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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 September 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
(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.
Class A Common Stock, $.01 par value - 33,902,599 Shares Outstanding as
of November 6, 2000
Class B Common Stock, $.01 par value -- 10,531,805 Shares Outstanding
as of November 6, 2000
Class C Common Stock, $.01 par value -- 795,669 Shares Outstanding as
of November 6, 2000
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ENTERCOM COMMUNICATIONS CORP.
INDEX
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PAGE
PART I - FINANCIAL INFORMATION
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ITEM 1. Financial Statements...................................................... 3
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk................ 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................... 21
ITEM 2. Changes in Securities and Use of Proceeds................................. 21
ITEM 3. Defaults Upon Senior Securities........................................... 21
ITEM 4. Submission of Matters to a Vote of Security Holders....................... 21
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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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS
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DECEMBER 31, SEPTEMBER 30,
------------ -------------
1999 2000
----------- -----------
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CURRENT ASSETS
Cash and cash equivalents $ 11,262 $ 13,810
Accounts receivable, net of allowance for doubtful accounts 51,926 72,680
Prepaid expenses and deposits 4,247 5,308
Prepaid and refundable federal and state income taxes 3,834
Deferred tax assets 1,773 1,461
Station deposits and acquisition costs 1,212 1,021
Assets held for sale 793
----------- -----------
Total current assets 70,420 98,907
----------- -----------
INVESTMENTS, AT FAIR VALUE 9,870 13,525
PROPERTY AND EQUIPMENT - AT COST
Land, land easements and land improvements 9,833 10,016
Building 9,375 9,447
Equipment 66,780 75,623
Furniture and fixtures 11,338 11,971
Leasehold improvements 6,565 8,898
----------- -----------
103,891 115,955
Accumulated depreciation (16,837) (23,889)
----------- -----------
87,054 92,066
Capital improvements in progress 3,369 498
----------- -----------
Net property and equipment 90,423 92,564
RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES -NET 1,214,969 1,272,206
DEFERRED CHARGES AND OTHER ASSETS -NET 10,366 10,066
----------- -----------
TOTAL $ 1,396,048 $ 1,487,268
=========== ===========
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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 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
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DECEMBER 31, SEPTEMBER 30,
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1999 2000
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CURRENT LIABILITIES
Accounts payable $ 18,380 $ 17,095
Accrued liabilities:
Salaries 6,188 6,231
Interest 1,208 3,619
Other 798 876
Income taxes payable 946
Long-term debt due within one year 10 11
----------- -----------
Total current liabilities 27,530 27,832
----------- -----------
SENIOR DEBT 465,760 485,251
DEFERRED TAX LIABILITY 91,147 121,348
----------- -----------
Total liabilities 584,437 634,431
----------- -----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING SOLELY CONVERTIBLE
DEBENTURES OF THE COMPANY 125,000 125,000
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock 333 339
Class B common stock 105 105
Class C common stock 14 8
Additional paid-in capital 744,933 746,935
Accumulated deficit (59,104) (16,541)
Unearned compensation (192) (362)
Accumulated other comprehensive income (loss) 522 (2,647)
----------- -----------
Total shareholders' equity 686,611 727,837
----------- -----------
TOTAL $ 1,396,048 $ 1,487,268
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30,
--------------------------------
1999 2000
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NET REVENUES $ 154,749 $ 260,280
OPERATING EXPENSES:
Station operating expenses 100,218 155,223
Depreciation and amortization 15,314 32,147
Corporate general and administrative expenses 5,640 9,203
Net expense from time brokerage agreement fees 652 9
Gains on sale of assets (419) (41,465)
------------ ------------
Total operating expenses 121,405 155,117
------------ ------------
OPERATING INCOME 33,344 105,163
------------ ------------
OTHER EXPENSE (INCOME) ITEMS:
Interest expense 9,022 28,512
Financing cost of Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary holding solely convertible debentures
of the Company 5,859
Interest income (665) (342)
------------ ------------
Total other expense 8,357 34,029
------------ ------------
INCOME BEFORE INCOME TAXES 24,987 71,134
INCOME TAXES
Income taxes - C Corporation 10,239 28,571
Income taxes - S Corporation 125
Deferred income taxes for conversion from an S to a C Corporation 79,845
------------ ------------
Total income taxes 90,209 28,571
------------ ------------
NET INCOME (LOSS) ($ 65,222) $ 42,563
============ ============
NET INCOME (LOSS) PER SHARE
Net income (loss) per share - basic ($ 1.83) $ 0.94
============ ============
Net income (loss) per share - diluted ($ 1.83) $ 0.93
============ ============
PRO FORMA DATA
PRO FORMA NET INCOME DATA:
Income before income taxes $ 24,987
Pro forma income taxes 9,575
------------
PRO FORMA NET INCOME $ 15,412
============
PRO FORMA EARNINGS PER SHARE:
Pro forma earnings per share - basic and diluted $ 0.43
============
WEIGHTED AVERAGE SHARES:
Basic 35,623,198 45,201,433
Diluted 35,957,030 45,645,496
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED
--------------------------------
SEPTEMBER 30,
--------------------------------
1999 2000
------------ ------------
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NET REVENUES $ 59,204 $ 92,462
OPERATING EXPENSES:
Station operating expenses 35,922 53,471
Depreciation and amortization 5,295 11,033
Corporate general and administrative expenses 2,186 2,729
Net expense from time brokerage agreement fees 4
Loss (Gains) on sale of assets 48 (41,472)
------------ ------------
Total operating expenses 43,451 25,765
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OPERATING INCOME 15,753 66,697
------------ ------------
OTHER EXPENSE (INCOME) ITEMS:
Interest expense 2,776 9,488
Financing cost of Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary holding solely convertible debentures
of the Company 1,953
Interest income (66) (135)
------------ ------------
Total other expense 2,710 11,306
------------ ------------
INCOME BEFORE INCOME TAXES 13,043 55,391
INCOME TAXES 4,990 22,205
------------ ------------
NET INCOME $ 8,053 $ 33,186
============ ============
NET INCOME PER SHARE
Net income per share - basic $ 0.22 $ 0.73
============ ============
Net income per share - diluted $ 0.21 $ 0.71
============ ============
WEIGHTED AVERAGE SHARES:
Basic 37,171,741 45,214,957
Diluted 37,505,573 48,409,950
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
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NINE MONTHS ENDED
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SEPTEMBER 30,
------------------------
1999 2000
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NET INCOME (LOSS) ($65,222) $ 42,563
OTHER COMPREHENSIVE LOSS (NET OF TAX BENEFIT)
Unrealized losses on investments - net of $1.8 million tax benefit in 2000 -- (2,647)
-------- --------
COMPREHENSIVE INCOME (LOSS) ($65,222) $ 39,916
======== ========
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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
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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NINE MONTHS ENDED
---------------------------
SEPTEMBER 30,
---------------------------
1999 2000
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OPERATING ACTIVITIES:
Net income (loss) ($ 65,222) $ 42,563
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 15,314 32,147
Deferred taxes 82,798 30,513
Non-cash stock-based compensation expense 335 517
Gain on disposition of assets (419) (41,465)
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (12,210) (20,754)
Prepaid expenses 741 (2,907)
Prepaid and refundable income taxes (1,722)
Accounts payable, accrued liabilities and income taxes payable 3,447 301
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,784 39,193
--------- ---------
INVESTING ACTIVITIES:
Acquisition of limited partnership interest (3,138)
Additions to property and equipment (10,093) (5,972)
Purchases of radio station assets (60,968) (98,556)
Deferred charges and other assets (447) (1,375)
Purchase of investments (8,936)
Proceeds held in escrow from sale of Tampa stations 75,000
Station acquisition deposits (128) 191
Proceeds from sale of property, equipment and other assets 1,162 57,196
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,388 (57,452)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from initial public offering 236,157
Proceeds from issuance of long-term debt 82,500 47,000
Payments of long-term debt (253,506) (27,508)
Proceeds from issuance of common stock related to incentive plans 126 1,315
Dividends paid to S Corporation shareholders (88,113)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (22,836) 20,807
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,336 2,548
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,469 11,262
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,805 $ 13,810
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ----
Cash paid during the period for:
Interest $ 9,971 $ 27,996
========= =========
Interest paid for TIDES $ 5,859
=========
Income taxes $ 4,269 $ 515
========= =========
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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 nine months ended September 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 nine-month
periods ended September 30, 1999 and September 30, 2000, respectively,
the Company increased its additional paid-in-capital by $250 and $266 for
the nine-month periods ended September 30, 1999 and September 30, 2000,
respectively.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8
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ENTERCOM COMMUNICATIONS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 nine-month period ending
September 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 for the period. Diluted earnings (loss) per share is computed in the
same manner as basic earnings after assuming issuance of common stock for all
potentially dilutive equivalent shares, which includes (1) stock options (using
the treasury stock method) and (2) the Term Income Deferrable Equity Securities
("TIDES") after eliminating from net income the interest expense, net of taxes,
on the TIDES. Anti-dilutive instruments are not considered in this calculation.
For the nine-month period ended September 30, 2000, the effect of the TIDES was
anti-dilutive and the effect of the stock options was dilutive in the
calculation of earnings per share and for the nine-month period ended September
30, 1999, the effect of the stock options in the calculation of loss per share
was anti-dilutive. For the three-month period ended September 30, 2000, the
effect of the TIDES and stock options in the calculation of earnings per share
was dilutive and for the three-month period ended September 30, 1999, the effect
of the stock options in the calculation of earnings per share was dilutive.
2. ACQUISITIONS & DISPOSITION
Completed Acquisitions
For the Nine Months Ended September 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.
On July 20, 2000, the Company acquired from Sinclair Broadcast Group
("Sinclair"), the assets of KCFX-FM, KQRC-FM, KCIY-FM and KRBZ-FM (formerly
KXTR-FM), serving the Kansas City radio market, where the Company already owned
seven radio stations, for $126.6 million. Including this transaction, the
Company completed the acquisition of 45 of 46 radio stations from Sinclair. In
connection with the purchase of the four Kansas City radio stations, federal
broadcasting regulations required the Company to divest three stations in the
Kansas City radio market. To comply with these regulations, on July 20, 2000,
the Company sold to Susquehanna Radio Corp. ("Susquehanna") three stations for
cash
9
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(see below). The Company did not record the purchase of assets for KCFX-FM as
this Kansas City radio station was acquired from Sinclair and sold to
Susquehanna on the same date. Broadcasting licenses and other intangibles in the
amount of $69.5 million were recorded in connection with this transaction. The
final allocation of the purchase price is contingent upon the receipt of final
appraisals of the acquired assets and the revision of other estimates. The
Company does not expect final allocations to differ materially from the
preliminary allocation.
On August 31, 2000, the Company acquired from Woodward
Communications, Inc. 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.
Broadcasting licenses and other intangibles in the amount of $12.8 million were
recorded in connection with this transaction. The final allocation of the
purchase price is contingent upon the receipt of final appraisals of the
acquired assets and the revision of other estimates. The Company does not expect
final allocations to differ materially from the preliminary allocation.
Completed Disposition
For the Nine Months Ended September 30, 2000
In connection with the divestiture of the Kansas City radio stations
required by federal broadcasting regulations, on July 20, 2000, the Company sold
to Susquehanna for $113.0 million in cash, the assets of three radio stations
serving the Kansas City radio market, KCMO-AM, KCMO-FM and KCFX-FM as well as
the contract rights to broadcast the Kansas City Chiefs football games. The
Company recorded a gain of $41.5 million from the sale of KCMO-AM and KCMO-FM,
radio stations previously owned by the Company. No gain or loss was recognized
from the July 20, 2000, purchase and sale of KCFX-FM.
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 September 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, divestitures
and other events 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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NINE MONTHS ENDED
---------------------------------------------
SEPTEMBER 30,
---------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------
1999 2000
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Net Revenues $231,018 $263,788
Net income before gains on sale of assets $ 4,647 $ 16,233
Net income $ 29,786 $ 16,233
Net earnings per share - basic $ 0.84 $ 0.36
Net earnings per share - diluted $ 0.83 $ 0.36
</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 September 30, 2000, the
Company had approximately $485.0 million of borrowings outstanding under the
Bank Facility ($160.0 million under the Revolver and $325.0 million under the
Term Loan), in addition to an outstanding Letter of Credit in the amount of $5.1
million.
During the nine months ended September 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 $233.0 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.
10
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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 and July 20, 2000, the Company completed the
acquisition of 45 of 46 radio stations from Sinclair. On November 3, 2000, the
Company acquired from Sinclair the remaining radio station, 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, for $0.6 million (see 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 7, 1998, the Company acquired WSKY-FM in the Gainesville/Ocala
market from Gator Broadcasting, Inc. ("Gator") for $2.0 million, plus an
additional payment of up to $1.0 million payable once the authorized upgrade of
the station from a Class A license to a Class C-2 license becomes final. On
September 8, 2000, the FCC order permitting the upgrade became final.
Accordingly, on October 2, 2000, the Company completed the upgrade under the
agreement for $0.9 million in cash (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 nine months ended September 30, 1999 and 2000, the Company
issued non-qualified options to purchase 858,623 shares and 666,000 shares,
respectively, of its Class A Common Stock at prices ranging from $18.00 to
$41.75 and $31.88 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 $293,000 and $422,000 for the nine months
ended September 30, 1999 and 2000, respectively, and $123,000 and a credit of
$6,000 for the three months ended September 30, 1999 and 2000, respectively.
During the nine months ended September 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 September 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 $42,000 and $95,000 for the
nine months ended September 30, 1999 and 2000, respectively, and $16,000 and
$32,000 for the three months ended September 30, 1999 and 2000, respectively.
11
<PAGE> 12
On each of the dates of May 9, 2000 and August 22, 2000, Chase Capital
converted 300,000 shares of Class C Common Stock to 300,000 shares of Class A
Common Stock.
7. SUBSEQUENT EVENTS
On October 2, 2000, the Company completed the transaction with Gator to
upgrade WSKY-FM to a Class C-2 license from a Class A license at a cost of $0.9
million in cash.
On November 3, 2000, the Company completed the purchase from Sinclair
of all of the assets related to radio station WKRF-FM, serving the
Wilkes-Barre/Scranton, Pennsylvania radio market, where the Company already owns
eight radio stations, for $0.6 million in cash (see Note 4).
12
<PAGE> 13
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. 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 and gain on unconsolidated minority investments (net of
current tax), or plus loss on sale of assets and loss on unconsolidated minority
investments (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 net income, 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 comparing the performance of
stations operated by us and advertising under sports contracts sold by us,
throughout a relevant period to the performance of those same stations or sports
contracts
13
<PAGE> 14
(whether or not operated by us or sold by us) in the prior year's corresponding
period excluding the effect of barter revenues and expenses and discontinued
operations. "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 nine-month
periods and three-month periods ended September 30, 2000 and September 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES $154,749 $260,280
Increase of $105,531 or 68.2%
--------------------------------------------------------------------
</TABLE>
Net revenues increased 68.2% to $260.3 million for the nine months
ended September 30, 2000 from $154.7 million for the nine months ended
September 30, 1999. Of the increase, $82.1 million is attributable to stations
that we acquired or that we were in the process of acquiring since January 1,
1999, offset by $2.4 million for stations that we divested (including any sports
contracts for which we discontinued selling advertising) during the same period.
On a same station basis, net revenues increased 14.5% to $248.8 million from
$217.2 million. Same station revenue growth was led by increases in Sacramento,
Milwaukee, Boston, Norfolk, Greenville and Portland due to improved selling
efforts.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATION OPERATING EXPENSES $100,218 $155,223
Increase of $55,005 or 54.9%
--------------------------------------------------------------------
Percentage of Net Revenues 64.8% 59.6%
</TABLE>
Station operating expenses increased 54.9% to $155.2 million for
the nine months ended September 30, 2000 from $100.2 million for the nine months
ended September 30, 1999. Of the increase, $51.5 million is attributable to
stations that we acquired or that we were in the process of acquiring since
January 1, 1999, offset by $3.2 million for stations that we divested (including
any sports contracts for which we discontinued selling advertising) during the
same period. On a same station basis, station operating expenses increased 6.4%
to $145.8 million from $137.0 million.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
DEPRECIATION AND AMORTIZATION $15,314 $32,147
Increase of $16,833 or 109.9%
--------------------------------------------------------------------
Percentage of Net Revenues 9.9 % 12.4%
</TABLE>
Depreciation and amortization increased 109.9 % to $32.1 million for
the nine months ended September 30, 2000
from $15.3 million for the nine months ended September 30, 1999. The increase
was mainly attributable to our acquisitions since January 1, 1999, offset by
dispositions during the same period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES $5,640 $9,203
Increase of $3,563 or 63.2%
--------------------------------------------------------------------
Percentage of Net Revenues 3.6% 3.5%
</TABLE>
Corporate general and administrative expenses increased 63.2% to $9.2
million for the nine months ended September 30, 2000 from $5.6 million for the
nine months ended September 30, 1999. The increase was mainly attributable
14
<PAGE> 15
to higher administrative expenses associated with supporting our growth. Also
included is non-cash stock-based compensation expense of $0.5 million for the
nine months ended September 30, 2000 and $0.3 million for the nine months ended
September 30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST EXPENSE (INCLUDING FINANCING
COST OF TIDES) $9,022 $34,371
Increase of $25,349 or 281.0%
--------------------------------------------------------------------
Percentage of Net Revenues 5.8% 13.2%
</TABLE>
Interest expense, including the financing cost on our 6.25%
Convertible Preferred Securities Term Income Deferrable Equity Securities
(TIDES), increased 281.0% to $34.4 million for the nine months ended September
30, 2000 from $9.0 million for the nine months ended September 30, 1999. The
increase in interest expense was mainly attributable to: (1) an overall increase
in outstanding indebtedness used to fund the acquisition of radio station
assets; and (2) the financing cost of the TIDES, offset by (1) a reduction in
the outstanding indebtedness due to the use of the proceeds of our October 1999
Class A Common Stock and TIDES offerings; and (2) a reduction in outstanding
indebtedness from the proceeds of the disposition of radio station assets.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES $24,987 $71,134
Increase of $46,147 or 184.7%
--------------------------------------------------------------------
Percentage of Net Revenues 16.1% 27.3%
</TABLE>
Income before income taxes increased 184.7% to $71.1 million for the
nine months ended September 30, 2000 from $25.0 million for the nine months
ended September 30, 1999. The increase in income before income taxes is mainly
attributable to: (1) an increase in gains on sale of assets of $41.0 million
primarily from the gain on the disposition of two radio stations in the current
period; and (2) an increase in operating income, exclusive of the gains on sale
of assets, of $30.8 million, offset by an increase of $25.3 million in net
interest expense and financing cost as a result of the factors described above
under interest expense.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) ($65,222) $42,563
Increase of $107,785
--------------------------------------------------------------------
</TABLE>
Net income increased to $42.6 million for the nine months ended
September 30, 2000 from a loss of $65.2 million for the nine months ended
September 30, 1999, an increase of $107.8 million. The increase in net income is
mainly attributable to: (1) the absence this period of an adjustment made during
the nine months ended September 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) and (2) the gain on sale of assets of $24.6
million, net of tax, primarily from the disposition of two radio stations in the
current period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET INCOME TO PRO FORMA NET INCOME $15,412 $42,563
Increase of $27,151 or 176.2%
--------------------------------------------------------------------
</TABLE>
Net income increased 176.2% to $42.6 million for the nine
months ended September 30, 2000 from pro forma net income of $15.4 million for
the nine months ended September 30, 1999, an increase of $27.2 million. The
increase in net income from pro forma net income is mainly attributable to: (1)
an increase in gains on sale of assets of $24.6, net of tax, primarily from the
disposition of two radio stations in the current period; and (2) an increase in
operating income, exclusive of gains on sale of assets, of $17.8 million, net of
taxes and pro forma taxes, offset by an increase of $15.0 million in interest
expense and financing cost, net of taxes and pro forma taxes, as a result of the
factors described above under interest expense.
15
<PAGE> 16
<TABLE>
<CAPTION>
OTHER DATA NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW $54,531 $105,057
Increase of $50,526 or 92.7%
--------------------------------------------------------------------
</TABLE>
Broadcast cash flow increased 92.7% to $105.1 million for the nine
months ended September 30, 2000 from $54.5 million for the nine months ended
September 30, 1999. Of the increase, $30.6 million is attributable to stations
that we acquired or that we were in the process of acquiring since January 1,
1999, offset by $0.8 million for stations that we divested (including any sports
contracts for which we discontinued selling advertising) during the same period.
On a same station basis, broadcast cash flow increased 28.4% to $103.0 million
from $80.2 million.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
<S> <C> <C> <C>
BROADCAST CASH FLOW MARGIN Increase of 35.2% 40.4%
--------------------------------------------------------------------
</TABLE>
The broadcast cash flow margin increased to 40.4% for the nine months
ended September 30, 2000 from 35.2% for the nine months ended September 30,
1999. The increase is attributable to improved revenues and expense management.
On a same station basis, our broadcast cash flow margin increased to 41.4% from
36.9%.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AFTER TAX CASH FLOW TO PRO FORMA AFTER TAX CASH FLOW $35,072 $64,380
Increase of $29,308 or 83.6%
-------------------------------------------------------------------
</TABLE>
After tax cash flow increased 83.6% to $64.4 million for the nine
months ended September 30, 2000 from pro forma after tax cash flow of $35.1
million for the nine months ended September 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 nine month period
ended September 30, 1999. The amount of the deferred income tax expense was
$30.5 million for the nine months ended September 30, 2000 and the amount of the
pro forma deferred income tax expense was $4.2 million for the nine months ended
September 30, 1999. Of the deferred income tax expense of $30.5 million in the
current period, $16.5 million is attributable to the gains on sale of assets.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES $59,204 $92,462
Increase of $33,258 or 56.2%
--------------------------------------------------------------------
</TABLE>
Net revenues increased 56.2% to $92.5 million for the three months
ended September 30, 2000 from $59.2 million for the three months ended September
30, 1999. Of the increase, $30.2 million is attributable to stations that we
acquired or that we were in the process of acquiring since January 1, 1999,
offset by $2.2 million for stations that we divested (including any sports
contracts for which we discontinued selling advertising) during the same period.
On a same station basis, net revenues increased 7.8% to $89.3 million from $82.9
million. Same station revenue growth was led by increases in Milwaukee,
Portland, Sacramento, Wichita, Boston, Norfolk, and Greenville due to improved
selling efforts.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATION OPERATING EXPENSES $35,922 $53,471
Increase of $17,549 or 48.9%
--------------------------------------------------------------------
Percentage of Net Revenues 60.7% 57.8%
</TABLE>
Station operating expenses increased 48.9% to $53.5 million for the
three months ended September 30, 2000 from $35.9 million for the three months
ended September 30, 1999. Of the increase, $18.6 million is attributable to
stations that we acquired or that we were in the process of acquiring since
January 1, 1999, offset by $2.1 million for stations that we
16
<PAGE> 17
divested (including any sports contracts for which we discontinued selling
advertising) during the same period. On a same station basis, station operating
expenses increased 2.9% to $51.1 million from $49.6 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
DEPRECIATION AND AMORTIZATION $5,295 $11,033
Increase of $5,738 or 108.4%
--------------------------------------------------------------------
Percentage of Net Revenues 8.9% 11.9%
</TABLE>
Depreciation and amortization increased 108.4% to $11.0 million for
the three months ended September 30, 2000 from $5.3 million for the three months
ended September 30, 1999. The increase was mainly attributable to our
acquisitions since January 1, 1999, offset by dispositions during the same
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $2,186 $2,729
Increase of $ 543 or 24.8%
--------------------------------------------------------------------
Percentage of Net Revenues 3.7% 3.0%
</TABLE>
Corporate general and administrative expenses increased 24.8% to $2.7
million for the three months ended September 30, 2000 from $2.2 million for the
three months ended September 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 $26,000 for the three
months ended September 30, 2000 and $117,000 for the three months ended
September 30, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST EXPENSE (INCLUDING FINANCING COST OF TIDES) $2,776 $11,441
Increase of $8,665 or 312.1%
--------------------------------------------------------------------
Percentage of Net Revenues 4.7% 12.4%
</TABLE>
Interest expense, including the financing cost of our 6.25% Convertible
Preferred Securities Term Income Deferrable Equity Securities (TIDES), increased
312.1% to $11.4 million for the three months ended September 30, 2000 from $2.8
million for the three months ended September 30, 1999. The increase in interest
expense was mainly attributable to: (1) an overall increase in outstanding
indebtedness used to fund the acquisition of radio station assets; and (2) the
financing cost of the TIDES, offset by (1) a reduction in the outstanding
indebtedness due to the use of the proceeds from our October 1999 Class A Common
Stock and TIDES offerings; and (2) a reduction in outstanding indebtedness from
the proceeds of the disposition of radio station assets.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES $13,043 $55,391
Increase of $42,348 or 324.7%
--------------------------------------------------------------------
Percentage of Net Revenues 22.0% 59.9%
</TABLE>
Income before income taxes increased to $55.4 million for the three months
ended September 30, 2000 from $13.0 million for the three months ended September
30, 1999. The increase in income before income taxes is mainly attributable to:
(1) the gain on sale of assets of $41.5 million primarily from the disposition
of two radio stations in the current period; and (2) an increase in operating
income, exclusive of gains on sale of assets, of $9.4 million, offset by an
increase of $8.7 million in interest expense and financing cost as a result of
the factors described above under interest expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET INCOME $8,053 $33,186
Increase of $25,133 or 312.1%
--------------------------------------------------------------------
Percentage of Net Revenues 13.6% 35.9%
</TABLE>
17
<PAGE> 18
Net income increased to $33.2 million for the three months ended
September 30 2000 from $8.1 million for the three months ended September 30,
1999. The increase in net income is mainly attributable to: (1) the gain on sale
of assets of $24.9 million, net of tax, primarily from the disposition of two
radio stations in the current period; and (2) an increase in operating income,
exclusive of gains on sales of assets, of $5.3 million, net of taxes, offset by
an increase of $5.1 million in interest expense and financing cost, net of
taxes, as a result of the factors described above under interest expense.
<TABLE>
<CAPTION>
OTHER DATA THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW $23,282 $38,991
Increase of $15,709 or 67.5%
--------------------------------------------------------------------
</TABLE>
Broadcast cash flow increased 67.5% to $39.0 million for the three
months ended September 30, 2000 from $23.3 million for the three months ended
September 30, 1999. Of the increase, $11.6 million is attributable to stations
that we acquired or that we were in the process of acquiring since January 1,
1999, offset by $0.1 million for stations that we divested (including any sports
contracts for which we discontinued selling advertising) during the same period.
On a same station basis, broadcast cash flow increased 15.0% to $38.3 million
from $33.3 million.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
<S> <C> <C> <C>
BROADCAST CASH FLOW MARGIN Increase of 39.3% 42.2%
--------------------------------------------------------------------
</TABLE>
The broadcast cash flow margin increased to 42.2% for the three months
ended September 30, 2000 from 39.3% for the three months ended September 30,
1999. The increase is attributable to improved revenues and expense management.
On a same station basis, our broadcast cash flow margin increased to 42.8% from
40.2%.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AFTER TAX CASH FLOW $14,857 $24,296
Increase of $9,439 or 63.5%
--------------------------------------------------------------------
</TABLE>
After tax cash flow increased 63.5% to $24.3 million for the three
months ended September 30, 2000 from $14.9 million for the three months ended
September 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 $21.4 million for the three months ended
September 30, 2000 and $1.1 million for the three months ended September 30,
1999. Of the deferred income tax expense of $21.4 million in the current period,
$16.5 million is attributable to the gains on sale of assets.
18
<PAGE> 19
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 sale of
securities; (3) the swapping of our radio stations in transactions which qualify
as "like-kind" exchanges under Section 1031 of the Internal Revenue Code and (4)
internally-generated cash flow.
Net cash flows provided by operating activities were $39.2 million and
$24.8 million for the nine months ended September 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 and disposition of radio
stations during those periods. For the nine months ended September 30, 2000,
cash flows provided by operating activities were positively affected primarily
by: (1) the acquisition of 45 radio stations from Sinclair (41 radio stations on
December 16, 1999 and 4 radio stations on July 20, 2000) and other radio station
acquisitions, offset by (1) the divestiture of three radio stations; and (2) an
increase in accounts receivable due to acquisitions, net of a divestiture.
Net cash flows used by investing activities were $57.5 million and net
cash flows provided by investing activities were $1.4 million for the nine
months ended September 30, 2000 and 1999, respectively. Net cash flows provided
by financing activities were $20.8 million and net cash flows used by financing
activities were $22.8 million for the nine months ended September 30, 2000 and
1999, respectively. The cash flows for the nine months ended September 30, 2000
reflect (1) acquisitions and investments consummated and the related borrowings
and (2) the disposition of the Kansas City stations. The cash flows for the nine
months ended September 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
During the nine months ended September 30, 2000, we borrowed
approximately $47.0 million under our bank facility, of which $41.3 million was
used to fund: (1) $13.1 million in acquisitions for seven radio stations in
Wichita; (2) $13.6 million of the $126.6 million in acquisitions for four radio
stations in Kansas City, the balance of which was paid from the purchase price
of $113.0 million for the disposition of three radio stations in Kansas City;
and (3) $14.6 million in acquisitions for three radio stations in Madison. We
also increased the amount of investments by $8.9 million. As of September 30,
2000, we had $485.0 million of borrowings outstanding under our bank facility in
addition to an outstanding letter of credit in the amount of $5.1 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 million
under our bank facility, eliminated the $7.5 million 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 September 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 nine months ended September 30, 2000, were $6.0 million. We
estimate that an additional amount of capital expenditures for the balance of
the fiscal year 2000 will be between $2.0 and $4.0 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 September 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.
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<PAGE> 20
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 does
not anticipate that this statement will have a material impact on our
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin, SAB 101, Revenue Recognition in Financial
Statements, as amended, with an effective date of October 1, 2000, which
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. Management does not anticipate that this statement will
have a material impact on our consolidated financial statements.
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 September 30, 2000, we have Rate
Hedging Transactions in place for a total notional amount of $263.0 million.
All of the Rate Hedging Transactions are tied to the three-month LIBOR
interest rate, which may fluctuate significantly on a daily basis. The valuation
of each of the Rate Hedging Transactions is affected by the change in the
three-month LIBOR rates and the remaining term of the agreement. Any increase in
the three-month LIBOR rate results in a more favorable valuation, 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 September
30, 2000 was higher than the rate at December 31, 1999. However, due to the
reduction in the remaining terms of the agreements, which more than offset an
increase in interest rates, an unrecognized loss by us resulted from the Rate
Hedging Transactions.
See also additional disclosures regarding "Liquidity and Capital Resources"
made under Item 2, above.
20
<PAGE> 21
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
None to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
<TABLE>
<CAPTION>
Number Description
------- -----------
<S> <C>
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)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
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)
</TABLE>
-------------------
(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) Reports filed on Form 8-K
On August 3, 2000, we filed a report on Form 8-K to report the
completion of the previously announced acquisition of four radio stations in the
Kansas City radio market (KCFX-FM, KCIY-FM, KQRC-FM and KRBZ-FM (formerly
KXTR-FM)) from Sinclair Broadcast Group, Inc. for $126.6 million and the
simultaneous sale of three radio stations in the Kansas City radio market
(KCFX-FM, KCMO-AM and KCMO-FM) to Susquehanna Radio Corp. for $113.0 million.
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: November 13, 2000 /s/ Joseph M. Field
--------------------
Name: Joseph M. Field
Title: Chief Executive Officer
Date: November 13, 2000 /s/ David J. Field
-------------------
Name: David J. Field
Title: President and Chief Operating Officer
Date: November 13, 2000 /s/ Stephen F. Fisher
----------------------
Name: Stephen F. Fisher
Title: Executive Vice President and Chief
Financial Officer
23
