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Entercom Communications 10-Q 2009

Table of Contents

 

 

 

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, 2009

 

or

 

o

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)

 

Pennsylvania

 

23-1701044

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. employer identification no.)

 

401 City Avenue, Suite 809

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 o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of  Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

 

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 – 29,624,523 Shares Outstanding as of July 29, 2009

(Class A Shares Outstanding include 1,942,686 unvested and vested but deferred restricted stock units)

Class B common stock, $.01 par value – 7,607,532 Shares Outstanding as of July 29, 2009

 

 

 



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

 

INDEX

 

Part I    Financial Information

 

 

 

 

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

46

 

 

 

Part II    Other Information

 

 

 

 

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

47

Item 4.

Submission of Matters to a Vote of Security Holders

47

Item 5.

Other Information

48

Item 6.

Exhibits

49

 

 

 

Signatures

 

50

 

 

 

Exhibit Index

 

51

 

Private Securities Litigation Reform Act Safe Harbor Statement

 

In addition to historical information, this report contains 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.

 

Forward-looking statements are presented for illustrative purposes only and reflect our current expectations concerning future results and events.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, without limitation, any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

 

You can identify forward-looking statements by our use of words such as “anticipates,” “believes,” “continues,” “expects,” “intends,” “likely,” “may,” “opportunity,” “plans,” “potential,” “project,” “will,” and similar expressions which identify forward-looking statements, whether in the negative or the affirmative.  We cannot guarantee that we actually will achieve these plans, intentions or expectations.  These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond our control, which could cause actual results to differ materially from those forecasted or anticipated in such forward-looking statements.  You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report.  We undertake no obligation to update these statements or publicly release the result of any revision(s) to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 

Key risks to our company are described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009 and as may be supplemented by the risks described under Part II, Item 1A, of our quarterly reports on Form 10-Q and in our Current Reports on Form 8-K.

 

ii



Table of Contents

 

PART I

 

FINANCIAL INFORMATION

 

ITEM 1.     Financial Statements

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

ASSETS

 

 

 

JUNE 30,

 

DECEMBER 31,

 

 

 

2009

 

2008

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

17,915

 

$

4,284

 

Accounts receivable, net of allowance for doubtful accounts

 

72,841

 

75,354

 

Prepaid expenses and deposits

 

5,189

 

4,801

 

Prepaid and refundable income taxes

 

533

 

628

 

Short-term investment

 

23

 

23

 

Total current assets

 

96,501

 

85,090

 

 

 

 

 

 

 

INVESTMENTS

 

1,370

 

1,376

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

Land, land easements and land improvements

 

16,498

 

16,486

 

Buildings

 

21,001

 

20,964

 

Equipment

 

123,376

 

122,986

 

Furniture and fixtures

 

15,513

 

15,029

 

Leasehold improvements

 

21,235

 

21,129

 

 

 

197,623

 

196,594

 

Accumulated depreciation

 

(120,443

)

(113,036

)

 

 

77,180

 

83,558

 

Capital improvements in progress

 

1,150

 

1,306

 

Net property and equipment

 

78,330

 

84,864

 

 

 

 

 

 

 

RADIO BROADCASTING LICENSES

 

707,852

 

768,646

 

 

 

 

 

 

 

GOODWILL

 

38,168

 

45,050

 

 

 

 

 

 

 

DEFERRED CHARGES AND OTHER ASSETS - Net

 

9,978

 

11,708

 

 

 

 

 

 

 

TOTAL

 

$

932,199

 

$

996,734

 

 

See notes to condensed consolidated financial statements.

 

1



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands)

(unaudited)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

JUNE 30,

 

DECEMBER 31,

 

 

 

2009

 

2008

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

387

 

$

352

 

Accrued expenses

 

15,503

 

15,231

 

Accrued liabilities:

 

 

 

 

 

Salaries

 

7,302

 

7,484

 

Interest

 

1,269

 

2,343

 

Advertiser obligations and other commitments

 

1,250

 

1,197

 

Other

 

5,200

 

5,684

 

Current portion of long-term debt

 

60,023

 

30,023

 

Total current liabilities

 

90,934

 

62,314

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

Senior debt

 

701,162

 

720,174

 

7.625% senior subordinated notes

 

44,056

 

83,500

 

Other long-term liabilities

 

28,054

 

30,489

 

Total long-term liabilities

 

773,272

 

834,163

 

Total liabilities

 

864,206

 

896,477

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock

 

 

 

Class A, B and C common stock

 

371

 

371

 

Additional paid-in capital

 

585,126

 

582,325

 

Accumulated deficit

 

(503,601

)

(467,177

)

Accumulated other comprehensive loss

 

(13,903

)

(15,262

)

Total shareholders’ equity

 

67,993

 

100,257

 

 

 

 

 

 

 

TOTAL

 

$

932,199

 

$

996,734

 

 

See notes to condensed consolidated financial statements.

 

2



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

NET REVENUES

 

$

176,671

 

$

219,170

 

 

 

 

 

 

 

OPERATING (INCOME) EXPENSE:

 

 

 

 

 

Station operating expenses, including non-cash compensation expense of $762 in 2009 and $1,113 in 2008

 

125,733

 

138,615

 

Depreciation and amortization expense

 

8,540

 

11,535

 

Corporate general and administrative expenses, including non-cash expense of $2,937 in 2009 and $4,605 in 2008

 

11,584

 

15,355

 

Impairment loss

 

67,676

 

184,587

 

Net time brokerage agreement income

 

(2

)

(143

)

Net gain on sale or disposal of assets

 

 

(9,999

)

Total operating expense

 

213,531

 

339,950

 

OPERATING LOSS

 

(36,860

)

(120,780

)

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

Interest expense, including amortization of deferred financing expense of $776 in 2009 and $842 in 2008

 

15,972

 

24,410

 

Interest and dividend income

 

(17

)

(267

)

Net gain on extinguishment of debt

 

(16,128

)

(2,384

)

Net gain on derivative instruments

 

 

(34

)

Loss on investments

 

 

211

 

Other income

 

(380

)

(3,256

)

TOTAL OTHER (INCOME) EXPENSE

 

(553

)

18,680

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

 

 

 

BEFORE INCOME TAXES (BENEFIT)

 

(36,307

)

(139,460

)

 

 

 

 

 

 

INCOME TAXES (BENEFIT)

 

270

 

(52,336

)

LOSS FROM CONTINUING OPERATIONS

 

(36,577

)

(87,124

)

Loss from discontinued operations, net of income tax benefit

 

 

(3,977

)

NET LOSS

 

$

(36,577

)

$

(91,101

)

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

Loss from continuing operations

 

$

(1.03

)

$

(2.34

)

Loss from discontinued operations, net of income tax benefit

 

 

(0.10

)

NET LOSS PER SHARE - BASIC AND DILUTED

 

$

(1.03

)

$

(2.44

)

 

 

 

 

 

 

DIVIDENDS DECLARED AND PAID PER COMMON SHARE

 

$

 

$

0.48

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

Basic and Diluted

 

35,342,509

 

37,304,858

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

THREE MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

NET REVENUES

 

$

101,300

 

$

123,780

 

 

 

 

 

 

 

OPERATING (INCOME) EXPENSE:

 

 

 

 

 

Station operating expenses, including non-cash compensation expense of $672 in 2009 and $730 in 2008

 

67,164

 

74,525

 

Depreciation and amortization expense

 

4,224

 

5,533

 

Corporate general and administrative expenses, including non-cash expense of $1,235 in 2009 and $1,415 in 2008

 

5,897

 

7,020

 

Impairment loss

 

67,676

 

184,587

 

Net time brokerage agreement income

 

 

(45

)

Net (gain) loss on sale or disposal of assets

 

(7

)

22

 

Total operating expense

 

144,954

 

271,642

 

OPERATING LOSS

 

(43,654

)

(147,862

)

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

Interest expense, including amortization of deferred financing expense of $382 in 2009 and $414 in 2008

 

7,859

 

10,846

 

Interest and dividend income

 

(9

)

(188

)

Net gain on extinguishment of debt

 

(8,373

)

(615

)

Loss on investments

 

 

135

 

Other income

 

 

(3,256

)

TOTAL OTHER (INCOME) EXPENSE

 

(523

)

6,922

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

 

 

 

BEFORE INCOME TAX BENEFIT

 

(43,131

)

(154,784

)

 

 

 

 

 

 

INCOME TAX BENEFIT

 

(1,218

)

(58,491

)

LOSS FROM CONTINUING OPERATIONS

 

(41,913

)

(96,293

)

Loss from discontinued operations, net of income tax benefit

 

 

(33

)

NET LOSS

 

$

(41,913

)

$

(96,326

)

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

Loss from continuing operations

 

$

(1.19

)

$

(2.60

)

Loss from discontinued operations, net of income tax benefit

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

$

(1.19

)

$

(2.60

)

 

 

 

 

 

 

DIVIDENDS DECLARED AND PAID PER COMMON SHARE

 

$

 

$

0.10

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

Basic and Diluted

 

35,289,531

 

36,965,906

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

NET LOSS

 

$

(36,577

)

$

(91,101

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, NET OF TAXES:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments, net of taxes of $86 in 2008

 

 

132

 

 

 

 

 

 

 

Unrealized gain on derivatives, net of taxes of $0 in 2009 and $3,101 in 2008

 

1,359

 

4,790

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(35,218

)

$

(86,179

)

 

See notes to condensed consolidated financial statements.

 

5



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

THREE MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

NET LOSS

 

$

(41,913

)

$

(96,326

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, NET OF TAXES:

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments, net of taxes of $70 in 2008

 

 

108

 

 

 

 

 

 

 

Unrealized gain on derivatives, net of taxes of $0 in 2009 and $4,214 in 2008

 

2,344

 

6,510

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(39,569

)

$

(89,708

)

 

See notes to condensed consolidated financial statements.

 

6



Table of Contents

 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2009 AND YEAR ENDED DECEMBER 31, 2008

(amounts in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

Additional

 

 

 

Other

 

 

 

 

 

Class A

 

Class B

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

 

31,132,700

 

$

311

 

7,607,532

 

$

76

 

$

595,915

 

$

64,597

 

$

(132

)

$

660,767

 

Net loss

 

 

 

 

 

 

(516,651

)

 

(516,651

)

Compensation expense related to granting of stock options

 

 

 

 

 

425

 

 

 

425

 

Compensation expense related to granting of restricted stock units

 

478,075

 

5

 

 

 

8,236

 

 

 

8,241

 

Issuance of common stock related to an incentive plan

 

72,092

 

1

 

 

 

328

 

 

 

329

 

Common stock repurchase

 

(2,073,518

)

(21

)

 

 

(13,923

)

 

 

(13,944

)

Purchase of vested employee restricted stock units

 

(130,161

)

(1

)

 

 

(1,374

)

 

 

(1,375

)

Payments of dividends

 

 

 

 

 

(7,282

)

(14,301

)

 

(21,583

)

Dividend equivalents on restricted stock units (net of forfeitures and payments)

 

 

 

 

 

 

(822

)

 

(822

)

Net unrealized loss on derivatives

 

 

 

 

 

 

 

(15,262

)

(15,262

)

Net unrealized gain on investments

 

 

 

 

 

 

 

132

 

132

 

Balance, December 31, 2008

 

29,479,188

 

295

 

7,607,532

 

76

 

582,325

 

(467,177

)

(15,262

)

100,257

 

Net loss

 

 

 

 

 

 

(36,577

)

 

(36,577

)

Compensation expense related to granting of stock options

 

 

 

 

 

229

 

 

 

229

 

Compensation expense related to granting of restricted stock units

 

814,021

 

7

 

 

 

3,447

 

 

 

3,454

 

Issuance of common stock related to an incentive plan

 

74,369

 

 

 

 

97

 

 

 

97

 

Common stock repurchase

 

(662,664

)

(7

)

 

 

(882

)

 

 

(889

)

Purchase of vested employee restricted stock units

 

(80,047

)

 

 

 

(90

)

 

 

(90

)

Dividend equivalents on restricted stock units (net of forfeitures and payments)

 

 

 

 

 

 

153

 

 

153

 

Net unrealized gain on derivatives

 

 

 

 

 

 

 

1,359

 

1,359

 

Balance, June 30, 2009

 

29,624,867

 

$

295

 

7,607,532

 

$

76

 

$

585,126

 

$

(503,601

)

$

(13,903

)

$

67,993

 

 

See notes to condensed consolidated financial statements.

 

7


 

 


Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (amounts in thousands)

 (unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(36,577

)

$

(91,101

)

Loss from discontinued operations before impairment loss, net of tax benefit

 

 

37

 

Impairment loss from discontinued operations

 

 

6,675

 

Deferred tax benefit from discontinued operations

 

 

(2,735

)

Loss from continuing operations

 

(36,577

)

(87,124

)

 

 

 

 

 

 

Adjustments to reconcile loss from continuing operations to net cash provided by continuing operating activities:

 

 

 

 

 

Depreciation and amortization

 

8,540

 

11,535

 

Amortization of deferred financing costs

 

776

 

842

 

Deferred taxes

 

270

 

(52,336

)

Provision for bad debts

 

1,372

 

1,412

 

Net gain on sale or disposal of assets

 

 

(9,999

)

Non-cash stock-based compensation expense

 

3,699

 

5,718

 

Net loss on investments

 

 

211

 

Net gain on derivatives

 

 

(34

)

Deferred rent

 

18

 

145

 

Unearned revenue - long-term

 

(421

)

(20

)

Net gain on extinguishment of debt

 

(16,128

)

(2,384

)

Deferred compensation

 

744

 

1,175

 

Tax benefit for vesting of restricted stock unit awards

 

 

(474

)

Impairment loss

 

67,676

 

184,587

 

Other income

 

(380

)

(3,500

)

Changes in assets and liabilities (net of effects of acquisitions and dispositions in all years and the effect of deconsolidation activities in 2008):

 

 

 

 

 

Accounts receivable

 

1,121

 

(5,691

)

Prepaid expenses and deposits

 

(388

)

(1,246

)

Prepaid and refundable income taxes

 

95

 

14,298

 

Accounts payable and accrued liabilities

 

(513

)

(1,732

)

Accrued interest expense

 

(1,074

)

 

Accrued expenses - long-term

 

(577

)

 

Prepaid expenses - long-term

 

(229

)

200

 

 

 

 

 

 

 

Net cash provided by continuing operating activities

 

28,024

 

55,583

 

Net cash used in discontinued operating activities

 

 

(37

)

Net cash provided by operating activities

 

28,024

 

55,546

 

 

8



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (amounts in thousands)

 (unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

JUNE 30,

 

 

 

2009

 

2008

 

INVESTING ACTIVITIES:

 

 

 

 

 

Additions to property and equipment

 

(1,240

)

(4,498

)

Proceeds from sale of property, equipment, intangibles and other assets

 

19

 

21,006

 

Purchases of radio station assets

 

 

(374

)

Deferred charges and other assets

 

(43

)

(848

)

Purchases of investments

 

 

(6

)

Proceeds from investments

 

6

 

193

 

Proceeds from termination of radio station contract

 

380

 

 

Proceeds from insurance recovery

 

 

3,500

 

Station acquisition deposits and costs

 

 

4,141

 

Net cash provided by (used in) investing activities

 

(878

)

23,114

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of long-term debt

 

25,000

 

56,000

 

Payments of long-term debt

 

(14,011

)

(68,511

)

Retirement of senior subordinated debt

 

(22,860

)

(38,765

)

Purchase of the Company’s common stock

 

(889

)

(13,260

)

Proceeds from issuance of employee stock plan

 

82

 

183

 

Purchase of vested restricted stock units

 

(90

)

(1,360

)

Payment of dividend equivalents on vested restricted stock units

 

(747

)

(914

)

Payment of dividends

 

 

(17,946

)

Tax benefit for vesting of restricted stock awards

 

 

474

 

Net cash used in investing activities

 

(13,515

)

(84,099

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

13,631

 

(5,439

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

4,284

 

10,945

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

17,915

 

$

5,506

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

16,307

 

$

24,273

 

Income taxes

 

$

192

 

$

22

 

Dividends

 

$

 

$

17,946

 

 

SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

During the six months ended June 30, 2009, the Company issued 0.2 million restricted stock units, recorded modification expense of $1.4 million and had forfeitures of $2.1 million that will decrease on an aggregate basis its paid-in capital by $0.4 million over the vesting period of the restricted stock units.

 

During the six months ended 2008, the Company issued 0.5 million restricted stock units (net of forfeitures) and will increase its paid-in-capital by $6.0 million over the vesting period of the restricted stock units.

 

On March 14, 2008, the Company completed an exchange of radio station assets with Bonneville International Corporation and as a result the Company: (1) received $220.0 million in assets, including cash of $1.0 million; (2) provided assets with a basis of $210.0 million (including transaction costs); and (3) recorded a gain of $10.0 million.

 

See notes to condensed consolidated financial statements.

 

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ENTERCOM COMMUNICATIONS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2009 AND 2008

 

1.                                      BASIS OF PRESENTATION

 

The condensed consolidated interim unaudited financial statements included herein have been prepared by Entercom Communications Corp. and its subsidiaries (collectively, the “Company”) in accordance with: (i) generally accepted accounting principles for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for 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 annual financial statements.  In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented.  All such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.

 

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 and for the year ended December 31, 2008 and filed with the SEC on February 26, 2009, as part of the Company’s Annual Report on Form 10-K.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

 

Recent Accounting Pronouncements

 

FAS No. 168

 

In June 2008, the Financial Accounting Standards Board (“FASB”) approved the “FASB Accounting Standards Codification” as a single source of authoritative nongovernmental U.S. GAAP that was launched July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative literature related to a particular topic in one place. The Company’s adoption of Financial Accounting Standard (“FAS”) No. 168, which will be effective in the third quarter of 2009, will not have an impact on the Company’s results of operations, cash flows or financial position.

 

FAS No. 165

 

In May 2009, the FASB issued FAS No. 165, “Subsequent Events,” which sets forth the period, circumstances and disclosure after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. The Company’s adoption of FAS No. 165, which was effective for the Company in the period ended June 30, 2009, did not have an effect on the Company’s result of operations, cash flows or financial position.

 

FAS No. 142-3

 

In April 2008, the FASB issued FAS No. 142-3, “Determination of the Useful Life of Intangible Assets,” which amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of recognized intangible assets under FAS No. 142, “Goodwill and Other Intangible Assets.”  FAS No. 142-3, which requires expanded disclosure regarding the determination of intangible asset useful lives, also improves the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R. FAS No. 142-3 was effective for the Company on January 1, 2009. The impact to the Company will be limited to the application of this standard to future acquisitions.

 

FAS No. 107-1

 

In April 2009, the FASB issued FAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value Financial Instruments,” which requires disclosures about fair value of financial instruments in interim reporting periods that were previously only required in annual financial statements.  The Company’s adoption of FAS 107-1 and APB 28-1, which was effective for the Company for the period ended June 30, 2009, did not have an effect on the Company’s result of operations, cash flows or financial position.

 

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Table of Contents

 

FAS No. 161

 

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133.” FAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company has included the relevant disclosures effective in its first quarter 2009 financial statements under Note 7, Derivatives And Hedging Activities.

 

FAS No. 160

 

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51.”  FAS No. 160 changes the accounting and reporting for minority interests, which are recharacterized as noncontrolling interests and classified as a component of equity.  FAS No. 160 was effective for the Company as of January 1, 2009.  The adoption of FAS No. 160 did not have an impact on the Company’s financial position, results of operations or cash flows.

 

FAS No. 141R And FAS No. 141R-a

 

In December 2007, the FASB issued FAS No. 141R, “Business Combinations,” that will significantly change how business combinations are accounted for through the use of fair values in financial reporting and will impact financial statements both on the acquisition date and in subsequent periods.  In February 2009, the FASB issued FAS No. 141R-a, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” which allows an exception to the recognition and fair value measurement principles of FAS No. 141R.  This exception requires that acquired contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period.  FAS No. 141R was effective for the Company as of January 1, 2009 for all business combinations that close on or after January 1, 2009.

 

2.                                      SHARE-BASED COMPENSATION

 

As of June 30, 2009, 0.9 million shares are available for future grant under the Entercom Equity Compensation Plan (the “Plan”).  On January 1 of each year, the number of shares of Class A common stock authorized under the Plan is automatically increased by 1.5 million, or a lesser number as may be determined by the Company’s Board of Directors.  On January 1, 2009, the shares available for grant were automatically increased by 1.5 million shares.  The Company issues new shares of Class A common stock upon the exercise of stock options and the later of vesting or issuance of restricted stock (or restricted stock units).

 

Restricted Stock Units

 

Restricted Stock Activity

 

During the six months ended June 30, 2009, the Company issued 0.2 million restricted stock units at a weighted average fair value of $1.76 per share and will increase its additional paid-in capital by $0.3 million over the vesting period of the restricted stock units (excluding the fair value impact of: (i) $1.2 million for the 2009 Option Exchange Program as described below; (ii) $0.2 million for modified restricted stock units with market conditions; and (iii) forfeitures).  In addition, as a result of a high number of forfeitures during the current period, paid-in capital will be reduced by $2.1 million. During the six months ended June 30, 2008, the Company issued 0.5 million restricted stock units (net of forfeitures) at a weighted average fair value of $11.70 and will increase its additional paid-in capital by $6.0 million over the vesting period of the restricted stock units. During the six months ended June 30, 2009 and 2008, 0.3 million units and 0.4 million units, respectively, of restricted stock were both vested and released.

 

As of June 30, 2009, there was $10.8 million of unamortized compensation expense, net of estimated forfeitures, related to unvested restricted stock units, which is expected to be amortized over a remaining weighted-average recognition period of 2.8 years.

 

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Table of Contents

 

A summary of the Company’s outstanding restricted stock units as of June 30, 2009, and changes in restricted stock units during the six months ended June 30, 2009, is as follows:

 

 

 

 

 

 

 

 

 

Weighted-

 

Aggregate

 

 

 

 

 

Number of

 

Weighted-

 

Average

 

Intrinsic

 

 

 

 

 

Restricted

 

Average

 

Remaining

 

Value As Of

 

 

 

 

 

Stock

 

Purchase

 

Contractual

 

June 30,

 

 

 

Period Ended

 

Units

 

Price

 

Term

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units outstanding as of:

 

December 31, 2008

 

1,421,985

 

 

 

 

 

 

 

Restricted stock units awarded

 

 

 

176,596

 

 

 

 

 

 

 

Restricted stock units issued in exchange for options

 

 

 

711,985

 

 

 

 

 

 

 

Restricted stock units released

 

 

 

(293,138

)

 

 

 

 

 

 

Restricted stock units forfeited

 

 

 

(74,560

)

 

 

 

 

 

 

Restricted stock units outstanding as of:

 

June 30, 2009

 

1,942,868

 

$

 

1.8

 

$

2,972,588

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units vested and expected to vest

 

 

 

1,778,603

 

$

 

1.8

 

$

2,619,113

 

Restricted stock units exercisable (vested and deferred)

 

 

 

66,764

 

$

 

 

$

102,149

 

Weighted average remaining recognition period in years

 

 

 

2.8

 

 

 

 

 

 

 

 

 

Restricted Stock Units With Service And Market Conditions

 

During the six months ended June 30, 2009 and 2008, none of the Company’s 0.1 million and 0.3 million restricted stock units with service and market conditions, respectively, vested.

 

During the first quarter of 2009, the Company modified 0.2 million restricted stock units with service and market conditions by eliminating the market conditions.  Due to the modification, additional expense of $0.2 million will be recognized over the new vesting period of two years from the modification date.

 

Options

 

There were 1.1 million and 0.2 million options granted during the six months ended June 30, 2009 and 2008, respectively. For such options, the Company used the Black-Scholes option-pricing model and determined: (1) the term by using the simplified plain-vanilla method as allowed under Staff Accounting Bulletin (“SAB”) No. 110; (2) a historical volatility over a period commensurate with the expected term, with the observation of the volatility on a daily basis; (3) a risk-free interest rate that was consistent with the expected term of the stock options and based on the U.S. Treasury yield curve in effect at the time of the grant; and (4) an annual dividend yield based upon the Company’s most recent quarterly dividend per common share, if any, at the time of the grant.

 

The fair value of each option grant was estimated on the date of grant using the following weighted average assumptions:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2009

 

2008

 

Expected life (years)

 

6.3

 

6.3

 

Expected volatility factor (%)

 

54.9 to 61.4%

 

30.9% to 32.3%

 

Risk-free interest rate (%)

 

2.2% to 2.4%

 

2.7% to 3.3%

 

Expected dividend yield (%)

 

0.0%

 

3.7% to 14.6%

 

 

No options were exercised during the six months ended June 30, 2009 and 2008.

 

The following table presents the option activity for the six months ended June 30, 2009:

 

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Table of Contents

 

 

 

 

 

 

 

 

 

Weighted-

 

Intrinsic

 

 

 

 

 

 

 

Weighted-

 

Average

 

Value

 

 

 

 

 

 

 

Average

 

Remaining

 

As of

 

 

 

 

 

Number of

 

Exercise

 

Contractual

 

June 30,

 

 

 

Period Ended

 

Options

 

Price

 

Term

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding as of:

 

December 31, 2008

 

2,493,930

 

$

28.33

 

 

 

 

 

Options granted

 

 

 

1,060,250

 

$

1.34

 

 

 

 

 

Options forfeited

 

 

 

(42,312

)

$

3.01

 

 

 

 

 

Options exchanged for restricted stock units

 

 

 

(2,084,518

)

$

29.02

 

 

 

 

 

Options expired

 

 

 

(251,537

)

$

22.54

 

 

 

 

 

Outstanding as of:

 

June 30, 2009

 

1,175,813

 

$

4.90

 

8.8

 

$

194,133

 

 

 

 

 

 

 

 

 

 

 

 

 

Options vested and expected to vest as of:

 

June 30, 2009

 

1,069,427

 

$

5.24

 

8.7

 

$

174,438

 

Options vested and exercisable as of:

 

June 30, 2009

 

120,355

 

$

33.97

 

1.8

 

$

 

Weighted average remaining recognition period in years

 

 

 

3.6

 

 

 

 

 

 

 

 

As of June 30, 2009, $1.3 million of accumulated unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, is expected to be recognized in future periods over a weighted average period of 3.6 years.

 

The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2009:

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 

Number Of

 

Weighted

 

 

 

Number Of

 

 

 

 

 

Options

 

Average

 

Weighted

 

Options

 

Weighted

 

 

 

Outstanding

 

Remaining

 

Average

 

Exercisable

 

Average

 

 

 

June 30,

 

Contractual

 

Exercise

 

June 30,

 

Exercise

 

Exercise Prices

 

2009

 

Life

 

Price

 

2009

 

Price

 

$

 1.34

 

$

1.34

 

1,021,750

 

9.6

 

$

1.34

 

 

$

 

$

 2.02

 

$

12.31

 

43,313

 

8.5

 

$

9.85

 

9,605

 

$

11.66

 

$

 27.75

 

$

33.9

 

29,500

 

0.7

 

$

28.26

 

29,500

 

$

28.26

 

$

 35.05

 

$

35.05

 

52,500

 

1.2

 

$

35.05

 

52,500

 

$

35.05

 

$

 40.00

 

$

48.21

 

28,750

 

2.1

 

$

45.32

 

28,750

 

$

45.32

 

 

 

 

 

1,175,813

 

8.8

 

$

4.90

 

120,355

 

$

33.97

 

 

Recognized Non-Cash Compensation Expense

 

The following table summarizes stock-based compensation related to awards of restricted stock units, employee stock options and purchases under the employee stock purchase plan for the six and three months ended June 30, 2009 and 2008:

 

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Table of Contents

 

 

 

Six Months Ended

 

Three Months Ended

 

 

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Station operating expenses

 

$

762

 

$

1,113

 

$

672

 

$

730

 

Corporate general and administrative expenses

 

2,937

 

4,605

 

1,235

 

1,415

 

Stock-based compensation expense included in operating expenses

 

3,699

 

5,718

 

1,907

 

2,145

 

Income tax benefit (net of a fully reserved valuation allowance in 2009)

 

 

(1,965

)

 

(725

)

Total

 

$

3,699

 

$

3,753

 

$

1,907

 

$

1,420

 

 

2009 Option Exchange Program

 

In February 2009, the Company’s Board of Directors approved an amendment to the Plan to permit a one-time Option Exchange Program (“2009 OEP”), which amendment was approved at the May 2009 shareholders’ meeting. On April 13, 2009, the Company commenced the 2009 OEP (subject to shareholder approval) by making an offer to exchange to the Company’s eligible employees and non-employee directors. The Company offered such persons the opportunity to make an election to exchange all of their outstanding stock options with exercise prices equal to or greater than $11.80 per share for a lesser number of shares of the Company’s restricted stock units. The exchange ratios were as follows:

 

Option

 

Exchange Ratio

 

Strike Price

 

(Options For RSUs)

 

At least $11.80, but less than $30.00

 

2.25 for 1

 

$30.00 or more

 

4.5 for 1

 

 

On May 15, 2009, following the May 14, 2009 expiration of the Company’s 2009 OEP, the Company granted 0.7 million restricted stock units in exchange for 2.1 million options. As a result of the 2009 OEP, the number of restricted stock units that can be issued under the Plan was effectively increased by 0.7 million as all restricted stock units granted did not count against the restricted stock sublimit in the Plan.  In addition, the number of awards that can be issued under the Plan was effectively reduced by 2.1 million as all options that were exchanged will not be available for re-grant under the Plan.

 

The Company applied modification accounting for the 2009 OEP and will recognize share-based compensation expense of $1.2 million on a straight-line basis over the four-year vesting period of the restricted stock units. Under modification accounting, the fair value of the new shares immediately prior to the exchange was greater by $1.2 million than the fair value of the surrendered options. In addition, under the bifurcated method, share-based compensation expense of $0.9 million associated with any unvested options exchanged and cancelled as of the modification date will be recognized over the remaining original option term, and the expense will only be reversed if the original service period is not met.

 

Tax Benefit, Or Additional Paid-In-Capital Pool

 

In connection with the vesting of restricted stock units issued under the Company’s 2006 Option Exchange Program, the Company received tax deductions in excess of previously recorded tax benefits.  As a result, the Company recorded a windfall tax benefit of $0.5 million for the six months ended June 30, 2008, which was classified as a financing cash inflow in the condensed consolidated statements of cash flows.

 

For the six months ended June 30, 2008, the Company utilized its paid-in-capital pool of $1.7 million (including the $0.5 million as described above) that resulted from tax benefits recorded in this period and in prior periods.

 

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Table of Contents

 

3.                                      INTANGIBLE ASSETS AND GOODWILL

 

(A) Indefinite-Lived Intangibles

 

Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and certain intangible assets are not amortized.  The Company has concluded that our acquired broadcasting licenses are treated as an indefinite-lived intangible asset and similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the recorded value of goodwill and certain intangibles (such as broadcasting licenses) is more than their fair value, then a charge is made to the results of operations.

 

Under accounting guidance, the Company may only write down the carrying value of its indefinite-lived intangibles, but is not permitted to increase the carrying value if the fair value of these assets subsequently increases.

 

Change In Annual Testing Period For Broadcasting Licenses

 

In 2009, the Company changed the period when it performs its annual impairment test for broadcasting licenses from the first quarter to the second quarter of each year, in line with its annual impairment test for goodwill.  The prior impairment test for broadcasting licenses was performed during the fourth quarter of 2008.

 

Broadcasting Licenses

 

The Company performs its broadcasting license impairment test by evaluating its broadcasting licenses for impairment at the market level using the direct method. Emerging Issues Task Force (“EITF”) 02-07 states that separately recorded indefinite-lived intangible assets should be combined into a single unit of accounting for purposes of testing impairment if they are operated as a single asset.  The Company determines the fair value of the broadcasting licenses in each of its markets by relying on a discounted cash flow approach (a 10-year income model) assuming a start-up scenario in which the only assets held by an investor are broadcasting licenses. The Company’s fair value analysis contains assumptions incorporating variables that are based on past experiences and judgments about future performance using industry normalized information for an average station within a certain market. These variables include, but are not limited to: (1) the forecast growth rate of each radio market, including assumptions regarding each market’s population, household income, retail sales and other factors that would influence advertising expenditures; (2) market share and profit margin of an average station based upon market size and station type; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; (6) an effective tax rate assumption; and (7) future terminal values.

 

During the second quarter of 2009, the Company completed the impairment test for broadcasting licenses and determined that the fair value of the broadcasting licenses was less than the amount reflected in the balance sheet for each of the Company’s markets, other than Seattle, and recorded an impairment loss of $60.8 million. The prolonged economic downturn negatively impacted the radio broadcasting industry as advertising revenues continued to decline and expectations for growth over the next fiscal year were reduced. The projected growth levels for the industry and the Company are now less than those originally forecasted for 2009, which is the primary reason for further impairment to broadcasting licenses in the current quarter.  As revenues decline, profitability levels are also negatively impacted as fixed costs represent a large component of a radio station’s operating expenses. As a result, the asset base is particularly sensitive to the impact of continued declining revenues.

 

The following table reflects certain key estimates and assumptions since the most recent annual test in the fourth quarter of 2008.  The ranges for operating profit margin and market long-term revenue growth rates are for each of the Company’s markets. In general, when comparing between the fourth quarter of 2008 and the second quarter of 2009: (1) the market specific operating profit margin range declined; and (2) the market long-term revenue growth rates were consistent, however, current period revenues were less than previously projected for 2009.

 

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Table of Contents

 

 

 

Fourth

 

Second

 

 

 

Quarter

 

Quarter

 

 

 

2008

 

2009

 

Discount rates

 

10.6%

 

10.6%

 

Operating profit margin ranges

 

21.0% to 46.7%

 

21.0% to 44.0%

 

Market long-term revenue growth rates

 

1.0% to 2.0%

 

1.0% to 2.5%

 

 

The following table presents, in thousands, the changes in broadcasting licenses for the six months ended June 30, 2009 and 2008:

 

 

 

 

 

Carrying

 

 

 

 

 

Amount

 

Balance as of:

 

December 31, 2008

 

$

768,646

 

Loss on impairment

 

 

 

(60,794

)

Balance as of:

 

June 30, 2009

 

$

707,852

 

 

 

 

 

 

 

 

 

 

 

Carrying