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2021. In aggregate, these assets have a carrying value of approximately $1.0 million. The transaction is expected to close within one year.
The major categories of these assets held for sale are as follows: | | | | | | | | | | | | | | | | | |
| Assets Held for Sale | |
| December 31, 2021 | | | December 31, 2020 | |
| (amounts in thousands) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net property and equipment | $ | 330 | | | | $ | 4,686 | | |
| Radio broadcasting licenses | 703 | | | | 16,744 | | |
| Operating lease right-of-use assets | — | | | | 1,292 | | |
| Operating lease liabilities | — | | | | (1,315) | | |
| | | | | |
| Net assets held for sale | $ | 1,033 | | | | $ | 21,407 | | |
23. CONTINGENCIES AND COMMITMENTS
Contingencies
The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows.
Insurance
The Company uses a combination of insurance and self-insurance mechanisms to mitigate the potential liabilities for workers’ compensation, general liability, property, directors’ and officers’ liability, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering claims experience, demographic factors, severity factors, outside expertise and other actuarial assumptions. Under these policies, the Company is required to maintain letters of credit.
Broadcast Licenses
The Company could face increased costs in the form of fines and a greater risk that the Company could lose any one or more of its broadcasting licenses if the FCC concludes that programming broadcast by a Company station was obscene, indecent or profane and such conduct warrants license revocation. The FCC’s authority to impose a fine for the broadcast of such material is $445,445 for a single incident, with a maximum fine of up to $4,111,796 for a continuing violation. The Company has determined that, at this time, the amount of potential fines and penalties, if any, cannot be estimated.
The Company has filed, on a timely basis, renewal applications for those radio stations with radio broadcasting licenses that are subject to renewal with the FCC. The Company’s costs to renew its licenses with the FCC are nominal and are expensed as incurred rather than capitalized. From time to time, the renewal of certain licenses may be delayed. The Company continues to operate these radio stations under their existing licenses until the licenses are renewed. The FCC may delay the renewal pending the resolution of open inquiries. The affected stations are, however, authorized to continue operations until the FCC acts upon the renewal applications. Currently, all of the Company’s licenses have been renewed or we have timely filed license renewal applications.
Music Licensing
The Radio Music Licensing Committee (the “RMLC”), of which the Company is a represented participant: (i) has negotiated and entered into, on behalf of participating members, an Interim License Agreement with the American Society of
Composers, Authors and Publishers ("ASCAP") effective January 1, 2022 and to remain in effect until the date on which the parties reach agreement as to, or there is court determination of, new interim or final fees, terms, and conditions of a new license for the five (5) year period commencing on January 1, 2022 and concluding on December 31, 2026; (ii) is negotiating and will enter into, on behalf of participating members, an Interim License Agreement with Broadcast Music, Inc. (“BMI”); and (iii) entered into an industry-wide settlement with SESAC, Inc. ("SESAC") resulting in a new license made available to RMLC members, which license is effective retroactively to January 1, 2019 and will expire December 31, 2022.
Effective as of January 1, 2021, the Company entered into a direct license agreement with Global Music Rights, LLC. The Company also maintains direct licenses with ASCAP, BMI, and SESAC for the Company’s non-broadcast, non-interactive, internet-only services, which direct licenses with ASCAP, BMI, and SESAC are separate from the industry-wide licenses made available through the RMLC.
The United States Copyright Royalty Board ("CRB") held virtual hearings in August 2020 to determine royalty rates for the public digital performance of sound recordings on the Internet ("Webcasting") under federal statutory licenses for the 2021-2025 royalty period (the "Web V Proceedings"). On June 13, 2021, the CRB announced that the Webcasting royalty rates for 2021 would be increasing to $0.0026 per performance for subscription services and $0.0021 per performance for non-subscription services, in addition to an increased minimum annual fee of $1,000 per each channel or station. All fees are subject to annual cost-of-living increases throughout the 2021-2025 fee period.
Leases and Other Contracts
Rental expense is incurred principally for office and broadcasting facilities. Certain of the leases contain clauses that provide for contingent rental expense based upon defined events such as cost of living adjustments and/or maintenance costs in excess of pre-defined amounts.
The Company also has rent obligations under sale and leaseback transactions whereby the Company sold certain of its radio broadcasting towers to third parties for cash in return for long-term leases on these towers. These sale and leaseback obligations are listed in the future minimum annual commitments table. The Company sold these towers as operating these towers to maximize tower rental income was not part of the Company’s core strategy.
The following table provides the Company’s rent expense for the periods indicated: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (amounts in thousands) |
| Rent expense | $ | 59,571 | | | $ | 58,656 | | | $ | 58,947 | |
The Company also has various commitments under the following types of contracts: | | | | | | | | | | | | | | | | | | | | | | | |
| Future Minimum Annual Commitments |
| Rent Under
Operating
Leases | | Sale
Leaseback
Operating
Leases | | Programming
and Related
Contracts | | Total |
| (amounts in thousands) |
| Years ending December 31, | | | | | | | |
| 2022 | $ | 50,721 | | | $ | 2,412 | | | $ | 82,530 | | | $ | 135,663 | |
| 2023 | 47,474 | | | 2,485 | | | 69,580 | | | 119,539 | |
| 2024 | 42,288 | | | 2,196 | | | 42,541 | | | 87,025 | |
| 2025 | 36,157 | | | 2,229 | | | 31,110 | | | 69,496 | |
| 2026 | 29,804 | | | 2,295 | | | 14,935 | | | 47,034 | |
| Thereafter | 79,047 | | | 5,935 | | | — | | | 84,982 | |
| $ | 285,491 | | | $ | 17,552 | | | $ | 240,696 | | | $ | 543,739 | |
24. SUBSEQUENT EVENTS
Events occurring after December 31, 2021, and through the date that these consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included.
(b) Index to Exhibits | | | | | | | | |
Exhibit Number | | Description |
3.1 # | | |
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| 10.1 # | | Credit Agreement, dated as of October 17, 2016, as amended by Amendment No. 1 on March 3, 2017, as amended by Amendment No. 2 on November 17, 2017, as amended by Amendment No. 3 on April 30, 2019, and as amended by Amendment No. 4 on December 13, 2019 by an among Audacy Capital Corp. (formerly Entercom Media Corp.), each of the guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. (Incorporated by reference to Exhibit 10.1, (Exhibit A thereof which is a restatement of the Credit Agreement with all amendments) to our Current Report on Form 8-K filed on December 16, 2019). |
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| 10.2 # | | Amendment No. 5, dated July 20, 2020, to the Credit Agreement, dated October 17, 2016 (as amended), among Audacy Capital Corp. (formerly Entercom Media Corp.), the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, as filed on November 9, 2020 |
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| 10.3 # | | Amendment No. 6, dated March 5, 2021, to the Credit Agreement, dated October 17, 2016 (as amended), among Audacy Capital Corp. (formerly Entercom Media Corp.), the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 9, 2021) |
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| 32.1 ** | | |
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| 101.INS | | Inline XBRL Instance Document |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
_______________________
* Filed herewith
# Incorporated by reference.
** Furnished herewith. Exhibit is "accompanying" this report and shall not be deemed to be "filed" herewith.
ITEM 16. FORM 10-K SUMMARY PAGE
Not Presented.