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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________to ___________
COMMISSION FILE NUMBER: 001-14461
Entercom Communications Corp.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 23-1701044
<S> <C>
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)
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401 CITY AVENUE, SUITE 409
BALA CYNWYD, PENNSYLVANIA 19004
(Address of principal executive offices and Zip Code)
(610) 660-5610
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed 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 subject to such filing
requirements for the past 90 days. YES [X] NO []
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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<S> <C>
Class A Common Stock, $.01 par value - 33,587,061 Shares Outstanding as of August 4, 2000
Class B Common Stock, $.01 par value - 10,531,805 Shares Outstanding as of August 4, 2000
Class C Common Stock, $.01 par value - 1,095,669 Shares Outstanding as of August 4, 2000
</TABLE>
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ENTERCOM COMMUNICATIONS CORP.
INDEX
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PAGE
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. Financial Statements................................................................................ 3
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................ 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................... 20
ITEM 2. Changes in Securities and Use of Proceeds........................................................... 20
ITEM 3. Defaults Upon Senior Securities..................................................................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders................................................. 20
ITEM 5. Other Information................................................................................... 21
ITEM 6. Exhibits and Reports on Form 8-K.................................................................... 21
SIGNATURES .................................................................................................... 23
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2
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FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS
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<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $11,262 $10,952
Accounts receivable, net of allowance for doubtful accounts 51,926 76,726
Prepaid expenses and deposits 4,247 3,672
Prepaid and refundable federal and state income taxes 2,990
Deferred tax assets 1,773 2,159
Station acquisition deposits 1,212 1,943
Assets held under agreement of sale 13,896
---------------- ---------------
Total current assets 70,420 112,338
---------------- ---------------
INVESTMENTS, AT FAIR VALUE 9,870 14,353
PROPERTY AND EQUIPMENT - AT COST
Land and land easements and land improvements 9,833 10,045
Building 9,375 10,549
Equipment 66,780 71,239
Furniture and fixtures 11,338 11,742
Leasehold improvements 6,565 8,755
---------------- ---------------
103,891 112,330
Accumulated depreciation (16,837) (21,364)
---------------- ---------------
87,054 90,966
Capital improvements in progress 3,369 293
---------------- ---------------
Net property and equipment 90,423 91,259
RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES -NET 1,214,969 1,197,506
DEFERRED CHARGES AND OTHER ASSETS -NET 10,366 10,315
---------------- ---------------
TOTAL $1,396,048 $1,425,771
================ ===============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, JUNE 30,
1999 2000
---- ----
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $18,380 $17,056
Accrued liabilities:
Salaries 6,188 6,652
Interest 1,208 1,448
Other 798 1,080
Income taxes payable 946
Long-term debt due within one year 10 11
---------------- ---------------
Total current liabilities 27,530 26,247
---------------- ---------------
SENIOR DEBT 465,760 477,254
DEFERRED TAX LIABILITY 91,147 100,628
---------------- ---------------
Total liabilities 584,437 604,129
---------------- ---------------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING SOLELY CONVERTIBLE
DEBENTURES OF THE COMPANY 125,000 125,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock
Class A common stock 333 336
Class B common stock 105 105
Class C common stock 14 11
Additional paid-in capital 744,933 746,654
Accumulated deficit (59,104) (49,727)
Unearned compensation (192) (394)
Accumulated other comprehensive income (loss) 522 (343)
---------------- ---------------
Total shareholders' equity 686,611 696,642
---------------- ---------------
TOTAL $1,396,048 $1,425,771
================ ===============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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SIX MONTHS ENDED
JUNE 30,
1999 2000
---- ----
<S> <C> <C>
NET REVENUES $95,545 $167,818
OPERATING EXPENSES:
Station operating expenses 64,296 101,752
Depreciation and amortization 10,019 21,114
Corporate general and administrative expenses 3,454 6,474
Net expense from time brokerage agreement fees 652 5
(Gains) loss on sale of assets (467) 7
---------------- --------------
Total operating expenses 77,954 129,352
---------------- --------------
OPERATING INCOME 17,591 38,466
---------------- --------------
OTHER EXPENSE (INCOME) ITEMS:
Interest expense 6,246 19,024
Financing cost of Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary holding solely convertible debentures
of the Company 3,906
Interest income (599) (207)
---------------- --------------
Total other expense 5,647 22,723
---------------- --------------
INCOME BEFORE INCOME TAXES 11,944 15,743
INCOME TAXES
Income taxes - C Corporation 5,249 6,366
Income taxes - S Corporation 125
Deferred income taxes for conversion from an S to a C Corporation 79,845
---------------- --------------
Total income taxes 85,219 6,366
---------------- --------------
NET INCOME (LOSS) ($73,275) $9,377
================ ==============
NET INCOME (LOSS) PER SHARE
Net income (loss) per share - basic and diluted ($2.10) $0.21
================ ==============
PRO FORMA DATA
PRO FORMA NET INCOME DATA:
Income before income taxes $11,944
Pro forma income taxes 4,539
----------------
PRO FORMA NET INCOME $7,405
================
PRO FORMA EARNINGS PER SHARE:
Pro forma earnings per share - basic and diluted $0.21
================
WEIGHTED AVERAGE SHARES:
Basic 34,836,094 45,194,597
Diluted 35,250,980 45,492,165
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED
JUNE 30,
1999 2000
---- ----
<S> <C> <C>
NET REVENUES $55,946 $96,941
OPERATING EXPENSES:
Station operating expenses 35,387 55,559
Depreciation and amortization 5,158 10,637
Corporate general and administrative expenses 1,653 3,307
Net expense from time brokerage agreement fees 1
(Gains) on sale of assets (467)
---------------- --------------
Total operating expenses 41,731 69,504
---------------- --------------
OPERATING INCOME 14,215 27,437
---------------- --------------
OTHER EXPENSE (INCOME) ITEMS:
Interest expense 2,660 9,634
Financing cost of Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary holding solely convertible
debentures of the Company 1,953
Interest income (55) (101)
---------------- --------------
Total other expense 2,605 11,486
---------------- --------------
INCOME BEFORE INCOME TAXES 11,610 15,951
INCOME TAXES
Income taxes - C Corporation 4,458 6,488
---------------- --------------
NET INCOME $7,152 $9,463
================ ==============
NET INCOME PER SHARE
Net income per share - basic and diluted $0.19 $0.21
================ ==============
WEIGHTED AVERAGE SHARES:
Basic 37,168,280 45,201,185
Diluted 37,583,166 45,506,460
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED
JUNE 30,
1999 2000
---- ----
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NET INCOME (LOSS) ($73,275) $9,377
OTHER COMPREHENSIVE LOSS (NET OF TAX BENEFIT)
Unrealized losses on investments net of $229 million
tax benefit in 2000 - (343)
---------------- --------------
COMPREHENSIVE INCOME (LOSS) ($73,275) $9,034
================ ==============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($73,275) $9,377
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,019 21,114
Deferred taxes 81,567 9,095
Non-cash stock-based compensation expense 219 491
(Gain) loss on disposition of assets (467) 7
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (6,649) (24,800)
Prepaid expenses (145) 575
Prepaid and refundable income taxes (2,413)
Accounts payable, accrued liabilities and income taxes payable (183) (1,284)
----------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,086 12,162
----------------- ----------------
INVESTING ACTIVITIES:
Acquisition of limited partnership interest (3,138)
Additions to property and equipment (4,901) (4,483)
Purchases of radio station assets (60,968) (13,183)
Deferred charges and other assets (223) (692)
Purchase of investments (5,926)
Proceeds held in escrow from sale of Tampa stations 75,000
Station acquisition deposits 187 (731)
Proceeds from sale of property, equipment and other assets 1,162 21
----------------- ----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 7,119 (24,994)
----------------- ----------------
FINANCING ACTIVITIES:
Net proceeds from initial public offering 236,157
Proceeds from issuance of long-term debt 82,500 22,000
Payments of long-term debt (246,505) (10,506)
Proceeds from issuance of common stock related to incentive plans 1,028
Dividends paid to S Corporation shareholders (88,113)
----------------- ----------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (15,961) 12,522
----------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,244 (310)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,469 11,262
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $8,713 $10,952
================= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ----
Cash paid during the period for:
Interest $6,301 $20,484
================= ================
Interest paid for TIDES $3,906
================
Income taxes $1,652 $440
================= ================
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SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES -
In connection with the Company's Initial Public Offering completed during
the six months ended June 30, 1999, the Convertible Subordinated Note,
net of deferred finance charges, of $96,400 was converted into equity.
In connection with the issue of certain awards of Restricted Stock for
11,112 shares and 5,000 shares of Class A Common Stock for the six-month
periods ended June 30, 1999 and June 30, 2000, respectively, the Company
increased its additional paid-in-capital by $250 and $266 for the
six-month periods ended June 30, 1999 and June 30, 2000, respectively.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8
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ENTERCOM COMMUNICATIONS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements for Entercom
Communications Corp. (the "Company") have been prepared in accordance with (1)
generally accepted accounting principles for interim financial information and
(2) the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting of only normal recurring accruals,
considered necessary for a fair presentation have been included.
This Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's audited financial
statements as of December 31, 1999, and filed with the Securities and Exchange
Commission (the "SEC") on March 28, 2000 as part of the Company's Form 10-K.
Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the full fiscal
year. Certain prior year amounts have been reclassified to conform to the
current year's presentation, which had no effect on financial position, net
income or shareholders' equity.
As a result of the revocation of its S Corporation election on
January 28, 1999, and its conversion to a C Corporation, the Company recorded a
deferred income tax expense of approximately $79.8 million in the prior year to
reflect the cumulative effect of temporary differences between the tax and
financial reporting bases of the Company's assets and liabilities attributable
to the period prior to its conversion to a C Corporation.
On January 29, 1999, the Company's Class A Common Stock began trading
on the New York Stock Exchange.
The unaudited pro forma net income and pro forma earnings per share
data reflect adjustments for income taxes as if the Company had been subject to
federal and state income taxes based upon a pro forma effective tax rate of 38%
applied to taxable income before income taxes, which is adjusted for permanent
differences between tax and book income, for the six-month period ending June
30, 1999.
The net income (loss) per share and pro forma earnings per share are
calculated in accordance with Statement of Financial Accounting Standards No.
128 and, are based on the weighted average number of shares of Common Stock
outstanding and dilutive common equivalent shares which include stock options
(using the treasury stock method). For the three-month and six-month periods
ended June 30, 2000, the effect of the Term Income Deferrable Equity Securities
("TIDES") in the calculation of earnings per share was anti-dilutive.
2. ACQUISITIONS
Completed Acquisitions
For the Six Months Ended June 30, 2000
On February 23, 2000, the Company acquired from the Wichita Stations
Trust ("Wichita Trust"), all of the assets related to radio stations KEYN-FM,
KWCY-FM (formerly KWSJ-FM), KQAM-AM, KFH-AM and KNSS-AM, serving the Wichita,
Kansas radio market for $8.0 million. Broadcasting licenses and other
intangibles in the amount of $6.3 million were recorded in connection with this
transaction.
On May 31, 2000, the Company acquired under two separate
asset purchase agreements from Gary Viola and Ann Viola, substantially all of
the assets related to radio stations KWSJ-FM (formerly KAYY-FM) and KDGS-FM,
serving the Wichita, Kansas radio market for a total of $5.1 million.
Broadcasting licenses and other intangibles in the amount of $4.8 million were
recorded in connection with this transaction.
Unaudited Pro Forma Information for Acquisitions
The following unaudited pro forma summary presents the consolidated
results of operations as if the transactions which occurred during the period of
January 1,1999 through June 30, 2000, had all occurred as of January 1, 1999,
after giving effect to certain adjustments, including depreciation and
amortization of assets and interest expense on any debt incurred to fund the
acquisitions which would have been incurred had such acquisitions and other
transactions occurred as of January 1, 1999. These unaudited pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of (1) what would have occurred had the acquisitions and other
transactions been made as of that date or (2) results which may occur in the
future.
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(AMOUNTS IN THOUSANDS)
1999 2000
---- ----
<S> <C> <C>
Net Revenues $142,132 $168,306
Net income (loss) before losses on sale of assets ($408) 9,177
Net income (loss) ($114) 9,177
Net earnings (loss) per share - basic and diluted ($0.00) $0.20
</TABLE>
3. DEBT
The Company has a bank credit agreement (the "Bank Facility") with a
syndicate of banks which provides for senior secured credit of $650.0 million
consisting of: (1) a $325.0 million reducing revolving credit facility
("Revolver") and (2) a $325.0 million multi-draw term loan ("Term Loan"). The
Revolver and Term Loan, which mature on September 30, 2007, each reduce on a
quarterly basis beginning September 30, 2002 in quarterly amounts that vary from
$12.2 million to $16.3 million for each loan. As of June 30, 2000, the Company
had approximately $477.0 million of borrowings outstanding under the Bank
Facility ($152.0 million under the Revolver and $325.0 million under the Term
Loan), in addition to outstanding Letters of Credit in the amounts of $7.5
million and $5.0 million.
During the six months ended June 30, 2000, the Company entered into
several interest rate collar transactions with different banks to hedge a
portion of its variable rate debt under the Bank Facility and also to comply
with a covenant under the Bank Facility. Each transaction is comprised of two
transactions entered into simultaneously for a rate cap and for a rate floor.
Under these transactions, the Company's base LIBOR can not exceed the cap nor
can the Company's base LIBOR be less than the floor at the time of any quarterly
reset date. The total notional amount of these transactions is $198.0 million.
The interest rate for each of the floors varies from 6.00% to 6.34% and the
interest rate for each of the caps varies from 7.50% to 8.50%, with each of
these transactions having a term that varies from 24 months to 30 months.
4. COMMITMENTS AND CONTINGENCIES
Pending Acquisitions
The Company entered into a preliminary agreement on February 6, 1996,
to acquire the assets of radio station KWOD-FM, Sacramento, California, from
Royce International Broadcasting Corporation ("Royce"), subject to approval by
the FCC, for a purchase price of $25.0 million. Notwithstanding efforts by the
Company to pursue this transaction, Royce has been non-responsive. On July 28,
1999, the Company commenced a legal action seeking to enforce this agreement,
and subsequently Royce filed a cross-complaint against the Company asking for
damages, an injunction and costs and filed a separate action against the
Company's President. This separate action against the Company's President was
dismissed without leave to amend in February 2000. The Company intends to pursue
its legal action against Royce and seek dismissal of the cross-complaint.
However, the Company cannot determine if and when the transaction might occur.
On December 16, 1999, the Company completed the acquisition of 41 of
46 radio stations from Sinclair Broadcast Group ("Sinclair"). Of the five
remaining radio stations under agreement with Sinclair, the Company (1) expects
to acquire, subject to FCC approval, for $0.6 million, the assets of WKRF-FM
(currently operating under a time brokerage agreement), serving the
Wilkes-Barre/Scranton, Pennsylvania radio market where the Company already owns
eight radio stations and (2) acquired on July 20, 2000, for $126.6 million, the
assets of KCFX-FM, KQRC-FM, KCIY-FM and KXTR-FM, serving the Kansas City radio
market, where the Company already owns seven radio stations. In connection with
the purchase of the four Kansas City radio stations, federal broadcasting
regulations required the Company to divest in the Kansas City radio market three
stations. To comply with these regulations, on July 20, 2000, the Company sold
to Susquehanna Radio Corp. ("Susquehanna") three stations for cash (see below
and Note 7).
On February 17, 2000, the Company entered into an agreement to
acquire WHYZ-AM, a radio station serving the Greenville, South Carolina radio
market, from WHYZ Radio, L.P. ("WHYZ") in the amount of $1.5 million in cash. On
May 4, 2000, the Company and WHYZ agreed to terminate this transaction without
penalty to either party.
On May 11, 2000, the Company entered into an asset purchase agreement
with Woodward Communications, Inc. to acquire the assets of WOLX-FM, WMMM-FM and
WYZM-FM, serving the Madison, Wisconsin radio market for a purchase price of
$14.6 million in cash. The Company began operating these stations on May 25,
2000 under a time brokerage agreement. The Company expects to close on this
transaction in the third quarter of the year 2000.
Pending Sales
In connection with the divestiture of the Kansas City radio stations
required by federal broadcasting regulations, on May 11, 2000, the Company
entered into an agreement to sell to Susquehanna for $113.0 million in cash, the
assets of three radio stations serving the Kansas City radio market. The three
stations consist of two stations currently owned by the
10
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Company, KCMO-AM and KCMO-FM and one station, KCFX-FM (including the contract
rights to broadcast the Kansas City Chiefs football games) that is included as
part of the four Kansas City stations under agreement with the Sinclair
Broadcast Group (see above). On July 20, 2000, the Company completed these
transactions with Sinclair and Susquehanna (see Note 7).
Contingencies
The Company is subject to various outstanding claims which arose in
the ordinary course of business and to other legal proceedings. In the opinion
of management, any liability of the Company which may arise out of or with
respect to these matters will not materially affect the financial position,
results of operations or cash flows of the Company.
5. CONVERTIBLE PREFERRED SECURITIES
On October 6, 1999, the Company sold 2,500,000 Convertible Preferred
Securities, Term Income Deferrable Equity Securities ("TIDES"), including
underwriters' over-allotments at an offering price of $50.00 per security. The
net proceeds to the Company after deducting underwriting discounts and other
offering expenses, was $120.5 million. Subject to certain deferral provisions,
the trust pays quarterly calendar distributions. The first distribution was paid
on December 31, 1999. The TIDES represent undivided preferred beneficial
ownership interest in the assets of the trust. The trust used the proceeds to
purchase from the Company an equal amount of 6.25% Convertible Subordinated
Debentures due 2014. The Company owns all of the common securities issued by the
trust. The trust exists for the sole purpose of issuing the common securities
and the TIDES. The trust is a wholly-owned subsidiary of the Company, with the
sole assets of the trust consisting of the $125.0 million aggregate principal
amount of the Company's 6.25% Convertible Subordinated Debentures due September
30, 2014. The Company has entered into several contractual arrangements for the
purpose of fully, irrevocably and unconditionally guaranteeing the trust's
obligations under the TIDES. The holders of the TIDES have a preference with
respect to each distribution and amounts payable upon liquidation, redemption or
otherwise over the holders of the common securities of the trust. Each TIDES is
convertible into shares of the Company's Class A Common Stock at the rate of
1.1364 shares of Class A Common Stock for each TIDES.
6. SHAREHOLDERS' EQUITY
During the six months ended June 30, 1999 and 2000, the Company
issued non-qualified options to purchase 823,609 shares and 624,940 shares,
respectively, of its Class A Common Stock at prices ranging from $18.00 to
$34.00 and $40.25 to $59.44, respectively, per share. All of the options become
exercisable over a four-year period. In connection with the grant of options
with exercise prices below fair market value at the time of grant and the grant
of options issued to non-employees, the Company recognized non-cash stock-based
compensation expense in the amount of $170,000 and $428,000 for the six months
ended June 30, 1999 and 2000, respectively, and $118,000 and $255,000 for the
three months ended June 30, 1999 and 2000, respectively.
During the six months ended June 30, 1999 and 2000, the Company
issued certain Restricted Stock awards, consisting of rights to 11,112 shares
and 5,000 shares, respectively, of Class A Common Stock. There were no
Restricted Stock awards during the three months ended June 30, 1999 and 2000.
Such shares vest ratably on each of the next four anniversary dates of the
grant. In connection with these awards, the Company recognized non-cash
stock-based compensation expense in the amounts of $26,000 and $63,000 for the
six months ended June 30, 1999 and 2000, respectively, and $16,000 and $32,000
for the three months ended June 30, 1999 and 2000, respectively.
On May 9, 2000, Chase Capital converted 300,000 shares of Class C
Common Stock to 300,000 shares of Class A Common Stock. Also on the same date,
an individual currently serving as a Class A Director, converted 1,167 shares of
Class C Common Stock to 1,167 shares of Class A Common Stock.
7. SUBSEQUENT EVENTS
On July 20, 2000, the Company completed (1) the acquisition of the four
Kansas City radio stations from Sinclair in the amount of $126.6 million in cash
and (2) the sale of the three Kansas City radio stations to Susquehanna for
$113.0 million in cash (see Note 4).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains, in addition to historical information, statements
by us with regard to our expectations as to financial results and other aspects
of our business that involve risks and uncertainties and may constitute forward
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. These statements
reflect our current views and are based on certain assumptions. Actual results
could differ materially from those currently anticipated as a result of a number
of factors, including, but not limited to, the following: (1) the highly
competitive nature of, and new technologies in, the radio broadcasting industry;
(2) our dependence upon our Seattle radio stations; (3) the risks associated
with our acquisition strategy generally; (4) the control of us by Joseph M.
Field and members of his immediate family; (5) our vulnerability to changes in
federal legislation or regulatory policy; and (6) those matters discussed below.
GENERAL
Founded in 1968, we are the fifth largest radio broadcasting company in
the United States based upon pro forma 1999 gross revenues derived from the
latest edition of BIA Consulting, Inc., after giving effect to all completed
transactions and acquisitions awaiting approval at the Federal Communications
Commission. We have assembled a nationwide portfolio of 95 owned or operated
stations, including acquisitions that are pending, and including our acquisition
of four stations in Kansas City from Sinclair and our required divestiture of
three stations in Kansas City to Susquehanna. This portfolio consists of 95
stations (61 FM and 34 AM) in 18 markets, including 12 of the country's top 50
radio advertising markets. Our station groups rank among the three largest
clusters, based on Duncan's Radio Market Guide (2000 ed.) 1999 gross revenues,
in 17 of our 18 markets.
A radio broadcasting company's revenues are derived primarily from the
sale of broadcasting time to local and national advertisers. These revenues are
largely determined by the advertising rates that a radio station is able to
charge and the number of advertisements that can be broadcast without
jeopardizing listener levels. Advertising rates are primarily based on three
factors: (1) a station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports issued by the Arbitron
Ratings Company; (2) the number of radio stations in the market competing for
the same demographic groups; and (3) the supply of and demand for radio
advertising time.
Several factors may adversely affect a radio broadcasting company's
performance in any given period. In the radio broadcasting industry, seasonal
revenue fluctuations are common and are due primarily to variations in
advertising expenditures by local and national advertisers. Typically, revenues
are lowest in the first calendar quarter of the year. We generally incur
advertising and promotional expenses to increase "listenership" and Arbitron
ratings. However, since Arbitron reports ratings quarterly, any increased
ratings and therefore increased advertising revenues tend to lag behind the
incurrence of advertising and promotional spending.
Radio broadcasting companies often derive revenues from time brokerage
agreements and joint sales agreements. In a time brokerage agreement, a radio
station operator will enter into an agreement to provide a substantial amount of
the broadcast programming for a radio station that is owned by a separate
licensee. In a joint sales agreement, a licensed radio station operator agrees
to sell commercial advertising for a radio station that is owned by a separate
independent licensee. Typically, we use time brokerage agreements to operate
radio stations that we have agreed to acquire prior to the time that the
acquisition is completed. We include revenues recognized under a time brokerage
agreement or a similar sales agreement for stations operated by us prior to
acquiring the stations in net revenues, while we reflect operating expenses
associated with these stations in station operating expenses. In addition,
during the time brokerage agreement period, we may incur a time brokerage fee
and we do not realize any depreciation or amortization on the station assets.
Joint Sales Agreements, where we sell the advertising on stations owned by
another entity, are treated similarly. Consequently, there is generally, no
significant difference in the method of revenue and operating expense
recognition between a station operated by us under a time brokerage agreement or
joint sales agreement and a station owned and operated by us.
In the following analysis, we discuss broadcast cash flow, broadcast
cash flow margin and after tax cash flow. Broadcast cash flow consists of
operating income before depreciation and amortization, net expense (income) from
time brokerage agreement fees, corporate general and administrative expenses and
gain or loss on sale of assets. Broadcast cash flow margin represents broadcast
cash flow as a percentage of net revenue. After tax cash flow consists of net
income (pro forma after tax cash flow consists of pro forma net income) minus
gain on sale of assets (net of tax) or plus loss on sale of assets (net of tax
benefit), plus the following: depreciation and amortization, non-cash
compensation expense (which is otherwise included in corporate general and
administrative expense) and the amount of the deferred tax provision (or minus
the deferred tax benefit). Although broadcast cash flow, broadcast cash flow
margin and after tax cash flow are not measures of performance or liquidity
calculated in accordance with generally accepted accounting principles, we
believe that these measures are useful to an investor in evaluating our
performance because they are widely used in the broadcast industry to measure a
radio company's operating performance. However, you should not consider
broadcast cash flow, broadcast cash flow margin and after tax cash flow in
isolation or as substitutes for operating income, cash flows from operating
activities or any other measure for determining our operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. In addition, because broadcast cash flow, broadcast cash flow margin
and after tax cash flow are not calculated in accordance with generally accepted
accounting principles, they are not necessarily comparable to similarly titled
measures employed by other companies.
We calculate "same station" growth by (1) comparing the performance of
stations operated by us throughout a
12
<PAGE> 13
relevant period to the performance of those same stations (whether or not
operated by us) in the prior year's corresponding period excluding the effect of
barter revenues and expenses and discontinued operations and (2) averaging those
growth rates for the period presented. "Same station broadcast cash flow margin"
is the broadcast cash flow margin of the stations included in our same station
calculations. For purposes of the following discussion, as it affects the prior
year, pro forma net income represents historical income before income taxes,
adjusted as if we were treated as a C Corporation during the period at an
effective tax rate of 38%, applied to income before income taxes, including
permanent differences between tax and book income.
RESULTS OF OPERATIONS
The following presents the results of our operations for the six-month
periods and three-month periods ended June 30, 2000 and June 30, 1999, and
should be read in conjunction with our condensed consolidated financial
statements and the related notes included elsewhere in this Form 10-Q. Our
results of operations represent the operations of the radio stations owned or
operated pursuant to time brokerage agreements or joint sales agreements during
the relevant periods.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES $95,545 $167,818
Increase of $72,273 or 75.6%
---------------------------------------------------------------------
</TABLE>
Net revenues increased 75.6% to $167.8 million for the six months ended
June 30, 2000 from $95.5 million for the six months ended June 30, 1999. Of the
increase, $51.9 million is attributable to stations that we acquired or that we
were in the process of acquiring since January 1, 1999. On a same station basis,
net revenues increased 18.0% to $164.6 million from $139.5 million. Same station
revenue growth was led by increases in Sacramento, Boston, Seattle, Norfolk,
Milwaukee and Greenville due to improved selling efforts.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATION OPERATING EXPENSES $64,296 $101,752
Increase of $37,456 or 58.3%
--------------------------------------------------------------------
Percentage of Net Revenues 67.3% 60.6%
</TABLE>
Station operating expenses increased 58.3% to $101.8 million for
the six months ended June 30, 2000 from $64.3 million for the six months ended
June 30, 1999. Of the increase, $33.0 million is attributable to stations that
we acquired or that we were in the process of acquiring since January 1, 1999.
On a same station basis, station operating expenses increased 7.2% to $98.4
million from $91.8 million.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
DEPRECIATION AND AMORTIZATION $10,019 $21,114
Increase of $11,095 or 110.7%
--------------------------------------------------------------------
Percentage of Net Revenues 10.5% 12.6%
</TABLE>
Depreciation and amortization increased 110.7% to $21.1 million for
the six months ended June 30, 2000 from $10.0 million for the six months ended
June 30, 1999. The increase was mainly attributable to our acquisitions since
January 1, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES $3,454 $6,474
Increase of $3,020 or 87.4%
--------------------------------------------------------------------
Percentage of Net Revenues 3.6% 3.9%
</TABLE>
Corporate general and administrative expenses increased 87.4% to $6.5
million for the six months ended June 30, 2000 from $3.5 million for the six
months ended June 30, 1999. The increase was mainly attributable to higher
administrative expenses associated with supporting our growth. Also included is
non-cash stock-based compensation expense of $0.5 million for the six months
ended June 30, 2000 and $0.2 million for the six months ended June 30, 1999.
13
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST EXPENSE (INCLUDING FINANCING
COST OF TIDES) $6,246 $22,930
Increase of $16,684 or 267.1%
--------------------------------------------------------------------
Percentage of Net Revenues 6.5% 13.7%
</TABLE>
Interest expense, including the financing cost on our 6 1/4%
Convertible Preferred Securities Term Income Deferrable Equity Securities
(TIDES), increased 267.1% to $22.9 million for the six months ended June 30,
2000 from $6.2 million for the six months ended June 30, 1999. The increase in
interest expense was mainly attributable to an increase in outstanding
indebtedness used to fund the acquisition of radio station assets and the
financing cost on the TIDES, net of a reduction in outstanding indebtedness due
to the use of the proceeds from our October 1999 Class A Common Stock and TIDES
offerings.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES $11,944 $15,743
Increase of $3,799 or 31.8%
--------------------------------------------------------------------
Percentage of Net Revenues 12.5% 9.4%
</TABLE>
Income before income taxes increased 31.8% to $15.7 million for the
six months ended June 30, 2000 from $11.9 million for the six months ended June
30, 1999. The increase in income before income taxes is mainly attributable to:
(1) an increase in operating income of $20.9 million offset by (2) an increase
of $16.7 million in net interest expense and financing cost as a result of the
factors described above.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME (LOSS) ($73,275) $9,377
Increase of $82,652
--------------------------------------------------------------------
</TABLE>
Net income increased to $9.4 million for the six months ended June 30,
2000 from a loss of $73.3 million for the six months ended June 30, 1999, an
increase of $82.7 million. Of the increase, $79.8 million is attributable to the
absence this period of an adjustment made during the six months ended June 30,
1999 to record a one-time non-cash deferred income tax expense of $79.8 million
as a result of the revocation of our S Corporation election and our conversion
to a C Corporation. We recorded this expense to reflect the cumulative effect of
temporary differences between the tax and financial reporting bases of our
assets and liabilities attributable to our conversion to a C Corporation.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME TO PRO FORMA NET INCOME $7,405 $9,377
Increase of $1,972
--------------------------------------------------------------------
</TABLE>
Net income increased to $9.4 million for the six months ended
June 30, 2000 from pro forma net income of $7.4 million for the six months ended
June 30, 1999, an increase of $2.0 million. The increase in net income to pro
forma net income is mainly attributable to: (1) an increase in operating income
of $12.2 million, net of taxes and pro forma taxes, offset by (2) an increase of
$9.9 million in net interest expense and financing cost, net of taxes and pro
forma taxes, as a result of the factors described above.
<TABLE>
<CAPTION>
OTHER DATA SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW $31,249 $66,066
Increase of $34,817 or 111.4%
--------------------------------------------------------------------
</TABLE>
Broadcast cash flow increased 111.4% to $66.1 million for the six
months ended June 30, 2000 from $31.2 million for the six months ended June 30,
1999. Of the increase, $18.9 million is attributable to stations that we
acquired or that
14
<PAGE> 15
we were in the process of acquiring since January 1, 1999. On a same station
basis, broadcast cash flow increased 38.8% to $66.2 million from $47.7 million.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
<S> <C> <C> <C>
BROADCAST CASH FLOW MARGIN Increase of 32.7% 39.4%
--------------------------------------------------------------------
</TABLE>
The broadcast cash flow margin increased to 39.4% for the six months
ended June 30, 2000 from 32.7% for the six months ended June 30, 1999. The
increase is attributable to improved revenues and expense management. On a same
station basis, our broadcast cash flow margin increased to 40.2% from 34.2%.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AFTER TAX CASH FLOW TO PRO FORMA AFTER
TAX CASH FLOW $20,215 $40,084
Increase of $19,869 or 98.3%
--------------------------------------------------------------------
</TABLE>
After tax cash flow increased 98.3% to $40.1 million for the six
months ended June 30, 2000 from pro forma after tax cash flow of $20.2 million
for the six months ended June 30, 1999. The increase is attributable to improved
operations of existing stations and the net effect of newly acquired properties,
taking into consideration pro forma income taxes as though we had reported as a
C Corporation during the entire six month period ended June 30, 1999. The amount
of the deferred income tax expense was $9.1 million for the six months ended
June 30, 2000 and the amount of the pro forma deferred income tax expense was
$3.0 million for the six months ended June 30, 1999.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES $55,946 $96,941
Increase of $40,995 or 73.3%
--------------------------------------------------------------------
</TABLE>
Net revenues increased 73.3% to $96.9 million for the three months
ended June 30, 2000 from $55.9 million for the three months ended June 30, 1999.
Of the increase, $29.1 million is attributable to stations that we acquired or
that we were in the process of acquiring since January 1, 1999. On a same
station basis, net revenues increased 17.3% to $95.8 million from $81.7 million.
Same station revenue growth was led by increases in Sacramento, Seattle, Boston,
Milwaukee and Greenville due to improved selling efforts.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATION OPERATING EXPENSES $35,387 $55,559
Increase of $20,172 or 57.0%
--------------------------------------------------------------------
Percentage of Net Revenues 63.3% 57.3%
</TABLE>
Station operating expenses increased 57.0% to $55.6 million for the
three months ended June 30, 2000 from $35.4 million for the three months ended
June 30, 1999. Of the increase, $17.7 million is attributable to stations that
we acquired or that we were in the process of acquiring since January 1, 1999.
On a same station basis, station operating expenses increased 7.3% to $54.6
million from $50.9 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
DEPRECIATION AND AMORTIZATION $5,158 $10,637
Increase of $5,479 or 106.2%
--------------------------------------------------------------------
Percentage of Net Revenues 9.2% 11.0%
</TABLE>
Depreciation and amortization increased 106.2% to $10.6 million for the
three months ended June 30, 2000 from $5.2 million for the three months ended
June 30, 1999. The increase was mainly attributable to our acquisitions since
January 1, 1999.
15
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES $1,653 $3,307
Increase of $1,654 or 100.1%
--------------------------------------------------------------------
Percentage of Net Revenues 3.0% 3.4%
</TABLE>
Corporate general and administrative expenses increased 100.1% to $3.3
million for the three months ended June 30, 2000 from $1.7 million for the three
months ended June 30, 1999. The increase was mainly attributable to higher
administrative expenses associated with supporting our growth. Also included is
non-cash stock-based compensation expense of $0.3 million for the three months
ended June 30, 2000 and $0.1 million for the three months ended June 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST EXPENSE (INCLUDING FINANCING
COST OF TIDES) $2,660 $11,587
Increase of $8,927 or 335.6%
--------------------------------------------------------------------
Percentage of Net Revenues 4.8% 12.0%
</TABLE>
Interest expense, including the financing cost on our 6 1/4%
Convertible Preferred Securities Term Income Deferrable Equity Securities
(TIDES), increased 335.6% to $11.6 million for the three months ended June 30,
2000 from $2.7 million for the three months ended June 30, 1999. The increase in
interest expense was mainly attributable to an increase in outstanding
indebtedness used to fund the acquisition of radio station assets and the
financing cost on the TIDES, net of a reduction in outstanding indebtedness due
to the use of the proceeds from our October 1999 Class A Common Stock and TIDES
offerings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES $11,610 $15,951
Increase of $4,341 or 37.4%
--------------------------------------------------------------------
Percentage of Net Revenues 20.8% 16.5%
</TABLE>
Income before income taxes increased to $16.0 million for the three
months ended June 30, 2000 from $11.6 million for the three months ended June
30, 1999. The increase in income before income taxes is mainly attributable to:
(1) an increase in operating income of $13.2 million offset by (2) an increase
of $8.9 million in net interest expense and financing cost as a result of the
factors described above.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME $7,152 $9,463
Increase of $2,311
--------------------------------------------------------------------
Percentage of Net Revenues 12.8% 9.8%
</TABLE>
Net income increased to $9.5 million for the three months ended June
30, 2000 from $7.2 million for the three months ended June 30, 1999. The
increase in net income is mainly attributable to: (1) an increase in operating
income of $7.6 million, net of taxes, offset by (2) an increase of $5.3 million
in net interest expense and financing cost, net of taxes, as a result of the
factors described above.
<TABLE>
<CAPTION>
OTHER DATA THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW
$20,559 $41,382
Increase of $20,823 or 101.3%
--------------------------------------------------------------------
</TABLE>
Broadcast cash flow increased 101.3% to $41.4 million for the three
months ended June 30, 2000 from $20.6 million for the three months ended June
30, 1999. Of the increase, $11.4 million is attributable to stations that we
acquired or that we were in the process of acquiring since January 1, 1999. On a
same station basis, broadcast cash flow increased 34.0% to $41.2 million from
$30.8 million.
16
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW MARGIN Increase of 36.7% 42.7%
--------------------------------------------------------------------
</TABLE>
The broadcast cash flow margin increased to 42.7% for the three months
ended June 30, 2000 from 36.7% for the three months ended June 30, 1999. The
increase is attributable to improved revenues and expense management. On a same
station basis, our broadcast cash flow margin increased to 43.0% from 37.7%.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1999 JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AFTER TAX CASH FLOW $13,815 $25,116
Increase of $11,301 or 81.8%
--------------------------------------------------------------------
</TABLE>
After tax cash flow increased 81.8% to $25.1 million for the three
months ended June 30, 2000 from $13.8 million for the three months ended June
30, 1999. The increase is attributable to improved operations of existing
stations and the net effect of newly acquired properties. The amount of the
deferred income tax expense was $4.7 million for the three months ended June 30,
2000 and $1.8 million for the three months ended June 30, 1999.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
We use a significant portion of our capital resources to consummate
acquisitions. These acquisitions are funded from one or a combination of the
following sources: (1) our bank facility (described below); (2) the swapping of
our radio stations in transactions which qualify as "like-kind" exchanges under
Section 1031 of the Internal Revenue Code; and (3) internally-generated cash
flow.
Net cash flows provided by operating activities were $12.2 million and
$11.1 million for the six months ended June 30, 2000 and 1999, respectively.
Changes in our net cash flows provided by operating activities are primarily a
result of changes in advertising revenues and station operating expenses, which
are affected by the acquisition of stations during those periods. The
acquisition of 41 radio stations from Sinclair on December 16, 1999, five radio
stations from Wichita Trust on February 23, 2000, the two radio stations from
Gary and Ann Viola and the operation of the three stations in Madison under a
time brokerage agreement, had a significant impact on the current period's cash
flow primarily due to an increase in accounts receivable.
Net cash flows used by investing activities were $25.0 million and net
cash flows provided by investing activities were $7.1 million for the six months
ended June 30, 2000 and 1999, respectively. Net cash flows provided by financing
activities were $12.5 million and net cash flows used by financing activities
were $16.0 million for the six months ended June 30, 2000 and 1999,
respectively. The cash flows for the six months ended June 30, 2000 reflect
acquisitions and investments consummated and the related borrowings. The cash
flows for the six months ended June 30, 1999 reflect (1) acquisitions
consummated and the related borrowings; (2) net proceeds from our initial public
offering and the related payment of long-term debt; (3) use of the proceeds from
the sale of the Tampa stations and (4) the payment of the distribution to our S
Corporation Shareholders.
.
On February 23, 2000 and June 1, 2000, we borrowed approximately $7.5
million and $5.0 million, respectively, under our bank facility to fund $13.2
million in acquisitions for seven radio stations in Wichita. We also increased
the amount of investments by $5.9 million. As of June 30, 2000, we had $477.0
million of borrowings outstanding under our bank facility in addition to
outstanding letters of credit in the amounts of $5.0 million and $7.5 million. A
significant amount of this indebtedness was incurred in connection with the
acquisition of 41 of Sinclair's radio stations in December 1999, for a purchase
price of $700.4 million in cash. On July 20, 2000, we borrowed $10.5 under our
bank facility, eliminated the $7.5 outstanding letter of credit and received
$113.0 million in cash from the sale of the three Kansas City stations to
Susquehanna to fund the purchase of four Kansas City stations under the Sinclair
acquisition. We expect to use the credit available under the revolving credit
facility to fund pending and future acquisitions. In connection with the
Sinclair acquisition, we have agreed to purchase $5.0 million of advertising
time on television stations owned and/or programmed by Sinclair and its
affiliates at prevailing rates over the five-year period beginning December 16,
1999. This obligation was $5.0 million as of June 30, 2000.
In addition to debt service and quarterly distributions under the
TIDES, our principal liquidity requirements are for working capital and general
corporate purposes, including capital expenditures, and, if appropriate
opportunities arise, acquisitions of additional radio stations. Capital
expenditures for the six months ended June 30, 2000, were $4.5 million. We
estimate that an additional amount of capital expenditures for the balance of
the fiscal year 2000 will be between $7.0 and $9.0 million. We believe that cash
from operating activities, together with available revolving borrowings under
our bank facility, should be sufficient to permit us to meet our financial
obligations and fund our operations. However, we may require additional
financing for future acquisitions, if any, and we cannot assure you that we will
be able to obtain such financing on terms considered to be favorable by us.
We entered into our bank facility as of December 16, 1999, with a
syndicate of banks for $650.0 million in senior credit consisting of: (1) $325.0
million in a reducing revolving credit facility and (2) $325.0 million in a
multi-draw term loan that was fully drawn as of June 30, 2000. Our bank facility
was established to: (1) refinance existing indebtedness; (2) provide working
capital; and (3) fund corporate acquisitions. At our election, interest on any
outstanding principal accrues at a rate based on either LIBOR plus a spread
which ranges from 0.75% to 2.375% or on the prime rate plus a spread of up to
1.125%, depending on our leverage ratio. Under the bank facility, the Revolver
and Term Loan mature on September 30, 2007 and reduce on a quarterly basis
beginning September 30, 2002 in quarterly amounts that vary from $12.2 million
to $16.3 million for each loan. Our bank facility requires us to comply with
certain financial covenants and leverage ratios that are defined terms within
the agreement. We believe we are in compliance with the covenants and leverage
ratios. Our bank facility also provides that at any time prior to December 31,
2001, we may solicit additional incremental loans of up to $350.0 million, and
we will be governed under the same terms as the term loan.
18
<PAGE> 19
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 entitled
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, which are
collectively referred to as derivatives, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. In June, 1999, the FASB
issued SFAS No. 137 which extends the effective date of SFAS No. 133 to fiscal
quarters of fiscal years beginning after June 15, 2000, and should not be
applied retroactively to financial statements of prior periods. Management has
not completed a full evaluation of the applicability of SFAS No. 133.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our bank facility requires us to protect ourselves from interest rate
fluctuations through the use of derivative rate hedging instruments. As a
result, we have entered into various interest rate transactions with various
banks, which we define as "Rate Hedging Transactions", designed to mitigate our
exposure to significantly higher floating interest rates. A rate cap agreement
establishes an upper limit or "cap" for the base LIBOR rate and a rate floor
agreement establishes a lower limit or "floor" for the base LIBOR rate. Several
of the agreements cover a rate cap and a rate floor and have been entered into
simultaneously with the same bank. Swap agreements require that we pay a fixed
rate of interest on the notional amount to a bank and the bank pay to us a
variable rate equal to three-month LIBOR. As of June 30, 2000, we have Rate
Hedging Transactions in place for a total notional amount of $253.0 million.
All of the Rate Hedging Transactions are tied to the three-month LIBOR
interest rate, which may fluctuate significantly on a daily basis. Any increase
in the three-month LIBOR rate results in a more favorable valuation of each of
the Rate Hedging Transactions, while any decrease in the three-month LIBOR rate
results in a less favorable valuation of each of the Rate Hedging Transactions.
The three-month LIBOR rate at June 30, 2000 was higher than the rate at December
31, 2000. This increase resulted in unrecognized gains by us from the Rate
Hedging Transactions.
See also additional disclosures regarding "Liquidity and Capital Resources"
made under Item 2, above.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are from time to time involved in litigation incidental to the
conduct of our business, but we are not a party to any lawsuit or proceeding
which, in our opinion, is likely to have a material adverse effect on us.
We entered into a preliminary agreement on February 6, 1996, to
acquire the assets of radio station KWOD-FM, Sacramento, California, from Royce
International Broadcasting Corporation, subject to approval by the Federal
Communications Commission, for a purchase price of $25.0 million.
Notwithstanding our efforts to pursue this transaction, the seller was
non-responsive. On July 28, 1999, we commenced a legal action seeking to enforce
this agreement, and subsequently the seller filed a cross-complaint against us
asking for damages, an injunction and costs and filed a separate action against
our President. This separate action against our President was dismissed without
leave to amend in February 2000. We intend to pursue legal action against the
seller and seek dismissal of the cross-complaint. However, we cannot determine
if and when the transaction might occur.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 2, 2000, the Company held its annual shareholders'
meeting.
(b) At our annual shareholders' meeting, (i) David J. Berkman and
Michael Hannon were elected as Class A directors for one-year
terms and (ii) Joseph M. Field, David J. Field, John C.
Donlevie, Herbert Kean, S. Gordon Elkins, Thomas H. Ginley,
Jr., Lee Hague and Marie Field were elected as directors for
one-year terms.
(c) The following matters were voted on and approved at our annual
shareholders' meeting: (i) the election of Class A directors;
(ii) the election of all remaining directors; and (iii) the
ratification of the appointment of Deloitte & Touche LLP as
independent auditors. The results of voting at the annual
meeting of the shareholders were as follows:
<TABLE>
<CAPTION>
Proposal No. 1 (Election of Class A Directors)
-------------------------------------------------------------------------------
Nominee For Withheld
------- --- --------
<S> <C> <C> <C>
David J. Berkman 30,579,868 452,844
Michael R. Hannon 30,579,868 452,844
----------------------------------- ------------------ ------------------------
</TABLE>
<TABLE>
<CAPTION>
Proposal No. 2 (Election of Remaining Directors)
-------------------------------------------------------------------------------
Nominee For Withheld
------- --- --------
<S> <C> <C> <C>
Joseph M. Field 136,130,522 220,240
David J. Field 136,130,530 220,232
John C. Donlevie 136,130,723 220,039
Herbert Kean 136,242,527 108,235
S. Gordon Elkins 136,134,628 216,134
Thomas H. Ginley, Jr. 136,283,134 67,628
Lee Hague 136,350,752 10
Marie H. Field 136,137,773 212,989
----------------------------------- ------------------ ------------------------
</TABLE>
<TABLE>
<CAPTION>
Proposal No. 3 (Ratification of Appointment of Deloitte & Touche LLP as
Independent Auditors for the year ending December 31, 2000)
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
136,280,696 1,483 68,583
------------------------------ ----------------------- ------------------------
</TABLE>
20
<PAGE> 21
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.01 Amended and Restated Articles of Incorporation of the
Registrant (2)
3.02 Amended and Restated Bylaws of the Registrant (2)
4.01 Lock-up Release Agreement, dated as of May 6, 1999, between
Chase Equity Associates L.P. and Credit Suisse Boston
Corporation (3)
4.02 Form of Indenture for the Convertible Subordinated Debentures
due 2014 among Entercom Communications Corp., as issuer and
Wilmington Trust Company, as indenture trustee (4)
10.01 Registration Rights Agreement, dated as of May 21, 1996,
between the Registrant and Chase Equity Associates, L.P. (2)
10.02 Employment Agreement, dated June 25, 1993, between the
Registrant and Joseph M. Field, as amended (2)
10.03 Employment Agreement, dated December 17, 1998, between the
Registrant and David J. Field, as amended (2)
10.04 Employment Agreement, dated December 17, 1998, between the
Registrant and John C. Donlevie, as amended (2)
10.05 Employment Agreement, dated November 13, 1998, between the
Registrant and Stephen F. Fisher (2)
10.06 Entercom 1998 Equity Compensation Plan (2)
10.07 Asset Purchase Agreement, dated as of May 11, 2000, among the
Registrant, Entercom Kansas City, LLC, Entercom Kansas City
License, LLC, and Susquehanna Radio Corp. (See table of
contents for list of omitted schedules and exhibits, which the
Registrant hereby agrees to furnish supplementally to the
Securities and Exchange Commission upon request) (3)
10.08 Credit Agreement, dated as of December 16, 1999, among
Entercom Radio, LLC, as the Borrower, the Registrant, as a
Guarantor, Banc of America Securities LLC, as Sole Lead
Arranger and Book Manager, Key Corporate Capital, Inc., as
Administrative Agent, and Co-Documentation Agent, Bank of
America, N.A., as Syndication Agent, and Co-Documentation
Agent and the Financial Institutions listed therein (6)
10.09 Amended and Restated Asset Purchase Agreement, dated as of
August 20, 1999, among the Registrant, Sinclair
Communications, Inc., WCGV, Inc., Sinclair Radio of Milwaukee
Licensee, LLC, Sinclair Radio of New Orleans Licensee, LLC,
Sinclair Radio of Memphis, Inc., Sinclair Radio of Memphis
Licensee, Inc., Sinclair Properties, LLC, Sinclair Radio of
Norfolk/Greensboro Licensee, L.P., Sinclair Radio of Buffalo,
Inc., Sinclair Radio of Buffalo Licensee, LLC, WLFL, Inc.,
Sinclair Radio of Greenville Licensee, Inc., Sinclair Radio of
Wilkes-Barre, Inc. and Sinclair Radio of Wilkes-Barre
Licensee, LLC. (See table of contents for list of omitted
schedules and exhibits, which the Registrant hereby agrees to
furnish supplementally to the Securities and Exchange
Commission upon request) (5)
10.10 Asset Purchase Agreement, dated as of August 20, 1999, among
the Registrant, Sinclair Communications, Inc., Sinclair Media
III, Inc. and Sinclair Radio of Kansas City Licensee, LLC.
(See table of contents for list of omitted schedules and
exhibits, which the Registrant hereby agrees to furnish
supplementally to the Securities and Exchange Commission upon
request (5)
10.11 Asset Purchase Agreement, dated as of August 13, 1998, among
the Registrant, CBS Radio, Inc. and CBS Radio License, Inc.
(2)
10.12 Time Brokerage Agreement, dated as of August 13, 1998, among
the Registrant, CBS Radio, Inc. and CBS Radio License, Inc.
(2)
10.13 Asset Purchase Agreement, dated as of August 13, 1998, among
CBS Radio, Inc., CBS Radio License, Inc., ARS Acquisition II.
And the Registrant (2)
10.14 Time Brokerage Agreement, dated as of August 13, 1998, among
CBS Radio, Inc., CBS Radio License, Inc., ARS Acquisition II,
Inc. and the Registrant (2)
11.01 Reconciliation of Earnings Per Share (1)
21.01 Information Regarding Subsidiaries of the Registrant (7)
27.01 Financial Data Schedule (1)
21
<PAGE> 22
-----------------
(1) Filed herewith.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-61381).
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10Q. (File No. 001-14461)
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-1. (File No. 333-86843)
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-1. (File No. 333-86397)
(6) Incorporated by reference to the Registrant's Current Report on Form
8-K. (File No. 001-14461).
(7) Incorporated by reference to the Registrant's identically numbered
exhibit to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1999. (File No. 001-14461)
(b) We did not file other reports on Form 8-K during the six months ended
June 30, 2000.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERCOM COMMUNICATIONS CORP.
(Registrant)
Date: August 10, 2000 /s/ Joseph M. Field
--------------------
Name: Joseph M. Field
Title: Chief Executive Officer
Date: August 10, 2000 /s/ David J. Field
-------------------
Name: David J. Field
Title: President and Chief
Operating Officer
Date: August 10, 2000 /s/ Stephen F. Fisher
---------------------
Name: Stephen F. Fisher
Title: Executive Vice President and
Chief Financial Officer
23
