UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
OR
TRANRR SITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
to
Commission File Number 1-15997
ENTRAVISION COMMUNICATIONS CORPORATION
(Exact name of registrant as specifiedff
in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4783236
(I.R.S. Employer
Identification No.)
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, Californff
ia 90404
(Address of principal executive offiff ces, including zip code)
Registrant’s telephone number, including area code: (310) 447-3870
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock
Trading
Symbol(s)
EVC
Name of each exchange on which registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether thet
Indicate by check mark if the registrant is not required
Indicate by check mark whether thett
qq
registrant is a well-known seasoned issuer, as defined in RulRR e 405 of the Securities Act. Yes No
to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
registrant: (1) has filff ed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subju ect to
such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or forff
such files). Yes No
such shorter period that the registrant was required to submit
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
tions of “large accelerated filer”, “accelerated filer”, “smaller reporting companm y” and “emerging
or an emerging growth company. See the defini
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Smaller reportirr ng compam ny
ff
Accelerated filer
Emerging growth compam ny
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in RulRR e 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliat
es as of June 30, 2018 was approximately
ff
$365,594,240 (based uponu
the last trading date prior to that date).
the closing price for shares of the registrant’s Class A common stock as reported by The New York Stock Exchange for
As of April 30, 2019, there were 61,137,147 shares, $0.0001 par value per share, of the registrant’s Class A common stock outstanding,
14,927,613 shares, $0.0001 par value per share, of the registrant’s Class B common stock outstanding and 9,352,729 shares, $0.0001 par value per
share, of the registrant’s Class U common stock outstanding.
Portions of the registrant’s Proxy Statement for the 2019 Annual Meeting of Stockholders scheduled to be held on May 30, 2019 are incorpora
rr
ted
by a reference in Part III hereof.
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS ....................................................................................................................................................................
ITEM 1A. RISK FACTORS ...........................................................................................................................................................
ITEM 1B. UNREUU
SOLVED STAFF COMMENTS ........................................................................................................................
ITEM 2.
PROPERTIES................................................................................................................................................................
ITEM 3.
LEGAL PROCEEDINGS..............................................................................................................................................
ITEM 4. MINE SAFETY DISCLOSURES .................................................................................................................................
PART II
ITEM 5. MARKET FOR REGISTRANT’AA
S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES...................................................................................................................
ITEM 6.
SELECTED FINANCIAL DATA.................................................................................................................................
ITEM 7. MANAGEMENT’S DISCUSSION ANDAA
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ..............................................................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..............................................
ITEM 8.
FINANCIAL STATEMENTS ANDAA
SUPPLEMENTARY DRR
ATA ..............................................................................
ITEM 9.
CHANGAA ES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDAA
DISCLOSURE...............................................................................................................................................................
FINANCIAL
ITEM 9A. CONTROLS AND PROCEDURES..............................................................................................................................
ITEM 9B. OTHER INFORMATION .............................................................................................................................................
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATERR
GOVERNANCAA E.......................................................
ITEM 11. EXECUTIVE COMPENSATION.................................................................................................................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDAA
RELATED
STOCKHOLDER MATTERS ......................................................................................................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSAA ACTIONS, AND DIRECTOR INDEPENDENCE............
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES................................................................................................
PART IV
ITEM 15. EXHIBITS ANDAA
FINANCAA IAL STATEMENT SCHEDULES.....................................................................................
ITEM 16. FORM 10-K SUMMARY .............................................................................................................................................
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SIGNAGG TURES...................................................................................................................................................................................
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POWER OF ATTORNEYRR
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2
This document contains “forwff
ard-looking statements” within the meaning of the Private Securities Litigation Reform Act of
FORWAR
RD-LOOKING STATEMENTS
1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended, or the Exchange Act. All statements other than saa
purposes of federal and state securities laws, including, but not limited to, any project
o
items; any statements of the plans, stratt
futurett
new servirr ces or developments; any statements regarding futurett
statements of assumptions underlying any of the foregoing.
ions of earnirr ngs, revenue or other financial
operations; any statements concernir ng proposed
ance; any statements of belief; aff nd any
tatements of historical fact are “forward-looking statements” forff
tegies and objectives of management forff
economic conditions or performff
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,”
“expect” or “anticipate” or other similar words. These forwff
the date of this report. Except forff
do not intend, and undertake no obligation, to update any forward-looking statement.
our ongoing obligation to disclose material infoff rmation as required by the fedff
eral securities laws, we
ard-looking statements present our estimates and assumptmm ions only as of
Although we believe that the expectations refleff cted in any of our forff warr
results could
differ materially froff m those projected or assumed in any of our forward-looking statements. Our future financial condition and results
of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key
m
factors impacting
these risks and uncertainties include, but are not limited to:
rd-looking statements are reasonabla e, actual
tt
risks related to our substantial indebtedness or our abia lity to raise capital;
provisions of our debt instrumt
Agreement, which governs our current credit facility,
aspects of the operation of our business;
ff
ents, including the agreement dated as of Novembem r 30, 2017, or the 2017 Credit
or the 2017 Credit Facility, the terms of which restrict certain
our continued complm iance with all of our obligations under the 2017 Credit Agreement;
cancellations or reducd tions of advertising dued
to the then currenr
t economic environment or otherwise;
advertising rates remaining constant or decreasing;
rapid changes in digital media advertising;
the impact of rigorous competition in Spanish-language media and in the advertising industry generally;
the impact of changing preferences, if any, among U.S. Hispanic auda
among younger age groups;
iences forff Spanish-language programming, especially
the possible impact on our business as a result of changes in the way market share is measured by third parties;
our relationship with Univision Communim cations Inc., or Univision;
the extent to which we continue to generate revenue under retransmission consent agreements;
subjeb ct to restrictions contained in the 2017 Credit Agreement, the overall success of our acquisition strate
integration of any acquiq red assets with our existing operations;
tt
gy and the
our abia
ylity to impplm ement effective internar
l controls to address material weaknesses identifiedff
in this repport;
industry-wrr
ide market factors and regulatory and othet
r developments affecff
ting our operations;
economic uncertainty;
the impact of any potential future impam irment of our assets;
risks related to changes in accounting interpretations;
consequences of, and uncertainties regarding, forff eign currency exchange including fluctuatt
tions thereto from time to time;
legal, political and other risks associated with our operations located outside the United States;
the effect of changes in broadcast transmission standards by the Advanced Television Systems Committee's (the “ATSC”)
3.0 standard (“ATSC 3.0”), as they are adopted in the broadcast industry and as thet y may impam ct our abia lity to monetize
our spectrum assets; and
the uncertainty and impam ct, including additional and/or changing costs, of mandates and other obligations that
impom sed upou n us as a result of fedff
promulmm gated thereunder, any executive action with respect thereto, and any changes with respect to any of the forff egoing in
Congress.
eral healthcare laws, including the Afforff dabla e Care Act, the rules and regulations
t may be
3
For a detailed description of thet
se and other facto
ff
rs that could causea
actuat
l results to differff materially froff m those expressed in
any forward-looking statement, please see “Risk Factors,” beginning at page 32 below.
ITEM 1.
BUSINESS
The discii ussion of the business of Entravisiii on Communications Corporation and itstt wholly-owned subsidiaries, or Entratt visioii
n
or the Company, is as of the date of filing
ff
this repoe
rt,t unless othett
rwise indicated.
Overview
Introduction
We are a leading global media compam ny that, through our television and radio segments, reaches and engages U.S. Hispanics
across acculturation levels and media channels. Additionally, our digital segment, whose poperations are located pprim yarily in pSpain,
Mexico, Arggentina and other countries in Latin America, reaches ga global market.t Our operations encompasm s integrated marketing and
, we
media solutions, comprised of television, radio and digital properties and data analytics services. For finff ancial reporting purposes
report in three segments based upon the type of advertising medium: television broadcasting, radio broadcasting and digital media.
rr
he top-ranked Univision television netwott
We own and/or operate 55 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas,
f
Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. Our television operations comprise the largest affiliate group ou
both t
rk and Univision’s UniMás network, with television stations in 19 of the nation’s top
t
50 U.S. Hispanic markets. Univision’s primary network i
U.S. Hispanic households durdd ing primetime. Univision is a key source of programming for our television broadcasting business and
we consider it to be a valuable strategic partner of ours. For a more complete discussion of our relationship with Univision, please see
“Our Relationship with Univision” and “Television – Television Programming” below and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Overview”; and forff
Univision, please see “Risk Factors.”
s thet most watched television network (English- or Spanish-language) among
a discussion of various risks related to our relationship with
r
We own and operate one of the largest groups of primarily Spania sh-language radio stations in the United States. We own and
operate 49 radio stations in 16 U.S. markets. Our radio stations consist of 38 FM and 11 AM stations located in Arizona, Califorff nir a,
Colorado, Florida, Nevada, New Mexico and Texas. We also operate Entravision Solutions as our national sales representation
division, through which we sell advertisements and syndicate radio programming to more than 100 markets across the United States.
We also provide digital advertising solutions that allow advertisers to reach primarily online Hispanic auda
iences worldwide. We
operate a proprietary technology and data platforff m that delivers digital advertising in various advertising formats that allows
advertisers to reach audiences across a wide range of Internet-connected devices on our owned and operated digital media sites; the
latforms and exchanges.
digital media sites of our publisher partners; and on other digital media sites we access through third-party ptt
We generate revenue primarily from sales of national and local advertising time on television stations, radio stations and digital
media platforff ms, and from retransmission consent agreements that are entered into with multichannel video programming distributors,
or MVPDs. Advertising rates are, in large part, based on each medium’s abia lity to attract audiences in demographa
ic groups targeted by
advertisers. In our television and radio segments, we recognize advertising revenue when commercials are broadcast. In our digital
sions on the websites of our
segment, we recognize advertising revenue when display or other digital advertisements record impresm
third party publishers or as thet
advertiser’s previously agreed-upon performance criteria are satisfied. We do not obtain long-term
commitments fromff
commissions to agencies forff
record net revenue from these agencies. Seasonal revenue fluctuations are common in our industry and are due primarily to variations
quarter generally produces the lowest net revenue forff
in advertising expenditures by both local and national advertisers. Our first fiscal
the year. In addition, advertising revenue is generally higher during presidential election years (2016, 2020, etc.), resulting fromff
significant political advertising, and, to a lesser degree, Congressional mid-term election years (2018, 2022, etc.), resulting fromff
increased political advertising, compam red to other years.
our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay
local, regional and national advertising. For contrat cts we have entered into directly with agencies, we
ff
We referff
to the revenue generated by agreements with MVPDs as retransmission consent revenue, which represents payments
from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this
programming. We recognize retransmission consent revenue earned as the television signal is delivered to an MVPD.
4
Our licenses froff m the Federal Communications Commission, or FCC, grant us spectrum usage rights within each of the
asset. With the proliferation of mobile devices and
television markets in which we operate. We regard these rights as a valuablea
usage rights has become a significff ant
d up spectrum capacity, the monetization of our spectrumr
advances in technology that have freeff
part of our business in recent years. We generate revenue from agreements associated with these television stations’ spectrum usage
rights from a variety of sources, including but not limited to agreements with third parties to utilize spectrum forff
multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting
interfereff
through channel sharing or othet
when we have relinquished all or a portion of our spectrum usage rights forff
station on the existing channel free from interfereff
Agreement, we will consider strategic acquisitions of television stations to further this strategy froff m time to time, as well as additional
monetization opportunities expected to arise as the television broadcast industry implm ements the standards contained in ATSC 3.0.
nce with our broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast
r arrangements. Revenue generated by such agreements is recognized over the period of the lease or
nce. In addition, subjeb ct to certain restritt ctions contained in our 2017 Credit
a station or have relinquished our rights to operate a
the broadcast of their
Our net revenue for the year ended Decemberm 31, 2018 was approximately $297.8 million. Of this amount, revenue generated
by our television segment accounted for approximately 51%, revenue generated by our digital media segment accounted for
approximately 27%, and revenue generated by our radio segment accounted for appa
roximately 22%, of total revenue.
Our primary expenses are employee compenmm sation, including commissions paid to our sales staff aff
national representative firff ms, as well as expenses for general and administrative func
marketing, and local programming. Our local programming costs forff
newscast in most of our markets. Cost of revenue related to our television segment consists primarily of thet
usage rights that were surrendered in the FCC auction forff
segment consists primarily of the costs of online media acquired from third-party publishers and third partyrr
operating expenses include salaries and commissions of sales staff, amounts paid to national representation firmff
programming expenses, feeff
corporr
traded and reporting company.
rate officff ers and back officff e funct
s, production and
ratings servirr ces, and engineering costs. Corporate expenses consist primarily of salaries related to
carrying value of spectrumt
broadcast spectrum. In addition, cost of revenue related to our digital media
ions, third party legal and accounting services, and fees incurred as a result of being a publicly
television consist primarily of costs related to producing a local
server costs. Direct
s forff
ff
ff
nd amounts paid to our
tions, promotion and selling, engineering,
Our principal executive offices are located at 2425 Olympim c Boulevard, Suite 6000 West, Santa Monica, California 90404, and
our telephone numberm is (310) 447-3870. Our corporate website is www.entravision.com.
We were organized as a Delaware limited liability compam ny in Janua
aa
ry 1996 to combm ine the operations of our predecessor
entities. On August 2, 2000, we complmm eted a reorganization froff m a limited liability compam ny to a Delaware corporr
2000, we also completed an initial publu ic offering of our Class A common stock, which is listed on The New York Stock Exchange
under the trading symbolm “EVC.”
ration. On August 2,
Business Strategy
Our strategy is to reach
pHispanic audiences pprim yarily in the United States, Mexico and other markets in Latin Ameri a.ca We own
and/or operate media properties in 14 of thet
markets, we own and/or operate media properties in 10 of the 15 fastest-growing markets. We believe that
market will continue to translate into revenue growth in the futff uret
20 highest-density Ut
lowing reasons:
, including forff
the folff
.S. Hispanic markets. In addition, among the top 25 U.S. Hispanic
t targeting the U.S. Hispanic
o
atll
ion Growth. Our audience consists primarily of Hispanics, one of the faste
U.S. Hispii anic Popul
the U.S. population and, by currerr nt U.S. Census Bureau ea
More than 58 million Hispanics live in the United States, accountu ing for nearly 18% of the total U.S. population,
according to the U.S. Census Bureau. The overall Hispanic population is growing at eight times the rate of the non-
Hispanic population and is expected to grow to 72 million, or approximately 21% of the total U.S. population, by 2024.
Approximately 66% of the total futurett
communimm ty.
growth in the U.S. population through 2024 is expected to come from the Hispanic
stimates, now the largest minority group in the United States.
st-growing segments of
ff
Spanish-Language UseUU .e Approximately 78% of Hispanics age fivff e and over in the United States speak some Spanish,
while approximately 64% of U.S. Hispanics are bilingual and 32% are Spanish dominant, according to Geoscape, a
business unit of Claritas LLC, or Geoscapea
.
Increasing U.S. Hispii anic Buyiu ng Power. The U.S. Hispanic population is projected to account forff
total consumer
expenditures of over $959 billion in 2019, according to Geoscape. With an average expected household income of
$69,000 in 2019, Hispanic household income is growing at a fasff
projected to reach an aggregate of $1.6 trillion in 2024.
ter rate than Non-Hispanic household income and is
5
t
of U.S. Hispii anic Consumers.rr We believe that
the demographic profile of the U.S. Hispanic audience
Attractive Profileff
makes it attractive to advertisers. We also believe that the larger average size and younger median age of Hispanic
households (averaging 3.3 persons and 31.2 years of age as compamm red to thet U.S. non-Hispanic averages of 2.4 persons
and 44.7 years of age) lead Hispania cs to spend more per household in many categories of goods and services. Although
the average U.S. Hispanic household has less disposable income than the average non-Hispanic U.S. household, the
average U.S. Hispanic household spends 2% more per year that n the average U.S. non-Hispanic household on fooff d at
twear, 11% more on
home, 9% more on quick service restaurants, 32% more on children’s clothing, 21% more on fooff
soapsa , detergents and other cleaning products and 18% more on cellular phone services. We expect U.S. Hispanics to
continue to account for a disproportionate share of growth in spending nationwide in many importm
as the U.S. Hispanic population and its disposable income continue to grow.
ant consumer categories
Spanish-Language Advedd rtising. Over $9.1 billion of total advertising expenditures in the United States were placed with
Spanish-language media in 2017, the most recent year for which such data is available, of which appa
roximately 88% was
placed with Spanish-language television, radio and digital advertising.
We seek to increase our revenue through the folff
lowing stratt
tegies:
Develop Unique and Compelling Content and Strong Brands While Effectively Using the Brands of Our Network Affiliat
make subsu tantial investments in areas such as market research, data analysis and creative talent to license and create content for our
television, radio and digital properties that is relevant and has a meaningfulff
impam ct on the communities we serve.
ff
es. We
Our television operations comprise the largest affiliate group of both the top-ranked Univision primary television network and
Univision’s UniMás network. Univision’s primary network, together with its UniMás network, have nearly double the television
prime time audience share of the Telemundm o network among Hispanics 2+ years of age as of May 2018. In addition, Univision reports
that the UniMás network attracted more Total Viewers 2+, Adults 18-49 and Adults 18-34 years of age in daytime, early fringe, prime
access, late fringe, weekend daytime and total day than the combined
lla TV during January to November
2018. Univision makes its netwott
rks’ Spanish-language programming available to our television stations 24 hours a day,a
week, including a prime time schedule on its primary network of substantially all first-run programming throughout thet
the breadth and diversity of Univision’s programming, combim ned with our local news and communim ty-oriented segments,
believe that
provide us with an advantage over other Spanish-language and English-language media in reaching U.S. Hispanic viewers. Our local
content is designed to meet the needs of our communimm ties and brand each of our stations as the best source for relevant communm ity
information that accurately reflects local interests and needs.
audience of Azteca and Estrett
seven days a
year. We
m
t
We format the programming of our radio networks and radio stations in an effoff
nce in each of our radio markets. We operate each of our twott
Hispanic audie
different listener tastes. In markets where competing stations already offerff
otherwise identify aff
a
rt to capta ure a substantial share of the U.S.
using a forff mat designed to appeal to
r
orff mats, or where we
programming similar to our network f
radio networksr
n available niche in the marketplace, we run alternative programming that we believe appeals to local listeners.
Developo Local Content,t Progragg mming and Community Involvement. We believe that local content and service to the community
in each of our markets is an imporm tant part of building our brand identity and providing meaningful local service within those markets.
By combining our local news, local content and quality network programming, we believe that we have a significant compem titive
arances at client
advantage. We also believe that our active community involvement, including station remote broadcasting appe
events, concerts and tie-ins to majoa r events, helps to build company and station awareness and identity as well as viewer and listener
loyalty. We also promote civic involvement and inform our listeners and viewers of significant developments affecting their
communim ties.
a
Distribute Newsww and Other
tt
Content Across Our Television, Radio and Digita
i
l Properties. We develop our own news,
entertainment and lifestyle content, radio shows and podcasts including Er azno y La Chokolkk atatt , and produce a Sunday morning
political talk show, Po lítica Ya with Tsi-Tsi-Ki Félix. We also employ our own White House correspondent in Washington, D.C.
We distribute this content across our television, radio and digital properties. In addition, through Entravision Solutions, we syndicate
some of our radio shows including Er azno y La Chokolkk atatt and other programs including El
Alex El Genio Lucas across a network of more than 300 radio stations, which includes our radio stations as well as other radio
stations that we do not own or operate, in more than 100 markets thrt oughout the United States. Moreover, we broadcast National
Footbt all League games, such as Sunday Night Footbal
26 radio
stations.
l and the American Football Conference playoffsff
Show de Piolin and El
, in Spanish, forff
Show de
t
Extend the Reach and Accessibilitytt of Our Brandsdd Through Our Digital Segme
distribution of our content through our digital platforff ms, such as we offeff
segment offersff
our content in new ways and providing us with new distribution channels forff
opportunities to further enhance the relationships we have with our auda
ent. In recent years, we have also enhanced the
r on the Internet and mobile phones. We believe our digital
iences by allowing them to engage and share
one-to-one communication with them.
6
Continuing to Offerff Advedd rtisers an Integrated Platll
fot rm of Services. We believe that our diversified media portfolff
io provides us
with a compem titive advantage in targeting the Hispanic consumer. We offeff
through an integrated platform of services that includes television, radio and digital properties. Currently, we operate some
combim nation of television and radio in 11 markets, which we sometimes refer to as combim nation markets, and, where possible, we also
combim ne our television and radio operations, which have the effeff ct of creating certain cost savings. In all of our markets, we believe
that our digital segment complements our television and/or radio operations in an effoff
opportuni
r advertisers the opportunity to reach potential customers
rt to create value-added advertising
ties for our advertisers.
tt
Continuing to Innovate and Invest in Technology and Data.tt We intend to continue to make investments in our digital media
tiveness of our television,
het
r increase the efficiency and effecff
ff
segment, including sales tools and research and development, to furt
radio and digital media advertisrr
ing platforff ms.
Monetize our Spectrum Assets. In recent years, with t
t
he proliferat
ff
ion of mobile devices and advances in technology that have
pectrum capacity, the monetization of our spectrum usage rights has become a significanta
freed up su
revenue from agreements associated with these television stations’ spectrumr
limited to agreements with third parties to utilize spectrum forff
accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting
operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other
arrangements. With mt
ore advances in technology, and the anticipated implm ementation of ATSC 3.0, we intend to continue to generate
revenue froff m our spectrumr
part of our business. We generate
usage rights froff m a variety of sources, including but not
the broadcast of their mulm ticast networks; charging fees to
assets.
tegie c Acquisiii
t
Target Stratt
tions and Investmett
nts.tt We intend to continue to evaluate opportuni
tt
ties to acquiq re complementary
are consistent with our overall growth strategy. We believe that our knok wledge of, aff nd experience
businesses and technologies that
with, the U.S. Hispanic marketplace will enable us to identify aff
inception, we have used our management expertise, programming, local involvement and brand identity to improm ve our acquired
media properties and audience reach. However, we are currently subju ect to certain limitations on acquisitions under the terms of the
2017 Credit Agreement. Please see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources” below.
cquiq sitions of television, radio and digital properties. Since our
Acquisition and Disposition Strategies
Historically, our acquisition strategy has been focused on increasing our presence in those markets in which we already
compemm te, as well as expanding our operations into U.S. Hispanic markets where we do not own properties. We have targeted fast-
growing and high-density U.S. Hispanic markets. These have included many markets in thet
southwestern United States, including
Texas, Californff
opportuni
ia and various other markets along the United States/Mexican border. In addition, we have pursued othet
ties in key strategic markets, or those which othet
rwise supported our long-term growth pt
lans.
r acquisition
tt
We plan to continue to evaluate opportuni
tt
companies; spectrum assets with high potential forff
enhance our offerff
ties to make future acquisitions as opportunities present themselves, including digital
future monetization; and additional media properties in existing markets that will
ings primarily to the U.S. Hispanic marketplace and create opportuni
tt
ties to save costs on overhead.
We are subject
determine the effect
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquiq dity and Capital Resources”.
to certain limitations on acquisitions under thet
that these limitations will have on our acquisition strategy or our overall business. Please see “Risk Factors” and
terms of the 2017 Credit Agreement. We cannot at thist
time
b
ff
In addition, we periodically review our portfolio of media properties and, from time to time, have divested non-core assets
where we do not see the opportunt
Credit Agreement. We cannot at this time determine the effecff
tegy or our
t that
overall business. Please see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capia tal Resources”.
ity to grow to scale. We are subject to certain limitations on divestitures under the terms of the 2017
t these limitations will have on our disposition stratt
Our Relationship with Univision
Substu
antially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation
agreement with Univision provides certain of our owned stations the exclusive right to broadcast Univision’s primary network and
UniMás network programming in their respective markets. Under the network affili
ation agreement, we retain the right to sell no less
than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right
to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network
programming, subju ect to adjusd
tment froff m time to time by Univision.
ff
7
Under the netwott
ff
rk affiliat
ion agreement, Univision acts as our exclusive third-party sales representative for the sale of certain
national advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees to
Univision relating to sales of all advertising forff
broadcast on our Univision- and UniMás-affiliate television stations.
We also generate revenue under two marketing and sales agreements with Univision, which give us thet
right to manage the
in six markets – Albuquerque, Boston, Denver, Orlando,
marketing and sales operations of Univision-owned Univision affiliates
Tampamm and Washington, D.C.
ff
Under the current proxy agreement we have entered into with Univision, we grant Univision the right to negotiate the terms of
r things, the proxy
retransmission consent agreements for our Univision- and UniMás-affiliated television station signals. Among othet
agreement provides terms relating to compemm nsation to be paid to us by Univision with respect to retransmission consent agreements
entered into with MVPDs. During the years ended Decemberm 31, 2018 and 2017, retransmission consent revenue accounted forff
approximately $35.1 million and $31.4 million, respectively, of which $28.2 million and $30.0 million, respectively, relate to the
Univision proxy agreement. The term of the proxy agreement extends with respect to any MVPD for the length of thet
term of any
retransmission consent agreement in effect before the expiration of the proxy agreement.
On October 2, 2017, we entered into the currenr
t affiliation agreement with Univision, which supeu rseded and replaced our prior
affiliation agreements with Univision. Additionally, on the same date, we entered into the current proxy agreement and current
marketing and sales agreements with Univision, each of which supeu rseded and replaced thet
prior comparable agreements with
Univision. The term of each of these current agreements expires on Decembem r 31, 2026 for all of our Univision and UniMás network
affiliate stations, except that
network affiliate stations in Orlando, Tampamm and Washington, D.C.
t each currer nt agreement will expire on December 31, 2021 with respect to our Univision and UniMás
Univision currently owns approximately 11% of our common stock on a fulff
ly-converted basis. Our Class U common stock held
by Univision has limited voting rights and does not include the right to elect directors. Each share of Class U common stock is
automatically convertible into one share of Class A common stock (subject to adjustment forff
in connection with any transfer to a third party that is not an affilff
iate of Univision. In addition, as the holder of all of our issued and
outstanding Class U common stock, so long as Univision holds a certain numbm er of shares of Class U common stock, we may not,
without the consent of Univision, merge, consolidate or enter into a business combim nation, dissolve or liquidate our company or
dispose of any interest in any Federal Communications Commission, or FCC, license with respect to television stations which are
affiliates of Univision, among other thit ngs.
stock splits, dividends or combim nations)
Overview
Television
We own and/or operate Univision-affiliff ated television stations in 24 markets, including 19 of the top 50 Hispanic markets in thet
United States. Our television operations comprim se the largest affiliate group of both the top-ranked Univision primary television
network and Univision’s UniMás network. Univision’s primary network i
households, and is thet most watched television netwott
prime time among Hispanics 2+ years of age. Univision’s primary network, together with its UniMás network, have nearly double the
television prime time audience share of the Telemundm o netwott
rk among Hispanic persons 2+ years of age as of May 2018. We operate
both Ut
programming available to our Univision-affiliate
ff
primary network consists of substantially all first-run programming throughout the year.
nivision and UniMás affiliates in 20 of our 24 television markets. Univision’s networks make their Spanish-language
d stations 24 hours a day, seven days a week. Univision’s prime time schedule on its
rk (English- or Spanish-language) among U.S. Hispanic households during
s availabla e in approximately 83% of U.S. Hispanic television
r
Television Programming
Univision Primary Network Programming. Univision directs its programming primarily toward a young, famff
ily-oriented
ff
noon and early evening, Univision offers
audience. It begins daily with Despierta America, a variety morning program, Monday through Friday, folff
late after
news produced by our television stations. During prime time, Univision airs novelas, as well as specials. Prime time is followed by
late news. Overnight programming consists primarily of repeats of programming aired previously on the network. Weekend daytime
programming begins with children’s programming, and is generally followed by sports, reality, comedy shows and movies.
an entertainment magazine, a news magazine and national news, in addition to local
lowed by novelas. In the
ff
8
Approximately eight to ten hours of programming per weekday, including a substantial portion of weekday prime time, are
currently programmed with novelas supplied primarily by Grupo Televisa, S.A. de C.V., or Televisa. Although novelas have been
compamm red to daytime soap operas on ABC, NBC or CBS, the differeff
books, have a beginning, middle and end, generally runrr
Novelas also have a mucm h broader audience appeal than soap operas, delivering audiences that contain large numbers of men, children
and teens, in addition to women, unlike soap oa
nces are significff ant. Novelas, originally developed as serialized
peras, whose audiences are primarily women.
five days per week and conclude fouff
r to eight months after they begin.
UniMás Networkrr Programming. Univision’s other
t
24-hour general-interest Spanish-language broadcast network, UniMás, is
programmed to meet the diverse preferences of the multi-faceted U.S. Hispanic community. UniMás’s programming includes sports
(including boxing, soccer and a morning wrap-up
language movies translated into Spanish) and novelas not runrr
broadcast on Univision’s primary netwott
at 6 a.m. similar to ESPN’s programming), movies (including a mix of English-
on Univision’s primary network, as well as rerunr
s of popular novelas
rk.
a
Our Local Programming. We believe that our local news brands our stations in our television markets. We shape our local news
to relate to and inform our audiences. Our early local news is ranked first or second among competmm ing local newscasts regardless of
language in its designated time slot in 10 of our television markets among aduldd ts 18-34 and 18-49 years of age, including ties, and in
eight markets among aduldd ts 25-54 years of age, including ties. We have made substantial investments in people and equiq pment in
order to provide our local communities with quality newscasts. Our local newscasts have won numerous awards, and we strive to be
one of thet most impom rtant community voices in each of our local markets. In several of our markets, we believe that our local news is
the only significant source of Spania sh-language daily news forff
the Hispanic communimm ty.
Network Affiliation Agreements. Substantially all of our television stations are Univision- or UniMás-affilia
ff
ted television
etwork and UniMás network programming in thet
stations. Our Univision network affiliation agreement provides certain of our owned stations the exclusive right to broadcast
Univision’s primary nrr
ir respective markets. The Univision network affiliation
agreement expires in 2026, except that it expires in 2021 with respect to our Univision and UniMás network affiliate stations in
Orlando, Tampamm and Washington, D.C. Under the Univision network affiliation agreement, we retain the right to sell no less than fa
minutes per hour of the availabla e advertising time on stations that broadcast Univision network programming, and the right to sell
approximately four and a half minutes per hour of the availabla e advertising time on stations that
programming, subject to adjud stment froff m time to time by Univision.
t broadcast UniMás network
ouff
r
Our network affiliation agreements with HC2 Network Inc., or HC2, give us thet
right to broadcast Azteca America network
programming on XHAS-TV, serving the Tijuana/San Diego market, through June 30, 2020, and on KMCC-TV, servirr ng the Las Vegas
market, and the secondary program streams of KXOF-CD, serving the Laredo market, and KVYE-TV, serving the Yuma-El Centro
market, through Februar
ry 12, 2020.
Our network ar
ffiliation agreements with Fox Broadcasting Company, or Fox, give us the right to broadcast Fox network
programming on KFXV-LD with a simulm cast on KXFX-CD, each servirr ng the Matamoros/Harlingen-Weslaco-Brownsville-McAllen
market, and KXOKK F-CD, servinrr
g thet Laredo market. These agreements expire on October 31, 2019.
We also have agreements with Master Distribution Service, Inc., an affiliate of Fox, which give us the right to provide ten hours
rkTV network programming on KFXV-LD, KXOKK F-CD and KPSE-LD. These agreements expire in Septembem r
per week of MyNetwot
2019 and may be extended for successive one-year periods by mutual consent of the parties.
Our network affiliation agreement with The CW Network, LLC, or CW, gives us the right to broadcast CW network
programming through 2021 on KCWT-CD and on the secondary program streams of KFXV-LD and KNVO-TV, each serving the
Harlingen-Weslaco-Brownsville-McAllen market, and on XHRIO-TV serving the Matamoros/Harlingen-Weslaco-Brownsville-
McAllen market.
Our network affiliation agreement with NBCUniversal Media, LLC, or NBC, gives us the right to broadcast NBC networkr
programming on KMIR-TV, serving the Palm Springs market, through Decembem r 31, 2021.
Our network affiliation agreement with Multi Tele Ventas, S.A. de C.V., gives us the right to broadcast Milenio Televisión
network programming on XDTV-TV, serving the Tijuana/San Diego market, through April 30, 2020.
Our affilff
iation agreement with Family Worship Center Church, Inc. gives us the right to broadcast SonLife netwott
rk
programming on WJAL-TV, serving the Washington, DC market, through June 2021.
9
Our network affiliation agreement with LATV Networkr s, LLC, or LATV, gives us the right to broadcast LATV network
rogram streams of certain of our other television
programming on KTCD-LP, serving the San Diego market, and on secondary pr
ate the affiliaff
stations. Either party may termin
LATV network affiliation agreement, there are no fees paid for the carriage of programming, and we generally retain the right to sell
approximately fivff e minutes per hour of available advertising time. Walter F. Ulloa, our Chairman and Chief Executive Officer, is a
director, offiff cer and principal stockhokk lder of LATV.
tion with respect to a given station 30 months after the launch of such station. Under thet
r
We cannot guarantee that any of our current network affiliation agreements will be renewed beyond their respective expiration
rr
dates under their current terms, under terms satisfactor
y t
ff
o us, or at all.
Marketing Agreements. Our marketing and sales agreements with Univision give us thet
right to manage the marketing and sales
operations of Univision-owned Univision affiliates through 2021 in Orlando, Tampam and Washington, D.C. and through 2026 in
Albuquerque, Boston and Denver. We have also entered into marketing and sales agreements with other parties in certain of our other
markets.
r
ime brokerage agreements. Under those
Long-Termrr Time Brokerage Agreements. We program each of XDTV-TV, serving the Tecate/San Diego market; XHAS-TV,
serving the Tijuana/San Diego market; and XHRIO-TV, serving the Matamoros/Harlingen-Weslaco-Brownsville-McAllen market,
under long-term t
iates and
subsidiaries, we provide the programming and related services available on these stations, but the station owners retain absa olute
tt
control
respectively, and each provides for automatic, perpetual 30-year renewals unless both parties consent to termination. Each of these
agreements provides for substantial financial penalties should the other party attempt to terminate prior to its expiration without our
consent, and they do not limit the availability of specific performff
r broadcast issues. These long-term time brokerage agreements expire in 2038, 2040 and 2045,
agreements, in combination with certain of our Mexican affilff
ance as a remedy for any such attempted early termination.
of the content and othet
t
10
Our Television Station Portfolff
io
The following table lists information concernirr ng each of our owned and/or operated television stations in order of market rank
and its respective market:
Market
Harlingen-Weslaco-Brownsville-McAllen, Texas
g
Market Rank
(by Hispanic
Households)
10
Total
Households
375,600
Hispanic
Households
329,290
Orlando-Daytona Beach-Melbourne, Florida
12
1,565,890
293,750
Tampamm -St. Pet
ersburg (Sarasota), Florida
g
Washington, D.C.
15
1,875,420
259,700
16
2,482,480
258,460
Albuquerque-Santa Fe, New Mexico
17
650,890
255,630
%
Hispanic
Households
Call Letters
87.7% KNVO-TV
KTFV-CD (1)
KFXV-LD
KXFX-CD (1)
KCWT-CD (1)
18.8% WVEN-TV (2)
W47DA
WVCI-LP
WOTF-TV
13.8% WVEA-TV (2)
WFTT-TV
10.4% WFDC-TV (2)
WMDO-
CD (1)(4)
WJAL-TV (4)
39.3% KLUZ-TV (2)
KTFQ-TV
San Diego, Califorff nirr a
18
987,760
251,020
25.4% KBNT-CD (1)
El Paso, Texas
19
338,770
249,320
Denver-Boulder, Colorado
20
1,585,270
245,180
Boston, Massachusetts
Las Vegas, Nevada
21
2,364,870
195,670
23
766,500
177,500
KHAX-LP
KDTF-LD
KTCD-LP
73.6% KINT-TV
KTFN-TV
15.5% KCEC-TV (2)
KTFD-TV
8.3% WUNIUU -TV (2)
WUTF-TV
23.2% KINC-TV
KNTL-LP
KWWB-LP
KELV-LD
KMCC-TV
rr
Corpus
Christi, Texas
Hartford-New Haven, Connecticut
28
29
897,870
107,730
193,070
111,860
57.9% KORO-TV
M
onterey-Salinas-Santa Cruzrr
y
, California
35
206,300
75,520
KCRP-CD (1)
12.0% WUVN-VV TV (4)
WUTH-
CD (1)(4)
36.6% KSMS-TV (4)
KDJT-CD (1)(4)
KCBA-TV (2)
Odessa-Midland, Texas
Laredo, Texas
Yuma, Arizona-El Centro, Califorff nirr a
Colorado Spri gngs-Pueblo, Colorado
36
38
39
46
150,430
70,220
72,510
66,620
48.2% KUPK B-TV
94.9% KLDO-TV
KETF-CD (1)
KXOF-CD (1)
101,040
65,150
64.5% KVYE-TV
KAJB-TV (2)
319,930
58,430
18.3% KVSN-TV
KGHB-CD (1)
11
Principal
Programming
Stream
Univision
UniMás
Fox
Fox
CW
Univision
Univision
Univision
UniMás
Univision
UniMás
Univision
UniMás
SonLife
Univision
UniMás
Univision
Univision
UniMás
LATV
Univision
UniMás
Univision
UniMás
Univision
UniMás
Univision
Univision
Univision
UniMás
Azteca
America
Univision
UniMás
Univision
UniMás
Univision
UniMás
Fox
Univision
Univision
UniMás
Fox
Univision
UniMás
Univision
UniMás
Market
Santa Barbara-Santa Maria-San Luis Obispo,
Californirr a
Market Rank
(by Hispanic
Households)
48
Total
Households
213,510
Hispanic
Households
55,460
Palm Spri gngs, Califorff nirr a
50
147,170
54,330
Lubbu ock, Texas
Wichita-Hutchinson, Kansas
Springfield-Holyoke, Massachusetts
Reno, Nevada
San Angelo, Texas
Tecate, Bajjaa California, Mexico (San Dieggo)
na, Baja Califorff nir a, Mexico (San Diego)
Tijuai
Matamoros, Tamaulipas, Mexico (Harlingen-
Weslaco-Brownsville-McAllen)
51
61
62
63
90
—
—
—
150,270
382,780
251,660
246,190
53,500
40,630
40,050
38,700
52,790
18,370
—
—
—
—
—
—
%
Hispanic
Households
Call Letters
26.0% KPMR-TV
K17GD-D (1)
K32LT-D (1)
KTSB-CD (1)
K10OG-D (1)
36.9% KVER-CD (1)
Principal
Programming
Stream
Univision
Univision
Univision
UniMás
UniMás
Univision
Univision
UniMás
NBC
MyNetworkTV
Univision
Univision
Univision
Univision
UniMás
Univision
UniMás
— XHDTV-TV (3) Milenio
— XHAS-TV (3) Azteca
KVES-LD
KEVC-CD (1)
KMIR-TV
KPSE-LD
35.6% KBZO-LD
10.6% KDCU-TV
15.9% WHTX-LD
15.7% KREN-TV
34.8% KEUS-LD
KANGAA -LP
KRNS-CD (1)
— XHRIO-TV (3) CW
America
Source: Nielsen Media Research 2019 universe estimates.
(1)
“CD” in call signs indicates that a station is operated as a Class A digital television service. Certain stations without this “CD”
designation are also Class A stations.
(2) We provide the sales and marketing funff
(3) We hold a minority, limited voting interest (neutral investmen
t
ction of this station under a marketing and sales arrangement.
t) in the entity that directly or indirectly holds the broadcast
(4)
license for this station. Through that entity, we provide the programming and related services available on this station under a
time brokerage arrangement. The station retains control of the contents and other broadcast issues.
In a “channel sharing” arrangement, two broadcast television stations, each holding its own broadcast authot
share the bandwidth of a single broadcast channel, with the two stations transmitting separate program streams on the same
channel, of various amounts of bandwidth, that they each originate.
rization, agree to
12
t
air broadcast streams containing mulm tiple program streams using the bandwidth authorized to each
Digital Television Technology. As we continue to enhance digital television transmission technology forff
our television stations,
we are operating in an environment where we can decide the resolution and number of broadcast streams we provide in our over-thett
-
air transmissions. Depending upon how high a resolution level with which we elect to transmit our programming, we have the
potential to transmit over-the-
digital station. The transmission of such multiple programming streams is often referred to as mulmm ticasting. We currently are
multicasting network programming streams, including LATV and other network programming streams, at most of our stations, along
with our primary netwott
rk program streams. We periodically evaluate these mulm ticasting operations as well as the amount of
bandwidth we must allocate to our primary program streams and may consider either expanding or limiting our mulm ticasting
operations, or keeping these multicasting operations substantially as at present, in the futuff
developments in digital television technology. The ATSC sets the industry standards (including the current ATSC 1.0) for the
technical operation of digital broadcast television stations. ATSC 3.0 is a majora
20 standards covering differeff
will allow forff
ff
observers believe that thet
tionalities will enable television broadcasters to engage successfully in new
on broadcast television, such as targeted commercial advertising. In Novembem r 2017,
commercial endeavors, not previously availablea
the FCC approved regulations allowing broadcast stations to offerff
, on a voluntary basis, ATSC 3.0 services (which the FCC has called
Next Gen TV). In doing so, broadcast television stations must offer
and there will not be a mandatory transition. We are considering how we will participate in the adoption of ATSC 3.0 technology and
we are awaiting the development and sale of the necessary err
ATSC 3.0 is adopted by viewers and advertisers.
enhanced video quality, datacasting capabilities, and more robust mobile television support. Television industry
quipment to transmit and receive such broadcast signals, as well as how
nt aspects of the system. The industry standards are designed to offerff
ff ATSC 3.0 servirr ces alongside a standard ATSC 1.0 digital signal
version of the ATSC standards and comprises around
re. We also continue to monitor
suppu ort for newer technologies, that
combination of these func
Television Revenue
Approximately 75% of the revenue generated from our television operations in 2018 was derived from local and national
advertising revenue, appaa
roximately 23% from retransmission consent revenue, and approximately 2% from spectrum usage rights.
National Advert
dd
ising. National advertising revenue generally represents revenue from advertising time sold to an advertiser or
tt
its agency that is placed from outside a station’s market. We typiy cally engage national sales representative firms to work wr
ith our
station sales managers and solicit national advertising sales, and we pay certain sales representation fees to these firms relating to
national advertising sales. Under our network
affiliation agreement with Univision, Univision acts as our sales representative forff
sale of national advertising on our Univision and UniMás affiliff ate television stations, and advertisers which have purchased duridd
2018 national advertising on these affiliate stations include Charter Communications, Inc., Nissan Motor Co., Ltd., Toyota Motor
Corporation, Cox Communications, Inc., Ford Motor Companymm
Compam ny and Fred Loya Insurance. Azteca America acts as our national sales representative for thet
Azteca America affiliate station, and Katz Communications,
advertising on KMIR-TV and KPSE-LD in thet
2018, national advertising accounted for approximately 38% of our total television revenue.
m
Palm Springs market and on our stations that broadcast Fox and CW programming. In
, H-E-B, Honda Motor Company, Ltd., Conn’s, Inc., General Motors
Inc. acts as our national sales representative for thet
sale of national advertising on our
sale of national
the
ng
Local Advedd rtisinii
g. Local advertising revenue is generated predominantly from advertising time sold to an aa
dvertiser or its
agency that is placed from within a station’s market or directly with a station’s sales staff.ff Local advertising sales include sales to
advertisers that are local businesses or advertising agencies, and regional and national businesses or advertising agencies, which place
orders from within a station’s market or directly with a station’s local sales staff. Wff
responsible for soliciting local advertising sales directly froff m advertisers and their agencies. In 2018, local advertising accounted for
approximately 37% of our total television revenue.
e employ our own local sales force that is
ii
Retratt nsmissi
on Consent Revenue. We generate retransmission consent revenue from retransmission consent agreements that are
entered into with MVPDs. This revenue represents payments from these entities for access to our television station signals so that they
may rebroadcast our signals on their services and charge their subscribers for this programming. In addition, we generally pay either a
per subscu
programming, which is known in the television industry as reverse network compensation. For the years ended December 31, 2018
and 2017, retransmission consent revenue was approximately $35.1 million and $31.4 million, respectively.
rr n of the retransmission consent revenue received from MVPDs with the network pr
or share certai
roviding the
riber feeff
13
Under our proxy agreement with Univision, we grant Univision the right to negotiate the terms of retratt nsmission consent
agreements for our Univision- and UniMás-affiliated television station signals, which covers subsu tantially all of our retransmission
consent revenue. Among other things, the proxy agreement provides terms relating to compem nsation to be paid to us by Univision with
respect to retransmission consent agreements entered into with MVPDs. The term of the proxy agreement extends with respect to any
MVPD for the length of thet
the expiration of the proxy agreement. On
October 2, 2017, we entered into thet
le
agreement with Univision. The term of the currerr nt proxy agreement expires on Decemberm 31, 2021 for our Univision and UniMás
network affiliate stations in Orlando, Tampamm and Washington, D.C, and on Decemberm 31, 2026 with respect to our Univision and
UniMás network affiliate stations in Albuquerque, Boston and Denver.
current proxy agreement with Univision, which superseded and replaced the prior comparab
term of any retransmission consent agreement in effect beforeff
m
As a result of thet
adoption of legislation in late 2014, modifying the Communim cations Act of 1934, or the Communications Act,
we are no longer able to negotiate retransmission consent agreements with other television stations located in the same television
market. The appa
lication of this statutory modification prevents us froff m negotiating with Ut
we and Univision both own television stations. We expect to handle our futff urt e negotiations directly with Mt
where we and Univision are both st
nivision in the six television markets where
VPDs in those markets
tation owners.
In 2018, retransmission consent revenue accounted for approximately 23% of our total television revenue. We anticipate that
retransmission consent revenue will continue to be an important source of net revenues in future periods.
Revenue from Spectrum Usage Rights. We generate revenue from agreements associated with our television stations’ spectrum
usage rights froff m a variety of sources, including but not limited to entering into agreements with third parties to utilize spectrum forff
the broadcast of their mulmm ticast networks,
positions or accepting interference froff m our broadcasting operations and modifying and/or relinquishing spectrum usage rights while
continuing to broadcast through channel sharing or other arranrr
gements. Revenue from such agreements is recognized over the period
of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to
operate a station on the existing channel free from interference. In 2018, revenue froff m spectrum usage rights accounted for
approximately 2% of our total television revenue.
charging fees to accommodate the operations of third parties, including moving channel
r
Television Marketing/Audience Research
The relative advertising rates charged by competing stations within a market depend primarily on the folff
lowing factors:
the station’s ratings (households or people viewing its programs as a percentage of total television households or people in
the viewing area);
audience share (households or people viewing its programs as a percentage of households or people actually watching
television at a specific time);
the demographic qualities of a program’s viewers (primarily age and gender);
the demand for availabla e air time;
the time of day the advertising will run;
compemm titive conditions in the station’s market, including the availability of other advertising media;
changes in advertising choices and placements in different media, such as new media, compared to traditional media such
as television and radio; and
general economic conditions, including advertisers’ budgetary considerations.
Nielsen ratings provide advertisers with at
n industry-accepted measure of television viewing. Nielsen offers a ratings service
measuring all television audience viewing. In recent years, Nielsen has modified the methodology of its ratings service in an effoff
more accurately measure U.S. Hispanic viewing by using language spoken in the home as a control characteristic of its metered
market sample.mm
markets. Nielsen also continues to improve thet methods by which it electronically measures television viewing, and has expanded its
Local People Meter service to several of our markets. We believe that
t this improvement will continue to result in ratings gains for us,
allowing us to further increase our advertising rates. We have made significff ant investments in experienced sales managers and account
executives and have provided our sales professionals with research tools to continue to attract majoa r advertisers.
Nielsen has also added weighting by language as part of its local metered market methodology in many of our metered
rt to
14
Television Competition
We face intense compem tition in the television broadcasting business. In each local television market, we compem te for viewers
and revenue with other local television stations, which are typiyy cally the local affiliates of the fouff
television networks, NBC, ABC, CBS and Fox and, in certarr
Spanish-language viewers with the local affiff liates or owned and operated stations of Telemundo,
network owned by Comcast, as well as the Azteca America network and other Spanish-language networks.
in markets, the CW Network. In certain markets, we also compem te for
the Spanish-language television
r principal English-language
m
We also directly or indirectly competm e forff
viewers and revenue with both English- and Spanish-language independent television
a
s, magazines, radio, appa
iers of cable television programs, direct broadcast satellite systems,
stations, other video media (both online and on demand), suppl
newspaper
lications for mobile media devices and other forms of entertainment and advertising. In certain
markets we operate radio stations that indirectly compete for local and national advertising revenue with our television business.
Additionally, advertisers allocate finite advertising budgets across diffeff
services may result in continued empham sis by certain advertisers on these new technologies and services as compmm ared to legacy
television.
rent media. We believe the advent of new technologies and
u
We believe that
t our primary competitive advantages are the quality of the programming we receive through our affiliation
ff
with
Univision and the quality of our local news programming. Univision’s primary network is the most-watched Spanish-language
network in the United States duridd
early local news is ranked first or second among competm ing local newscasts regardless of language in its designated time slot in 10 of
our television markets among aduld ts 18-34 and 18-49 years of age, including ties, and in eight markets among aduld ts 25-54 years of
age, including ties.
ng prime time among U.S. Hispanics. Similarly, our local news achieves strong audience ratings. Our
Telemundm o is the second-largest provider of Spanish-language content worldwide. Telemundo’s multiple platformff
s include the
Telemundm o Network, a Spanish-language television network featuring original productd
sporting events.
ions, theatrical motion pictures, news and
Overview
We own and operate 49 radio stations (38 FM and 11 AM), 46 of which are located in the top 50 Hispanic markets in the United
Radio
t
sion Solutions as our national sales representation division. According to Nielsen Media Research, our
States, and operate Entravi
radio stations broadcast into markets with an aggregate of appa
the Hispanic population in the United States. Our radio operations combine network and local programming with local time slots
availabla e forff
programming with significantly lower costs of operations than we could otherwi
programming.
, weather, promotions and community events. This strategy allows us to provide quality
roximately 20 million U.S. Hispanics, which is approximately 40% of
se deliver solely with all locally produced
advertising, news, trafficff
d
rr
Radio Programming
Radio Networkskk . Our networks allow advertisers with national product distribution to deliver a uniform advertising message to
the growing Hispanic market around the country in an efficien
ff
t manner.
Although our networks have a broad geographa
ic reach, technology allows our stations to offerff
the necessary local feel and to be
responsive to local clients and community needs. Designated time slots are used forff
promotions and community events. The auda
enhance thit s effect, our on-air personalities frequently travel to participate in local promotional events. For example, in selected key
markets our on-air personalities appear at special events and client locations. We promote these events as “remotes” to bond the
national personalities to local listeners. Furthermore, all of our stations can disconnect from their networks and operate independently
in the case of a local emergency or a problem with our central Multiprotocol Label Switching, or MPLS, transmission.
ience gets the benefit of a national radio sound along with local content. To further
local advertising, news, traffic, weather,
Radio Formatstt . Each of our two radio netwott
rks produce a musm ic format that is simulm taneously distributed via MPLS with a high
definition quality sound to our stations. Each of these formats appa
eals to differen
ff
t listener preferences:
L a Tricolor airs on 13 of our stations and primarily targets male Hispanic listeners 18-49 years of age. The formff
features Mexican regional music and includes “Carlall La Plebe” during midday hours and Er azno y La Chokolkk atl att , a
parody-based comedy program syndicated on an additional 81 stations, in the afternorr on drive.
at
Suavecita is a Mexican regional music format targeting Hispanic women 25-49 years of age and Hispanic adults 25-
ero/Cumbia music and includes El Genio Alex
La
54 years of age that airs on 13 of our stations. The format featurt es Grupr
Lucas in the mornir ngs; El
Eveni
Show de Piolin during midday hours; Ar mida y La Flakl akk in afterno
ngs with Mayra a at night.
on drive; and
ff
15
We also broadcast in Spanish National Footbal
t
nce playoffs, carried on 26 radio stations.
Confereff
l League games, such as Sunday Night Footbal
t
l and the American Football
Our radio networks are broadcast in 14 of the 16 radio markets that we serve. In addition, in markets where competing stations
rwise identify an available niche in the marketpltt ace, we
programming similar to our network formats, or where we othet
tive programming that we believe appeals to local listeners, including the folff
lowing:
already offer
ff
run alternar
é”, which airs in the Los Angeles market, targets Hispanic adults 25-54 years of age, This personality-driven forff mat
“
“Jos
featurt es a mix of Spanish-language aduldd t contemporary and Mexican regional hits froff m the 1970s thrt ough the present, and
features “El Genio” Alex Lucas in the mornings; “El Show de Piolin” in daytime; “Erazno y La Chokolkk atal
after
ff
soccer coverage of the Mexican national team, including coverage of the 2019 CONCACAF Gold Cup.
da y La Flaka” in the evening; “Misterios Ocultos” with Mayra Berenice at night; and play-by-play
noon drive; “Armi
” in thet
“
“Supeu r Estrella”, which airs in the Los Angeles market, primarily targets Hispanic adults 25-49 years of age and features
Spanish-language rock and pop artists.
In the El Paso market, we program “The Fox”, an English-language format that features classic rock and pop hits from the
1960s thrt ough the 1980s and targets primarily adults 25-54 years of age;
In the McAllen market, we program two English-language forff mats, Q94.5 The Rock, a classic rock-oriented format that
targets primarily males 18-49 years of age, and 107.9 Mixii FM, a hit-based adult contemporary
primarily women 18-49 years of age;
format targeting
m
In the Orlando market, we program Salsa 98.1, a Spanish-language tropical hits format that features salsa, merengue
and bachata and targets Hispanic adults 25-54 years of age;
In the Phoenix, El Paso, Lubbock, Stockton, Denver and Albuquerque markets, we program ESPN
Spanish-language sports talk format targeting primarily Hispanic aduld ts 18-54 years of age, that is provided to us by a
third party pursuant to a network ar
n agreement; and
Deportes
ff
ffiliatio
, a
e
In the Sacramento market, we program two English-language forff mats, a contemporam
females 18-34 years of age and a young country forff mat targeting primarily adults 18-49 years of age.
ry hits format targeting primarily
16
Our Radio Station Portfolio
The following table lists information concernirr ng each of our owned and operated radio stations in order of market rank and its
respective market:
Market
Los Angeles-San Diego-Ventura,
tt
Californff
ia
Miami-Ft. Lauderdale-Hollywood, Florida
Houston-Galveston, Texas
Phoenix, Arizona
Harlingen-Weslaco-Brownsville-McAllen,
Texas
Sacramento-Stockton-Modesto, California
Orlando-Daytona
Albuquerque-Santa Fe, New Mexico
Beach-Melbourne, Florida
aa
El Paso, Texas
Denver-Boulder, Colorado
Aspen, Colorado
Las Vegas, Nevada
Monterey-Salinas-Santa Cruz, California
Yuma, Arizona-El Centro, Californff
ia
Palm Springs, California
Lubbock, Texas
Reno, Nevada
Market Rank
(by Hispanic
Households)
Station
Frequency
Format
1 KLYY-FM
KDLD-FM
KDLE-FM
KSSC-FM
KSSD-FM
KSSE-FM
3 WLQY-AM
4 KGOL-AM
9 KLNZ-FM
KDVA-FM
KVVA-FM
KBMB-AM
10 KFRQ-FM
KKPS-FM
KNVO-FM
KVLY-FM
11 KRCX-FM
KNTY-FM
KHHM-FM
KXSE-FM
KMIX-FM
KCVR-AM
KTSE-FM
KCVR-FM
12 WNUE-FM
17 KRZY-FM
AM
KRZY-R
19 KOFX-FM
KINT-FM
KYSE-FM
KSVE-AM
KHRO-AM
20 KJMN-FM
KXPK-FM
KMXA-AM
KPVW-FM
23 KRRN-FM
KQRT-FM
35 KLOK-FM
KSES-FM
KMBX-AM
39 KSEH-FM
KMXX-FM
KWST-AM
50 KLOB-FM
KPST-FM
51 KAIQ-FM
KBZO-AM
63 KRNV-FM
97.5
103.1
103.1
107.1
107.1
107.1
1320
1180
103.5
106.9
107.1
710
94.5
99.5
101.1
107.9
99.9
101.9
103.5
104.3
100.9
1570
97.1
98.9
98.1
105.9
1450
92.3
93.9
94.7
1650
1150
92.1
96.5
1090
107.1
92.7
105.1
99.5
107.1
700
94.5
99.3
1430
94.7
103.5
95.5
1460
102.1
MHz
MHz
MHz
MHz
MHz
MHz
kHz
kHz
MHz
MHz
MHz
kHz
MHz
MHz
MHz
MHz
MHz
MHz
MHz
MHz
MHz
kHz
MHz
MHz
MHz
MHz
kHz
MHz
MHz
MHz
kHz
kHz
MHz
MHz
kHz
MHz
MHz
MHz
MHz
MHz
kHz
MHz
MHz
kHz
MHz
MHz
MHz
kHz
MHz
rr English)
José (1)
Super Estrella (1)
Super Estrella (1)
La Suavecita
José (1)
José (1)
Time Brokered (2)
La Suavecita
La Tricolor
La Suavecita (1)
La Suavecita (1)
ESPN Deportes
Classic Rock (English)
La Tricolor
La Suavecita
Aduld t Contemporary (
La Tricolor
Country (English)
Contemporary Hit (English)
La Suavecita
La Tricolor
ESPN Deportes
La Suavecita (1)
La Suavecita (1)
Salsa 98.1
La Suavecita
ESPN Deportes
Oldies (English)
La Suavecita
La Tricolor
ESPN Deportes
Oldies (English)
La Suavecita
La Tricolor
ESPN Deportes
La Tricolor
La Suavecita
La Tricolor
La Tricolor
La Suavecita
Time Brokered (2)
La Suavecita
La Tricolor
Time Brokered (2)
La Suavecita
La Tricolor
La Tricolor
ESPN Deportes
La Tricolor
Market rank source: Nielsen Media Research 2019 estimates.
Simulm cast station.
(1)
(2) Operated pursuant to a time brokerage arrarr ngement under which we grant to third parties the right to program the station.
17
Radio Advertising
Substantially all of the revenue generated from our radio operations is derived from local and national advertising.
Local. Local advertising revenue is generated predominantly froff m advertising time sold to an advertiser or its agency that is
placed from within a station’s market or directly with a station’s sales staff,ff and also froff m a third-party network inventory agreement,
digital, and non-traditional revenue. Local advertising sales include sales to advertisers that are local businesses or advertising
agencies, and regional and national businesses or advertising agencies, which place orders from within a station’s market or directly
with a station’s sales staff. Wff
advertising sales directly fromff
our total radio revenue.
e employ our own local sales force, in each of our markets, that is responsible for soliciting local
advertisers and their agencies. In 2018, local advertising revenue accounted for appr
oximately 61% of
a
National. National advertising revenue generally represents spot and network r
r
evenue froff m advertising time sold to an
advertiser or its agency that is placed froff m outside a station’s market. Entravision Solutions, one of our divisions, typiy cally acts as our
national sales representative to solicit national advertising sales on our Spanish-language radio stations. In 2018, national advertising
revenue accounted for appa
roximately 39% of our total radio revenue.
Radio Marketing/Audience Research
We believe that radio is an effiff cient means for advertisers to reach targeted demographi
a
c groups. Advertising rates charged by
our radio stations are based primarily on the folff
lowing factors:
the particular station’s ratings (people listening to its programs as a percentage of total people in the listening area);
audience share (people listening to its programs as a percentage of people actually listening to radio at a specififf c time);
the demographic qualities of a program’s listeners (primarily age and gender);
the demand for availabla e air time;
the time of day that the advertising runr
s;
competitive conditions in the station’s market;
changes in advertising choices and placements in different media, such as new media, compared to traditional media such
as television and radio; and
general economic conditions, including advertisers’ budgetary considerations.
Nielsen Audio provides advertisers with the industry-accepted measure of listening audience classified by demographi
and time of day that the listeners spend on particular radio stations. Radio advertising rates generally are highest during the hours of
6:00 A.M. and 7:00 P.M. These hours are considered the peak times for radio audience listening.
a
c segment
Historically, advertising rates for Spanish-language radio stations have been lower than thos
t
e forff English-language stations with
similar audience levels. We believe that, over time, possibilities exist to narrow the disparities that have historically existed between
Spanish-language and English-language advertising rates as new and existing advertisers recognize the growing desirability of thet
U.S. Hispanic population as an advertising target. For examplm e, U.S. Hispanics spend more on food at home than the national average.
We also believe that having multiple stations in a market enables us to provide listeners with alternatives, to secure a higher overall
percentage of a market’s available advertising dollars, and to obtain greater percentages of individual customers’ advertising budgets.
Each station broadcasts an optimal numberm of advertisements each hour, depending upon its format, in order to maximize the
station’s revenue without jeopardizing its audience listenership. Our non-network stations have up tu
commercial inventory and local content. Our network sr
pricing is based on a rate card and negotiations subject to the supply and demand forff
network.r
tations have up to one additional minute of commercial inventory per hour. The
the inventory in each particular market and the
o 14 minutes per hour for
18
Radio Competition
We face intense compem tition in the radio broadcasting business. The finff ancial success of each of our radio stations and markets
aa
depends in large part on our audi
ence ratings, our ability to maintain and increase our market share of overall radio advertising
revenue and the economic health of the market and the nation. In addition, our advertising revenue depends upon the desire of
advertisers to reach our audience demographic. Each of our radio stations competes for auda
ience share and advertising revenue
directly with both Spanish-language and English-language radio stations in its market, and with other media, such as newspapea
broadcast and cable television, magazines, outdoor advertising, satellite-delivered radio services, applications for mobile media
devices, podcasts, and other forms of digital delivery,r
stations that indirectly competm e forff
markets in Spanish-language radio are Univision, iHeartMedia Inc. (formerly Clear Channel Communimm cations Inc.) and Spanish
Broadcasting System, Inc. These and many of the other compam nies with which we compete are large national or regional companies
that have significantly greater resources and longer operating histories than we do.
local and national advertising revenue with our radio business. Our primary competitors in our
and direct mail advertising. In addition, in certain markets we operate television
rs,
Factors that are material to our competitive position include management experience, a station’s auda
ience rank in its market,
signal strength and coverage, and audience demographa
one of our stations, or if one of our compemm titors upgrades its stations, we could suffeff
that market. The audience ratings and advertising revenue of our iu ndividual stations are subject
in certain of our key radio markets could have a material adverse effect on our operations.
ics. If a competm ing station within a market converts to a format similar to that of
r a reduction in ratings and advertising revenue in
tion and any adverse change
to fluctuat
b
The radio industry is subject to competition froff m new media technologies that are being developed or introduced, such as:
audio programming availabla e on cable television systems, broadcast satellite-delivered audio services, over-the-top
applications on Internet-connected televisions, Internet content providers, streaming auda
telephones and smartphot
formats and playback mechanisms;
nes, including easy-to-use mobile applications, podcasts, and other digital audio broadcast
io availabla e over cellular
satellite- and internet protocol network-delivered digital audio services—with both ct
commercial load channels—which have expanded their subscriber base and have introduced dedicated Spanish-language
channels and linear streams of over-the-air radio stations; and
ommercial-free and lower
In-Band On-Channel™ digital radio, which provides mulm ti-channel, mulm ti-format digital radio services in the same
bandwidth currently occupied by traditional FM radio services.
Advertisers allocate finite advertising budgets across different media. We believe the advent of new technologies and services
may result in continued emphasis by certain advertisers on thes
Accordingly, while we also believe that none of these new technologies and services can complm etely replace local broadcast radio
stations due to the fact
of localism that broadcast radio offers, the challenges from new technologies and services will continue to
requiq re attention froff m management. Among other things, we intend to continue to review potential opportunities to utilize such new
technologies in our radio operations where appropriate.
e new technologies and services as compared to legacy radio.
ff
t
Overview
Digital
We provide digital advertising solutions that
t allow advertisers to reach global online audiences, thro gugh operations that are
ica We operate proprietary technology and data
gArgentina and other countrit es in Latin Amer
located prim yarily in Spain, Mexico,
platforms that deliver digital advertising in various advertising formats to allow advertisers to reach thot
range of Internet-connected devices on our owned and operated digital media sites, the digital media sites of our publisher partners, or
owners of Internet and mobile sites and softwatt
a
inventory wrr
s and apply our proprietary data analytics
party platforms and exchanges. We access data from these digital media sites and appa
capabilities to better target and aggregate audience segments that will be relevant to individual advertisers, while allowing the
publu ishers of digital media sites and apps to better sell their digital advertising inventory.
ho provide us with access to their digital advertising inventory, and on other digital media sites we access through thit
t contain premium digital content and digital advertising
se audiences across a wide
re applications, or apps
, that
rd-
.
19
Our Solutions and Technology Platformff
Through our suite of digital advertising solutions, including the Headway Digital programmatic advertising platform, the
tt
ty to reach and engage with their target auda
Smadex demand side platforff m, the Mobrain mobile advertising platform and the Pulpo Media advertising network, we offer
advertisers the opportuni
across a wide range of devices. Our significant audience reach, access to a large volume of digital advertising space, sophisticated
targeting capabilities and broad array of advertising forff mats allow us to deliver marketing solutions that can help grow our clients’
businesses. Through data analytics, we also enable advertisers to gain insights into the performance of their
manage those campaimm gns with a view toward maximizing returt n orr
iences by providing access to premium digital inventory at scale
n their advertising investment.
advertising campam igns and
t
We believe that key benefits of our digital advertising solutions include the folff
lowing:
Sopho
isticated targeting. Our platform and solutions specifically identify aff
nd reach online audiences across a wide range of
Internet-connected devices.
We believe that one of the main strengthst
of our platforff m is that it accesses and analyzes large amounts of data to provide a
multidimensional view of individual consumer profiles on an anonymous basis. This understanding allows advertisers to more
effectively reach and engage consumers.
We have also developed a numberm of audience categories to which advertisers can target their advertisements. Audience
t
and auda
ience groups that
, in combim nation with our proprietary drr
categories can be based on a variety of user attributes, including location, demographaa
identify these attributes and audience categories based upon information we have gather
t
anonymous basis, a process known as interest-based or online behavioral advertising. We analyze this data to build sophisticated user
profiles
ata analytics and the real-time decision-making, optimization
ff
and targeting capabilities of our platform, enable us to deliver highly targeted advertising campam igns for our advertiser clients, as well
as analytics to help thet m better understand audiences and consumers. As we deliver more advertisements, we are able to collect
additional informff
ut users, audiences and the effectiveness of particular advertising campaimm gns, which in turn enhances our
targeting capabilities and allows us to deliver better performance forff
advertisers and bettet
increase their revenue streams. In addition, advertisers are willing to pay a higher rate forff
data can be used to help them make their decisions about purchasing advertising and to engage with the consumers whom they desire
to reach.
ics, affluence, intent, gender and interests. We
ed about online users’ online activity on an
r opportunities for our publisher partners to
digital advertising when deeper consumer
ation aboa
Premium content. We provide our advertiser clients with access to premium digital content, which is profession
ff
ally produced
and we believe offers a quality viewing experience, through our owned and operated digital media sites and those of our publisher
partner
t
audiences who engage with such premium content.
tively monetize their digital content, and enables advertisers to more effectively reach
s. This enables publishers to more effecff
Scale and reach across a range of Internet-ct onnected devices. We enabla e advertisers to use our digital media advertising
solutions to address their online and mobile advertising needs in seeking to reach their desired audiences at scale across a wide range
of Internet-connected devices, including computm ers, smartpho
nes and tablets.
t
Varietytt of advedd rtising formatstt . We enabla e advertisers to deliver a variety of online and mobile advertising forff mats, including
video advertisements, display banners, rich media and native advertising forff mats. We believe that these advertising formats provide an
opportuni
ty for advertisers to create a variety of advertising content that increases audience interaction and engagement, which in turn
drives better results for advertisers.
tt
Brand safeta ytt . Our proprietary t
rr
advertisements in order to identify cff
advertisements are not being delivered within content that is identifieff d as objectionable to the advertiser, such as content that
distastefulff
selecting publisher partners and our proprietary technology provides a high level of brand safety for our advertisers.
or obscene language, violence, gamblim ng, sex or criminal activity. We believe that the combim nation of our practice of
echnology contextually evaluates the content of digital media sites on which we deliver
for an individual advertiser, and also ensure that
ontent that is most appropriate or desirablea
t
contains
20
Digital Advertising
ance-
We provide our advertiser clients with opportunities to reach their target audiences through brand advertising and performff
based advertising. Brand advertising is generally intended to establish a long-term, positive consumer attitude toward an advertiser or
its producd t or service, and brand advertisers typically
mm
consumers withit n thet
within thet
action, such as clicking on an advertisement, and direct response advertisers typically measure campaign
related to consumer response to a particular advertisement.
ff
effecti
advertiser’s target audience were exposed to the advertisement) and frequency (how many times the consumer
target audience was exposed to the advertisement). Performance-based advertising is generally intended to indud ce a specific
veness using metrics such as reach (how many
effectiveness using metrics
measure campaign
mm
y
We generate digital revenue by delivering digital advertisements on digital media sites across a wide range of Internet-
connected online and mobile devices. Advertisers and agencies typiy cally purchase advertising froff m us through campaim gns that are sold
and managed by our direct sales force, which we refer to as managed campam igns. Managed campam igns provide advertisers with a
higher degree of “white glove” customer service, with dedicated account teams that use an automated platform to deliver advertising
campam igns for advertisers.
tt
rr
with advertisers
or agencies through insertion orders, which set forth campaim gn parameters such as size
We typically contract
and durd ation of the campamm ign, typey
insertion orders to us and we fulfillff
properties. We are typically paid by advertisers on the basis of the number of viewer imprm essions occurring when an advertisement is
delivered, knowk
advertisement is delivered, known as a cost per action basis. We generally pay our publu isher partners a negotiated percentage of this
revenue. Prior to running an advertising campaim gn, thet
ith our creative team to provide the creative
direction of thet
of advertising forff mat and pricing. Digital advertisers and their agencies submit advertising
those orders by delivering their digital advertisements to audiences through digital media
campaim gn and design in order to most effeff ctively reach the audiences most desirabla e to it.
n as a cost per thousand basis, or on the basis of the numberm or typeyy
of actions taken by viewers to whom an
advertiser or agency may work wr
Our Digital Customers
Our digital customer base consists primarily of advertisers of all sizes and the advertising agencies that represent them. For the
year ended Decemberm 31, 2018, we had over 4,000 advertising clients, including top brand advertisers from nearly all major industdd
including automotive, consumer products, services, healthct
from individual advertisers varies from period to period. We do not believe that our business is substantially dependent upon any
individual advertiser or industry, and no individual advertiser represented more than 5% of our digital revenue for the year ended
Decemberm 31, 2018.
ries,
are, telecommunications, travel, retail, finance and media. Digital revenue
Our Digital Publisher Network
We have contractual relationships with premium publishers, or owners of sites that contain premium digital content and provide
ally produced and
a quality viewing experience. These relationships provide us with digital advertising inventory, which we utilize to deliver our
digital advertising inventory. We consider a premium publu isher to be a publisher that has content that is profession
offers
ff
digital advertising solutions to our digital advertising customers. We engage our publisher partners through a variety of methods,
including outreach by a dedicated business development team. We do not believe that the success of our business is dependent on our
relationship with any single publisher partner.
ff
We seek to identify off wners of digital media properties featuring premium digital content that, individually or collectively, have
m
the audience scale, composition
review a variety of criteria to determine the quality of the advertising inventory and its appropriateness for our advertiser clients,
including content, the characteristics of the publisher’s viewing auda
media property in real time and the volume of available digital content and imprem ssions.
and accessibility across Internet-connected devices to achieve the objectives of our advertisers. We
targeting attributes that can be obtained from the digital
ience, thet
Digital Competition
The digital advertising market is dynamic, rapidly changing and highly compem titive, influenced by trends in both t
t
he overall
advertising market as well as the digital advertising market. We compemm te with large online digital compamm nies such as Facebook, Inc.
and Google, Inc., as well as othet
ngs, as well as other advertising technology
television and radio broadcast space, our digital operations also compete for advertising
companmm ies and advertising networks. In thet
commitments with television broadcasters, cable television networks,
Many of our compem titors in this space have significant client relationships, mucm h larger finff ancial resources and longer operating
histories than we have.
radio broadcasters, print media and other
r publishers who attract advertiser
ir digital offeri
traditional publu ishers.
s to thet
rr
ff
r
t
21
We believe that
t the principal compem titive fact
ors in digital media include effective audience targeting capaa bia lities, multi-device
campaign delivery capability, proven and scalable technologies, audience scale and reach, relationships with leading advertisers and
their respective agencies, brand awareness and reputation, abila
ability to ensure brand safety, ability to prevent click fraud and use of analytics to effeff ctively measure performance. We believe that
we compete favorabla y with respect to all of thet
solutions to reach audiences globally.
se factors and that we are well-positioned to be a leading provider of digital advertising
ity to gather and use data to deliver more relevant advertisements,
ff
t
Seasonality
Seasonal net revenue fluff ctuat
tt
ions are common in the television and radio broadcasting and digital media industries and are due
primarily to fluctuations in advertising expenditures by local and national advertisers. In our television and radio segments, our second
and third fisff cal quarters generally producd e the highest net revenue forff
the year. In our digital segment, net revenue generally increases
in each fiscal quarter over the course of the year. In addition, advertising revenue across our segments is generally higher durd ing
presidential election years (2016, 2020, etc.), resulting from significant political advertising and, to a lesser degree, Congressional
mid-term election years (2018, 2022, etc.), resulting froff m increased political advertising, compmm ared to other years.
Intellectual Property
We believe that
t our ability to protect our intellectual property i
tt
property t
t
tt
business. We protect our intellectual
business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidff entiality
agreements and assignment of inventions agreements with emplmm oyees, independent contractors, consultants and compam nies with which
we conduct business. While we believe that
ely protect our intellectuatt
adequatq
hrough trade secrets law, copyrights, trademarks and contratt cts. We have established
l property from use, misuse or infringement by others
we cannot guarantee that such measures will
t such measures are generally effective,
ff
m
s an importa
nta
factor in the success and continued growth of our
In the course of our business, we use various trademarks, trade names and service marks, including our logos and FCC call
letters, in our advertising and promotions, as well as proprietary technology platforms and other technology. Some of our technology
relies upou
franchise or concession, except for our broadcast licenses granted by the FCC.
l property. We do not hold or depend upou n any material patent, governmrr
rd party licensed intellectuat
ent license,
n thit
Employees
As of Decemberm 31, 2018, we had approxi
aa
mately 1,156 full-time employees worldwide. Approximately 814 of those full-time
emplm oyees were in the United States, including 559 full-time employees in our television segment, 217 fulff
l-time emplm oyees in our
radio segment and 38 full-time employees in our digital media segment. As of Decemberm 31, 2018, three of our full-time television
segment emplm oyees in the United States were represented by a labor union that has entered into a collective bargaining agreement with
us.
We had 42 full-time employees in Mexico in our television segment, of whom 25 were covered by a collective bargaining
agreement, which was most recently renewed on February 1, 2019 for a new term of two years.
In our digital segment, we had 145 fulff
l-time emplm oyees and seven part-time employees in Argentina, 81 full-time employees
and seven part-time employees in Spain, 34 full-time employees in Mexico, 11 full-time emplm oyees in Urugurr
emplm oyees in Israel, eight full-time emplm oyees in Colombm ia, seven fulff
one full-time employee in the United Kingdom, and one fulff
a union or covered by a collective bargaining agreement.
l-time emplm oyees in Brazil, three full-time emplm oyees in Chile,
l-time employee in Costa Rica. None of these employees was a memberm of
ay, nine full
ff
-time
We believe that
t our relations with our employees and these unions are generally good.
22
Regulation of Television and Radio Broadcasting
General. The FCC regulates television and radio broadcast stations pursuant to the Communications Act. Among othet
r things,
the FCC:
determines the particular freff quencies, locations and operating power of stations;
issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; and
adopts and implements regulations and policies that directly or indirectly affeff ct the ownership, changes in ownership,
contrott
l, operation and emplm oyment practices of stations.
A licensee’s failure to observe the requirements of the Communications Act or FCC rules
tion of various sanctions, including admonishment, fines, the grant of renewal terms of less than eight years, the grant of a
lication, the
imposim
license renewal with conditions or, in the case of particularly egregious violations, the denial of a license renewal appa
revocation of an FCC license or the denial of FCC consent to acquire additional broadcast properties.
and policies may result in the
r
Congress and the FCC have had under consideration or reconsideration, and may in the future consider and adopt, new laws,
regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and
profitability of our television and radio stations, result in the loss of audience share and advertising revenue for our television and
radio broadcast stations or affect
Such matters may include:
our abia lity to acquire additional television and radio broadcast stations or finance such acquisitions.
ff
changes to the license authot
rization process;
proposals to impose spectrumrr
use or other fees
ff
on FCC licensees;
proposals to impose a performance tax on the musim c broadcast on commercial radio stations and the fees applicable to
digital transmission of music on the Internet;
proposals to change rules relating to political broadcasting including proposals to grant free airtime to candidates;
proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;
proposals dealing with the broadcast of profanff
permitting such speech;
technical and frequ
ff
ency allocation matters;
e, indecent or obscene language and the consequences to a broadcaster for
modifications to the operating rulerr
bases;
s forff
digital television and radio broadcasting rules on both satellite and terrestrial
the implementation or modification of rulrr es governing the carriage of local television signals by direct broadcast satellite,
television systems and the manner in which such parties negotiate such carriage arrangements;
or DBS, services and cablea
changes in local and national broadcast mulm tiple ownership, forff eign ownership, cross-ownership and ownership attribution
rules;
changes in the procedures whereby full-service broadcast stations are carried on MVPDs (cable television and direct-
broadcast satellite systems) either on a musmm t-carry or retransmission consent basis and how compensation systems and
processes involving broadcasters and MVPDs might be modified;
changes in the operating rules and policies forff AM and FM broadcasting; and
proposals to alter provisions of the tax laws affect
ff
ing broadcast operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict what othet
, nor can we judge in advance what impact,
m
if any, the implm ementation of any particular proposal or change might have on our
r matters might be considered in the
futurett
business.
23
a
ications may be filedff
FCC Licenses. Television and radio stations operate pursuant to licenses that are granted by the FCC forff
by interested parties, including membem rs of the public. The FCC may hold hearings on renewal
ications if it is unabla e to determine that renewal of a license would serve the public interest, convenience and necessity, or if a
a term of eight years,
subject to renewal upon application to the FCC. During the periods when renewal applications are pending, petitions to deny license
renewal appl
appl
a
petition to deny raises a “substu
inconsistent with the public interest, convenience and necessity.tt However, the FCC is prohibited froff m considering compem ting
applications for a renewal applicant’s freff quency, and is required to grant the renewal appa
antial and material question of fact” as to whether the grant of the renewal appl
lication if it finff ds:
ications would be
a
that the station has served the public interest, convenience and necessity;
that there have been no serious violations by the licensee of the Communications Act or the rulr es and regulations of the
FCC; and
that there have been no other violations by the licensee of the Communications Act or the rulrr es and regulations of the
FCC that, when taken togethet
r, would constitute a pattern orr
f abua
se.
If as a result of an evidentiary hearing the FCC determines that the licensee has failed
ff
to meet the requirements for renewal and
that no mitigating factors justify the imposition of a lesser sanction, the FCC may deny a license renewal application. Historically,
FCC licenses have generally been renewed. We have no reason to believe that our licenses will not be renewed in the ordinary course,
although there can be no assurance to that effect.
adverse effect
The non-renewal of one or more of our stations’ licenses could have a material
on our business.
ff
ff
Ownershipi Mattersrr . The Communim cations Act requiq res prior consent of the FCC forff
the assignment of a broadcast license or the
l of a corporation or other entity holding a license. In determining whether to appa
transfer of contrott
or radio broadcast license or a transferff
licensee including complm iance with various rulrr es limiting common ownership of media properties, the “character” of the licensee and
those persons holding “attributable” interests therein, and thet Communim cations Act’s limitations on foreign ownership and complianmm
ce
with the FCC rulrr es and regulations.
of control of a broadcast licensee, the FCC considers a numbem r of facff
rove an assignment of a television
tors pertaining to thet
To obtain the FCC’s prior consent to assign or transfer a broadcast license, appa
ropriate appli
a
cations must be filed with the FCC.
lication to assign or transfer the license involves a substantial change in ownership or control of the licensee, for examplm e,
cation must be placed on public notice for a period of 30
a
If the appa
the transfer or acquisition of more than 50% of the voting equity, the appli
days during which petitions to deny the appl
a
assignment application does not involve new parties, or if a transfer of control appa
ownership or control
regular and pro forma appl
application. If the FCC grants an assignment or transferff
seek reconsideration of that grant. The FCC has an additional ten days to set aside such grant on its own motion. When ruling on an
assignment or transfer application, the FCC is prohibited froff m considering whethet
assignment or trans
lication does not involve a “substantial” change in
public notice and 30-day petition to deny procedure. The
any time until the FCC acts on the
ons that may be filedff
application, interested parties have 30 days froff m public notice of the grant to
, it is a pro forff ma application, which is not subju ect to thet
to informal objecti
ication may be filff ed by interested parties, including members of the public. If an
fer to any party other than the assignee or transferff ee specified in the appl
r the publu ic interest might be serverr d by an
ications are neverthet
u
less subject
ication.
b
a
a
t
tt
r
led by any other corpor
ration directly or indirectly
ation of which more than 25% of its capital stock is owned of record or voted by non-U.S. citizens or
Under the Communications Act, a broadcast license may not, absent a public interest determination by the FCC, be granted to or
held by persons who are not U.S. citizens, by any corporation that has more than 20% of its capital stock owned or voted by non-U.S.
citizens or entities or their representatives, by foreign governments or their representatives or by non-U.S. corporations. Furthet
rmore,
the Communications Act provides that no FCC broadcast license may be granted to or held by any corporr
control
t
entities or their representatives, or foreign governments or their representatives or by non-U.S. corpor
authority to allow forff eign ownership in excess of these safe harboaa
broadcast media, has established new policies and practices allowing broadcast licensees to file petitions for declaratory r
requesting approval (i) of up tu
controt
interest to increase the interest to 100% in the future, and (iii) for any non-controt
to 49.99% in the futff urtt e. The new rules also establish that a broadcast licensee only needs to obtain specific approval for forff eign
investors holding more than 5% interest, and in certain circumstances more than 10% interest, in the U.S. parent of the broadcast
licensee, or a contrott
issued to or for the benefit of non-U.S. citizens in excess of these limitations or in violation of the procedures adopted by the FCC.
Our restated certificate of incorporr
ration restricts the ownership and voting of our capital stock to enabla e us to complm y with foreign
ownership limitations.
o and including 100% aggregate foreign ownership by unnamed and futurtt e forei
lling U.S. parent of a broadcast licensee, (ii) for any named forff eign investor who proposes to acquire less than 100% controlling
lling named foreign investor to increase its interest up
our stations could be revoked if our outstanding capia tal stock is
lling interest in the U.S. parent. The licenses forff
rr
gn investors in the
greater forff eign investment in domestic
ations. The FCC, recognizing its
r levels and to allow forff
ing
ulrr
r
ff
24
The FCC generally applies its other broadcast ownership limits to “cognizabla e” interests held by an individual, corporr
ration or
ration holding broadcast licenses, the interests of officers, directors and those who,
other association or entity. In the case of a corporr
directly or indirectly, have the right to vote 5% or more of the stock of a licensee corporation are generally deemed attributablea
interests, as are positions as an officer
rate parent of a broadcast licensee.
or director of a corporr
ff
Stock interests held by insurance companies, mutual funds, bank trusrr
t departments and certain other passive investors that hold
stock forff
holding broadcast licenses.
investment purpr oses only become attributable with the ownership of 20% or more of the voting stock of the corpor
ration
television or radio station in the same market creates an attributable interest in the
ses of the FCC’s local television or radio station ownership rules, if the agreement
brokered television or radio station’s weekly broadcast hours. Likewise, a joint sales agreement (“JSA”)
t
ts more than 15% of thet
A time brokerage agreement with another
brokered television or radio station as well for purpor
affecff
involving radio stations creates a similar attributable interest forff
television stations, thet
proceeding that is subju ect to judicial review. The action involving the elimination of attribution forff
judicial review as part of the FCC’s 2014 Quadrennial Review process.
FCC adopted and thet n eliminated the concept of attribution forff
the broadcast station that
t is undertaking the sales function. As forff
television JSAs, in its quadrennial ownership
television stations is subject to
Debt instruments, non-voting stock, options and warrants forff
voting stock that have not yet been exercised, insulated limited
partnership interests where the limited partner is not “materially involved” in the media-related activities of the partnership and
minority voting stock interests in corporr
vote is suffici
rations where there is a single holder of more than 50% of the outstanding voting stock whose
ration generally do not subju ect their holders to attribution.
ent to affirff matively direct the affaff
irs of the corpor
ff
However, the FCC also appa
lies a rulrr e, known as the equity-debt-plus rulr e, which causa es certain creditors or investors to be
attributable owners of a station, regardless of whether there is a single majora
attribution rules. Under this rule, a major programming supplier (any programming suppu lier that provides more than 15% of thet
station’s weekly programming hours) or a same-market media entity will be an attributable owner of a station if thet
market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus
equity. For purposes of the equity-debt-plus rulr e, equiq ty includes all stock, whether voting or nonvoting, and equity held by insulated
limited partnett
rs in limited partnerships. Debt includes all liabia lities, whethet
ity stockholder or other appa
r long-term or short-term.
licable exception to the FCC’s
supplier or same-
Under the ownership rulr es currently in place, the FCC generally permits an owner to have only one television station per
market. A single owner is permi
rent markets.
The FCC’s rulr es regarding ownership permit, however, an owner to operate two television stations assigned to the same market so
long as either:
ing signals so long as they are assigned to diffeff
tted to have two stations with overlappa
r
the television stations do not have overlappa
ing broadcast signals; or
there will remain after the transaction eight independently owned, fulff
television stations in the market and one of the two commonly-owned stations is not ranked in thet
audience share.
l power noncommercial or commercial operating
r based upon
top fouff
The FCC will consider waiving these ownership restrictions in certain cases involving failing or faiff
led stations or stations which
are not yet built.
The FCC permits a television station owner to own one radio station in the same market as its television station. In addition, a
television station owner is permitted to own additional radio stations, not to exceed the local radio ownership limits forff
follows:
the market, as
in markets where 20 media voices will remain, a television station owner may own an additional five radio stations, or, if
the owner only has one television station, an additional six radio stations; and
in markets where ten media voices will remain, a television station owner may own an additional three radio stations.
A “media voice” includes each independently-owned and operated full-power television and radio station and each daily
all cabla e television systems
a
that has a circulation exceeding 5% of the households in the market, plus one voice forff
newspaper
operating in the market.
The FCC rules imposemm
a limit on the numbem r of television stations a single individual or entity may own nationwide.
25
The numbem r of radio stations an entity or individual may own in a radio market is as follows:
In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM).
In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up tu
o
seven commercial radio stations, not more than four of which are in the same service (AM or FM).
In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up tu
o
six commercial radio stations, not more than four of which are in the same service (AM or FM).
In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up tu
radio stations, not more than three of which are in the same service (AM or FM), except that a party may not own,
radio stations in such market.
operate, or control more than 50% of thet
o fivff e commercial
Because of these multiple and cross-ownership rules, if one of our stockhok
lders, officff ers or directors holds a “cognizable”
interest in our compamm ny, such stockholder, offiff cer or director may violate the FCC’s rulrr es if such person or entity also holds or
acquires an attributable interest in other television or radio stations or daily newspapea
and location. If an attributable stockholder, officer or director of our compam ny violates any of these ownership rulr es, we may be unabla e
to obtain from the FCC one or more authorizations needed to conduct our broadcast business and may be unable to obtain FCC
consents for certain future acquisitions.
rs in such markets, depending on their numbem r
Pursuant to the Communications Act, the FCC is requiq red, on a quaq drennial basis, to review its media ownership rulrr es. In 2014,
the FCC initiated a new Quadrennial Review and incorporated the existing 2010 record into that proceeding. Among the actions
ultimately taken by the FCC were ones to eliminate the newspaper/br
oadcast cross-ownership rule, eliminate the radio-television
cross-ownership rule, eliminate the so-called “eight voices” test that made it difficuff
market, and to allow forff
2014 proceeding was ultimately completed in late 2016, then reconsidered in late 2017, and is presently the subjecb
The next Quadrennial Review was commenced in late 2018.
a case-by-case review of the prohibition on ownership of the two of the top four stations in a market. The
lt to own more than one station in a smaller
rr
t of judicial review.
ff
amend the FCC’s methodology forff
The rulrr e changes that have previously gone into effect
defining a radio market for the
ing local radio markets in favff or of a geographic
purpose of ownership caps. The FCC replaced its signal contour method of definff
market assigned by Nielsen Audio, the private audience measurement servicrr
radio broadcasters. For non-Nielsen Audio markets,
e forff
the FCC is conducting a rulrr emaking in order to define markets in a manner comparable to Nielsen Audio’s method. In the interim, the
approach will exclude any radio station
roach,” to non-Nielsen Audio markets. This modifiedff
FCC will appa
whose transmitter site is more than 58 miles froff m the perimeter of the mutual overlap aa
ownership, the FCC adopted a presumptmm ion that
television markets, while the presumption, in smaller markets, is that such cross-ownership is not consistent with thet
u
subject
t newspaper-broadcast ownership is consistent with the public interest in the top 20
newspaper-broadcast cross-
ly a “modified contour appa
to certain exceptions.
public interest,
rea. As forff
With regard to the national television ownership limit, the FCC increased the national television ownership limit to 45% from
35%. Congress subsu equently enacted legislation that reducd ed the nationwide cap to 39%. Accordingly, a companym
can now own
television stations collectively reaching up to a 39% share of U.S. television households. Limits on ownership of mulm tiple local
television stations still apply, even if the 39% limit is not reached on a national level.
ff
In establishing a national cap ba
y statute, Congress did not make mention of the FCC’s UHF discount policy, whereby UHF
ished its UHF discount
stations are deemed to serve only one-half of the population in their television markets. The FCC had abol
red ownership interests in place at the time of the decision. However, that decision was recently reconsidered by
policy, but grandfathe
the FCC and the UHF discount policy was reinstated. The FCC has previously determined that Univision’s television station interests
are attributable to certain of our television interests in determining the television interests we must count for local and national
multiple ownership purporr
nationwide cap and the
UHF discount. Should the UHF discount be eliminated or the nationwide cap be interpreted to treat all stations on an equal basis, we
may, in the absa ence of a grandfathering provision, have to divest stations or, should there be a grandfathering provision, be limited in
our abia lity to acquire additional television stations.
ses. In addition, the FCC has commenced a rulemaking process to consider both thet
a
26
The Communim cations Act requires broadcasters to serverr
the “publu ic interest.” The FCC has relaxed or eliminated many of the
more formalized procedures it developed to promote the broadcast of certain types of programming responsive to the needs of a
ess, a broadcast licensee continues to be required to present programming in
broadcast station’s community of license. Neverthel
response to community problems, needs and interests and to maintain certain records demonstrating its responsiveness. The FCC
considers complaints from the public about a broadcast station’s programming when it evaluates the licensee’s renewal appli
cation,
but complm aints also may be filed and considered at any time. Stations also must follow various FCC rulrr es that regulate, among other
things, political broadcasting, the broadcast of profanff
contests and lotteries and technical operations.
e, obscene or indecent programming, sponsorship identification, the broadcast of
a
t
The FCC requires that licensees musmm t not discriminate in hiring practices. It has recently released new rulrr es that will require us
ff
Emplm oyment Opportunity, or EEO, rules set forth at
our stations and to keep records of our complm iance with these
l-time emplm oyees that requiq res the wide dissemination of inforff mation regarding fulff
h
n to requesting recruitment organizations of such vacancies, and a numbem r of non-vacancy related outreac
to adhere to certain outreach practices when hiring personnel forff
requirements. The FCC’s Equalq
for companies with five or more fulff
vacancies, notificatio
efforts such as job fairs and internships. Stations are required to collect various information concerning vacancies, such as the number
tment sources used to fill each vacancy, and the number of persons interviewed for each vacancy. While stations are not
filled, recruirr
required to routinely submit information to the FCC, stations mustmm place an EEO report containing vacancy-related information and a
description of outreac
renewal applications, and television stations with fivff e or more fulff
l-time emplmm oyees and radio stations with more than ten emplm oyees
also must submit the report midway through their license term for FCC review. Stations also must place their EEO public file report
on their Internet websites, if they have one. The EEO rules
our operations. Failure to comply with the FCC’s
EEO rules could result in sanctions or the revocation of station licenses.
ir public filff e annually. Stations must submit the annual EEO public filff e report as part of their
three-pronged recruitment and outreach program
do not materially affect
h efforts in thet
l-time
tt
r
ff
t
The FCC rules also prohibit a broadcast licensee from simulcm asting more thant
in the same broadcast service (that is, AM/AM or FM/FM). The simulcasting restriction appl
broadcast stations or owns one and programs the other through a local marketing agreement, provided that the contours of the radio
stations overlap in a certain manner.
a
25% of its programming on another radio station
ies if the licensee owns both radio
ii
Ret
ratt nsmissi
on Consent and Mu
and Compem tition Act of 1992, or thet Cable Act, require each fulff
beginning October 1, 1993, to either:
st Carryrr Rules. FCC regulations implm ementing the Cable Television Consumer Protection
l-power television broadcaster to elect, at three-year intervals
require carriage of its signal by cable systems in the station’s market, which is referred to as “must carry” rulrr es; or
negotiate the terms on which such broadcast station would permit transmission of its signal by the cable systems within its
market, which is referred to as “retransmission consent.”
For the three-year period commencing on January 1, 2018, we generally elected “retrat nsmission consent” in notifying
ff
the
l-service television programming in our television markets. We have arranrr
gements or have entered into
early all of our MVPDs as to the terms of the carriage of our television stations and the compenmm sation we will
MVPDs that carry our fulff
agreements with nt
receive for granting such carriage rights, including through our national program supplier for Spanish-language programming,
Univision, forff
stations in the same television market that are not commonly-controlled are not permitted to engage in joint negotiations for
retransmission consent. This rule prohibits us and Univision from negotiating retransmission consent jointly, or fromff
such negotiations, in those television markets where both compam nies own television stations.
ated television stations, for the three-year period. As previously discussed, television
our Univision- and UniMás-affili
coordinating
ff
The FCC has rules that govern the negotiation of retransmission consent agreements based on a policy decision to have those
th. The FCC is undertaking a proceeding that could result in establishing new ground rulrr es forff
agreements negotiated in good faiff
negotiations, including prohibiting certain negotiating practices on the part of broadcasters. We are not certain whether or in what
form such provisions might be adopted and the impactm
negotiations. Under the FCC’s rulrr es currently in effecff
television station. As an element of thet
availabla e to our MVPD viewers, no matter whether they obtain their cable service in analog or digital modes. Cable systems are
rapidly transitioning to providing their services in digital and we expect that analog cable service will be terminated by most cabla e
.
operators and in most markets in the near futff urett
of such changes on our negotiations and the economic results of such
t, cabla e systems are only required to carry one signal froff m each local broadcast
retratt nsmission consent negotiations described above, we arranged that our broadcast signal be
such
We continue to explore and develop, subject to our legal rights to do so, and the economic opportuni
tt
ties available to us, thet
distribution of our programming in alternative modes, such as by delivery on the Internet through services knok wn as “over-the-top” or
“OTT” servirr ces, by multicast delivery services, and to individuals
possessing wireless mobile reception devices.
dd
27
Time Brokerage, Joint Sales Agreementstt and Shared Services Agreemgg
ents. We have, from time to time, entered into time
brokerage, joint sales and shared services agreements, generally in connection with pending station acquisq
itions, under which we are
given the right to broker time on stations owned by third parties, agree that other parties may broker time on our stations, we or other
parties sell broadcast time on a station, or share operating services with another broadcast station in the same market, as the case may
be. By using these agreements, we can provide programming and other servirr ces to a station proposed to be acquiq red beforff e we receive
all applicab
able to undertake programming and/or sales effoff
le FCC and other governmental approvals, or receive such programming and other services where a third party is better
rts forff
us.
a
tt
FCC rules and policies generally permit time brokerage agreements if the station licensee retains ultimate responsibility for and
control of the appa
which we have time brokerage agreements or that we will receive the anticipated revenue from the sale of advertising for such
programming.
licable station. We cannot be sure that we will be able to air all of our scheduld ed programming on a station with
Under a typical joint sales agreement, a station licensee obtains, for a fee, the right to sell substantially all of thet
commercial
advertising on a separately owned and licensed station in the same market. It also involves the provision by the selling party of certain
sales, accounting and services to the station whose advertising is being sold. Unlike a time brokerage agreement, the typical joint sales
agreement does not involve operating the station’s program format.
In a shared services agreement, one station provides services, generally of a non-programming naturt e, to another station in thet
same market. This enables the recipient of the services to save on overhead costs.
As part of its increased scrutiny of television and radio station acquisitions, the Department of Justice, or DOJ, has stated
publu icly that it believes that time brokerage agreements and joint sales agreements could violate thet Hart-Scott-Rodino Antitrust
Imprm ovements Act of 1976, as amended, or the HSRA,RR if such agreements take effect prior to the expiration of the waiting period
under the HSRA. Furthermore, the DOJ has noted that joint sales agreements may raise antitrust concerns under Section 1 of thet
Sherman Antitrust Act and has challenged them in certain locations. The DOJ also has stated publu icly that it has establish
revenue and audience share concentration benchmarks with respect to television and radio station acquq isitions, above which a
transaction may receive additional antitrust scrutiny. See “Risk Factors” below.
a
r
ed certain
Digital Television Services. The FCC has adopted rules for implementing digital television service in the United States.
Implm ementation of digital television has improved the technical quality of television signals and provides broadcasters the flexff
offer
full-power
ff
television stations was completm ed in 2009.
new services, including high-definition television and broadband data transmission. The digital transition forff
ibility to
The FCC has required full-power and Class A television stations in the United States to operate in digital television. The
transition date for low-power television stations to convert to digital or halt operations has been postponed until July 13, 2021. We
have timely completed the digital transition of all of our full-power and Class A television stations to the digital mode. We are in the
process of transitioning certain of our low-power stations to the digital mode where we believe is in our best interest to do so. We will
make additional decisions during the post-incentive auca
accommodate our low-power television stations.
tion and repacking period, as we determine the availabia lity of spectrum to
The FCC has adopted rules to permit low-power stations to operate on a paired or stand-alone basis in digital service. We have
secured authority for certain of our low-power stations to have paired operations or operate in digital. In certain cases, we have
requested authority to “flash cut” certain of our low-power stations to digital service. In those markets where no spectrum was
available for paired operations, we will make a decision to switch individual stations from analog to digital service based on the
viewing patterns of our viewers. We continue to review futff uret
analog and will determine whether to switch them to digital in advance of the 2021 deadline.
use of certain of our low-power stations that continue to operate in
Equiq pment and other costs associated with the transition to digital television, including the necessity of temporary dual-mode
operations and the relocation of stations from one channel to another, have impom sed some near-term financial costs on our television
stations providing the services. The potential also exists for new sources of revenue to be derived froff m use of the digital spectrum,
which we have explored in certain of our markets.
28
Digii
tal Radio Services. The FCC has adopted standards for auta horizing and implm ementing terrestrial digital audio broadcasting
technology, known as “In-Band On-Channel™” or HD Radio, forff
traditional analog broadcasting technology include improved sound quality and the ability to offer
services. This technology permi
only forff mats, using the bandwidth that the radio station is currenrr
rolling out this technology on a gradual basis owing to the absa
its merits as well as its costs. It is unclear what effect
ff
ts FM and AM stations to transmit radio programming in both at
r
ff
tly licensed to use. We have elected and commenced the process of
ence of receivers equipped to receive such signals and are considering
such technology will have on our business or the operations of our radio stations.
radio stations. Digital audio broadcasting’s advantages over
a greater variety of auxiliary
nalog and digital formats, or in digital
Radio Frequencyc Radiation. The FCC has adopted rules limiting human exposure to levels of radio freff quency radiation. These
rules require applicants forff
applicant’s broadcast facility would expose people to excessive radio freff quency radiation. We currently believe that all of our stations
are in complm iance with the FCC’s current rulrr es regarding radio freff quency radiation exposure.
renewal of broadcast licenses or modification of existing licenses to informff
the FCC whether an
ion permits for such stations. Pursuant to legislation adopted in 2011, thit s service is being expanded and the opportuni
Low-Power Radio Broadcast Service. The FCC has created a low-power FM radio service and has granted a limited number of
ties for
operation of low-power FM radio stations, with a maximum
roximately three and one-half miles. The low-power
construct
r
FM translator stations reduced. The low-power FM servirr ce allows for thet
power level of 100 watts. The 100-watt stations reach an area with a radius of appa
FM stations are required to protect other existing FM stations, as currer ntly required of fulff
l-powered FM stations.
tt
The low-power FM service is exclusively non-commercial. To date, our stations have not suffered any technical interferff ence
non-commercial ownership requiq rement forff
from such low-power FM stations’ signals. Due to current technical restrictions and thet
low-power FM stations, we have not found that low-power FM service has caused any detrimental economic impact on our stations as
well. Federal legislation has resulted in the increase in the availability of thet
granting new low-power FM authorizations. We do not foresee any material impactm
low-power FM service and the FCC has recently begun
on our stations as a result of this legislation.
Other Proceedings. The Satellite Home Viewer Imprmm ovement Act of 1999, or SHVIA, allows satellite carriers to deliver
r
air from local television
on the satellite system. We have taken advantage of this law to secure carriage of our fulff
broadcast programming to subsu cribers who are unabla e to obtain television network programming over thet
stations. Congress in 1999 enacted legislation to amend the SHVIA to facilitate the abia lity of satellite carriers to provide subscribers
with programming froff m local television stations. Any satellite compamm ny that has chosen to provide local-into-local service musm t
provide subscribers with all of the local broadcast television signals that are assigned to thet market and where television licensees ask
to be carried
l-power stations in those markets
where the satellite operators have implemented local-into-local service. SHVIA expired in 2004 and Congress adopted the Satellite
Home Viewer Extension and Reauthorization Act of 2004, or SHVERA.RR SHVERA extended the abia lity of satellite operators to
implem ment local-into-local service. SHVERA eRR
Extension and Localism Act, or STELA. STELA provided a furff
adopted in SHVIA and SHVERA and was further
STELAR. STELAR will expire in 2019 and it is expected that renewal legislation will be introducd ed and, we expect, enacted. To thet
ll” rule is no
extent we have decided to secure our carriage on DBS thrt ough retransmission consent agreements, the “carry one/carry arr
longer relevant to us. The FCC has been undertaking a proceeding dealing with the revitalization of thet AM band and thet
results may
affect the ability of certain of our AM radio stations to impromm ve their signal carriage.
renewed in late 2014 under the terms of the STELA Reauthorization Act of 2014, or
xpired in late 2009, but was extended in May 2010 by the Satellite Television
ther five-year extension of the “carryrr
ll” rule earlier
one/carry arr
t
White Spaces. The FCC has adopted rulrr es, that
was to make available unused spectrumtt
to allow unlicensed users to operate within the broadcast spectrum in unoccupieu
the rules
rr
computmm ers and related devices and the Internerr
Broadcast groups, on the other hand, believe that operation of unlicensed devices in the “white spaces” has the potential for causia
interference to broadcast reception. It is premature to judge the potential impacm t of what services, if any, operate under the FCC’s rulr es
on over-the-air broadcasting.
for use in connection with wireless functions related to connectivity between
t. The FCC believes that the provisions it adopted will protect broadcast services.
t are under appeal by the National Association of Broadcasters and other parties,
“white spaces.” The intention of
d parts known as thet
ng
rr
Performance
Tax. While radio broadcasters have long paid license fees to composmm ers for the musical works they have written,
radio broadcasters have never compenm sated musical artists for thei
broadcasting industry provided artists, freeff
t
of charge, with a promotional service for thet
ir performance.
r recordings of these worksr
. The rationale was that the radio
As the entire music industry has changed, with revenues froff m the sale of CDs continuing to drop dramatically, both musm ical
artists and the recording companies have sought a change in how business is done. The recording companies, with the backing of
many artists, have asked Congress to require that broadcasters pay fees for the broadcast exploitation of musim cal works. Such
legislation received favorabla e committee action in Congress during 2009 and 2010, but no legislation was then enacted. Congress has
not taken any subsu equeq nt actions, but the issue remains under consideration. Were such legislation to be adopted, its impamm ct would
depend on how any fees
were structured.
ff
29
ss
ive Auction. After studytt
Spectrum Policies/Incent
be made availablea
associated spectrum needs for telephony, data transmission, and entertainment purposes. In order to avert a spectrum crisis, thett
proposed to recover and reallocate to wireless broadband a total of 500 MHz of spectrumt
(amounting to 20 channels of 6MHz each) to come fromff
ing national broadbad nd needs, the FCC determined that more spectrum should
for wireless broadband services based on the growing usage of wireless devices by consumers and businesses and
FCC
, of which the FCC expected up to 120 MHz
spectrum currently allocated to over-the-air television broadcasting.
In order to achieve this spectrut m reallocation, Congress enacted legislation and the FCC establa ished a mechanism for
a
ion payments would go to broadcasters, and what rights, if any, stations that relinquished spectrumr
broadcasters to participate in a “voluntary incentive auction” in which interested station owners would offerff
the spectrutt m usage rights
of their stations in a “reverse auction”, providing spectrum usage rights forff wireless operators to purchase in a simulmm taneous or futurett
“forff ward auction”. Through a series of rulrr emaking proceedings, the FCC established how stations would be valued, what percentage
usage rights or stations
of the auct
agreeing to share spectrum usage rights would retain following the complm etion of thet
auction process in April 2017, the FCC provided forff
over-the-air broadcast stations. This repacking will have an
mid-2020, in order to deal with the reduction in spectrum availabla e forff
impam ct certain of our fulff
levels of interference protection and other
regulatory provisions may be altered to accommodate the reduction in available broadcast channels. The FCC has been authorized to
use certain of the proceeds derived froff m the auction to reimburse broadcasters for certain costs associated with such repacking and
where our stations are affect
have commenced the repacking of our stations which, as of the present time, are in compliance with the FCC’s schedule for
undertaking the transition to post-auction channels.
ed by the repacking, we have sought reimbursement to limit the economic impacmm t of repacking on us. We
a repacking of the television band, commencing in late 2018 and extending until
l-servirr ce and Class A stations which have to be relocated, and thet
auction process. Following the complm etion of thet
ff
t
The incentive auction process resulted in the FCC recovering from broadcasters 84 MHz, or thet
equivalent of 14 television
channels of 6 MHz each. The reductd
repacking process, affect
ff
ing certain of our broadcast television stations.
ion in thet
amount of spectrum recovered, froff m 120 MHz to 84 MHz, set the stage for thet
ir spectrumrr
We applied to participate in the reverse auction to monetize a portion of our spectrutt m usage rights. We returned the spectrum
r of our full-service and Class A stations and we received proceeds of appa
ements.
ent, a station that has returt ner d spectrum (known as a sharee) enters into an agreement, meeting
for fouff
the incentive auction, stations that returtt ner d thet
Under a channel sharing arrarr ngema
certain requirements set by the FCC, with another station that has not returtt ner d spectrum (known as thet
sharer), and the two parties
then divide the authorized spectrum of the sharer enabling both to continue to transmit programming but with smaller amounts of
bandwidth. A reducd tion in bandwidth mt
be derived fromff
of our stations. In the case of the othet
certain of thet
arrangements are now in full operation.
r two stations, we have signed channel sharing agreements with third parties and expended
incentive auction proceeds as consideration for the third parties to serverr
such servirr ce. In the case of two of our stations that returtt nerr d spectrumrr
were entitled to engage subsequently in channel sharing arrang
as our hosts. All of those channel sharing
ay reduce the ability of a station in offeri
ng multicast programming and thet
roximately $264 million in 2017. Under the terms of
, they are engaged in channel sharing with other
revenue that can
r
ff
The reducdd tion in available spectrumr
arising froff m the post-auca
tion repacking process may also have a detrimental impam ct on low-
power stations (other
t
than Class A stations), which are not protected owing to their secondary status.
Regulation of Digital Advertising
We are subject
b
to many United States federal and state laws and regulations, as well as laws and regulations of other
jurisdictions, applicable to businesses engaged in providing digital media advertising services. These laws potentially can affecff
t our
business to the extent they restritt ct our business practices, increase our cost of compliance or impose a greater risk of liabia lity. These
laws and regulations continue to evolve and may substantially impam ct our ability to derive revenue from targeted digital and other
advertising and marketing, and are likely to imposm e additional complmm iance costs on our operations.
Compliance with privacy, data protection and data security laws plays a significant role in our business. In the United States,
edff
eral and state laws regulate activities inherent to digital advertising, including the collection, use, sharing, and distribution of
t
both f
consumer data by us and by companies with which we do business in the course of providing digital media services. We also rely on
the services of third parties in gathering, using and storing consumer data, and these parties’ compliance with appa
licable laws affects
our own complmm iance status. Because we interact with consumers outside thet United States and provide services to advertisers who
themselves interact with those consumers, the laws of other jurisdictions may also apply to the types of servirr ces we provide andaa
gathering, use, and sharing of the personal information of our viewers, listeners, and digital media users. Privacy and data protection
regulations have gained substantial publu icity and attention in light of growing consumer expectations both forff
well as privacy, especially in light of publu icized data breach incidents and allegations of undisclosed and uncontested use of
consumers’ personal informff
often taking the form of consumer class actions. The regulatory standards continue to evolve in ways that impose additional
ation, and increasingly are the subjeb ct of regulatory arr
ttention and enforcement as well as private litigation
enhanced servirr ces as
to the
ff
30
complmm iance costs and risks on businesses, like ours, that possess and/or process consumer data. Of particular importance is the
enactment of the California Consumer Privacy Act that will become effective on January 1rr
on the use of personal informff
information and device location data, among other categories of informff
individual consumers, including the right to object to certain marketing uses of their inforff mation. Becausa e of our targeted digital
advertising strategies, we will be required to implm ement procedures to implem ment and recognize these rights and restrictions, imposing
both ot
may be imprm actical to maintain parallel complmm iance processes across our markets.
perational costs and potential loss of revenues. The impact of the CCPA likely will extend beyond our California markets as it
ation and substantially expands the definition of covered personal informff
ation. The CCPA also provides rights and remedies to
, 2020. The CCPA imposm es new restrictions
ation to include geolocation
Online advertising activities in the United States primarily have been subject to regulation and enforff cement by the Federal Trade
Commission, or FTC, which principally relies on its enforcement authority under Section 5 of the Federal Trade Commission Act to
investigate and respond to allegedly unfair or deceptive acts and practices. Section 5 has been the primary regulatory tool used to
respond to claims of deceptive or inadequate privacy policies, inadequate data security practices and misuse of consumer data. The
FTC’s enforcement focus has included close attention to thet mobile advertising industry. For example, in Decemberm 2012, the FTC
adopted amendments to rules under the Children's Online Privacy Protection Act, or COPPA, which went into effect
in July 2013.
potential applicability of COPPA compliance obligations to our activities and those of our clients
These amendments broaden thet
when interacting with children. In addition, the FTC’s testimonial and endorsement guidelines were updated in late 2009 and provide
additional and expanded guidance for advertising practices using endorsements, testimonials, and similar content. In addition to
formal rules and guidelines, the FTC’s active enforcement in the digital media indusd try cr
digital advertising practices as deceptive or unfair. State consumer protection laws and the enforcement of those laws by state
attorneys general also imposem
substantial complimm ance risks on our business. By way of furthet
children’s privacy law also has been expanded and potentially reaches consumers not covered by COPPA. Because we rely upon third
parties to assist us in operating and managing digital advertising and marketing strategies, our compliance obligations (and attendant
risks) include the acts and omissions of those third parties.
reates evolving precedent for challenging
r examplm e, California’s parallel
ff
The FTC has devoted particular aa
ttention to businesses within the digital media channel where the FTC has determi
taa
ned thatt
occurred or are likely to occur. The FTC focuses its enforcement resourcuu es on the accuracy of
r
potentially abusive practices haveaa
consumer disclosures, data securiuu ty, data practices trantt
communiu cated its intention to focus on the use of data to disadvandd
been paid to data brokers and aggregators of the typtt
some circumstances, thet
brought enforcement actions against parties based on the activities of thett
risk for acts other than our own.w
FTC has taken the position that advertisers may baa
e that
sparency, consumer tratt cking, and data aggregation. More recently, the FTC has
tage vulnerable or minority communmm ities, and particular attett ntion has
ements. In
and has successfully
f enforcement
t may assist us in creating consumer profiles anda
e liable for the acts of channel
in serving advertisrr
tt
partners
This creates the possibility ott
ir channel partners.
a
tt
The FTC also has emplmm oyed its Section 5 authot
rity to take action against digital advertising businesses with regard to their data
security practices and policies, even apart from its traditional enforff cement of privacy regulations and standards.
State attorneys general also enforce
ff
consumer protection laws, some modeled after the Federal Trade Commission Act, in ways
that affect the digital advertising industry. In addition, several states mandate specific data security measures, and 47 states and the
District of Columbia enforce
enforcement, in the event of a covered data security incident.
data breach notificff ation laws that require notificff ation to consumers and, in some instances, law
ff
In othet
regulation of digital advertising largely relies on applying regulatory constrai
on pornographi
r markets we serve, the regulation of consumer practices in digital advertising is less mature. In Mexico, for example, the
tt
peech) to digital advertising.
nts on traditional print advertising (such as prohibitions
c or politically inflammatory srr
a
rr
s still evolving. U.S. and forff eign governments have enacted, have considered
The issue of privacy in the digital media indusd try i
or are considering legislation or regulations that could significan
analyze, use and share consumer data, such as by regulating the level of consumer notice and consent required before a companym
emplm oy “cookies” or other electronic tools to track online activities. Enforcement bodies are developing rules and enfoff rcement
standards applicable to thet
creation and management, and consumer access to and control over their individual online profilff es and thet
through “Internet of Things” technology. The privacy and data security laws of Mexico, though still evolving, present a particular
compliance obligation given our relationship with Mexican consumers. Mexican law mandates the appa
security measures and the consent of individuals beforff e processing their personal information.
collection, storage and use of geolocation data, biometric data, transparency of consumer data profile
tly restrict industry participants’ ability to collect, retain, augment,
lication of adequate data
collection of consumer data
can
ff
31
The European Union, or EU, and its member states traditionally regulated digital advertising practices pursuant to Directive
enting national legislation. Effectiv
95/46/EC (commonly known as the “Data Protection Directive”) and implemm
e as of May 1, 2018,
the EU’s General Data Protection Regulation (“Regulation”) replaced the Data Protection Directive. The Regulation reaches a greater
range of data processing practices that occur outside the EU than was the case under thet Data Protection Directive, imposes
substantially greater penalties for its violation, and imposm es greater notice, consent, and data processing obligations than did thet Data
Protection Directive. Current and developing EU law, among other things, requiq res advertisers to obtain specific types of explicit
notice to and consent from individuals beforeff
deliver targeted advertisements, increases monetary penalties for non-complm iance, extends the extraterrirr torial reach of EU data
protection laws, and grants consumers the rights in some circumstances to require that their data no longer be stored or processed. It
remains a possibility that additional legislation may be passed or regulations may be enacted in the futff urtt e. The Regulation increases
e’s gross global turnover. The decision by the United Kingdom to
monetary penalties for its breach that can equal 4% of an enterpris
withdraw from the EU, and the current lack of a negotiated framework for the withdrawal, including the absence of a means of
maintaining freff e floff ws of inforff mation between the EU and the United Kingdom, have created new uncertainty as to the scope and
content of U.K. privacy laws. Additionally, other jurisdictions continue to develop enhanced data protection and security laws.
using cookies or other technologies to track individuals and their online behavior and
ff
rr
The regulation of cross-border data transfers is in a state of heightened uncertainty, with the EU having invalidated the EU/U.S.
arbor regime, which has been a principal means of bringing the transfer of the personal data of European nationals to certain
Safe Hff
jurisdictions, particularly the United States. The EU and the United States have entered into a new Privacy Shield framework to
Safe Harbor, but the Privacy Shield also may be challenged on the same grounds as was the Safe Harbor.
replace thet
We also participate in industryt
self-regulatory prr
rograms under which, in addition to othet
r complm iance obligations, we provide
consumers with notice aboa ut our use of cookies and our collection and use of data in connection with the delivery of targeted
advertising and allow thet m to opt-out from the use of data we collect for the delivery of targeted advertising. The rulrr es and policies of
the self-regulatory programs in which we participate are updated froff m time to time and may impose additional restrictions upon us in
t
the futff ure.
Additionally, in the United States and, increasingly, in other jurisdictions, consumers are provided private rights of action to fileff
civil lawsuits, including class action lawsuits, against compam nies that conduct business in the digital media indusd try, including makers
of devices that display digital media, providers of digital media, operating system providers, third party networks and providers of
Internet-connected devices and related services. Plaintiffs in these lawsuits have alleged a range of violations of federal, state and
common law, including computer trespass and violation of privacy laws. Recent appellate decisions have affirmff
ed the standing of
consumers to initiate class and mass action litigation to remedy breaches of their privacy rights and injuries resulting froff m data
breaches. State attorner ys general in most states have thet
authority to bring similar actions on behalf of their residents.
Any failure, or perceived faiff
lure, by us to complym with U.S. federal, state, or applicabla e internar
pertaining to privacy or data protection, or other policies, self-rff egulatory requirements or legal obligations could result in proceedings
or actions against us by governmental entities or others, and also could result in reputational injun ry and/or monetary finff es.
tional laws or regulations
32
ITEM 1A. RISK FACTORS
If we cannot raise requiredii
capia taii
l, we maya have to reduce or curtail certain existingtt
operations.
We require significant additional capital for general working capital and debt servirr ce needs. If our cash floff w and existing
ient to fund our general working capital and debt service requirements, we will have to raise additional
working capia tal are not sufficff
funds by selling equity, issuing debt, refinancing some or all of our existing debt, selling assets or subsidiaries and/or curtailing certain
operations. None of these alternatives for raising additional fundff
amounts suffiff cient for us to meet our requiq rements. In addition, our ability to raise additional funff ds and engage in acquisitions and
divestiturt es is limited by the terms of the 2017 Credit Agreement. Our failure to obtain any requiq red new finff ancing may, if needed,
could have a material adverse effeff ct on our results of operations and finff ancial condition.
s may be available, or available on terms satisfactory to us, in
Our substantialii
level of debt couldll
limit our ability to grow and compete.ee
Our total indebtedness was appro
a
ximately $246.2 million as of Decemberm 31, 2018. A significant portion of our cash flow from
operations is and will continue to be used to service our debt obligations, and our ability to obtain additional finff ancing is limited by
2017 Credit Agreement. We may not have sufficient futff urtt e cash floff w to meet our debt payments, or we may not be
the terms of thet
able to refinance any of our debt at maturity. We have pledged all of our domestic assets and our existing and future domestic
subsidiaries to our lenders as collateral. Our lenders could proceed against the collateral to repay outstanding indebtedness if we are
unabla e to meet our debt servirr ce obligations. If amounts outstanding under thet
assets may not be sufficient
2017 Credit Agreement were to be accelerated, ouruu
to repay in full thet money owed to such lender.
ff
Our substantial indebtedness could have importm
ant consequences to our business, including without limitation:
preventing us, under the terms of the 2017 Credit Agreement, from obtaining additional financing to grow our business
and compemm te effecff
tively;
limiting our ability, as a practical matter, to borrow additional amounts forff working capital, capital expenditures,
acquisitions, debt service requirements, execution of our growth st
trategy or other purposes; and
placing us at a disadvantage compam red to those of our compem titors who have less debt.
The 2017 Credit Agreement contains various covenants that limit
could limit our ability tott grow and compete.
ii
managements discretion in the operation of our business and
Subject to certain exceptions, the 2017 Credit Agreement contains covenants that limit the abia lity of us and our restricted
subsidiaries to, among other thit ngs:
incur liens on our property or assets;
make certain investments;
incur additional indebtedness;
consummate any merger, dissolution, liquidation, consolidation or sale of substantially all our assets;
make certain acquisitions;
dispose of certain assets;
make certain restricted payments;
enter into substantially different lines of business;
enter into certain transactions with affiliates;
use loan proceeds to purchase or carryrr margin stock or for any other
t
prohibited purpose;
change or amend the terms of our organizational documents or the organization documents of certain restricted
subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;
enter into sale and leaseback tratt nsactions;
make prepayments of any subordinated indebtedness, subject to certain conditions; and
change our fisff cal year, or accounting policies or reporting practices.
33
Moreover, if we fail to compm ly with certain customary terms of defaul
ff
t under thet
2017 Credit Agreement, our lenders could:
elect to declare all amounts borrowed to be immediately due and payable, together with accrued and unpaid interest;
and/or
terminate their commitments, if any, to make furff
ther extensions of credit.
Any such action by our lenders would have a material adverse effect
ff
on our overall business and financial condition.
cally, we have a histii ortt yr of net losses in some periods and net income in other
tt
periods,s althll oughu
in recent years, we have
Histii ori
tt
not expexx rienced net losses. Were we tott experience net losll
ii
contintt ue to operate our business
as it is presentlytt
.dd
conducted,dd couldll be jeopardizedii
ses again, our ability to comply with the 2017 Creditdd Agreement and
We reported net income of $12.2 million and had positive cash flow from operations of $33.8 million for the year ended
Decemberm 31, 2018. We reported net income of $175.7 million and had positive cash flow from operations of $301.5 million forff
the
year ended Decemberm 31, 2017. Additionally, as of December 31, 2018, we had an accumulated deficit of $528.2 million. If we were
to experience net losses and/or declining net revenue over a period of time, there could be an adverse effect
capia tal resources. In addition, if events or circumstances occur such that
our business as it is presently conducted, we may be required to obtain additional equity or debt financing, refinff ance our existing debt,
sell assets and/or curtail certain operations. There is no assurance that any such transactions, if requiq red, could be consummated on
terms satisfactory to us or at all. Any defauff
additional financing if needed, would have a material adverse effeff ct on our overall business and financial condition.
lt under our 2017 Credit Facility, or inability to renegotiate such agreements or obtain
t we were not able to generate positive cash flow and operate
on our liquidity and
ff
If we are not able to properlyll remediati ett materiali weaknesses or are other
ii
l over financi
contrott
maintii aitt nii our stocktt
intt g, we maya not be ablell
alii
exchange listing or prevent fraurr
to accurateltt yll report our finaii ncial resultsll
d.
ee
report
tt
wiseii unable to maintain an effect
ff
ivett
system of internal
,s timeii
ly filii ell our periodicii reports,tt
As reported in “Item 9A—Controls and Procedures” contained in this report, management identifiedff
a material weakness in our
internal control over finff ancial reporting for the fiscal
year ended Decembem r 31, 2017 with respect to our 2017 acquisition of 100% of
several entities collectively doing business as Headway (“Headway”). While we have implm emented certain measures that we believe
will remediate this material weakness, we have not yet fully remediated this material weakness and we can provide no assurance that
our remediation efforts will be effective.
ff
al
In addition, management identified two other material weaknesses in our internal control over financial reporting for the fiscff
year ended Decembem r 31, 2018. Management has discussed them with the Audit Committee and is in the process of identifyiff ng the
steps necessary to design a remediation plan and remediate the material weaknek sses.
Under standards established by the Securities and Exchange Commission, a material weakness is a deficiency, or combination
of deficiencies, in internal control
our annual or interim financial statements will not be prevented, detected or corrected on a timely basis.
ncial reporting such that there is a reasonable possibility that a material misstatement of
over finaff
tt
If additional material weaknesses or significant deficiencies in our internal control
tt
existing material weaknesses are not fulff
occur in the future, or thet
statements may contain material misstatements that are unknown to us at that time, and such misstatements could requiq re us to restate
our finff ancial results. Our management or our independent registered public accounting firm may identify other material weaknesses in
our internal control over financial reporting in the future. The existence of a material weaknesses in our internal control over finff ancial
reporting may affect our abia lity to timely file periodic reports under the Exchange Act, which could consequently result in the New
York Stock Exchange delisting our Class A common stock or other
regulatory actions that may be initiated against us by the SEC.
t
Any of these events could have a material adverse effeff ct on the market price of our Class A common stock or on our business,
financial condition and results of operations.
over financial reporting are discovered or
ly remediated, there exists a risk that our consolidated financial
Our abilitll ytt
abilityii
control. In additiodd
tott generate the signi
ificant amount of cash neededdd
to refinance allll or a portion of our indebtedtt ness
dd
to service our indebtedtt ness
and financial obligatiott ns and our
l financing depeee nds on many factors beyoe nd our
dd
or obtain addidd tiona
ii
n, we maya not be ablell
to pay amounts due on our indebdd tednedd
ss.
As of Decemberm 31, 2018, we had outstanding total indebtedness of approximately $246.2 million. Our ability to make
payments on and refinance our indebtedness, including the amounts borrowed under our 2017 Credit Facility and other financial
obligations, and to fund our operations will depend on our ability to generate substantial operating cash flowff
generation will depend on our futff ut re performance, which is subject to many factors, including prevailing economic conditions and
financial, business and other fact
ors, many of which are beyond our control.
. Our cash flow
ff
34
r
, in amounts suffici
Our business may not generate suffiff cient cash floff w froff m operations and future borrowings may not be available to us under our
borrowings under our
2017 Credit Facility or otherwise
ff
2017 Credit Facility, or to fund our other liquidity needs. If events or circumstances occur such that
positive cash floff w and operate our business as it is presently conductdd
sell assets, curtail certain operations and/or obtain additional equity or debt financing. There is no assurance that any such transactions,
if required, could be consummated on terms satisfactory to us or at all. Because of these and other factors beyond our control
, we may
be unabla e to pay the principal, premium, if any, interest or other amounts on our indebtedness.
ed, we may be required to refinff ance our existing indebtedness,
ent to enabla e us to service our indebtedness, including thet
t we are not able to generate
t
Uncertain or advers
financial positiott n.
dd
e economic conditidd ons maya have a negativett
impact on our industry, business, results of operations or
Uncertain or adverse economic conditions could have a negative effect on the funff damentals of our business, results of
operations and/or financial position. These conditions could have a negative impamm ct on our industry or thet
who advertise on our stations, including, among others, the automotive, services, healthct
telecommunications industries, which provide a significant amount of our advertising revenue. There can be no assurance that we will
not experience any material adverse effeff ct on our business as a result of future economic conditions or that the actions of the United
States Government, Federal Reserve or other governmrr
financial markets will achieve their intended effect. Additionally, some of these actions may adversely affecff
capital providers, advertisers or other
Potential consequences of the foregoing include:
consumers or our financial condition, results of operations or the trading price of our securities.
ental and regulatory bodies for the purpose of stimulmm ating the economy om r
are, retail, travel, restaurants, and
industry of those customers
ial institutions,
t finaff
nca
t
the finff ancial condition of compam nies that advertise on our stations, including, among others, those in the automotive,
services, healthcare, retail, travel, restaurants, and telecommunications industritt es, which may file for bankruk ptu cy
ther significant decline in our advertising revenue;
protection or face severe cash floff w issues, may result in a furff
our abia lity to borrowr
our ability to refinance our existing debt;
capital on terms and conditions that we find satisfactory, or at all, may be limited, which could limit
potential increased costs of borrorr wing capital if interest rates rise;
our abia lity to pursue permitted acquisitions or divestitures of television or radio assets may be limited, both at
these factors and, with respect to acquisitions and dispositions, limitations contained in our 2017 Credit Agreement;
s a result of
the possible furff
assets, including our broadcast licenses; and
ther impaim rment of some or all of the value of our syndicated programming, goodwill and other intangible
the possibility that our lenders under thet
we may not be able to replace the financing commitment of any such lender on satisfact
2017 Credit Facility could refuse
to fund its commitment to us or could fail, and
ory terms, or at all.
ff
ff
Actual or perceived difficulties
economic conditions may negae
in nature.ee
i
ll
in the global
dd
tivelyll affect, our business, as well as the industries of many of our customers, which are cyclicll al
l and creditdd markets have adverse
e
and uncertain or advers
ff
ly affected,
capia taii
dd
ff
Some of thet markets in which our advertisers operate, such as the services, telecommunications, automotive, fast food and
ries, are cyclical in nature, thus posing a risk to us which is beyond our control. A renewed decline in
restaurants, and retail industd
consumer and business confidence and spending, togethet
r with significant reductions in the availability and increases in the cost of
credit and volatility in the capital and credit markets, could again adversely affect the business and economic environment in which
the profitff ability of our business. Our business is significan
we operate, which in turn can affect
creditworthit ness of our key advertisers and other strategic business partners. These conditions have resulted in the past, and could
again result, in financial instability or other adverse effects at many of our advertisers and other strategic business partnett
rs. The
consequences of such adverse effeff cts could include the delay or cancellation of customer advertising orders, cancellation of our
programming and termination of facff
ff
may adversely affect
rates and/or sluggish economic growth in futurett
supports thet
delays or defaults
continuation and expansion of their businesses, and could result in advertising cancellations or suspensions, payment
a
ilities that broadcast or re-broadcast our programming. The recurrence of any of these conditions
our cash flow, profitability and finff ancial condition. Future disruption of the credit markets, increases in interest
our customers’ access to or cost of credit, which
periods could adversely affect
tly exposed to risks associated with the
by our customers.
ff
ff
35
Uncertaitt nii economic conditiodd
ns maya affeff ct our financial perforff marr
nce or our abilityii
to forecast our business with accuracy.
Our operations and performance depend primarily on U.S. and, to a lesser extent, international economic conditions and their
on purchases of advertising by our customers. As a result of the global financial crisis that began in 2008, which was
impactmm
experienced on a broad and extensive scope and scale, and thet
deteriorated significantly, and the economic recovery since that time has been uneven. Economic conditions, including lower
economic growth rates, may remain uncertain for the foreseeable future. We believe that
r
continue in futurtt e periods, as our customers alter their purchasing activities in response to the new economic reality, and, among othet
purchases of advertising. This uncertainty may also affect our abia lity to prepare
things, our customers may change or scale back futurett
accurate financial forec
r changes in
asts or meet specific forff ecasted results. If we are unable to adequately respond to or forecast furthet
advertising, our results of operations, finff ancial condition and business prospects may be materially and adversely affected.
demand forff
last recession in the United States, general economic conditions
t this general economic uncertainty may
ff
We maya be unable to integtt
affecff
t our financial conditionii
s and resultll in operatiott ns.
tt
ratett anyn acquisitions that we undertdd
ake
successfully, which could disrup
ii
t our business and adversely
dd
Subjeb ct to certain restritt ctions contained in our 2017 Credit Agreement, we plan to continue to evaluate opportuni
tt
ties to make
future acquisitions as opportunities present thet mselves, in a manner that is consistent with our overall acquisition strategy. We cannot
accurately predict the timing, size, and success of any currently planned or futff urt e acquiq sitions. We may be unabla e to identify suitable
acquisition candidates or to complm ete the acquiq sitions of candidates that we identify. Additionally, unforeseen expenses, delays and
competition freqff
operating results.
uently encountered in connection with pursuing acquisition targets could inhibit our growth and negatively impam ct our
We also may be unable to effecff
operating, growth, and perforff mar
including:
nce goals forff
tively complm ete an integration of thet
acquired businesses with our own or achieve our desired
acquired businesses. The integration of acquiq red businesses involves numerous risks,
the potential disruprr
tion of our core business;
the potential stratt
in on our finff ancial and managerial control
tt
s, reporting systems and procedures;
potential unknown liabilities associated with the acquired business;
costs relating to liabia lities which we agree to assume;
unanticipated costs associated with thet
acquisition;
diversion of management’s attet ntion from our core business;
problems assimilating the purchased operations or technologies;
risks associated with entering markets and businesses in which we have little or no prior experience;
failure of acquired businesses to achieve expected results;
adverse effecff
ts on existing business relationships;
the risk of impamm irment charges related to potential write-downs of acquired assets; and
the potential inability to create uniform standards, controls, procedures, policies, and information systems.
We cannot assure you that we would be successfulff
in overcoming problems encountered in connection with any acquiq sitions,
and our inability to do so could materially adversely affect our financial condition and results of operations.
We expecxx
operatiott ns expaxx nd.dd
t to expexx rience certaitt nii
riskii
factortt
srr in our overseas operatiott ns, which risii ks maya increase if and as our overseas
Outside the United States, our digital media segment engages in business operations that
t are located primarily in Spain, Mexico,
Argentina and other Latin American countries. We are subject to certain risks inherent in business operations outside the United
States. These risks include but are not limited to geopolitical concerns, local politics, governmental instabia lity, socioeconomic
disparities, fiscal policies, high inflation and hypey r-inflatio
ons on
repatriating foreign-derived profits to the United States, local regulatory complimm ance, punitive tariffsff
embarm goes, impom rt and export license requirements, trade restrictions, greater difficulty collecting accounts receivable, unfamiliarity
se, the possibility of
with local laws and regulations, differing legal standards in enforci
less favorable intellectual property protection than is provided in the United States, changes in labor conditions, difficulties in staffing
and managing internar
e of complm ying with the requirements of
reporting by a U.S. reporting company, and other cultural differences. Foreign economies may differ favorabla y or unfavorabla y froff m
the U.S. economy in growth of gross domestic product, rate of inflation, market development, rate of savings, capita
resource self-sufficien
tional operations, difficulties in finding personnel locally who are capabl
tt
restricti
, unstable local tax policies, trade
cy and balance of payments positions, and in many other respects.
ng or defending our rights in courts or otherwi
tions, currency exchange controls,
n, currency fluff ctuatt
al investment,
a
ff
ff
rr
ff
tt
36
We expect to expexx rience fluctuations in foreigni
overseas operations expaxx nd.dd
exchangen
ratestt
in our overseas operatiott ns,s which may increase if and as our
Our digital media segment engages in business operations involving a wide range of currencies.
Our consolidated finff ancial statements of our operations outside the United States will be translated into U.S. Dollars at the average
e
translation of thes
tt
rates in each applicable period. To the extent that the U.S. Dollar strengt
hens
against foreign currencies, thet
tt
aa
exchange
foreign currencies denominated transactions will result in reduced revenue,n
operations. Similarla y, to the extent thatt
denominated transactions will result in increased revenue,nn
t taa hett U.S. Dollar weakens against forei
ff
tt
operating expenses andaa
gn currencies, thett
net income for our international
foreign curruu ency
translation of these
tt
operating expenses and net income for our iu nternational operations.
We are also exposed to foreign exchange rate fluff ctuatt
tions as we convert the financial statements of our foreign operations into
U.S. Dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of financial statements into U.S.
Dollars will lead to a translation gain or loss which is recorded as a compom nent of other
comprmm ehensive income. In addition, we may
have certain assets and liabilities that are denominated in currerr ncies other that n the relevant entity’s functional currency. Changes in
the funff
cy value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss.
ctional currenr
t
Some of thet
countritt es in which our digital media segment operates, including Mexico, Argentina and Brazil, have experienced
significant and sometimes sudden devaluations of their currerr ncy over time, which could magnify these fluff ctuat
tions, should they
happen again in the future. Some of the countries in which our digital media segment operates, including Mexico, Argentina and
Brazil, have experienced hyper-inflation in thet
could affeff ct our operations in such countries.
past, which could magnify socioeconomic, geopolitical or finff ancial uncertainties that
Additionally, our digital media assets, liabilities, income and costs can change significff antly by showing our forff eign currency
denominated assets and debts converted to amounts in U.S. Dollars, the currency in which we report, and these can also change when
financial statements in forff eign currencies froff m our overseas operations are converted to and presented in U.S. Dollars.
We have not entered into agreements or purchased instrumtt
our consolidated results of operations, including our sales volume in forei
other items, to be influff enced if exchange rates change significantly in one or more of these currencies. While it is possible that we may
engage in some exchange rate risk hedging in the future, thet
and we may not be able to successfulff
availability and effectiveness of any hedging transaction may be limited
ly hedge our exchange rate risks.
ents to hedge our exchange rate risks, and it is therefore possible for
gn currencies, our cost of revenue in foreign currerr ncies and
ff
We must complyll withii
the Foreign Corrupt Practices Act.tt
We are requiq red to complmm y with the United States Foreign Corrur ptu Practices Act, which prohibits U.S. companies from engaging
ff
t
, thef
in bribery or other prohibited payments to forff eign offiff cials forff
t aff nd other fraudu
bribery, pay-offsff
which we operate. If our competitors engage in these practices, they may receive preferential treatment froff m personnel of some
compam nies, giving our competitors an advantage in securing business or from governmr
obtaining new business, which would put us at a disadvantage. Although we intend to inform our personnel that
illegal, we cannot assure you that our employees or othet
responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe penalties.
r agents will not engage in such conduct for which we might be held
lent practices occur froff m time-to-time in certain countries, including some of the countries in
als who might give them priority in
t such practices are
se of obtaining or retaining business. Corruption, extortion,
the purpor
ent offici
ff
t
We may have diffi
i
operate, which difficulties
culty estabtt
i
maya increase if and as our oversearr
s operations expand.dd
lishingii
adequate management, legae
l and financial controls in some of the countries in which we
Certain of thet
countries in which we operate historically have been deficient in U.S.-style local management and internal
ff
ent number of locally-qualifiedff
financial reporting concepts and practices, as well as in modern brr
and retaining a suffici
emplm oyees to work i
obligations of a U.S. public reporting compam ny. As a result of these factors, we may experience difficff ulty in establishing adequate
management, legal and finff ancial controls (including internal contrott
financial statements, books of account and corporr
standards as in effect from time to time.
rate records and instituting business practices in such countries
n such countries who are capable of satisfying all the
anking and other control systems. We may have diffiff culty in hiring
ls over financial reporting), collecting finff ancial data and preparing
that meet U.S.
r
t
37
We maya be exposed to certaitt nii
riskii
skk enforff
cingii
our legal righi
ts generallyll
in some of the countries in which we operate.ee
limited precedential value. While we believe that
Unlike the United States, most of the countries in which we operate have a civil law system based on written statutt es in which
judicial decisions haveaa
t most or all the countries in which we operate have enacted
ign investment, intellectual
laws and regulations to deal with economic matters such as corpor
property, commerce, taxation and trade, our experience in interprerr
ing our rights under these laws and regulations is
limited, and our future ability to enforff ce commercial claims or to resolve commercial disputes in any of these countries is thereforeff
unpredictable. These matters may be subject to the exercise of considerable discretion by national, provincial or municipal
governments, agencies and/or courts, and forces and fact
influence their determination.
rate organization and governance, foreff
ting and enforcff
ors unrelated to the legal merits of a particular matter or dispute may
ff
Cancellations or reductions of advedd rtising
ii
rr
couldll adverdd
sel
yll affect our resul
ee
tsll of operations.
We do not obtain long-term commitments froff m our advertisers, and advertisers may cancel, reducd e or postpone orders without
penalty. We have experienced cancellations, reductions or delays in purchases of advertising froff m time to time in the past and more
, our revenue and
regularly during the recent global financial crisis and recession. These have affect
results of operations, especially if we are unable to replace such advertising purchases. Many of our expenses are based, at least in
part, on our expectations of future revenue and are thereforff e relatively fixed once budgeted. Thereforeff
ur revenue and our results of operations.
would adversely impact both ot
ed, and could continue to affect
, weakness in advertising sales
ff
ff
revenue can vary substantt
Our adverdd
not limited to those
indebtedtt ness
tisingii
tt
or reduce the market value of our securities.
ssed above. This volatilityll
from periodii
discuii
tialii
lyll
dd
to period based on many factors
tt
beyond our control, includingdd
but
affeff ctstt our operating results and maya reduce our abilityii
ya
to repaee
We rely on sales of advertising time forff most of our revenues and, as a result, our operating results are sensitive to the amount of
advertising revenue we generate. If we generate less revenue, it may be more difficult for us to repay our indebtedness and thet
of our business may decline. Our ability t
o sell advertising time depends on:
t
value
the levels of advertising, which can fluctuate
general economic conditions;
ff
between and among industry groups and in general, based on indusd try and
for our television and radio segment, the health of the economy in the markets where our television and radio stations are
located and in the nation as a whole, and for our digital segment, the health of the economy in the markets where our
digital advertising customers, publishers and audiences are located, and globally as a whole;
the popularity of our programming and that of our compemm tition;
changes in the makeup of the population in the markets where our stations are located;
the activities of our competitors, including increased competition froff m other forms of advertising-based mediums, such as
other broadcast television stations, radio stations, MVPDs, Internet
digital advertising technology companm ies servirr ng in the same markets;
and broadbd and content providers, and publishers and
rr
aa
changes in advertising choices and placements in different media, such as new media, compared to traditional media such
as television and radio; and
other fact
ff
ors that may be beyond our control.
Changes in our accounting estimates and assumptions could negae
tively affect
ff
our financial positii iott n and operatingii
results.tt
We prepare our financial statements in accordance with generally accepted accounting principles, or GAAP. GAAP requires us
t the reported amounts of our assets and liabilities, the disclosure of contingent assets and
to make estimates and assumptmm ions that affecff
liabilities, and our financial statements. We are also required to make certain judgments that affeff ct the reported amounts of revenue
and expenses during each reporting period. We periodically evaluate our estimates and assumptm ions, including those relating to the
valuation of intangible assets, investments, income taxes, stock-based compm ensation, reserves, litigation and contingencies. We base
our estimates on historical experience and various assumptions that we believe to be reasonabla e at thet
assumptm ions, based on specific circumstances. Actual results could differ
ff materially from our estimated results. Additionally, changes
in accounting standards, assumptions or estimates may have an adverse impact on our financial position, results of operations and cash
flows.
time we make those
38
The terms of any additdd iott nal equity or convertible debt financing couldll contain terms that are superiorii
existing securitii ytt holders.
dd
to the rightgg stt of our
Depending upon our futff utt re results of operations, and our ability t
r reducd e costs as necessary and compmm ly with our
financing agreements, we may requiq re additional equity or debt financing. If futff urt e funff ds are raised through issuance of stock or
convertible debt, these securities could have rights, privileges and preference senior to thot
equity securities or securities convertible into or exchangeable for equity securities could also result in dilution to our current
stockholders. There can be no assurance that additional financing, if required, will be available on terms satisfactory to us or at all.
se of common stock. The sale of additional
ff
o furt
het
tt
Anyn failure tott maintaitt nii our FCC broadcast licenses couldll cause a default
accelerationtt
of our indebtedtt nedd
ss.
e
underdd
our 2017 CredCC itdd Facility and cause an
Our 2017 Credit Facility requires us to maintain our FCC licenses. If the FCC were to revoke any of our material licenses, our
lender could declare all amounts outstanding under the 2017 Credit Facility to be immediately due and payable. If our indebtedness
accelerated, we may not have sufficff
ient funds to pay the amounts owed.
dd
is
We have a significa
assets.
gg
nt amount ofo goodwill
dd
and othett
r intangible assets and we maya never realizeii
the full value of our inii tangible
Goodwill and intangible assets totaled $351.5 million and $348.7 million at Decemberm 31, 2018 and 2017, respectively,
primarily attributable to acquisitions in prior years. At the date of these acquisitions, the faiff
intangible assets equaq led its book value.
r value of the acquiq red goodwill and
Goodwill and indefinite life intangible assets are tested annually on October 1 forff
impairmm
ent, or more frequently if events or
changes in circumstances indicate that our assets might be impam ired. Such circumstances may include, among other
significant decrease in our operating performance, decrease in prevailing broadcast transaction multiples, deterioration in broadcasting
industry revenues, adverse market conditions, a significant decrease in our market capitalization, adverse changes in appa
and regulations, including changes that restrict the activities of or affeff ct the products
of othet
analysis in futff urtt e periods and cause us to record either an additional expense for impairment of assets previously determined to be
impaimm red or record an expense for impairment of other assets. Depending on futurtt e circumstances, we may never realize the full value
of our intangible assets. Any determination of impairment of our goodwill or othet
financial condition and results of operations.
licable laws
or services sold by our businesses and a variety
our impairment
rs. Appraisals of any of our reporting units or changes in estimates of our futff uret
r intangibles could have an adverse effect on our
cash flows could affect
things, a
r facto
d
ff
ff
t
Univisions ownershipii of our Class U common stoctt k maya make some transactions diffi
Univisions consent.
i
cultll or impossiblii ell
to complete withott ut
Univision is the holder of all of our issued and outstanding Class U common stock. Although the Class U common stock has
limited voting rights and does not include the right to elect directors, we may not, without the consent of Univision, merge,
consolidate or enter into a business combination, dissolve or liquidate or dispose of any interest in any FCC license with respect to
television stations which are affiliates of Univision, among other thit ngs. Univision’s ownership interest may have thet
effeff ct of
delaying, deterring or preventing a change in control and may make some transactions more difficff ult or impossible to complete
rt or due to Univision’s then-existing media interests in applicable markets.
without Univision’s suppou
If our affiliii atiott n or other contractual relationshipsii witii htt Univisiii on or Univisions programming success change in an advedd rse
manner, it couldll negativ
,s revenue and results of operations.ss
t our television ratings,s business
ely affecff
e
ii
Our affiliation and othet
r contractual relationships with Univision have a significant impact on our business, revenue and results
relationship with Univision were terminated,
to obtain replacement programming of
of operations of our television stations. If our affiliatio
or if Univision were to stop providing programming to us for any reason and we were unablea
comparable quality, it could have a material adverse effect on our business, revenue and results of operations. We regularly engage in
discussions with Univision regarding various matters relating to our contractual
provide programming, marketing, availabla e advertising time and other support to us on the same basis as current
affilff iation agreement or another contractuatt
ff
a material adverse effect
ly provided, or if our
se change in an adverse manner, it could have
on our business, revenue and results of operations.
relationships. If Univision were to not continue to
rr
l relationship with Univision were to other
t wi
n agreement or another
contractual
ff
rr
t
t
tt
39
audiences and advertising revenue primarily on the basis of programming content and
Our television stations compete forff
advertising rates. Audience ratings are a key fact
Univision’s programming success or ratings were to decline, it could lead to a reduction in our advertising rates and advertising
revenue on which our television business depends. Univision’s relationships with Tt
consequeq ntly our, continued success. If Televisa were to stop providing programming to Univision forff
any reason, and Univision were
unabla e to provide us with replacement programming of comparable quality, it could have a material adverse effect on our business and
results of operations. Additionally, by aligning ourselves closely with Univision, we might forego other opportunities that could
diversify our television programming and avoid dependence on Univision’s television networks.
or in determining our television advertising rates and thet
elevisa is important to Univision’s, and
revenue that we generate. If
ff
We are depeee ndent
dd
on key personnel.ll
Our business is managed by a small numbem r of key management and operating personnel, and the loss of one or more of these
success will also depend in large part on
individuals could have a material adverse effeff ct on our business. We believe that our futurett
our abia lity to attract and retain highly skilled and qualified personnel and to effeff ctively train and manage our emplm oyee base.
currentlytt has contrott
Our Chiefe Executive Officer
ll
ders
kk
actiott ns by our compam ny and itstt stocktt
hol
ff
l of our company,yy givingii
ll
the elect
him the ability to determineii
.ss
tt
iott n of allll of our company'n s' direct
ors
ii
,s includingii
the outcome of most
As of April 5, 2019, Walter F. Ulloa, and stockholders affilff
power of our common stock. Under Delaware law, these
compamm ny and determine the outcome of most matters placed before the stockholders for action.
t
iated with him, collectively hold approximately 57.2% of the voting
stockholders, by themselves, have the power to elect all the directors of our
srr who desireii
Stoctt kholder
ll
amendeddd
provisions that couldll discoii
and restated certifictt
contrott
atett of incorporationii
a takeover.
to changen
urar gea
l of our companyn maya be preventedtt
from doingii
and the 2017 Creditdd Agreement. In addidd tioii n, other
tt
so by provisiii ons of our second
agreements contain
rd party t
Our Second Amended and Restated Certificff ate of Incorporation, or our certififf cate of incorporr
o acquiq re us, even if doing so would benefit our stockholders. The provisions of our certificff ate of incorporr
ration, could make it more diffiff cult
ration could
a stockholder to participate in tender offers. In addition, under our certificate of incorporation, our board
tt
for a thit
diminish the opportunities forff
of directors may issue preferrerr d stock on terms that could have the effect
of delaying or preventing a change in control of our
compamm ny. The issuance of preferred stock could also negatively affect the voting power of holders of our common stock. The
provisions of our certificate of incorporation may have thet
effeff ct of discouraging or preventing an acquiq sition or sale of our business.
ff
In addition, the 2017 Credit Agreement contains limitations on our ability to enter into a change of control transaction. Under
l would constitute an event of default permitting acceleration of our
the 2017 Credit Agreement, the occurrence of a change of contrott
outstanding indebtedness.
We operate in highly competitivett
industries subject to changing technologie
ll
s, and we may not be able to compete successfully.
We operate in highly competitive indusd tries. Our television stations, radio stations and digital media platformff
s competmm e forff
ther television stations, radio stations and digital media platforms, as well as with other forff ms of
audiences and advertising with ot
media. Advances in technologies or alternative methods of content delivery, as well as changes in audience or advertiser expectations
driven by changes in these or other technologies and methods of content delivery, could have a negative effecff
Exampm les of such advances in technologies include video-on-demand, satellite radio, video games, text messaging, streaming video
and downloaded content froff m mobile phones, tablets and other personal video and audio devices. For example,m
users to view or listen to television or radio programs on a time-shifteff d basis, and technologies which enabla e users to fast-forward or
skip advertisements altogether, such as DVRs and mobile devices, are causa ing changes in consumer behavior that could affecff
perceived attractiveness of our services to advertisers, and could adversely affect our advertising revenue and our results of operations.
In addition, further increases in the use of mobile devices which allow users to view or listen to content of their own choosing, in their
own time, while avoiding traditional commercial advertisements, could adversely affeff ct our advertising revenue and our results of
operations. Additionally, MVPDs, direct-to-home satellite operators, and other sources have implm emented OTT services services,
operated by MVPDs and othet
programming or limited bundles of broadcast and non-broadcast programming that may or may not include our stations over the
viewers in our markets. New technologies and methods of
Internet to audiences, potentially leading to increased competition forff
buying advertising present an additional compem titive challenge, as compem titors offer products and services such as the ability to
purchase advertising programmatically or bundled offlff ine and online advertising, aimed at capturing advertising spend that previously
went to broadcasters.
rs, including Dish Network,r DirecTV, YouTube, and Sony) that allow them to transmit targeted
devices that allow
t on our business.
t the
40
Our inability, for technological, business or other reasons, to adapt to changes in program offerings and technology on a timely
and effective basis, exploit new sources of revenue from these changes, or to enhance, develop, introduce and deliver compelling
advertising solutions in response to changing market conditions and technologies or evolving expectations of advertisers may affeff ct
our business prospects and results of operations.
We are subject to cybersecurityii
repuee
tation, harm our businii ess, expoxx
threatstt which couldll
lead to busineii
ssee
disruii
ptu iott ns or data breaches that couldll damagea
our
se us to liabilityii and materially adversely affect our resultstt of operations.
We may be subject
b
to disruprr
tions, breaches or cybey r-attacks of our secured networks and informff
ation technology systems
error, and
se of any third party servirr ce providers we use may not detect or prevent such security breaches. We may
which could be significant, and
e of our information security
caused by illegal hacking, criminal fraud or impem rsonation, computer
our security measures or thot
incur significant costs to investigate, eliminate or alleviate cybersecurity breaches and vulnerabilities,
our efforts to protect against such breaches or vulnerabilities may not be successful. Any such compromis
or the thit
proprietary information or the unauthoriz
jurisdictions in which we operate. Any of thet
material monetary liability, which could have a material adverse effect
rd-party providers on which we rely could also result in the unauthorized publication of our confidff ential business or
foregoing could irreparabla y damage our reputation and business and/or expose us to
ed release of customer or emplmm oyee data or a violation of privacy or other
viruses, acts of vandalism or terrorism or employee
on our results of operations.
laws in the
m
m
m
a
ff
t
t
atll
subject us to enforff
Legislation and regul
costs,tt
business model.
e
iott n of digii
tt
cement actiott ns for complm iall nce failures, or cause us to changen
privacyc and data protect
l media businesse
s,ee includingii
ii
iott n regie mes
l media technologyo
taii
,s couldll creatett unexpexx ctedtt
or
tt mrr
for
our digii
platll
taii
ii
U.S. anda
foreign governmrr
ents have enacted, considered or are currenrr
tly considering legislation or regulations that relate to digital
tt
r
se harm o
the demand forff
use of anonymoyy
us user data anda
t we collect, use anda
ur digital operations. For example,mm
unique device identifiers, such as IP addrdd ess
advertising, including, for exampmm le, the online collection anda
data protection regulation. Some autaa hori
or unique mobile device identifiers, geo-location data, biometritt c data, and other privacy anda
have applied competition rulrr es to regulate digital advertising practices which may result in strutt ctural changes to advertising practices.
Such legislation or regulations could affect the costs of doing business online, and could reducedd
our digital solutions or
otherwi
a wide variety of state, national and international laws and regulations apply to the
t
collection, use, retention, protection, disclosure, transfer and other processing of personal data. While we take measuresuu
securiu ty of information that
protection and privacy-related lawsaa
escalating levels of enforce
a manner that is inconsistent fromff
regulations may iaa mpose obligations that are inconsistent with ot
failure, or perceived failure, by us to complmm y with U.S., federal, state, or international laws, including laws anda
privacy, data security or consumer protection, could result in proceedings against us by governmental entities, consumers or others.
such proceedings could forcff
require us to pay significant monetary drr
doing business or other
rr
tt wi
operatioaa
and regulations relating to thett
r interfere with our ability to comply with other legal obligations. Any
regulations governing
ment and sanctions. In addition, it is possible that these lawsaa
tt
a
ubject us to additional legal exposure.uu
and regulations are evolving and could result in ever-increasing regulatory arr
disclose in the operation of our business, such measures may na
amounts in defense of these proceedings, distract our manage
ed and applied in
ther rules or our business practices. These laws and
ot always be effective. Dataaa
publu ic scrutiny and
nda
rr
e interpret
s to perform functions on our behalf, non-complmm iance
our business practices or limit or inhibit our ability t
amages, damage our reputatuu ion, adversely affect
Any
t
ment, result in finff es or
the demand for our services, increase our costs of
ns. Because we, at times, rely on third partierr
services they provide to us may sa
tt o operate or expand our duu
by these third parties with l
one jurisdiction to another
e us to spend significantaa
and may conflict with ott
and regulations may baa
se cause us to change
to protect the
igital
aws
ties
a
aa
ff
ff
tt
We maya be subjecb
ificaff
us to paya signi
t to intellell ctual propertytt rightgg stt claill msii
nt damagea see and couldll
ii
limit
our ability to use certain technologio es.
by thirdrr parties, which maya be extremely costlytt
e
to defend
,dd could requireii
Third parties may assert claims of infringement of intellectual
t
property rights in proprietary technology against us for which we
red license may not be satisfactory t
may be liable. Any claim of infringement by a third party, even those without merit, could causa e us to incur substantial costs
defending against the claim and could distract our management from operating our business. Although third parties may offer
to their technology, the terms of any offeff
o us and the failure to obtain a license or the costs
associated with any license could causa e our business, finff ancial condition and results of operations to be materially and adversely
affeff cted. In addition, some licenses may be non-exclusive, and therefore our compem titors may have access to the same technology
licensed to us. Alternatively, we may be requiq red to develop non-infringing technology, which could require significff ant efforff
t and
expense and ultimately may not be successful.
settlement that prevents us fromff
damages, including treble damages if we are found to have willfulff
fees. Any of these events could seriously harm o
Furthermore, a successful claimant could secure a judgment or we may agree to a
ntial
distributing certain producd ts or perforff ming certain services or that requires us to pay substa
ur business finff ancial condition and results of operations.
ly infringed such claimant's patents or copyrights, royalties or othet
u
ff
rr
ff
r
r
a license
41
If we cannot renew our FCC broadcast licenses, our broadcadd st operationtt
s wouldll be impam ired.dd
Our television and radio businesses depend upon maintaining our broadcast licenses, which are issued by the FCC. The FCC has
the authot
l
rity to renew licenses, not renew thet m, renew them only with significant quaq lifications, including renewals for less than a fulff
term, or revoke them. Although we have to date renewed all our FCC licenses in the ordinary course, we cannot assure investors that
our futff urtt e renewal applications will be approved, or that the renewals will not include conditions or qualifications that could adversely
ed stations, which
affect our operations. Failing to renew any of our stations’ main licenses would prevent us froff m operating the affect
could materially adversely affect our business, financial condition and results of operations. If we renew our licenses with substantial
conditions or modifications (including renewing one or more of our licenses for less than the standard term of eight years), it could
have a material adverse effect on our business, finff ancial condition and results of operations.
ff
acll
ement of anyn of our low-pow-
Displ
ii
any such statiott n to decrease.
ll
er televi
siii on stattt
iott ns (other than Class A stattt
iott ns) couldll cause our ratintt gsn
and revenue for
ff
to causa e interference to full-power stations or sufficie
We own and operate a number of television stations in the FCC’s low-power television service. Our low-power television
stations operate with less power and coverage than our full-power stations. The FCC rules under which we operate provide that
power television stations (but not our Class A television stations) are treated as a secondary service. If any or all of our low-power
stations are found
broadcast television stations, owing to thet
process, we could be required to eliminate the interference, terminate service, or consider other options, including channel sharing
arrangements. In a few urban markets where we operate, including San Diego, there are a limited numbem r of alternati
ve channels to
which our low-power television stations can migrate. If, as a result of the elimination of part of the broadcast spectrum or otherwise,
as part of the incentive auction and repacking process, we are unabla e to move the signals of our low-power television stations to
replacement channels, or such channels do not permit us to maintain the same level of servirr ce, we may be unable to maintain the
viewership these stations currently have, which could harm our ratings and advertising revenue or, in the worst case, cause us to
discontinue operations at these low-power television stations.
relocation of full-power stations to fewer channels as part of thet
nt channels become unavailable to accommodate incumbm ent
low-
ff
r
t
incentive auction repacking
Because our full-pll ower televisiii on stattt
regulatll
have a matertt
iott ns that elimll
ial adverse impam ct on our televisiii on operatiott ns.
iott ns rely on retrantt
stt
smission consent right
i
to obtain MVPDPP carriagea ,e new laws or
inatett or limit the scope of our MVPD carriaii gea
rights or affeff ct how we negotiate our agreements, could
We no longer rely on “must carry” rights to obtain the retransmission of our fulff
l-power television stations on MVPDs. New
laws or regulations could affecff
may affect our negotiating strategies and thet
common owners of television stations in a television market to negotiate with MVPDs has an impam ct on our negotiating arrangements
with Univision.
economic results we achieve in such negotiations. For instance, the inabia lity of non-
t retransmission consent rights and the negotiating process between
broadcasters and MVPDs and this
tt
Our low-power television stations do not have MVPD “must carry” rights. Some of our low-power television stations are carried
on MVPDs as thet y provide broadcast programming the MVPDs desire or are part of the retransmission consent agreements we are
party to. Where MVPDs are not contractually required to carry our low-power stations, we face future uncertainty with r
availability of MVPD carriage for our low-power stations.
espect to thet
t
We are a party tott various retratt nsmission consent agreements that maya be terminated or not extendeddd
terminatiott n dates.
following their current
If our retransmission consent agreements are terminated or not extended following their currenrr
t termination dates, our abia lity to
reach MVPD subsu cribers and, thereby, compete effectively, may be adversely affected, which could adversely affect our business,
financial condition and results of operations.
Retransmissionii
consent revenue may not continue to grow at recent ratestt
and are subject to reverse network compensation.
tt
While we expect the amount of revenues generated from our retransmission consent agreements to continue to grow in the near-
f such revenue may not continue at recent or current rates and may be detrimentally affected by
growing concentration in thet MVPD industry, and the impactm
of MVPD subscribers, all of which may result in the
term and beyond, the rate of growth ot
network program suppliers seeking reverse network compensat
of on-demand and OTT program services that
amounts that MVPDs are willing or ablea
m
t are resulting in reducedd
our programming.
d numbersm
to pay forff
ion, thet
42
e of our signagg
Carriagi
we serve and our decision as to the termsrr
upon which our signi
alsll willii be carried.
ls on DBSB services is subjeb ct to DBSB compam nies providindd gn local broadcast signi
als in the televisiii on marketstt
SHVIA allowed DBS television companimm
es, which are currerr ntly DirecTV and Dish Network, to transmit local broadcast
television station signals back to their subscribers in local markets. In exchange for thit s privilege, however, SHVIA required that in
television markets in which a DBS compmm any elects to pick up and retransmit any local broadcast station signals, the DBS provider
must also offer
television stations in markets forff which DBS operators have elected to carryr
“carry or
local broadcast television stations in that market. Our broadcast
local stations have previously obtained carrirr age under this
to its subsu cribers signals fromff
all other qualifiedff
ne/carry all” rulrr e.
ff
SHVIA expired in 2004 and Congress adopted SHVERA, which expired in 2009, but was extended in May 2010 by STELA.
STELA and STELAR provide further fivff e-year extensions, now until 2019, of the “carry one/carry all” rule earlier adopted in SHVIA
and SHVERA.RR To the extent we have decided to secure our carriage
one/carry all” rule no longer is relevant to us.
ission consent agreements, the “carry
on DBS through retransm
r
tt
Changes in the FCCs ownershi
abilityii
pii rules couldll
to acquire statitt ons in certain markets.
rr
lead to increased market power for our competitott
rs or couldll placll
ii
e limit
stt on our
As requiq red by the Communm ications Act and as the regulator of over-the-
t
and in individual proceedings, continues to review its policies for thet
however, only a reduction in the nationwide television cap,a
The impact of changes in the FCC’s rulr es as to how many stations a party may own, operate and/odd r control, and how these are
counted, depends on whether the FCC expands its ownership limits, as it has done in the past, or adopts new limits on ownership, as it
has also done as in the case of time brokerage and joint sales agreements. In the case of the former, expanding ownership limits could
result in our compem titors’ abia lity to increase their ownership presence in the markets in which we operate. In the case of the latter, as
has been discussed herein in connection with the UHF discount andaa
stations in markets where additional station ownership would enabla e us to achieve operating effiff ciencies or grow our broadcasting
business.
attribution of joint sales agreements, we may be unable to acquire
to 39% of the viewing public, has been the subject of fedff
ownership of both r
eral legislation.
air broadcasting, the FCC, both on a quadrennial basis
adio and television stations. To date,
t
We relyll on over-the-air spectrumtt
ff
affect
the broadcastintt g services in general and our operatiott ns in particutt
lar.
which is beingii
alterll
ed inii connection in the incentive auction contextt
t, the resultstt of which maya
Our television business operates through over-the-air transmission of broadcast signals. These transmissions are authot
rized
under licenses issued to our stations by the FCC. The current electromagnetic spectrum is finff
better than others owing to the abia lity of electromagnetic signals to penetrate buildings. This is thet
broadcast stations operate.
ite and certain parts of the spectrum are
portion of the spectrutt m where
voice but forff
broadband distribution, the need for
available for use by wireless broadband servirr ces at the
With the advent of mobile wireless communications and its use not only forff
has grown. The FCC has sought to increase the amount of spectrumr
spectrumrr
expense of over-the-air broadcast servirr ces. Availabla e sources of such spectrum are limited and the spectrum allotted forff
broadcasting as a source for such spectrum repurposing has been identified as containing spectrum that the FCC seeks to recover in
part and make available for wireless broadbad nd use. The FCC has been requiq red by statute to undertake and has now completed an
incentive auction involving relinquishing and repurporr
tioned off for what is
sing broadcast spectrumr
expected to be wireless servirr ce use. While existing broadcasters that did not relinquish spectrum usage rights as part of the incentive
auction are entitled to have their service protected, the future of broadcasting with a smaller and repacked broadcast band cannot be
known until the entire process is completed in 2020. In this regard, it cannot be certain how the FCC’s efforts to secure additional
tion, including the results of our participation in the incentive
spectrum forff mobile wireless communications and the incentive aucaa
auction process and repacking processes that accompam ny the redistribution of reduced broadcast spectrum, will affect television
broadcasting in general and our operations in particular. There will be many changes in thet
repurposing of spectrum previously used forff
r broadcasting, the ultimate results arising from the repacking of broadcast
spectrum, the relocation of certain broadcast stations to new positions in the broadcast band durd ing the 39-month repacking period,
and the actions and reactions of broadcasters and the viewing public in responding to the new and different broadcast spectrum
environment.
industry that will depend on the
usage rights that have been auca
t
over-the-ai
television
ff
There are significan
t political, legal and technical issues to overcome and be considered by us as thet
operation and usage occur. We are giving consideration to all of the implications of the expected changes in how spectrum will be
made availabla e forff
marketplace following the completion of the incentive auction process in 2020.
broadcasting and how it will be used and expect to have a better idea of the changes upon evaluating the
changes in spectrutt m
43
Changes in thett
competitivett
dd
landscap
e or technologyo maya impact our abiliii tyii
to monetizett
our spectrumtt
assets.tt
With the proliferation of mobile devices, new and expanding mechanisms forff
the distribution of video programming, and
usage rights has become an integral
advances in technology that have freeff
d up spectrum capacity, the monetization of our spectrumr
part of our business in recent years. We rely on the demand to broadcast multicast networks and demand from telecommunication
s
operators to operate interference freff e in our markets in order to monetize our spectrum. There are no assurances that thit s demand will
continue in futff utt re periods. Additionally, program offerings
utilization of spectrum are evolving rapidly. If we were not able, for technological, business or other reasons, to adapt to these changes
in technology on a timely and effectiv
impactm
e basis, our ability to monetize our spectrum assets could be affeff cted and have an adverse
and how they are made available as well as technology involving the
on our results of operations.
mm
ff
ff
Available Information
We make available free of charge on our corporate website, www.entravision.com, the following reports, and amendments to
ff we
those reports, filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as soon as reasonablya
it to, the SEC:
electronically file such material with, or furnish
practicable after
ff
our annual report on Form 10-K;
our quarq
terly reports on Form 10-Q; and
our currerr nt reports on Form 8-K.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporr
rated by refereff
nce into this
or any other filff ing we make with the SEC.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters are located in Santa Monica, Califorff nia.
rr We lease approximately 16,000 square feet of space in the
building housing our corporate headquarters under a lease expiring in January 2021. We also lease approximately 41,000 squaq re feet
of space in the building housing our radio network headquarters in Los Angeles, Califorff niarr
, under a lease expiring in December 2026.
ff
studtt
The types of properties required to suppou
rt each of our television stations, radio stations and digital operations typically include
offiff ces, broadcasting studios and antenna towers where broadcasting transmitters and antenna equipment are located. The majoa rity of
,
io and tower facilities are leased pursuant to long-term leases. We also own the buildings and/or land used for office
our office,
studio and tower facilities at certain of our television and/or radio properties. We own substantially all of the equipment used in our
television and radio broadcasting business. We believe that
t all of our faci
operations. We also lease certain facilities and broadcast equipment in the operation of our business. See Note 14 to “Notes to
Consolidated Financial Statements”.
lities and equipment are adequaq te to conduct our present
ff
ff
ITEM 3.
LEGAL PROCEEDINGS
We currently and froff m time to time are involved in litigation incidental to the conductd
of our business, but we are not currerr ntly a
party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect
business.
ff
on us or our
ITEM 4. MINE SAFETY DISCLOSURES
Not appa
licable.
44
PART II
ITEM 5. MARKET FOR REGISTRANT
RR
ISSUER PURCHASES OF EQUITY SECURITIES
’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
Market Information
Our Class A common stock has been listed and traded on The New York Stock Exchange since August 2, 2000 under the
symbolm “EVC.”
As of April 5, 2019, there
t
were approximately 107 holders of record of our Class A common stock. We believe that the number
of beneficial owners of our Class A common stock substantially exceeds this numbem r.
Perforff mance Graph
The folff
lowing graph, which was produced by S&P Global Market Intelligence, depicts our performance for the period from
Decemberm 31, 2013 through December 31, 2018, as measured by total stockholder return calculated on a dividend reinvestment basis,
on our Class A common stock compam red with t
This grapha
TV Index as of the market close on December 31, 2013. Upon request, we will furnish to stockholders a list of the compom nent
compam nies of such indices.
assumes $100 was invested in each of our Class A Common Stock, the S&P 500 Index and thet
S&P Broadcasting & Cabla e TV Index.
f the S&P 500 Index and thet
S&P Broadcasting & Cabla e
he total returtt n or
t
We cauta ion that the stock price performff
ance shown in the graph below should not be considered indicative of potential future
stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Entravision Communications Corporation, the S&P 500 Index
and the S&P Broadcasting Index
Total Return Performance
Entravision Communications Corporation
S&P 500 Index
S&P Broadcasting Index
200
150
100
50
l
e
u
a
V
x
e
d
n
I
0
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
exdd
IndII
Entravision Communications Corprr oration
S&P 500 Index
S&P Broadcasting Index
Period Endindd gn
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
100.00
100.00
100.00
108.21
113.69
83.94
130.65
115.26
68.69
120.73
129.05
83.23
126.52
157.22
80.68
54.02
150.33
70.92
45
futurtt e issuance under our
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding Securities
Reflected in the
First Column)
Dividend Policy
Our futff urtt e dividend policy, including the amount of any dividend, will depend on factor
ff
the Board of Directors, which may include, among other
the 2017 Credit Agreement places certain restrictions on our abia lity to pay dividends on any class of our common stock.
t
s considered relevant in the discretion of
things, our earnings, capital requiq rements and finff ancial condition. In addition,
Securities Authorized forff
Issuance Under Equity Compensation Plans
The folff
m
equity compensa
tion plans as of Decembem r 31, 2018:
lowing table sets forff
th information regarding outstanding options and shares reserved forff
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Plan Category
Equiq ty compensation plans approved by
securityy holders:
Incentive Stock Plans (1)
Emplom yyee Stock Purchase Plan
Total
1,114,500
N/A(3)
1,114,500
$
$
2.45(2)
N/A(3)
2.45
4,148,415
3,997,062
8,145,477
(1) Represents informff
ation with respect to both ot
ur 2000 Omnibus Equity Incentive Plan and our 2004 Equity Incentive Plan. No
options, warrants or rights have been issued other than pursuant to these plans.
(2) Weighted average exercise price of outstanding options; excludes restricted stock units.
(3) Our 2001 Emplmm oyee Stock Purchase Plan, or ESPP, permits full-time emplm oyees to have payroll deductions made to purchase
shares of our Class A common stock during specified purchase periods. The purchase price is the lower of 85% of (1) thet
fair
the purchase period begins and (2) the fair
market value per share of our Class A common stock on the last business day beforeff
market value per share of our Class A common stock on the last business day of the purchase period. Consequently, the price at
which shares will be purchased for the purchase period currently in effect
is not knok wn. We suspended the ESPP in 2009, and
our Board of Directors terminated the plan on Decembem r 13, 2018. All shares registered and unsold pursuant to the plan were
deregistered with the SEC effeff ctive February 20, 2019.
ff
Issuer Purchases of Equity Securities
On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of the Company’s
outstanding common stock. On April 11, 2018, our Board of Directors approved thet
the Compam ny’s Class A common stock, forff
program, the Company is authot
subju ect to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without
prior notice.
rized to purchase shares from time to time through open market purchases or negotiated purchases,
a total repurchase authorization of up to $30.0 million. Under the share repurchase
repurchase of up to an additional $15.0 million of
As of December 31, 2018, we repurchased to date a total of approximately 4.5 million shares of Class A common stock at an
average price of $4.23 since thet
million. All repurchased shares were retired as of Decemberm 31, 2018.
beginning of share repurchase program, forff
an aggregate purchase price of appa
roximately $19.1
ITEM 6.
SELECTED FINANCIAL DATA
The selected finff ancial data set forff
Decembem r 31, 2018, 2017 and 2016 and with r
derived from our audited consolidated financial statements which are included elsewhere herein. The consolidated statement of
operations data for the years ended Decemberm 31, 2015 and 2014 and the consolidated balance sheet data as of Decemberm 31, 2016,
2015 and 2014 have been derived from our audi
espect to our consolidated balance sheets as of Decemberm 31, 2018 and 2017 have been
th below with respect to our consolidated statements of operations for thet
ted consolidated financial statements not included herein.
years ended
a
t
Certain year-to-year comparisons for the year ended December 31, 2017, and certain amounts as of December 31, 2017, reflect
adjustments made to certain amounts forff
such period and date. See Note 3 to Notes to Consolidated Financial Statements.
The selected consolidated finff ancial data set forth below is qualified in its entirety by, and should be read in conjunction with
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the consolidated
both,t
statements and the notes to those consolidated financial statements included in Item 8, “Financial Statements and Suppu lementaryrr
Data”, of this annual report on Form 10-K.
46
(In thousands, except share and per share data)
2018
Years Ended December 31,
2016
2015
2017
2014
Statements of Operations Data:
Net Revenue:
Revenue from advertising and retransmission consent
Revenue from spectrum usagge rigghts
Cost of revenue - television (spectrum usage rights)
Cost of revenue - digital media (1)
Direct operating expenses
Selling, general and administrative expenses
Corporate expenses
Depreciation and amortization
Change in faiff
Impaim rment charge
Foreign currency (gain) loss
Other operatingg (ggain) loss
r value contingent consideration
Operating income (1)
Interest expense
Interest income
Dividend income
Gain (loss) on debt extinguishment
Impam irment loss on investment
Income (loss) before income taxes (1)
Income tax (expense) benefitff
(1)
Income (loss) before equity in net income (loss) of
nonconsolidated affiliate (1)
Equi yty in net income (loss) of nonconsolidated affiliate
Net income (loss) (1)
Net income (loss) per share, basic (1)
Net income (loss) per share, diluted (1)
Cash dividends declared per common share, basic
Cash dividends declared per common share, diluted
Weigghted ave grage common shares outstandi gng, basic
Weighted average common shares outstanding,
diluted
Other Data:
Capia tal expenditures
Balance Sheet Data:
Cash and cash equivalents
Total assets (1)
Long-term debt, including current
Total stockholders' equityy (
rr
1)
t
portion
$
$
294,839 $
2,976
297,815 $
272,091 $
263,943
536,034 $
258,514 $
——
258,514 $
243,484 $
10,650
254,134 $
242,038
——
242,038
——
45,096
125,242
51,535
26,865
16,273
(1,202)
——
1,616
(1,187)
264,238
33,577
(15,743)
3,973
1,475
(550)
(1,320)
21,412
(7,877)
12,340
32,998
119,283
49,116
27,937
16,411
——
——
350
(262)
258,173
277,861
(16,709)
774
——
(3,306)
——
258,620
(82,612)
——
9,536
113,439
46,798
24,543
15,342
——
——
——
——
209,658
48,856
(15,469)
300
——
(161)
——
33,526
(13,121)
——
7,242
110,323
42,815
22,520
15,989
——
——
——
——
198,889
55,245
(13,047)
45
——
(204)
——
42,039
(16,414)
——
2,993
104,874
37,806
21,301
14,663
——
735
——
——
182,372
59,666
(13,904)
50
——
(246)
——
45,566
(18,444)
13,535
(1,374)
12,161 $
176,008
(310)
175,698 $
20,405
——
20,405 $
25,625
——
25,625 $
27,122
——
27,122
0.14 $
0.13 $
0.20 $
0.20 $
1.95 $
1.91 $
0.16 $
0.16 $
0.23 $
0.22 $
0.13 $
0.12 $
0.29 $
0.28 $
0.11 $
0.10 $
0.31
0.30
0.10
0.10
89,115,997
90,272,257
89,340,589
87,920,230
88,680,322
90,328,583
91,891,957
91,303,056
90,295,185
90,943,734
2018
Years Ended December 31,
2016
2015
2017
2014
15,717 $
12,688 $
9,308 $
13,548 $
9,111
46,733 $
690,409
243,541
332,732 $
39,560 $
766,139
295,489
348,275 $
61,520 $
517,921
290,447
183,456 $
47,924 $
524,962
313,337
167,273 $
31,260
527,767
340,313
145,558
$
$
$
$
$
$
$
$
(1) Amount repported as of and forff
Financial Statements.
the yyear ended Decemberm 31, 2017 has been revised. See Note
t3 o Notes to Consolidated
47
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The folff
lowing discussion of our consolidated results of operations and cash flowff
s forff
and 2016 and consolidated finff ancial condition as of December 31, 2018 and 2017 should be read in conjunn
financial statements and the related notes included elsewhere in this annual report on Form 10-K.
the years ended Decembem r 31, 2018, 2017
ur consolidated
ction with ot
Certain year-to-year comparisons for the year ended December 31, 2017, and certain amounts as of December 31, 2017, reflect
adjud stments made to certain amounts forff
such period and date. See Note 3 to Notes to Consolidated Financial Statements.
OVERVIEW
We are a leading global media compam ny that, through our television and radio segments, reaches and engages U.S. Hispanics
across acculturation levels and media channels. Additionally, our digital segment, whose operations are located primarily in Spain,
Mexico, Argentina and other countries in Latin America, reaches a global market. Our operations encompasm s integrated marketing and
media solutions, comprised of television, radio and digital properties and data analytics services. For finff ancial reporting purposes
, we
report in three segments based upon the type of advertising medium: television broadcasting, radio broadcasting and digital media.
Our net revenue forff
segment accounted for 51%, revenue attributed to our digital media segment accounted for 27%, and revenue attributed to our radio
segment accounted for 22%.
the year ended Decemberm 31, 2018 was $297.8 million. Of that amount, revenue attributed to our television
rr
We own and/or operate 55 primary television stations located primarily in Califorff nirr a, Colorado, Connecticut, Florida, Kansas,
Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. We own and operate 49 radio stations in 16 U.S. markets. Our
radio stations consist of 38 FM and 11 AM stations located in Arizona, Califorff nirr a, Colorado, Florida, Nevada, New Mexico and
Texas. We also operate Entravision Solutions as our national sales representation division, through which we sell advertisements and
syndicate radio programming to more than 100 markets stations across thet United States. We also provide digital advertising solutions
that allow advertisers to reach primarily online Hispanic audiences worldwide. We operate a proprietary technology and data platform
that delivers digital advertising in various advertising formats that allows advertisers to reach audiences across a wide range of
Internet
-connected devices on our owned and operated digital media sites; the digital media sites of our publu isher partnett
rr
other digital media sites we access through third-party platforff msrr
and exchanges.
rs; and on
We generate revenue primarily from sales of national and local advertising time on television stations, radio stations and digital
media platforff ms, and from retransmission consent agreements that are entered into with MVPDs. Advertising rates are, in large part,
based on each medium’s ability to attract audiences in demographaa
ic groups targeted by advertisers. We recognize advertising revenue
when commercials are broadcast and when display or othet
party publishers or as thet
commitments fromff
commissions to agencies forff
these agencies. Seasonal revenue fluctuations are common in our industd
expendituret
addition, advertising revenue is generally higher durd ing presidential election years (2016, 2020, etc.), resulting froff m significant
political advertising and, to a lesser degree, Congressional mid-term election years (2018, 2022, etc.), resulting froff m increased
political advertising, compared to othet
advertiser’s previously agreed-upon performance criteria are satisfied. We do not obtain long-term
our advertisers and, consequently, they may cancel, reduce or postpone orders without penalties. We pay
ocal and national advertisers. Our firff st fiscal quarter generally produces thet
r digital advertisements record imprmm essions on the websites of our third
local, regional and national advertising. For contracts
ry and are due primarily to variations in advertising
directly with agencies, we record net revenue froff m
lowest net revenue forff
the year. In
s by both l
r years.
t
t
We referff
to the revenue generated by agreements with MVPDs as retransmission consent revenue, which represents payments
this
from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers forff
programming. We recognize retransmission consent revenue earned as the television signal is delivered to the MVPD.
t
he proliferation of mobile devices and advances in technology that have freed up eu
Our FCC licenses grant us spectrum usage rights within each of the television markets in which we operate. We regard these
xcess spectrumr
rights as a valuabla e asset. With t
capacity, the monetization of our spectrum usage rights has become a significant part of our business in recent years. We generate
revenue from agreements associated with these television stations’ spectrumr
limited to agreements with third parties to utilize excess spectrumr
ir multicast networks; charging feeff
accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting
operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other
arrangements. Revenue generated by such agreements is recognized over the period of the lease or when we have relinquished all or a
portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel freeff
from
interferen
this strategy from time to time, as well
ff
as additional monetization opportunities expected to arise as the television broadcast indud stry anticipates advances in ATSC 3.0.
usage rights froff m a variety of sources, including but not
tegic acquisitions of television stations to further
ce. In addition, we will consider stratt
for the broadcast of thet
s to
t
48
Our primary expenses are emplm oyee compensation, including commissions paid to our sales staff aff
national representative firff ms, as well as expenses for general and administrative func
marketing, and local programming. Our local programming costs forff
newscast in most of our markets. Cost of revenue related to our television segment consists primarily of the carrying value of spectrumt
usage rights that were surrendered in the FCC auction forff
broadcast spectrum. In addition, cost of revenue related to our digital media
segment consists primarily of the costs of online media acquired from third-party publishers and third partyrr
operating expenses include salaries and commissions of sales staff, amounts paid to national representation firmff
programming expenses, feeff
corporr
.
traded companym
s, production and
ratings servirr ces, and engineering costs. Corporate expenses consist primarily of salaries related to
ions, third party legal and accounting services, and fees incurred as a result of being a publicly
television consist primarily of costs related to producing a local
rate officff ers and back officff e funct
server costs. Direct
s forff
ff
ff
nd amounts paid to our
tions, promotion and selling, engineering,
Highlgg igll htsgg
During 2018, our consolidated revenue decreased to $297.8 million froff m $536.0 million in the prior year, primarily as a result of
the absence of significant revenue from spectrum usage rights, which were $263.9 million in 2017 in connection with our participation
in the FCC auction forff
consent revenue in our television segment. Our audience shares remained strong in thet
markets.
broadcast spectrum. However, we continue to experience growth in our digital segment and in retransmission
nation’s most densely populated Hispanic
Net revenue for our television segment decreased to $152.9 million in 2018, froff m $412.0 million in 2017. This decrease of
approximately $259.1 million was primarily the result of the absence of significff ant revenue from spectrum usage rights, which were
$263.9 million in 2017 in connection with ot
broadcast pspectrum.m In addition, the decrease was
due to decreases in national and local advertising revenue, as part of a trend forff
media, such as television, to new media, such as digital media. The overall decrease was partially offseff
advertising revenue, which was not material in 2017, and an increase in retransmission consent revenue. We generated a total of $35.1
million and $31.4 million in retransmission consent revenue in 2018 and 2017, respectively. We anticipate that retransmission consent
revenue forff
revenues in future periods.
advertising to move increasingly from traditional
t by an increase in political
l year 2018 and will continue to be a growing source of net
l year 2019 will be greater than it was forff
ur pparti pcipation in the FCC auction forff
the fulff
the fulff
Net revenue for our radio segment decreased to $63.9 million in 2018, from $66.9 million in 2017. This decrease of
approximately $3.0 million was primarily due to decreases in local and national advertising revenue, partially offset
political advertising revenue, which was not material in 2017, and an increase in revenue froff m the 2018 FIFA World Cup.
ff
by an increase in
Net revenue for our digital media segment increased to $81.0 million in 2018, froff m $57.1 million in 2017. This increase of
approximately $23.9 million was primarily due to the growth in the Headway business, which we acquired in the second quarq
2017, and the acquisition of 100% of the stock of Smadex, S.L., or, Smadex, in the second quaq rter of 2018. This increase was partially
offset by a decrease in national revenue in our pre-existing digital business driven by shifts in the digital advertising industry t
rr
video advertising and the increased use of auta omated buying platforms, referrer d to in our industry as programmatic revenue.
oward
ter of
Relationship withii Univision
Substu
antially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation
agreement with Univision provides certain of our owned stations the exclusive right to broadcast Univision’s primary network and
ation agreement, we retain the right to sell no less
UniMás network programming in their respective markets. Under the network affili
than four minutes per hour of the availabla e advertising time on stations that broadcast Univision network programming, and the right
to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás networ
programming, subju ect to adjusd
tment froff m time to time by Univision.
k
ff
tt
Under the netwott
ff
rk affiliat
ion agreement, Univision acts as our exclusive third-party sales representative for the sale of certain
national advertising on our Univision- and UniMás-affiff liate television stations, and we pay certain sales representation fees to
Univision relating to sales of all advertising forff
broadcast on our Univision- and UniMás-affiff liate television stations.
We also generate revenue under two marketing and sales agreements with Univision, which give us thet
right to manage the
in six markets – Albuquerque, Boston, Denver, Orlando,
marketing and sales operations of Univision-owned Univision affiliates
Tampamm and Washington, D.C.
ff
Under our proxy agreement with Univision, we grant Univision the right to negotiate the terms of retratt nsmission consent
m
agreements for our Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides
terms relating to compensat
MVPDs. During the years ended Decemberm 31, 2018 and 2017, retransmission consent revenue accounted forff
million and $31.4 million, respectively, of which $28.2 million and $30.0 million, respectively, relate to the Univision proxy
agreement. The term of the proxy agreement extends with respect to any MVPD for the length of thet
consent agreement in effecff
ion to be paid to us by Univision with respect to retransmission consent agreements entered into with
the expiration of the proxy agreement.
term of any retransmission
approximately $35.1
t beforeff
49
On October 2, 2017, we entered into the currenr
t affiliation agreement with Univision, which supeu rseded and replaced our prior
affiliation agreements with Univision. Additionally, on the same date, we entered into the current proxy agreement and current
prior comparable agreements with
marketing and sales agreements with Univision, each of which supeu rseded and replaced thet
Univision. The term of each of these current agreements expires on Decembem r 31, 2026 for all of our Univision and UniMás network
affiliate stations, except that
network affiliate stations in Orlando, Tampamm and Washington, D.C.
t each currer nt agreement will expire on December 31, 2021 with respect to our Univision and UniMás
Univision currently owns approximately 11% of our common stock on a fulff
ly-converted basis. Our Class U common stock held
by Univision has limited voting rights and does not include the right to elect directors. Each share of Class U common stock is
automatically convertible into one share of Class A common stock (subject to adjustment forff
iate of Univision. In addition, as the holder of all of our issued and
in connection with any transfer to a third party that is not an affilff
outstanding Class U common stock, so long as Univision holds a certain numbm er of shares of Class U common stock, we may not,
without the consent of Univision, merge, consolidate or enter into a business combim nation, dissolve or liquidate our company or
dispose of any interest in any Federal Communications Commission, or FCC, license with respect to television stations which are
affiliates of Univision, among other thit ngs.
stock splits, dividends or combim nations)
ii
Acquisitio
ns and Dispositiott ns
Headway
On April 4, 2017, we completed the Headway acquisition. Headway is a provider of mobile, programmatic, data and
performance digital marketing solutions primarily in the United States, Mexico and other markets in Latin America. We acquired
Headway in order to acquire additional digital media platforms that we believe will enhance our offerings to the U.S. Hispanic
marketplace as well as enhance our international footp
consideration of $8.2 million, net of $4.5 million of cash acquired, and contingent consideration with a faiff
of the acquisition date.
rint. The transaction was funded from cash on hand, forff
an aggregate cash
r value of $15.9 million as
ff
The following is a summary of the purchase price allocation forff
our acquiq sition of Headway including the impact of the
corrections to the error identified (in millions):
Accounts receivable
Intangible assets subjeb ct to amortization
Goodwill (1)
Current liabia lities (1)
Deferred tax
$
19.8
15.9
16.1
(23.7)
(4.0)
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note
t3 o Notes to Consolidated
Financial Statements.
The acquisition of Headway includes a contingent consideration arrangement that requires additional consideration to be paid by
us to Headway based upon the achievement of certain annual perforff mance benchmarks over a three-year period. The range of the total
contingent consideration agreement over the three-year period is between $0 and $27.0
undiscounted amounts we could pay under thet
million. The faiff
lying
the real options approach using level 3 inputs as furthet
agreement also includes payments of up tu
acquisition compensation expense and accrued as earned.
r value of the contingent consideration recognized on the acquisition date of $15.9 million was estimated by appa
roximately $7.5 million to certain key employees, which will be treated as post-
r discussed in Note 12 to Notes to Consolidated Financial Statements. The
o appa
The fair value of the assets acquired includes trade receivables of $19.8 million. The gross amount due under contract is $20.9
million, of which $1.1 million is expected to be uncollectable.
The goodwill, which is not expected to be deducd tible for tax purposes, is assigned to the digital media segment and is
attributable to Headway’s workforce and expected synergies from combinm ing Headway’s operations with those of our own.
During the quarter ended Decemberm 31, 2017, we recorded measurement period adjud stments primarily to adjud st the faiff
r value of
intangible assets and contingent consideration to the final valuations and to reflect the value of deferred tax liabilities at the tax rates of
the forff eign jurisdictions they relate to.
50
The folff
lowing unauda
ited pro forff ma information for the years ended December 31, 2017 and 2016 has been prepared to give
effect to the acquisition of Headway as if thet
purport to represent what thet
nor does it purport to predict the results of operations forff
actuat
acquisition had occurred on January 1, 2016. This pro forma information does not
l results of operations of the Company would have been had this acquisition occurrer d on such date,
any futff urt e periods.
Pro Forma:
Total revenue
Net income (loss) (1)
Basic and diluted ea
g
Net income per share, basic
Net income per share, diluted
rnings per share:
Weighted average common shares
outstandi gng, basic
Weighted average common shares
outstanding, diluted
Years Ended
Ended December 31,
2017
2016
$
$
$
$
545,592
176,138
1.95
1.92
$
$
$
$
288,710
20,282
0.23
0.22
90,272,257
89,340,589
91,891,957
91,303,056
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note
t3 o Notes to Consolidated
Financial Statements.
The unaudited pro forff ma information for the years ended Decembem r 31, 2017 and 2016, was adjud sted to exclude acquisq
ff
ition fees
and costs of $0.5 million and $0.8 million, respectively, which were expensed in connection with the acquisition.
WJAL-TV
In connection with the FCC auction for broadcast spectrum (see Note 4 to Notes to Consolidated Financial Statements), in the
q
er of 2017 we exercised our rights under a channel sharing agreement to acquire rights to utilize spectrumrr
in the
second quart
r of 2017, we relocated our
Washington, D.C. market in exchange forff
television station WJAL-TV, previously servirr ng the Hagerstown, Maryland market, to the Washington, D.C. market. The transaction
was treated as an asset acquisition and was recorded in “Intangible assets not subju ect to amortization” on our consolidated balance
sheet.
ent of approximately $32.6 million. During the third quarterr
payma
KMIR-TV and KPSE-LD
On November 1, 2017, we complm eted the acquisition of television stations KMIR-TV, the local NBC affiliate, and KPSE-LD,
f which serve the Palm Springs, California area, for an aggregate $21 million. We acquired
the local MyNetworkTV affilff iate, both ot
these stations to enhance our offeri
ff
ngs in those markets in which we already compem te.
We evaluated the transferred
ff
set of activities, assets, inputs and processes applied to these inputs in this acquisition and
determined that the acquisition constituted a business.
The following is a summary of the purchase price allocation forff
the acquiq sition of television stations KMIR-TV and KPSE-LD
(in millions):
Propertyy and equipment
Intangible assets subjeb ct to amortization
Goodwill
FCC licenses
$
2.9
3.6
4.6
9.9
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the television segment and is attributable to
the stations’ workforce and expected synergies from combim ning the stations’ operations with our own.
51
The folff
lowing unauda
ited pro forff ma information for the years ended December 31, 2017 and 2016 has been prepared to give
effect to the acquisition of television stations KMIR-TV and KPSE-LD as if the acquiq sition had occurred on January 1, 2016. This pro
forma information does not purpor
acquisition occurred on such date, nor does it purport to predict the results of operations for any futurett
results of operations of the Company would have been had this
t to represent what the actual
periods.
r
tt
Pro Forma:
Total revenue
Net income (loss) (1)
Basic and diluted ea
Net income per share, basic (1)
Net income per share, diluted
g
rnings per share:
Weighted average common shares
outstandi gng, basic
Weighted average common shares
outstanding, diluted
Years Ended
Ended December 31,
2017
2016
$
$
$
$
543,355
176,299
1.95
1.92
$
$
$
$
267,614
21,574
0.24
0.24
90,272,257
89,340,589
91,891,957
91,303,056
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note
t3 o Notes to Consolidated
Financial Statements.
KMCC-TV
On January 16, 2018, we complm eted the acquisition of television station KMCC-TV, which serves the Las Vegas, Nevada area,
for an aggregate $3.6 million. The transaction was treated as an asset acquisition with the majority of the purchase price recorded in
“Intangible assets not subjeb ct to amortization” on our consolidated balance sheet.
Smadex
On June 11, 2018, we completed the acquisition of Smadex, a mobile programmatic solutions provider and demand-side
platform that delivers performance-based solutions and data insights for marketers. The tratt nsaction was treated as a business
acquisition in accordance with the guidance of ASU 2017-01. We acquired Smadex to expand its technology platform, broaden its
digital solutions offerff
aggregate cash consideration of $3.5 million, net of $1.2 million of cash acquired.
ing and enhance its execution of perforff mance campamm igns. The transaction was funded froff m cash on hand for an
The folff
lowing is a summary of the initial purchase price allocation for the Company’s acquisition of Smadex (unaudi
a
ted; in
millions):
Accounts receivable
Other current assets
Inta gngible assets subjjeb ct to amortization
Goodwill
Current liabilities
Long-term liabilities
Deferred tax
$
0.9
0.4
2.0
3.6
(2.8)
(0.2)
(0.4)
The fair value of assets acquired includes trade receivables of $0.9 million. The gross amount due under contract is $0.9
million, all of which is expected to be collectible.
52
During the year ended December 31, 2018, Smadex generated net revenue and expenses of $6.4 million and $5.8 million,
respectively, which are included in our consolidated statements of operations.
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the digital segment and is attributable to the
Smadex workforce and expected synergies from combim ning its operations with those of our own.
The folff
lowing unauda
ited pro forff ma information for the years ended December 31, 2018 and 2017 has been prepared to give
effect to the acquisition of Smadex as if the acquisition had occurred on January 1, 2017. This pro-forma information does not purport
to represent what the actuat
does it purporr
l results of operations of the Compam ny would have been had this acquisition occurrr ed on such date, nor
rt to predict the results of operations for futff urt e periods.
Pro Forma:
Total revenue
Net income (loss)
Basic and diluted ea
g
Net income per share, basic
Net income per share, diluted
rnings per share:
Weighted average common shares
outstandi gng, basic
Weighted average common shares
outstanding, diluted
Years Ended
Ended December 31,
2018
2017
$
$
$
$
307,805
13,133
0.15
0.15
$
$
$
$
541,663
175,765
1.95
1.91
89,115,997
90,272,257
90,328,583
91,891,957
The unaudited pro forff ma information for the year ended Decemberm 31, 2018 was adjud sted to exclude acquisition fees and costs
of $0.4 million, which were expensed in connection with t
t
he acquiqq sition.
53
RESULTS OF OPERATRR IONS
Separate financial data for each of the Compam ny’s operating segments is provided below. Segment operating profit (loss) is
definff ed as operating profit (loss) before corporate expenses and foreign currency (gain) loss. The Companym
lowing (in thousands):
of its operating segments based on the folff
evaluates the perforff mance
Years Ended December 31,
2017
2018
2016
% Change
2018 to 2017
% Change
2017 to 2016
Net Revenue
Revenue from advertising and retransmission consent
Television
Radio
Digital
Total
venue from spectrum usage rights (television)
Consolidated
of revenue - television (spectrum usage rights)
st of revenue - digital media (1)
Direct operating expenses
Television
Radio
Digital
Consolidated
lling, general and administrative expenses
Television
Radio
Digital
Consolidated
preciation and amortization
Television
Radio
Digital
Consolidated
gment operating profit (loss)
Television
Radio
Digital (1)
Consolidated (1)
rate expenses
r value contingent consideration
Change in faiff
Foreign currency (gain) loss
Other opperating (gain) loss
Operating income (1)
nsolidated adjud sted EBITDA (1) (2)
Capital expenditures
Television
Radio
Digital
Consolidated
Total assets
Television
Radio
Digital (1)
Consolidated (1)
*
.
Percentage not meaningfulff
1%
(4)%
42%
8%
(99)%
(44)%
*
37%
5%
(7)%
41%
5%
(2)%
(4)%
43%
5%
(8)%
(7)%
20%
(1)%
(81)%
118%
(39)%
(80)%
(4)%
*
362%
353%
(88)%
7%
(7)%
(12)%
147%
5%
*
107%
*
246%
(4)%
(1)%
136%
5%
3%
(8)%
70%
5%
(8)%
(18)%
181%
7%
372%
(87)%
*
317%
14%
*
*
*
469%
(27)%
148,059
66,934
57,098
272,091
263,943
536,034
12,340
32,998
59,454
44,572
15,257
119,283
22,276
18,743
8,097
49,116
9,760
2,673
3,978
16,411
308,172
946
(3,232)
305,886
27,937
——
350
(262)
277,861
50,608
10,945
1,679
64
12,688
556,942
126,248
82,949
766,139
$
$
$
$
$
$
$
159,523
75,847
23,144
258,514
——
258,514
——
9,536
62,020
44,949
6,470
113,439
21,591
20,441
4,766
46,798
10,659
3,269
1,414
15,342
65,253
7,188
958
73,399
24,543
——
——
——
48,856
69,243
5,744
3,287
277
9,308
363,852
129,825
24,244
517,921
$
$
$
$
$
$
$
$
$
$
$
$
$
$
149,935
63,922
80,982
294,839
2,976
297,815
——
45,096
62,434
41,287
21,521
125,242
21,864
18,081
11,590
51,535
9,024
2,490
4,759
16,273
59,589
2,064
(1,984)
59,669
26,865
(1,202)
1,616
(1,187)
33,577
54,038
14,336
350
1,031
15,717
487,929
121,020
81,460
690,409
54
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note
t3 o Notes to Consolidated
Financial Statements.
(2) Consolidated adjud sted EBITDA means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-
cash impaim rment charge, non-cash stock-based compensation included in operating and corporr
rate expenses, net interest expense,
other income (loss), non-recurrirr ng cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equiq ty in net
income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication
programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with
investments, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjud sted EBITDA
because that measure is defined in our 2017 Credit Facility and does not include gain (loss) on sale of assets, depreciation and
amortization, non-cash impairment charge, non-cash stock-based compem nsation, net interest expense, other income (loss), gain
iate, non-cash
(loss) on debt extinguishment, income tax (expense) benefit, equiqq ty in net income (loss) of nonconsolidated affilff
losses, syndication programming amortization and does include syndication programming payments, revenue from FCC
spectrumrr
pro-forma cost savings.
incentive auction less related expenses, expenses associated with investments, acquisitions and dispositions and certain
Since consolidated adjusted EBITDA is a measure governirr ng several critical aspects of our 2017 Credit Facility, we believe that
it is imporm tant to disclose consolidated adjusted EBITDA to our investors. We may increase the aggregate principal amount
outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or
the ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated
adjusted EBITDA, not exceeding 4.0. In addition, beginning Decemberm 31, 2018, at the end of every calendar year, in the event
our total net leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess
Cash Flow, which is definff ed as consolidated adjud sted EBITDA, less consolidated interest expense, less debt principal payments,
less taxes paid, less other
leverage ratio was as follows (in each case as of Decemberm 31): 2018, 3.2 to 1; 2017, 4.4 to 1.
n the definition of Excess Cash Flow in thet
2017 Credit Agreement. The total
amounts set forth i
t
t
While many in the finff ancial community and we consider consolidated adjud sted EBITDA to be importmm
considered in addition to, but not as a substitute for or superior to, other measures of liquiq dity and financial performance
prepared in accordance with accounting principles generally accepted in the United States of America, such as cash floff ws from
operating activities, operating income and net income. As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale
of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensat
net interest expense, othet
(loss) of nonconsolidated affilff
payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments,
acquisitions and dispositions and certain pro-forma cost savings, consolidated adjusted EBITDA has certain limitations because
it excludes and includes several importm
when evaluating our business. Consolidated adjud sted EBITDA is also used to make executive compemm nsation decisions.
r income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income
iate, non-cash losses, syndication programming amortization less syndication programming
ant finff ancial line items. Therefore, we consider both non-GAAP and GAAP measures
ant, it should be
ion expense,
mm
55
Consolidated adjud sted EBITDA is a non-GAAP measure. The most directly comparable GAAP finaff
ncial measure to
consolidated adjud sted EBITDA is cash flowff
operating activities follows (in thousands):
s froff m operating activities. A reconciliation of this non-GAAP measure to cash flows from
Consolidated adjd usted EBITDA (1) (2)
et revenue - FCC spectrum incentive auction
Exppenses - FCC pspectrum incentive auction
Interest expense
Interest income
Gain (loss) on debt extinguishment
Income tax (expense) benefit (1)
Amortization of syndication contracts
Payments on syndication contracts
Non-cash stock-based compensation included in direct operating expenses
Non-cash stock-based compensation included in corporate expenses
Depreciation and amortization
Change in fair value of contingent consideration
Other operating gain (loss)
Impairment loss on investment
Non-recurring severance charge
Dividend income
t
Equity i
Net income (1)
Depreciation and amortization
Cost of Revenue - television (spectrum usage rights)
Deferred income taxes (1)
Amortization of debt issue costs
Amortization of syndication contracts
Payments on syndication contracts
Equity in net (income) loss of nonconsolidated affiff liate
Non-cash stock-based compensation
(Gain) loss on sale of propertyrr
(Gain) loss on debt extinguishment
Impairment loss on investment
Changes in assets and liabilities:
n net income (loss) of nonconsolidated affiff liates
(Increase) decrease in accounts receivable
(Increase) decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable, accrued expenses and other liabilities
(1)
Cash flowff
s fromff
poperating activities
(fooff
tnotes on preceding page)
2018
Years Ended December 31,
2017
2016
$
54,038
$
50,608
$
69,243
——
——
(15,743)
3,973
(550)
(7,877)
(651)
643
(732)
(5,055)
(16,273)
1,202
1,187
(1,320)
(782)
1,475
(1,374)
12,161
16,273
——
4,612
1,124
651
(643)
1,374
5,787
——
550
1,320
5,895
(5,581)
263,943
(14,443)
(16,709)
774
(3,306)
(82,612)
(452)
445
(1,236)
(4,855)
(16,411)
——
262
——
——
——
(310)
175,698
16,411
12,340
81,766
3,237
452
(445)
310
6,091
28
3,306
——
414
(913)
$
(9,727)
33,796
$
2,825
301,520
$
——
——
(15,469)
300
(161)
(13,121)
(398)
388
(1,330)
(3,705)
(15,342)
——
——
——
——
——
——
20,405
15,342
——
12,528
776
398
(388)
——
5,035
——
161
——
1,397
439
1,203
57,296
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Consolidated Operations
Revenue from Advertising
ii
and Retransmission Consent. Net revenue from advertising and retransmission consent increased to
$294.8 million for the year ended December 31, 2018 from $272.1 million for the year ended Decemberm 31, 2017, an increase of
approximately $22.7 million. Of the overall increase, $23.9 million was attributable to our digital media segment and was primarily
due to the growth in the Headway business, which we acquired in the second quarter of 2017. Additionally, $1.9 million of thet
increase was attributabla e to our television segment and was primarily due to an increase in political advertising revenue, which was
not material in 2017, and an increase in retransmission consent revenue, partially offset by decreases in national and local advertising
revenue, as part of a trend for advertising to move increasingly froff m traditional media, such as television, to new media, such as
digital media. The overall increase was partially offset
in local and national advertising revenue, partially offset
2017, and an increase in revenue from the 2018 FIFA World Cup.
by a decrease in our radio segment of $3.0 million, primarily due to decreases
by an increase in political advertising revenue, which was not material in
ff
ff
overall
56
Revenue from Spectrum Usage Rights. Net revenue from spectrum usage rights decreased to $3.0 million for the year ended
Decemberm 31, 2018 from $263.9 million for the year ended Decembem r 31, 2017. The decrease was primarily due to revenue from the
FCC auction for broadcast spectrum in the prior year, which revenue was not significff ant in 2018.
We currently anticipate that for the full year 2019, net revenue will increase froff m digital media, retransmission consent revenue,
and spectrum usage rights, compared to 2018. We anticipate political revenue will decrease in 2019, compam red to 2018.
Cost of revenue-Televisiii on (spes
ctrutt m usage rigi hts)tt
. We did not incur cost of revenue related to revenue from spectrum usage
rights in 2018. Cost of revenue related to revenue from spectrum usage rights was $12.3 million forff
2017, related to the FCC auct
broadcast spectrum.
ion forff
a
the year ended Decembm er 31,
Cost of revenue-Digii
the year ended Decemberm
tal. Cost of revenue in our digital media segment increased to $45.1 million forff
31, 2018 from $33.0 million for the year ended Decembem r 31, 2017, an increase of $12.1 million, primarily due to the growth in the
Headway business, which we acquired in the second quarter of 2017.
x
Direct Operating Expense
s.ee Direct operating expenses increased to $125.2 million forff
second quarter of 2017, which did not contribute to direct operating expenses forff
the year ended December 31, 2018 from
$119.3 million for the year ended Decemberm 31, 2017, an increase of approximately $5.9 million. Of the overall increase, $6.3 million
was attributable to our digital media segment and was primarily due to expenses associated with the increase in revenue, and due to
the acquisitions of Headway during thet
in 2017, and Smadex in the second quarter of 2018. Additionally, $2.9 million of thet
segment and was primarily due to the acquisition of station KMIR-TV in thet
fourth qt
operating expenses in that year, and expenses associated with the increase in advertising revenue, partially offset
t by a decrease in our radio segment of
expenses associated with a decrease in salary err
$3.3 million dued
to a decrease in expenses associated with the decrease in advertising revenue and a decrease in salary expense. As a
percentage of net revenue, direct operating expenses increased to 42% for the year ended Decembm er 31, 2018 from 22% for the year
ended Decembem r 31, 2017. The increase in direct operating expenses as a percentage of net revenue is due to expenses associated with
revenue froff m spectrum usage rights recorded forff
auction for broadcast pspectrum, which revenue was not significant in 2018.
l year
overall increase was attributable to our television
uarter of 2017, which did not contritt bute to direct
ff
the year ended Decemberm 31, 2017 in connection with our ppa
xpense. The overall increase was partially offseff
rticipation in the FCC
by a decrease in
the fulff
p
We believe that
t direct operating expenses will decrease during 2019 primarily as a result of the previously announced reduction
in personnel and other discretionary expense cuts, both of which were implem mented beginning in the second quaq rter of 2018.
Selling, General and Admidd nistrative Expenses. Selling, general and administrative expenses increased to $51.5 million forff
the
the year ended December 31, 2017, an increase of approximately $2.4 million.
year ended Decemberm 31, 2018 froff m $49.1 million forff
Of the overall increase, $3.5 million was attributable to our digital media segment and was primarily due to the growth i
Headway business, which we acquiq red in the second quarter of 2017, and which did not contribute to our results of operations for the
full year in 2017. The overall increase was partially offset by a decrease of $0.6 million in our radio segment and was primarily due to
a decrease in promotional expenses, and a decrease of $0.4 million in our television segment primarily due to a decrease in salaryrr
expense. As a percentage of net revenue, selling, general and administrative expenses increased to 17% for the year ended December
31, 2018 from 9% for the year ended December 31, 2017. The increase in selling, general and administrative expenses as a percentage
of net revenue is dued
paparti pcipation in the FCC auction for broadcast pspectrum, which revenue was not significant in 2018.
to expenses associated with revenue froff m spectrum usage rights recorded in 2017 in connection with ourr
n the
t
We believe that
t selling, general and administrative expenses will decrease during 2019 primarily as a result of the previously
announced reducdd tion in personnel and other discretionary expense cuts, both of which were implemented beginning in the second
quarter of 2018.
Corporate Expex nses. Corpor
rr
ate expenses decreased to $26.9 million forff
the year ended Decembem r 31, 2018 from $27.9 million
for the year ended Decemberm 31, 2017, a decrease of $1.0 million. The decrease was primarily due to expenses associated with the
FCC auction for broadcast spectrut m recorded in 2017, which expenses were not significant in 2018, and due diligence costs related to
the Headway acquisition during the second quarter of 2017, partially offset by increase in salary err
compensation expense, and dued
expenses increased to 9% forff
corporr
2017 in connection with our participation in thet
rate expenses as a percentage of net revenue is due to expenses associated with revenue from spectrum usage rights recorded in
the year ended Decemberm 31, 2018 from 5% for the year ended Decembem r 31, 2017. The increase in
FCC auction for broadcast spectrum, which revenue was not significant in 2018.
ition in 2018. As a percentage of net revenue, corporate
diligence costs related to the Smadex acquisq
xpense, non-cash stock-based
We believe that
t corpor
rate expenses will increase during 2019 compam red to 2018, primarily as a result of increased salary
expense.
57
Depre eciation and Amortization. Depreciation and amortization decreased to $16.3 million for the year ended Decemberm 31,
2018 from $16.4 million for the year ended December 31, 2017, a decrease of $0.1 million. The decrease was primarily dued
assets becoming fully depreciated, partially offset
Smadex acquisitions.
to certain
by increased amortization related to intangible assets acquired in the Headway and
ff
Change in fair value of contingent consideration. As a result of the change in fair value of the contingent consideration related
to the Headway acquisition, we recognized income of $1.2 million forff
the year ended Decemberm 31, 2018.
Foreign currency loss. Our historical revenues have primarily been denominated in U.S. dollars, and the majority of our current
revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, our operating expenses are generally
denominated in the currencies of the countries in which our operations are located, and we have operations in countries other than thet
U.S., primarily those operations related to the Headway business. As a result, we haveaa
operating expense, attributable to foreign
currency loss, that is primarily related to the operations related to the Headway business. Foreign currency loss increased to $1.6
million forff
which was primarily due to currerr ncy fluff ctutt ations that affecff
related to the Headway business.
ted our digital segment operations located outside the U.S., primarily
the year ended Decemberm 31, 2017, an increase of $1.2 million,
the year ended Decembem r 31, 2018 from $0.4 million forff
Othtt er operating gain. Other operating gain increased to $1.2 million forff
the year ended Decembem r 31, 2018 from $0.3 million
for the year ended December 31, 2017, an increase of $0.9 million, due to gains in connection with the required relocation of certain
.
broadcast spectrumrr
television stations to a diffeff
rent channel as part of the broadcast television repack folff
lowing the FCC auction forff
Operating Income. As a result of the above factors, operating income was $33.6 million forff
the year ended Decemberm 31, 2018,
compared to $277.9 million for the year ended December 31, 2017.
Interest Expex nse, net. Interest expense, net decreased to $11.8 million forff
the year ended December 31, 2018 from $15.9 million
for the year ended Decemberm 31, 2017, a decrease of $4.1 million. This decrease was primarily due to interest income earned on
available-for-sale securities and a decrease in interest expense associated with our interest rate swap agreements that were terminated
on Novemberm 28, 2017.
Loss on Debt Extinguishii ment. We recorded a loss on debt extinguishment of $0.6 million for the year ended Decemberm 31, 2018
related to capitalized finance costs written off due to partial prepayments of our debt. We recorded a loss on debt extinguishment of
$3.3 million for the year ended Decemberm 31, 2017 due to the refinancing of our debt faci
lity.
ff
Impairment loss on investment. We determined that a decrease in value of an equity investment occurred. As such, we
recognized an impaim rment charge of $1.3 million forff
the year ended December 31, 2018.
Income Taxaa Expenx
se or Benefit.ff
Income tax expense for the year ended Decembem r 31, 2018 was $7.9 million or 37% of our pre-
tax income. The effective rate was higher than our statutory rate due to foreign and state taxes, and nondeductd
tax expense for the year ended December 31, 2017 was $82.6 million or 32% of our pre-tax income.
ible expenses. Income
ff
Management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than
not that the deferred
tax assets are realizable, adjud sts the valuation allowance accordingly. Valuation allowances are established and
maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation
allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors,
several of which are subject
to significant judgment calls.
b
Based on our analysis, we determined that it was more likely than not that our deferff
red tax assets would be realized.
Segment Operations
Television
Revenue from Advertising and Retransmission Consent. Net revenue fromff
television segment increased to $149.9 million forff
Decembem r 31, 2017, an increase of $1.8 million. The increase was primarily due to an increase in political advertising revenue, which
was not material in 2017, and an increase in retransmission consent revenue, partially offseff
advertising revenue, as a result in part of ratings declines and changing demographic preferences. Additionally, there is a trend for
advertising to move increasingly from traditional media, such as television, to new media, such as digital media. We generated a total
of $35.1 million in retransmission consent revenue forff
the year ended December 31, 2018 compared to $31.4 million forff
t by decreases in national and local
advertising and retransmission consent in our
the year ended Decemberm 31, 2018 from $148.1 million for the year ended
the year
58
ended Decemberm 31, 2017. We anticipate that retransmission consent revenue for the full year 2019 will be greater than it was for the
full year 2018 and will continue to be a growing source of net revenue in futff uret
periods.
Revenue from Spectrum Usage Rights. Net revenue froff m spectrumrr
usage rights decreased to $3.0 million for the year ended
Decemberm 31, 2018 from $263.9 million for the year ended Decembem r 31, 2017. The decrease was primarily due to revenue from the
FCC auction for broadcast spectrum in the prior year, which revenue was not significff ant in 2018.
Cost of revenue-television (spect
usage rights
rights in 2018. Cost of revenue related to revenue from spectrum usage rights was $12.3 million forff
2017, related to the FCC auct
broadcast spectrum.
ion forff
rumt
a
s
i
)s . We did not incur cost of revenue related to revenue from spectrum usage
the year ended Decemberm 31,
Direct Operating Expense
x
s.ee Direct operating expenses in our television segment increased to $62.4 million forff
the year ended
Decembem r 31, 2018 from $59.5 million for the year ended December 31, 2017, an increase of $2.9 million. The increase was primarily
attributable to the acquisition of station KMIR-TV in the fouff
uarter of 2017, which did not contribute to direct operating expenses
in that year, and expenses associated with the increase in advertising revenue, partially offseff
with a decrease in salary expense.
t by a decrease in expenses associated
rth qtt
Selling, General and Admidd nistii rat
tt
ive Expenses. Selling, general and administrative expenses in our television segment decreased
the year ended Decembem r 31, 2017, a decrease of $0.4
to $21.9 million for the year ended Decemberm 31, 2018 from $22.3 million forff
million. The decrease was primarily due to a decrease in salary expense.
Radioii
Net Revenue. Net revenue in our radio segment decreased to $63.9 million for thet
year ended Decembem r 31, 2018 from $66.9
the year ended December 31, 2017, a decrease of $3.0 million. The decrease was primarily due to decreases in local and
by an increase in political advertising revenue, which was not material in 2017, and an
million forff
national advertising revenue, partially offset
increase in revenue from the 2018 FIFA World Cup. We believe that a numbem r of facff
national advertising, including ratings declines and changing demographic preferences. Additionally, the decrease is part of a trend for
advertising to move increasingly from traditional media, such as radio, to new media, such as digital media
tors contributed to the decrease in local and
ff
Direct Operating Expense
x
s.ee Direct operating expenses in our radio segment decreased to $41.3 million forff
the year ended
Decembem r 31, 2018 from $44.6 million for thet
due to a decrease in expenses associated with the decrease in advertising revenue and a decrease in salary expense.
year ended December 31, 2017, a decrease of $3.3 million. The decrease was primarily
Selling, General and Admidd nistii ratt
tive Expenses. Selling, general and administrative expenses in our radio segment decreased to
$18.1 million for the year ended Decemberm 31, 2018 from $18.7 million for the year ended Decembem r 31, 2017, a decrease of $0.6
million due to a decrease in promotional expenses.
Digitaltt Mediadd
Net Revenue. Net revenue in our digital media segment increased to $81.0 million forff
the year ended Decemberm 31, 2018 froff m
$57.1 million for the year ended Decemberm 31, 2017, an increase of $23.9 million. The increase was primarily due to the growth in the
Headway business, which we acquiq red in the second quarter of 2017. This increase was partially offsff et by a decrease in national
revenue in our pre-existing digital business, driven by shiftsff
rr
programmatic revenue. The digital advertising indusd try is dynamic and undergoing rapia d change, which includes the current
toward programmatic revenue. We anticipate that this trett nd will continue in the digital advertising industry and that other
emerge, requiq ring us to respond to changing consumer demands, which might include, among other things, changing and adapting
certain of our digital offeri
in the digital advertising indusd try toward video advertising and
operations of our pre-existing digital media business.
ngs, and closely monitoring thet
shift
trends may
ff
t
Cost of revenue. Cost of revenue in our digital media segment increased to $45.1 million for the year ended Decemberm 31, 2018
from $33.0 million for the year ended December 31, 2017, an increase of $12.1 million. This increase was due to the growth i
Headway business, which we acquiq red in the second quarter of 2017. Cost of revenue in our pre-existing digital business was
constant. Because of third party media costs, our margins tend to be smaller in our digital media segment than in our other
broadcast
segments. As a percentage of net revenue, cost of revenue decreased to 56% for the year ended Decemberm 31, 2018 from 58% for the
year ended Decemberm 31, 2017.
n the
t
t
Direct operating expenses. Direct operating expenses in our digital media segment increased to $21.5 million for thet
year ended
Decemberm 31, 2018 froff m $15.3 million forff
primarily due to expenses associated with the increase in revenue, and dued
2017, which did not contribute to direct operating expenses for the full year in 2017, and Smadex in the second quarter of 2018. The
increase was partially offset by a decrease in our preexisting digital business due to a decrease in expenses associated with the
decrease in advertising revenue and a decrease in salary expense.
the year ended Decembem r 31, 2017, an increase of $6.2 million. The increase was
to the acquiq sitions of Headway during the second quaq rter of
59
Selling, general and admidd nistii rat
tt
ive expenses. Selling, general and administrative expenses in our digital media segment
increased to $11.6 million for the year ended December 31, 2018 from $8.1 million forff
of $3.5 million. The increase was primarily due to the growth in the Headway business, which we acquiq red in the second quarter of
2017, and which did not contribute to our results of operations for thet
the year ended December 31, 2017, an increase
full year in 2017.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Consolidated Operations
Revenue from Advertising
ii
and Retransmission Consent. Net revenue from advertising and retransmission consent increased to
$272.1 million for the year ended December 31, 2017 from $258.5 million for the year ended Decemberm 31, 2016, an increase of $13.6
million. Of the overall increase, $34.0 million was attributable to our digital media segment and was primarily due to the acquisition
of Headway during the second quarter of 2017, which did not contribute to net revenue in prior periods. The overall increase was
partially offset
political advertising revenue, which was not material in 2017, partially offset
increase in retransmission consent revenue. Additionally, thet
of $8.9 million dued
which was not material in 2017.
overall increase was partially offset by a decrease in our radio segment
primarily to decreases in local and national advertising revenue, and a decrease in political advertising revenue,
by a decrease in our television segment of $11.5 million due primarily to a decrease in local revenue and a decrease in
by an increase in national advertising revenue and an
ff
ff
Revenue from Spectrum Usage Rights. Net revenue froff m spectrumrr
usage rights was $263.9 million forff
the year ended
Decembem r 31, 2017. We did not generate revenue from spectrum usage rights in 2016.
We currently anticipate that for the full year 2018, net revenue will increase froff m digital media, retransmission consent revenue,
and political revenue, compared to 2017. We anticipate revenue from spectrutt m usage rights will decrease in 2018.
Cost of revenue-Televisii ion (spect
s
rutt m usage right
s)tt
i
. Cost of revenue related to revenue from spectrum usage rights was $12.3
million forff
the year ended Decemberm 31, 2017. We did not incur cost of revenue froff m spectrum usage rights in 2016.
Cost of revenue-Digii
tal. Cost of revenue in our digital media segment increased to $33.0 million forff
the year ended Decemberm
31, 2017 from $9.5 million for the year ended Decemberm 31, 2016, an increase of $23.5 million, primarily due to the acquisition of
Headway during the second quaq rter of 2017, which did not contritt bute to cost of revenue in prior periods.
x
Direct Operating Expense
s.ee Direct operating expenses increased to $119.3 million forff
$113.4 million for the year ended Decemberm 31, 2016, an increase of $5.9 million. Of the overall increase, $8.8 million was
attributable to our digital media segment and was primarily due to the acquisition of Headway durd ing the second quarter of 2017,
which did not contritt bute to direct operating expenses in prior periods. The overall increase was partially offseff
television segment of $2.6 million dued
expense for ratings services, and a decrease in our radio segment of $0.4 million dued
ff
decrease in advertising revenue, partially offset
expenses decreased to 22% for the year ended Decemberm 31, 2017 from 44% for the year ended Decemberm 31, 2016. The decrease in
direct operating expenses as a percentage of net revenue is due to the significant revenue froff m spectrumr
usage rights recorded in the
year ended Decemberm 31, 2017 with respect to which there were not associated direct operating expenses.
to a decrease in expenses associated with the
by an increase in salary expense. As a percentage of net revenue, direct operating
to a decrease in expenses associated with the decrease in advertising revenue and a decrease in
the year ended December 31, 2017 from
t by a decrease in our
We believe that
t direct operating expenses will continue to increase during 2018 primarily as a result of operating Headway for a
full year in 2018 compared to nine months in 2017.
Selling, General and Admidd nistrative Expenses. Selling, general and administrative expenses increased to $49.1 million forff
the
the year ended December 31, 2016, an increase of $2.3 million. Of the overall
year ended Decemberm 31, 2017 froff m $46.8 million forff
increase, $3.3 million was attributable to our digital media segment and was primarily due to the acquisition of Headway during thet
second quarter of 2017, which did not contritt bute to selling, general and administrative expenses in prior periods. Additionally,
approximately $0.7 million of the overall increase was attributable to our television segment and was primarily due to an increase in
promotional expenses. The overall increase was partially offset by a decrease of $1.7 million in our radio segment due to decreases in
event expense and bad debt expense. As a percentage of net revenue, selling, general and administrative expenses decreased to 9% for
the year ended Decembem r 31, 2017 from 18% for the year ended Decemberm 31, 2016. The decrease in selling, general and
administrative expenses as a percentage of net revenue is due to the significant revenue from spectrum usage rights recorded in the
year ended Decemberm 31, 2017 with respect to which there were not associated selling, general and administrative expenses.
We believe that
t selling, general and administrative expenses will increase during 2018 primarily as a result of operating
Headway for a full year in 2018 compared to nine months in 2017.
60
Corporate Expex nses. Corporate expenses increased to $27.9 million for thet
for the year ended Decemberm 31, 2016, an increase of $3.4 million. . The increase was primarily due to expenses associated with t
broadcast spectrum and non-cash stock-based compensation expense. As a percentage of net revenue, corporate
FCC auction forff
expenses decreased to 5% forff
corporr
ended Decemberm 31, 2017 with respect to which there were not associated corporate expenses.
the year ended December 31, 2017 from 9% for the year ended Decembem r 31, 2016. The decrease in
rate expenses as a percentage of net revenue is due to the significant revenue froff m spectrum usage rights recorded in the year
t
year ended Decembem r 31, 2017 from $24.5 million
het
We believe that
t corpor
rate expenses will decrease during 2018 compm ared to 2017 as a result of expenses in the 2017 period
related to the FCC auction forff
broadcast spectrumr
and the acquisition of Headway.
Depreciation and Amortization. Depreciation and amortization increased to $16.4 million forff
the year ended Decemberm 31, 2017
the year ended December 31, 2016, an increase of $1.1 million. The increase was primarily due to amortization
from $15.3 million forff
on the intangible assets froff m the Headway acquisition, partially offset by a decrease in depreciation as certain assets are now fully
depreciated.
Operating Income. As a result of the above fact
gain as part of the broadcast television repack folff
million forff
ff
lowing the FCC auction forff
the year ended Decemberm 31, 2017, compared to $48.9 million for the year ended Decemberm 31, 2016.
ors, and including $0.3 million of other operating gain as reclassified to reflect a
broadcast spectrum, operating income was $277.9
Interest Expex nse, net. Interest expense, net increased to $15.9 million forff
the year ended December 31, 2017 from $15.2 million
for the year ended Decemberm 31, 2016, an increase of $0.7 million. This increase was primarily due to amounts reclassified from
Accumulm ated Other Income in conjun nction with the termination of our interest swap agreements.
Loss on Debt Extinguishii ment. We recorded a loss on debt extinguishment of $3.3 million for the year ended Decemberm 31, 2017
due to the refinancing of our debt facili
due to partial prepayments of our debt.
ff
ty. In 2016, we recorded a loss of $0.2 million related to capitalized finance costs written off
Income Taxaa Expenx
ff
se or Benefit.ff
Income tax expense for the year ended Decemberm 31, 2017 was $82.6 million or 32% of our
pre-tax income. The effect
the new U.S. federal corporate tax rate. Income tax expense forff
pre-tax income.
ive rate was lower than our statutory rate due to the revaluation of our deferff
red tax assets and liabilities to
the year ended December 31, 2016 was $13.1 million or 39% of our
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely
tax assets are realizable, adjusts the valuation allowance accordingly. Valuation allowances are established
than not that the deferred
and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a
valuation allowance for deferff
many factors, several of which are subject to significant judgment calls.
red tax assets and the amount maintained in any such allowance is highly subjective and is based on
ff
Based on our analysis, we determined that it was more likely than not that our deferff
red tax assets would be realized.
Segment Operations
Television
Revenue from Advertising and Retransmission Consent. Net revenue fromff
advertising and retransmission consent in our
the year ended December 31, 2017 from $159.5 million for the year ended
television segment decreased to $148.1 million forff
Decemberm 31, 2016, a decrease of $11.4 million. The decrease was primarily dued
political advertising revenue, which was not material in 2017, partially offset
increase in retransmission consent revenue. We generated a total of $31.4 million in retratt nsmission consent revenue for the year ended
December 31, 2017 compared to $29.6 million for the year ended Decemberm 31, 2016. We anticipate that retransmission consent
the fulff
revenue forff
in future periods.
to a decrease in local revenue and a decrease in
by an increase in national advertising revenue and an
l year 2017 and will continue to be a growing source of net revenue
l year 2018 will be greater than it was forff
the fulff
ff
Revenue from Spectrum Usage Rights. Net revenue from spectrumrr
usage rights was $263.9 million forff
the year ended Decemberm
31, 2017. We did not generate revenue from spectrum usage rights in 2016.
Cost of revenue-television (spect
s
rumt
usage rights
)s . Cost of revenue related to revenue from spectrumr
i
usage rights was $12.3
million forff
the year ended Decemberm 31, 2017. We did not incur cost of revenue froff m spectrum usage rights in 2016.
61
Direct Operating Expense
x
s.ee Direct operating expenses in our television segment decreased to $59.5 million forff
the year ended
Decembem r 31, 2017 from $62.0 million for thet
attributable to a decrease in expenses associated with the decrease in advertising revenue and a decrease in expense for ratings
services, partially offsff et by an increase in salary expense.
year ended Decembem r 31, 2016, a decrease of $2.5 million. The decrease was primarily
Selling, General and Admidd nistii rat
tt
ive Expenses. Selling, general and administrative expenses in our television segment increased
the year ended Decembem r 31, 2016, an increase of $0.7
to $22.3 million for the year ended Decemberm 31, 2017 from $21.6 million forff
million. The increase was primarily due to an increase in promotional expenses.
Radioii
Net Revenue. Net revenue in our radio segment decreased to $66.9 million for thet
year ended Decembem r 31, 2017 from $75.8
million forff
the year ended December 31, 2016, a decrease of $8.9 million. The decrease was primarily due to decreases in both local
and national advertising revenue, and a decrease in political advertising revenue, which was not material in 2017. We believe that a
numberm of factors contributed to the decrease in local and national advertising, including advertisers allocating more of their budget to
ic preferences.
digital advertising, ratings declines and changing demographa
Direct Operating Expense
x
s.ee Direct operating expenses in our radio segment decreased to $44.6 million forff
the year ended
Decembem r 31, 2017 from $44.9 million for thet
due to a decrease in expenses associated with the decrease in advertising revenue, partially offsff et by an increase in salary expense.
year ended December 31, 2016, a decrease of $0.3 million. The decrease was primarily
Selling, General and Admidd nistii ratt
tive Expenses. Selling, general and administrative expenses in our radio segment decreased to
$18.7 million for the year ended December 31, 2017 from $20.4 million for the year ended Decembem r 31, 2016, a decrease of $1.7
million. The decrease was primarily due to decreases in event expense and salary expense.
Digital Mediadd
NetNN Revenue. Net revenue in our digital media segment increased to $57.1 million forff
the year ended Decemberm 31, 2017 froff m
ter of 2017, which did not contritt bute to results of operations in prior periods. This increase was
$23.1 million for the year ended Decemberm 31, 2016, an increase of $34.0 million. The increase was primarily due to the acquisition of
Headway during the second quarq
partially offseff
t by a decrease in national revenue in our pre-existing digital business, driven by shifts in the digital advertising indusd try
toward video advertising and programmatic revenue. The digital advertising industry is dynamic and undergoing rapia d change, which
rytt
includes the current shift toward programmatic revenue. We anticipate that this trend will continue in the digital advertising industd
and that other trends may emerge, requiring us to respond to changing consumer demands, which might include, among other things,
changing and adapting certain of our digital offer
business.
ings, and closely monitoring the operations of our pre-existing digital media
ff
Cost of revenue. Cost of revenue in our digital media segment increased to $33.0 million for the year ended Decemberm 31, 2017
the year ended Decemberm 31, 2016, an increase of $23.5 million. This increase was due to the acquisition of
from $9.5 million forff
Headway during the second quarq
ter of 2017, which did not contrit bute to our results of operations in prior periods. Cost of revenue in
our pre-existing digital business was constant. Because of third party media costs, our margins tend to be smaller in our digital media
segment than in our other broadcast segments. As a percentage of net revenue, cost of revenue increased to 58% forff
December 31, 2017 from 41% for the year ended Decemberm 31, 2016. The increase in cost of revenue as a percentage of digital
revenue was primarily due to the acquisition of Headway and a higher percentage of programmatic revenue in our pre-existing digital
business. Becausea
of the high volume and relative efficiencies of these programmatic platforff ms, the margins tend to be lower.
the year ended
Direct operating expenses. Direct operating expenses in our digital media segment increased to $15.3 million for thet
year ended
Decembem r 31, 2017 from $6.5 million for the year ended December 31, 2016, an increase of $8.8 million. The increase was primarily
due to the acquisition of Headway durd ing the second quarter of 2017, which did not contribute to our results of operations in prior
periods, partially offset
advertising revenue and a decrease in salary err
by a decrease in our pre-existing digital business due to a decrease in expenses associated with the decrease in
xpense.
ff
Selling, general and admidd nistii rat
tt
ive expenses. Selling, general and administrative expenses in our digital media segment
increased to $8.1 million for the year ended Decemberm 31, 2017 froff m $4.8 million forff
of $3.3 million. The increase was primarily due to thet
contritt bute to our results of operations in prior periods, partially offset
decrease in salary expense.
acquisq
ff
ition of Headway during the second quarter of 2017, which did not
by a decrease in our pre-existing digital business due to a
the year ended December 31, 2016, an increase
62
Liquidity and Capital Resources
We had net income of $12.2 million, $175.7 million, and $20.4 million for the years ended Decemberm 31, 2018, 2017 and 2016,
from operations of $33.8 million, $301.5 million and $57.3 million forff
respectively. We had positive cash flowff
the years ended
Decembem r 31, 2018, 2017 and 2016, respectively. We expect to fund our working capia tal requirements, capital expenditures and
payments of principal and interest on outstanding indebtedness, with cash on hand and cash floff ws from operations. We currer ntly
anticipate that funds generated from operations, cash on hand and available borrowings under our 2017 Credit Facility will be
sufficient to meet our anticipated cash requirements forff
Decemberm 31, 2018 we held cash and cash equivalents of $5.3 million in accounts outside the United States. Our liquidity is not
materially impamm cted by the amount held in accounts outside the United States as our operating cash floff ws are primarily driven by U.S.
sources.
ve months from the issuance of this Annual Report. At
at least the next twel
tt
2013 CreCC ditii Facility
The following discuii
ssion pertains to our previous bank facility, or the 2013 CredCC it Facility. The 2013 Credit Facility was
terminated on November 30,0 2017 when we entered into our 2017 Credit FacFF ility.tt Accordingly,ll
onlyll certain provisions of the 2013 CredCC it Facility and the agreement governing our 2013 CredCC it Facility, or the 2013 Credit
Agreement.
the following discuii
ssion summarizes
On May 31, 2013, we entered into our 2013 Credit Facility pursuant to the 2013 Credit Agreement, which we amended as of
August 1, 2017. The 2013 Credit Facility consisted of a $20.0 million senior secured Term Lr
Facility”), a $375.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”; and together with the Term Loan A
Facility, the “Term Loan Facilities”) which was drawn on August 1, 2013 (the “Term Loan B Borrowing Date”), and a $30.0 million
senior secured Revolving Credit Facility (the “Revolving Credit Facility”).
oan A Facility (the “Term Loan A
Our borrowings under thet
2013 Credit Facility bore interest on the outstanding principal amount thereof from the date when
made at a rate per annum equal to either: (i) the Base Rate (as defined in the 2013 Credit Agreement) plus the Applicablea Margin (as
definff ed in the 2013 Credit Agreement); or (ii) LIBOR (as defined in thet
defined in the 2013 Credit Agreement).
2013 Credit Agreement) plus the Applicable Margin (as
The 2013 Credit Facility was guaranteed on a senior secured basis by the Credit Parties. The 2013 Credit Facility was secured
on a firff st priority basis by our and the Credit Parties’ assets. Upon the redemptimm on of the outstanding Notes, the security interests and
guaranties of us and thet Credit Parties under the Indenturtt e and the Notes were terminated and released.
The 2013 Credit Agreement also contained additional provisions that are customary for an agreement of this type.
2017 Creditdd Facilityii
On Novemberm 30, 2017 (the “Closing Date”), we entered into our 2017 Credit Facility pursuant to the 2017 Credit Agreement.
The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was
drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that we may increase thet
aggregate principal amount
of the 2017 Credit Facility by up to an additional $100.0 million plus thet
(as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to us satisfying certain conditions.
amount that would result in our first lien net leverage ratio
Borrowings under the Term Loan B Facility were used on the Closing Date to (a) repay in full all of our and our subsidiaries’
outstanding obligations under the 2013 Credit Agreement and to terminate the 2013 Credit Agreement, (b) pay fees and expenses in
connection with the 2017 Credit Facility, and (c) for general corporr
rate purpor
ses.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic
subsidiaries, and is secured on a first priority btt
asis by our and those subsiu
diaries’ assets.
Our borrowings under thet
2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when
made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) thet
Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of Decemberm 31, 2018, the interest rate on our Term Loan B was
5.09%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).
63
In the event we engage in a transaction that has the effect
of reducing the yield of any loans outstanding under the Term Lr
Facility within six months of the Closing Date, we will owe 1% of the amount of the loans so repriced or replaced to the Lenders
thereof (such fee, the “Repricing Fee”). Other than the Repricing Fee, the amounts outstanding under the 2017 Credit Facility may be
prepaid at our option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage
fees in connection with the prepayment of a LIBOR rate loan. The principal amount of the Term Loan B Facility shall be paid in
installments on the dates and in the respective amounts set forth i
l balance due on the
Maturity Date.
n the 2017 Credit Agreement, with the finaff
oan B
ff
t
Subjeu
ct to certain exceptions, the 2017 Credit Facility contains covenants that limit the abia lity of us and our restricted
subsidiaries to, among other thit ngs:
incur liens on our property or assets;
make certain investments;
incur additional indebtedness;
consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;
dispose of certain assets;
make certain restricted payments;
make certain acquisitions;
enter into substantially different lines of business;
enter into certain transactions with affiliates;
use loan proceeds to purchase or carryrr margin stock or for any other
t
prohibited purpose;
change or amend the terms of our organizational documents or the organization documents of certain restricted
subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;
enter into sale and leaseback tratt nsactions;
make prepayments of any subordinated indebtedness, subject to certain conditions; and
change our fisff cal year, or accounting policies or reporting practices.
The 2017 Credit Facility also provides for certain customary events of defauff
lt, including the folff
lowing:
defaula t forff
three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;
defaula t in payment when dued
of the principal amount of borrowings under the 2017 Credit Facility;
failure by us or any subsidiary to comply with the negative covenants and certain other covenants relating to maintaining
the legal existence of the Company and certain of its restricted subsiu
diaries and compliance with anti-corrur ptu ion laws;
failure by us or any subsidiary to comply with any of thet
documents that continues forff
inspection rights of the administrative agent and lenders and permitted uses of proceeds froff m borrowi
Credit Facility) after our officers first become aware of such failure or first receive written notice of such failure
lender;
thirty (30) days (or ten (10) days in the case of failure to comply with covenants related to
ngs under the 2017
from any
other agreements in the 2017 Credit Agreement and related loan
ff
rr
payment of other indebtedness
defaulaa t in thet
failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such
indebtedness can cause such indebtedness to be declared duedd
if the amount of such indebtedness aggregates to $15.0 million or more, or
and payable;
d
certain events of bankruptu cy or insolvency with respect to us or any significant subsidiary;
final judgment is entered against us or any restricted subsiu
diary in an aggregate amount over $15.0 million, and either
enforcement proceedings are commenced by any creditor or there is a period of 30 consecutive days during which the
judgment remains unpain
;
d and no stay is in effect
ff
any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full
effect; and
ff
force and
any revocation, termination, substu
the requiq rement (by final non-appe
reasonabla y expected to have a material adverse effect.
a
antial and adverse modification, or refusal by finff al order to renew, any media license, or
alable order) to sell a television or radio station, where any such event or failure is
64
In connection with our entering into the 2017 Credit Agreement, we and our restricted subsidiar
u
ies also entered into a Securitytt
Agreement, pursuant to which we and the Credit Parties each granted a firff st priority security interest in the collateral securing the 2017
Credit Facility for the benefit of the lenders under the 2017 Credit Facility.
Additionally, thet
2017 Credit Agreement contains a definition of “Consolidated EBITDA” that excludes revenue related to our
broadcast spectrum and related expenses, as compamm red to the definff
participation in the FCC auction forff
EBITDA” under the 2013 Credit Agreement which included such items. As reported by us previously, including in our Quarterly
Report on Form 10-Q filed with the SEC on Novemberm 9, 2017, we recognized revenue of $263.9 million related to our participation
in the FCC auction forff
broadcast spectrum (the “Spectrum Auction Revenue”) during our third quarter of 2017. However, as reported
in this Annual Report on Form 10-K, and as anticipated in futurtt e investor communim cations, the Non-GAAP finff ancial measure
“Consolidated Adjud sted EBITDA” excludes the Spectrum Auction Revenue and related expenses in the period or periods for which it
may relate, consistent with the definition in thet
agreements associated with our television stations’ spectrumr
recognized in thet
foreseeable future there will be another transaction of a similar nature to the FCC auction forff
transaction that generates net revenue from the monetization of spectrum assets in similarly significant amounts.
third quarter of 2017 was a significff ant amount totaling $263.9 million, and we do not currerr ntly anticipate that in the
2017 Credit Agreement. As previously discussed, we generate revenue from
a variety of sources. The Spectrut m Auction Revenue
broadcast spectrum or another
ition of “Consolidated Adjud sted
usage rights fromff
In Decemberm 2018, we made a prepayment of $50.0 million to reduce the amount of loans outstanding under our Term Loan B
Facility.
On April 30, 2019, we entered into a First Amendment and Limited Waiver (thet
“Amendment”) to the 2017 Credit Agreement,
which became effective on May 1, 2019. Pursuant to the Amendment, the lenders waived any events of default that may have arisen
under the 2017 Credit Agreement in connection with our failuff
Compam ny for the fiscal
Agreement, giving us until May 31, 2019 to deliver the 2018 Audited Financial Statements. Failure by us to deliver the 2018 Audited
Financial Statements on or prior to May 31, 2019 would constitute an immediate event of default under the 2017 Credit Agreement.
By filing this Annual Report on Form 10-K prior to that date, we believe we have complm ied with the affirff mative covenants in thet
Credit Agreement, as amended by the Amendment, regarding delivery orr
“2018 Audited Financial Statements”), and amended the 2017 Credit
re to timely deliver our financial statements and othet
2018 Audited Financial Statements.
year ended Decemberm 31, 2018 (thet
r inforff mation of the
f thet
2017
ff
Pursuant to the Amendment, we agreed to pay to the lenders consenting to the Amendment a feeff
equal to 0.10% of the aggregate
principal amount of the outstanding loans held by such lenders under the 2017 Credit Agreement as of May 1, 2019. This fee totaled
approximately $0.2 million.
Share Repurchase Program
On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of the Company’s
outstanding common stock. On April 11, 2018, our Board of Directors approved thet
the Compam ny’s Class A common stock, forff
program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subju ect to
market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice.
a total repurchase authorization of up to $30.0 million. Under the share repurchase
repurchase of up to an additional $15.0 million of
As of December 31, 2018, we repurchased to date a total of approximately 4.5 million shares of Class A common stock at an
average price of $4.23 since thet
million. All repurchased shares were retired as of Decemberm 31, 2018.
beginning of share repurchase program, forff
an aggregate purchase price of appa
roximately $19.1
Consolidatdd edtt Adjusted
dd
EBITDA
Consolidated adjud sted EBITDA (as definff ed below) increased to $54.0 million for the year ended Decemberm 31, 2018 from $50.6
the year ended December 31, 2017, an increase of $3.4 million, or 7%. As a percentage of net revenue, consolidated
the year ended December 31, 2018, fromff
9% for the year ended Decemberm 31, 2017.
million forff
adjusted EBITDA increased to 18% forff
Consolidated adjud sted EBITDA, as definff ed in our 2017 Credit Agreement, means net income (loss) plus gain (loss) on sale of
assets, depreciation and amortization, non-cash impaim rment charge, non-cash stock-based compem nsation included in operating and
corporate expenses, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefitff , equity
in net income (loss) of nonconsolidated affiff liate, non-cash losses, syndication programming amortization less syndication
programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments,
acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjusted EBITDA because that
measure is defined in our 2017 Credit Agreement and does not include gain (loss) on sale of assets, depreciation and amortization,
non-cash impairmm
ent charge, non-cash stock-based compemm nsation, net interest expense, other income (loss), gain (loss) on debt
65
extinguishment, income tax (expense) benefit,ff
programming amortization and does include syndication programming payma
related expenses, expenses associated with investments, acquisitions and dispositions and certain pro-forma cost savings.
equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication
ents, revenue from FCC spectrum incentive auction less
Since consolidated adjusted EBITDA is a measure governirr ng several critical aspects of our 2017 Credit Facility, we believe that
ant to disclose consolidated adjud sted EBITDA to our investors. We may increase the aggregate principal amount
it is importm
outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or the
ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated adjud sted
EBITDA, not exceeding 4.0. In addition, beginning Decemberm 31, 2018, at the end of every calendar yaa
leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess Cash Flow, which
is definff ed as consolidated adjud sted EBITDA, less consolidated interest expense, less debt principal payments, less taxes paid, less
other amounts set forth in the definff
(in each case as of Decemberm 31): 2018, 3.2 to 1; 2017, 4.4 to 1.
ition of Excess Cash Flow in the 2017 Credit Agreement. The total leverage ratio was as follows
ear, in the event our total net
While many in the finff ancial community and we consider consolidated adjud sted EBITDA to be importmm
ant, it should be
considered in addition to, but not as a substitute for or superior to, other measures of liquiq dity and financial performance prepared in
accordance with accounting principles generally accepted in the United States of America, such as cash flows froff m operating
activities, operating income and net income. As consolidated adjud sted EBITDA excludes non-cash gain (loss) on sale of assets, non-
cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense,
other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated
affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue froff m FCC
spectrumrr
incentive auction less related expenses, expenses associated with investments, acquisitions and dispositions and certain pro-
forma cost savings, consolidated adjud sted EBITDA has certain limitations because it excludes and includes several important financial
line items. Thereforff e, we consider both nt
EBITDA is also used to make executive compensation decisions.
on-GAAP and GAAP measures when evaluating our business. Consolidated adjud sted
Consolidated adjud sted EBITDA is a non-GAAP measure. For a reconciliation of consolidated adjusted EBITDA to cash flows
from operating activities, its most directly compamm rabla e GAAP financial measure, please see page 56.
Cash Flowll
Net cash floff w provided by operating activities was $33.8 million forff
flow provided by operating activities of $301.5 million forff
the year ended Decembem r 31, 2018, which was partirr ally offset by non-cash items, including deferred income taxes of $4.6 million,
depreciation anda
for the year ended Decemberm 31, 2017, which was partiarr
depreciation anda
We expect to have positive cash flowff
income taxes of $81.8 million,
related to spectrutt m usage rights of $12.3 million.
amortization expense of $16.4 million, and non-cash cost of revenuenn
nt charge of $1.3 million. We had net income of $175.7 million
amortization expense of $16.3 million, and impamm irmer
from operating activities for the 2019 year.
by non-cash items, including deferred
lly offset
the year ended Decemberm 31, 2018 comparem
the year ended Decemberm 31, 2017. We had net income of $12.2 million forff
d to net cash
ff
ff
Net cash floff w used in investing activities was $159.5 million for the year ended Decemberm 31, 2018, compared to net cash flow
the year ended Decemberm 31, 2017. During the year ended Decemberm 31, 2018, we
used in investing activities of $76.4 million forff
spent $159.4 million on purchases of marketable securities, $3.2 million on the purchase of intangible assets, $3.5 million on the
acquisition of businesses, and $17.0 million on net capital expenditures. During thet
million on the purchase of intangible assets, $29.1 million on the acquisition of businesses, and $12.1 million on net capital
expenditures. We anticipate that our capia tal expenditurt es will be approximately $20.3 million during the fulff
l year 2019. Of thit s
amount, we expect that approximately $5.8 million will be expended in connection with the requiq red relocation of certain of our
television stations to a diffeff
which amount we expect to be reimbursed to us by the FCC. The amount of our anticipated capital expenditures may change based on
futurtt e changes in business plans and, our finff ancial condition and general economic conditions. We expect to fund capital expenditures
with cash on hand and net cash floff w froff m operations.
rent channel as part of the broadcast television repack folff
year ended December 31, 2017, we spent $32.6
lowing the FCC auction forff
,
broadcast spectrumrr
Net cash flow used in financing activities was $88.6 million forff
the year ended Decembem r 31, 2018, compared to net cash floff w
used in financing activities of $24.8 million forff
the repurchase of stock. During
made debt payments of $53.0 million, dividend payments of $17.8 million, and paid $13.8 million forff
the year ended Decembem r 31, 2017, we made debt payments of $293.6 million, dividend payments of $14.7 million, paid $5.3 million
for the repurchase of stock, and received net proceeds of $298.5 million related to thet
the year ended Decembem r 31, 2017. During the year ended Decemberm 31, 2018, we
2017 Credit Facility.
66
Commitments and Contractual Obligations
Our material contract
tual obligations at December 31, 2018 are as follows (in thousands):
Payments Due by Period
Contractual Obligations
Long Term Debt and related interest (1)
Media research and ratings providers (2)
Operating leases (3)
Other material non-cancelabla e contractual
Total contractual
obl gigations
t
tt
Total
amounts
committed
$
$
321,356
11,588
81,828
9,719
424,491
obliggations (4)
Less than 1
year
15,911
10,378
10,432
2,105
38,826
$
$
1-3 years
3-5 years
$
$
31,350
760
19,184
4,353
55,647
$
$
30,721
360
13,697
3,261
48,039
More than
5 years
243,374
90
38,515
——
281,979
$
$
(1)
These amounts represent estimated futurett
Facility. Future interest payments could differff materially from amounts indicated in the table due to futff urett
financing needs, market factors and other
currently unanticipated events.
cash interest payma
t
ents and mandatory principal payments related to our 2017 Credit
operational and
(2) We have agreements with certain media research and ratings providers, expiring at various dates through June 2024, to provide
television and radio audience measurement services.
(3) We lease facilities and broadcast equipment under various operating lease agreements with various terms and conditions,
(4)
expiring at various dates through December 2059. These amounts do not include month-t
These amounts consist primarily of obligations forff
futurtt e cash floff ws associated with our unrecognized tax benefits at December 31, 2018, we are unabla e to make reasonablya
reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $0.5 million of liabilities
related to uncertain tax positions have been excluded from the table above.
re licenses. Due to the uncertainty with respect to the timing of
o-month leases.
sales softwa
ff
t
We have also entered into employment agreements with certain of our key emplmm oyees, including Walter F. Ulloa, Jefferff y A.
Liberman and Christopher T. Young. Our obligations under these agreements are not reflected in the table above.
Other than lease commitments, legal contingencies incurred in the normal course of business and employment contracts for key
employees, we do not have any off-bff alance sheet financing arrangements or liabilities. We do not have any majority-ot wned
subsidiaries or any interests in or relationships with any variable-interest entities that are not included in our consolidated finff ancial
statements.
Application of Critical Accounting Policies and Accounting Estimates
Critical accounting policies are definff ed as those that are the most important to the accurate portrayal of our finff ancial condition
and results of operations. Critical accounting policies require management’s subjective judgment and may produce materially differff ent
results under differe
policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed and approved our related
disclosure in thit s Management’s Discussion and Analysis of Financial Condition and Results of Operations.
nt assumptm ions and conditions. We have discussed the development and selection of these critical accounting
ff
Goodwidd lii lll
We believe that the accounting estimates related to the fair
ff
our estimates of the usefulff
assets are our most significant assets, and (2) the impam ct that recognizing an impairment would have on the assets reported on our
balance sheet, as well as on our results of operations, could be material. Accordingly, the assumptions about future cash flows
assets under evaluation are critical
lives of our long-lived assets are “critical accounting estimates” becausea
ff
on the
value of our reporting units and indefinff
ite life intangible assets and
: (1) goodwill and other intangible
Goodwill represents the excess of the purchase price over the fair value of thet
net tangible and identifiabff
le intangible assets
acquired in each business combination. We test our goodwill and other indefinite-lived intangible assets for impam irment annually on
the firff st day of our four
th fiscal quarter, or more frequently if certain events or certain changes in circumstances indicate they may be
impam ired. In assessing the recoverabia lity of goodwill and indefinite life intangible assets, we must make a series of assumptmm ions about
such things as thet
ors to determine the fair value of these assets.
estimated futuret
s and other fact
cash flowff
ff
ff
In testing thet
goodwill of our reporting units for impam irment, we firsff
t determine, based on a qualitative assessment, whether it is
more likely than not that the faiff
determined that each of our operating segments is a reporting unit.
r value of each of our reporting units is less than their respective carryrr
ing amounts. We have
67
If it is deemed more likely than not that the fair
ff
value of a reporting unit is less than the carryinrr
g value based on this initial
assessment, the next step is a quantitative compamm rison of the fair value of the reporting unit to its carrying amount. If a reporting unit’s
estimated fair value is equal to or greater than that reporting unit’s carrying value, no impam irment of goodwill exists and the testing is
complm ete. If the reporting unit’s carryinrr
amount of the difference.
value, then an impam irment loss is recorded forff
g amount is greater than thet
estimated fair
the
ff
As of our annual goodwill testing date, October 1, 2018, we had $40.5 million of goodwill in our television reporting unit. We
itive conclusion on the television reporting unit based on a qualitative assessment alone so we performed a
did not reach a definff
quantitative test and compam red the fair
reporting unit exceeded its carrying value by 48%, resulting in no impaim rment charge. As discussed in Note 7 to Notes to Consolidated
Financial Statements, the calculation of the fair value of the television reporting unit requires estimates of the discount rate and the
long term projected growth rate. If that discount rate were to increase by 1%, the faiff
decrease by 6%. If the long term projected growth r
decrease by 1%.
value of the television reporting unit to its carrying amount. The fair value of our television
r value of the television reporting unit would
ate were to decrease by 0.5%, the faiff
television reporting unit would
r value of thet
ff
t
As of our annual goodwill testing date, October 1, 2018, we had $33.7 million of goodwill in our digital media reporting unit.
itive conclusion on the digital reporting unit based on a qualitative assessment alone so we performed a
We did not reach a definff
quantitative test and compamm red the fair
ing amount. The fair value of our digital reporting
unit exceeded its carrying value by 5%, resulting in no impaim rment charge. As discussed in Note 7 to Notes to Consolidated Financial
Statements, the calculation of the faiff
projected growth rate. If that discount rate were to increase by 1%, thet
If the long term projected growth r
ate were to decrease by 0.5%, the fair value of the digital reporting unit would decrease by 1%.
r value of the digital reporting unit requires estimates of the discount rate and the long term
fair value of the digital reporting unit would decrease by 5%.
value of the digital reporting unit to its carryrr
ff
t
As of our annual goodwill testing date, October 1, 2018, we had no goodwill in our radio reporting unit.
When a quantitative analysis is performed, the estimated fair value of goodwill is determined by using a combim nation of a
roach. The market approach estimates fair value by applying sales, earnings and cash flow
market approach and an income appa
multiples to each reporting unit’s operating performance. The mulm tiples are derived from compam rable publicly-traded companies with
similar operating and investment characteristics to our reporting units. The market approach requires us to make a series of
assumptm ions, such as selecting comparable companim
conditions have led to a decrease in thet
transactions and transaction premiums more difficult to estimate than in previous years.
bla e transactions and transaction premiums. The current economic
numbem r of compamm rable transactions, which makes the market appa
roach of compam rabla e
es and comparam
The income approac
a
h estimates fair value based on our estimated future cash flows of each reporting unit, discounted by an
ff
estimated weighted-average cost of capia tal that reflects
that reporting unit. The income approach also requiq res us to make a series of assumptim ons, such as discount rates, revenue projeo ctions,
profit margin projections and terminal value mulm tiples. We estimated our discount rates on a blended rate of returnt
debt and equity for comparab
publu icly-traded companies have similar size, operating characteristics and/or finff ancial profiles to us. We also estimated the terminal
value mulm tiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated our
revenue projeo ctions and profit margin projeo ctions based on internal forecasts about futurtt e performance.
le publu icly-traded companies in the television, radio and digital media indusd tries. These compamm rabla e
current market conditions, which reflect the overall level of inherent risk of
considering both
mm
Uncertain economic conditions, fiscal policy and other
t
factors beyond our control
t
potentially could have an adverse effecff
t on
ff
casts about futurtt e performance and terminal value estimates. Furthermore, such
rytt
the capital markets, which would affect
the discount rate assumptions, terminal value estimates, transaction premiums and compam rabla e
transactions. Such uncertain economic conditions could also have an adverse effeff ct on the fundamentals of our business and results of
operations, which would affect our internal foreff
uncertain economic conditions could have a negative impam ct on the advertising industd
who advertise on our stations, including, among others, the automotive, financial and other services, telecommunications
restaurant industries, which in the aggregate provide a signififf cant amount of our historical and project
activities of our competitors, such as other broadcast television stations and radio stations, could have an adverse effeff ct on our internal
forecasts aboua
increased compem tition froff m other forms of advertising-based mediums, such as Internerr
serving the same markets, could have an adverse effect on our internal forff ecasts about future performance, terminal value estimates
and transaction premiums. Finally, the risk facff
ff
on our internal
e performance and terminal value estimates. Changes in technology or our audience preferences, including
roff m time to time in our SEC reports could have an adverse effeff ct
terminal value estimates and transaction premiums.
t, social media and broadbadd nd content providers
forecasts about future performance,
industries of those customers
ed advertising revenue. The
in general or thet
t we identify f
, travel and
tors that
t futur
m
o
ff
r
ff
68
There can be no assurance that our estimates and assumptm ions made for the purpose of our goodwill impairment testing will
prove to be accurate predictions of the future. If our assumptm ions regarding internarr
a whole or of our units are not achieved, if market conditions change and affeff ct the discount rate, or if there are lower compam rable
transactions and transaction premiums, we may be required to record additional goodwill impairment charges in future periods. It is
not possible at this time to determine if any such future change in our assumptim ons would have an adverse impact on our valuation
models and result in impam irment, or if it does, whether
such impaimm rment charge would be material.
casts of futff urt e performance of our business as
l foreff
t
ff
Indefdd inite
Life Intangible Assets
We believe that our broadcast licenses are indefinite life intangible assets. An intangible asset is determined to have an
indefinite useful life when there are no legal, regulatory, contractuat
period over which the asset is expected to contribute directly or indirectly to future cash floff ws. The evaluation of impairment forff
indefinite life intangible assets is performff
value exceeds fair value, an impairment charge is recorded forff
broadcast licenses represents all licenses owned and operated within an individual market cluster, becauseaa
together, are complm imentary to each other and are representative of the best use of those assets. Our individual market clusters consist
of cities or nearby cities. We test our broadcasting licenses for impairment based on certain assumptm ions about these market clusters.
ed by a compam rison of the asset’s carrying value to the asset’s fair value. When thet
the amount of the difference. The unit of accounting used to test
l, competitive, economic or any other factors that may limit the
such licenses are used
carrying
mm
roach
The estimated fair value of indefinite life i
considering both
le publu icly-traded companies in the television, radio and digital media indud stries. These compamm rabla e
ff ntangible assets is determined by using an income approach. The income appa
s of each market cluster that a hypothetical buyer would expect to
estimates fair value based on the estimated future cash flowff
generate, discounted by an estimated weighted-average cost of capa ital that reflects current market conditions, which reflect thet
level of inherent risk. The income approach requiq res us to make a series of assumptions, such as discount rates, revenue projeo ctions,
profit margin projections and terminal value mulm tiples. We estimate the discount rates on a blended rate of returnt
debt and equity for comparab
publu icly-traded companies have similar size, operating characteristics and/or finff ancial profiles to us. We also estimated the terminal
value mulm tiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated the
revenue projeo ctions and profit margin projeo ctions based on various market clusters signal coverage of the markets and industry
information forff
market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence
advertising expenditures. Alternatively, some stations under evaluation have had limited relevant cash floff w history due to planned or
actual
t
performance of similar stations in similar markets and potential proceeds froff m the sale of the assets. The faiff
FCC licenses for each of our market clusters exceeded the carrying values in amounts ranging from 3% to over 1,000%. The fair
values of our radio FCC licenses forff
450%. Three markets with aggregate carryrr
less than 10%.
each of our market clusters exceeded the carrying values in amounts ranging from 0% to over
ing values by
an average station within a given market. The information for each market cluster includes such thit ngs as estimated
conversion of format or upgrade of station signal. The assumptm ions we make about cash flows after conversion are based on the
ing value of approximately $15.2 million have faiff
r values that exceed carryrr
r values of our television
overall
Uncertain economic conditions, fiscal policy and other
t
factors beyond our control
t
potentially could have an adverse effecff
t on
ff
ff
a
asts about
futurtt e performance and terminal value estimates. Furthermore, such
the capital markets, which would affect
the discount rate assumptions, terminal value estimates, transaction premiums and compam rabla e
transactions. Such uncertain economic conditions could also have an adverse effeff ct on the fundamentals of our business and results of
operations, which would affect our internal forec
uncertain economic conditions could have a negative impact on the advertising indusd try in general or the industries of those customers
who advertise on our stations, including, among others, the automotive, financial andaa
restaurant industries, which in the aggregate provide a significff ant amount of our historical and project
activities of our compem titors, such as other broadcast television stations and radio stations, could have an adverse effeff ct on our internal
forecasts aboa ut future performance and terminal value estimates. Changes in technology or our audience preferences, including
increased competition froff m other forms of advertising-based mediums, such as Internet, social media and broadbadd nd content providers
r
serving the same markets, could have an adverse effect on our internal
forecasts about future performance, terminal value estimates
and transaction premiums. Finally, the risk facff
roff m time to time in our SEC reports could have an adverse effeff ct
tors that we identify f
forecasts aboua
on our internal
terminal value estimates and transaction premiums.
other services, telecommunications
ed advertising revenue. The
performance,
, travel and
t future
m
o
ff
r
ff
ff
There can be no assurance that our estimates and assumptm ions made for the purposes of our impairment testing will prove to be
ance of our business as a whole or
accurate predictions of the future. If our assumptm ions regarding internal forecasts of future performff
of our units are not achieved, if market conditions change and affect the discount rate, or if there are lower comparable transactions
and transaction premiums, we may be required to record additional impairment charges in futurett
to determine if any such future change in our assumptmm ions would have an adverse impacmm t on our valuation models and result in
impam irment, or if it does, whether such impairment charge would be material.
periods. It is not possible at this time
69
Long-Lgg ived Assets, Includingdd
Intangibles Subject to Amortizrr atiott n
Depreciation and amortization of our long-lived assets is provided using thet
straight-line method over their estimated useful
lives. Changes in circumstances, such as the passage of new laws or changes in regulations, technological advances, changes to our
business model or changes in our capia tal strategy could result in the actuatt
where we determine that the usefulff
estimated residual value over its revised remaining useful life. Factors such as changes in the planned use of equipment, customer
amendments or mandated regulatory requirements could result in shortened useful lives.
attrition, contratt ctual
lives differing from initial estimates. In those cases
life of a long-lived asset should be revised, we will depreciate the net book value in excess of the
l usefulff
t
Long-lived assets and asset groupsu
are evaluated forff
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The estimated futurtt e cash floff ws are based upou n, among othet
assumptions about expected futff urt e operating performance and may differ froff m actual cash floff ws. Long-lived assets evaluated for
impam irment are grouped with other assets to the lowest level forff which identifiaff bla e cash floff ws are largely independent of the cash
flows of othet
carrying value of the assets, the assets will be written down to the estimated fair value in thet
made.
r groups of assets and liabilities. If the sum of the project
ed undiscounted cash flows (excluding interest) is less than thet
period in which the determination is
r things,
o
Deferred Taxesee
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporam
differences and deferred liabilities are recognized for taxable tempormm ary diffeff
between the reported amounts of assets and liabilit
when it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred
assets and liabia lities are adjusted forff
red tax assets are reduced by a valuation allowance
tax
the effects of changes in tax laws and rates on the date of enactment.
rences. Tempom rary differff ences are the diffeff
ies and their tax bases. Deferff
a
ff
ry
rences
In evaluating our ability to realize net deferred
ff
tax assets, we consider all reasonably available evidence including our past
operating results, tax strat
judgments that are based on the plans and estimates used to manage our business.
tt
egies and forecasts of futff urt e taxabla e income. In considering these factors, we make certain assumptm ions and
We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the finff ancial
statements fromff
upon settlement. We recognize interest and penalties related to uncertain tax positions in income tax expense.
such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized
Revenue Recognigg tioii n
Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Revenue for contracts with
advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue from contratt cts directly
with the advertisers is recorded as gross revenue and thet
related commission or national representation fee is recorded in operating
expense. Cash payments received prior to services rendered result in deferff
advertising time or space is actually provided. Digital related revenue is recognized when display or othet
record impressions on the websites of our thir
satisfied.
d party publishers or as the advertiser’s previously agreed-upon performance criteria are
rerr d revenue, which is then recognized as revenue when the
r digital advertisements
t
We generate revenue under arrangements in which services are sold on a stand-alone basis within a specificff
segment, and those
that are sold on a combim ned basis across multiple segments. We have determi
and services, revenues are allocated based on the relative faiff
multiple products
cable revenue recognition criteria for the specific unit of accounting.
a
the appli
d
r
ned that in such revenue arranr
r value of each item and recognized in accordance with
gements which contain
We generate revenue from retransmission consent agreements that are entered into with MVPDs. We refer to such revenue as
retransmission consent revenue, which represents payments froff m MVPDs for access to our television station signals so that they may
this programming. We recognize retransmission consent revenue earned as the
rebroadcast our signals and charge thet
television signal is delivered to the MVPD.
ir subscribers forff
We also generate revenue fromff
agreements associated with our television stations’ spectrutt m usage rights from a variety ott
f
sources, including but not limited to entering into agreements with thit
rd parties to utilize excess spectrum for the broadcast of their
multicast networks, charging fees to accommodate the operations of third parties, including moving channel positions or accepting
interferff ence with broadcasting operations, and modifying and/or relinquishing spectrum usage rights while continuing to broadcast
through channel sharing or other arranrr
have relinquished all or a portion of our spectrumtt
existing channel freeff
gements. Revenue from such agreements is recognized over the period of the lease or when we
usage rights for a station or have relinquished our rights to operate a station on the
from interference.
70
Allowance for Doubtful Accounts
Our accounts receivable consist of a homogeneous pool of relatively small dollar amounts froff m a large number of customers.
We evaluate the collectability of our trade accounts receivablea
customer’s inability to meet its finff ancial obligations to us, a specific reserve forff
recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identificati
on
of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade
accounts receivable amounts outstanding.
based on a numberm of factors. When we are aware of a specific
bad debts is estimated and recorded which reduces the
ff
Derivative Instrumentstt
Prior to Novemberm 28, 2017, we used derivatives in the management of interest rate risk with respect to interest expense on
variabla e rate debt. We were party t
componmm ent (LIBOR) of our interest rate on a portion of our term loan beginning Decemberm 31, 2015. On Novemberm 28, 2017, we
terminated these swap aaa
instruments for speculation or trading purposes.
greements in conjunction with the refinancing of our debt. Our current policy prohibits entering into derivative
greements with financial institutions that fixed the variable benchmark
o interest rate swap aa
tt
We recognize all of our derivative instruments as either assets or liabilities in thet
consolidated balance sheet at faiff
r value. The
accounting for changes in the faiff
hedging relationship, and furff
as a cash floff w hedge; thereforeff
Any ineffective portions of the changes in faiff
interest expense in the consolidated statement of operations.
ther, on the typeyy
r value of a derivative instrument depends on whethet
r it has been designated and qualifies as part of a
of hedging relationship. The interest rate swap agreements were designated and qualifieff d
, the effeff ctive portion of the changes in faiff
r value was a compomm nent of other comprehensive income.
r value of the interest rate swap agreements would be immediately recognized directly to
The carrying amount of our interest rate swap agreements were recorded at faiff
r value, including consideration of non-
performance risk, when material. The fair value of each interest rate swap agreement was determined by using mulm tiple broker quotes,
adjud sted for non-performance risk, when material, which estimate the future discounted cash flows of any futurtt e payments that may be
made under such agreements. Upon termination of the swap aa
was reclassified to interest expense.
greements, $2.5 million in accumulmm ated other comprehensive income
Addidd tioii nal Information
For additional information on our significant accounting policies, please see Note 2 to Notes to Consolidated Financial
Statements.
Recently Issued Accounting Pronouncements and U.S. Tax Reformff
ff
In Februarr
earnings statement and cash flows; however, substantially all leases will be required to be
asset representing the right to use the underlying asset
lease classification, requiring leases to be classified as finance or operating
ry 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (TopTT ic 842), which is intended to increase transparency and comparabia lity among organizations relating to leases. Lessees will
be required to recognize a liability to make lease payments and a right-of-use
for the lease term. The FASB retained a duad l model forff
leases to determine recognition in thet
recognized on the balance sheet. ASU 2016-02 will also require quantitative and qualitative disclosures regarding key information
about leasing arrangements. ASU 2016-02 is effective using a modifieff d retros
l years and interim periods
beginning after December 15, 2018, with early adoption permitted. This standard allows entities to initially apply the new leases
standard at the adoption date and recognize a cumulm ative-effect adjustment to the opening balance of retained earnings in the period of
adoption. The standard also provides for certain practical expedients. The Companymm
management system to support the new reporting requirements and is evaluating its processes and internar
Company meets the standard’s reporting and disclosure requiq rements. The Company adopted thit s ASU on January 1, 2019, using the
optional transition method and also elected to use the 'package of practical expedients', which allows us not to continue to reassess our
previous conclusions aboa ut lease identificff ation, lease classification and initial direct costs. The Company anticipates a material
required right-of-use asset and corresponding liability for all lease
increase in assets and liabilities due to the recognition of thet
obligations that are currently classified as operating leases such as leases on broadcast tower sites and real estate leases for corpor
r
headquarters and administrative offices,
as well as the significant new quantitative and qualitative disclosure requiq rements on all of the
Company’s lease obligations. The Company expects the right of use asset will be the present value of the remaining lease payments as
noted in Notes to Consolidated Financial Statements. The recognition of lease expense is expected to be similar to the Compam ny’s
current methodology.
has implmm emented an enterprise-wide lease
l controls to ensure the
oach for fisca
pective appr
ate
a
ff
ff
t
71
In August 2018, thet
FASB issued ASU 2018-15, Intangibles-Goodwill and Other-In-
ternal-Use Softwaff
re (SubSS
re (and
gements that include an internal-use software license). The accounting for the service element of a hosting arrangement
Customers Accounting for Implm ementation Coststt Incurred in a Cloud Computing Arrangement That Is a Service Contratt
amendments in this update align the requirements for capitalizing implm ementation costs incurred in a hosting arrangement that is a
service contract with the requiq rements for capia talizing implementation costs incurred to develop or obtain internal-use softwatt
hosting arranr
that is a service contract is not affected by the amendments in this update. The amendments in this upda
reporting periods beginning afteff
Early adoption is permitted. The amendments in this update should be appa
implm ementation costs incurred after
Consolidated Financial Statements.
r Decemberm 15, 2020, and interim periods within annual periods beginning after December 15, 2021.
the date of adoption. The Company is in the process of assessing the impactmm
lied either retrospectively or prospectively to all
te are effeff ctive for annual
of this ASU on its
u
ff
topic 350-40):0
ct. The
In June 2018, the FASB issued ASU 2018-07, CompensationSt ock Compem nsation (TopiTT
c 718): Improvementstt
to NonNN -
u
ent Accounting, which superse
employee Share-based Payma
and expands the scope of ASC Topic 718, “Compensation—Stock Compensation” (“Topic 718”) to include share-based payments
issued to nonemployees for goods and services. The amendments also clarify that Topic 718 does not apply to share-based payments
elling goods or services to customers as part
used to effectiv
of a contract accounted forff
under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). The amendments in thit s
ASU are effective for public companies forff
fiscal year. Early adoption is permitted, but no earlier that n a companym
assessing the impact of this ASU on its Consolidated Financial Statements.
fiscal years beginning after December 15, 2018, including interim periods within that
ely provide finff ancing to the issuer or awards granted in conjunction with st
’s adoption date of Topic 606. The Companym
uiq ty-Based Payments to Non-Emplmm oyees
des Subtopic 505-50, Equity—Eq
is in the process of
yy
ff
In February 2018, the FASB issued ASU 2018-02, Income Statementtt R eporting Comprm ehensive Income (TopTT ic 220):
tion of Certain Tax Effects from Accumulatll ed Other Comprm ehensive Income. ASU 2018-02 allows a reclassification from
Reclassificaff
accumulated other comprm ehensive income to retained earnings forff
requires entities to disclose their accounting policy for releasing income tax effeff cts fromff
This update is effeff ctive in fiscal years, including interim periods, beginning after
This guidance should be appl
the U.S. fedff
on its Consolidated Financial Statements.
ff December 15, 2018, and early adoption is permitted.
ied either in the period of adoption or retrospectively to each period in which the effects of the change in
eral income tax rate in the 2017 Tax Act is recognized. The Company is in the process of assessing the impact of this ASU
stranded tax effeff cts resulting froff m the 2017 Tax Act and also
accumulated other comprm ehensive income.
a
In October 2016, the FASB issued ASU 2016-16, Income Taxesaa
(Topio c 740):0 Intra-EntEE ity Transfers of Assetstt Other Than
income tax consequences on an intra-entity transfer of an asset other that n inventory
occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset
Inventory which allows entities to recognize thet
when the transferff
transfer until the asset has been sold to an outside party. In addition, thet
for transfeff rs of certain intangible and tangible assets. The objeb ctive is to reduce complm exity in accounting standards. ASU 2016-16 is
effect
ff
interim period. The Company is currently in the process of evaluating thet
statements.
annual reporting periods beginning after December 15, 2018. Early adoption is permitted, including adoption in an
re has been diversity in the application of the current guidance
of adoption of the ASU on its consolidated financial
impactm
ive forff
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (TopiTT
c 326), which amends current
t
-than-temporam
ry impaim rments of available-forff
guidance on other
allowance to record estimated credit losses on these assets when the faiff
also removes the evaluation of the length of time that a security has been in a loss position to avoid recording a credit loss. The updu ate
is effective for fiscal years beginning after
fiscal years. The Compamm ny is in
the process of assessing the impact of this ASU on its Consolidated Financial Statements.
-sale debt securities. This amended standard requires the use of an
ff December 15, 2019, including interim periods within those
r value is below the amortized cost of the asset. This standard
t
Newly Adopt
dd
edtt Accountintt gn Stantt
dards
In May 2017, the FASB issued ASU 2017-09, CompensationSt ock Compensation (Topio c 718): Scope of Modificai
tion
t
nd reduce both (
value, vesting conditions, and classificatio
i) diversity in practice and (ii) cost and complmm exity when appa
Accounting, to clarify aff
to change the terms and conditions of a share-based payment award. Specifically, an entity would not appa
the fair
ff
n of thet
ff
2017-09 is effeff ctive forff
09 on January 1, 2018. The adoption of ASU 2017-09 did not have a material impam ct on its financial condition or results of operations,
as the Compm any has not had any modifications to share-based payment awards. However, if the Company does have a modification to
an award in the futff ut re, it will follow the guidance in ASU 2017-09.
ff
interim and annual reportingg periods b geg
ly modification accounting if
the modification. ASU
ff Decemberm 15, 2017 T. he Company adopted ASU 2017-
awards are the same immediately beforff e and after
lying the guidance in Topic 718,
inning after
g
72
In January 2017, thet
FASB issued ASU 2017-01, Business Combinations (TopiTT
c 805): Clarifyini
g the Defie nition of a Business,
o use in determining when a set of assets and activities is considered a business. ASU 2017-01 is
interim and annual reporting periods beginning after
ff December 15, 2017. The Compmm any adopted this standard
to provide a more robust framework t
effective forff
prospectively on January 1, 2018.
r
In August 2016, thet
FASB issued ASU 2016-15, Stattt ement
tt
of Cash Flowll
sww (Topic 230): Classifii cation of Certaitt n Cash Receipti stt
and Cash Payma
issues arising froff m certarr
apply it on a retrospective basis. There was no material impact on the Compamm nya
entstt (a consensus of the Emerging Issues Task Force),e which provides specific guidance on eight cash flow classification
in cash receipts and cash payments. The Company adopted this guidance on January 1, 2018 and is required to
’s consolidated statements of cash flows.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (SubSS
topic 825-10):0 Recognition and
topic 825-10): Recognition and Measurement of Financial
s, and limited liability companies, at fair value with changes in fair
es. For investments in equity securities without a readily determinable fair
Measurement of Financial Assetstt and Financial Liabilities, and its related amendments in February 2018, ASU 2018-03, Technical
Corrections and Improvements to Financial InstrumentsOverall (SubSS
Assets and Financial Liabilities. ASU 2016-01 requires entities to carry all investments in equity securities, including other ownership
interests such as partnerships, unincorporated joint venturett
recognized within net income. This ASU does not apply to equity method investments, investments that result in consolidation of the
investee or investments in certain investment companim
value, an entity is permitted to elect a practicability exception, under which the investment will be measured at cost, less impam irment,
plus or minus observable price changes froff m orderly transactions of an identical or similar investment of the same issuer. Additionally
this ASU eliminated the requirement to assess whether an impamm irment of an equity investment is other than temporary. The
impaim rment model for equity investments subjeb ct to this election is now a single-step model whereby an entity performff
s a qualitative
assessment to identify impam irment. If the qualitative assessment indicates that an impamm irment exists, the entity would estimate the fair
n the fair value and the carrying
value of the investment and recognize in net income an impairment loss equal to the diffeff
amount of the equity investment. The Company’s equiq ty investments formerly
classified as cost method investments are measured and
recorded using the measurement alternative. The Company has elected the practicability exception whereby these investments are
measured at cost, less impaimm rment, plus or minus observable price changes fromff
investments of the same issue. The Company adopted these standardaa s prospectively on January 1, 2018, and recorded an impamm irment
charge of $1.3 million in relation to one of its equity investments for the year ended Decembem r 31, 2018.
orderly transactions of identical or similar
rence betwee
value
ff
ff
rr
ff
tt
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic
TT
606), which amended the
revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transferff
existing accounting standards forff
of promised goods or services to customers, in an amount that
goods or services. Subseq
Contratt ctstt with Customersrr (TopiTT
Customers (Topic 606):6 Idendd tifyini
(TopTT ic 606): Narrow-ScoSS peo
Topic 606,6 Revenue from Contracts with Customers .
uently, the FASB has issued thet
c 606): Principal versurr
u
ff
t reflects
the expected consideration received in exchange for those
following standards related to ASU 2014-09: ASU 2016-08, Revenue from
s Agent Considerations; ASU 2016-10, Revenue from Contracts with
g Perfor rmance Obligatgg ions and Licensing; ASU 2016-12, Revenue from Contrtt actstt with Customersrr
to
ents; and ASU 2016-20, Technical Corrections and Improvementstt
Imprm ovementstt and Practical Expedi
x
On January 1rr
, 2018, the Compamm nya
which were not completed as of Januar
606, while prior period amounts area not adjusted and continuen
605, “Revenue Recognition”.
y 1rr
a
adopted ASC Topic 606 using the modifieff d retros
, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic
to be reported in accordance with our historic accounting under ASC Topic
applied to those contratt cts
pective methodtt
tt
Opening retained earnings as of January 1, 2018 were not affecff
ted as thet
re was no cumulative impacmm t of adopting Topic 606.
U.S.SS Taxaa Reforff mrr
On Decemberm 22, 2017, the President signed comprm ehensive tax legislation called The Tax Cuts and Jobs Act (thet
The Tax Act makes broad and complm ex changes to the U.S. tax code that affected our finaff
31, 2017, including, but not limited to a reducdd tion of the U.S. fedff
of our deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”), a transition tax on unrepatriated earnings of foreign
subsidiaries, and bonus depreciation on quaq lified property. In addition, certain provisions of the Tax Act affected our financial results
for the year ending Decemberm 31, 2018 and may affect
reductd
from foreign subsiu
deductibility of certain executive compemm nsation; (5) limitations on thet
tax liability; (6) potential limitations on the deductibility of interest expense; and (7) bonus depreciation on qualifieff d property.
diaries; (3) a new provision designed to tax global intangible low-taxed income (“GILTI”); (4) limitations on the
rate tax rate from 35% to 21%; (2) a general elimination of U.S. federal income taxes on dividends
our finff ancial results in future years, including, but not limited to: (1) a
use of Federal Tax Credit (“FTC’s”) to reduce the U.S. income
tax rate from 35% to 21% that affects the current value
ion of thet U.S. federal corporr
rr
eral corporate
nca
ff
“Tax Act”).
ial results for the year ended Decembem r
73
In connection with our initial analysis of the impact of the Tax Act, we recorded a one-time net tax benefit of $17.3 million for
the year-ended Decemberm 31, 2017. This net tax benefit primarily consists of the net tax impact to our deferff
federal corporate rate reductdd
Consolidated Financial Statements.
ion. There was no material change from the previous estimate in 2018. See Note 13 to Notes to
redrr
taxes from the U.S.
Sensitivity of Critical Accounting Estimates
We have critical accounting estimates that are sensitive to change. The most significant of those sensitive estimates relates to the
ff ntangible assets are not amortized but instead are tested annually on
impam irment, or more freff quently if events or changes in circumstances indicate that the assets might be impamm ired. In
impm airment of intangible assets. Goodwill and indefinff
October 1 forff
assessing the recoverability of goodwill and indefinite life intangible assets, we must make assumptions about the estimated future
cash flows and other fact
ors to determine the faff ir value of these assets.
ite life i
ff
Televll
ision
In calculating the estimated fair value of our television FCC licenses, we used models that rely on various assumptm ions, such as
ff
discount rates and multiples. The estimates of futurett
future cash flows,
increase significantly faster than the increase in the television expenses, and therefore the television assets will also increase in value.
If any of the estimates of future cash floff ws, discount rates, mulmm tiples or assumptions were to change in any futff urt e valuation, it could
affect our impam irment analysis and cause us to record an additional expense forff
cash flows assume that the television segment revenues will
impaim rment.
mm
ite life i
onsidering both
le publu icly-traded companies in the television, radio and digital media indusd tries. These comparmm able
ff ntangible assets by using an income appa
roach. The income appa
We conducted a review of our television indefinff
estimates fair value based on the estimated future cash flowff
s of each market cluster that a hypothetical buyer would expect to
generate, discounted by an estimated weighted-average cost of capia tal that reflects current market conditions, which reflect thet
level of inherent risk. The income approach requiq res us to make a series of assumptmm ions, such as discount rates, revenue projections,
profit margin projections and terminal value mulm tiples. We estimate the discount rates on a blended rate of returt n crr
debt and equity for comparab
publu icly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal
value mulm tiple based on comparable publicly-traded compam nies in the television, radio and digital media industries. We estimated the
revenue projeo ctions and profit margin projeo ctions based on various market clusters signal coverage of the markets and industry
information forff
market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence
faff ir
advertising expenditures. Based on the assumptm ions and estimates described aboa ve, we did not record impairment in 2018 as thet
values of our television FCC licenses for each of our market clusters was greater than thet
r values
exceeded thet
approximately $12.0 million have fair
an average station within a given market. The information for each market cluster includes such thit ngs as estimated
carrying values in amounts ranging from 3% to over 1,000%. One market with aggregate carryinrr
values that exceed carryirr ng values by less than 10%.
ir respective carrying values. The faiff
g value of
roach
ff
overall
We conducd ted our annual review of our television reporting unit as part of our goodwill testing and determined that the carryi
ng
r value of the television reporting unit was primarily determined
r
value of our television reporting unit exceeded the fair value. The faiff
by using a combim nation of a market approach and an income approach. The revenue projeo ctions and profit margin projeo ctions in the
models are based on the historical performance of the business and projeo cted trends in the television industryt
market. Based on the assumptm ions and estimates described aboa ve, the television reporting unit’s fair value exceeded its carrying value
by 48%, resulting in no impam irment charge forff
the year ended Decemberm 31, 2018. As discussed in Note 7 to Notes to Consolidated
Financial Statements, the calculation of the fair value of the television reporting unit requires estimates of the discount rate and the
long term projected growth r
prior year and expected cash flowff
forecasts of the reporting unit. If that discount rate were to increase by 1%, the fair value of the television reporting unit would
decrease by 6%. If the long term projected growth rate were to decrease by 0.5%, the faiff
decrease by 1%.
reporting unit were decreased from prior year to account forff
value calculation of the television reporting unit was increased fromff
r value of the television reporting unit would
ate. The discount rate used in the fair
s of a component of thet
risk within the
and Hispanic
ff
t
Radioii
In calculating the estimated fair value of our radio FCC licenses, we used models that rely on various assumptmm ions, such as
future cash flows, discount rates and multiples. The estimates of futurett
increase significantly faster that n the increase in the radio expenses, and therefore the radio assets will also increase in value. If any of
the estimates of future cash flows, discount rates, multiples or assumptmm ions were to change in any futff urt e valuation, it could affeff ct our
impam irment analysis and cause us to record an additional expense for impairment.
cash flows assume that the radio segment revenues will
74
We conducted a review of our radio indefinite life intangible assets by using an income approach. The income appa
roach
of each market cluster that a hypothetical buyer would expect to
ff
estimates fair value based on the estimated future cash flows
generate, discounted by an estimated weighted-average cost of capa ital that reflects current market conditions, which reflect the overall
level of inherent risk. The income approach requiq res us to make a series of assumptions, such as discount rates, revenue projeo ctions,
profit margin projections and terminal value multm iples. We estimate the discount rates on a blended rate of returt n crr
onsidering both
debt and equity for comparm able publu icly-traded companies in the television, radio and digital media indusd tries. These comparmm able
publu icly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal
value mulm tiple based on comparable publicly-traded compam nies in the television, radio and digital media industries. We estimated the
revenue projeo ctions and profit margin projeo ctions based on various market clusters signal coverage of the markets and industry
information forff
market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence
advertising expenditures. The faiff
amounts ranging from 0% to over 450%. Two markets with aggregate carrying value of approximately $3.2 million have fair values
that exceed carrying values by less than 10%.
an average station within a given market. The information for each market cluster includes such thit ngs as estimated
r values of our radio FCC licenses for each of our market clusters exceeded the carrying
values in
rr
We did not have any goodwill in our radio reporting unit at Decembem r 31, 2018.
Digitaltt Mediaii
We conducted our annual review of our digital media reporting unit as part of our goodwill testing and determined that the
value of our digital reporting unit exceeded thet
faff ir value. The fair value of the digital reporting unit was primarily
r
carrying
determined by using a combim nation of a market approach and an income approach. The revenue projections and profit margin
projections in the models are based on the historical performanc
Hispanic market. Based on the assumptm ions and estimates described above,
value by 5%, resulting in no impairment charge forff
digital reporting unit requires estimates of the discount rate
value of thet
Consolidated Financial Statements, the calculation of the fair
and the long term projected growth r
digital reporting unit was increased
ate. The discount rate used in the fair value calculation of thet
from prior year and expected cash flows of a componm ent of the reporting unit were decreased from prior year to account for risk within
the forff ecasts of the reporting unit. If that discount rate were to increase by 1%, the fair
decrease by 5%. If the long term projected growth rate were to decrease by 0.5%, the faiff
decrease by 1%.
the year ended Decemberm 31, 2018. As discussed in Note 7 to Notes to
e of the business and projeo cted trends in the digital industrytt
r value of the digital reporting unit would
the digital reporting unit’s fair
digital reporting unit would
value exceeded its carrying
value of thet
and
a
ff
ff
ff
ff
t
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year
period ended December 31, 2018. However, based on recent inflation trends, the economy in Argentina has been classified as highly
inflationary. As a result, we applied the guidance in ASC 830 by remeasuring non-monetary assets and liabilities at historical
exchange rates and monetary-assets and liabilities using current exchange rates. There can be no assurance that future inflation would
not have an adverse impact on our operating results and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
Market risk represents the potential loss that may impact our financial position, results of operations or cash floff ws due to
adverse changes in the finff ancial markets. We are exposed to marker
t risk froff m changes in the base rates on our Term Loan B.
Interest Rates
As of Decemberm 31, 2018, we had $246.2 million of variable rate bank debt outstanding under our 2017 Credit Facility. The
debt bears interest at LIBOR plus a margin of 2.75%.
Because our debt is subjeu
ct to interest at a variable rate, our earnir ngs will be affected in future periods by changes in interest
rates. If LIBOR were to increase by 100 basis points, or one percentage point, froff m its Decemberm 31, 2018 level, our annual interest
expense would increase and cash flow from operations would decrease by approximately $2.5 million based on the outstanding
balance of our term loan as of Decemberm 31, 2018.
75
Foreign Currency
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other
t
than the U.S.
r than thet U.S. dollar, primarily the Mexican peso, Argentine peso and various othet
dollar. Our historical revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to
be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than thet U.S., primarily
related to the Headway business, and as a result we expect an increasing portion of our future revenues to be denominated in
currencies othet
tt
effeff ct of an immediate and hypotyy
hetica
Decemberm 31, 2018 would not be material to our overall financial condition or consolidated results of operations. Our operating
expenses are generally denominated in the currencies of the countries in which our operations are located, primarily the United States
and, to a mucm h lesser extent, Spain, Mexico, Argentina and other Latin American countries. Increases and decreases in our foreign-
denominated revenue from movements in foreign exchange rates are partially offseff
foreign-denominated operating expenses.
l 10% adverse change in foreign exchange rates on foreign-denominated accounts receivable at
t by the corresponding decreases or increases in our
r Latin American currencies. The
Based on recent inflation trends, the economy im n Argentina has been classified as highly inflaff
tionary. As a result, the Compam ny
applied the guidance in ASC 830 by remeasuring non-monetary assets and liabilities at historical exchange rates and monetary-assets
and liabilities using current exchange rates. See Note 2 to Notes to Consolidated Financial Statements.
As our operations grow, our risks associated with fluctuatt
tion in currency rates will become greater, and we will continue to
reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the amount of
operating expense of our international operations, primarily related to the Headway business. To date, we have not entered into any
foreign currency hedging contracts, since exchange rate fluff ctuations historically have not had a material impam ct on our operating
results and cash floff ws.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DRR
ATA
See pages F-1 thrt ough F-45.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On May 10, 2018, the Audit Committee dismissed Grant Thorntrr on LLP (“Grant Thorntrr on”) as the Company’s independent
registered public accounting firm.
The reports of Grant Thornton on the consolidated financial statements of the Company as of and forff
31, 2016 and 2017 did not contain an adverse opinion or disclaimer of opinion, nor were they qualifiedff
audit scope, or accounting principle. The audit report of Grant Thornton on the effect
reporting as of and for the year ended December 31, 2017 contained an adverse opinion on our internal control
due to a material weakness
with respect to insuffiff cient accounting resources and personnel to ensure proper appa
to effeff ctively design and execute process level controt
ls around certain complex or non-recurring
transactions.
k
r
ff
iveness of our internal control over finff ancial
tt
over financial reporting
lication of GAAP and
the years ended Decemberm
or modified as to uncertainty,
rant
During the years ended December 31, 2016 and 2017 and through May 10, 2018, there were (i) no disagreements with Gt
Thornton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Grant Thorntrr on, would have causa ed Grant Thorntrr on to make reference to the
subject matter of the disagreement in its reports on our consolidated financial statements for such years and (ii) no “reportablea
(as such term is defined in Item 304(a)(1)(v) of Regulation S-K), except for the material weakness in internal control
reporting reported in our Annual Report on Form 10-K for the fiscal year ended Decembem r 31, 2017 with respect to insufficient
accounting resources and personnel to ensure proper application of GAAP and to effectively design and execute process level controls
around certain complm ex or non-recurring transactions. The Audit Committee discussed the subject matter of the forff egoing material
weaknekk ss with Grant Thornton, and we have authorized Grant Thornton to respond fulff
ly to any inquiries concerning such matters
made by our next independent registered public accounting firm.
over financial
events”
tt
On May 30, 2018, we, as appa
roved by the Audit Committee, engaged BDO USA, LLP (“BDO”) as thet Company’s independent
registered public accounting firm.
No consultations occurred between
tt
us and BDO during the years ended Decembem r 31, 2016 and 2017 and through May 30,
2018, regarding either (i) the application of accounting principles to a specificff
or
opinion that might be rendered on our financial statements, or other written or oral informa
considered by us in reaching a decision as to an accounting, auditing, or financial reporting issue; or (ii) any matter that was either thet
subject of a disagreement, as that term is defined in Item 304(a) (1)(iv) of Regulation S-K and the related instruct
Regulation S-K, or a “reportable event,” as that term is definff ed in Item 304(a)(1)(v) of Regulation S-K.
action, the type of audit
tion provided that was an important fact
complmm eted or proposed trans
ions to Item 304 of
ff
ff
r
t
76
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure control
tt
s and procedures are designed to ensure that the inforff mation relating to our Compam ny, including our
in SEC rules and forff ms, and is accumulamm ted and communicated to our management, including our chief executive
consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time
periods specifiedff
officer and chief financial officer, as appa
evaluation, under the supervirr sion and with the participation of management, including our chief executive officer and chief financial
offiff cer, of the effeff ctiveness of the design and operation of our disclosure controls
s (as defined in RulRR es 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based on
, as of the evaluation date, our disclosure controls
this evaluation, our chief executive officer and chief financial officff er concluded that
l over financial reporting, as described below.
to material weaknesses in our internal contrott
and procedures were not effecff
ropriate to allow for timely decisions regarding requiq red disclosure. We conducted an
and procedured
tive dued
t
tt
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible forff
control over finff ancial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).ff Under the supervision and with the participation of management, including
our chief executive officer and chief financial officer, we conducted an evaluation of the design and operating effect
internal controls over financial reporting based on the framff
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
n “Internal Control—Integrated Framework (2013)” issued by the
establishing and maintaining adequatq
iveness of our
rr
e internal
r
ework i
ff
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonabla e detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and
directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauta horized acquisition, use, or
disposition of our assets that could have a material effect
on the finff ancial statements.
ff
The audited consolidated financial statements included in this annual report on Form 10-K include the results of Smadex from
year ended Decembem r 31, 2018
tt
the date of acquisition. Management’s assessment of internal control
did not include an assessment of Smadex, whose finff ancial statements reflected total assets and revenues constituting 1 and 2 percent,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018. The Smadex
acquisition is more fully described in Note 5 to the Notes to Consolidated Financial Statements. Management’s most recent
assessment of internal control over finff ancial reporting as of Decemberm 31, 2018 did not include the internal controls related to ourr
acquisition of Smadex in the second quarter of 2018, as permitted by appa
Smadex as pa part of ma gnagement’s next assessment of internal control over financial repportingg as of December 31, 201 .9
licable rules and regulations. Management will include
over financial reporting for thet
A material weakness is a deficiency, or a combim nation of deficiencies, in internal control over finff ancial reporting, such that there
is a reasonable possibility that a material misstatement of the Compam ny's annual or interim financial statements will not be prevented
or detected on a timely basis. As a result of thet material weaknesses in internal control over financial reporting described below,
ive as of December 31, 2018.
management concluded that
’s internal control over financial reporting was not effect
the Companym
ff
t
As previously reported, a material weakness in our internal controls existed as of December 31, 2017 due to insufficie
nt
accounting resources and personnel. As a result of our expanding business operations and geographaa
ic scope, primarily
related to our acquisition of Headway in April 2017, we have experienced a significant increase in thet
accounting matters and the numbem r of control activities necessary to properly present consolidated results. We did not
have sufficient accounting resources and personnel to ensure proper application of GAAP and effeff ctively design and
execute process level controls around certain complmm ex or non-recurring transactions and complmm ex transactions. Although
the control weakness did not result in any material misstatement of our consolidated financial statements forff
the periods
presented, it could lead to a material misstatement of account balances or disclosures. Management implm emented a
remediation plan during 2018, as further described below. Based on management’s review and the oversight of the Audit
Committee, we have determined that althot ugh substantial progress has been made in remediating this material weakness,
this weakness has not been full
constitute a material weakness.
y remediated as of Decemberm 31, 2018, and thereforff e thit s control
tt weakness continues to
volume of complm ex
ff
ff
77
year ended December 31, 2017 but which was included in such assessment for the year ended Decembem r
Management has identifiedff
a material weakness relating to internal controls over our Headway business, which we
acquired, in April 2017 and which was not included in management’s assessment of internal controls over financial
reporting for thet
31, 2018. Headway operates in multiple countries, uses multiple currenrr
company with limited accounting and finff ancial reporting personnel and othet
controls and procedurdd es. Following our acquisition of Headway, management implem mented controls over Headway
relating to a numberm of areas, including revenue, accounts receivable, accounts payable,
accounts and income taxes; however, management has determined that these controls were not designed and/or
implm emented with an adequaq te precision level such that they would prevent or detect the reporting of inaccurate
information, which in turn cr
material misstatement of our consolidated finff ancial statements for the periods presented, it could lead to a material
misstatement of account balances or disclosures. Accordingly, management has concluded that this controt
constitutes a material weakness.
ould lead to a material misstatement. Although this control weakness did not result in any
cies and, prior to the acquisition, was a private
r resources with which to address its internal
operating expenses, intercompamm ny
l weakness
a
Management has also identifieff d a material weakness in internal controls over revenue in our broadcast and legacy digital
businesses. The design of certain revenue controls, primarily related to the appa
into our operating system of record; the allocation of prices to advertising inventory under advertising contract
multiple stations and dayparts; and our reliance upon certain information received from third parties including, in
particular, information relating to digital imprm essions delivered by third party digital platforms, would not prevent or
detect the reporting of inaccurate inforff mation, which in turnt
weakness
kk
could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that
this control weakness constitutt es a material weakness.
could lead to a material misstatement. Although this control
did not result in any material misstatement of our consolidated financial statements for the periods presented, it
roval of the entry of customer contracts
t
tt
s containing
Management has further
t
concluded that, in light of the material weaknesses described abova
internal control over financial reporting as of Decemberm 31, 2018 based on the criteria set forth in “Internarr
Framework”r
issued by COSO.
e, we did not maintain effecff
tive
l Control—Integrated
Our independent registered public accounting firff m, BDO USA, LLP, which has audited and reported on our finff ancial statements
as of and forff
of Decemberm 31, 2018. BDO USA, LLP’s report is included in this annual report below.
the year ended December 31, 2018, issued an attestation report regarding our internal control over finff ancial reporting as
Management’s Plan for Remediation
ign operations to strengthen our accounting resources in these locations and furthe
With respect to the material control weakness previously reported as of December 31, 2017, management has continued to test
and evaluate the elements of the remediation plan implm emented to date. These elements include the implmm ementation of new enterprise
reporting software to provide additional system controls to free up au
certain of our foreff
resources, and hiring additional emplm oyees to address compm lex accountingg matters ppr
geographic
sc pope of our business poperations p, prima yrily our d gigital poperations. Based on management’s review and the oversight of the Audit
Committee, we have determined that althot ugh substantial progress has been made in remediating this material weakness, we have
determined that the weaknekk ss has not been fully remediated. In light of the additional material weaknesses discussed above,
management intends to further study what additional measures should be introduced
material weakness and will further consult with the Audit Committee and others, as appropriate.
ccounting resources, hiring additional accounting personnel in
up corporate accountingg
pexpandi gng g g p
d as part of the ongoing plan of remediation of this
r freeff
ff
imarily related to the
y
As we continue to evaluate and test the remediation plan outlined above, we may also identify additional measures to address
the material weakness or modify certain of the remediation procedures described abova
our internal control over finff ancial reporting as may be appropriate in the course of remediating the material weakness. Management,
with the oversight of the Audit Committee, will continue to take steps to remedy the material weakness as expeditiously as possible to
reinforce the overall design and capability of our controt
e. We also may implement additional changes to
l environment.
With respect to the other identifiedff material weaknesses as of December 31, 2018, management has discussed them with the
g the steps necessary to design a remediation plan and remediate the material
Audit Committee and is in the process of identifyinff
weaknesses.
78
Inherent Limitations on Effectivenes
ff
s of Controls
tt
A control
l system’s objeb ctives will be met. Because of its inherent limitations, internal contrott
system, no matter how well designed and operated, can provide only reasonable, not absa olute, assurance that the
contrott
l over finff ancial reporting may not prevent or
detect all control issues or misstatements. Accordingly, our controls and procedures are designed to provide reasonabla e, not absa olute,
assurance that the objectives of our control system are met. Projections of any evaluation of effect
periods are subject
to the risk that contrott
the degree of complm iance with the policies or
procedures may deteriorate.
ls may become adequate becausea
of changes in conditions, or that
iveness to futurett
ff
t
Changes in Internal Control
As noted above, we have identifieff d material weaknesses relating to internar
tt
l control
l over revenue in our broadcast and legacy digital businesses. In response to thet
contrott
described above that existed as of Decemberm 31, 2017, management has continued implementing enhancements to our internal control
over finff ancial reporting as described aboa ve in “Management’s Plan for Remediation” section. These material weaknesses and
remediation efforff
ts related to thet material weakness described aboa ve represented changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) aff
Decembem r 31, 2018 that have materially affected our internal control
nd 15d-15(f) under the Exchange Act) durid
previously reported material weakness
ng the fisff cal quarter ended
over financial reporting.
business and internal
s over our Headway
d
tt
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Entravision Communications Corporation
Santa Monica, Califorff nirr a
Opinion on Internal Control over Financial Reporting
We have audited Entravision Communimm cations Corporation’s (the “Company’s”) internal contrott
Decemberm 31, 2018, based on criteria established in Internal Control – Integrated Framework (
Sponsoring Organizations of the Treadway Commission (thet
material respects, effective internal control over finff ancial reporting as of December 31, 2018, based on the COSO criteria.
l over finff ancial reporting as of
2013) issued by the Committee of
“COSO criteria”). In our opinion, the Company did not maintain, in all
r
We do not express an opinion or any other form of assurance on management’s statements referrirr ng to any corrective actions taken by
the Compam ny after the date of management’s assessment.
a
We also have audi
(“PCAOB”), thet
statements of operations, comprmm ehensive income, stockholk
and schedule (collectively referff
unqualifiedff
opinion thereon.
to as “thet
redr
ted, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
consolidated balance sheet of the Compamm ny and subsiu
diaries as of Decemberm 31, 2018, thet
related consolidated
ders’ equity, and cash flows forff
the year then ended, and the related notes
consolidated financial statements”) and our report dated May 6, 2019 expressed an
Basis for Opinion
The Company’s management is responsible for maintaining effective internar
the effectiveness of internal control
Control over Financial Reporting. Our responsibility is to express an opinion on thet Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Compam ny in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and thet
l over finff ancial reporting and for its assessment of
over financial reporting, included in the accompam nying Item 9A, Management’s Report on Internal
PCAOB.
l contrott
t
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and performff
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over finff ancial
reporting, assessing the risk that a material weakness exists, and testing and evaluating thet
tiveness of
internal control based on the assessed risk. Our audit also included performing such other procedurd es as we considered necessarya
the circumstances. We believe that our audit provides a reasonabla e basis for our opinion.
the audit to obtain reasonable assurance aboa ut whether
design and operating effecff
l over finff ancial
e internar
l controt
ff
effectiv
in
t
A material weakness is a deficiency, or a combim nation of deficiencies, in internal control over finff ancial reporting, such that there is a
reasonable possibility that a material misstatement of the companmm y’s annual or interim finff ancial statements will not be prevented or
detected on a timely basis. Material weaknesses regarding management’s failure to design and maintain control
complm ex or non-recurring transactions; (2) Headway component related revenue, accounts receivable, accounts payable,
expenses, intercompany accounts and income taxes; and (3) revenue in the broadcast and legacy digital businesses have been
identified and described in management’s assessment. These material weaknesses were considered in determining the naturt e, timing,
and extent of audi
dated May 6, 2019 on those consolidated financial statements.
t tests applied in our audit of the 2018 consolidated financial statements, and this report does not affecff
s over (1) certain
t our report
operating
a
a
tt
ff
mm
Item 9A, Management’s Report on Internal Control
As indicated in the accompanying
assessment of and conclusion on the effectiv
tt
the Smadex, S.L. (“Smadex”) acquisition, which is included in thet
2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equiq ty, and cash flows for thet
then ended. This acquiq sition constituted approximately 1% of total assets as of Decemberm 31, 2018, and appa
for the year then ended. Management did not assess the effecff
acquisition because of the timing of the acquisq
include an evaluation of thet
over Financial Reporting, management’s
l contrott
tiveness of internal control over financial reporting of the Smadex
over financial reporting of all the Smadex acquisition.
over financial reporting did not include the internarr
consolidated balance sheet of the Company as of Decembem r 31,
ition. Our audit of internal control
eness of internal control
over financial reporting of the Companmm y also did not
roximately 2% of revenues
internal control
ls of all
year
tt
tt
tt
80
Definition and Limitations of Internal Control over Financial Reporting
A compam ny’s internal control over finff ancial reporting is a process designed to provide reasonable assurance regarding the reliabia lity of
financial reporting and the preparation of financial statements forff
external purposes in accordance with generally accepted accounting
principles. A compamm ny’s internal control over finff ancial reporting includes those policies and procedured
maintenance of records that, in reasonabla e detail, accurately and fairly refleff ct the transactions and dispositions of the assets of the
t transactions are recorded as necessary to permit preparation of financial statements in
compamm ny; (2) provide reasonabla e assurance that
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the companym
prevention or timely detection of unauta horized acquisition, use, or disposition of the companymm
on the finff ancial statements.
; and (3) provide reasonabla e assurance regarding
’s assets that could have a material effect
s that (1) pertain to the
Because of its inherent limitations, internal control over financi
of any evaluation of effect
conditions, or that the degree of complm iance with the policies or procedured
al reporting may not prevent or detect misstatements. Also, projeo ctions
iveness to futff urtt e periods are subject to the risk that controls may become inadequate because of changes in
s may deteriorate.
a
ff
/s/ BDO USA, LLP
Los Angeles, Califorff nirr a
May 6, 2019
81
ITEM 9B. OTHER INFORMATION
We are providing the folff
lowing information pursuant to Item 1.01 of Form 8
r
-K in lieu of filing a separate Currerr nt Report on
Form 8-K, since the due date for such filing falff
ls within foff ur business days prior to the filinff
g of thit s report.
Item 1.01. Entry into a Material Definitive Agreement.
On April 30, 2019, we entered into the Amendment to the 2017 Credit Agreement, which became effecff
tive on May 1, 2019.
re to timely deliver the 2018 Audited Financial Statements, and amended the 2017 Credit Agreement, giving
Pursuant to the Amendment, the lenders waived any events of defauff
connection with our failuff
us until May 31, 2019 to deliver the 2018 Audited Financial Statements. Failure by us to deliver the 2018 Audited Financial
Statements on or prior to May 31, 2019 would constitute an immediate event of defaula t under the 2017 Credit Agreement. By filing
this Annual Report on Form 10-K prior to that date, we believe we have complied with the affirmative covenants in the 2017 Credit
Agreement, as amended by the Amendment, regarding delivery of the 2018 Audited Financial Statements.
lt that may have arisen under the 2017 Credit Agreement in
Pursuant to the Amendment, we agreed to pay to the lenders consenting to the Amendment a feeff
equal to 0.10% of the aggregate
principal amount of the outstanding loans held by such lenders under the 2017 Credit Agreement as of May 1, 2019. This fee totaled
approximately $0.2 million.
82
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATERR
GOVERNANCE
PART III
The folff
lowing is certain inforff mar
tion as of April 5, 2019 regarding our executive officff ers and directors:
Name
Walter F. Ulloa
Christopher T. Young
Jeffery A. Liberman
Paul A. Zevnik(1)
Gilbert R. Vasquez(1)
Patricia Diaz Dennis(1)
Juan Saldívar von Wuthet nau
Martha Elena Diaz(1)
Arnoldo Avalos(1)
(1)
Independent director.
ff
Position
Chairman and Chief Executive Office
r
Chief Financial Officer
and Treasurer
ff
President and Chief Operating Offiff cer
Director
Director
Director
Director
Director
Director
Age
70
50
60
68
79
72
52
57
48
Directors designated as “independent” have been determined by the Board of Directors to be independent as that term is definedd
under the rules of The New York Stock Exchange. Directors are elected annually and hold office until our next annual meeting fof
stockholders and until their successors are elected. Officers are elected annual yly and serverr
at the discretion of thet Board of Directors.
Biographical Information Regarding Executive Officers and Directors
Walter F. Ulloa. Mr. Ulloa, our Chairman and Chief Executive Officer
since the companm y’s inception in 1996, has more than
40 years of experience in Spanish-language television and radio in the United States. From 1989 to 1996, Mr. Ulloa was involved in
the development, management or ownership of our predecessor entities. From 1976 to 1989, he worked at KMEX-TV, Los Angeles,
Califorff nir a, as Operations Manager, Production Manager, News Director, Local Sales Manager and an Account Executive. Mr. Ulloa
has been a director since February 2000.
ff
Christii opher T. Young. Mr. Young has been our Chief Financial Officer and Treasurer since May 2008. Mr. Young had
004 until we sold our outdoor advertising
previously serverr d as the President of our outdoor advertising division from February 2rr
division in May 2008. From January 2000 to February 2004, Mr. Young served as our outdoor advertising division’s Chief Financial
l, where he was responsible for all of the
Offiff cer. Beforeff
bank’s corporr
rate finance activity for the broadcasting and outdoor advertising indusdd tries. Mr. Young’s prior experience includes
tenures at both t
t
degree in Economics from Columbim a University.
he Bank of Tokyo in its corporate finance group and Chase Manhattan Bank. Mr. Young holds a Bachelor of Arts
, Mr. Young had worked with the Bank of Montreatt
joining our companym
Jeffee
ry A. Liberman. Mr. Liberman, our President and Chief Operating Offiff cer since March 2017, has been involved in the
management and operation of Spanish-language television and radio stations since 1974. Mr. Liberman previously servedrr
Operating Officer from July 2012 until March 2017, and the President of our radio division from May 2001 until July 2012. From
1992 until our acquisition of Latin Communications Group Inc. in April 2000, Mr. Liberman was responsible forff
Communim cations Group’u s 17 radio stations in Californff
ia, Colorado, New Mexico and Washington D.C.
operating Latin
as the Chief
Paul A. Zevnik. Mr. Zevnik is a partner, resident in the Washington, D.C. and Los Angeles, California offices of the law firff m
of Morgan, Lewis & Bockius, LLP. Mr. Zevnik was involved in the development, management and ownership of our predecessor
entities froff m 1989 to 1996. Mr. Zevnik is a graduad te of Harvard College (A.B. magna cum laude 1972), Harvard University (A.M.
1972) and Harvard Law School (J.D. cum laude 1976). Mr. Zevnik has been a director since August 2000 and currently serves as our
presiding or “lead” independent director.
83
Gilbert R. Vasquezee . Mr. Vasquez has been the managing partner of the certifiedff
public accounting firff m o
r
s as a board membm er on its successor organization, the LA84 Foundation. Mr. Vasquez continues to serve as a boarda
LLP since 1969. Mr. Vasquez has serverr d as a Chapter 7 Panel Trustee in the Central Distritt ct of California, a Chapter
Bankruptcy Examiner and a Receiver. Mr. Vasquez was an executive board member of the 1984 Olympic Organizing Committee and
currently serverr
member of Manufacturers Bank and he is also the Chairman of the Los Angeles Latino Chambem r of Commerce. He has been a
member of various Boards of Directors including Green Dot Publu ic Schools, the Tomas Rivera Policy Institute, ProAmerica Bank,
California State University Los Angeles Foundation, United Way of Los Angeles, Los Angeles Metropolitan YMCA, Congressional
Hispanic Caucus, Los Angeles Area Chamberm of Commerce, National Association of Latino Elected and Appointed Offiff cials and the
National Council of La Raza. Other past corporate board appointmett
Federal Bank and Blue Cross of Califorff nirr a. Mr. Vasquezq
nts include Verizon (formerly) GTE of California, Glendale
has been a director since May 2007.
e, a
f Vasquez & Compam ny
r
11 Truste
a
Patricia Diaz Dennis. Patricia Diaz Dennis currently serves on the board of directors of U.S. Steel (including its Compm ensation
ff
r
the companym
rs for SBC from Novembem r 1998 to May 2002 and as Senior Vice President and Assistant
ate Governance & Public Policy Committees) and Amalgamated Bank (including its Compensation and
& Organization and Corpor
Nominating and Corporate Governance Committees). Ms. Diaz Dennis is also a trusr
tee of the NHP Foundation, a member of the
Advisory Board forff LBJ Family Wealth At
dvisors, and chairs the Sanctions Panel forff The Global Fund. Ms. Diaz Dennis servedrr
in a
originally known as SBC Communications, Inc. (“SBC”) which later became AT&T. Ms. Diaz
variety of positions forff
Dennis was Senior Vice President and Assistant General Counsel of AT&T from August 2004 until she retired in November 2008.
Previously, Ms. Diaz Dennis served as General Counsel and Secretary of SBC West from May 2002 until August 2004, as Senior Vice
President of Regulatory and Pubu lic Affai
General Counsel of SBC from Septemberm 1995 to Novemberm 1998. Beforff e joining SBC, Ms. Diaz Dennis was appointed by two
Presidents and confirmed by the United States Senate to three federal government positions. Ms. Diaz Dennis was named a member of
the National Labor Relations Board by President Ronald Reagan, where she served from 1983 until 1986. President Reagan later
appointed Ms. Diaz Dennis as a commissioner of the Federal Communimm cations Commission, where she served from 1986 until 1989.
From 1989 to 1991, Ms. Diaz Dennis was at the law firm of Jones, Day, Reavis & Pogue, where she was a partner and
communications group pu
George H. W. Bush as Assistant Secretary of State for Human Rights and Humanitarian Affairs, serving froff m 1992 until 1993. Ms.
Diaz Dennis served as special counsel for communications matters to the law firmff
Diaz Dennis has served on the Boards and Board committees of a numbm er of for-profit and non-profit organizations, including
Massachusetts Mutual Life Insurance Compamm ny from 1995 to 2017 and was Chair of the Board of Girl Scouts of thet USA froff m 2005
to 2008. Ms. Diaz Dennis is a membem r of the California, Texas and District of Columbia bars, and is admitted to practice before the
U.S. Supreme Court. Ms. Diaz Dennis previously servedrr
as one of our directors from July 2001 until October 2005 and rejoined the
Board as a director in May 2014.
ractice chair. In 1992, Ms. Diaz Dennis returned to public service when she was appointed by President
of Sullivan & Cromwell from 1993 until 1995. Ms.
Juan Saldívar von Wuthenau. Mr. Saldívar has been the chief executive officer of JSW Servicios de Estrategia SC since July
fund Rise Capital. Prior to this, Mr. Saldívar held several positions at Televisa Corporación, S.A.
2011, and is a Partner at the venturet
de C.V. (“Televisa”), servirr ng as president of Televisa Interactive Media from October 2003 until June 2011 and as Director of
Planning and Strategy of Televisa Multimedia from July 2001 until October 2003. Before joining Televisa, Mr. Saldívar was the
founder and Country Manager of Submarino.com in Mexico froff m 1999 until 2001. Mr. Saldívar currently serves on the board of
directors of Travesías Editores SA de CV. He holds a degree in economics from the Instituto Tecnológico Autónomo de México and
an MBA fromff
the IESE Business School in Spain. Mr. Saldívar has been a director since May 2014.
Martha Elena Diaz. Ms. Diaz served as president of the Editorial Televisa subsidiary of Televisa forff
Mexico and Puerto Rico, and also served as president of Distribuidora Intermex, S.A. de C.V., a subsidi
from March 2012 until July 2015. Ms. Diaz also served as president of Sistema Radiópolis, S.A. de C.V., from December 2010 until
February 2012. She holds a degree in chemical engineering from the Universidad Pontificia
as a marketing specialist froff m the Universidad EAFIT in Colombia. Ms. Diaz has been a director since May 2016.
Bolivariana and a postgraduate
certificate
u
d
ff
each of the United States,
ary of Grupo Televisa, S.A.B.,
Arnoldoll
Avalos. Arnoldo Avalos is the fouff nder and Chief Executive Officff er of the Avalos Foundation. Mr. Avalos previously
served as the global compensation manager of Facebook from March 2008 until May 2013 and global compensation manager of
Google from January 2006 until March 2008. Beforeff
1999 until January 2006, including manager of business operations, compemm nsation program manager and corporate recruiter. Beforff e
joining Cisco Systems, Mr. Avalos held various positions at Andersen Consulting from 1995 until 1999. Mr. Avalos is a membem r of
the Board of Governors of the Califorff nirr a Community Colleges, a membem r of the Board of Trustees of the Latino Community
Foundation and a member of the Board of Directors of the Foundation for California Community Colleges. Mr. Avalos holds a Master
d Kennedy School and a Bachelor of Arts in History f
in Public Policy degree from the Harvar
Berkeley.
joining Google, Mr. Avalos held multiple positions at Cisco Systems from April
roff m the University of California,
rr
rr
84
CORPORATE GOVERNARR NCE
Board of Directors
As currently in effeff ct, our bylaws provide that
t the Board shall consist of not less than six and not more than eleven directors.
The Board currerr ntly consists of seven members elected by the holders of the Class A and Class B common stock, voting together as a
class. All our directors are elected by our stockholders at each annual meeting of stockholders and will serve until their successors are
elected and qualified, or until their earlier resignation or removal. There are no family relationships among any of our currerr nt
directors, nominees for directors and executive officers.
Committees of the Board
The Board has a standing Audit Committee, Compensation Committee and Nominating/Corporr
rate Governance Committee. The
composition, functions and general responsibilities of each committee are summarized below.
Auditdd Committeett
The Audit Committee consists of Messrs. Vasquez (chairman) and Avalos and Mses. Diaz Dennis and Diaz. The Board has
determined that Mr. Vasquez is an audit committee financial expert, as that term is defined in Item 401(h) of Regulation S-K
promulmm gated under thet Exchange Act, and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A adopted under the
Exchange Act. The Board also believes that all membem rs of the Audit Committee meet the independence and knowledge requirements
of the NYSE as currently in effect.
ff
Consistent with t
t
he compam ny’s Corporate Governance Guidelines, no member of the Audit Committee may serve on the audit
committees of more than two other publu ic compam nies (in addition to ours) without first obtaining the prior approval of the Board.
on more than two othet
Currently, no memberm of the Audit Committee serves
r public company audit committees (in addition to ours).
rr
The Audit Committee operates under a written charter, a copy of which is available on our website. The Audit Committee’s
duties include, among othet
reviewing our accounting practices and audit procedures. In addition, the Audit
Committee has responsibility for reviewing complaints aboa ut, and investigating allegations of, financial imprm opriety or misconduct.
r things, responsibility forff
As part of its responsibility, the Audit Committee is responsible for engaging our independent registered publu ic accounting firff m,
roving audit and non-audit
aa
services performed by our independent registered public accounting firff m in order to
provision of such services does not impair their independence. The Audit Committee has adopted, and the Board has
, an Audit Committee Pre-Approval Policy, which is also available on our website.
as well as pre-appa
assure that thet
ratifiedff
Compensation Committeett
The Compensation Committee consists of Ms. Diaz (chairworr man) and Mr. Vasquez. The Board has determined that both
members of the Compensation Committee qualify aff
director” as definff ed in Rule 16b-3(b)(3) under the Exchange Act and as an “outside director” within the meaning of Section
162(m)(4)(C)(i) of thet
l Revenue Code of 1986, as amended (the “IRS Code”).
s “independent” directors as definff ed under the NYSE rules, as a “non-emplmm oyee
Internarr
The Compem nsation Committee operates under a written charter, a copy of which is availabla e on our website. Among other
things, thet Compensat
committee also administers our emplmm oyee benefit plans, including our equiq ty incentive and emplmm oyee stock purchase plans.
ion Committee establishes the compemm nsation and benefits of our executive officff ers. The compensa
mm
m
tion
ii
Nominat
intt g/n Co//
rporatett Governance Committee
ii
The Nominating/Corporate Governance Committee consists of Ms. Diaz Dennis (chairwoman) and Mr. Zevnik. Both members
of the Nominating/Corporate Governance Committee meet the independence requirements of the NYSE as currer ntly in effecff
t.
85
The Nominating/Corporate Governance Committee operates under a written charter, a copy of which is available on our
selecting new directors, establishing and monitoring procedures forff
website. Among other things, the Nominating/Corporate Governance Committee has the primary r
compamm ny’s corporate governance compliance practices, as well as supervising the affaiff
nomination of directors. The principal ongoing funff
criteria forff
by stockholders and others, considering and examining director candidates, recommending director nominations to the Board,
developing and recommending corporate governarr nce principles forff
those principles, and establishing and monitoring procedures for thet
There have not been any material changes to the pprocedures byy which stockholders mayy recommend director nominees to the Boardd
since last yyear’s annual stockholders’ m
’s complm iance with
the companym
receipt of stockholder communications directed to the Board.
ctions of the Nominating/Corporate Governance Committee include developing
the receipt and consideration of director nominations
rs of the compam ny as they relate to the
esponsibility for overseeing the
and monitoring the companym
eeting.
g
rr
The Nominating/Corporate Governance Committee is also responsible forff
conducting an annual evaluation of the Board to
determine whether the Board and its committees are functioning effectively, and reports annually to thet Board with the results of this
evaluation.
Code of Ethics
We maintain a corporate governance page on our corporate website at www.entravision.com, which includes information
regarding the company’s corporate governance practices. Our Corporate Governance Guidelines, Code of Business Conductd
Ethics, Code of Ethics for Chief Executive Officff er and Senior Financial Officers, Related Party Transaction Policy, Board committee
charters, Audit Committee Pre-Approval Policy and certain other corporate governance documents and policies are available on that
page of our website. Any changes to these documents and any waivers granted with respect to our code of ethics will be posted on our
website. In addition, we will provide a copy of any of these documents withot ut charge to any stockholder upon written request made
to Entravision Communimm cations Corporation, 2425 Olympic Boulevarda , Suite 6000 West, Santa Monica, California 90404, Attention:
Secretary. The information on our website is not, and shall not be deemed to be, a part of thit s Annual Report on Form 10-K or
incorporr
rated by reference into this or any other filing we make with the Securities and Exchange Commission (the “SEC”).
and
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requiq res our directors, executive officers and holders of more than 10% of a registered class
of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our Class A common
stock and our other equity securities. Directors, executive officff ers and greater than 10% stockholders are required by SEC regulation
to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us,
or written representation froff m certain reporting persons that
all reporting
requiq rements under Section 16(a) forff
the 2018 fisff cal year were met in a timely manner by our directors, executive officers and greater
than 10% beneficial owners.
t no Form 5s were required forff
those persons, we believe that
t
ITEM 11.
EXECUTIVE COMPENSATION
Committee,e Compensation Committee Interlockskk and Insiderdd Participation
The Compemm nsation Committee consists of Ms. Diaz (chairworr man) and Mr. Vasquez. The Board has determined that both
members of the Compensation Committee qualify aff
director” as definff ed in Rule 16b-3(b)(3) under the Exchange Act and as an “outside director” within the meaning of Section
162(m)(4)(C)(i) of thet
IRS Code. No membem r of thet Compensation Committee was at any time durid
the compam ny. None of our executive officer
ff
board of directors of another entity performing similar functions during 2018.
s served on the compem nsation committee of anothet
s “independent” directors as definff ed under the NYSE rules, as a “non-emplmm oyee
ng 2018 an offiff cer or emplmm oyee of
r entity or on any other committee of the
The Compem nsation Committee operates under a written charter, a copy of which is available on our website. Among other
things, thet Compensa
committee also administers our emplmm oyee benefit plans, including our equity incentive and emplmm oyee stock purchase plans.
tion Committee establishes the compemm nsation and benefits of our executive offiff cers. The compensa
mm
m
tion
86
The Compensation Committee has furnished the following Compensation Committee Report for the 2018 fiscal year. This
COMPENSATION COMMITTEE REPORT
Report does not constitute soliciting material and should not be deemed filed or incorporated by refee rence into anyn of our othett
under thett
ange Act,t except to the extent that we specificai
Securities Act or the ExchEE
rate thisii report by refere
lly incorpor
nce therein.
e
r filingsgg
The Compensation Committee has reviewed and discussed the Compem nsation Discussion and Analysis provided below (thet
“CD&A”) with management. In reliance on the reviews and discussions referrerr d to aboa ve, the Compensation Committee has
recommended to the Board, and the Board has appro
proxy statement for the fiscal year ended Decemberm 31, 2018 forff
ved, that the CD&A be included in this Annual Report on Form 10-K and our
filing with the SEC.
a
By the Compensm
ation Committee of the Board of Directors:
Martha Elena Diaz, Chair
Gilbert R. Vasquez
COMPENSATION DISCUSSION AND ANALYSIS
ii
Admidd nistra
tion of Compensation Program
The Compensation Committee of the Board of Directors (thet
“Committee”) has overall responsibility for evaluating and
ff
s, including the Chief Executive Officff
approving our executive compensation program. The Committee has the authority to review and determine the salaries and bonuses of
our executive officer
compensation policies for such individuals. The Committee also has the auta hority to administer and make discretionary equity
incentive grants to all of our employees under our 2004 Equity Incentive Plan (as amended, the “2004 Plan”), and previously had such
authority under our 2000 Omnibus Equity Incentive Plan (the “2000 Plan”). Typically, our Chief Executive Officer makes
compensation recommendations to the Committee with respect to our executive officff ers, in light of his role in the chief executive
function, his unique perspective on the strategic direction of our compamm ny and day-to-day operations and his extensive experience in
the Spanish-language media industry,
and the Committee may accept, adjust or reject such recommendations in its discretion.
er and the other Named Executive Officff ers, and to establish the general
dd
The Committee operates under a written charter. The dutd ies and responsibilities of a membem r of thet Committee are in addition to
his or her duties as a memberm of the Board. The charter reflects these various responsibilities, and the Committee is charged with
periodically reviewing the charter, which it does. The Committee’s membership is determined by the Board and is composem
d entirely
of independent directors as definff ed under NYSE listing standards. The Committee has the ability to establish and delegate authority to
a subcommittee. In addition, the Committee has the auta hority to engage the services of outside advisors, experts and othet
rs, including
independent compemm nsation consultants to assist the Committee. The Committee has engaged Frederic W. Cook & Co., Inc. (“Frederic
Cook”) as thet Committee’s outside compensation consultant to provide advice directly to the Committee as well as company
management in continuing to evaluate and develop our compenm sation policies and practices. The role of Frederic Cook is to provide
independent advice and expertise in executive compenm sation policies and practices. In connection with its engagement of Frederic
Cook, the Committee considered various factors regarding Frederic Cook’s independence including, but not limited to, the amount of
fees received by Frederic Cook from the company as a percentage of Frederic Cook’s total revenue, its policies and procedures
designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact Frederic Cook’s
independence. After reviewing these and other factors, the Committee determined that Frederic Cook was independent and that
engagement did not present any confliff cts of interest.
t its
87
In reviewing executive officer
ff
compensation, the Committee does not engage in specific benchmarking of executive officff er
compensation against compem titive market data or our peer group; however, the Committee reviews competitive market data from the
s well as other compamm rabla y-sized companmm ies, including those companies we have determined to be in our peer group,
media indusd try ar
in combim nation with an analysis of other
factors as described further below. For 2018, thet Compenm sation Committee determined that
our peer group cu
onsisted of the following companmm ies, each of which is a publicly-traded company forff which data is publicly available:
t
t
• Sinclair Broadcast Group, Inc.
• TEGNAGG
Inc.
• Radio One Inc.
• Cumulm us Media Inc.
• Entercom Communimm cations Corp.
• Gray Taa
elevision, Inc.
• The E. W. Scripps Company
• Nexstar Broadcasting Group, Inc.
• Spanish Broadcasting System Inc.
• Media General, Inc.
• Salem Media Group, Inc.
• Saga Communications Inc.
• Tribune Media
• Emmis Communications Corp.
• Beasley Broadcast Group Inc.
The Committee held three meetings and acted by written consent three times during 2018. The Board did not modify any action
or recommendation made by the Committee with respect to executive compensation forff
the 2018 fiscal year.
Objectives
b
and Philosophy
o
The Committee believes that our executive compem nsation policies and practices are designed to attract and retain qualified
executives, motivate and reward them for their performance as individuals and as a management team, and further align the interests
of our executives with the interests of our stockholders. We are engaged in a very compem titive industry, and our success depends
significantly upou n our ability to attract and retain qualified executives through competitive compem nsation packages offerff ed to such
individuals. In addition, thet Committee believes in rewarding executives’ performance in obtaining key operating objeb ctives, which,
among other things, includes earnings, in light of general economic conditions, as well as specific compm any, industry and competitive
conditions. The Committee also believes that
t our equity incentive compensation policies and practices should reward executives upon
their continued emplmm oyment with the compamm ny and thet
long-term price of our stock.
Our policy for allocating between long-term and current compensation is to ensure that
t
we provide adequate base salary,rr bonus
nce and furff
and equity incentive compensation to attract, retain and reward qualified executives for their services, while providing long-term
incentives to reward retention and to maximize long-term value forff
the companm y and our stockholders. Our policy is to provide cash
compensation in the form of base salary and bonuses to meet compemm titive salary requirements and, with respect to bonuses, to reward
performance. We provide non-cash equity incentive compem nsation to meet competitive equity compensation needs, promote retention,
reward perforff mar
evaluates total compensation and makes specific equity incentive compem nsation grants to Named Executive Officff ers in connection
with services provided to us in their capacity as emplm oyees and executive officff ers. The Committee believes executives should be
compensated for the services they performff
account existing equity holdings of any Named Executive Officer
ff
are compm etitive within our industry and in general, and are appa
compemm nsation.
without regard to existing equity holdings and typically the Committee does not take into
in making new grants. The Committee believes its overall policies
ropriate to fulfill our broad objectives with respect to executive
company’s stockholders. The Committee typically
ther align the interest of our executives with thet
The Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of
our executive officers. In 2018, the Committee considered management’s achievement of our short- and long-term goals in light of
general economic conditions as well as specific company, industry and compem titive conditions. The principal factors the Committee
took into account in evaluating each executive officer’s compensation package forff
the Committee has the discretion to appl
of our Named Executive Officff ers have entered into emplm oyment agreements with the compam ny and many componem
person’s compenmm sation, including both bt
respective terms.
the 2018 fiscal year are described below. However,
future years. Moreover, all
ase salary and bonus, are set by such agreements and not subject to modification during their
tors, or entirely different factors, forff
y only some or additional facff
nts of each such
a
We generally use substantially the same formff
Mr. Ulloa, to ensure that key elements of compenm sation and terms of emplm oyment for each of our executive officer
consistent. We generally enter into emplmm oyment agreements with our executive officers for a term of three years, which provides
consistency among our emplmm oyment agreements with ot
emplm oyment of our executive officers
both at meaningful period of time and flexff
ibility to evaluate the performance of the executive at the end of each such term.
ur executive officers,
of executive emplom yment agreement for each of our executive officers, other
s are materially
stability in thet
ff
ff
ff
t
than
, and
88
Typically, Mr. Ulloa, as our Chief Executive Officer, makes compenm sation recommendations to the Committee with respect to
our executive officers, and the Committee may accept, adjust or reject such recommendations in its discretion. Mr. Ulloa is a founder,
company, in addition to serving as our Chairman and Chief Executive Officer.
member of the Board and principal stockholder of thet
Our total compensation program forff
our executive officers consists of the folff
lowing key elements of compensation:
Base salary
Bonus
Equiq ty incentive compem nsation
Certain additional benefits and perquisites
Base Salary
It is our goal to provide a base salary forff
ment agreement provides that an executive officer’s base annual salary mr
our executive offiff cers that is sufficiently high to attract and retain a strong management
team and reflect the individual executive’s responsibilities, value to us, experience and past performance. Base salaries for each of our
executive officers are established pursuant to the terms of thet
employm
agreement, in the discretion of the Committee. Our standard executive emplom yment agreement also does not permit a material
reducd tion to be made to an executive’s then-current
executives of thet
competitive reasons, while providing us with flexibility in the event that the performance of the compam ny, or the performance of our
executive officers as a whole or other
base annual salary, unless such reductd
company. This provision is included to provide each executive with security with respect to their salary f
factors, warrants the reduction in base salary of all executive officers.
ir respective emplom yment agreements. Our standard executive
ion is applicable generally to other senior
ay be increased during the term of thet
employment
orff
r
rr
t
Effeff ctive January 2017, we entered into a new three-year employment agreement with Mr. Ulloa (the “2017 Ulloa Agreement”),
ff
r, and which agreement replaced a substantially
agreement that expired by its terms on Decemberm 31, 2016. As part of the Committee’s review and negotiation of
pursuant to which he continues to serve as our Chairman and Chief Executive Office
similar employment
mm
the 2017 Ulloa Agreement, the Committee evaluated various criteria, including our performance, the terms of the Mr. Ulloa’s prior
employm
ent agreement, the terms of executive employment agreements for chief executive officers at other compamm nies within our
m
industry and in general, compenm sation paid to Mr. Ulloa in past years and the significaff
compamm ny in response to general challenging economic conditions in the years following the global financial crisis that began in 2008,
including reductions in base salary of our emplm oyees, including Mr. Ulloa. The Committee consulted with Frederic Cook in evaluating
the compensation and terms of the 2017 Ulloa Agreement, and Frederic Cook advised the Committee on various aspects of chief
executive offiff cer compensation policies and practices, including such practices at other compam nies within our industry and in general,
without engaging in specific benchmarking. The Committee also consulted with outside legal counsel in drafting the 2017 Ulloa
Agreement. The 2017 Ulloa Agreement provides for an initial base salary of $1,250,000 per year and furth
base salary shall be reviewed at least annually prior to the anniversary of its effect
the Committee. In reviewing increases in the base salary, the 2017 Ulloa Agreement provides that
factors including, but not limited to, thet market for executives with skills and experience similar to those of Mr. Ulloa, performance
considerations, and the naturtt e anda
er provides that the initial
ive date and may be increased, in the discretion of
extent of salary increases given to other employees of the companmm y durd ing the prior year.
nt cost-saving measures undertaken by the
t the Committee shall consider
ff
ff
Effeff ctive January 2016, we entered into a new three-year emplmm oyment agreement with Mr. Young (the “2016 Young
Agreement”), pursuant to which he continued to serverr
as our Chief Financial Offiff cer and Treasurer, and which agreement replaced a
substantially similar employment agreement that expired by its terms on December 31, 2015. The 2016 Young Agreement provided
for an initial base salary orr
ors as considered by the Committee, in its sole
to the compam ny’s emplmm oyees and othet
discretion. The Committee relied substantially upon our Chief Executive Offiff cer to negotiate the material terms of the 2016 Young
Agreement, and the Committee considered fact
agreement; compemm titive considerations, including Mr. Young’s retention and incentive to enter into a new three-year employment
agreement with us; and a general comparim son of the base salaries of chief finff ancial offiff cers of other
engaging in specific benchmarking. The 2016 Young Agreement expired by its terms on Decemberm 31, 2018.
f $500,000 per year, which could be increased in connection with any increases in base compm ensation given
ff
ors including Mr. Young’s performance during the term of his prior employment
r senior executive officff ers, and such other fact
companies in our industry, without
ff
t
89
Effeff ctive January 2019, we entered into a new three-year emplmm oyment agreement with Mr. Young (the “2019 Young
as our Chief Financial Officer and Treasurer, and which agreement replaced the
u
an initial base salary of $551,565 per year commencing in 2019, which could be
Agreement”), pursuant to which he continues to serverr
2016 Young Agreement. The 2019 Young Agreement and the 2016 Young Agreement are substa
However, the 2019 Young Agreement provides forff
increased in connection with any increases in base compensation given to the companmm y’s employees and other senior executive
offiff cers, and such other factors as considered by the Committee, in its sole discretion. The Committee relied substantially upon our
Chief Executive Officer to negotiate the material terms of thet
including Mr. Young’s performance during the term of the 2016 Young Agreement; his experience in the indusd try arr
company; the responsibilities to be performed by Mr. Young during the term o
Mr. Young’s retention and incentive to enter into a new three-year emplm oyment agreement with us; and a general comparison of thet
base salaries of chief financial officers of other companies in our industd
2019 Young Agreement, and the Committee considered factors
f the agreement; compem titive considerations, including
ry, without engaging in specific benchmarking.
ntially similar to each other.
nd with the
r
ive March 2017, Mr. Liberman was appa ointed to serve as our President, as well as continuing to serve as our Chief
ff
Effect
Operating Officff
er. In connection with such appointment, we entered into a new three-year employment agreement with Mr. Liberman
(the “2017 Liberman Agreement”), pursuant to which he currently serves in the position of President and Chief Operating Officer, and
which agreement replaced a substantially similar employment agreement. However, the 2017 Liberman Agreement provides for an
initial base salary of $650,000 per year (compared to an initial base salary of $500,000 per year under his prior emplomm yment
agreement), which may be increased in connection with at
ation given to the companm y’s employees and
other senior executive officff ers, and such other factors as may be considered by the Committee. The Committee relied substantially
upon our Chief Executive Officff er to negotiate the material terms of the 2017 Liberman Agreement, and the Committee considered
factors including Mr. Liberman’s perforff mance during the term of his prior employment agreement and the additional duties and
responsibilities assumed by Mr. Liberman as President during the term of the 2017 Liberman Agreement; compemm titive considerations,
including Mr. Liberman’s retention and incentive to enter into a new three-year emplmm oyment agreement with us; and a general
compamm rison of the base salaries of chief operating officff ers of other compam nies in our industry, without engaging in specificff
benchmarking.
ny increases in base compensmm
Effeff ctive January 2016, we entered into a new three-year employment agreement with Mr. Carrer
rr
, 2019, and which agreement replaced a substantially similar
a, pursuant to which he served
as our Chief Revenue Officer until his resignation effective January 2rr
emplm oyment agreement that expired by its terms on December 31, 2015. The most current employment agreement with Mr. Carrera
t to increases in connection with any increases in base compensation
provided for an initial base salary of $500,000 per year, subjecb
given to the company’s emplm oyees and other senior executive officeff
rs, and such other factors as considered by thet Committee, in its
sole discretion. The Committee relied substantially upon our Chief Executive Officer to negotiate the material terms of this
emplom yment agreement with Mr. Carrera, and the Committee considered factors
of his prior employment agreement; compm etitive considerations, including Mr. Carrera’s retention and incentive to enter into a new
three-year employment agreement with us; and a general comparison
companies in
our indusd try, without engaging in specific benchmarking.
of the base salaries of executive officff ers of other
including Mr. Carrera
’s perforff mance during the term
m
ff
r
t
In January 2019, we granted an increase in base compensation of 3% to substantially all emplm oyees across the company,
excluding emplom yees who had been hired or had otherwise received an increase in base salary after July 1, 2018, which included
Messrs. Ulloa, Young, Liberman and Carrer
Executive Officers effect
ff
Young, $551,565; and (iv) Mr. Carrera, $541,059.
ive as of January 2019 were as follows: (i) Mr. Ulloa, $1,313,250; (ii) Mr. Liberman, $682,890; (iii) Mr.
ra. Following this increase in base compem nsation, the annual base salaries of our Named
Bonus
Similarly as discussed aboa ve with respect to base salary, the Committee believes that we should provide cash bonus
compensation to our executive officers that is sufficiently
individual executive’s responsibilities and service to the compam ny, value to the compamm ny, experience and past performance. Bonuses
granted to our executive officff ers are also established, in part, pursuant to the terms of their respective employm
high to attract and retain a strong management team and reflects the
ent agreements.
m
ff
Under the terms of the 2017 Ulloa Agreement, Mr. Ulloa is eligible to receive an annual cash bonus of upu to 100% of his then-
applicable base salary prr
ursuant to such factors, criteria or annual bonus plan(s) of the company, as determi
time to time. The Committee has the discretion to determine, on either a prospective or retrospective basis, the factors, criteria or
annual bonus plan(s), including performance goals which must be met, if any, forff
each applicabla e year of his employm
such annual cash bonus to be paid to Mr. Ulloa forff
ned by the Committee from
ent agreement.
m
r
90
Bonuses forff
executive officff ers are recommended by our Chief Executive Officff er and reviewed and appa
roved by the Committee,
2016 Young Agreement and the 2019 Young Agreement, Mr. Young was and is eligible to receive an
in its sole discretion. Under thet
annual bonus of up to 100% of his then-appa
emplm oyment agreement, Mr. Carrera is eligible to receive an annuan l bonus of up to 50% of his thet n-applicable base salary,rr
discretion of the Committee. Under the 2017 Liberman Agreement, Mr. Liberman is eligible to receive an annual bonus of up to 100%
of his thet n-applicable base salary, in the sole discretion of the Committee..
sole discretion of the Committee. Under the terms of his
licable base salary in thet
in the sole
As a result of our expanding business operations and geographi
a
cal scope, including those related to the acquisition of our
Headway digital business, we experienced unexpected delays in our complmm etion of thet
ended Decembem r 31, 2018. That, in turn, delayed the Committee’s review of fiscal year results and making bonus decisions for 2018.
Since we have now complmm eted the audit, the Committee intends to meet to review and approve bonuses forff
officers as soon as practicable.
audit of our finff ancial statements forff
2018 to our executive
the year
Equity Incentive Compensationtt
The Committee believes in linking long-term incentives to stock ownership. The Committee believes that the incentive of futff urt e
stock ownership encourages emplm oyees to remain emplmm oyed by the compam ny and motivates them to use their best effoff
In addition, the Committee believes that equity incentive compem nsation furff
executive officers and employees with those of our stockholk
replaced the 2000 Plan, and the 2004 Plan is our primary vehicle forff
offiff cers and other emplmm oyees. In 2014, our stockhok lders appa
May 2024. The 2004 Plan is administered by the Committee, which determines the type and amount of grants, vesting requiq rements
and other feff atures and conditions of equity incentive compemm nsation awards, including whether to waive performance conditions or
other vesting requirements of any award or to reducedd
eligible to receive grants of stock options, restricted stock or other equiq ty incentive grants under thet
equity incentive awards to our executive officff ers and other
ownership guidelines applicable to our executive officff ers.
or increase the size of any award. Each of our Named Executive Officers is
ders. In May 2004, our stockholders adopted the 2004 Plan, which
key employees on an annual basis. We do not have specific stock
roved an amendment to the 2004 Plan to extend the term of the plan until
ther enhances the alignment of the interests of our
offering equity incentive compensation to our directors, executive
2004 Plan. We typically grant
rts at all times.
t
We do not use any pre-determined formulm a in determining thet
amount of equity incentive grants that are granted to executive
offiff cers. We base the amount of equity incentive grants on such considerations as the level of experience and individual performance
of such executive officff er, the numberm of stock options or restricted stock units granted to such executive officer in previous grants, and
general competitive considerations, including retention of each executive officer. The Committee relies substantially on our Chief
Executive Officer to make specific recommendations regarding which individuals, including our Named Executive Officff ers, should
receive equity incentive grants and the amounts of such grants, in recognition of the fact
position to evaluate which individuals are most likely to be motivated by such incentive compem nsation, and are most valuable to our
performance and entitled to be rewarded, by such incentive compem nsation. The Committee believes that executives should be
compensated for the services that they perfoff rm without regard to existing equity holdings, and typiy cally does not take into account
existing equity holdings of anya Named Executive Officer.
that our Chief Executive Officer is in the best
ff
As part of the Committee’s ongoing review and evaluation of equity incentive compemm nsation, during 2017 the Committee
s of equity incentive grantaa s
reviewed our objectives regarding equity incentive compensation and the effeff ctiveness of various formff
with respect to these objeb ctives. The Committee consulted with Frederic Cook, which prepared a report forff
that compam red our equity incentive compensation practices to a peer group of comparably-sized media compam nies and advised the
Committee on various aspects of equity compenm sation policies and practices, including, among other
grants, appropriate vesting criteria and the equity incentive compem nsation policies and practices of other
t
generally. The Committee also sought the input
should receive equity incentive grants, appa
equity incentive grants. The Committee considered facff
to equiq ty incentive compemm nsation; (ii) general economic and specific industrytt
and perforff mance of the companymm
of vesting components, including time-based vesting and performance-based vesting; (vi) the appa
time-based vesting componmm ents; (vii) aggregate share usage; and (viii) the regulatory,rr
equity incentive awards, including the effecff
the Financial Accounting Standards Board. Following its review, the Committee determined that restricted stock units using time-
the 2018 calendar year.
based vesting criteria were an effect
tors including, among other things: (i) the Committee’s objeb ctives with respect
conditions experienced by the company; (iii) the efforts
of equity incentive awards; (v) various forms
n
ropriate vesting criteria and the regulatory, tax and accounting effects of various forms of
compam nies in our indusd try and
of our Chief Executive Officer with respect to the appropriate pool of employees who
ts of Accounting Standards Codificff ation (“ASC”) 718, “Stock Compem nsation” issued by
ive means of meeting our equity incentive compemm nsation objectives forff
’s executive offiff cers and emplm oyees; (iv) various typesy
tax and accounting treatment of various types of
ropriate length and freff quency of
things, types of equity incentive
the Committee’s review
ff
ff
t
91
In Decemberm 2018, the Committee granted a total of 1,000,750 restrict
t
ed stock units to our executive officff ers and other key
emplm oyees, with 498,750, or 50%, of such amount being granted to our Named Executive Officers. These restricted stock units were
awarded under the 2004 Plan, and each restricted stock unit entitles the recipient to receive one share of our Class A common stock for
each restricted stock unit when thet
on Decembem r 31, 2018; (ii) 25% on Decemberm 31, 2019; (iii) 25% on December 31, 2020; and (iv) 25% on Decemberm 31, 2021; in
each case, provided that the recipient is emplom yed by us on such date.
e vesting requirements are satisfied. These restricted stock units vest as follows: (i) 25%
a
applicabl
Benefitsff
and Perquisitestt
to all of our emplm oyees. Exceptions include a monthly auta omobile allowance provided to certain
With limited exceptions, the benefits and perquisites provided to our executive officff ers, including our Named Executive
ers, are generally availablea
Officff
executives, including our Named Executive Officff ers, and the cost of life insurance premiums forff
Executive Officff ers. In addition, we provide, without cost to employees, a travel accident insurance policy that provides a travel
accident benefit to all employees
portion of thet
Officers, we pay aa
greater amount or all of the health insurance premiums than the amount that we pay forff
non-executives. We also generally pay a
, including our Named Executive
ff
health insurance premiums for our emplmm oyees, and for certain executive officers
, with a greater accident benefit for executives than forff
emplm oyees in general.
the benefitff of certain of our Named
mm
Change in Control
Pursuant to our standard executive employment agreement, should there be a change in control of the company, including a
tt
of the compam ny where the executive officff er is not offeff
change of control
to move his residence outside of the metropolitan area provided in his thet n-current emplm oyment agreement, the executive officer will
be entitled to receive all accruedr
t has been approved
by the Committee and a severance payment equal to one year of his then-
salary and benefits through the date of termination, any discretionary bonus that
red continued emplmm oyment as a senior executive or is required
current base salary.rr
t
The current employment agreements forff
each of our Named Executive Officers provide forff
this type of severance compmm ensation,
except as described as follows:
the three years preceding such termination; and (iii) continuation of all benefit coverage (or
With respect to Mr. Ulloa, if, following a change in control of the company, Mr. Ulloa’s emplm oyment is terminated by us
without cause, or is terminated by him for good reason (as each such term is defined in his emplmm oyment agreement), he
would be entitled to receive: (i) all accruerr d salary and bonuses through the date of termination; (ii) a lump sm um severance
payment in an amount equaq l to the sum of (x) three times his then-current base salary, plus (y) three times his average
annual bonus forff
reimbursement forff
termination. In addition, upon any termination described above, there would be (i) immediate vesting of, and the lapse of
all restrictions applicable to, all unvested stock options and any other
passage of time granted to Mr. Ulloa and outstanding immediately prior to the such termination; and (ii) vesting of any
performance based equiq ty incentives awarded to Mr. Ulloa and outstanding immediately prior to the such termination,
such vesting to occur in accordance with the terms of the applicable award agreements and plans determined as if Mr.
Ulloa’s emplm oyment with the Companymm
expenses incurred in collection with such benefitff coverage) for a period of two years after such
equiq ty incentives that vest solely based on the
had not terminated.
t
92
mm
companymm
good reason (as
through the date of termination, as well
t agreement), including a change of control of thet
With respect to Mr. Young, if his emplm oyment is terminated by us without cause or by Mr. Young forff
each such term is defined in Mr. Young’s employmen
Mr. Young, Mr. Young would be entitled to receive all accrued salary and benefitsff
as a severance payment (the “Severance Payment”) equal to (i) Mr. Young’s then-currer nt base salary,r plus (ii) a prorated
bonus amount equal to the producd t of: (x) thet
average annual bonuses received by Mr. Young for the two years preceding
the year of such termination, multiplied by (y) a fract
ff
termination in the then-currerr nt calendar year, and the denominator of which is 365. In addition, after
to move the principal location at which his job duties will be based outside the greater Los Angeles, Califorff nir a area in
control
tt
acquiring entity or the compam ny terminates his employment at any time during the remainder of the term o
for any reason other than forff
termination; (ii) the Severance Payment; (iii) immediate vesting of, and lapse of all restrictions applicable to, all unvested
and outstanding time-based equity incentive grants; and (iv) vesting of all unvested and outstanding performance-based
equity incentive grants, at such time and in the event that
the terms of appa
a
lapse
performance-based criteria have been met under
licable award agreements as if Mr. Young had not terminated employment with the company and with the
cause, he will be entitled to receive: (i) all accrued salary and benefits through the date of
d continued emplmm oyment as chief financial officer of the surviving or
of all restrictions applicable to vesting based on the passage of time.
ion, the numerator of which is the numbem r of days preceding such
, if Mr. Young is not offere
a change is required
f the agreement
of the companymm
any applicable
where
a
ff
ff
r
t
With respect to Mr. Liberman, instead of receiving a severance payment equal to one year of his then-current base salary,rr
he would be entitled to receive a severance payment equal to (i) one year of his then-current base salary, multiplied by (ii)
1.5.
Director Compensation
For directors who are also emplmm oyees of the compam ny, we do not provide additional compemm nsation and such individuals are
e of the companymm
compem nsated only for thei
adequately compemm nsated for all of their responsibilities, including servirr ce as a director, thrt ough their compensat
, as the Committee believes that emplm oyee directors are
mm
r service as an officer or employe
ion as employees.
mm
t
Prior to May 31, 2018, directors of the companym
who are not officeff
rs or emplm oyees of the compam ny were compensated for thet
ff
tive as of thet
ows: (i) an annual grant of restricted stock units under the 2004 Plan with a grantaa
services as foll
to be made effecff
cash retainer ($12,000 forff
Nominating/Governance Committee Chair); (iii) $1,250 for attendance at a Board meeting in person ($500 if telephonically); and (iv)
$1,000 for attendance at a committee meeting in person ($500 if telephonically).
date of the annual stockholder meeting; (ii) $60,000 per year, and forff
the Compem nsation Committee Chair and $7,000 for the
the Audit Committee Chair, $7,000 forff
ir
date value of $70,000, with the grant
committee chairs, an additional
As part of the Committee’s ongoing review of director compensm
ation, during 2018 the Committee consulted with Frederic Cook,
which advised the Committee on various aspects of director equiq ty compensation policies and practices. The Committee also sought
the inputn
of our Chairman and Chief Executive Officer, who, as an officer of the compam ny, was not entitled to receive any
compemm nsation for his services as a director, with respect to the implementation of director equiq ty incentive compensat
Committee also considered thet
ts of various forms of equity incentive grants.
regulatory, tax and accounting effecff
ion. The
m
The Committee completed its review of director compem nsation in April 2018, and recommended that the Board adopt a new
director compensation policy as an effective means of meeting the companm y’s director compensation objeb ctives. At a meeting of the
Board on May 31, 2018, thet Board reviewed the Committee’s recommendation and adopted the new director compensat
ion policy as
recommended by the Committee. Effect
are compensated for their services as follows: (i) an annual grant of restritt cted stock units under the 2004 Plan that has a grant date
value of $80,000, with the grant to be made effective as of the date of the annual stockholder meeting; (ii) $65,000 per year, and for
committee chairs, an additional cash retainer ($15,000 for thet Audit Committee Chair, $10,000 forff
Chair and $10,000 for thet Nominating/Governance Committee Chair); (iii) $1,250 for attendance at a Board meeting in person ($500
if telephonically); and (iv) $1,000 for attendance at a committee meeting in person ($500 if telephonically).
ive May 31, 2018, directors of the company who are not officers or emplm oyees of the company
ation Committee
the Compensm
m
ff
At the Board’s meeting on May 3a
1, 2018, in accordance with the compamm ny’s new director compensmm
ation policy, the Board as a
whole granted 20,000 restricted stock units to each non-emplm oyee director for calendar year 2018. The restricted stock units vest on
the earlier of (a) the first anniversary of the grant date or (b) the business day ia mmediately preceding the date of thet
meeting of stockholders, provided that the recipient is a membem r of thet Board on such date. The underlying shares of Class A common
stock relating to such restricted stock units shall be distributed to each such director at the time of termination of such director’s
service with the companym
purposes of charitable giving.
, other than with regard to Mr. Zevnik, who elected to receive such underlying shares uponu
vesting for the
2019 annual
93
Tax Accounting and Treatment
Deductibiii
litii ytt of Executive Compensationtt
Section 162(m) of the Internarr
l Revenue Code disallows a tax deducdd tion to publu icly-held companies for compem nsation paid to
ff
rs (not including the chief financial officer for fiscal year 2018), to the extent that compensation
certain of their executive office
exceeds $1 million per covered officer in any fisff cal year. The limitation appa
perforff mance based. Non-performance based compem nsation paid to our covered offiff cers for the 2018 fiscff
million limit for each of Messrs. Ulloa and Liberman. The Committee anticipates that such compensation will continue to exceed the
$1 million limit for each of Messrs. Ulloa and Liberman in 2019. Going forward, the Committee may consider the limitations of
Section 162(m) and the benefit to us of the fulff
l deductibility of compem nsation together with maintaining flexff
executive performance and compensating our executive officers in a manner that can best promote our corporr
Committee believes that the impact of such limitation was not material to us with respect to fiscal year 2018 and will not be material
to us with r
lies only to compem nsation which is not considered to be
ibility in assessing
rate objectives. The
espect to fiscal year 2019.
al year exceeded the $1
t
Accountintt gn for Stoctt k-Based Compensatiott n
Beginning January 1, 2006, we began accounting for stock-based payments, including awards granted under the 2004 Plan, in
ation regarding ASC 718, please refer to Note 2, “Summary of
accordance with the requirements of ASC 718. For additional informff
Significant Accounting Policies” in thet Notes to Consolidated Financial Statements included in this annual Report on Form 10-K.
Summary Compensation Table for Fiscal Year 2018, 2017 and 2016
Name and Principal Position
Walter F. Ulloa,
Chief Executive Offiff cer
Christopher T. Young,
Chief Financial Officer
Jeffeff
ry A. Liberman,
Chief Operating Officer
Mario M. Carrera,
Chief Revenue Offiff cer
Salary ($)
Year
2018 $ 1,275,000 $
2017 $ 1,250,000 $
2016 $ 1,060,896 $
525,300 $
2018 $
515,000 $
2017 $
500,000 $
2016 $
663,000 $
2018 $
627,500 $
2017 $
500,000 $
2016 $
525,300 $
2018 $
2017 $
515,000 $
2016 $
500,000 $
Stock
Awards
($) (2)
Option
Awards
($) (2)
Non-Equity
Incentive Plan
Compensation
($)
Bonus ($) (1)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
320,000
280,000
$
—— (3) $ 1,085,000
$ 2,590,000
$
$ 3,375,000 (4) $
$
170,500
$
407,000
540,000 (4) $
$
248,000
592,000
$
540,000 (4) $
$
42,625
$
407,000
—— (3) $
$
$
—— (3) $
$
$
— (3) $
$
245,000
180,000
290,000
225,000
245,000
180,000
$
540,000 (4) $
—— $
—— $
—— $
—— $
—— $
— $
—— $
—— $
—— $
— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
— $
—— $
—— $
—— $
— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
— $
—— $
—— $
—— $
— $
—— $
—— $
35,308 (5) $ 2,395,308
35,308 (5) $ 4,195,308
35,308 (5) $ 4,751,204
24,158 (6) $
719,958
24,158 (6) $ 1,191,158
24,158 (6) $ 1,244,158
24,720 (7) $
935,720
24,720 (7) $ 1,534,220
24,720 (7) $ 1,289,720
635,621
67,696 (8) $
66,400 (8) $ 1,233,400
66,400 (8) $ 1,286,400
ff
(1)
(2)
ent agreements, as described in the CD&A.
Bonus amounts awarded to each Named Executive Officer were based on the satisfaction of factors set forth in their respective
m
employm
For a discussion of the assumptm ions used in the valuation of awards (estimated forfeitures are not considered for purpos
these computations and thet
to the Consolidated Financial Statements included in our Annual Report on Form 10-K, as filed with the SEC on March 30,
2018.
Bonus not yet granted for fisca
(3)
(4) Amounts include the grant date faiff
full fair value is recognized in the year of grant), see Note 16 "Equity Incentive Plans" in the Notes
l year 2018. See “Bonus” under “Compensation Discussion and Analysis” above.
r value of performance-based restricted stock units (“PSUs”), as discussed in the CD&A. The
t the target level of performance is achieved, which may not be the case. The
grant date faiff
PSUs granted in 2016 were not earner d and are deemed to have been expired in full on March 15, 2018.
For each of 2018, 2017 and 2016, includes $24,000 as an automobile allowance and $11,308 for medical insurance premiums.
For each of 2018, 2017 and 2016, includes $12,000 as an automobile allowance, $11,308 for medical insurance premiums and
$850 for life i
For each of 2018, 2017 and 2016, includes $12,000 as an automobile allowance, $11,308 for medical insurance premiums and
$1,412 forff
For 2018, includes $12,000 as an automobile allowance, $11,308 for medical insurance premiums and $44,388 for housing
costs. For each of 2017 and 2016, includes $12,000 as an automobile allowance, $11,308 for medical insurance premiums and
$43,092 forff
r value is based on the assumptm ion that
ff nsurance premiums.
ff nsurance premiums.
(5)
(6)
(7)
(8)
housing costs.
es of
life i
r
94
In August 2015, pursuant to a mandate under the Dodd-Frank Wall Street Reforff m and Consumer Protection Act, thet
SEC
Pay Ratio Disclosure
adopted a rulr e requiring annual disclosure of the ratio of the median employee’s annual total compensat
compemm nsation of the chief executive officff er. Registrants were obligated to comply with the pay ratio rule forff
beginning on or after January 1, 2017.
mm
ion to thet
total annual
the firsff
t fisff cal year
In order to determine the median emplm oyee, we prepared a list of all employees as of Decemberm 31, 2018. As permitted by SEC
rules, forff
Israel, the United Kingdom and Urugr uay, comprimm sing 3.2% of our total emplm oyees.
ses of preparing this list forff
purpor
fisff cal 2018 we excluded 40 emplmm oyees located in Brazil, Chile, Colombia,m
Costa Rica,
As a result of these permitted exclusions, we had a total of 1,215 emplomm yees on this list as of Decembem r 31, 2018.
We identified the median emplmm oyee by examining the 2018 total cash compensation for all such individuals on this list,
excluding our chief executive offiff cer, who were employed by us on Decembem r 31, 2018 (whether employed on a fulff
or seasonal basis). For such emplm oyees, we did not make any assumptions, adjud stments or estimates with respect to total cash
compenm sation, and we did not annualize the compemm nsation forff
l-time employees that were not employed by us for all of 2018.
any fulff
We applied a U.S. dollar exchange rate to the compensation elements paid to our emplm oyees in currencies other than the U.S. dollar.
l-time, part-time
Using reasonable estimates in accordance with SEC rulrr es, we determined the compenm sation of our median emplmm oyee by: (i)
calculating the annual total compensat
compem nsation of all non-excluded employees, except for the chief executive officer,
even numberm of emplm oyees when not considering our chief executive officff
of the two employees who were the 607th and 608th persons on that ranking (the “Median Emplom yee”).
mm
ff
from highest to lowest; and (iii) since we have an
er, determining the average of the annual total compem nsation
ion described aboa ve for each of our non-excluded employees; (ii) ranking the annual total
ff
After
identifying the Median Employee,
m
we calculated annual total compensation for both emplmm oyees using the same
methodology we use for our named executive officff ers as set forff
2016” above, and then we calculated the average annual total compensation of those two emplmm oyees.
th in “Summary Compensation Table for Fiscal Year 2018, 2017 and
As a result of thet
foregoing, the annual total compensation forff
fiscal year 2018 for our chief executive officer
ff
was $2,395,308
the Median Emplm oyee it was $37,918.96, resulting in a ratio of 63.2 to 1. Given thet
and forff
compamm nies are using to determine an estimate of their pay ratio, thet
compam rison between
companim
es.
tt
estimated ratio reported above should not be used as a basis forff
differff ent methodologies that various public
95
Grants of Plan-Based Awards During 2018
Name
Walter F. Ulloa
Christopher T.
Young
Jefferyff
A.
Liberman
Mario M.
Carrera
Grant
Date
12/21/18
12/21/18
12/21/18
12/21/18
Number of
Non-Equity
Incentive Plan
Units Granted
(#)
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Maximum
Target
Threshold
($)
($)
($)
—— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
—— $
Estimated Future Payouts Under
Equity Incentive Plan Awards (1)
Target
(#)
350,000
Maximum
(#)
350,000
Threshold
(#)
—— 350,000
——
——
——
55,000
55,000
55,000
80,000
80,000
80,000
13,750
13,750
13,750
——
——
——
——
All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(#)
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price
of Option
Awards
($ / Sh)
Grant Date
Fair Value
of Stock and
Option Awards
3.10
—— $
3.10 $
—— $
3.10 $
—— $
3.10 $
—— $
3.10 $
3.10
3.10
3.10
(1) Represents restricted stock unit awards which vest as folff
lows: (i) 25.0% on December 31, 2018, provided the recipient is
emplm oyed by the compam ny on such date; (ii) 25.0% on December 31, 2019, provided thet
on such date; (iii) 25.0% on December 31, 2020, provided the recipient is emplmm oyed by the company on such date; and (iv)
25.0% on December 31, 2021, provided thet
recipient is emplm oyed by the companym
recipient is emplm oyed by the companymm
on such date.
Emplm oyll ment Agreementstt
Agreement with Walter F.FF Ulloa. Effective January 1, 2017, we entered into the 2017 Ulloa Agreement, pursuant to which he
ment agreement with Mr. Ulloa, which agreement was effect
continues to serve as our Chairman and Chief Executive Officff er. The 2017 Ulloa Agreement replaces a substantially similar
employm
Ulloa Agreement is forff
base salary of $1,250,000 per year. Mr. Ulloa’s salary shall be reviewed at least annually by the Compemm nsation Committee and, in that
committee’s discretion, the base salary mrr
salary is currently $1,313,250.
ive as of January 1, 2014 through December 31, 2016. The 2017
a term that commenced on January 1, 2017 and terminates on Decembem r 31, 2019, and provides for an initial
ay be increased in subsequent years of the term of the agreement. Mr. Ulloa’s annual base
ff
Mr. Ulloa is eligible to receive an annual bonus of up to 100% of his then-applicable base salary pursuant to such factors,
criteria or annual bonus plan(s) of thet
eligible to receive grants of stock options, restricted stock and other grants under thet
same terms as the compam ny’s other executive officff ers.
company as determined by the Compensation Committee from time to time. Mr. Ulloa is also
2004 Plan, or any successor plan thereto, on the
years after such termination; (iv) immediate vesting of, and the lapse of all restritt ctions applicable to, all unvu ested stock
tt ncentives that vest solely based on the passage of time granted to such him and outstanding immediately
performance based equity incentives awarded to him and outstanding immem diately
ation; (ii) a lump smm um severance
aa
nation without cause, Mr. Ulloa will be
payment in an aa mount
-current base salary mrr
ulmm tiplied by a fracff
the denominator of which is 12; (iii) ana
years preceding such
t
tion,
times his average annual bonus for the three
expenses incurred in collection with such benefitff coverage)
r
r
n
nda
numbu
or (y) thett
er of monthstt
remaining in thett
bonuses through the date of termin
nated by us without cause or is a construtt ctive termi
greater of (x) two times his then-current base salarya
r
amount of his thentt
term of the agreement andaa
ent in an aa mount equal to twott
on of all benefit coverage (or reimbum rsu ement forff
If Mr. Ulloa’s emplmm oyment is termi
entitled to receive: (i) all accrued salary arr
equqq al to thet
the numn
erator of which is thett
additional lump sum severance paymaa
termination; (iv) continuati
for a period of twott
options and any othett
r equity i
prior to the such termination; and (v) vesting of anyaa
prior to the such termi
determi
r
contrott
the amounts specified in the first
sentence, Mr. Ulloa shall be entitled to receive a lump sm um severance payment in an amount equal to three
current base salary, anda
severance payment in an aa mount equqq al to thrt ee times his aveaa
Ulloa’s emplmm oyment is termi
accruedrr
t
annual bonus for the two yearsa preceding such termination multiplied by (y) a fraction,
preceding the termi
ned as if such Mr. Ulloa’s emplmm oyment with t
company or is initiated by Mr. Ulloa forff
l of thett
nation date in the then-current calendar year and the denominator of which is 365.
tt hett
ad not terminated. If a termi
sentence of this paragraph; provided, however, that
the date of termination and (ii) a prorated bonusnn
r
and bonuses through
nation, such vesting to occur in accordancaa
of their appl
r
nated by the companymm
the numnn
e with t
salarya
tt hett
termsr
aa
ff
ff
r
r
t
tt
in lieu of the amount specified in clause (iii) of such sentence, Mr. Ulloa shall be entitled to receive a lump smm um
If Mr.
for cause, all payments under Mr. Ulloa’s agreement shall cease, except for (i) all
rage annual bonus for the three years preceding such termination.
aa
in an amount equal to the product of (x) his average
erator of which is the numn
berm of daysaa
company hn
of
good reason, as specified in the agreement, Mr. Ulloa shall be entitled to receive
nation without cause follows a change
aa
icable award agreements and plans
in lieu of the amount specified in clausaa e (ii) of such
times the sum of his then-
tt
96
m
The employm
ent agreements that we have entered into with our other Named Executive Officers are substantially similar to
each other and are summarized below.
Agreement withtt Christii opher T. Young. Effeff ctive January 1, 2019, we entered into the 2019 Young Agreement, pursuant to
as our Chief Financial Officff er and Treasurer. The agreement replaces the similar 2016 Young Agreement,
which he continues to serverr
which agreement was effecff
tive as of January 1, 2016 through December 31, 2018. The 2019 Young Agreement provides for an initial
base salary of $551,565 per year, which may be increased in the discretion of the Compensation Committee. The agreement with Mr.
Young expires on December 31, 2021. Mr. Young’s annual base salary is currently $551,565.
Mr. Young is eligible to receive an aa
nnual bonus, in the discretion of the Compensation Committee, of up to 100% of his then-
applicable base salary. Mr. Young is also eligible to receive equity incentive grants under the 2004 Plan, or any successor plan thereto,
in the discretion of the Compenmm sation Committee.
where Mr. Young is required to move the
or by Mr. Young forff
companym
good reason (as each such term is definff ed in
If Mr. Young’s employment is terminated by us without causeaa
Mr. Young’s employment agreement), including a change of control of thet
principal location at which his job duties will be based outside the greater Los Angeles, Califorff nir a area, Mr. Young would be entitled
to receive all accrued salary and benefitsff
through the date of termination, as well as a severance payment (the “Severance Payment”)
equal to (i) Mr. Young’s then-currerr nt base salary, plus (ii) a prorated bonus amount equaq l to the product of: (ff x) the average annual
bonuses received by Mr. Young for the two years preceding the year of such termination, multiplied by (y) a fraction,
which is the numberm of days preceding such termination in the thet n-current calendar year, and the denominator of which is 365. In
addition, after a change in control of the compamm ny, if Mr. Young is not offeff
surviving or acquiring entity or the company terminates his employment at any time during thet
for any reason other than forff
cause, he will be entitled to receive: (i) all accrued salary and benefits through the date of termination;
(ii) the Severance Payment; (iii) immediate vesting of, and lapse of all restrictions applicable to, all unvested and outstanding time-
based equity incentive grants; and (iv) vesting of all unvested and outstanding perforff mance-based equiq ty incentive grants, at such time
and in the event that any applicable performance-based criteria have been met under thet
Mr. Young had not terminated emplm oyment with the companm y and with thet
passage of time. If Mr. Young’s emplm oyment is terminated by us for causea
be entitled to receive only any accrued salary and benefits through the date of termination, and shall be ineligible for any bonus.
lapse of all restrictions applicable to vesting based on the
s defined in the agreement), Mr. Young will
(as such term i
red continued emplmm oyment as chief financial officer of the
remainder of the term of the agreement
icable award agreements as if
the numerator of
terms of appl
a
ff
r
Agreement with Jefferyff
A. Liberman. Effecff
tive March 1, 2017, we entered into the current emplm oyment agreement with
ment agreement with Mr. Liberman, which agreement was effeff ctive as of January 1rr
Mr. Liberman, pursuant to which he serverr
employm
provides for an initial base salary of $650,000 per year, which may be increased in the discretion of the Compensation Committee.
The agreement with Mr. Liberman expires on Februar
s as our President and Chief Operating Offiff cer. The agreement replaces a similar
ry 29, 2020. Mr. Liberman’s annual base salary is currently $682,890.
, 2016. The agreement with Mr. Liberman
Mr. Liberman is eligible to receive an annual bonus, in thet
discretion of the Compensation Committee, of up to 100% of his
then-applicable base salary. Mr. Liberman is also eligible to receive equity incentive grants under the 2004 Plan, or any successor plan
thereto, in the discretion of the Compensation Committee.
If Mr. Liberman’s employment is terminated by us without cause or by Mr. Liberman forff
good reason, including a change of
red continuenn d employment as a senior executive or is requiq red to move his
of the companym
where Mr. Liberman is not offeff
control
tt
residence outside the greater Los Angeles, Califorff nir a area, he will be entitled to receive: (i) all accrued salary arr
date of termination, (ii) any discretionary bonus that is approved by the Compensmm
to one year of his then-currr ent base salary multiplied by 1.5, payablea
payments. Mr. Liberman’s receipt of this
severance payment is conditioned upou n his execution of a customary form of release whereby he waives all claims arising out of his
emplmm oyment and termination of employment. If Mr. Liberman’s emplmm oyment is terminated by us forff
cause, he will only be entitled to
receive accrued salary and benefitsff
nd benefits through the
ation Committee and (iii) a severance payment equal
through the date of termination and shall be ineligible for any bonus.
in 12 equal monthlyt
97
Agreement withtt Mario M. Carrera. Effeff ctive January 1, 2016, we entered into an emplm oyment agreement with Mr. Carrerr
pursuant to which he served as our Chief Revenue Officer until his resignation effecff
similar emplm oyment agreement with Mr. Carrera,
January 1r
to increase in the discretion of the Compensation Committee. The agreement with Mr. Carrera expired on December 31, 2018. Mr.
Carrera’s annual base salary at the time of his resignation was $541,059.
which agreement was effeff ctive as of September 1, 2012 and amended effective
, 2015 and August 31, 2015. The agreement with Mr. Carrera
as of
ff
f $500,000 per year, subject
an initial base salary orr
provided forff
r
rr
ra,
tive January 2, 2019. The agreement replaced a
Mr. Carrera
r
was eligible to receive an annual bonus, in thet
discretion of the Compensation Committee, of up to 50% of his then-
applicable base salary. Mr. Carrera was also eligible to receive equity incentive grants under the 2004 Plan, or any successor plan
thereto, in the discretion of the Compensation Committee.
If Mr. Carrera’s employment had been terminated by us without cause or by Mr. Carrera forff
good reason, including a change of
of the companym
where Mr. Carrera was not offeff
nd benefitff s through the date of termination, (ii) any discretionary bonus that
red continuen d employment as a senior executive or was required to move his
control
tt
residence outside the greater Denver, Colorado or Los Angeles, Califorff niar metropolitan areas, he would have been entitled to receive:
(i) all accrued salary ar
ion
t was approved by the Compensat
Committee and (iii) a severance payment equal to one year of his then-currer nt base salary,rr payable in 12 equal monthlt y payments.
Mr. Carrera’s receipt of this severance payment would have been conditioned upu on his execution of a customary form of release
whereby he waived all claims arising out of his emplm oyment and termination of employment. If Mr. Carrera’s emplm oyment had been
terminated by us for cause, he would have only be entitled to receive accruedrr
salary and benefits through the date of termination and
shall be ineligible for any bonus.
mm
company until April 2, 2019. The Separation Agreement provided that Mr. Carrera was entitled to receive: (i) a
On January 4, 2019, we entered into a Separation and Services Agreement with Mr. Carrera (the “Separation Agreement”) in
Separation Agreement, Mr. Carrera served as a
connection with Mr. Carrera’s resignation as Chief Revenue Officff er. Pursuant to thet
consultant to thet
discretionary bonus forff
calendar year 2018 in an amount to be determined in the discretion of thet Company and the Compensation
Committee of the Compam ny’s Board of Directors, and consistent with the terms of Mr. Carrera’s previously-existing employment
agreement with the Companmm y; (ii) the vesting of 37,500 restricted stock units previously granted to Mr. Carrera; (iii) payments in an
aggregate amount equaq l to $131,325, payable in three equal monthlt y installments; (iv) payment by the Company of the costs of
COBRA benefits for which Mr. Carrera is eligible through December 31, 2019; and (v) reimbursement of reasonable relocation
expenses in an amount up tu
general release and agreed to certain confidff entiality, non-solicitation, non-competition and other covenants.
o $8,000. In addition, pursuant to the Separation Agreement, Mr. Carrera provided the Compam ny with a
Equity Awardsdd
On Decemberm 10, 2018, we granted restricted stock units to each of our Named Executive Offiff cers. The restricted stock units
were awarded under the 2004 Plan, and each unit entitles the recipient to receive one share of the compam ny’s Class A common stock
for each restricted stock unit when the appl
(i) twenty-five percent (25%) on Decemberm 31, 2018, provided the recipient is emplm oyed by the company on such date; (ii) twenty-five
percent (25%) on Decemberm 31, 2019, provided the recipient is emplm oyed by the compam ny on such date; (iii) twenty-fivff e percent
(25%) on December 31, 2020, provided thet
recipient is employed by the companym
December 31, 2021, provided the recipient is emplm oyed by the compam ny on such date.
icable vesting requirements are satisfied. The restricted stock units vest as foll
on such date; and (iv) twen
ty-fivff e percent (25%) on
ows:
a
ff
tt
The specific grants to Named Executive Officer
ff
s were as folff
Name
Walter F. Ulloa
Christopher T. Young
Jeffery A. Liberman
Mario M. Carrera
lows:
Restricted Awards
for Fiscal Year 2018
350,000
55,000
80,000
13,750
98
Outstanding Equity Awards at Fiscal Year-End 2018
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable Unexercisable
——
——
66,000
150,000
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
—— $
—— $
1.67
1.92
Option
Expiration
Date
04/04/22
02/21/23
Stock Awards
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
Number of
Shares or
Units of
Market
Value of
Shares or
Units of
Stock That Stock That
Have Not
Have Not
Vested
Vested
($)
(#)
——
——
33,000
66,000
——
——
——
——
——
——
——
——
—— $
—— $
——
——
——
——
—— $
—— $
1.67
1.92
04/04/22
02/21/23
—— $
—— $
——
——
——
——
237,500 (1) $
175,000 (2) $
87,500 (3) $
691,125
509,250
254,625
37,500 (1) $
27,500 (2) $
13,750 (3) $
50,000 (1) $
40,000 (2) $
20,000 (3) $
109,125
80,025
40,013
145,500
116,400
58,200
23,750 (4) $
13,750 (5) $
69,113
40,013
Name
Walter F. Ulloa
Christopher T. Young
Jeffeff
ry A. Liberman
Mario M. Carrera
(1) Represents restricted stock unit which vest on Decemberm 31, 2019.
(2) Represents restricted stock unit awards which vest on December 31, 2020.
(3) Represents restricted stock unit awards which vest on December 31, 2021.
(4) Represents restricted stock unit awards which originally were scheduled to vest on December 31, 2019. Entire amount vested on
January 4, 2019 in connection with Mr. Carrera's separation.
(5) Represents restricted stock unit awards which originally were scheduled to vest on December 31, 2020. Entire amount vested on
January 4, 2019 in connection with Mr. Carrera's separation.
99
Option Exercises and Stock Vested at Fiscal Year-End 2018
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)
—— $
——
Number of
Shares
Acquired on
Vesting
(#)
Value Realized
on Vesting
($)
Name
Walter F. Ulloa
Christopher T. Young
—— $
——
Jeffery A. Liberman
—— $
——
Mario M. Carrera
—— $
——
25,000
62,500
87,500
87,500
8,000
10,000
13,750
13,750
8,000
10,000
20,000
20,000
8,000
10,000
13,750
13,750
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
72,750
181,875
254,625
254,625
23,280
29,100
40,013
40,013
23,280
29,100
58,200
58,200
23,280
29,100
40,013
40,013
Potential Payments Upon Termination or Change-In-Control
During 2018, all of the Named Executive Officff ers had provisions in their thet n-current emplm oyment agreements providing for
payments upon certain types of termination of employment, including upon a change of control of the company. For a description of
those provisions, please see “Employment Agreements” above.
Director Compensation forff Fiscal Year 2018
Fees Earned or
Paid in Cash
($)
Stock Awards
($) (1) (2) (3)
Option Awards
($) (1)
Non-Equity
Incentive Plan
Compensation
($)
Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($) (4)
Total
($)
$
$
$
$
$
$
95,000 $
71,750 $
88,500 $
70,500 $
90,000 $
69,000 $
80,000 $
80,000 $
80,000 $
158,795 $
80,000 $
80,000 $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $
— $
—— $ 175,000
— $ 151,750
—— $ 168,500
342,000 $ 585,500
—— $ 170,000
— $ 149,000
Name
Gilbert R. Vasquez
l A. Zevnik
Patricia Diaz Dennis
Juan Saldívar von Wuthenau
Martha Elena Diaz
rr
Arnol
do Avalos
(1)
For a discussion of the assumptm ions used in the valuation of awards (estimated forfeitures are not considered for purpos
these computations and thet
full fair value is recognized in the year of grant), see the notes to the consolidated finff ancial
statements included in this Annual Report on Form 10-K.
r
es of
(2) On May 31, 2018, each referenced director was granted 20,000 restrict
tt
ed stock units at a grant fair value of $4.00. Such
(3)
(4)
restricted stock units vest on May 29, 2019.
Includes 30,000 restricted stock units granted to Mr. Saldívar in connection with a consulting agreement between the compam ny
and JSW Servicios de Estrategia SC (“SWS”), of which Mr. Saldívar is owner and chief executive officer.
Includes $342,000 paid to SWS in connection with a consulting agreement between
Saldívar is owner and chief executive officer.
and SWS, of which Mr.
the companym
tt
100
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The folff
lowing table sets forth i
t
nforff mation, as of April 5, 2019, concerning, except as indicated by the fooff
tnotes below:
each person whom we know beneficially owns more than 5% of our Class A common stock or Class B common stock;
each of our directors and nominees for the board of directors;
our Chief Executive Officer, Chief Financial Officer and each of our othet
December 31, 2018 (such individuals are hereafter referred to as our “Named Executive Officers”); and
r executive officff ers serving as such as of
all of our directors and executive officers as a group.
Unless othet
rwise noted below, the address of each beneficial owner listed in the table is c/o Entravision Communim cations
Corporation, 2425 Olympimm c Boulevard, Suite 6000 West, Santa Monica, Califorff nirr a 90404.
We have determi
r
ned beneficial ownership in accordance with the rulrr es of the SEC. Except as indicated by the fooff
tnotes below,
we believe, based on the inforff mar
investment power with respect to all shares of common stock that they beneficially own, subject to appa
laws.
tion furnished to us, that the persons and entities named in the table below have sole voting and
licabla e community property
Applicable percentage ownership is based on 61,137,147 shares of Class A common stock and 14,927,613 shares of Class B
common stock outstanding at April 5, 2019. Each share of Class B common stock has 10 votes per share compam red to one per share of
Class A common stock. In computm ing the numberm of shares of common stock beneficff
ownership of that person, we deemed to be outstanding all shares of common stock subjeu
or othet
or releasable within sixty days of April 5, 2019. We did not deem these shares outstanding, however, forff
percentage ownership of any other person. In addition, we did not include Univision Communications Inc., which currer ntly holds all
9,352,729 shares of our Class U common stock. The Class U common stock is non-voting, and thereforeff
the table as an owner of voting securities.
s, restricted stock units
r convertible securities held by that person or entity that are currently exercisable or releasable or that will become exercisable
the purpose of compum ting the
ially owned by a person and the percentage
rr
Univision does not appear in
ct to options, warrant
The inforff mation provided in the table is based on our records, information filedff
with the SEC, and information provided to us,
except where otherwise noted.
Name of Beneficial Owner
Named Executive Offiff cers and Directors:
Walter F. Ulloa(3)
Christopher T. Youngg(4)
Jeffery A. Liberman(5)
Paul A. Zevnik(6)
Gilbert R. Vasquez(7)
Patricia Diaz Dennis(8)
Juan Saldívar von Wuthet nau(9)
Martha Elena Diaz(10)
rr
Arnol
All executive officers and directors as a group(12)
(9 persons)
> 5% Security Holders
American Centurtt yy Investment Managgement Inc.(13)
BlackRock, Inc.(14)
Dimensional Fund Advisors LP(15)
The Vanguard Group(16)
do Avalos(11)
Shares Beneficially Owned
Class A Common Stock(1)
Shares
%
Class B Common Stock
%
Shares
% Total
Voting
Power(2)
632,637
142,841
207,939
290,169
365,169
64,169
322,669
41,990
25,000
*
*
*
*
*
*
*
*
*
11,489,365
——
—
3,438,248
—
——
—
——
—
2,092,583
2.71
14,927,613
5,800,846
6,538,825
5,068,290
3,297,966
9.49
10.70
8.29
5.39
——
—
——
—
76.97
——
—
23.03
—
——
—
——
—
100
——
—
——
—
57.18
*
*
17.80
*
*
*
*
—
74.98
2.76
3.11
2.41
1.57
Beneficial ownership representing less that n one percent is denoted with an asterisk (*).
101
(1)
(2)
The number of Class A common stock does not include thet
outstanding shares of Class B common stock.
Percentage of total voting power represents voting power with respect to all shares of our Class A common stock and Class B
common stock, as a single class. The holders of our Class B common stock are entitled to 10 votes per share, and holders of our
Class A common stock are entitled to one vote per share.
shareaa s of Class A common stock issuabla e upou n conversion of the
(3) Consists of (i) 416,637 shares of Class A common stock held of record by Mr. Ulloa; (ii) 216,000 shares of Class A common
stock issuabla e upon exercise of options that are exercisabla e within sixty days of April 5, 2019; (iii) 425 shares of Class A
common stock held by Mr. Ulloa’s spouse; (iv) 889,848 shares of Class B common stock held by The Walter F. Ulloa
Irrerr vocable Trust of 1996; and (v) 10,599,517 shares of Class B common stock held by the Seros Ulloa Family Trust of 1996.
With respect to Mr. Ulloa’s percentage ownership of Class A Common Stock, all shares of Class B Common Stock are assumed
to have been converted into Class A common stock since such shares are convertible at the option of the holder thereof within
sixty days of April 5, 2019. In addition, pursuant to thet Voting Agreement between Messrs. Ulloa, Zevnik and Philip
Wilkinson, one of our former offiff cers and directors, effect
Mr. Zevnik have agreed to vote all shares held by each of themt
disclaims beneficff
ive as of August 3, 2000 (the “Voting Agreement”), Mr. Ulloa and
as nominees for directors. Mr. Ulloa
ial ownership of shares beneficially owned by Mr. Zevnik.
in favor of each of themt
ff
(4) Consists of 142,841 shares of Class A common stock held by The Young Family Trusr
(5) Consists of (i) 108,939 shares of Class A common stock held of record by Mr. Liberman; and (ii) 99,000 shares of Class A
t.
common stock issuable upou n exercise of options that are exercisabla e within sixty days of April 5, 2019.
(6) Consists of (i) 80,169 shares of Class A common stock issuabla e upou
n the settlement of restricted stock units releasable within
sixty days of April 5, 2019; (ii) 10,000 shares of Class A common stock held by The Zevnik Charitable Foundation issuable
upon the settlement of restricted stock units releasabla e within sixty days of April 5, 2019; (iii) 200,000 shares of Class A
common stock issuable upou n exercise of options that are exercisabla e within sixty days of April 5, 2019; (iv) 2,887,582 shares of
Class B common stock held by The Paul A. Zevnik Revocabla e Trust of 2000; and (v) 550,666 shares of Class B common stock
held by The Paula A. Zevnik Irrevrr
Stock, all shares of Class B Common Stock are assumed to have been converted into Class A common stock since such shares
are convertible at the option of the holder thet
Agreement, Mr. Ulloa and Mr. Zevnik have agreed to vote all shares held by each of them in favor of each of them as nominees
for directors. Mr. Zevnik disclaims beneficial ownership of shares beneficially owned by Mr. Ulloa.
ocabla e Trust of 1996. With respect to Mr. Zevnik’s percentage ownership of Class A Common
ays of April 5, 2019. In addition, pursuant to the Voting
reof within sixty dtt
(7) Consists of (i) 225,000 shares of Class A common stock held of record by Mr. Vasquez; (ii) 90,169 shares of Class A common
stock issuabla e upon the settlement of restricted stock units releasabla e within sixty days of April 5, 2019; and (iii) 50,000 shares
of Class A common stock issuabla e upou n exercise of options that
t
(8) Consists of 64,169 shares of Class A common stock issuable upon the settlement of restricted stock units releasable within sixty
are exercisable within sixty days of April 5, 2019.
days of April 5, 2019.
(9) Consists of (i) 78,500 shares of Class A common stock held of record by Mr. Saldívar; (ii) 64,169 shares of Class A common
stock issuabla e upon the settlement of restricted stock units releasable within sixty days of April 5, 2019; and (iii) 180,000 shares
of Class A common stock issuabla e upou n exercise of options that
t
(10) Consists of 41,990 shares of Class A common stock issuable upon the settlement of restricted stock units releasable within sixty
are exercisable within sixty days of April 5, 2019.
days of April 5, 2019.
(11) Consists of (i) 5,000 shares of Class A common stock held of record by Mr. Avalos; and (ii) 20,000 shares of Class A common
stock issuabla e upon the settlement of restricted stock units releasable within sixty days of April 5, 2019.
(12) Consists of (i) 61,137,147 shares of Class A common stock; (ii) 14,927,613 shares of Class B common stock; (iii) 370,666
shares of Class A common stock issuable upon the settlement of restricted stock units releasable within sixty days of April 5,
2019; and (iv) 745,000 shares of Class A common stock issuabla e upou n exercise of options exercisable within sixty days of April
5, 2019.
ry 11, 2019. American Century Companies, Inc. beneficially owned 5,800,846 shares of Class A common
(13) Based on the most recently available Schedule 13G/A jointly filed by American Centurt y Compam nies, Inc., American Centuryt
Investment Management, Inc., American Century Capital Portfolios, Inc. and Stowers Institute for Medical Research with the
SEC dated Februar
stock, with sole voting power over 5,396,848 shares and sole dispositive power over 5,800,846 shares; American Century
Investment Management, Inc., a wholly-owned subsidiary of American Century Compam nies, Inc., beneficially owned 5,800,846
shares of Class A common stock, with sole voting power over 5,396,848 shares and sole dispositive power over 5,800,846
shares; American Centurt y Crr
ios, Inc. beneficially owned 4,022,254 shares of Class A common stock, with sole
voting power and sole dispositive power over all of such shares; and Stowers Institutt e forff Medical Research beneficially owned
5,800,846 shares of Class A common stock, with sole voting power over 5,396,848 shares and sole dispositive power over
5,800,846 shares. The address for thet
joint filff ers is 4500 Main Street, 9th Floor, Kansas City, Missouri 64111.
apital Portfolff
(14) Based on the most recently available Schedule 13G/A filed with the SEC on January 28, 2019 by BlackRock, Inc. BlackRock,
Inc. beneficially owned 6,538,825 shares of Class A common stock, with sole voting power over 6,203,238 shares and sole
dispositive power over 6,538,825 shares. The address for BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055.
102
(15) Based on the most recently available Schedule 13G/A filed with the SEC on Februar
ry 8, 2019 by Dimensional Fund Advisors
LP. Dimensional Fund Advisors LP beneficially owned 5,068,290 shares of Class A common stock, with sole voting power over
4,799,141 shares and sole dispositive power over 5,068,290 shares. The address for Dimensional Fund Advisors LP is Building
One, 6300 Bee Cave Road, Austin, Texas 78746.
(16) Based on the most recently available Schedule 13G filed with the SEC on Februar
ry 11, 2019 by The Vanguard Group. The
Vanguard Group beneficff
shared voting power over 4,000 shares, sole dispositive power over 3,225,160 shares and shared dispositive power over 72,806
shares. The address for The Vanguard Group is 100 Vanguard Boulevard, Malvern,r Pennsylvania 19355.
ially owned 3,297,966 shares of Class A common stock, with sole voting power over 84,513 shares,
Securities Authorizedii
for Issuance underdd Equity Compensation Plans
For certain information regarding securities authorized for issuance under our equity compensat
mm
ion plans, please see the
discussion under “Securities Authorized for Issuance Under Equity Compensation Plans” in Item 5, “Market foff r Registrant’s Common
Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities”.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANR SACTIONS, AND DIRECTOR INDEPENDENCE
Relationshipi with Univision. Substantially all of our television stations are Univision- or UniMás-affilff iated television stations.
Our network affiliation agreement with Univision provides certain of our owned stations the exclusive right to broadcast Univision’s
primary network and UniMás network programming in their respective markets. Under our Univision network affilff iation agreement,
we retain the right to sell no less than four minutes per hour of the availabla e advertising time on stations that broadcast Univision
network programming, and thet
r andaa
stations that broadcast UniMás netwott
a half minutes per hour of the availabla e advertising time on
ct to adjud stment from time to time by Univision.
rk programming, subjeu
right to sell appa
roximately fouff
Under the netwott
ion agreement, Univision acts as our exclusive third-party sales representative forff
advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees
relating to sales of all advertising forff
broadcast on our Univision- and UniMás-affiliate television stations.
ff
rk affiliat
ff
the sale of national
to Univision
We also generate revenue under two marketing and sales agreements with Univision, which give us thet
right to manage the
in six markets – Albuquerque, Boston, Denver, Orlando,
marketing and sales operations of Univision-owned Univision affiliates
Tampam and Washington, D.C.
ff
Under the current proxy agreement we have entered into with Univision, we grant Univision the right to negotiate the terms of
r things, the proxy
retransmission consent agreements for our Univision- and UniMás-affiliated television station signals. Among othet
agreement provides terms relating to compemm nsation to be paid to us by Univision with respect to retransmission consent agreements
entered into with Multichannel Video Programming Distributors, or MVPDs. During the years ended December 31, 2018 and 2017,
retransmission consent revenue accounted forff
$30.0 million, respectively, relate to the Univision proxy agreement. The term of the proxy agreement extends with respect to any
the expiration of the proxy agreement.
MVPD for the length of thet
approximately $35.1 million and $31.4 million, respectively, of which $28.2 million and
term of any retransmission consent agreement in effect beforeff
On October 2, 2017, we entered into the currenr
t affiliation agreement with Univision, which supeu rseded and replaced our prior
affiliation agreements with Univision. Additionally, on the same date, we entered into the current proxy agreement and current
marketing and sales agreements with Univision, each of which supeu rseded and replaced thet
prior comparable agreements with
Univision. The term of each of these current agreements expires on December 31, 2026 for all of our Univision and UniMás network
affiliate stations, except that
network affiliate stations in Orlando, Tampamm and Washington, D.C.
t each currer nt agreement will expire on December 31, 2021 with respect to our Univision and UniMás
Univision currently owns approximately 11% of our common stock on a fulff
ly-converted basis. Our Class U common stock held
by Univision has limited voting rights and does not include the right to elect directors. As the holder of all of our issued and
outstanding Class U common stock, so long as Univision holds a certain numberm of shares, we may not, without the consent of
Univision, merge, consolidate or enter into another
in any Federal Communim cations Commission license forff
share of Class U common stock is automatically convertible into one share of Class A common stock (subject
splits, dividends or combim nations) in connection with any transfer to a third party that is not an affiliate of Univision.
business combination, dissolve or liquiq date our company or dispose of any interest
television stations, among other things. Each
nt for stock
any of our Univision-affiliated
to adjud stmet
b
ff
t
103
Voting Agreement. We entered into a Voting Agreement with Messrs. Ulloa, Zevnik and Philip Wilkinson, one of our forff mer
offiff cers and directors, effeff ctive as of August 3, 2000. In February 2015, in connection with Mr. Wilkinson’s resignation as a director
and conversion of all his outstanding Class B Common Stock into Class A Common Stock, the Voting Agreement terminated with
respect to Mr. Wilkinson. Accordingly, pursuant to the Voting Agreement following such termination, Messrs. Ulloa and Zevnik agree
to vote all shares held by them in favff or of the election of each other as directors. As of April 5, 2019, Messrs. Ulloa and Zevnik, and
their affiliates, have in the aggregate the right to cast approximately 75.0% of the votes entitled to be cast in the election of directors
and therefore have the power to elect all of the director nominees to be elected at the 2019 annual meeting of stockholders.
Transactions with Walter F.FF Ulloa. Mr. Ulloa is a director, officer and principal stockholder of LATV Networks, LLC
(“LATV”). In April 2007, the Audit Committee and Board approved and authorized us to enter into an affiliation agreement with
LATV. Pursuant to thet
affiliation agreement, we broadcast programming provided to us by LATV on one of the digital multicast
channel of certain of our television stations. Under the affilff iation agreement, there are no fees
and we generally retain the right to sell appa
reviewed and appa
roved by the Audit Committee and Board in accordance with our Related Party Transaction Policy.
roximately fivff e minutes per hour of available advertising time. This transaction was
paid for the carriage of programming,
ff
Transactions with Juan Saldívar von Wuthenau. Mr. Saldívar is the owner and chief executive officer of SWS. Effective March
1, 2018, we entered into a consulting agreement with SWS pursuant to which SWS, principally including Mr. Saldívar, provides
consulting services to us in connection with certain strategic and operational matters. The consulting agreement is forff
years, and may be terminated by either party upon advance notice of 60 days. Under thet
to SWS of $27,500. This amount is in addition to the compensa
a term of four
consulting agreement, we pay a monthly feeff
tion that Mr. Saldívar receives as a director of the company.
m
Related Party Transaction Policy
Our Board has adopted a Related Party Transaction Policy that provides for the review and approval of all related party
transactions, which are generally defined under the policy as any transaction requiq red to be disclosed under Item 404(a) of Regulation
S-K. This written policy is supplemented by other written policies including our Corporate Governance Guidelines, Code of Business
Conduct and Ethics, Code of Ethics forff Chief Executive Officer and Senior Financial Officers and the Audit Committee’s charter, as
well as certain provisions of thet Delaware General Corporr
ration Law.
Under our Related Party Transaction Policy, the Audit Committee reviews the material facff
transactions that require thet Audit Committee’s approval and considers whether to appa
transaction, subju ect to certain exceptions. In determining whether to appa
into account, among other factors it deems appa
ropriate:
rove of our entry into thet
ts relating to all related party
related party
rove a related party transaction, the Audit Committee takes
the related person’s interest and involvement in the interested transaction;
a
the approx
imate dollar value of the amount involved in the interested trant
saction;
roximate dollar value of the amount of the related person’s interest in the interested transaction without regard to
the appa
the amount of any profit or loss;
whether the interested transaction was undertaken in the ordinary course of business of the companm y;
r the interested transaction with the related person is proposed to be, or was, entered into on terms no less favff orable
whethet
to the company than terms that could have been reached with an unrelated third party;
the purpor
se of, and the potential benefits to the compamm ny of, the interested transaction; and
r inforff mar
any othet
that would be material to investors in light of the circumstances of the particular transaction.
tion regarding the interested transaction or thet
related person in the context of the proposed transaction
No one of these factors is dispositive. Our Related Party Transaction Policy also provides that no director shall participate in any
approval of a related party transaction forff which he or she is a related party,tt
concerning the transaction to the Audit Committee.
and that thet
director will provide all material inforff mation
Under our Related Party Transaction Policy, certain transactions are deemed to be pre-appa
roved by the Audit Committee, even
if the aggregate amount involved exceeds $120,000. These transactions include:
Emplm oyment of executive officers;
Director compensation;
Transactions where all stockholders receive proportional benefits;
104
Certain transactions involving the purchase of advertising froff m us at market rates and on such other
consistent with those obtainable in arms-length transactions; and
t
terms as are
Transactions involving competitive bids.
Director Independence
Our Board currently consists of seven members,
m
a majority of whom meet the independence requirements of the NYSE as
currently in effeff ct. The Board has made independence determinations in accordance with NYSE listing standards, which state that a
director will not be independent if:
(i) the director, or an immediate family member of the director, is, or within the last three years was, emplmm oyed by the
company or any of its subsidiaries;
(ii) the director, or an immediate family member of the director, has received, during any twelve-month ptt
three years, more than $120,000 in direct compensation froff m thett
other formsrr
of deferred compensation for prior service (provided such compensation is not contingent on continuednn
service);
company, other
tt
eriod within the last
than director and commim ttee fees, and pension or
(iii) the director, or an immediate famff
ily membem r of thet
director, is a currer nt partner of a firm that is the companym
’s (or
any of its subsidiaries) internar
years (but is no longer), a partnett
l or externar
l auditor; or is a current emplm oyee of such a firmff
r or employee of such firm and personally worked on the companymm
; or who was, within the last three
’s audit within that time;
(iv) the director, or an immediate family member of the director, is, or has been within the last three years, emplm oyed as an
ers at the same time serve or serverr d on
’s present executive officff
executive officer of another compamm ny where any of the companym
that company’s compem nsation committee; or
(v) the director is a currerr nt emplmm oyee, or an immediate famff
ily member of such director is a currerr nt executiveuu
offiff cer, of a
compamm nyaa
the last threh e fiscal
ff
that has made payments to, or received paymaa
ents from, the companymm
years, exceeds thett
greater of $1 million or two percent (nn 2%) of such othett
for propertyrr or services in an amountuu , whiw ch, in anyaa
of
’s consolidated gross revenues.
r compamm nyaa
With respect to any relationship not covered above, the determination of whether the relationship is material, and ther
a director would be independent, will be made by those directors who satisfy the independence criteria set forth at
t
boa ve.
eforff e
t
whether
In addition to thet
foregoing, the Board also makes such independence determinations with respect to its audit committee and
compensation committee members after taking into account the additional independence and financial literacy standards forff members
of each such committee, as applicable, in accordance with and pursuant to the rulrr es and regulations of the SEC and NYSE listing rulr es
as currently in effect.
The Board has affirmatively determined that each of Messrs. Zevnik, Vasquez and Avalos and Mses. Diaz Dennis and Diaz are
independent. In addition, thet Board has affirmatively determined that none of our independent directors has a material relationship
with the companmm y other than as a director, in accordance with these categorical standards.
In addition, our corporr
rate governance guidelines provide that
t no membem r of the Board may serve on more than three public
compamm ny boards of directors (in addition to ours) without firff st obtaining the prior approval of the Board. To our knowledge, no
member of the Board serves on more than thrt ee public company boards of directors (in addition to ours).
105
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Grant Thornton LLP (“Grant Thorntr on”) serverr d as our independent registered public
served as our independent registered publu ic accounting firff m forff
Grant Thornton and BDO for the services rendered to the company and its subsu idiaries in 2017 and 2018:
accounting firm for fiscal year 2017. BDO
fiscal year 2018. The following table summarizes the fees charged by
u
Type of Fee
Audit (1)
dit Related (2)
Tax (3)
All Other Fees (4)
Total
Amount Billed and Paid
Fiscal Year 2017
$
$
$
$
$
1,536,000 $
14,000 $
—— $
132,000 $
1,682,000 $
Fiscal Year 2018
1,856,000
——
369,000
——
2,225,000
(1) Represents aggregate fees
charged by Grant Thorntrr on and BDO for thei
internal control over finff ancial reporting, and quarterly reviews. For fiscff
Thornton during fiscal year 2019 with respect to certain revisions to fiscal 2017 results.
ff
t
r respective annual audits, including the auda
al year 2017, includes amount charged by Grant
its of
(2) Represents aggregate fees
ff
performance of the audi
purchase plan.
a
charged by Grant Thornton for assurance and related services that are reasonably related to the
t and are not reported as audit fees. These services relate to the audit of thet
company’s emplmm oyee stock
(3) Represents aggregate fees
advice, and tax planning.
(4) Represents aggregate fees
ff
ff
charged by BDO for professional services forff
tax compliance and preparation, tax consulting and
charged by Grant Thornton for professional services for due diligence related to an acquisition.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
For certain information regarding a change in our independent registered public accounting firff m, please see the discussion in
Item 9, “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure”.
106
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. Financial Statements
The consolidated financial statements contained herein are as listed on the “Index to Consolidated Financial Statements” on
page F-1 of this report.
2. Financial Statement Schedule
The consolidated financial statement scheduld e contained herein is as listed on the “Index to Consolidated Financial Statements”
on page F-1 of this report. All other scheduldd es have been omitted because they are not applicable, not required, or thet
included in thet
cial statements or notes thereto.
consolidated finan
ff
information is
3. Exhibits
See Exhibit Index.
(b) Exhibits:
The folff
lowing exhibits are attached hereto and incorporr
rated herein by reference.
Exhibit
Number
Exhibit Description
3.1(2)
Second Amended and Restated Certificate of Incorpr oration
3.2(17)
Fourth At mended and Restated Bylaws, as adopted on Decemberm 3, 2014
10.1(3)†
2000 Omnibus Equiq ty Incentive Plan
10.2(6)†
Form of Notice of Stock Option Grant and Stock Option Agreement under the 2000 Omnibus Equiq ty Incentive Plan
10.3(3)
Form of Voting Agreement by and among Walter F. Ulloa, Philip C. Wilkinson, Paul A. Zevnik and the registrant
10.4(21)†
Empm loyment Agreement effective as of January 1, 2017 by and between
tt
the registrant and Walter F. Ulloa
10.5(23)†
Executive Empm loyment Agreement effective as of March 1, 2017 by and between the registrant and Jeffeff
ryrr A. Liberman
10.6(19)†
Executive Empm loyment Agreement effective as of Januaryr 1, 2016 betwett
en the registrant and Christopher T. Young
10.7(27)†
Executive Empm loyment Agreement effective as of Januaryr 1, 2019 betwett
en the registrant and Christopher T. Young
10.8(19)†
Executive Empm loyment Agreement effective as of Januaryr 1, 2016 betwett
en the registrant and Mario M. Carrera
10.9*†
Separation and Services Agreement effective as of Januaryrr 2, 2019 betwett
en the registrant and Mario M. Carrera
10.10(3)†
Form of Indemnification Agreement for officff ers and directors of the registrant
10.11(3)
Form of Investors Rights Agreement by and among the registrant and certain of its stockholders
10.12(1)
10.13(1)
10.14(3)
10.15(8)
10.16(7)
Amendment to Investor Rights Agreement dated as of Septemberm 9, 2005 by and between Entravision Communications
Corprr oration and Univision Communications Inc.
Letter Agreement regarding registration rights of Univision dated as of Septembem r 9, 2005 by and between Entravision
Communim cations Corprr oration and Univision Communim cations Inc.
Office Lease dated August 19, 1999 by and between Water Garden Compam ny L.L.C. and Entravision Communications
Compm any, L.L.C.
First Amendment to Lease and Agreement Re: Sixth Floor Additional Space dated as of March 15, 2001 by and between
Water Garden Compmm any L.L.C., Entravision Communications Compmm any, L.L.C. and the registrant
Second Amendment to Lease dated as of October 5, 2005 by and between Water Garden Compam ny L.L.C. and the
registrant
107
Exhibit
Number
10.17(12)
10.18(24)
Third Amendment to Lease effective as of January 31, 2011 by and between Water Garden Company L.L.C. and the
registrant
Exhibit Description
Station Affiliation Agreement, dated as of October 2, 2017, by and betwee
The Univision Network Limited Partnership and UniMás Network
tt
n Entravision Communim cations Corporation,
10.19(9) Master Network
tt
Affiliation Agreement, dated as of August 14, 2002, by and betwee
tt
n Entravision Communications
Corprr oration and Univision Network Limited Partnership
10.20(13) Amendment, effective as of October 1, 2011, to Master Network Affilff
iation Agreement, dated as of August 14, 2002, by
tt
and between
Entravision Communications Corprr oration and Univision Network Limited Partnership
10.21(9) Master Network
tt
Affiliation Agreement, dated as of March 17, 2004, by and between
tt
Entravision Communimm cations
Corprr oration and TeleFuturat
10.22(13) Amendment, effective as of October 1, 2011, to Master Network Affiliatio
ff
n Agreement, dated as of March 17, 2004, by
tt
and between
Entravision Communications Corprr oration and TeleFutura
10.23(2)†
2004 Equiq ty Incentive Plan
10.24(10)† First Amendment, dated as of May 1, 2006, to 2004 Equiq ty Incentive Plan
10.25(11)† Second Amendment, dated as of July 13, 2006, to 2004 Equiq ty Incentive Plan
10.26(14)† Third Amendment, dated as of ApA ril 23, 2014, to 2004 Equiq ty Incentive Plan
10.27(15)† Fourth At mendment, dated as of May 21, 2014, to 2004 Equiq ty Incentive Plan
10.28(6)†
Form of Stock Option Award under the 2004 Equiq ty Incentive Plan
10.29(16)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan (directors)
10.30(26)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan (directors)
10.31(18)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan
10.32(18)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan
10.33(20)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan
10.34(22)
Form of Restricted Stock Unit Award under the 2004 Equitytt
Incentive Plan
10.35(4)
2001 Empm loyee Stock Purchase Plan
10.36(5)
First Amendment, dated as of Decemberm 31, 2005, to 2001 Empmm loyee Stock Purchase Plan
10.37*†
Non-Empm loyee Director Compm ensation Policy
10.38(25) Credit Agreement, dated as of November 30, 2017, by and among Entravision Communimm cations Corporation, as the
Borrower, Bank of America, N.A., as Administrative Agent, RBC Capia tal Markets, as Syndication Agent, Wells Fargo
Bank, National Association, as Documentation Agent, and the other financial institutt
ions party thereto as Lenders
10.39(25)
10.40*
21.1*
23.1*
23.2*
24.1*
31.1*
31.2*
32*
Security Agreement, dated as of Novemberm 30, 2017, by and among Entravision Communica
other guarantor from time to time party thereto and Bank of America, N.A., as Administrative Agent
m
tions Corporation, each
First Amendment and Limited Waiver, dated as of April 30, 2019, by and among Entravision Communications
Corporation, as the Borrower, Bank of America, N.A., as Administrative Agent, and the other financial institutions party
thereto as Lenders
Subsidiaries of the registrant
Consent of BDO USA, LLP
Consent of Grant Thornton LLP
Power of Attorney (included after signaturtt es hereto)
Certificatio
ff
14 and 15d-14 under the Securities Exchange Act of 1934
n by the Chief Executive Officer
ff
pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 and RulRR es 13a-
Certificatio
ff
14 and 15d-14 under the Securities Exchange Act of 1934
n by the Chief Financial Officer pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 and RulRR es 13a-
Certificff ation of Periodic Financial Report by the Chief Executive Officff er and Chief Financial Offiff cer pursuant to
Section 906 of the Sarbar nes-Oxley Act of 2002
108
Exhibit
Number
101.INS*
XBRL Instance Document
Exhibit Description
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbask
e Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
*
†
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
tt
with thet
rated by reference fromff
or compensatory plan, contract or arrar ngement.
SEC on July 11, 2000 and Amendment No. 4 thet
the quaq rter ended Septemberm 30, 2005, fileff d with the
the quaq rter ended June 30, 2004, filff ed with the SEC on
the year ended Decemberm 31, 2000, filed with the SEC on
the year ended Decembem r 31, 2004, fileff d with the SEC on
the year ended Decembem r 31, 2005, fileff d with the SEC on
rated by reference from our Annual Report on Form 10-K forff
rated by reference from our Annual Report on Form 10-K forff
rated by reference from our Quarterly Report on Form 10-Q forff
rated by reference from our Quarterly Report on Form 10-Q forff
rated by reference from our Quarterly Report on Form 10-Q forff
rated by reference from our Quarterly Report on Form 10-Q forff
rated by reference from our Current Report on Form 8-K, filed with the SEC on January 24, 2006.
rated by reference froff m our Annual Report on Form 10-K forff
our Registration Statement on Form S-1, No. 333-35336, filed with the SEC on April 21, 2000,
with the SEC
reto, filed with the
Filed herewith.
Management contract
Incorporr
SEC on November 9, 2005.
Incorporr
August 9, 2004.
Incorporr
as amended by Amendment No. 1 thereto, filed with the SEC on June 14, 2000, Amendment No. 2 thereto, filedff
on July 10, 2000, Amendment No. 3 thereto, filedff
SEC on July 26, 2000.
Incorporated by reference from Annex B to our definitive Proxy Statement on Schedule 14A, filed with the SEC on April 9, 2001.
Incorporr
Incorporr
March 15, 2005.
Incorporr
March 16, 2006.
Incorporr
March 28, 2001.
Incorporr
May 10, 2004.
Incorporr
May 10, 2006.
Incorporr
SEC on November 9, 2006.
Incorporr
Incorporr
Incorporr
Incorporr
Incorporr
Incorporr
Incorporr
March 6, 2015.
Incorporr
Incorporr
March 9, 2016.
Incorporr
Incorporr
March 10, 2017.
Incorporr
Incorporr
Incorporr
Incorporr
Incorporr
rated by reference from our Current Report on Form 8-K, filed with the SEC on March 25, 2011.
rated by reference from our Current Report on Form 8-K, filed with the SEC on January 5, 2012.
rated by reference from our Quarterly Report on Form 10-Q, filed with the SEC on May 9, 2014.
rated by reference from our Current Report on Form 8-K, filed with the SEC on May 30, 2014.
rated by reference from our Quarterly Report on Form 10-Q, filed with the SEC on August 7, 2014.
rated by reference from our Current Report on Form 8-K, filed with the SEC on Decemberm 5, 2014.
rated by reference froff m our Annual Report on Form 10-K for the year ended Decembem r 31, 2014, fileff d with the SEC on
rated by reference from our Current Report on Form 8-K, filed with the SEC on March 24, 2017.
rated by reference from our Current Report on Form 8-K, filed with the SEC on October 5, 2017.
rated by reference from our Current Report on Form 8-K, filed with the SEC on Decemberm 1, 2017.
rated by reference from our Quarterly Report on Form 10-Q, filed with the SEC on Novemberm 8, 2018.
rated by reference from our Current Report on Form 8-K, filed with the SEC on February 15, 2019.
rated by reference from our Current Report on Form 8-K, filed with the SEC on Decembem r 30, 2016.
rated by reference froff m our Annual Report on Form 10-K for the year ended Decembem r 31, 2016, fileff d with the SEC on
rated by reference from our Current Report on Form 8-K, filed with the SEC on February 1, 2016.
rated by reference froff m our Annual Report on Form 10-K for the year ended Decembem r 31, 2015, fileff d with the SEC on
rated by reference from our Quarterly Report on Form 10-Q forff
the quaq rter ended Septemberm 30, 2006, filedff
with the
the quarter ended March 31, 2004, filed with the SEC on
the quaq rter ended March 31, 2006, filed with the SEC on
(c) Financial Statement Schedules:
Not appa
licable.
109
ITEM 16.
FORM 10-K SUMMARY
None.
110
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, thet
registrant has duld y caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ENTRAVISION COMMUNICATIONS CORPORATION
By:
/s/ WALTER F. ULLOA
Walter F. Ulloa
Chairman and Chief Executive Officer
Date: May 6, 2019
POWER OF ATTORNEYR
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints,
u
ff
tion and resubstitution, for him or her and in his or her name, place and stead, in any and all
jointly and severally, Walter F. Ulloa and Christopher T. Young, and each of them, as his or her trutt e and lawfulff
agents, with full power of substitu
cities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and
capaa
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, fulff
in connection therewith, as fully
ff
all that said attorner ys-in-fact and agents, or any of them, or their or his or her substitute or substitutt es, may lawfulff
done by virtuet
rity to do and perform each and every act and thing requisite and necessary to be done
ses as he or she might or could do in person, hereby ratifyiff ng and confirff ming
ly do or cause to be
to all intents and purporr
l power and authot
attorneys-in-fact
hereof.
and
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the folff
lowing persons
on behalf of the registrant and in the capaa
cities and on the dates indicated.
Signature
/s/ WALTER F. ULLOA
Walter F. Ulloa
/s/ CHRISTOPHER T. YOUNG
Christopher T. Young
/s/ PAUL A. ZEVNIVV K
Paul A. Zevnik
/s/ GILBERT R. VASQUEZ
Gilbert R. Vasquez
/s/ PATRICIA DIAZ DENNISNN
Patricia Diaz Dennis
Title
Chairman, Chief Executive Officer (principal executive officer) and
Director
Treasurer and Chief Financial Officff er (principal finff ancial officer and
principal accounting officer)
Director
Director
Director
/s/ JUANAA SALDIVAR VON WUTHENAU
Juan Saldivar von Wuthenau
Director
/s/ MARTHA ELENA DIAZ
Martha Elena Diaz
/s/ ARNOLDO AVALOS
Arnoldo Avalos
Director
Director
Date
May 6, 2019
May 6, 2019
May 6, 2019
May 6, 2019
May 6, 2019
May 6, 2019
May 6, 2019
May 6, 2019
111
THIS PAGE INTENTIONALLY LEFT BLANK
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
F-2
Reports of Independent Registered Public Accounting Firms ...........................................................................................................
F-4
Consolidated Balance Sheets – Decembem r 31, 2018 and 2017...........................................................................................................
F-5
Consolidated Statements of Operations – Years ended December 31, 2018, 2017 and 2016............................................................
F-6
Consolidated Statements of Comprem hensive Income – Years ended December 31, 2018, 2017 and 2016........................................
F-7
Consolidated Statements of Stockholders’ Equity – Years ended Decembem r 31, 2018, 2017 and 2016............................................
F-8
Consolidated Statements of Cash Flows – Years ended Decembem r 31, 2018, 2017 and 2016...........................................................
Notes to Consolidated Financial Statements ......................................................................................................................................
F-9
Schedule II – Consolidated Valuation and Qualifyiff ng Accounts....................................................................................................... F-45
F-1
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Entravision Communications Corporation
Santa Monica, Califorff nirr a
Opinion on the Consolidated Financial Statements
We have audited the accompmm anying consolidated balance sheet of Entravision Communications Corporation (the “Company”) and
subsu idiaries as of Decemberm 31, 2018, the related consolidated statements of operations, comprm ehensive income, stockholders’ equity,
listed in the accompanying index
and cash floff ws for the year then ended, and thet
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated finff ancial statements present
fairly, in all material respects, the finff ancial position of the Compm any and subsidiaries at Decemberm 31, 2018, and the results of their
operations and their cash floff ws for thet
States of America.
ity with accounting principles generally accepted in the United
related notes and finff ancial statement scheduled
year then ended, in conformff
a
ted, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
We also have audi
(“PCAOB”), thet Company's internal control over financial reporting as of Decemberm 31, 2018, based on criteria established in Internal
Contrott
(“COSO”) and our report dated May 6, 2019 expressed an adverse opinion thereon.
ed Framework (2013)3 issued by the Committee of Sponsoring Organizations of the Treadway Commission
e
l Integrat
Change in Accounting Method Related to Revenue
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company changed its method for recognizing revenue from
t
contract
Contracts with Customers.
tive January 1, 2018 as a result of adopting Accounting Standards Codificff ation 606 - Revenue from
ustomers effecff
s with ct
Basis for Opinion
These consolidated financial statements are the responsibility of the Compam ny’s management. Our responsibility is to express an
opinion on the Compam ny’s consolidated financial statements based on our audit. We are a public accounting firff m registered with the
PCAOB and are required to be independent with respect to the Compam ny in accordance with the U.S. fedff
eral securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whethet
to
.
error or fraff uda
r dued
it included perforff ming procedures to assess the risks of material misstatement of the consolidated finff ancial statements,
due to error or frauda
Our auda
whether
t
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated finan
, and perforff ming procedures that respond to those risks. Such procedures included examining, on a test
cial statements. We believe that our audit provides a reasonable basis forff
our opinion.
ff
/s/ BDO USA, LLP
We have serverr d as thet Company’s auditor since 2018.
Los Angeles, California
May 6, 2019
F-2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockhkk olders
Entravision Communications Corporation
ing consolidated balance sheet of Entravision Communications Corporation (a Delaware corporr
Opinion on the finff ancial statements
We have audited the accompanymm
and subsidiaries (the “Company”) as of Decemberm 31, 2017, thet
stockhok lders’ equity, and cash flowff
schedule listed in the Index at Item 15(a)(2) (collectively referredr
statements present fairly, in all material respects, the financial position of the Company as of Decemberm 31, 2017, and thet
operations and its cash floff ws for each of the two years in the period ended Decemberm 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
each of the two years in the period ended December 31, 2017, and the related notes and
to as the “financial statements”). In our opinion, the finff ancial
ration)
related consolidated statements of operations, compremm hensive income,
results of its
s forff
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are require
be independent with respect to the Compam ny in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
q
d to
its included performing procedured
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance aboa ut whether the financial statements are free of material misstatement, whether due to error or fraff uda
.
Our auda
error or frauda
supporting thet
and signififf cant estimates made by management, as well as evaluating thet
that our audits provide a reasonable basis forff
amounts and disclosures in the finff ancial statements. Our audits also included evaluating the accounting principles used
overall presentation of the fiff nancial statements. We believe
s to assess the risks of material misstatement of the financial statements, whether due to
t respond to those risks. Such procedures included examining, on a test basis, evidence
, and perforff ming procedures that
our opinion.
/s/ GRANTAA
THORNTRR ON LLP
We served as thet Company’s auditor froff m 2014 to 2017.
Los Angeles, California
March 30, 2018 (except for Note 3, as to which the date is May 6, 2019)
F-3
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and 2017
(In thousands, except share and per share data)
Current assets
ASSETS
Cash and cash equivalents
Marketable securities
Restricted cash
Trade receivables (including related parties of $4,530 and $4,653), net of allowance for doubtu ful
accounts of $3,395 and $2,566
Assets held for sale
Prepaid expenses and other current assets (includi gng related parties of $274 and $274)
Total current assets
to amortization, net of accumulm ated amortization of $93,793 and $87,632
b
Property and equipment, net of accumulm ated depreciation of $187,375 and $179,869
Intangible assets subject
(including related parties of $8,327 and $9,555)
Intangible assets not subject to amortization
Goodwill
Other assets
Total assets
Current liabilities
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term d
Accounts payyable and accruerr d expenses (includingg related parties of $1,948 and $2,548)
ebt
r
Total current liabilities
Longg-term debt, less current maturities, net of unamortized debt issuance costs of $2,709 and $3,761
Other long-term liabilities
red income taxes
Deferff
Total liabilities
Commitments and continggencies (note 14)
Stockholders' equity
Class A common stock, $0.0001 par value, 260,000,000 shares authorized; shares issued and
outstanding 2018 63,210,531 and 2017 66,069,325
Class B common stock, $0.0001 par value, 40,000,000 shares authot
outstanding 2018 and 2017 14,927,613
Class U common stock, $0.0001 par value, 40,000,000 shares authot
outstanding 2018 and 2017 9,352,729
Additional paid-in capital
Accumulm ated deficff
Accumulated other comprehensive income (loss)
Total stockhol
ders' equityyt
Total liabilities and stockholders' equi yty
rized; shares issued and
rized; shares issued and
it
kk
Notes to Consolidated Financial Statements
F-4
December 31,
2018
December 31,
2017
Revised
$
$
$
$
$
$
46,733
132,424
732
79,308
1,179
10,672
271,048
64,939
22,598
254,598
74,292
2,934
690,409
3,000
51,034
54,034
240,541
16,418
46,684
357,677
39,560
——
222,294
84,348
——
6,260
352,462
60,337
26,758
251,163
70,729
4,690
766,139
3,000
61,847
64,847
292,489
19,889
40,639
417,864
6
2
7
2
1
862,299
(528,164)
(1,412)
332,732
690,409
$
1
888,650
(540,325)
(60)
348,275
766,139
$
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATRR IONS
Years ended December 31, 2018, 2017 and 2016
(In thousands, except share and per share data)
Net revenue:
enue from advertising and retransmission consent
Revenue from spectrum usagge rigghts
Total net revenue
penses:
of revenue - television (spectrum usage rights)
Cost of revenue - digital media
Direct operating expenses (including related parties of $9,254,
$9,494, and $10,302) (including non-cash stock-based compensation
of $732, $1,236, and $1,330)
Selling, general and administrative expenses
Corporate expenses (including non-cash stock-based compem nsation
of $5,055, $4,855, and $3,705)
Depreciation and amortization (includes direct operating of $10,272,
$8,861, and $9,206; selling, general and administrative of $5,450,
$6,347, and $4,735; and corporate of $551, $1,203 and $1,401)
(including related parties of $1,228, $2,043, and $2,320)
Change in faiff
Foreign currency (gain) loss
Other operatingg (ggain) loss
r value contingent consideration
erating income
erest expense
Interest income
Dividend income
Gain (loss) on debt extinguishment
Impam irment loss on investment
Income (loss) before income taxes
come tax (expense) benefiff t
Income (loss) before equity in net income (loss) of
nonconsolidated affiliate
ui yty in net income (loss) of nonconsolidated affiliate
Net income
and diluted earni gngs per share:
Net income per share, basic
Net income per share, diluted
Cash dividends declared per common share, basic
Cash dividends declared per common share, diluted
Weigghted ave grage common shares outstandi gng, basic
Weigghted ave grage common shares outstandi gng, diluted
2018
2017
Revised
2016
$
$
294,839
2,976
297,815
$
$
272,091
263,943
536,034
$
$
——
45,096
125,242
51,535
26,865
16,273
(1,202)
1,616
(1,187)
264,238
33,577
(15,743)
3,973
1,475
(550)
(1,320)
21,412
(7,877)
13,535
(1,374)
12,161
0.14
0.13
0.20
0.20
89,115,997
90,328,583
$
$
$
$
$
12,340
32,998
119,283
49,116
27,937
16,411
——
350
(262)
258,173
277,861
(16,709)
774
——
(3,306)
——
258,620
(82,612)
176,008
(310)
175,698
1.95
1.91
0.16
0.16
90,272,257
91,891,957
$
$
$
$
$
$
$
$
$
$
258,514
——
258,514
——
9,536
113,439
46,798
24,543
15,342
——
——
——
209,658
48,856
(15,469)
300
——
(161)
——
33,526
(13,121)
20,405
——
20,405
0.23
0.22
0.13
0.12
89,340,589
91,303,056
See Notes to Consolidated Financial Statements
F-5
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2018, 2017 and 2016
(In thousands, except share and per share data)
Net income
Other compm rehensive income (loss), net of tax:
ange in forff eign currency translation
Change in fair value of marketable securities
Change in faiff
Termination of interest rate swap gagreements
r comprmm ehensive income (loss)
r value of interest rate swap agreements
Total othet
Comprehensive income
2018
2017
Revised
2016
$
12,161
$
175,698
$
20,405
(352)
(1,000)
——
——
(1,352)
10,809
$
(60)
——
1,530
1,447
2,917
178,615
$
——
——
1,138
——
1,138
21,543
$
See Notes to Consolidated Financial Statements
F-6
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2018, 2017 and 2016
(In thousands, except share data)
Number of Common Shares
Common Stock
Class A
Class B
Class U
Treasury
Stock
Class
A
Class
B
Class
U
Additionall
Paid-in Accumulated
Cappital
Deficit
Revised
64,477,171
14,927,613
9,352,729
—— $
6 $
2 $
1 $ 910,228 $
(738,849) $
Accumulated
Other
Comprehensive
Income (Loss)
Total
Revised
(4,115 ) $ 167,273
——
——
781
5,035
——
——
—— (11,176)
1,138
1,138
—— 20,405
(2,977 ) 183,456
2,385
——
——
708
—— (2,980)
——
6,091
—— (5,330)
——
——
—— (14,670)
1,530
1,530
1,447
(60 )
1,447
(60)
—— 175,698
(60 ) 348,275
——
249
(794)
——
——
5,787
—— (13,812)
——
——
—— (17,782)
(1,000)
(352)
(1,000 )
(352 )
——
——
——
——
——
——
2
——
——
——
——
——
——
——
——
——
——
——
2
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
1
——
——
——
——
——
——
——
——
——
——
——
1
——
——
——
——
——
——
——
——
——
780
5,035
——
(11,176 )
——
——
904,867
(36 )
708
(2,980 )
6,091
(5,330 )
——
(14,670 )
——
——
——
——
——
——
——
——
20,405
(718,444)
2,421
——
——
——
——
——
——
——
——
——
——
888,650
175,698
(540,325)
249
(793 )
5,787
(13,812 )
——
(17,782 )
——
——
——
——
——
——
——
——
——
——
——
2 $
1 $ 862,299 $
12,161
(528,164) $
—— 12,161
(1,412 ) $ 332,732
tock
the year ended Decemberm 31,
Balance, January 1, 2016
Issuance of common stock upou n exercise of stock
options or awards of restricted stock units
Stock-based compensation expense
Class B common stock exchanged forff Class A
common stock
Dividends paid
Change in fair value of interest rate swapa
agreements
Net income forff
2016
Balance, December 31, 2016
Adoption of ASU 2016-09
Issuance of common stock upou n exercise of stock
options or awards of restricted stock units
Tax payments related to shares withheld for
share-based compensation plans
Stock-based compensation expense
Repurchase of Class A common stock
Retirement of treasury srr
Dividends paid
Change in fair value of interest rate swapa
agreements
OCI release due to termination of interest rate
swap agreements
Foreign currency translation gain (loss)
Net income forff
2017
Balance, December 31, 2017
Issuance of common stock upou n exercise of stock
options or awards of restricted stock units
Tax payments related to shares withheld for
share-based compensation plansaa
Stock-based compensation expense
Repurchase of Class A common stock
Retirement of treasury srr
Dividends paid
Change in faiff
Foreign currency translation gain (loss)
Net income forff
2018
Balance, December 31, 2018
the year ended Decemberm 31,
the year ended Decemberm 31,
r value of marketablea
securities
tock
1,409,085
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
65,886,256
——
——
14,927,613
——
——
9,352,729
——
603,440
537,886
——
(958,257 )
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
958,257
—— (958,257)
——
——
——
——
——
——
——
——
66,069,325
——
14,927,613
——
9,352,729
100,000
586,306
——
(3,545,100 )
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
——
—— 3,545,100
—— (3,545,100)
——
——
——
——
——
——
1
——
——
——
——
——
7
——
——
——
——
——
——
——
——
——
——
——
7
——
(1)
——
——
——
——
——
——
——
63,210,531
——
14,927,613
——
9,352,729
——
—— $
——
6 $
See Notes to Consolidated Financial Statements
F-7
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2018, 2017 and 2016
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2018
2017
Revised
2016
$
12,161
$
175,698
$
20,405
income taxes
ment loss on investment
Depreciation and amortization
Cost of revenue - television (spectrum usage rights)
Impairmm
Deferred
ff
Non-cash interest
Amortization of syndication contracts
Payments on syndication contracts
Equity in net (income) loss of nonconsolidated affilia
Non-cash stock-based compensation
(Gain) loss on sale of property
(Gain) loss on debt extinguishment
Changes in assets and liabilities:
ff
te
(Increase) decrease in trade receivables, net
(Increase) decrease in prepaid expenses and other currerr nt assets
Increase (decrease) in accounts payable, accrued expenses and other liabilities
Net cash provided by operating activities
Cash floff ws from investing activities:
Proceeds from sale of property and equipment and intangibles
Purchases of property and equipment
Purchases of intangibles
Purchase of a businesses, net of cash acquired
Purchases of marketable securities
Proceeds from marketablea
Purchases of short term investments: CDs
Proceeds from short term investments: CDs
Purchases of investments
Deposits on acquisition
securities
flows fromff
Net cash used in investing activities
financing activities:
Proceeds from stock option exercises
Tax payments related to shares withheld for share-based compensation plans
Payments on long-term debt
Dividends paid
Repurchase of Class A common stock
Payment of contingent consideration
Termination of swap agreements
Proceeds froff m borrowings on long-term debt
Payments of capitalized debt offeff
ring and issuance costs
Net cash used in financing activities
of exchange rates on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash:
Beginning
Ending
lemental disclosures of cash flow information:
:
Cash payments forff
Suppu
Interest
Income taxes
Supplem
u
ental disclosures of non-cash investing and financing activities:
Capital expenditures finff anced through accounts payable, accruedrr
liabilities
expenses and other
Contingent consideration included in accounts payable,
liabilities
a
accrued expenses and other
16,273
——
1,320
4,612
1,124
651
(643)
1,374
5,787
——
550
5,895
(5,581)
(9,727)
33,796
33
(17,006)
(3,153)
(3,522)
(159,403)
25,000
——
——
(1,495)
——
(159,546)
249
(2,268)
(53,000)
(17,782)
(13,812)
(2,015)
——
——
——
(88,628)
(11)
(214,389)
261,854
47,465
14,619
3,265
660
8,119
$
$
$
$
$
16,411
12,340
——
81,766
3,237
452
(445)
310
6,091
28
3,306
414
(913)
2,825
301,520
50
(12,078)
(32,588)
(29,149)
——
——
——
——
(2,450)
(190)
(76,405)
708
(798)
(293,563)
(14,670)
(5,330)
(3,819)
(2,441)
298,500
(3,382)
(24,795)
14
200,334
61,520
261,854
13,472
846
1,678
12,107
$
$
$
$
$
$
$
$
$
$
15,342
——
——
12,528
776
398
(388)
——
5,035
——
161
1,397
439
1,203
57,296
——
(9,053)
——
——
——
——
(30,000)
30,000
(500)
——
(9,553)
780
——
(23,750)
(11,177)
——
——
——
——
——
(34,147)
——
13,596
47,924
61,520
14,693
593
1,068
——
See Notes to Consolidated Financial Statements
F-8
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Nature of Business
Entravision Communications Corporation (together
t
with its subsu idiaries, hereinafter referff
red to collectively as the “Company”)
gdigital
gsegment, located prim yarily in Spain, Mexico, Arggentinaa
gs a global market. Entravision’s operations encompass integrated marketing and media
that, through its television and radio segments, reaches and engages U.S. Hispanics across
is a leading global media companym
acculturation levels and media channels. Additionally, the Compam yny’s
and other countries in Latin America, reache
solutions, comprmm ised of television, radio, and digital properties and data analytics services. The Company’s management has
determined that the Company operates in three reportaba le segments as of Decemberm 31, 2018, based upon
medium, which segments are television broadcasting, radio broadcasting, and digital media. As of December 31, 2018, thet Company
owns and/or operates 55 primary television stations located primarily in Califorff nirr a, Colorado, Connecticut, Florida, Kansas,
Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company’s television operations comprise the largest affiliate
group of both t
top-ranked primary television network of Univision Communications Inc. (“Univision”) and Univision’s UniMás
network. The television broadcasting segment includes revenue generated froff m advertising, retransmission consent agreements and
the monetization of the Companym
assets. Radio operations consist of 49 operational radio stations, 38 FM and 11 AM, in
16 markets located in Arizona, Califoff rnia, Colorado, Florida, Nevada, New Mexico and Texas. Entravision also operates Entravision
Solutions as its national sales representation division, through which it sells advertisements and syndicate radio programming to more
than 100 markets across the United States. The Company operates a proprietary technology and data platform that delivers digital
advertising in various advertising formats that allows advertisers to reach audiences across a wide range of Internet-connected devices
on its owned and operated digital media sites; the digital media sites of its publisher partners; and on othet
access through third-party platformff
r digital media sites it can
the type of advertising
s and exchanges.
’s spectrumrr
het
u
t
2. SUMMARY ORR
F SIGNIFICANT ACCOUNTING POLICIES
Basisii of Consolidatdd iontt
and Presentation
m
The accompanying
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompam ny accounts and transactions have been eliminated in consolidation. Certain amounts in thet Company’s
prior period consolidated financial statements and notes to thet
presentation.
financial statements have been reclassifiedff
to conforff m to currerr nt period
Certain amounts
preported as of and for the yyear ended December 31, 2017 have been revised. See Note .3
Variable Interest Entities
The Compam ny performs a qualitative analysis to determine if it is the primary beneficiary of a variable interest entity. This
analysis includes consideration of who has the power to direct the activities of the entity that most significantly impamm ct the entity’s
osses or the right to receive benefits of the variable interest entity that
economic perforff mance and who has the obligation to absa orb l
could potentially be significant to thet
beneficiary of a variable interest entity.
interest entity. The Company continuously reassesses whether it is the primaryrr
variablea
r
The Compam ny has consolidated one entity for which it is the primary beneficiary. Total net assets and results of operations of the
entity as of and forff
the years ended Decemberm 31, 2018 and 2017 are not significant.
Use of Estimat
estt
ii
The preparation of financial statements requires management to make estimates and assumptions that affect
the amounts
reported in the financial statements and accompanym
ing notes. Actual results could diffeff
ff
r froff m those estimates.
The Company’s operations are affecte
ff
d by numerous factors, including changes in audience acceptance (i.e. ratings), priorities
ff
of advertisers, new laws and governmental regulations and policies and technological advances. The Companym
these factors might have a significan
what impam ct, if any, the occurrence of these or othet
estimates and assumptm ions made by management are used for, but not limited to, the allowance for doubtfuff l accounts, stock-based
compensation, the estimated useful lives of long-lived and intangible assets, the recoverability of such assets by their estimated future
undiscounted cash flows, the faiff
disclosure of the faiff
t impact on the television, radio, and digital advertising indusd tries in the future, nor can it predict
r value of debt, deferred income taxes and the purchase price allocations used in the Companymm
r events might have on the Compam ny’s operations and cash floff ws. Significff ant
ite life intangible assets, fair values of derivative instruments,
r value of reporting units and indefinff
cannot predict if any of
’s acquisitions.
F-9
Cash and Cash Equivalents
The Company considers all short-term, highly liquid debt instruments purchased with original maturities of three monthst
or less
to be cash equivalents. Cash and cash equivalents consist of funds held in general checking accounts, money market accounts and
commercial paper. Cash and cash equiva
r value. The Compamm ny
had $5.3 million and $5.8 million in cash and cash equivalents held outside the United States as of December 31, 2018 and 2017,
respectively.
lents are stated at cost plus accruerr d interest, which approximates faiff
q
Restricted Cash
As of Decemberm 31, 2018, the Company’s
mm
balance sheet includes 0.7 million in restricted cash as tempom rary collateral forff
the
Compam ny’s letters of credit. As of Decembem r 31, 2017, the Compam ny’s balance sheet included $222.3 million in restritt cted cash of
which $221.5 million relates to proceeds received by the Company forff
tion for broadcast spectrumrr
which were deposited into the account of a qualified intermediary to complm y with Internal Revenue Code Section 1031 requirements
to execute a like-kind exchange. The remaining $0.8 million in restricted cash was used as temporary
letters of credit.
its participation in the FCC aucaa
collateral for thet Company’s
m
Investmentstt
Beginning in the third quarter of 2016, the Company has made investments in Chanclazo Studios, Inc. ("Chanclazo"), an
ion studio that creates and distributes short and long forff m 3D animation, virtuat
innovative digital productd
reality content forff Hispanic audiences. The investment in Chanclazo totaled $1.3 million, for a 18% ownership interest. During the
quarter ended December 31, 2018, the Company determined that other than tempom rary drr
impam ired the investment in Chanclazo complm etely.
ecline in value has occurred and as such
l reality and augmented
The Company has made investments in Cocina Vista, LLC (“Cocina”), a digital media compamm ny focused on Spanish and Latin
American food and cooking in the United States, Spain and Latin America, beginning in the second quarq
Cocina totaled $2.3 million forff
variabla e interest entity but it is not the primary beneficiary. The investment was recorded in “Othet
sheet and is accounted for using the equity method. The current
investment as of and forff
a 44.1% ownership interest as of Decemberm 31, 2018. The Companymm
th ye year ended Decemberm 31, 2018 are not s gignifican
t.
r
ff
terr
r of 2017. The investment in
has concluded that
t Cocina is a
r assets” on the consolidated balance
balance of total assets, net equiq ty and results of operations of this
As of Decemberm 31, 2018, the Compamm ny held investments in a money market fund, certificates of deposit, and corporate bonds.
The Compam ny’s available for sale securities totaled $132.4 million as of December 31, 2018 and are comprised of certificates of
deposit and bonds, which were recorded at their faiff
(see Note 12). All certificate
corporate bonds are investment grade.
s of deposit are within the currer nt Federal Deposit Insurance Corporr
r market value within “Marketabla e securities” in the consolidated balance sheet”
ration insurance limits and all
ff
Lo gng-lgg ill ved Assets,s Other Assetstt and Inta gngibles Su jbject to Amortization
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over
their estimated useful lives (see Note 8). The Companym
sale, when events and circumstances warrarr nt such review.
periodically evaluates assets to be held and used and long-lived assets held forff
Syndication contracts are recorded at cost. Syndication amortization is provided using the straight-line method over their
estimated useful lives.
Intangible assets subju ect to amortization are amortized on a straight-line method over their estimated useful lives (see Note 7).
leasehold interests and pre-sold advertising contratt cts are amortized over the term of the underlying contracts. Deferff
red debt
life off
f the related indebtedness using the effect
ff
ive interest method.
Favorablea
issuance costs are amortized over thet
Changes in circumstances, such as the passage of new laws or changes in regulations, technological advances or changes to the
Company’s business strategy, could result in the actuat
planned use of equipment, customer attrition, contractual amendments or mandated regulatory requirements could result in shortened
usefulff
will amortize or depreciate the net book value in excess of the estimated residual value over its revised remaining usefuff l life.ff
l useful lives differing from initial estimates. Factors such as changes in the
life of a long-lived asset should be revised, thet Company
lives. In those cases where the Companym
determines that the usefulff
Long-lived assets and asset groupsu
are evaluated forff
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The estimated futurtt e cash floff ws are based upon, among other things,
assumptm ions about expected futff urt e operating performance, and may differ froff m actual cash flows. Long-lived assets evaluated for
impam irment are grouped with other assets to the lowest level forff which identifiaff bla e cash floff ws are largely independent of the cash
flows of othet
carrying value of the assets, the assets will be written down to the estimated faiff
made.
r groups of assets and liabilities. If the sum of the projeo cted undiscounted cash flows (excluding interest) is less than thet
period in which the determination is
r value in thet
F-10
dd
Goodwill
Goodwill represents the excess of the purchase price over the fair value of thet
net tangible and identifiabff
acquired in each business combination. The Company tests its goodwill and other indefinite-lived intangible assets forff
annually on the firff st day of its fouff
they may be impaired. In assessing the recoverability of goodwill and indefinite life i
series of assumptions about such things as the estimated future cash flows and other faff ctors to determine the faiff
rth fisff cal quarter, or more frequently if certain events or certain changes in circumstances indicate
ff ntangible assets, the Compmm any must make a
r value of these assets.
le intangible assets
impairment
In testing thet
r it is more likely than not that the faiff
goodwill of its reporting units for impairment, the Compam ny first determines, based on a qualitative assessment,
r value of each of its reporting units is less than their respective carrying amounts. The
whethet
Compam ny has determined that each of its operating segments is a reporting unit.
If it is deemed more likely than not that the fair
ff
value of a reporting unit is less than the carryinrr
g value based on this initial
assessment, the next step is a quantitative compamm rison of the fair value of the reporting unit to its carrying amount. If a reporting unit’s
estimated fair value is equal to or greater than that reporting unit’s carrying value, no impam irment of goodwill exists and the testing is
complm ete. If the reporting unit’s carryinrr
amount of the difference.
value, then an impam irment loss is recorded forff
g amount is greater than thet
estimated fair
the
ff
When a quantitative analysis is performed, the estimated fair value of goodwill is determined by using a combim nation of a
market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow
multiples to each reporting unit’s operating performance. The mulm tiples are derived from compam rable publu icly-traded companies with
similar operating and investment characteristics to the Compam ny’s reporting units. The market approach requires the Company to
make a series of assumptm ions, such as selecting compamm rabla e compam nies and compam rable transactions and transaction premiums. In
recent years, ther
transactions and transaction premiums more difficult to estimate than in previous years.
e has been a decrease in the numberm of comparable transactions, which makes the market approach of compamm rable
t
The income approach estimates fair
ff
value based on the Companym
’s estimated future cash flowff
s of each reporting unit,
discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of
inherent risk of that reporting unit. The income approach also requiq res the Company to make a series of assumptmm ions, such as discount
rates, revenue projections, profit margin projeo ctions and terminal value mulmm tiples. The Compam ny estimated discount rates on a blended
rate of returt n crr
onsidering both debt and equity for comparmm able publicly-traded companies in the television, radio and digital media
industries. These compam rabla e publicly-traded companies have similar size, operating characteristics and/or financial profiles to the
Company. The Compam ny also estimated the terminal value mulm tiple based on comparable publu icly-traded companies. The Company
estimated revenue projeo ctions and profitff margin projections based on internal forff ecasts about futff urtt e performance.
ff
Indefdd inite
Life Intangible Assets
The Company believes that its broadcast licenses are indefinite life i
hen there are no legal, regulatory, contractuat
an indefinite useful life wff
period over which the asset is expected to contribute directly or indirectly to future cash floff ws. The evaluation of impairment forff
indefinite life intangible assets is performff
value exceeds fair value, an impairment charge is recorded forff
broadcast licenses represents all licenses owned and operated within an individual market cluster, becauseaa
together, are complmm imentary to each other and are representative of the best use of those assets. The Company’s individualdd market
clusters consist of cities or nearby cities. The Company tests its broadcasting licenses forff
impamm irment based on certain assumptmm ions
about these market clusters.
ed by a compamm rison of the asset’s carrying
value to the asset’s fair value. When thet
nce. The unit of accounting used to test
the amount of the differeff
such licenses are used
r
carryirr ng
ff ntangible assets. An intangible asset is determined to have
l, compemm titive, economic or any other factors that may limit the
F-11
a
The estimated fair value of indefinite life i
onsidering both debt and equiq ty for comparm able publicly-traded companies. These comparam
oach requires the Company to make a series of assumptm ions, such as discount rates, revenue
estimates the discount rates on a blended rate of
ff ntangible assets is determined by using an income approach. The income appa
estimates fair value based on the estimated future cash flowff
s of each market cluster that a hypothetical buyer would expect to
generate, discounted by an estimated weighted-average cost of capa ital that reflects current market conditions, which reflect thet
level of inherent risk. The income appr
projections, profit margin projections and terminal value multiples. The Companymm
returt n cr
similar size, operating characteristics and/or financial profiles to the Compam ny. The Company also estimated the terminal value
multiple based on comparabla e publicly-traded compam nies in the television, radio and digital media indusd tries. The Compam ny estimated
the revenue project
o
information forff
market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence
advertising expenditures. Alternatively, some stations under evaluation have had limited relevant cash floff w history due to planned or
actual
makes about cash flows after conversion are
t
based on the perforff mance of similar stations in similar markets and potential proceeds from the sale of the assets.
ions and profit margin projeo ctions based on various market clusters signal coverage of the markets and industry
an average station within a given market. The information for each market cluster includes such thit ngs as estimated
conversion of format or upgrade of station signal. The assumpm tions the Companym
bla e publicly-traded companm ies have
overall
roach
Concentrations of Creditii Riskii
and Trade Receivables
The Company’s financial instrumt
ents that are exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Companym
limits. As of December 31, 2018, substantially all deposits are maintained in one financial institution. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significff ant credit risk on cash and cash equivalents.
from time to time may have bank deposits in excess of the FDIC insurance
The Company routinely assesses the finff ancial strength of its customers and, as a consequence, believes that its trade receivable
credit risk exposure is limited. Trade receivables are carried at original invoice amount less an estimate made forff
receivables
based on a review of all outstanding amounts on a monthly basis. A valuation allowance is provided for known and anticipated credit
losses, as determined by management in the course of regularly evaluating individuald
customer receivables. This evaluation takes into
consideration of a customer’s finff ancial condition and credit history, as well as current economic conditions. Trade receivables are
written off wff
is charged on customer accounts.
hen deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. No interest
doubtfulff
Estimated losses for bad debts are provided for in the consolidated financial statements through a charge to expense that
aggregated $1.8 million, $1.1 million and $0.8 million forff
charge off of bad debts aggregated $1.2 million, $1.1 million and $1.4 million forff
respectively.
the years ended Decemberm 31, 2018, 2017 and 2016, respectively. The net
the years ended Decembem r 31, 2018, 2017 and 2016,
Dependence on Business Partners
PP
The Company is dependent on the continued financial and business strength of its business partners, such as the companies from
whom it obtains programming. The Companm y could be at risk should any of these entities fail to perform their respective obligations
to the Compam ny. This in turn crr
condition.
ould materially adversely affeff ct the Compam ny’s own business, results of operations and financial
Disclosures About Fair Value of Financial Instrumentstt
The following methods and assumptmm ions were used to estimate the fair value of each class of financial instrumrr
ents for which it
is practicable to estimate that value:
The carrying amount of cash and cash equivalents appa
roximates fair
ff
value becausea
of the short maturity of those instruments.
As of Decemberm 31, 2018 and 2017, the fair
ff
value of thet Company’s long-term debt was appa
roximately $241.3 million and
$300.0 million, respectively, based on an income approach which projects expected futff urtt e cash flowff
based on industry and market yields.
s and discounts them using a rate
The Compam ny’s available for sale securities are valued using quoted prices for similar attributes in active markets. Since these
investments are classified as availabla e forff
consolidated balance sheets and their unrealized gains or losses are included in “Accumulated other comprm ehensive income (loss)”.
ff market value within “Marketable securities” in the
sale, they are recorded at their fair
The carrying values of receivables, payables and accrued expenses approximate fair
ff
value due to the short maturity of these
instruments.
F-12
Derivative InsII
truments
Prior to Novemberm 28, 2017, the Company used derivatives in thet management of interest rate risk with respect to interest
expense on variable rate debt. The Company was party to interest rate swap agreements with finff ancial institutions that fixed the
variable benchmark componem
28, 2017, thet Company terminated these swap agreements in conjunction with the refinff ancing of its debt. The Company’s current
policy prohibits entering into derivative instruments forff
nt (LIBOR) of its interest rate on a portion of its term loan beginning Decembem r 31, 2015. On Novembem r
speculation or trading purporr
ses.
The Company recognizes all of its derivative instruments as either assets or liabia lities in the consolidated balance sheets at fair
value. The accounting for changes in the fair value of a derivative instrumrr
as part of a hedging relationship, and furt
ff
as a cash flow hedge; thet
and qualifiedff
comprm ehensive income. Any ineffect
immediately recognized directly to interest expense in the consolidated statement of operations. See Note 11 for furff
derivative instruments.
tive portion of the changes in faiff
ive portions of the changes in fair value of the interest rate swap aa
ent depends on whether it has been designated and quaq lifies
r, on the type of hedging relationship. The interest rate swap agreements were designated
r value was a componm ent of other
greements would be
ther discussion of
refore, the effecff
het
ff
The carrying amount of the Compamm ny’s interest rate swap agreements were recorded at fair value, including consideration of
ance risk, when material. The faff ir value of each interest rate swap agreement was determined by using mulm tiple broker
non-performff
quotes, adjusted for non-perforff mance risk, when material, which estimate the futurtt e discounted cash floff ws of any future payments that
may be made under such agreements. Upon termination of thet
income was reclassified to interest expense forff
swap agreements, $2.5 million in accumulmm ated other comprm ehensive
the year ended Decemberm 31, 2017.
Off-balanll
ce Sheet Financingsn
s
litie
ii
and Liabi
ii
Other than lease commitments, legal contingencies incurred in the normal course of business, emplm oyment contrat cts forff
greements (see Notes 11, 14 and 19), the Compam ny does not have any off-ff balance sheet
employees
m
financing arrangements or liabilities. The Compamm ny does not have any majoa rity-owned subsidiaries or any interests in, or relationships
with, any material variable-interest entities that are not included in the consolidated financial statements.
and the interest rate swap aa
key
Income Taxeaa see
Deferred income taxes are provided on a liability method whereby deferrerr d tax assets are recognized for deductd
ible temporary
differences and deferred tax liabilities are recognized for taxable temporar
between the reported amounts of assets and liabilities and their tax bases. Deferff
when it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred
assets and liabilities are adjusted forff
rences are the differences
red tax assets are redud ced by a valuation allowance
tax
the effects of changes in tax laws and rates on the date of enactment.
ifferences. Temporary diffeff
y dr
m
ff
In evaluating the Company’s ability to realize net deferred tax assets, the Companym
considers all reasonabla y available evidence
including past operating results, tax stratt
makes certain assumptm ions and judgments that are based on the plans and estimates used to manage the business.
tegies and forecasts of future taxable income. In considering these fact
ff
ors, the Company
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Value Addeddd Taxaa es
Value added taxes collected from customers and remitted to governmental authorities are accounted for on a net basis, and are
therefore excluded from revenues.
Advertising
dd
Costs
Amounts incurred for advertising costs with third parties are expensed as incurred. Advertising expense totaled appa
roximately
$0.1 million, $0.6 million and $0.4 million forff
the years ended December 31, 2018, 2017 and 2016, respectively.
Legal Costs
Amounts incurred for legal costs that pertain to loss contingencies are expensed as incurred.
F-13
Repairsii
and Maintenanc
tt
e
All costs associated with repairs and maintenance are expensed as incurred.
Revenue Recognigg tioii n
Television and radio revenue related to the sale of advertising is recognized at the time of broadcast. Revenue for contracts with
advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue fromff
with the advertisers is recorded as gross revenue and thet
expense. Cash payments received prior to services rendered result in deferff
advertising time or space is actually provided. Digital related revenue is recognized when display or othet
record impressions on thet websites of the Compam ny’s third party publishe
criteria are satisfied.
contratt cts directly
related commission or national representation fee is recorded in operating
rerr d revenue, which is then recognized as revenue when the
rs or as the advertiser’s previously agreed-upon perforff mance
r digital advertisements
u
The Compam ny generates revenue under arrarr ngements in which servirr ces are sold on a stand-alone basis within a specific
segment, and those that are sold on a combm ined basis across mulm tiple segments. The Compam ny has determined that in such revenue
arrangements which contain multmm iple producd ts and services, revenues are allocated based on the relative fair value of each item and
recognized in accordance with the appl
icable revenue recognition criteria for the specificff unit of accounting.
a
Under the Company’s current proxy agreement with Univision, thet Companymm
grants Univision the right to negotiate the terms of
retransmission consent agreements for its Univision- and UniMás-affilff iated television station signals. Among other thit ngs, the proxy
agreement provides terms relating to compemm nsation to be paid to thet Company by Univision with respect to retransmission consent
agreements entered into with multichannel video programming distributors, or MVPDs. The term of the proxy agreement extends with
respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy
agreement. The Companym
recognizes retransmission consent revenue earned as the television signal is delivered to the MVPD.
The Compm any also generates revenue under two current marketing and sales agreements with Univision, which give the
Companm y the right to manage the marketing and sales operations of Univision-owned Univision affiliates in six markets –
Albuquerque, Boston, Denver, Orlando, Tampamm and Washington, D.C.
The Company also generates revenue fromff
agreements associated with its television stations’ spectrumr
usage rights from a
variety of sources, including but not limited to entering into agreements with third parties to utilize excess spectrut m forff
of their multimm cast networks, charging
accepting interference with broadcasting operations, and modifying and/or relinquishing spectrum usage rights while continuing to
broadcast through channel sharing or other arrangements. Revenuen
lease or
when thet Company has relinquished all or a portion of its spectrut m usage rights for a station or have relinquished its rights to operate
a station on the existing channel free from interferff ence.
fees to accommodate the operations of third parties, including moving channel positions or
from such agreements is recognized over the period of thet
the broadcast
a
Tradedd Transactions
The Compam ny exchanges broadcast time forff
certain merchandise and services. Trade revenue is recognized when commercials
air at the fair value of thet
expense is recorded when the goods or servirr ces are used or received. Trade revenue was approximately $0.7 million, $0.9 million and
$0.5 million for each of thet
million and $0.5 million for each of the years ended December 31, 2018, 2017 and 2016.
goods or services received or the fair value of time aired, whichever is more readily determinable. Trade
years ended Decemberm 31, 2018, 2017 and 2016. Trade costs were appa
roximately $0.7 million, $0.9
Cost of Revenue
Cost of revenue related to the Company’s television segment consists primarily of the carrying value of spectrum usage rights
that were surrendered in the FCC auction for broadcast spectrum. Cost of revenue related to the Compam ny’s digital media segment
consists primarily of the costs of online media acquired froff m thit
rd-party publishers.
Direct operating expenses
xx
Direct operating expenses consist primarily of salaries and commissions of sales staff, aff mounts paid to national representation
firms, producd tion and programming expenses, fees for ratings services, and engineering costs.
F-14
Corporatett expexx nses
Corporate expenses consist primarily of salaries related to corporate officers and back offiff ce functions, third party legal and
accounting services, and feeff
s incurred as a result of being a publicly traded company.
-
Stock-Based
Compensation
The Company recognizes stock-based compensat
requiq res the measurement and recognition of compensat
including emplm oyee stock options, restricted stock awards, restricted stock units, and emplm oyee stock purchases under thet
Emplm oyee Stock Purchase Plan (the “Purchase Plan”) based on estimated fair values.
ion according to thet
ion expense for all stock-based awards made to emplm oyees and directors
2001
provisions of ASC 718, “Stock Compensation”, which
mm
mm
ASC 718 requires compam nies to estimate the fair value of stock options on the date of grant using an option pricing model. The
fair value of restricted stock awar
aa
the date of grant. The value of the portion of the award that
and is recognized as expense over the requiq site service periods in the consolidated statements of operations. Forfeitures are estimated
at the time of grant and revised, if necessary, in subseu
ds and restricted stock units is based on thet
t
is ultimately expected to vest has been reduced for estimated forff
closing market price of the Compamm ny’s common stock on
quent periods if actuatt
from those estimates.
feitures differ
feiturt es
l forff
ff
The Company has selected the Black-Scholes option pricing model as thet most appropriate method for determining the
stock options. The Black-Scholes option pricing model requiq res the use of highly subjective and complmm ex
estimated fair value forff
assumptm ions which determine the fair value of stock-based awards, including the option’s expected term, expected volatility of thet
underlying stock, risk-freeff
rate, and expected dividends. The expected volatility is based on historical volatility of the Companm y’s
common stock and other
terms and conditions of the stock-based awards. The risk free-rate is based on observed interest rates appropriate for the expected
terms of the Compam ny’s stock options. The dividend rate is based on the Company’s dividend policy.
ors. The expected term assumptions are based on the Company’s historical experience and on the
relevant fact
ff
t
The Company classifies cash flows froff m excess tax benefitsff
attributable to stock-based compensation costs as financing cash floff ws.
from exercised options in excess of the deferre
ff
d tax asset
Earningii
sgg Per Share
The following table illustrates the reconciliation of the basic and diluted per share computations (in thot usands, except share and
per share data):
Basic earnings per share:
Numerator:
Net income (1)
Denominator:
Year Ended
December 31,
2018
Year Ended
December 31,
2017
Revised
Year Ended
December 31,
2016
$
12,161
$
175,698
$
20,405
Weighted average common shares outstanding, basic
89,115,997
90,272,257
89,340,589
Per share:
Net income per share
Diluted earnings per share:
Numerator:
Net income (1)
Denominator:
$
$
0.14
$
1.95
$
0.23
12,161
$
175,698
$
20,405
Weighted average common shares outstanding
Dilutive securities:
Stock options
Restricted stock units
Diluted shares outstanding
89,115,997
90,272,257
89,340,589
629,933
582,653
90,328,583
906,519
713,181
91,891,957
1,373,733
588,734
91,303,056
Per share:
Net income per share (1)
$
0.13
$
1.91
$
0.22
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
F-15
Basic earnings per share is computed as net income divided by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution, if any, that could occur froff m shares issuable through stock options
and restritt cted stock awards.
For the years ended Decemberm 31, 2018, 2017 and 2016, a total of 182,847, 243,234 and 698,344 shares of dilutive securities,
respectively, were not included in the compumm tation of diluted earnings per share because the exercise prices of the dilutive securities
were greater than the average market price of the common shares.
Comprm ehensive Income (loss)s
For the year ended Decemberm 31, 2018 the Company had other comprm ehensive loss, net of tax, of $1.3 million. For the years
ended Decemberm 31, 2017 and 2016 the Companymm
had other comprehensive income, net of tax, of $2.9 and $1.1 million, respectively.
Recently Issued Accounting Pronouncements and U.S. Taxaa Reforme
ff
In Februarr
earnings statement and cash flows; however, substantially all leases will be required to be
ry 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (TopTT ic 842), which is intended to increase transparency and comparabia lity among organizations relating to leases. Lessees will
be required to recognize a liability to make lease payments and a right-of-use
asset representing the right to use the underlying asset
for the lease term. The FASB retained a duad l model for lease classification, requiring leases to be classified as finance or operating
leases to determine recognition in thet
recognized on the balance sheet. ASU 2016-02 will also require quantitative and qualitative disclosures regarding key information
about leasing arrangements. ASU 2016-02 is effective using a modifieff d retros
l years and interim periods
beginning after December 15, 2018, with early adoption permitted. This standard allows entities to initially apply the new leases
standard at the adoption date and recognize a cumulm ative-effect adjustment to the opening balance of retained earnings in the period of
adoption. The standard also provides for certain practical expedients. The Companymm
management system to support the new reporting requirements and is evaluating its processes and internar
Company meets the standard’s reporting and disclosure requiq rements. The Company adopted thit s ASU on January 1, 2019, using the
optional transition method and also elected to use the 'package of practical expedients', which allows us not to continue to reassess our
previous conclusions aboa ut lease identificff ation, lease classification and initial direct costs. The Company anticipates a material
all lease
increase in assets and liabilities due to the recognition of thet
obligations that are currently classified as operating leases such as leases on broadcast tower sites and real estate leases for corpor
r
headquarters and administrative offices,
as well as the significant new quantitative and qualitative disclosure requiq rements on all of the
Company’s lease obligations. The Company expects the right of use asset will be the present value of the remaining lease payments as
noted in Notes to Consolidated Financial Statements. The recognition of lease expense is expected to be similar to the Compam ny’s
current methodology.
required right-of-use asset and corresponding liability forff
has implmm emented an enterprise-wide lease
l controls to ensure the
oach for fisca
pective appr
ate
a
ff
ff
t
In August 2018, thet
FASB issued ASU 2018-15, Intangibles-Goodwill and Other-In-
ternal-Use Softwaff
re (SubSS
re (and
gements that include an internal-use software license). The accounting for the service element of a hosting arrangement
Customers Accounting for Implm ementation Coststt Incurred in a Cloud Computing Arrangement That Is a Service Contratt
amendments in this update align the requirements for capitalizing implm ementation costs incurred in a hosting arrangement that is a
service contract with the requiq rements for capia talizing implementation costs incurred to develop or obtain internal-use softwatt
hosting arranr
that is a service contract is not affected by the amendments in this update. The amendments in this upda
reporting periods beginning afteff
Early adoption is permitted. The amendments in this update should be appa
implm ementation costs incurred after
Consolidated Financial Statements.
r Decemberm 15, 2020, and interim periods within annual periods beginning after December 15, 2021.
the date of adoption. The Company is in the process of assessing the impactmm
lied either retrospectively or prospectively to all
te are effff eff ctive for annual
of this ASU on its
u
ff
topic 350-40):0
ct. The
In June 2018, the FASB issued ASU 2018-07, CompensationSt ock Compem nsation (Topio c 718): Improvementstt
to Non-
u
ent Accounting, which superse
des Subtopic 505-50, Equity—Eq
employee Share-based Payma
and expands the scope of ASC Topic 718, “Compensation—Stock Compensation” (“Topic 718”) to include share-based payments
issued to nonemployees for goods and services. The amendments also clarify that Topic 718 does not apply to share-based payments
used to effectiv
elling goods or services to customers as part
of a contract accounted forff
under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). The amendments in thit s
ASU are effective for public companies forff
fiscal year. Early adoption is permitted, but no earlier that n a companym
assessing the impact of this ASU on its Consolidated Financial Statements.
fiscal years beginning after December 15, 2018, including interim periods within that
ely provide finff ancing to the issuer or awards granted in conjunction with st
’s adoption date of Topic 606. The Companym
uiq ty-Based Payments to Non-Emplmm oyees
is in the process of
yy
ff
F-16
In February 2018, the FASB issued ASU 2018-02, Income Statementtt Re port
e
ing Comprm ehensive Income (TopTT ic 220):
from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from
ff
Reclassification of Certain Tax Effects
accumulmm ated other comprm ehensive income to retained earning
requires entities to disclose their accounting policy for releasing income tax effect
This update is effecff
This guidance should be appl
the U.S. fedff
on its Consolidated Financial Statements.
s forff
r
ff
tive in fisff cal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted.
ied either in the period of adoption or retrospectively to each period in which the effects of the change in
eral income tax rate in the 2017 Tax Act is recognized. The Company is in the process of assessing the impamm ct of this ASU
a
stranded tax effecff
ts resulting froff m the 2017 Tax Act and also
s fromff
accumulmm ated other comprm ehensive income.
In October 2016, the FASB issued ASU 2016-16, Income Taxesaa
(Topio c 740):0 Intra-EntEE itytt Transfers of Assetstt Other Than
income tax consequences on an intra-entity transferff
occurs. Current GAAP prohibits the recognition of currenr
Inventory which allows entities to recognize thet
when the transferff
transfer until the asset has been sold to an outside party. In addition, thet
forff
effect
ff
interim period. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial
statements.
s of certain intangible and tangible assets. The objective is to reduce complm exity in accounting standards. ASU 2016-16 is
ff Decemberm 15, 2018. Early adoption is permitted, including adoption in an
annual reporting periods beginning after
re has been diversity in the applicatio
income taxes for an intra-entity asset
of an asset other that n inventory
transferff
ive forff
n of the current
t and deferredrr
guidance
a
rr
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (To((
r-than-temporam
ry impaim rments of available-forff
guidance on othet
allowance to record estimated credit losses on these assets when the faiff
also removes the evaluation of the length of time that a security has been in a loss position to avoid recording a credit loss. The updu ate
is effective for fiscal years beginning after
fiscal years. The Compam ny is in
the process of assessing the impactm
ff December 15, 2019, including interim periods within those
r value is below the amortized cost of the asset. This standard
of this ASU on its Consolidated Financial Statements.
t
pico
-sale debt securities. This amended standard requires the use of an
326), which amends current
Newly Adopt
dd
edtt Accountintt gn Stantt
dards
In May 2017, the FASB issued ASU 2017-09, CompensationSt ock Compensation (Topio c 718): Scope of Modificai
tion
t
nd reduce both (
value, vesting conditions, and classificatio
i) diversity in practice and (ii) cost and complmm exity when appa
Accounting, to clarify aff
to change the terms and conditions of a share-based payment award. Specifically, an entity would not appa
the fair
ff
n of thet
ff
2017-09 is effeff ctive forff
09 on January 1, 2018. The adoption of ASU 2017-09 did not have a material impam ct on its financial condition or results of operations,
as the Compm any has not had any modifications to share-based payment awards. However, if the Company does have a modification to
an award in the futff ut re, it will follow the guidance in ASU 2017-09.
ff
interim and annual reportingg periods b geg
ff Decemberm 15, 2017 T. he Company adopted ASU 2017-
awards are the same immediately beforff e and after
lying the guidance in Topic 718,
ly modification accounting if
the modificatio
inning after
g
n. ASU
ff
In January 2017, thet
FASB issued ASU 2017-01, Business Combinations (TopiTT
c 805): Clarifyini
g the Defie nition of a Business,
to provide a more robust framework t
effective forff
prospectively on January 1, 2018.
r
interim and annual reporting periods beginning after
ff December 15, 2017. The Compmm any adopted this standard
o use in determining when a set of assets and activities is considered a business. ASU 2017-01 is
In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (SubSS
topic 825-10):0 Recognigg tion and
a
topic 825-10): Recognition and Measurement of Financial
y to equity method investments, investments that result in consolidation of the
es. For investments in equity securities without a readily determinable fair
Measurement of Financial Assets and Financial Liabilities, and its related amendments in February 2018, ASU 2018-03, Technical
Corrections and Improvements to Financial InstrumentsOverall (SubSS
Assets and Financial Liabilities. ASU 2016-01 requires entities to carry all investments in equity securities, including other ownership
interests such as partnerships, unincorporated joint venturtt es, and limited liability companies, at fair value with changes in fair
recognized within net income. This ASU does not appl
investee or investments in certain investment companim
value, an entity is permitted to elect a practicability exception, under which the investment will be measured at cost, less impam irment,
plus or minus observabl
this ASU eliminated the requirement to assess whether an impamm irment of an equity investment is other than temporary. The
s a qualitative
impaim rment model for equity investments subjeb ct to this election is now a single-step model whereby an entity performff
assessment to identify impam irment. If the qualitative assessment indicates that an impamm irment exists, the entity would estimate the fair
value of the investment and recognize in net income an impairment loss equal to the diffeff
n the fair value and the carrying
amount of the equity investment. The Company’s equiq ty investments formerly
classified as cost method investments are measured and
recorded using the measurement alternative. The Company has elected the practicability exception whereby these investments are
measured at cost, less impaimm rment, plus or minus observable price changes fromff
investments of the same issue. The Company adopted these standards prospectively on January 1, 2018, and recorded an impam irment
charge of $1.3 million in relation to one of its equity investments for the year ended Decembem r 31, 2018.
e price changes froff m orderly transactions of an identical or similar investment of the same issuer. Additionally
orderly transactions of identical or similar
rence betwee
value
ff
ff
rr
ff
tt
F-17
In August 2016, thet
FASB issued ASU 2016-15, Stattt ement
tt
of Cash Flowll
sww (Topic 230): Classifii cation of Certaitt n Cash Receipts
and Cash Payma
issues arising froff m certarr
apply it on a retrospective basis. There was no material impact on the Compamm nya
entstt (a consensus of the Emerging Issues Task Force), which provides specificff guidance on eight cash flow classification
in cash receipts and cash payments. The Company adopted this guidance on January 1, 2018 and is required to
’s consolidated statements of cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic
TT
606), which amended the
revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transferff
existing accounting standards forff
of promised goods or services to customers, in an amount that
goods or servirr ces. Subsequ
Contratt ctstt with Customers (TopiTT
Customers (Topic 606):6 Idendd tifyini
(TopTT ic 606): Narrow-ScoSS peo
Topio c 606,6 Revenue from Contracts with Customers .
ently, the FASB has issued thet
u
x
ff
t reflects
the expected consideration received in exchange for those
following standards related to ASU 2014-09: ASU 2016-08, Revenue from
c 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with
g Perfor rmance Obligatgg ions and Licensing; ASU 2016-12, Revenue from Contracts with Customersrr
to
ents; and ASU 2016-20, Technical Corrections and Improvementstt
Imprm ovementstt and Practical Expedi
On January 1rr
, 2018, the Companymm
which were not completed as of January
under Topic 606, while prior period amounts area not adjusted and continue to be reported in accordance
under ASC Topic 605, “Revenue Recognition”.
adopted ASC Topic 606 using the modifieff d retrosp
1, 2018 (see Note 6). Results forff
ective methodtt
nn
a
tt
s
applied to those contract
tt
with our historic accountu ing
reporting periods beginning after January 1, 2018 are presented
Opening retained earnings as of January 1, 2018 were not affecff
ted as thet
re was no cumulative impacm t of adopting Topic 606.
U.S.SS Taxaa Refore mrr
On Decemberm 22, 2017, the President signed comprm ehensive tax legislation called The Tax Cuts and Jobs Act (thet
ral co prporate tax rate froff
d
value of the Comppanm yy’s deferred tax asset (s (“DTAs”)) and deferred tax liabilities (“DTLs”) a t
“Tax Act”).
The Tax Act makes broad and complm ex changes to the U.S. tax code that affected the Company’s financial results for the year ended
3m 5% to 21% that affecff
Decemberm 31, 2017, includ ging, but not limited to a reducti
ts the
current
ransition tax on unrepatriated
rr
earnings of foreign subsidiaries, and bonus depreciation on qualified property. In addition, certain provisions of the Tax Act affect ded
ncial results for the year ended Decemberm 31, 2018, and may affect the Co pmpanyy’s financial
the Compam ny’s finaff
rr
includi gng, but not limited to: ((1)) a reduction of the U.S. federal corppora
federal income taxes on dividends froff m foreff
(“GILTI”); (4) limitations on the deductibility of certain executive compemm nsation; (5) limitations on the use of Federal Tax Credit
(“FTC’s”) to reduce the U.S. income tax liability; (6) potential limitations on the deductibility of interest expense; and (7) bonus
depreciation on qualified property.
3m 5% to 21%; (2) a general elimination of U.S.
ign subsidiaries; (3) a new provision designed to tax global intangible low-taxed income
on of the U.S. fede
results in futurtt
te tax rate fro
ff
ff
,
ye years,
In connection with the Compam ny’s initial analysis of the impact of the Tax Act, the Compam ny has recorded a provisional one-
to the Company’s deferred taxes from the U.S. federa cl orporr
rate rate reducd tion. There was no material change from the
the year-ended December 31, 2017. This net tax benefit primarily consists of the net tax
time net tax benefit of $17.3 million forff
impactm
previous estimate in 2018. See Note 13.
3. CORRECTION OF IMMATERIAL MISSTATEMENTS IN PRIOR PERIOD FINANCIAL STATEMENTS
During 2018, the Company identifieff d understatements related to certain accrued liabia lities of Headway at both t
t
date and as of Decemberm 31, 2017. In addition, cost of revenue for Headway was also understated forff
2017.
he acquisition
the year ended Decemberm 31,
In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering thet Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the errorr
determined that the impactm
made the decision to correct these errors prospectively and revise its financial statements when the consolidated balance sheet,
consolidated results of operations or consolidated statement of cash flows for such prior periods are included in futff utt re filings,
including in this report (the "Revisions").
rs and
was not material to the Companmm y’s previously issued finff ancial statements. Consequently, the Companm y
F-18
The following table present a summary of the impact,
m
by financial statement line item, of the Revisions as of and forff
the year
ended Decemberm 31, 2017:
Consolidated Balance Sheet
Goodwill
Total assets
Accounts payable and accrued expenses
Total current liabilities
Other long-term liabila
Total liabilities
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
ities
Consolidated Statement of Operations
Cost of revenue - digital media
Total expenses
Operating income
Income (loss) before income taxes
Income tax (expense) benefitff
Income (loss) beforff e equity in net income (loss) of nonconsolidated
affiliate
Net income
Net income per share, diluted
Consolidated Statement of Comprehensive Income
Net income
Comprehensive income
Consolidated Statement of Stockholders' Equity
Net income
Accumulated deficit
Total stockholders' eqquity
Consolidated Statement of Cash Flows
Net income
Deferred income taxes
Increase (decrease) in accounts payable, accrued expenses and other
liabilities
Purchase of a businesses, net of cash a qcquired
Net cash used in investing activities
Payment of contingent consideration
ing activities
ff
Net cash used in financ
Contingent consideration included in accounts payable, accrued
expenses and other liabilities
As of and for the Year Ended December 31, 2017
As
Previously
Reported
Adjusd
tment
As Revised
70,557
765,967
59,522
62,522
21,447
417,097
(539,730)
348,870
765,967
32,206
257,381
278,653
259,412
(82,809)
172
172
2,325
2,325
(1,558)
767
(595)
(595)
172
792
792
(792)
(792)
197
176,603
176,293
1.92
$
$
(595)
(595)
(0.01) $
176,293
179,210
176,293
(539,730)
348,870
176,293
81,963
2,033
(32,968)
(80,224)
——
(20,976)
(595)
(595)
(595)
(595)
(595)
(595)
(197)
792
3,819
3,819
(3,819)
(3,819)
70,729
766,139
61,847
64,847
19,889
417,864
(540,325)
348,275
766,139
32,998
258,173
277,861
258,620
(82,612)
176,008
175,698
1.91
175,698
178,615
175,698
(540,325)
348,275
175,698
81,766
2,825
(29,149)
(76,405)
(3,819)
(24,795)
15,926
(3,819)
12,107
F-19
4. SIGNIFICANT TRANRR SACTIONS
FCC Auction for Broadcadd st Spectrum
recognized revenue of $263.9 million related to its participation in the
relinquishment of the Companym
During the year ended December 31, 2017, the Companym
FCC auction for broadcast spectrum. This revenue reflects thet
related to four television stations: WMDO-CD serving the Washington, D.C. market, WJAL-TV serving the Hagerstown, Maryland
market, KSMS-TV servirr ng the Monterey-Salinas, California market, and WUVN-TV serving the Hartforff d, Connecticut market. The
Revenue Code Section 1031
proceeds of the auction were deposited into the account of a quaqq lified intermediary to comply with Internal
requirements to execute a like-kind exchange and area
e Sheets as “Restricted cash” as of
December 31, 2017. The Compam ny also recorded an expense of $12.3 million during year ended December 31, 2017 to account for thet
write-off of the carryin
(spectrumtt
after the relinquiq shment of their permanent spectrumrr
a sale-leaseback transaction in accordance with ASC 840-40 and recorded lease expense based on the fair market value.
usage rights)” on the Consolidated Statements of Operations. The FCC has allowed auction participants up to six monthst
usage rights surrerr ndered. This expense is classified as “Cost of revenue – television
usage rights to cease broadcasting. The compmm any has treated this usage period as
reflected in the Compmm any’n s Consolidated Balancaa
’s permanent spectrum usage rights
g value of spectrumrr
rr
rr
5. ACQUISITIONS
Upon consummation of each acquiq sition thet Company evaluates whether the acquisition constitutes a business. An acquisition is
considered a business if it is comprised of a complmm ete self-sustaining integrated set of activities and assets consisting of inputs and
ed set of activities and assets to be a business, it
processes applied to those inputs that are used to generate revenues. For a transferr
must contain all of the inputs and processes necessary for it to continue to conduct normal operations afteff
separated from the transferor, which includes the abia lity to sustain a revenue stream by providing its output
transferred set of activities and assets fails the definition of a business if it excludes one or more significant items such that it is not
possible for the set to continue normal operations and sustain a revenue stream by providing its producd ts and/or services to customers.
s to customers. A
r the transferff
red set is
ff
tt
All business acquisitions have been accounted forff
as purchase business combim nations with t
t
he operations of the businesses
included subsequent to their acquisition dates. The allocation of the respective purchase prices is generally based uponu
appraisals and or management’s estimates of the discounted futff urt e cash floff ws to be generated froff m the media properties forff
assets, and replacement cost for tangible assets. Deferred income taxes are provided for temporar
management’s best estimate of the tax basis of acquired assets and liabila
authority.
ities that will ultimately be accepted by the appa
rences based upon
y dr
iffeff
m
independent
intangible
licable taxing
Smadex
On June 11, 2018, the Company complm eted thet
acquisition of 100% of the stock of Smadex, S.L. (“Smadex”), a mobile
programmatic solutions provider and demand-side platform that delivers performance-based solutions and data insights forff marketers.
The transaction was treated as a business acquisition in accordance with the guidance of ASU 2017-01. The Company acquired
Smadex to expand its technology platform, broaden its digital solutions offeff
The transaction was funded from cash on hand for an aggregate cash consideration of $3.5 million, net of $1.2 million of cash
acquired.
ring and enhance its execution of performance campam igns.
The folff
lowing is a summary of the initial purchase price allocation for the Company’s acquisition of Smadex (unaudi
a
ted; in
millions):
Accounts receivable
Other current assets
Inta gngible assets subjjeb ct to amortization
Goodwill
Current liabilities
Long-term liabilities
Deferred tax
$
0.9
0.4
2.0
3.6
(2.8)
(0.2)
(0.4)
Purchase price allocation is not completem
as of Decemberm 31, 2018. The fair value of assets acquirq
ed includes trade receivables
of $0.9 million. The gross amount due under contract is $0.9 million, all of which is expected to be collectible.
During the year ended December 31, 2018, Smadex generated net revenue and expenses of $6.4 million and $5.8 million,
respectively, which are included in our consolidated statements of operations.
F-20
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the digital segment and is attributable to the
Smadex workforce and expected synergies from combim ning its operations with those of the Compam ny.
The following unauda
ited pro forff ma information for the years ended December 31, 2018 and 2017 has been prepared to give
effect to the acquisition of Smadex as if the acquisition had occurred on January 1, 2017. This pro-forma information does not purport
to represent what the actuat
does it purporr
l results of operations of the Compam ny would have been had this acquisition occurrr ed on such date, nor
rt to predict the results of operations for futff urt e periods.
Pro Forma:
al revenue
Net income (loss)
Basic and diluted earninggs per share:
Net income per share, basic
Net income per share, diluted
Years Ended
Ended December 31,
2018
2017
$
$
$
$
307,805
13,133
0.15
0.15
$
$
$
$
541,663
175,765
1.95
1.91
Weigghted ave grage common shares outstandi gng, basic
Weighted average common shares outstanding,
diluted
89,115,997
90,272,257
90,328,583
91,891,957
The unaudited pro forff ma information for the year ended Decemberm 31, 2018 was adjud sted to exclude acquisition feeff
s and costs
of $0.4 million, which were expensed in connection with t
t
he acquiqq sition.
Headway
On April 4, 2017, the Compam ny completed the acquisition of 100% of several entities collectively doing business as Headway
(“Headway”), a provider of mobile, programmatic, data and perforff mance digital marketing solutions primarily in the United States,
Mexico and other markets in Latin America. The Company acquiq red Headway in order to acquire additional digital media platforms
that the Compam ny believes will enhance its offerings to thet U.S. Hispanic marketplace as well as expand its international fooff
tprint.
The transaction was funded from our cash on hand, for an aggregate cash consideration of $8.2 million, net of $4.5 million of cash
acquired, and contingent consideration with a faiff
r value of $15.9 million as of the acquiq sition date.
The following is a summary of the purchase price allocation forff
our acquiq sition of Headway including the impact of the error
corrections to the error identified in Note 3 (in millions):
Accounts receivable
Intangible assets subjeb ct to amortization
Goodwill
Current liabia lities
Deferred tax
$
19.8
15.9
16.1
(23.7)
(4.0)
Intangibles assets subjecb
t to amortization acquired includes:
Intangible Asset
Existingg technol gogyy
Publu isher relationships
Advertiser relationships
MediaMath agreement
Non-Competm e aggreements
Trade name
Estimated
Fair Value
(in millions)
Weighted
average
life (in years)
$
1.0
5.0
4.8
2.1
1.1
1.9
2.0
3.0
5.0
9.0
4.0
5.0
F-21
The acquisition of Headway includes a contingent consideration arrangement that requires additional consideration to be paid by
the Compm any to Headway based upon the achievement of certain annual performance benchmarks over a three-year period. The range
three-year period is
of the total undiscounted amounts the Company could pay under thet
between $0 and $27.0 million. The faiff
r value of the contingent consideration recognized on the acquisition date of $15.9 million was
estimated by applying the real options approach using level 3 inputs as further discussed in Note 12. The agreement also includes
payments of up to approximately $7.5 million to certain key employees, which will be treated as post-acquisition compem nsation
expense and accrued as earnerr d.
contingent consideration agreement over thet
ff
The fair
value of the assets acquired includes trade receivables of $19.8 million. The gross amount due under contract is $20.9
million, of which $1.1 million is expected to be uncollectable.
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the digital media segment and is
.
attributable to Headway’s workforce and expected synergies from combinim ng Headway’s operations with those of the Companymm
During the quarter ended Decembem r 31, 2017, thet Company recorded measurement period adjud stments primarily to adjust thet
fair value of intangible assets and contingent consideration to the final valuations and to reflect the value of deferred tax liabilities at
the tax rates of the forff eign jurisdictions they relate to.
The folff
lowing unauda
ited pro forff ma information for the years ended December 31, 2017 and 2016 has been prepared to give
effect to the acquisition of Headway as if the acquisition had occurred on January 1, 2016. This pro forma information does not
purport to represent what thet
nor does it purport to predict the results of operations forff
actual results of operations of the Company would have been had this acquisition occurrer d on such date,
any futff urt e periods.
Pro Forma:
Total revenue
Net income (loss) (1)
Basic and diluted earninggs per share:
Net income per share, basic
Net income per share, diluted
Years Ended
Ended December 31,
2016
2017
545,592 $
176,138 $
288,710
20,282
1.95 $
1.92 $
0.23
0.22
$
$
$
$
Weigghted ave grage common shares outstandi gng, basic
Weighted average common shares outstanding, diluted
90,272,257
91,891,957
89,340,589
91,303,056
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
The unaudited pro forff ma information for the years ended Decembem r 31, 2017 and 2016, was adjud sted to exclude acquiq sition feeff
s
and costs of $0.5 million and $0.8 million, respectively, which were expensed in connection with the acquisition.
KMCC-TV
On January 16, 2018, the Companym
complm eted the acquiq sition of television station KMCC-TV, which serves the Las Vegas,
Nevada area, for an aggregate $3.6 million. The transaction was treated as an asset acquisition with the majora
recorded in “Intangible assets not subju ect to amortization” on the Company’s consolidated balance sheet.
ity of the purchase price
WJAL-TV
In connection with the FCC auction for broadcast spectrum (see Note 4), in the second quarq
ter of 2017 the Company exercised
its rights under a channel sharing agreement to acquiq re rights to utilize spectrum in the Washington, D.C. market in exchange forff
payment froff m the Company of appa
station WJAL-TV, previously servirr ng the Hagerstown, Maryland market, to the Washington, D.C. market. The transaction was treated
as an asset acquisition and was recorded in “Intangible assets not subject to amortization” on the Compam ny’s consolidated balance
sheet.
roximately $32.6 million. During the third quarter of 2017, the Company relocated its television
a
F-22
KMIR-TV and KPSE-LD
On Novemberm 1, 2017, the Company complmm eted the acquiq sition of television stations KMIR-TV, the local NBC affiliate, and
KPSE-LD, the local MyNetworkTV affiliate, both of which serve thet
Compam ny acquired these stations based on its acquisition strategy to enhance its offerings in those markets in which it already
compemm tes.
Palm Springs, Califorff nirr a area, for an aggregate $21 million. The
The Company evaluated the transferred set of activities, assets, input
n
s and processes appl
a
ied to these inputs in this acquisition
and determined that the acquiq sition did constitute a business.
The following is a summary of the purchase price allocation forff
the acquiq sition of television stations KMIR-TV and KPSE-LD
(in millions):
Propertyy and equipment
Intangible assets subjeb ct to amortization
Goodwill
FCC licenses
$
2.9
3.6
4.6
9.9
The goodwill, which is not expected to be deductible for tax purposes, is assigned to the television segment and is attributable to
ted pro forma information for the years ended December 31, 2017 and 2016 has been prepared to give effeff ct to the acquisition
the stations’ workforce and expected synergies from combim ning the stations’ operations with those of the Compam ny. The following
unaudi
a
of television stations KMIR-TV and KPSE-LD as if the acquisition had occurredrr
not purport to represent what thet
date, nor does it purpor
results of operations of the Company would have been had this acquisition occurredr
rt to predict the results of operations for any fuff ture periods.
on January 1, 2016. This pro forff ma inforff mation does
on such
t
actual
Pro Forma:
Total revenue
Net income (loss) (1)
Basic and diluted earninggs per share:
Net income per share, basic (1)
Net income per share, diluted
Years Ended
Ended December 31,
2016
2017
543,355 $
176,299 $
267,614
21,574
1.95 $
1.92 $
0.24
0.24
$
$
$
$
Weigghted ave grage common shares outstandi gng, basic
Weighted average common shares outstanding, diluted
90,272,257
91,891,957
89,340,589
91,303,056
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3
6. REVENUES
Adoption of ASC Topic 606, "Revenue froff m Contracts with Customers"
Revenue Recognition
Revenues are recognized when control
t
reflects the consideration the Compam ny expects to be entitled to in exchange forff
of the promised servirr ces is transferrerr d to the Company’s customers, in an amount that
those services.
Broadcast Advedd rtising. Television and radio revenue related to the sale of advertising is recognized at the time of broadcast.
Broadcast advertising rates are fixff ed based on each medium’s abia lity to attract audiences in demographi
advertisers and rates can vary based on the time of day and ratings of the programming airing in that day part.
a
c groups targeted by
Digital Advedd rtisinii
g. Revenue froff m digital advertising primarily consists of two types: (1) display advertisements on websites
ons are delivered through the Company’s websites and throt
and mobile applications that are sold based on a cost-per-thousand impressions delivered (typically referr
impressi
m
the publishers or through digital advertising exchanges. (2) performance driven advertising whereby the customer engages thet
Company to drive consumers to perforff m an action such as thet
ff
the first
rerr d to cost per action (“CPA”) or cost per installation (“CPI”)).
download of a mobile application, the installation of an application, or
rd party publishers either thrt ough direct relationships with
ed to as “CPM”). These
ication (typiy cally referff
use of an appl
ugh thit
a
ff
F-23
Broadcast and digital advertising revenue is recognized over time in a series as a single perforff mance obligation as the ad,
impresmm
sion or perforff mance advertising is delivered per the insertion order. The Compmm any applies the practical expedient to recognize
revenue for each distinct advertirr sing service delivered at the amount the Compm any has the right to invoice, which corresponds directly
to the value a customer has received relative to the Company’s performance. Contracts with customers are short term in nature and
billing occurs on a monthly basis with payment due in 30 days. Value added taxes collected concurrent with advertising revenue
producing activities are excluded from revenue. Cash payments received prior to services rendered result in deferred revenue, which
is then recognized as revenue when thet
advertising time or space is actual
ly provided.
tt
Retransmission Consent. The Compam ny generates revenue from retransmission consent agreements that are entered into with
MVPDs. The Companm y grants the MVPDs access to its television station signals so that they may rebroadcast the signals and charge
their subscribers for this programming. Payments are received on a monthly basis based on the number of monthly subscribers.
Retransmission consent revenues are considered licenses of functional intellectual property and are recognized over time
utilizing the sale-based or usage-based royalty exception. The Company’s perforff mance obligation is to provide the licensee access to
our intellectual property. MVPD subscribers receive and consume the content monthly as the television signal is delivered.
Spectrum Usage Rightgg s.tt The Companm y generates revenue from agreements associated with its television stations’ spectrum
the
usage rights froff m a variety of sources, including but not limited to agreements with third parties to utilize excess spectrum forff
broadcast of their mulmm ticast networks; charging feeff
s to accommodate the operations of third parties, including moving channel
positions or accepting interference with broadcasting operations; and modifying and/or relinquishing spectrum usage rights while
continuing to broadcast through channel sharing or other arranrr
gements.
Revenue generated by spectrum usage rights agreements are recognized over the period of the lease or when we have
relinquiq shed all or a portion of our spectrum usage rights forff
from interference.
existing channel freeff
a station or have relinquished our rights to operate a station on the
Other Revenue. The Companm y generates other revenues that are related to its broadcast operations, which primarily consist of
representation fees earned by the Company’s radio national representation firm, talent fees forff
ticket and concession sales for radio events, rent froff m tenants of the Company’s owned facilities, barter revenue, and revenue
generated under joint sales agreements.
the Compmm any’s on air personalities,
In the case of representation fees, the Company does not control the distinct service, the commercial advertisement, prior to
delivery and therefore recognizes revenue on a net basis. Similarly forff
providing the airtime and thereforff e recognizes revenue on a net basis. In the case of talent fees,
of the Compmm any and thereforeff
to the emplmm oyee.
the Compm any contrott
ff
ls the servirr ce provided and recognizes revenue gross with an expense forff
the on air personality is an emplm oyee
fees paid
joint service agreements, the Compam ny does not own thet
station
The adoption of Topic 606 did not have a material impact on our consolidated financial statements.
Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied perforff mance obligations when (i) contracts have an original expected
length of one year or less, which applies to effectiv
ff
usage-based royalty promised in exchange forff
ely all advedd rtising contract
ts, and (ii) variable consideration is a sales-based or
property, which applies to retratt nsmission consent revenue.
a license of intellectual
t
The Company applies the practical expedient to expense contract acquisition costs, such as sales commissions generated either
by internar
period is one year or less. These costs are recorded within direct operating expenses.
l direct sales emplm oyees or through third party advertising agency intermediaries, when incurred because the amortization
F-24
Disaggregated Revenue
The following table presents our revenues disaggregated by major source (in thousands):
Broadcast advertising
Digital advertising
Spectrum usage rights
Retransmission consent
Other
Total revenue
2018
169,009
80,982
2,976
35,066
9,782
297,815
$
$
$
Years Ended
December 31,
2017
171,715
57,098
263,943
31,413
11,865
536,034
$
2016
194,530
23,144
——
29,557
11,283
258,514
$
$
Contracts are entered into directly with customers or through an advertising agency that represents thet
customer. Sales of
advertising to customers or agencies within a station’s designated market area (“DMA”) are referred to as local revenue, whereas sales
from outside the DMA are referff
advertising revenue by sales channel (in thot usands):
red to as national revenue. The following table furff
ther disaggregates the Company’s broadcast
Local direct
Local agency
National aggencyy
Total revenue
Deferred Revenues
The Companm y records deferff
2018
27,908
60,840
80,261
169,009
$
$
Years Ended
December 31,
2017
$
$
30,343
64,724
76,648
171,715
$
$
2016
30,371
72,778
91,381
194,530
red revenues when cash payments are received or duedd
amounts which are refunff dabla e. The increase in the deferff
by cash payments received or due in advance of satisfying the Company’s
were included in the deferred revenue balance as of December 31, 2017.
m
rerr d revenue balance for thet
in advance of its perforff mance, including
year ended Decembem r 31, 2018 is primarily driven
t by revenues recognized that
performance obligations, offseff
The Compm any’s payment terms vary by the type and location of customer and the products
d
or servirr ces offeff
red. The term
between invoicing and when payment is due is not significant, typtt
payment before the services are delivered to the customer.
ically 30 days. For certain customer types, the Company requires
(in thousands)
Deferred revenue
December 31, 2017
2,957
$
Increase
Decrease *
(2,957) $
December 31, 2018
2,759
2,759
*
The amount disclosed in the decrease column refleff cts revenue that has been recorded durid
ng the year ended Decemberm 31, 2018.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying amount of goodwill for each of the Company’s operating segments forff
the years ended Decembem r 31, 2018 and
2017 is as follows (in thousands):
Television
io
Diggital (1)
Consolidated
$
December 31,
2016
35,912
——
14,169
50,081 $ 20,648 $
Acquisition
4,637
——
16,011
$
Impairment
Impairment
December 31,
2017
40,549
——
30,180
70,729 $
—— $
——
——
—— $
Acquisition
——
——
3,563
3,563 $
December 31,
2018
40,549
——
33,743
74,292
—— $
——
——
—— $
) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
F-25
The composm ition of thet Company’s acquired intangible assets and the associated accumulated amortization as of Decembem r 31,
2018 and 2017 is as follows (in thousands):
Intangible assets subjeb ct to amortization:
ff
ion
Television network affiliat
agreements
Customer base
Pre-sold advertisingg contracts and othet
r
Total assets subjjeb ct to amortization:
2018
2017
Weighted
average
remaining
life in
years
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
8
5
6
$ 67,489
10,045
38,857
$ 116,391
$
$
56,950
5,044
31,799
93,793
$ 10,539
5,001
7,058
$ 22,598
$ 67,489
9,146
37,755
$ 114,390
$
$
55,560
3,839
28,233
87,632
$ 11,929
5,307
9,522
$ 26,758
Intangible assets not subju ect to
amortization:
FCC licenses and spectrum us gage r gights
Total intanggible assets
254,598
277,196
1,163
277,921
e aggregate amount of amortization expense forff
the years ended Decemberm 31, 2018, 2017 and 2016 was approximately $6.1
million, $5.9 million and $3.5 million, respectively. Estimated amortization expense for each of the years ended Decembem r 31, 2019
through 2023 is as follows (in thousands):
Estimated Amortization Expense
2019
2020
2021
2022
2023
$
Amount
6,100
4,100
3,200
2,500
2,200
Impairment
The Company has identified each of its three operating segments to be separate reporting units: television broadcasting, radio
broadcasting, and digital media. The carryrr
goodwill) and liabilities based upou n thet
methodologies utilized to determine the fair value of the reporting units.
ing values of the reporting units are determined by allocating all applicabla e assets (including
unit in which the assets are emplm oyed and to which the liabia lities relate, considering the
Goodwill and indefinite life intangibles are not amortized but are tested annually for impairment, or more frequ
ff
ently, if events
or changes in circumstances indicate that the assets might be impam ired. The annual testing date is October 1.
The Compamm ny conducted a review of the fair value of thet
television reporting unit. As of the annual goodwill testing date,
re was $40.5 million of goodwill in the television reporting unit. The estimated fair value of the television
October 1, 2018, thet
goodwill was determined by using a combination of a market approach and an income approach. The market appr
value by appl
from compam rable publu icly-traded companies with similar operating and investment characteristics to the television reporting unit. The
market appa
transactions and transaction premiums.
ying sales, earnings and cash flow multiples to the reporting unit’s operating performance. The mulmm tiples are derived
roach requiq res the Company to make a series of assumptm ions, such as selecting compamm rable companim
oach estimates fair
e
es and comparabl
mm
a
a
The income approac
a
h estimates fair value based on the estimated future cash flows of the television reporting unit, discounted
by an estimated weighted-average cost of capia tal that reflects current market conditions, which reflect the overall level of inherent risk
of the reporting unit. The income approach also requires the Compam ny to make a series of assumptmm ions, such as discount rates, revenue
projections, profit margin projections and terminal value multiples. The Companym
return considering both debt and equiq ty for compam rable publicly-traded companies in the television industry. These comparable
publu icly-traded companies have similar size, operating characteristics and/or financial profiles to the television reporting unit. The
Compam ny also estimated the terminal value mulm tiple based on comparable publu icly-traded companm ies in the television indusdd try.r The
o
Compamm ny estimated its revenue projections and profit margin projections
based on internal forecasts aboa ut futurtt e performance.
estimated the discount rate on a blended rate of
F-26
Based on the assumptm ions and estimates described aboa ve, the television reporting unit fair
ff
value exceeded its carrying value by
48%, resulting in no impairment charge in 2018. The discount rate used in the fair value calculation of the television reporting unit
prior year and expected cash flows of a compom nent of the reporting unit were decreased from prior year to account
was increased fromff
for risk within the forecasts of the reporting unit. If that discount rate were to increase by 1%, the fair value of the television reporting
unit would decrease by 6%. If the long term projeo cted growth rate were to decrease by 0.5%, the fair value of the television reporting
unit would decrease by 1%.
The Company also conducted a review of the fair value of the digital reporting unit. As of the annual goodwill testing date,
re was $33.7 million of goodwill in the digital media reporting unit. The estimated fair value of the digital
October 1, 2018, thet
ff
goodwill was determined by using a combination of a market approach and an income approach. The market appr
value by appl
ying sales, earnings and cash flow multiples to the reporting unit’s operating performance. The mulmm tiples are derived
from compam rable publu icly-traded companies with similar operating and investment characteristics to the digital reporting unit. The
market approach requiq res the Company to make a series of assumptmm ions, such as selecting compamm rable companim
e
es and comparabl
transactions and transaction premiums.
oach estimates fair
mm
a
a
The income appro
a
ach estimates fair value based on the estimated future cash flows of the digital reporting unit, discounted by an
current market conditions, which reflect the overall level of inherent risk of the
estimated weighted-average cost of capia tal that reflects
reporting unit. The income approach also requiq res the Compmm any to make a series of assumptmm ions, such as discount rates, revenue
projections, profit margin projections and terminal value mulm tiples. The Companym
estimated the discount rate on a blended rate of
return considering both debt and equiq ty for comparm able publicly-traded companies in the digital media industry. These compamm rable
publu icly-traded companies have similar size, operating characteristics and/or finff ancial profiles to the digital reporting unit. The
Compam ny also estimated the terminal value mulm tiple based on comparable publicly-traded companies in the digital media industry.
casts about futurtt e performance.
The Compm any estimated its revenue projections and profit margin projections based on internarr
l foreff
ff
Based on the assumptm ions and estimates described aboa ve, the digital reporting unit fair
ff
value exceeded its carrying value by 1%,
prior year and expected cash flowff
resulting in no impamm irment charge in 2018. The discount rate used in the fair value calculation of the digital reporting unit was
increased fromff
risk within the forff ecasts of the reporting unit. If that discount rate were to increase by 1%, the fair value of the digital reporting unit
would decrease by 5%. If the long term projeo cted growth rate were to decrease by 0.5%, the fair value of the digital reporting unit
would decrease by 1%.
reporting unit were decreased from prior year to account for
s of a component of thet
Uncertain economic conditions, fiscal policy and other
t
factors beyond the Company’s control potentially could have an adverse
ff
rr
the internal
effect on the capital markets, which would affeff ct the discount rate assumptm ions, terminal value estimates, transaction premiums and
comparable transactions. Such uncertain economic conditions could also have an adverse effect
on the funff damentals of the business
and results of operations, which would affect
Furthet
rmore, such uncertain economic conditions could have a negative impact on the digital advertising industry in general or the
industries of those customers who advertise with the digital reporting unit, including, among others, the automotive, financial and
other services, telecommunica
historical and projected advertising revenue. The activities of compemm titors could have an adverse effecff
futurtt e performance and terminal value estimates. Changes in technology or audience preferences, including increased competition
from other forms of advertising-based mediums, could have an adverse effect on the internal forecasts about futurett
terminal value estimates and tratt nsaction premiums. Finally, the risk facff
reports could have an adverse effeff ct on the internal forecasts about future performff
premiums.
tions, travel and restaurant industries, which in the aggregate provide a significant amount of the
forecasts about future performance and terminal value estimates.
tors that the Compamm ny identifies from time to time in its SEC
ance, terminal value estimates and transaction
t on the internal forecasts about
performance,
mm
ff
There can be no assurance that the estimates and assumptions made for the purporr
se of the Compam ny’s goodwill impm airment
sts of future performance of the
testing will prove to be accurate predictions of the futff urtt e. If the assumptionm
the discount rate, or if there are lower comparable transactions
ff
reporting unit are not achieved, if market conditions change and affect
and transaction premiums, the Company may be required to record goodwill impam irment charges in future periods. It is not possible at
this time to determine if any such future change in the Company’s assumptm ions would have an adverse impactm
on the valuation models
and result in impam irment, or if it does, whether such impam irment charge would be material.
s regarding internal foreca
ff
The Compam ny did not have any goodwill in its radio reporting unit at Decembem r 31, 2018 and 2017.
There were no events that occurrerr d subsequent to thet
that the faiff
r value of any of the Company’s reporting units is less than thet
annual impam irment testing date that suggest that it is more likely than not
ing amount.
respective carryr
F-27
The Company also conducted a review of the fair value of the television and radio FCC licenses in 2018 and 2017. The
a
The income approach estimates faiff
estimated fair value of indefinite life intangible assets is determined by an income approach.
s of each market cluster that a hypothetical buyer would expect to generate, discounted by an
based on the estimated futff urt e cash flowff
estimated weighted-average cost of capia tal that reflects current market conditions, which reflect the level of inherent risk. The income
approach requires the Compam ny to make a series of assumptm ions, such as discount rates, revenue projeo ctions, profit margin projections
and terminal value mulm tiples. The Compam ny estimates the discount rates on a blended rate of returntt
considering both debt and equiq ty
for compam rable publicly-traded companmm ies. These comparable publu icly-traded companies have similar size, operating characteristics
and/or financial profiles to the Companym
le publicly-
traded compamm nies. The Company estimated the revenue projeo ctions and profit margin projections based on various market clusters
signal coverage of the markets and industry information for an average station within a given market. The information for each market
cluster includes such thit ngs as estimated market share, estimated capital start-up costs, population, household income, retail sales and
other expenditurt es that would influence advertising expenditures. Alternatively, some stations under evaluation have had limited
relevant cash floff w history due to planned or actual conversion of forff mat or upgu rade of station signal. The assumptions the Compamm ny
makes about cash flows after conversion are based on the perforff mar
from the sale of the assets. Based on the assumptim ons and estimates, the Companymm
years ended Decembem r 31, 2018 and 2017.
. The Compm any also estimated the terminal value multiple based on comparab
nce of similar stations in similar markets and potential proceeds
did not record impam irment of FCC licenses for thet
r value
mm
8. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2018 and 2017 consists of (in millions):
Buildings
tt
nstruct
ion in progress
Transmission, studi
t
Office and computer equipment
Transportation equipment
o and othet
r broadcast equipment
Leasehold improvem
mm
ents and land improm vements
Less accumulam ted depreciation
Land
Estimated useful
life (years)
2018
2017
39
——
5-15
3-7
5
Lesser of lease
life or useful life
$
$
21.8
10.0
151.3
30.6
6.3
23.0
243.0
187.4
55.6
9.3
64.9
$
$
22.4
4.6
145.9
28.9
6.4
22.7
230.9
179.9
51.0
9.3
60.3
preciation expense was $10.1 million, $10.5 million, and $11.8 million for the years ended Decemberm 31, 2018, 2017 and
2016, respectively.
As part of the FCC auction for broadcast spectrum (see Note 4), the FCC has reassigned some stations to new post-auction
e station owners for the cost of thet
channels and will reimbursm
of its stations have been assigned to new channels with an estimated reimbursa
ended Decemberm 31, 2018 and 2017 total costs of $1.2 million and $0.3 million, respectively, were incurred and reimbursm
connection with the requiq red relocation of certain television stations to a diffeff
following the FCC auction for broadcast spectrum. The Company recorded gains on involuntary cr
pprocess of $1.2 million and $0.3 million in 2018 and 2017, respectively.
m
rent channel as part of the broadcast television repack
relocation. The Company has received notification froff m the FCC that 16
bla e cost of approximately $9.8 million. For the years
onversion associated with the repackk
ed in
F-28
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2018 and 2017 consist of (in millions):
Accounts payablea
Accruerr d payroll and compensated absences
Accruerr d bonuses
Professi
s
onal feeff
ff
Deferred revenue
Accrued national representation fees
Income taxes payablea
Other taxes payaaa blea
Amounts duedd
Accruerr d property taxes
s
Accrued capia tal expendituret
Accrued media costs – digital (1)
Other
under joint sales agreements
ff
2018
2017
$
$
14.7 $
5.2
6.3
0.5
2.8
1.0
0.3
3.3
1.2
1.5
0.7
6.0
7.5
51.0 $
23.7
6.7
5.6
0.3
3.0
0.8
0.4
3.1
1.0
1.3
1.7
6.1
8.1
61.8
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
10. LONG TERM DEBT
Long-term debt as of Decemberm 31, 2018 and 2017 is summarized as folff
lows (in millions):
Term Loan
Less current maturities
Less unamortized debt issuance costs
2018
2017
$
$
246.2 $
3.0
243.2
2.7
240.5 $
299.3
3.0
296.3
3.8
292.5
scheduled maturities of long-term debt as of December 31, 2018 are as foll
ff
ows (in millions):
Year
2019
2020
2021
2022
2023
Thereafter
Amount
3.0
3.0
3.0
3.0
3.0
231.2
246.2
$
$
2013 Creditdd Facility
The following discuii
ssion pertains to the Companyn s 2013 Credit Facility.tt The 2013 CreCC dit Facility was termina
rr
November 30, 2017 when the Companyn entered into its 2017 Credit Facility.tt Accordingly, the following discuii
certain provisions of the 2013 Credit Facilityt and the 2013 Credit Agreement.
ted on
ii
ssion summarizes
only
On May 31, 2013, the Compmm any entered into its 2013 Credit Facility pursuant to thet
2013 Credit Agreement, which the
Company amended as of August 1, 2017. The 2013 Credit Facility consisted of a $20.0 million senior secured Term Loan A Facility
(the “Term Loan A Facility”), a $375.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”; and togethet
r with
the Term Loan A Facility, the “Term Loan Facilities”) which was drawn on August 1, 2013 (the “Term Loan B Borrowing Date”),
and a $30.0 million senior secured Revolving Credit Facility (the “Revolving Credit Facility”).
F-29
The Compamm ny’s borrowings under thet
2013 Credit Facility bore interest on the outstanding principal amount thereof from the
date when made at a rate per annum equal to either: (i) the Base Rate (as definff ed in the 2013 Credit Agreement) plus thet Applicable
Margin (as defined in the 2013 Credit Agreement); or (ii) LIBOR (as defined in the 2013 Credit Agreement) plus the Applicable
Margin (as defined in the 2013 Credit Agreement).
The 2013 Credit Facility was guaranteed on a senior secured basis by the Credit Parties. The 2013 Credit Facility was secured
on a firff st priority basis by the Companmm y and the Credit Parties’ assets. Upon the redemptm ion of thet
interests and guaranties of thet Company and the Credit Parties under thet
Indenturet
and thet Notes were terminated and released.
outstanding Notes, the security
The 2013 Credit Agreement also contained additional provisions that are customary for an agreement of this type.
2017 Creditdd Facility
On November 30, 2017 (the “Closing Date”), the Company entered into its 2017 Credit Facility pursuant to the 2017 Credit
Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”),
which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that the Compam ny may increase the
aggregate principal amount of the 2017 Credit Facility by up tu
amount that would result in its
first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subjeb ct to satisfyiff ng certain
conditions.
o an additional $100.0 million plus thet
Borrowings under the Term Loan B Facility were used on the Closing Date to (a) repay in full all of the Companym
’s and its
subsidiaries’ outstanding obligations under the 2013 Credit Agreement and to terminate the 2013 Credit Agreement, (b) pay fees and
expenses in connection with the 2017 Credit Facility, and (c) for general corporr
rate purposes.
The 2017 Credit Facility is guaranteed on a senior secured basis by certain of its existing and future wholly-owned domestic
subsidiaries, and is secured on a first priority btt
asis by the Company’s and those subsu idiaries’ assets.
The Compam ny’s borrowings under thet
2017 Credit Facility bear interest on the outstanding principal amount thereof froff m the
date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in thet
(ii) the Base Rate (as definff ed in the 2017 Credit Agreement) plus 1.75%. As of Decembem r 31, 2018, the interest rate on our Term Loan
B was 5.09%. The Term Loan B Facility expires on Novembem r 30, 2024 (the “Maturity Date”).
2017 Credit Agreement) plus 2.75%; or
In the event the Companm y engages in a transaction that
t has the effeff ct of reducing the yield of any loans outstanding under thet
Term Loan B Facility within six months of the Closing Date, the Compam ny will owe 1% of the amount of the loans so repriced or
replaced to the Lenders thereof (such fee,
Credit Facility may be prepaid at the Company’s option withot ut premium or penalty, provided that certain limitations are observed,
in connection with the prepayment of a LIBOR rate loan. The principal amount of the Term
and subjecb
Loan B Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2017 Credit Agreement, with
the final balance due on the Maturi
the “Repricing Fee”). Other than the Repricing Fee, the amounts outstanding under the 2017
t to customary breakage fees
ty Date.
ff
ff
t
Subjeb ct to certain exceptions, the 2017 Credit Facility contains covenants that limit the abia lity of the Compam ny and its restricted
subsidiaries to, among other thit ngs:
incur liens on the Compam ny’s property or assets;
make certain investments;
incur additional indebtedness;
consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;
dispose of certain assets;
make certain restricted payments;
make certain acquisitions;
enter into substantially different lines of business;
enter into certain transactions with affiliates;
use loan proceeds to purchase or carryrr margin stock or for any other
t
prohibited purpose;
F-30
change or amend the terms of the Compam ny’s organizational documents or the organization documents of certain
restricted subsiu
diaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;
enter into sale and leaseback tratt nsactions;
make prepayments of any subordinated indebtedness, subject to certain conditions; and
change thet Company’s fiscal year, or accounting policies or reporting practices.
The 2017 Credit Facility also provides for certain customary events of defauff
lt, including the folff
lowing:
defaula t forff
three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;
defaula t in payment when dued
of the principal amount of borrowings under the 2017 Credit Facility;
failure by the Companm y or any subsu idiary to comply with the negative covenants and certain other covenants relating to
maintaining the legal existence of the Companm y and certain of its restricted subsidiaries and complm iance with anti-
corruprr
tion laws;
failure by the Compm any or any subsu idiary to comply with any of the other agreements in the 2017 Credit Agreement and
related loan documents that continues for thirty (30) days (or ten (10) days in the case of faiff
related to inspection rights of the administrative agent and lenders and permit
the 2017 Credit Facility) after the Compamm ny’s officers first become aware of such failure
such failure from any lender;
lure to comply with covenants
ted uses of proceeds from borrowings under
or first receive written notice of
r
ff
payment of other indebtedness
defaulaa t in thet
failure to comply with the termsr
indebtedness can cause such indebtedness to be declared duedd
d
and payable;
if the amount of such indebtedness aggregates to $15.0 million or more, or
of any agreements related to such indebtedness if the holder or holders of such
certain events of bankrupt
rr
cy or insolvency with respect to the Company or any significant subsiu
diary;
final judgment is entered against the Company or any restricted subsiu
either enforcement proceedings are commenced by any creditor or there is a period of 30 consecutive days during which
the judgment remains unpaid and no stay is in effeff ct;
diary in an aggregate amount over $15.0 million, and
any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full
effect; and
ff
force and
any revocation, termination, substu
the requiq rement (by final non-appe
reasonabla y expected to have a material adverse effect.
a
antial and adverse modification, or refusal by finff al order to renew, any media license, or
alable order) to sell a television or radio station, where any such event or failure is
The Term Loan B Facility does not contain any finff ancial covenants. In connection with the Companym
entering into the 2017
Credit Agreement, the Company and its restricted subsidiaries also entered into a Security Agreement, pursuant to which the Company
and the Credit Parties each granted a first
the lenders under the 2017 Credit Facility.
priority security interest in the collateral securing the 2017 Credit Facility for the benefit of
ff
Additionally, thet
2017 Credit Agreement contains a definition of “Consolidated EBITDA” that excludes revenue related to the
Company’s participation in the FCC auction for broadcast spectrumrr
“Consolidated Adjud sted EBITDA” under the 2013 Credit Agreement which included such items.
and related expenses, as comparm ed to the definff
ition of
In Decemberm 2018, the Company made a prepayment of $50.0 million to reduced
the amount of loans outstanding under our
Term Loan B Facility.
On April 30, 2019, the Company entered into a First Amendment and Limited Waiver (the “Amendment”) to the 2017 Credit
Agreement, which became effective on May 1, 2019. Pursuant to the Amendment, the lenders waived any events of default that may
have arisen under the 2017 Credit Agreement in connection with the Company's failure to timely deliver its financial statements and
other information of the Company for the fiscal year ended December 31, 2018 (the “2018 Audited Financial Statements”), and
amended the 2017 Credit Agreement, giving the Company until May 31, 2019 to deliver the 2018 Audited Financial Statements.
Failure by the Company to deliver the 2018 Audited Financial Statements on or prior to May 31, 2019 would constitute an immediate
event of default under the 2017 Credit Agreement. By filing this Annual Report on Form 10-K prior to that date, the Company
believes it has complied with the affirmative covenants in the 2017 Credit Agreement, as amended by the Amendment, regarding
delivery of the 2018 Audited Financial Statements.
F-31
Pursuant to the Amendment, the Company agreed to pay to the lenders consenting to the Amendment a fee equal to 0.10% of
the aggregate principal amount of the outstanding loans held by such lenders under the 2017 Credit Agreement as of May 1, 2019.
This fee totaled approximately $0.2 million.
11. DERIVATIVE INSTRUMENTS
Prior to Novemberm 28, 2017, the Company used derivatives in thet management of interest rate risk with respect to interest
expense on variable rate debt. The Company was party to interest rate swap agreements with finff ancial institutions that fixed the
variable benchmark componem
28, 2017, thet Company terminated these swap agreements in conjunction with the refinff ancing of its debt. The Company’s current
policy prohibits entering into derivative instruments forff
nt (LIBOR) of its interest rate on a portion of its term loan beginning Decembem r 31, 2015. On Novembem r
speculation or trading purporr
ses.
The carrying amount of the Compamm ny’s interest rate swap agreements were recorded at fair value, including consideration of
ance risk, when material. The faff ir value of each interest rate swap agreement was determined by using mulm tiple broker
non-performff
quotes, adjusted for non-perforff mance risk, when material, which estimate the futurtt e discounted cash floff ws of any future payments that
may be made under such agreements. Upon termination of thet
income was reclassified to interest expense forff
swap agreements, $2.5 million in accumulmm ated other comprm ehensive
the year ended Decemberm 31, 2017.
12. FAIR VALUE MEASUREMENTS
ASC 820, “Fair Value Measurements and Disclosures”, defines and establishes a framff
ework for measuring fair value and
expands disclosures about faiff
and liabia lities, based on the priority of the inputs to thet
r value measurements. In accordance with ASC 820, the Compam ny has categorized its financial assets
valuation technique, into a three-level fair value hierarchy as set forth below.
Level 1 – Assets and liabia lities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active
market that the compamm ny has thet
ability to access at the measurement date.
Level 2 – Assets and liabia lities whose values are based on quoted prices for similar attributes in active markets; quoted prices in
markets where trading occurs infrequ
substantially the fulff
l term of the asset or liability.
ff
ently; and inputs other than quoted prices that are observabla e, either directly or indirectly, for
Level 3 – Assets and liabia lities whose values are based on prices or valuation techniques that requiq re inputn
s that are both
unobservable and significant to the overall fair value measurement.
If the inputs used to measure the finff ancial instruments fall
ff within different levels of the hierarchy, the categorization is based on
the lowest level input that is significant to the faiff
r value measurement of the instrument.
F-32
The folff
lowing table presents the Company’s financial assets and liabilities measured at faiff
r value on a recurrir ng basis in the
consolidated balance sheets (in millions):
December 31, 2018
Total Fair Value
and Carrying
Value on
Balance Sheet
Fair Value Measurement Category
Level 2
Level 3
Level 1
Assets:
Money market account
Certificate of deposit
Corporate bonds
Liabilities:
Continggent consideration
$
$
$
34.6
8.2
124.2
$
$
— $
——
— $
34.6
8.2
124.2
$
$
—
——
—
8.1
$
—— $
—— $
8.1
December 31, 2017
Total Fair Value
and Carrying
Value on
Balance Sheet
Fair Value Measurement Category
Level 2
Level 3
Level 1
Liabilities:
Contingent consideration (1)
$
12.1
$
— $
— $
12.1
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
The liability for contingent consideration is related to the acquisition of Headway. The faiff
r value of this contingent
n with the market and volatility, discounted at a cost of debt rate ranging from 3.78% to 4.93% over the three year
to as Level 3 inputs. This
ity has been reflected in the Consolidated Balance Sheet as of Decemberm 31, 2018 as noncurrent liabilities of $7.8
consideration is estimated to be $7.8 million and $15.9 million as of Decembem r 31, 2018 and 2017, respectively by applying the real
options technique in accordance with ASC 805-30-25-5. Key assumptm ions include risk-neutral expected growth rates based on
management’s assessments of expected growth in Net Revenue and EBITDA, respectively, adjusted by appropriate factors capturing
their correlatio
r
period. These are significant inputs that are not observarr blea
contingent liabila
million, and as of Decemberm 31, 2017 as current and noncurrent liabilities of $2.3 million and $13.6 million, respectively. The
Company has not completed the process, described in the agreements related to the acquiq sition of Headway, of finalizing the
calculation of the contingent consideration, if any, related to the acquisition of Headway with respect to calendar year 2018. As a
result, as of the date of this filff ing the Company is unable to determine the final amount of such contingent consideration, if any, to be
paid with respect to calendar year 2018. The determination of the final amount of such contingent consideration, if any, to be paid
with respect to calendar year 2018 may result in adjud stments in futff urett
contingent consideration.
periods to the fair value of thet Company’s liability for
in the market, which ASC 820-10-35 refers
ff
F-33
13. INCOME TAXES
The provision (benefit)ff
for income taxes from continuing operations for the years ended Decembem r 31, 2018, 2017 and 2016 (in
millions):
Current
Federal (1)
State
Foreiggn (1)
Deferred
Federal
State
Foreiggn
Total provision for taxes
2018
2017
2016
$
$
$
0.2
0.5
1.5
2.2
5.0
2.2
(1.5)
5.7
7.9
$
$
$
(0.4) $
0.6
0.5
0.7
$
70.1
12.5
(0.7)
81.9
82.6
$
——
0.6
——
0.6
12.0
0.5
——
12.5
13.1
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
The income tax provision (benefit) differs
ff
from the amount of income tax determined by applying the Company’s federal
corporate income tax rate of 21% to pre-tax income for thet
35% to pre-tax income forff
the years ended December 31, 2017 and 2016 due to the following (in millions):
year ended Decembem r 31, 2018, and fedff
eral corporate income tax rate of
Computed “expected” tax provision (benefit) (1)
Change in income tax resulting from:
eral benefit
State taxes, net of fedff
Change in fair value of earnout
Non-deductible executive compemm nsation (1)
Change in federal tax rate
Change in state tax rate
Stock compensm
ation (1)
Change in unrecognized tax benefits
Other (1)
2018
2017
2016
$
4.5
$
90.3
$
1.5
0.4
0.3
——
0.5
0.5
(0.3)
0.5
7.9
$
8.5
——
0.7
(17.3)
——
(1.0)
——
1.4
82.6
$
$
11.7
1.4
——
——
——
——
——
——
——
13.1
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
F-34
The components of the deferred tax assets and liabilities at Decemberm 31, 2018 and 2017 consist of the folff
lowing (in millions):
Deferred tax assets:
Accruerr d expenses (1)
Accounts receivable (1)
Net operating loss carryforward
Stock-based compenm sation
Credits
Deferff
Other (1)
Net deferff
red state taxes
red tax assets
Deferred tax liabilities:
Intangible assets (1)
Property and equipment
Tax ggain deferral - FCC auction for broadcast spectrum (1)
2018
2017
2.1
0.6
72.6
1.4
0.2
2.8
2.1
81.8
$
$
1.8
0.6
77.6
0.9
0.7
2.3
1.6
85.5
(70.1) $
(1.3)
(57.1)
(128.5)
(46.7) $
(68.3)
(0.2)
(57.6)
(126.1)
(40.6)
$
$
$
$
(1) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
As of December 31, 2018, the Compam ny has fedff
eral and state net operating loss carryr
forwards of approximately $299 million
and $145 million, respectively, available to offset
during the years 2022 thrt ough 2037, to the extent they are not utilized. Any federal net operating losses incurred after 2017 can be
carried forff warr
rwards
will expire during thet
itely and the Companm y did not incur net operating losses in 2018. The state net operating loss carryfo
years 2019 thrt ough 2037, to the extent they are not utilized.
future taxable income. The federal net operating loss carryforwards will expire
rd indefinff
r
ff
Utilization of thet Company’s U.S. fedff
substantial annual limitation dued
provisions. Such an annual limitation could result in the expiration of the net operating loss carryforward
s before utilization. As of
Decemberm 31, 2018, the Company believes that utilization of its federal net operating losses and forff eign tax credits are not limited
under any ownership change limitations provided under thet
to
to the ownership change limitations provided by the Internal Revenue Code and similar state
eral and certain state net operating loss and tax credit carryovers may be subject
Internal Revenue Code.
b
rr
Due to thet
enactment of Tax Cuts and Jobs Act (“the Tax Act”) in Decembem r 2017, thet Company is subject to a tax on global
on tangible assets of foreign
intangible low-taxed income (“GILTI”). GILTI is a tax on forff eign income in excess of a deemed returnt
the GILTI tax as a period cost if and when incurred, or to
corporations. Companies subju ect to GILTI have the option to account forff
recognize deferff
ry differences including outside basis differff ences expected to reverse as GILTI. The Compam nya
has elected to account for GILTI as a period cost, and thereforff e has included GILTI expense in its effective tax rate calculation forff
period.
red taxes for temporamm
the
The Tax Act reducd ed the U.S. fedff
eral corporate tax rate froff m 35% to 21%, effecff
recorded a provisional decrease in value of its net deferred tax liabia lities of $17.3 million, with a corresp
deferred income tax benefit of $17.3 million for the year ended Decemberm 31, 2017.
tive January 1rr
rr
, 2018. As a result, the Companym
onding net adjustment to
The SEC staff iff
ssued SAB 118, which provides guidance on accounting for the tax effecff
ts of the Tax Act. SAB 118 provides a
measurement period that should not extend beyond one year from the Tax Act enactment date for compam nies to completem
accounting under Accounting Standards Codification 740 (“ASC 740”). In the third quarter of 2018, the Compam ny obtained additional
information which increased by $0.2 million the Company’s provisional accounting for certain tax effects
from $17.3 million as reported at Decemberm 31, 2017, to $17.5 million as of Decemberm 31, 2018.
of the U.S. transition tax
the
ff
The Compam ny periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than
ff
red tax assets is highly subjecb
not that the deferred
tax assets are realizable, adjud sts the valuation allowance accordingly. Valuation allowances are established and
maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation
lowing
allowance for deferff
possible sources of taxabla e income when assessing the realization of the deferred tax assets: (1) futurtt e reversals of existing taxabla e
temporary differences; (2) taxable income in prior carrybay ck years; (3) future taxable income exclusive of reversing temporary
differff ences and carryforwards; and (4) tax planning strategies. Based on the Compamm ny’s analysis and a review of all positive and
negative evidence such as historical operations, future projeo ctions of taxable income and tax planning strategies that are prudent and
feasible, the Compam ny determined that it was more likely than not that thet
tive and requires significant judgment. The Company has considered the folff
deferred tax assets will be realized.
F-35
The Company addresses uncertainty in tax positions according to the provisions of ASC 740, “Income Taxes”, which clarifies
the accounting for income taxes by establishing the minimumm recognition thrt eshold and a measurement attribute forff
taken or expected to be taken in a tax returt n i
n order to be recognized in the finaff
ncial statements.
rr
tax positions
The folff
lowing table summarizes the activity related to the Compamm ny’s unrecognized tax benefits (in millions):
Balance at Decembem r 31, 2016
Change in balances related to tax positions
Balance at Decembem r 31, 2017
Change in balances related to tax rate change
Balance at Decembem r 31, 2018
Amount
6.3
0.0
6.3
(0.3)
6.0
$
$
$
As of Decemberm 31, 2018, the Companymm
had $6.0 million of gross unrecognized tax benefits for uncertain tax positions, of
which $0.5 million would affeff ct the effect
ff
ive tax rate if recognized.
The Compam ny does not anticipate that thet
increase or decrease within the next 12 months.
t
amount of unrecognized tax benefits as of December 31, 2018 will significantly
The Compam ny recognizes interest and penalties related to income tax matters as a componmm ent of income tax expense. As of
Decemberm 31, 2018, the Company had no significant accrued interest and penalties related to uncertain tax positions due to the net
operating losses.
The Compam ny is subjeb ct to taxation in thet United States, various states, and various foreign jurisdictions. The tax years 2015 to
2017 and 2014 to 2017 remain open to examination by fede
tax years 2006 to 2017 may remain open to examination by certain foreff
the statute of limitations have expired (2014 and prior for fedff
taxing jurisdictions challenge the amounts of net operating loss carryforwards from such years.
ff
eral and 2013 and prior for state) could be adjud sted in the event that
ign jurisdictions. Net operating losses from years from which
t the
ral and state taxing jurisdictions, respectively. For foreign jurisdictions, the
The Compam ny intends to permanently reinvest its unremitted earnings in its forff eign subsiu
diaries, and accordingly has not
provided deferred tax liabilities on those earnir ngs. The Compam ny has not determined at this time an estimate of total amount of
unremitted earnir ngs, as it is not practical at this time.
14. COMMITMENTS AND CONTINGENCIES
The Company has non-cancelablea
through June 2024, to provide television and radio audi
obligated to pay ta
$10.4 million and $0.5 million, respectively. The annual commitments beyond 2020 are not significff ant.
hese providers a total of approximately $11.6 million. The 2019 and 2020 annual commitments total appa
agreements with certain media research and ratings providers, expiring at various dates
ence measurement services. Pursuant to these agreements, the Companymm
a
is
roximately
The Compam ny leases facilities and broadcast equipment under various non-cancelable operating lease agreements with various
terms and conditions, expiring at various dates through December 2059.
The Compam ny’s corporate headquarters are located in Santa Monica, California. The Company leases approximately 16,000
t of space in the building housing its corporate headquarters under a lease expiring in 2021. The Company also leases
square feeff
approximately 41,000 square feet of space in the building housing its radio network i
in 2026.
r
n Los Angeles, California,
r
under a lease expiring
The types of properties required to supu port each of the Company’s television and radio stations typiy cally include officff es,
broadcasting studios and antenna towers where broadcasting transmitters and antenna equiq pment are located. The majorit
Company’s officff
buildings and/or land used forff
substantially all of the equipment used in its television and radio broadcasting business.
y of the
ilities are leased pursuant to non-cancelable long-term leases. The Company also owns the
io and tower facilities at certain of its television and/or radio properties. The Company owns
e, studio and tower facff
offiff ce, studt
a
F-36
The approximate futurett minimum lease payments under these non-cancelable operating leases at December 31, 2018 are as
follows (in millions):
2019
2020
2021
2022
2023
Thereafter
Amount
10.4
10.7
8.5
7.6
6.1
38.5
81.8
$
$
Total rent expense under operating leases, including rent under month-to-month arrangements, was approximately $12.0
million, $10.5 million and $11.0 million forff
the years ended Decembem r 31, 2018, 2017 and 2016, respectively.
15. STOCKHOLDERS’ EQUITY
The Company’s Second Amended and Restated Certificaff
te of Incorporation auta horize both common and preferred stock.
Common StoSS ck
The Company’s common stock has three classes, identified as Class A common stock, Class B common stock and Class U
common stock. The Class A common stock and Class B common stock have similar rights and privileges, except that the Class B
common stock is entitled to ten votes per share as compared to one vote per share forff
B common stock is convertible at the holder’s option into one fulff
requiq red to be converted into one share of Class A common stock upon the occurrenrr
Amended and Restated Certificate
ly paid and non-assessabla e share of Class A common stock and is
ce of certain events as defineff
the Class A common stock. Each share of Class
d in the Second
of Incorpor
ration.
ff
The Class U common stock, which is held by Univision, has limited voting rights and does not include the right to elect
directors. Each share of Class U common stock is automatically convertible into one share of the Company’s Class A common stock
(subju ect to adjustment forff
affiliate of Univision. In addition, as the holder of all of the Company’s issued and outstanding Class U common stock, so long as
Univision holds a certain numbem r of shares of Class U common stock, the Company may not, without the consent of Univision, merge,
consolidate or enter into a business combination, dissolve or liquidate the Company or dispose of any interest in any Federal
Communim cations Commission, or FCC, license with respect to television stations which are affiliates of Univision, among other
things. Class U Common stock is entitled to dividends as and when declared on common stock.
stock splits, dividends or combim nations) in connection with at
to a third party that is not an
ny transferff
During the year ended December 31, 2018, the Companym
paid cash dividends totaling $0.20 per share, or $17.8 million in the
aggregate, on all shares of Class A, Class B, and Class U common stock. During the year ended December 31, 2017, thet Company
paid cash dividends totaling $0.16 per share, or $14.7 million in the aggregate, on all shares of Class A, Class B, and Class U common
stock.
Preferre
e
d Stoctt k
As of Decemberm 31, 2018 and Decemberm 31, 2017, there were no shares of any series of preferrer d stock issued and outstanding.
Treasury Stoctt k
On July 13, 2017, the Board of Directors approved a share repurchase of up to $15 million of the Companmm y’s outstanding
common stock. On April 11, 2018, thet Board of Directors approved thet
Company’s Class A common stock, forff
the Companm y is authot
market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice.
o $30.0 million. Under the share repurchase program,
rized to purchase shares froff m time to time through open market purchases or negotiated purchases, subju ect to
repurchase of up to an additional $15.0 million of thet
a total repurchase authorization of up tu
Treasury sr
tock is included as a deduction from equity in the Stockholders’ Equiq ty section of the Consolidated Balance Sheets.
Shares repurchased pursuant to the Compamm ny’s share repurchase program are retired during the same calendar year.
F-37
The Company repurchased 3.5 million shares of Class A common stock at an average price of $3.88, forff
an aggregate purchase
price of approximately $13.7 million, during the year ended December 31, 2018. As of Decemberm 31, 2018, the Company repurchased
roximately $19.1 million,
a total of approximately 4.5 million shares of Class A common stock for an aggregate purchase price of appa
or an average price per share of $4.23, since the beginning of the share repurchase program. All such repurchased shares were retired
as of Decemberm 31, 2018.
16. EQUITY INCENTIVE PLANS
In May 2004, the Company adopted its 2004 Equity Incentive Plan (“2004 Plan”), which replaced its 2000 Omnim bus Equiq ty
the award of up to 11,500,000 shares of Class A common stock. The
Incentive Plan (“2000 Plan”). The 2000 Plan had allowed forff
2004 Plan allows for the award of upu to 10,000,000 shares of Class A common stock, plus any grants remaining available at its
adoption date under the 2000 Plan. Awards under the 2004 Plan may be in the forff m of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock or restricted stock units. The 2004 Plan is administered by a committee appointed by
the Board. This committee determines the typeyy , numbem r, vesting requirements and othet
Generally, stock options granted from the 2000 Plan have a contratt ctual
or five years and stock options granted from the 2004 Plan have a contratt ctual
four years.
term of ten years from the date of the grant and vest over four
term of ten years from the date of the grant and vest over
conditions of such awards.
ff
r feat
s andaa
uret
t
t
The 2004 Plan was amended by the Compensation Committee effecff
tive July 13, 2006 to (i) eliminate automatic option grants
ee directors, making any grants to such directors discretionary by the Compem nsation Committee and (ii) eliminate the
for non-employm
three-year minimum vesting period for perforff mance-based restricted stock and restritt cted stock units, making the vesting period for
such grants discretionary by the Compem nsation Committee.
The 2004 Plan was further amended by the Compensation Committee effeff ctive May 21, 2014 primarily to extend the end of the
term until May 29, 2024.
The Company has issued stock options and restricted stock units to various emplm oyees and non-emplm oyee directors of the
Company in addition to non-emplm oyee service providers under both the 2004 Plan and the 2000 Plan.
Stoctt k Options
lowing table. Stock-based compenmm sation expense related to stock options is based on the faiff
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model that uses the
r value on the
assumptm ions noted in the folff
date of grant and is amortized over thet
volatility of the Company’s stock. The Company uses historical data to estimate option exercise and emplm oyee termination within the
valuation model. The expected term of stock options granted is based on historical contractual life and the vesting data of the stock
ff
options. The risk-freeff
at the time of grant.
vesting period, generally between 1 to 4 years. Expected volatilities are based on historical
l life of the stock option is based on the U.S. Treasury yield curve in effect
periods within the contract
rate forff
uat
t
There were no stock options granted during the years ended December 31, 2018 and 2017.
F-38
The folff
lowing is a summary of stock option activity: (in thousands, except exercise price data and contractual life data):
Options
Outstandi gng at Decembem r 31, 2015
Exercised
Forfeited or cancelled
tstandi gng at Decembem r 31, 2016
Exercised
Forfeited or cancelled
tstandi gng at Decembem r 31, 2017
Exercised
Forfeited or cancelled
tstandi gng at Decembem r 31, 2018
Vested and Exercisable at Decembem r 31, 2018
Vested and Expected to Vest at Decembem r 31, 2018
Number of
Shares
Weighted-
Average
Exercise Price
2.35
$
2.36
3.61
2.26
1.89
2.48
2.50
2.42
4.40
2.45
2.38
2.47
3,423
(925)
(165)
$
2,333
(915) $
(90)
1,328
(177)
(36)
1,115
1,096
984
$
$
$
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
$
$
$
$
$
$
$
$
4,278
11,061
3,689
6,175
407
970
970
892
3.75
3.71
4.03
There was de minimis stock-based compensm
the year ended
Decemberm 31, 2018. Stock-based compensation expense related to the Compam ny’s emplmm oyee stock option plans was $0.1 million and
$0.4 million for the years ended Decemberm 31, 2017 and 2016, respectively.
ation expense related to the Compam ny’s employee stock option forff
As of Decemberm 31, 2018, there was no compem nsation expense related to the Companym
’s emplm oyee stock option plans.
Restricted Stoctt k and Restritt cted Stocktt
Unitstt
ff
The foll
owing is a summary of non-vested restricted stock and restritt cted stock units activity: (in thousands, except grant date
fair value data):
Nonvested balance at December 31, 2015
Granted
Vested
Forfeited or cancelled
Nonvested balance at December 31, 2016
Granted
Vested
Forfeited or cancelled
Nonvested balance at December 31, 2017
Granted
Vested
Forfeited or cancelled
Nonvested balance at December 31, 2018
Number of
Shares
Weighted-
Average Grant
Date Fair
Value
1,268
931
(685)
(134)
1,380
1,104
(844)
(83)
1,557
1,121
(798)
(104)
1,776
$
$
$
$
6.39
6.78
6.28
6.25
6.73
7.31
6.64
7.21
7.18
3.20
6.11
7.28
5.08
Stock-based compensation expense related to grants of restritt cted stock and restricted stock units was $5.8 million, $6.0 million
and $4.6 million for the years ended Decembem r 31, 2018, 2017 and 2016, respectively.
As of December 31, 2018, there was approxi
a
mately $4.2 million of total unrecognized compem nsation expense related to grants
of restricted stock and restricted stock units that is expected to be recognized over a weighted-average period of 1.7 years.
The fair value of shares vested related to grants of restricted stock and restricted stock units was $5.2 million, $6.0 million, and
$4.2 million for the years ended Decemberm 31, 2018, 2017 and 2016, respectively.
F-39
The Compamm ny’s restricted stock units are net settled by withholding shares of the Company’s common stock to cover minimumm
statutt ory incomes taxes and remitting the remaining shares of the Company’s common stock to an individual’s brokerage account.
Authorized shares of the Companym
’s common stock are used to settle restricted stock units.
Performance Restricted Stock Units
Certain of the Companym
’s management-level emplm oyees were granted perforff mance stock units that are contingent upou n
achievement of specified pre-established perfoff rmance goals over the performance period, which is one year, and vesting period of
three years, subject
to the recipient's continued service with the Company. The performance goals are based on achievement of net
revenue and/or EBITDA goals. Depending on the outcome of the performance goals, the recipient may ultimately earn performff
restricted stock units between
0% and 200% of the number of performance restricted stock units granted.
u
tt
ance
For the year ended Decemberm 31, 2016, the Companym
granted 608,500 perfoff rmance restricted stock units at a weighted average
r value of $6.75 per share. For the year ended Decemberm 31, 2016, there
t
was no share-based compem nsation expense
ance restricted stock units and the associated performance goals were not achieved.
grant date faiff
related to performff
For the years ended Decemberm 31, 2018 and 2017, the Company did not grant performff
ance restricted stock units.
17. RELATED-PARTY TRANRR SACTIONS
Substu
antially all of thet Company’s television stations are Univision- or UniMás-affiliated television stations. The network
affiliff ation agreement with Univision provides certain of the Compam ny’s owned stations thet
primary network and UniMás network programming in their respective markets. Under the network affiff liation agreement, the
right to sell no less than four minutes per hour of the available advertising time on stations that broadcast
Company retains thet
Univision network programming, and the right to sell appa
on stations that broadcast UniMás network programming, subju ect to adjud stmet
nt from time to time by Univision.
and a half minutes per hour of the available advertising time
exclusive right to broadcast Univision’s
roximately four
ff
Under the netwott
ff
rk affiliat
of certain national advertising on the Univision- and UniMás-affiliate
representation feeff
s to Univision relating to sales of all advertising forff
stations.
ff
ion agreement, Univision acts as the Compam ny’s exclusive third-party sales representative forff
television stations, and the Compam ny pays certain sales
broadcast on its Univision- and UniMás-affiliate television
the sale
The Compamm ny also generates revenue under two marketing and sales agreements with Univision, which give it the right to
manage the marketing and sales operations of Univision-owned Univision affiliates in six markets – Albuquerque, Boston, Denver,
Orlando, Tampam and Washington, D.C.
At Decembem r 31, 2018, Univision owns approximately 11% of the Company’s common stock on a fulff
ly-converted basis.
The Class U common stock has limited voting rights and does not include the right to elect directors. Each share of Class U
common stock is automatically convertible into one share of the Company’s Class A common stock (subject to adjud stment for stock
splits, dividends or combim nations) in connection with any transfer to a third party that is not an affiliate of Univision. In addition, as
the holder of all of the Companym
shares of Class U common stock, thet Company may not, without the consent of Univision, merge, consolidate or enter into a business
combination, dissolve or liquidate the Company or dispose of any interest in any Federal Communim cations Commission, or FCC,
license with respect to television stations which are affiliates of Univision, among other thit ngs.
’s issued and outstanding Class U common stock, so long as Univision holds a certain numberm of
On October 2, 2017, thet Company entered into a new affiliff ation agreement which superseded and replaced its prior affiliation
nivision. Additionally, on the same date, the Companm y entered into a proxy agreement and marketing and sales
agreements with Ut
nivision. The term of each
agreement with Univision, each of which superseded and replaced the prior comparabl
of these new agreements expires on December 31, 2026 forff
rk affiliate stations,
except that each new agreement will expire on Decemberm 31, 2021 with respect to the Compam ny’s Univision and UniMás network
affiliate stations in Orlando, Tampam and Washington, D.C. Among other thit ngs, the proxy agreement provides terms relating to
compensation to be paid to the Compamm ny by Univision with respect to retransmission consent agreements entered into with MVPDs.
During the years ended Decembem r 31, 2018 and 2017, retransmission consent revenue accounted forff
approximately $35.1 million and
$31.4 million, respectively, of which $28.2 million and $30.0 million, respectively, relate to the Univision proxy agreement. The term
f the term of any retransmission consent agreement in effect
of the proxy agreement extends with respect to any MVPD forff
beforff e the expiration of the proxy agreement.
all of the Compam ny’s Univision and UniMás netwott
e agreements with Ut
the length ot
mm
F-40
The following tables reflect the related-party btt
alances with Ut
nivision and other related parties (in thot usands):
Trade receivables
Other current assets
Inta gngible assets subjjeb ct to amortization, net (2)
Accounts payable
Univision
Other
Total
2018
$ 4,530
—
8,327
$ 1,830
2017
$ 4,653
—
9,555
$ 2,430
$
$
2018
2017
2018
—— $
274
——
118
$
—— $ 4,530
274
274
8,327
——
$ 1,948
118
2017
4,653
274
9,555
2,548
$
$
Direct operatingg expenses (1)
Amortization
(1) Consists primarily of national representation fees paid to Univision.
(2) Consists of the Univision affiliation agreement
2018
Univision
2017
$
9,254 $
1,228
9,494 $
2,043
2016
10,302
2,320
In addition, the Companym
n the
Compam ny and Univision. As of December 31, 2018, 2017 and 2016 these balances totaled $4.9 million, $3.9 million and $3.2 million,
respectively.
third parties in connection with a joint sales agreement betwee
also had accounts receivabla e fromff
tt
In May 2007, the Compam ny entered into an affiliation agreement with LATV Networksr
, LLC (“LATV”). Pursuant to the
ff
n agreement, the Company will broadcast programming provided to the Compm any by LATV on one of the digital multicast
affiliatio
channels of certain of the Compamm ny’s television stations. Under the affiliation agreement, there are no fees paid for the carriage of
programming, and the Company generally retains the right to sell appa
Walter F. Ulloa, the Company’s Chairman and Chief Executive Officer, is a director, offiff cer and principal stockholder of LATV.
roximately fivff e minutes per hour of available advertising time.
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes foreign currency translation adjustments fromff
those subsidiaries not
ional currency, the cumulative gains and losses of derivative instruments that qualify as cash flow
using the U.S. dollar as their funct
hedges, and the cumulm ative unrealized gains and losses of marketable securities. The folff
accumulmm ated othet
r comprmm ehensive income (loss) for the years ended December 31, 2018, 2017 and 2016 (in millions):
lowing table provides a roll forward of
ff
Foreign
Currency
Translation
Marketable
Securities
Cash Flow
Hedges
Total
Accumulated other comprehensive income (loss) as of
Januaryy 1, 2016
Other comprm ehensive income (loss) beforff e reclassifications
Income tax (expense) benefiff t
Amounts reclassified from AOCI
Other comprehensive income (loss), net of tax
Accumulated other comprehensive income (loss) as of
Decembem r 31, 2016
Other comprm ehensive income (loss) beforff e reclassifications
Income tax (expense) benefiff t
Amounts reclassified from AOCI
Other comprehensive income (loss), net of tax
Accumulated other comprehensive income (loss) as of
Decembem r 31, 2017
Other comprm ehensive income (loss) beforff e reclassifications
Income tax (expense) benefiff t
Amounts reclassified from AOCI
Other comprehensive income (loss), net of tax
Accumulated other comprehensive income (loss) as of
Decembem r 31, 2018
$
—— $
——
——
——
——
—— $
——
——
——
——
(4.1) $
1.8
(0.7)
——
1.1
——
(0.1)
——
——
(0.1)
(0.1)
(0.3)
——
——
(0.3)
——
——
——
——
——
——
(1.3)
0.3
——
(1.0)
(3.0)
2.3
(1.8)
2.5
3.0
——
——
——
——
——
$
(0.4) $
(1.0) $
—— $
(4.1)
1.8
(0.7)
——
1.1
(3.0)
2.2
(1.8)
2.5
2.9
(0.1)
(1.6)
0.3
——
(1.3)
(1.4)
F-41
19. LITIGATION
The Compamm ny is subjeu
ct to various outstanding claims and other legal proceedings that may arise in the ordinary course of
business. In thet
materially adversely affect the financial position, results of operations or cash flows of the Compam ny.
opinion of management, any liability of the Company that may arise out of or with respect to these matters will not
20. SEGMENT DATA
The Companm y’s management has determined that the Compamm ny operates in three reportabla e segments as of Decembem r 31, 2018,
based upon the type of advertising medium, which segments are television broadcasting, radio broadcasting, and digital media. The
Company’s segments results reflect inforff mation presented on the same basis that is used for internal management reporting and it is
also how thet
chief operating decision maker evaluates the business.
ll
Televi
siii on Broadcastintt gn
The Company owns and/or operates 55 primary television stations located primarily in Califorff nirr a, Colorado, Connecticut,
Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. The Company generates revenue from
advertising, retransmission consent agreements and the monetization of spectrumrr
usage rights in these markets.
Radioii Broadcastintt g
The Compam ny owns and operates 49 radio stations (38 FM and 11 AM) located primarily in Arizona, Califorff nir a, Colorado,
Florida, Nevada, New Mexico and Texas.
The Company owns and operates a national sales representation division, Entravision Solutions, through which the Compam ny
sells advertisements and syndicates radio programming to more than 100 markets across the United States.
Digii
taii
l Media
The Companm y owns and operates digital media operations, offeri
ng mobile, digital and other interactive media platforms and
services on Internet-connected devices, including local websites and social media, which provide users with news information and
other content.
ff
On April 4, 2017, the Compamm ny completed the acquisition of Headwadd
y, a provider of mobile, programmatic, data and
performance digital marketing solutions primarily in the United States, Mexico and other markets in Latin America (see Note 5).
Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses and foreign currency (gain) loss.
The Company generated 18% and 7% and of its revenue outside the United States durid
2017, respectively. There were no significant sources of revenue generated outside thet United States during the year ended
Decemberm 31, 2016.
ng the years ended Decemberm 31, 2018 and
F-42
The accounting policies appl
a
ied to determine the segment information are generally the same as those described in the summary
of significff ant accounting policies (see Note 2). The Compam ny evaluates the performance of its operating segments based on separate
financial data for each operating segment as provided below (in thot usands):
Years Ended December 31,
2017
2018
2016
% Change
2018 to 2017
% Change
2017 to 2016
1%
(4)%
42%
8%
(99)%
(44)%
*
37%
5%
(7)%
41%
5%
(2)%
(4)%
43%
5%
(8)%
(7)%
20%
(1)%
(81)%
118%
(39)%
(80)%
(4)%
*
362%
353%
(88)%
(7)%
(12)%
147%
5%
*
107%
*
246%
(4)%
(1)%
136%
5%
3%
(8)%
70%
5%
(8)%
(18)%
181%
7%
372%
(87)%
*
317%
14%
*
*
*
469%
Net Revenue
Revenue from advertising and retransmission consent
Television
Radio
Diggital
Total
venue from spectrum usagge rigghts (television)
Consolidated
of revenue - television (spectrum usage rights)
of revenue - digital media (1)
Direct operating expenses
Television
Radio
Diggital
Consolidated
lling, general and administrative expenses
Television
Radio
Diggital
Consolidated
iation and amortization
Television
Radio
Diggital
Consolidated
gment operating profit (loss)
Television
Radio
Diggital (1)
Consolidated (1)
orate expenses
Change in fair value contingent consideration
Foreiggn curren ycy g(gain) loss
Other operatingg (ggain) loss
Operatingg income (1)
ital expenditures
Television
Radio
Diggital
Consolidated
Total assets
Television
Radio
Diggital (1)
Consolidated (1)
$ 149,935
63,922
80,982
294,839
2,976
297,815
——
45,096
$ 148,059
66,934
57,098
272,091
263,943
536,034
12,340
32,998
$ 159,523
75,847
23,144
258,514
——
258,514
——
9,536
62,434
41,287
21,521
125,242
21,864
18,081
11,590
51,535
9,024
2,490
4,759
16,273
59,454
44,572
15,257
119,283
22,276
18,743
8,097
49,116
9,760
2,673
3,978
16,411
59,589
2,064
(1,984)
59,669
26,865
(1,202)
1,616
(1,187)
33,577
308,172
946
(3,232)
305,886
27,937
——
350
(262)
$ 277,861
14,336
350
1,031
15,717
$
$
10,945
1,679
64
12,688
$
$
$
$
$
$
62,020
44,949
6,470
113,439
21,591
20,441
4,766
46,798
10,659
3,269
1,414
15,342
65,253
7,188
958
73,399
24,543
——
——
——
48,856
5,744
3,287
277
9,308
$ 487,929
121,020
81,460
$ 690,409
$ 556,942
126,248
82,949
$ 766,139
$ 363,852
129,825
24,244
$ 517,921
) Amount reported as of and forff
th ye year ended December 31, 2017 has been revised. See Note 3.
F-43
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quart
q
erly results of operations for thet
years ended Decemberm 31, 2018 and 2017 (in
thousands, except per share data). The Companm y believes that the following information reflect
necessary for a fair
indicative of results for any future period.
presentation of the inforff mar
tion for thet
ff
ff
periods presented. The operating results for any quarter are not necessarily
s all normal recurring
r
adjud stments
Second
Quarter
Third
Quarter
Fourth
Quarter
Year ended December 31, 2018:
Net revenue
Net income applicable to common stockholders
Net income per share, basic
Net income per share, diluted
$
First Quarter
66,838
$
(1,807)
(0.02) $
(0.02) $
$
$
74,329
4,840
0.05
0.05
Year ended December 31, 2017 (Revised):
Net revenue (2)
Net income applicable to common stockholders (1)
Net income per share, basic (1)
Net income per share, diluted (1)
First Quarter
57,510
$
2,618
0.03
0.03
$
$
Second
Quarter
$
$
$
70,509
3,326
0.04
0.04
$
$
$
$
$
$
74,575
2,215
0.02
0.02
$
$
$
82,073
6,913
0.08
0.08
Third
Quarter
334,555
157,014
1.73
1.70
Fourth
Quarter (1)
73,460
$
12,740
0.14
0.14
$
$
Total
297,815
12,161
0.14
0.13
Total (1)
536,034
175,698
1.95
1.91
$
$
$
$
$
$
(1) Certain amounts reported for the second, third and fouff
rth quarters, and for the year ended Decemberm 31, 2017 have been revised.
See Note 3.
(2) Net revenue for the third quarter of 2017 includes $263.9 million related to the Compam ny’s participation in the FCC auction for
broadcast spectrum.
22. SUBSEQUENT EVENTS
On April 30, 2019, the Company entered into the Amendment to the 2017 Credit Agreement, which became effective on May 1,
2019. Pursuant to the Amendment, the lenders waived any events of default that may have arisen under the 2017 Credit Agreement in
connection with the Company's failure to timely deliver the 2018 Audited Financial Statements, and amended the 2017 Credit
Agreement, giving the Company until May 31, 2019 to deliver the 2018 Audited Financial Statements. Failure by the Company to
deliver the 2018 Audited Financial Statements on or prior to May 31, 2019 would constitute an immediate event of default under the
2017 Credit Agreement. By filing this Annual Report on Form 10-K prior to that date, the Company believes it has complied with the
affirmative covenants in the 2017 Credit Agreement, as amended by the Amendment, regarding delivery of the 2018 Audited
Financial Statements.
Pursuant to the Amendment, the Company agreed to pay to the lenders consenting to the Amendment a fee equal to 0.10% of
the aggregate principal amount of the outstanding loans held by such lenders under the 2017 Credit Agreement as of May 1, 2019.
This fee totaled approximately $0.2 million.
F-44
ENTRAVIRR
SION COMMUNICATIONS CORPORATION
SCHEDULE II – CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description
Allowance for doubtful accounts
Year ended Decembem r 31, 2018
Year ended Decembem r 31, 2017
Year ended Decembem r 31, 2016
Deferred tax valuation allowance
Year ended Decembem r 31, 2018
Year ended Decembem r 31, 2017
Year ended Decembem r 31, 2016
Balance at
Beginning of
Period
Charged /
(Credited) to
Expense
Other
Adjustments
(1)
Deductions
Balance at
End of Period
$
$
$
$
$
$
2,566
2,550
3,040
$
$
$
—— $
—— $
$
1,206
1,785
1,115
815
$
$
$
—— $
—— $
(1,206) $
208
$
(41) $
$
79
(1,164) $
(1,058) $
(1,384) $
3,395
2,566
2,550
—— $
—— $
—— $
—— $
—— $
—— $
——
——
——
(1) Other adjustments represent recoveries and increases in the allowance forff
doubtful accounts.
F-45
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