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INCOME TAXES (Block)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure Abstract

Income Tax Disclosure Text Block

15. INCOME TAXES

Effective Tax Rate - Overview

The Company’s effective income tax rate may be impacted by: (i) changes in the level of income in any of the Company’s taxing jurisdictions; (ii) changes in the statutes, rules and tax rates applicable to taxable income in the jurisdictions in which the Company operates; (iii) changes in the expected outcome of income tax audits; (iv) changes in the estimate of expenses that are not deductible for tax purposes; (v) income taxes in certain states where the states’ current taxable income is dependent on factors other than the Company’s consolidated net income; and (vi) adding facilities in states that on average have different income tax rates from states in which the Company currently operates and the resulting effect on previously reported temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities. The Company’s annual effective tax rate may also be materially impacted by tax expense associated with non-amortizable assets such as broadcasting licenses and goodwill and changes in the deferred tax valuation allowance.

An impairment loss for financial statement purposes will result in an income tax benefit during the period incurred as the amortization of some portion of the Company’s broadcasting licenses and goodwill is deductible for income tax purposes.

Expected and Reported Income Taxes (Benefit)

Income tax expense (benefit) from continuing operations computed using the United States federal statutory rates is reconciled to the reported income tax expense (benefit) from continuing operations as follows:

			Years Ended December 31,
				2018		2017			2016
				(amounts in thousands)
Federal statutory income tax rate				21%			35%			35%
Computed tax expense at federal statutory rates on income
	before income taxes		$	(77,016)		$	(8,425)		$	18,501
State income tax expense, net of federal benefit				(4,779)			23,045			(5,202)
Goodwill impairment				64,465			-			-
Valuation allowance current year activity				(2,593)			2,395			-
Tax impact of share-based awards				872			1,383			-
Transaction costs				391			8,477			-
Recognized gain on Exchange Transactions				-			6,435			-
U.S. federal income tax reform				883			(291,497)			-
Tax benefit shortfall associated with share-based awards				-			-			286
Taxable gain on sale of radio stations				5,511			-			-
Nondeductible expenses and other				8,113			1,102			1,209
Income taxes			$	(4,153)		$	(257,085)		$	14,794

For 2018

The effective income tax rate was 1.1%. This rate was lower than the federal statutory rate of 21% primarily due to an impairment on the Company’s goodwill during the fourth quarter of 2018 which is not deductible for income tax purposes. The income tax rate is lower than in previous year primarily due to an income tax benefit resulting from the Tax Cuts and Jobs Act (“TCJA”) that was enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate from the previous rate of 35% to 21%.

For 2017

The effective income tax rate was significantly impacted by an income tax benefit resulting from the TCJA that was enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate from the previous rate of 35% to 21%. The Company’s deferred tax balances were re-measured using the new federal income tax rate.

For 2016

The effective income tax rate was 28.0%. This rate was lower than the federal statutory rate of 35% primarily due to the combination of: (i) tax benefits associated with legislative changes in certain single member states; (ii) a reduction in the Company’s valuation allowances against net operating losses in certain single member states as a result of internal restructuring; and (iii) the reliance more on share-based awards issued to senior management that are fully deductible for tax purposes.

Income Tax Expense

Income tax expense (benefit) for each year is summarized in the table below. The table does not include income tax expense from discontinued operations of $0.7 million and $0.5 million in 2018 and 2017, respectively.

					Years Ended December 31,
					2018			2017			2016
	Current:
		Federal			$	38,481		$	5,178		$	(33)
		State				17,836			1,289			139
			Total current			56,317			6,467			106
	Deferred:
		Federal				(37,678)			(295,467)			19,980
		State				(22,792)			31,915			(5,292)
			Total deferred			(60,470)			(263,552)			14,688
Total income taxes (benefit)					$	(4,153)		$	(257,085)		$	14,794

Deferred Tax Assets and Deferred Tax Liabilities

The income tax accounting process to determine the Company’s deferred tax assets and liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities based on tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. These estimates include assessing the likely future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Changes to these estimates could have a future impact on the Company’s financial position or results of operations.

At December 31, 2017, the Company calculated the accounting for the tax effects of enactment of TCJA as written, and made a reasonable estimate of the effects on the existing deferred tax balances. The Company recorded an estimated income tax benefit from continuing operations of $291.5 million to adjust the Company’s deferred income tax balances as a result of the reduced corporate income tax rate. The estimated amounts are included as components of income tax expense from continuing operations.

To determine the Company’s estimated amounts, the Company re-measured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally a 21% federal tax rate and its related impact on the state tax rate.

The Company completed its assessment of the impact of the TCJA as of December 22, 2018. In connection with this final assessment of the impact of the TCJA, the Company recorded an additional $0.9 million income tax benefit from continuing operations during 2018.

The components of deferred tax assets and liabilities as of December 31, 2018 and 2017, are as detailed below.

					December 31,
					2018			2017
					(amounts in thousands)
Deferred tax assets:
	Federal and state income tax loss carryforwards					81,368			96,334
	Share-based compensation					3,382			4,174
	Investments - impairments					347			348
	Lease rental obligations					15,080			13,910
	Deferred compensation					9,097			11,601
	Deferred gain on tower transaction					1,732			1,897
	Debt fair value adjustment					4,390			5,162
	Reserves					-			7,442
	Property, equipment and certain intangibles (other
	than broadcasting licenses and goodwill)					-			-
	Advertiser broadcasting obligations					-			-
	Employee benefits					2,396			543
	Provision for doubtful accounts					4,406			4,383
	Other non-current					5,799			1,614
	Total deferred tax assets before valuation allowance					127,997			147,408
	Valuation allowance					(25,761)			(37,154)
	Total deferred tax assets				$	102,236		$	110,254
Deferred tax liabilities:
	Advertiser broadcasting obligations				$	47		$	(7,172)
	Deferral of gain recognition on the extinguishment of debt					-			-
	Property, equipment and certain intangibles					(49,662)			(55,922)
	Broadcasting licenses and goodwill					(598,603)			(656,949)
	Total deferred tax liabilities				$	(648,218)		$	(720,043)
	Total net deferred tax liabilities				$	(545,982)		$	(609,789)

Valuation Allowance for Deferred Tax Assets

Judgment is required in estimating valuation allowances for deferred tax assets. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the carryforward periods under tax law. The Company periodically assesses the need for valuation allowances for deferred tax assets based on more-likely-than-not realization threshold criteria. In the Company’s assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, forecasts of future profitability, the duration of statutory carryforward periods and any ownership change limitations under Section 382 of the Code on the Company’s future income that can be used to offset historic losses.

For 2018, the Company’s ability to utilize net operating loss carryforwards (“NOLs”) will be limited under Section 382 of the Code as a result of the CBS Radio Merger. For federal income tax purposes, the acquisition of CBS Radio (now Entercom Media Corp.) was treated as a reverse acquisition which caused the Company to undergo an ownership change under Section 382 of the Code. The utilization of these NOLs in future years will be subject to an annual limitation. In addition, Entercom Media Corp. has federal NOLs that are subject to a separate IRC Section 382 annual limitation.

As changes occur in the Company’s assessments regarding its ability to recover its deferred tax assets, the Company’s tax provision is increased in any period in which the Company determines that the recovery is not probable.

The following table presents the changes in the deferred tax asset valuation allowance for the periods indicated:

					Increase			Increase
					(Decrease)			(Decrease)
					Charged			Charged
					(Credited)			(Credited)
		Balance at			to Income			to						Balance At
		Beginning			Taxes			Balance			Purchase			End Of
Year Ended		of Year			(Benefit)			Sheet			Accounting			Year
			(amounts in thousands)
December 31, 2018		$	37,154		$	(11,393)		$	-		$	-		$	25,761
December 31, 2017			12,861			17,785			151			6,357			37,154
December 31, 2016			20,638			(7,777)			-			-			12,861

Liabilities for Uncertain Tax Positions

The Company recognizes liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to estimate the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.

The Company classifies interest and penalties that are related to income tax liabilities as a component of income tax expense. The income tax liabilities and accrued interest and penalties are presented as non-current liabilities, as payments are not anticipated within one year of the balance sheet date. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheets.

The Company’s liabilities for uncertain tax positions are reflected in the following table:

			December 31,
			2018			2017
			(amounts in thousands)
Liabilities for uncertain tax positions
	Tax		$	370		$	711
	Total		$	370		$	711

The amounts for interest and penalties expense reflected in the statements of operations were eliminated in the statements of cash flows under net deferred taxes (benefit) and other as no cash payments were made during these periods.

The following table presents the expense (income) for uncertain tax positions, which amounts were reflected in the consolidated statements of operations as an increase (decrease) to income tax expense:

		Years Ended December 31,
		2018			2017			2016
		(amounts in thousands)
Tax expense (income)		$	-		$	-		$	(67)
Interest and penalties (income)			-			-			(170)
Total income taxes (benefit)
from uncertain tax positions		$	-		$	-		$	(237)

The decrease in liabilities for uncertain tax positions for 2018 is related to the lapse of statutes of limitations.

The following table presents the gross amount of changes in unrecognized tax benefits:

			Years Ended December 31,
			2018			2017			2016
			(amounts in thousands)
Beginning of year balance			$	(7,820)		$	(7,138)		$	(7,690)
Prior year positions
	Gross Increases			-			(710)			-
	Gross Decreases			-			-			-
Current year positions
	Gross Increases			-			-			-
	Gross Decreases			-			-			-
Settlements with tax authorities				-			-			-
Reductions due to statute lapse				535			28			552
End of year balance			$	(7,285)		$	(7,820)		$	(7,138)
Ending liability balance included above that was
	reflected as an offset to deferred tax assets		$	(6,915)		$	(7,110)		$	(7,138)

The gross amount of the Company’s unrecognized tax benefits is reflected in the above table which, if recognized, would impact the Company’s effective income tax rate in the period of recognition. The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for a number of reasons including the expiration of statutes of limitations, audit settlements and tax examination activities.

As of December 31, 2018, there were no significant unrecognized net tax benefits (exclusive of interest and penalties) that over the next 12 months are subject to the expiration of various statutes of limitation. Interest and penalties accrued on uncertain tax positions are released upon the expiration of statutes of limitations.

Federal and State Income Tax Audits

The Company is subject to federal, state and local income tax audits from time to time that could result in proposed assessments. Management believes that the Company has made sufficient tax provisions for tax periods that are within the statutory period of limitations not previously audited and that are potentially open for examination by the taxing authorities. Potential liabilities associated with these years will be resolved when an event occurs to warrant closure, primarily through the completion of audits by the taxing jurisdictions, or if the statute of limitations expires. To the extent audits or other events result in a material adjustment to the accrued estimates, the effect would be recognized during the period of the event. There can be no assurance, however, that the ultimate outcome of audits will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

The Company cannot predict with certainty how these audits will be resolved and whether the Company will be required to make additional tax payments, which may include penalties and interest. For most states where the Company conducts business, the Company is subject to examination for the preceding three to six years. In certain states, the period could be longer.

Income Tax Payments, Refunds and Credits

For federal taxation purposes, the TCJA repealed the Alternative Minimum Tax (“AMT”) for corporations. Accordingly, the Company did not make any AMT payments in 2018. The Company is now subject to regular corporate income tax.

The following table provides the amount of income tax payments and income tax refunds for the periods indicated:

			Years Ended December 31,
			2018			2017			2016
			(amounts in thousands)
Federal and state income tax payments			$	54,217		$	2,030		$	381

Net Operating Loss Carryforwards

As a result of the Merger with CBS Radio on November 17, 2017, changes in the cumulative ownership percentages triggered a significant limitation in its NOL carryforward utilization.

The Company’s ability to use its federal NOL and credit carryforwards is subject to annual limitations as defined in Section 382 of the IRC. Entercom Media Corp. also had federal NOLs that are subject to a separate IRS Section 382 limitation. As a result, the Company has recorded a valuation allowance against a portion of its federal NOLs as it anticipates utilizing $254.5 million of its NOL carryovers.

The Company has recorded a valuation allowance for its state NOLs as the Company does not expect to obtain a benefit in future periods. In addition, utilization in future years of the NOL carryforwards may be subject to limitations due to the changes in ownership provisions under Section 382 of the Code and similar state provisions.

The Company will continue to assess the ability of these carryforwards to be realized in subsequent periods.

The NOLs in the following table reflect an estimate of the NOLs for the 2018 tax filing year as these returns will not be filed until later in 2019:

		Net Operating Losses
		December 31, 2018
		NOLs			NOL Expiration Period
		(amounts in			(in years)
		thousands)
Federal NOL carryforwards		$	262,066		2030	to	2033
State NOL carryforwards		$	518,779		2019	to	2034

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- References

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- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-URI http://asc.fasb.org/topic&trid=2144680

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