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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
PENNSYLVANIA 23-1701044
(State or other jurisdiction of
incorporation of organization) (I.R.S. Employer Identification No.)
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Class A Common Stock, New York Stock Exchange
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K [ ]
As of March 14, 2001, the aggregate market value of the Class A common
stock held by non-affiliates of the registrant was $1,220,447,304 based on the
closing price of $42.71 on the New York Stock Exchange on such date.
Class A Common Stock, $.01 par value 34,527,685 Shares Outstanding as
of March 14, 2001
Class B Common Stock, $.01 par value 10,531,805 Shares Outstanding as
of March 14, 2001
Class C Common Stock, $.01 par value 195,669 Shares Outstanding as of
March 14, 2001
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for the 2001 Annual Meeting of Stockholders
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ENTERCOM COMMUNICATIONS CORP.
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................................................. 1
Item 2. Properties and Facilities............................................................................ 14
Item 3. Legal Proceedings.................................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 15
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................................ 16
Item 6. Selected Financial Data.............................................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 21
Item 7a. Quantitative and Qualitative Disclosures about Market Risk........................................... 34
Item 8. Financial Statements and Supplementary Data.......................................................... 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 35
PART III
Item 10. Directors and Executive Officers of the Registrant................................................... 35
Item 11. Executive Compensation............................................................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 35
Item 13. Certain Relationships and Related Transactions....................................................... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 36
CERTAIN DEFINITIONS
Unless the context requires otherwise, all references in this report to
"Entercom," "we," "us," "our" and similar terms refer to Entercom Communications
Corp. and its consolidated subsidiaries, excluding Entercom Communications
Capital Trust.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are not statements of historical facts, but rather reflect our
current expectations concerning future results and events. We use the words
"believes," "expects," "intends," "plans," "anticipates," "likely," "will" and
similar expressions to identify forward-looking statements. 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 forecast or anticipated in such forward-looking
statements.
These risks, uncertainties and factors include, but are not limited to:
- the risks associated with our acquisition strategy generally;
- the highly competitive nature of, and uncertain effect of new
technologies on, the radio broadcasting industry;
- our dependence on our Seattle radio stations;
- our continued control by Joseph M. Field and members of his
immediate family;
- our risk of changes in federal legislation or regulatory
policy; and
- the other factors described in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
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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 revisions to these statements to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated
events.
INFORMATION ABOUT STATION AND MARKET DATA
For this report:
- We obtained the following data from Duncan's Radio Market
Guide (2000 ed.):
- 1999 market rank by metro population; and
- 1999 market rank by radio revenue.
- We derived audience share and audience rank in target
demographic data from surveys of persons, listening Monday
through Sunday, 6 a.m. to 12 midnight, in the indicated
demographic, as set forth in the Fall 2000 Radio Market Report
published by The Arbitron Ratings Company.
- Our rank in the radio broadcasting industry is derived from
figures recently published by BIA Consulting, Inc.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are the fifth largest radio broadcasting company in the United
States based upon revenues. We have assembled a nationwide portfolio of 95
stations in 18 markets, including 12 of the country's top 50 markets. Our
station groups rank among the top three in revenue market share in 15 of the 16
measured markets in which we operate.
Entercom operates a wide range of formats in geographically diverse
markets across the United States. Our largest markets, in order of revenues, are
Seattle, Boston, Kansas City, Portland, Sacramento and New Orleans. During 2000,
we successfully integrated our acquisition of 45 stations from Sinclair
Broadcast Group, Inc. We also completed the acquisition of 10 additional
stations during 2000 from various sellers.
Entercom has established itself as one of the nation's fastest growing
radio broadcasting companies. In 2000, we grew our overall net revenues by 52.0%
and our broadcast cash flow by 63.7%. On a same station basis, our revenue
growth was 12.7% and our broadcast cash flow growth was 25.4%.
OUR ACQUISITION STRATEGY
Since October 1, 1996, in over 25 transactions, we acquired 93 radio
stations and divested, for strategic or regulatory reasons, 14 radio stations.
Through our disciplined acquisition strategy, we seek to (1) build top-three
station clusters principally in large growth markets and (2) acquire
underdeveloped properties that offer the potential for significant improvements
in revenues and broadcast cash flow through the application of our operational
expertise. Although our focus has been on radio stations in top 50 markets, we
also acquire stations in top 75 markets which meet the above criteria.
OUR OPERATING STRATEGY
The principal components of our operating strategy are to:
- Develop Market Leading Station Clusters. We are among the three
largest clusters, based on gross revenues, in 17 of our 18
markets. To enhance our competitive position, we strategically
align our stations' formats and sales efforts within each market
to optimize their performance, both individually and
collectively. We seek to maximize the ratings, revenue and
broadcast cash flow of our radio stations by tailoring their
programming to optimize aggregate audience delivery.
- Acquire And Develop Underperforming Stations. We seek to acquire
and develop underperforming stations, which has enabled us to
build a long-term track record of achieving superior same station
revenue and broadcast cash flow growth. We utilize a variety of
techniques to develop underachieving properties. These techniques
include: strategic market research and analysis; management
enhancements; expenditure reductions; improved sales training and
techniques; technical upgrades; programming and marketing
enhancements; and facility consolidations.
- Build Strongly-Branded Franchises. We analyze market research and
competitive factors to identify the format opportunity, music
selection and rotation, presentation and other key programming
attributes that we believe will best position each station to
develop a distinctive identity and to strengthen the stations'
local "brand" or "franchise" value. We believe that this will
enable us to maximize our audience share and consequently our
revenues and broadcast cash flow.
- Leverage Station Clusters To Capture Greater Share Of Advertising
Revenue. We believe radio will continue to gain revenue share
from other media as a result of deregulation in the broadcasting
industry, which allows broadcasters to create larger clusters in
their markets and offers advertisers a means to reach larger
audiences in a cost-effective manner. As a result of deregulation
in the radio broadcasting industry, operators can now create
radio station clusters that have the critical mass of audience
reach and marketing resources necessary to pursue incremental
advertising and promotional revenues more aggressively. We
continue to capitalize on this opportunity by developing
specialized teams in many of our markets to work with
non-traditional radio advertisers to create and develop marketing
programs and solutions.
- Maximize Technical Capabilities. We seek to operate stations with
the strongest signals in their respective markets. In addition,
on various occasions we have identified opportunities to acquire
and upgrade low-powered or out-of-market stations and transform
them into competitive signals, thus increasing their value
significantly.
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- Recruit, Develop, Motivate And Retain Superior Employees. We
believe that station operators differentiate themselves from
their peers primarily through their ability to recruit, develop,
motivate and retain superior management, programming and sales
talent. Accordingly, we strive to establish a compelling
corporate culture that is attractive to superior performers. We
encourage our stations to build strong community bonds through
local and company-wide community service programs, which
facilitate strong local business relationships and provide
employees with opportunities for enhanced job fulfillment. We
offer competitive pay packages with performance-based incentives
for our key employees. In addition, we provide employees with
opportunities for personal growth and advancement through
extensive training, seminars and other educational programs.
OUR CORPORATE HISTORY
Our Chairman of the Board and Chief Executive Officer, Joseph M. Field,
founded Entercom in 1968 on the conviction that FM broadcasting, then in its
infancy, would surpass AM broadcasting as the leading aural medium. In the
mid-1980's, with FM at critical mass, we began a deliberate multi-year effort to
enhance our operations at both the corporate and station levels by changing or
adjusting program formats to appeal to mainstream audiences in order to compete
for greater shares of audience and advertising dollars in our markets. With the
advent of the duopoly rules in 1992, which permitted expansion of ownership in a
market from one to two stations in each radio medium, we began to "double up" in
our markets. Since the passage of the Telecommunications Act of 1996, which
permitted ownership of up to eight radio stations in most major markets, we have
pursued a creative acquisition and development strategy by which we have
acquired multiple stations in markets where we identified opportunities to
improve station operating performance and to develop market leading clusters.
OUR STATION PORTFOLIO
The following table sets forth selected information about our portfolio of
radio stations:
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1999 MARKET RANK
METRO RADIO YEAR
MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT
------------------ ---------- ------- -------- ------
BOSTON, MA........... 8 8
WEEI-AM 1998 Sports Talk
WVEI-AM(2) 1999
WRKO-AM 1998 Talk
WAAF-FM 1999 Active Rock
WQSX-FM 1999 Rhythmic AC
SEATTLE, WA(3)....... 14 13
KBSG-AM/FM 1996 Oldies
KIRO-AM 1997 News/Talk/Sports
KQBZ-FM 1997 Talk
KISW-FM 1997 Active Rock
KMTT-FM 1973 Adult Rock
KNWX-AM 1997 News/Business
KNDD-FM 1996 Modern Rock
PORTLAND, OR......... 25 22
KFXX-AM 1998 Sports Talk
KSLM-AM(4) 1998
KGON-FM 1995 Classic Rock
KKSN-AM 1995 Nostalgia
KKSN-FM 1998 Oldies
KNRK-FM 1995 Modern Rock
KRSK-FM 1998 Hot Adult Contemporary
SACRAMENTO, CA....... 29 27
KCTC-AM 1998 Nostalgia
KRXQ-FM 1997 Active Rock
KSEG-FM 1997 Classic Rock
KSSJ-FM 1997 Smooth Jazz
KDND-FM 1997 Contemporary Hit Radio
KANSAS CITY, MO...... 30 30
KMBZ-AM 1997 News/Talk/Sports
KUDL-FM 1998 Adult Contemporary
KYYS-FM 1997 Album Oriented Rock
WDAF-AM 1998 Country
KXTR-AM 1999 Classical
KQRC-FM 2000 Active Rock
KCIY-FM 2000 Smooth Jazz
KRBZ-FM 2000 Hot Adult Contemporary
MILWAUKEE, WI ....... 31 34
WEMP-AM 1999 Religious
WMYX-FM 1999 Adult Contemporary
WXSS-FM 1999 Contemporary Hit Radio
AUDIENCE AUDIENCE
SHARE RANK
TARGET IN TARGET IN TARGET
MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC
------------------ ----------- ----------- -----------
BOSTON, MA...........
WEEI-AM Men 25-54 7.2 2
WVEI-AM(2)
WRKO-AM Adults 25-54 2.5 16
WAAF-FM Men 18-34 11.7 4
WQSX-FM Women 25-54 4.9 5
SEATTLE, WA(3).......
KBSG-AM/FM Adults 25-54 5.6 3
KIRO-AM Men 25-54 8.3 1
KQBZ-FM Men 25-54 5.1 3
KISW-FM Men 25-54 4.7 5
KMTT-FM Adults 25-54 4.0 9
KNWX-AM Adults 35-64 1.1 22
KNDD-FM Men 18-34 10.4 1
PORTLAND, OR.........
KFXX-AM Men 25-54 3.2 13 (tie)
KSLM-AM(4)
KGON-FM Men 25-54 7.9 2
KKSN-AM Adults 35-64 1.3 16 (tie)
KKSN-FM Adults 25-54 6.2 4 (tie)
KNRK-FM Men 18-34 7.8 4
KRSK-FM Women 18-34 8.0 4
SACRAMENTO, CA.......
KCTC-AM Adults 35-64 2.2 14
KRXQ-FM Men 18-34 15.9 1
KSEG-FM Men 24-54 8.3 2
KSSJ-FM Adults 25-54 4.7 6
KDND-FM Women 18-34 8.8 2
KANSAS CITY, MO......
KMBZ-AM Men 25-54 7.2 4
KUDL-FM Women 25-54 7.9 2 (tie)
KYYS-FM Men 25-54 6.9 5
WDAF-AM Adults 35-64 5.6 6
KXTR-AM Adults 25-54 0.8 20
KQRC-FM Men 18-34 20.1 1
KCIY-FM Adults 25-54 4.7 13
KRBZ-FM Women 18-34 10.8 2 (tie)
MILWAUKEE, WI .......
WEMP-AM Adults 35-64 nmf nmf
WMYX-FM Women 25-54 8.8 1 (tie)
WXSS-FM Women 18-34 14.2 2
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1999 MARKET RANK
METRO RADIO YEAR
MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT
------------------ ---------- ------- -------- ------
NORFOLK, VA.......... 36 42
WPTE-FM 1999 Modern Adult
Contemporary
WWDE-FM 1999 Adult Contemporary
WVKL-FM 1999 Urban Adult Contemporary
WNVZ-FM 1999 Contemporary Hit Radio
NEW ORLEANS, LA...... 44 39
WSMB-AM 1999 Talk/Sports
WWL-AM 1999 News/Talk/Sports
WEZB-FM 1999 Contemporary Hit Radio
WLMG-FM 1999 Soft Adult Contemporary
WKZN-FM 1999 Hot Adult Contemporary
WTKL-FM 1999 Oldies
GREENSBORO, NC....... 42 50
WMQX-FM 1999 Oldies
WJMH-FM 1999 Urban Contemporary
WEAL-AM 1999 Gospel
WQMG-FM 1999 Urban Adult Contemporary
BUFFALO, NY.......... 45 43
WBEN-AM 1999 News/Talk
WTSS-FM 1999 Adult Contemporary
WWKB-AM 1999 Business News
WKSE-FM 1999 Contemporary Hit Radio
WGR-AM 1999 Sports
WWWS-AM 1999 Urban Oldies
MEMPHIS, TN.......... 46 40
WMBZ-FM 1999 Modern Adult
Contemporary
WJCE-AM 1999 Adult Standards
WRVR-FM 1999 Adult Contemporary
ROCHESTER, NY........ 52 54
WBZA-FM 1998 80's - based Adult
Contemporary
WBEE-FM 1998 Country
WBBF-AM/FM 1998 Oldies
AUDIENCE AUDIENCE
SHARE RANK
TARGET IN TARGET IN TARGET
MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC
------------------ ----------- ----------- -----------
NORFOLK, VA..........
WPTE-FM Adults 18-34 7.0 4
WWDE-FM Women 25-54 11.1 1
WVKL-FM Women 25-54 nmf(7) nmf(7)
WNVZ-FM Women 18-34 11.3 2
NEW ORLEANS, LA......
WSMB-AM Men 25-54 2.3 13
WWL-AM Men 25-54 11.7 1
WEZB-FM Women 18-34 7.6 4
WLMG-FM Women 25-54 9.9 2
WKZN-FM Women 18-49 7.3 4
WTKL-FM Adults 25-54 6.3 5 (tie)
GREENSBORO, NC.......
WMQX-FM Adults 25-54 6.2 7
WJMH-FM Adults 18-34 17.0 1
WEAL-AM Adults 35-64 1.2 14 (tie)
WQMG-FM Adults 25-54 9.0 1
BUFFALO, NY..........
WBEN-AM Men 25-54 6.7 4
WTSS-FM Women 25-54 11.5 2
WWKB-AM Adults 35-64 0.4 20
WKSE-FM Women 18-34 18.6 1
WGR-AM Men 25-54 5.8 5 (tie)
WWWS-AM Adults 25-54 1.8 13
MEMPHIS, TN..........
WMBZ-FM Women 18-34 nmf(7) nmf(7)
WJCE-AM Adults 25-54 0.8 20 (tie)
WRVR-FM Women 25-54 9.2 2 (tie)
ROCHESTER, NY........
WBZA-FM Women 25-54 nmf(7) nmf(7)
WBEE-FM Adults 25-54 9.2 3
WBBF-AM/FM Adults 25-54 4.2 9
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1999 MARKET RANK
METRO RADIO YEAR
MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT
------------------ ---------- ------- -------- ------
GREENVILLE/
SPARTANBURG, SC....... 58 58
WFBC-FM 1999 Contemporary Hit Radio
WSPA-FM 1999 Soft Adult Contemporary
WYRD-AM(5) 1999 News/Talk
WORD-AM(5) 1999
WSPA-AM 1999 Full Service/ Talk
WOLI-FM(5) 1999 80's - based Adult
WOLT-FM(5) 1999 Contemporary
WILKES-BARRE
/SCRANTON, PA......... 64 69
WGBI-AM(6) 1999 News/Talk/Sports
WOGY-AM(6) 1999
WILK-AM(6) 1999
WGGI-FM(6) 1999 Country
WGGY-FM(6) 1999
WKRZ-FM(6) 1999 Contemporary Hit Radio
WKRF-FM(6) 2000
WSHG-FM(6) 1999 80's - based Adult
WWFH-FM(6) 1999 Contemporary
WICHITA, KS........... 84 68
KEYN-FM 2000 Oldies
KFBZ-FM 2000 80's - based Adult
Contemporary
KQAM-AM 2000 Sports
KFH-AM 2000 Talk
KNSS-AM 2000 News
KDGS-FM 2000 Rhythmic CHR
KWSJ-FM 2000 Smooth Jazz
GAINESVILLE/OCALA, FL. 90 127
WKTK-FM 1986 Adult Contemporary
WSKY-FM 1998 News/Talk
MADISON, WI........... 120 71
WOLX-FM 2000 Oldies
WMMM-FM 2000 Adult Alternative
WBZU-FM 2000 80's - based Adult
Contemporary
LONGVIEW/KELSO, OR.... n/a n/a
KBAM-AM 1998 Country
KEDO-AM 1997 Oldies
KLYK-FM 1997 Adult Contemporary
KRQT-FM 1998 Classic Rock
AUDIENCE AUDIENCE
SHARE RANK
TARGET IN TARGET IN TARGET
MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC
------------------ ----------- ----------- -----------
GREENVILLE/
SPARTANBURG, SC.......
WFBC-FM Women 18-49 11.4 2
WSPA-FM Women 25-54 10.2 3
WYRD-AM(5) Adults 25-54 1.5 13
WORD-AM(5)
WSPA-AM Adults 25-54 0.5 18 (tie)
WOLI-FM(5) Women 25-54 nmf(7) nmf(7)
WOLT-FM(5)
WILKES-BARRE
/SCRANTON, PA.........
WGBI-AM(6) Adults 35-64 2.2 11
WOGY-AM(6)
WILK-AM(6)
WGGI-FM(6) Adults 25-54 9.4 4
WGGY-FM(6)
WKRZ-FM(6) Adults 18-49 14.9 1
WKRF-FM(6)
WSHG-FM(6) Women 25-54 nmf(7) nmf(7)
WWFH-FM(6)
WICHITA, KS...........
KEYN-FM Adults 25-54 7.5 2
KFBZ-FM Women 25-54 nmf(7) nmf(7)
KQAM-AM Men 25-54 3.6 13 (tie)
KFH-AM Men 25-54 6.2 4
KNSS-AM Adults 25-54 3.9 11 (tie)
KDGS-FM Adults 18-34 9.9 2
KWSJ-FM Women 25-54 2.4 14
GAINESVILLE/OCALA, FL.
WKTK-FM Women 25-54 11.6 1
WSKY-FM Adults 25-54 5.9 4 (tie)
MADISON, WI...........
WOLX-FM Adults 25-54 5.8 5 (tie)
WMMM-FM Adults 25-54 8.7 2
WBZU-FM Women 25-54 nmf(7) nmf(7)
LONGVIEW/KELSO, OR....
KBAM-AM Adults 25-54 n/a n/a
KEDO-AM Adults 25-54 n/a n/a
KLYK-FM Women 25-54 n/a n/a
KRQT-FM Men 25-54 n/a n/a
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(1) Our stations are in some instances licensed to communities other than the
named principal community for the market.
(2) Station competes in the adjacent community of Worcester, Massachusetts and
simulcasts virtually all of the programming of WEEI-AM.
(3) We also sell substantially all of the advertising time of a sixth FM
station in the Seattle market under a joint sales agreement.
(4) KSLM-AM is licensed to Salem, Oregon, within the Portland market and
simulcasts KFXX-AM programming.
(5) WYRD-AM and WORD-AM simulcast their programming and WOLI-FM and WOLT-FM
simulcast their programming.
(6) WGBI-AM, WOGY-AM and WILK-AM simulcast their programming; WGGI-FM and
WGGY-FM simulcast their programming; WWFH-FM and WSHG-FM simulcast their
programming and WKRZ-FM and WKRF-FM simulcast their programming.
(7) Ratings data not meaningful for Fall 2000 due to a recent change in format.
COMPETITION; CHANGES IN BROADCASTING INDUSTRY
The radio broadcasting industry is highly competitive. The success of each
of our stations depends largely upon its audience ratings and its share of the
overall advertising revenue within its market. Our stations compete for
listeners and advertising revenue directly with other radio stations within
their respective markets. Radio stations compete for listeners primarily on the
basis of program content that appeals to a particular demographic group. By
building a strong listener base consisting of a specific demographic group in
each of our markets, we are able to attract advertisers seeking to reach those
listeners.
The following are some of the factors that are important to a radio
station's competitive position:
- management experience;
- the station's local audience rank in its market;
- transmitter power;
- assigned frequency;
- audience characteristics;
- local program acceptance; and
- the number and characteristics of other radio stations and other
advertising media in the market area.
In addition, we attempt to improve our competitive position with
promotional campaigns aimed at the demographic groups targeted by our stations
and by sales efforts designed to attract advertisers.
Despite the competitiveness within the radio broadcasting industry, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC. The number of radio stations that can operate in a given
market is limited by strict AM interference criteria and the availability of FM
radio frequencies allotted by the FCC to communities in that market. The number
of stations that a single entity may operate in a market is further limited by
the FCC's multiple ownership rules that regulate the number of stations serving
the same area that may be owned or controlled by a single entity. However,
changes in the Communications Act and the FCC's policies and rules permit
increased ownership and operation of multiple local radio stations.
Our stations compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media such as newspapers, magazines, over-the-air and cable television, outdoor
advertising and direct mail. In addition, the radio broadcasting industry is
subject to competition from new media technologies that are being developed or
introduced such as (1) satellite-delivered digital audio radio service, which
could result in the near term introduction of new subscriber based satellite
radio services with numerous niche formats; (2) audio programming by cable
systems, direct broadcast satellite systems, Internet content providers,
personal communications services and other digital audio broadcast formats; and
(3) in-band on-channel digital radio, which
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provides multi-channel, multi-format digital radio services in the same
bandwidth currently occupied by traditional AM and FM radio services. The FCC
adopted a plan in 1999 for the establishment of "microbroadcasting" stations,
low-powered FM stations that will be designed to serve small localized areas and
that in some localized areas may cause interference with regular broadcasts by
existing radio stations. The radio broadcasting industry historically has grown
despite the introduction of new technologies for the delivery of entertainment
and information, such as television broadcasting, cable television, audio tapes
and compact discs. A growing population and greater availability of radios,
particularly car and portable radios, have contributed to this growth. There can
be no assurances, however, that this historical growth will continue or that the
development or introduction in the future of any new media technology will not
have an adverse effect on the radio broadcasting industry.
The FCC has adopted licensing and operating rules for satellite delivered
audio and in April 1997 awarded two licenses for this service. Satellite
delivered audio may provide a medium for the delivery by satellite or
supplemental terrestrial means of multiple new audio programming formats to
local and/or national audiences. Digital technology also may be used in the
future by terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, the FCC has
authorized an additional 100 kHz of bandwidth for the AM band and has allotted
frequencies in this new band to certain existing AM station licensees that
applied for migration to the expanded AM band, subject to the requirement that
at the end of a transition period, those licensees return to the FCC either the
license for their existing AM band station or the license for the expanded AM
band station.
We cannot predict what other matters might be considered in the future by
the FCC, nor can we assess in advance what impact, if any, the implementation of
any of these proposals or changes might have on our business.
FEDERAL REGULATION OF RADIO BROADCASTING
The radio broadcasting industry is subject to extensive and changing
regulation of, among other things, program content, advertising content,
technical operations and business and employment practices. The ownership,
operation and sale of radio stations are subject to the jurisdiction of the FCC.
Among other things, the FCC:
- assigns frequency bands for broadcasting;
- determines the particular frequencies, locations, operating power, and
other technical parameters of stations;
- issues, renews, revokes and modifies station licenses;
- determines whether to approve changes in ownership or control of
station licenses;
- regulates equipment used by stations; and
- adopts and implements regulations and policies that directly affect
the ownership, operation and employment practices of stations.
The FCC has the power to impose penalties for violations of its rules or
the Communications Act, including the imposition of monetary forfeitures, the
issuance of short-term licenses, the imposition of a condition on the renewal of
a license, and the revocation of operating authority.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. This summary is
not a comprehensive listing of all of the regulations and policies affecting
radio stations. For further information concerning the nature and extent of
federal regulation of radio stations, you should refer to the Communications
Act, FCC rules and FCC public notices and rulings.
FCC LICENSES. Radio stations operate pursuant to renewable broadcasting
licenses that are ordinarily granted by the FCC for maximum terms of eight
years. The FCC licenses for our stations are held by some of our subsidiaries. A
station may continue to operate beyond the expiration date of its license if a
timely filed license renewal application is pending. During the periods when
renewal applications are pending, petitions to deny license renewals can be
filed by interested parties, including members of the public and interest
groups. The FCC is required to hold hearings on a station's renewal application
if a substantial or material question of fact exists as to whether the station
has served the public interest, convenience and necessity. If, as a result of an
evidentiary hearing, the FCC determines that the licensee has failed to meet
certain requirements and that no mitigating factors justify the imposition of a
lesser sanction, then the FCC may deny a license renewal application.
Historically, FCC licenses have generally been renewed. We have no reason to
believe that our licenses will not be renewed in the ordinary course, although
there can be no assurance to that effect. The non-renewal of one or more of our
licenses could have a material adverse effect on our business.
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The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designed to render primary and secondary service over an extended
area; Class B stations, which operate on an unlimited time basis and are
designed to render service only over a primary service area; or Class D
stations, which operate either during daytime hours only, during limited times
only or on an unlimited time basis with low nighttime power. A regional channel
is one on which Class B and Class D AM stations may operate and serve primarily
a principal center of population and the rural areas contiguous to it. A local
channel is one on which AM stations operate on an unlimited time basis and serve
primarily a community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed to
render service only over a primary service area that may be reduced as a
consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1, CO and C. The FCC has recently adopted a new
rule that subjects Class C FM stations that do not meet certain antenna-height
parameters to an involuntary downgrade in class to Class CO under certain
circumstances.
The following table sets forth the market, call letters, FCC license
classification, antenna height above average terrain ("HAAT"), power, frequency
and FCC license expiration date of each of the stations that we own or operate.
EXPIRATION DATE
FCC HAAT POWER IN OF
MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE
- --------- ------------- ----- ----------- --------- ------------ -----------
Boston, MA...... WEEI-AM B * 850 kHz 50 April 1, 2006
WRKO-AM B * 680 kHz 50 April 1, 2006
WAAF-FM B 239 107.3 MHz 20 April 1, 2006
WQSX-FM B 179 93.7 MHz 34 April 1, 2006
WVEI-AM B * 1440 kHz 5 April 1, 2006
Seattle, WA..... KBSG-AM B * 1210 kHz 27.5-D February 1, 2006
10-N
KBSG-FM C 729 97.3 MHz 55 February 1, 2006
KIRO-AM A * 710 kHz 50 February 1, 2006
KISW-FM C 714 99.9 MHz 58 February 1, 2006
KMTT-FM C 714 103.7 MHz 58 February 1, 2006
KQBZ-FM C 714 100.7 MHz 58 February 1, 2006
KNWX-AM B * 770 kHz 50-D February 1, 2006
5-N
KNDD-FM C 714 107.7 MHz 58 February 1, 2006
Portland, OR.... KFXX-AM B * 910 kHz 5 February 1, 2006
KGON-FM C 386 92.3 MHz 100 February 1, 2006
KKSN-AM B * 1520 kHz 50-D February 1, 2006
15-N
KKSN-FM C 386 97.1 MHz 100 February 1, 2006
KNRK-FM C2 259 94.7 MHz 17 February 1, 2006
KRSK-FM C 576 105.1 MHz 100 February 1, 2006
KSLM-AM B * 1390 kHz 5-D February 1, 2006
0.69-N
Sacramento, CA.. KCTC-AM B * 1320 kHz 5 December 1, 2005
KRXQ-FM B 151 98.5 MHz 50 December 1, 2005
KSEG-FM B 152 96.9 MHz 50 December 1, 2005
KSSJ-FM B1 99 94.7 MHz 25 December 1, 2005
KDND-FM B 123 107.9 MHz 50 December 1, 2005
Kansas City, MO. KMBZ-AM B * 980 kHz 5 February 1, 2005
KUDL-FM C 303 98.1 MHz 100 June 1, 2005
KYYS-FM C 308 99.7 MHz 100 February 1, 2005
WDAF-AM B * 610 kHz 5 February 1, 2005
KXTR-AM(3) B * 1250 kHz 25-D June 1, 2005
3.7-N
KQRC-FM C 322 98.9 MHz 100 February 1, 2005
KCIY-FM C1 299 106.5 MHz 100 February 1, 2005
KRBZ-FM C 300 96.5 MHz 100 February 1, 2005
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EXPIRATION DATE
FCC HAAT POWER IN OF
MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE
- --------- ------------- ----- ----------- --------- ------------ -----------
Milwaukee, WI... WEMP-AM B * 1250 kHz 5 December 1, 2003
WMYX-FM B 137 99.1 MHz 50 December 1, 2003
WXSS-FM B 257 103.7 MHz 19.5 December 1, 2003
Norfolk, VA..... WPTE-FM B 152 94..9 MHz 50 October 1, 2003
WWDE-FM B 152 101.3 MHz 50 October 1, 2003
WVKL-FM B 268 95.7 MHz 40 October 1, 2003
WNVZ-FM B 146 104.5 MHz 50 October 1, 2003
New Orleans, LA. WSMB-AM B * 1350 kHz 5 June 1, 2004
WWL-AM A * 870 kHz 50 June 1, 2004
WEZB-FM C 300 97.1 MHz 100 June 1, 2004
WLMG-FM C 300 101.9 MHz 100 June 1, 2004
WKZN-FM C1 275 105.3 MHz 100 June 1, 2004
WTKL-FM C 300 95.7 MHz 100 June 1, 2004
Greensboro, NC.. WMQX-FM C 335 93.1 MHz 100 December 1, 2003
WJMH-FM C 367 102.1 MHz 100 December 1, 2003
WEAL-AM D * 1500 kHz 1-D December 1, 2003
WQMG-FM C 375 97.1 MHz 100 December 1, 2003
Buffalo, NY..... WBEN-AM B * 930 kHz 5 June 1, 2006
WTSS-FM B 408 102.5 MHz 110 June 1, 2006
WWKB-AM A * 1520 kHz 50 June 1, 2006
WKSE-FM B 128 98.8 MHz 46 June 1, 2006
WGR-AM B * 550 kHz 5 June 1, 2006
WWWS-AM C * 1400 kHz 1 June 1, 2006
Memphis, TN..... WMBZ-FM C2 144 94.1 MHz 50 August 1, 2004
WJCE-AM B * 680 kHz 10-D August 1, 2004
5-N
WRVR-FM C1 229 104.5 MHz 100 August 1, 2004
Rochester, NY... WBZA-FM B 172 98.9 MHz 37 June 1, 2006
WBEE-FM B 152 92.5 MHz 50 June 1, 2006
WBBF-AM B * 950 kHz 1 June 1, 2006
WBBF-FM A 119 93.3 MHz 4 June 1, 2006
Greenville/
Spartanburg, SC WFBC-FM C 564 93.7 MHz 100 December 1, 2003
WSPA-FM C 580 98.9 MHz 100 December 1, 2003
WYRD-AM B 184 1330 kHz 5 December 1, 2003
WORD-AM B * 910 kHz 3.6-D December 1, 2003
0.89-N
WSPA-AM B * 950 kHz 5 December 1, 2003
WOLI-FM A 100 103.9 MHz 6 December 1, 2003
WOLT-FM A 151 103.3 MHz 2.7 December 1, 2003
Wilkes-Barre/
Scranton, PA.. WGBI-AM B * 910 kHz 1-D August 1, 2006
0.5-N
WOGY-AM B * 1300 kHz 5-D August 1, 2006
0.5-N
WILK-AM B * 980 kHz 5-D August 1, 2006
1-N
WGGI-FM A 100 95.9 MHz 6 August 1, 2006
WGGY-FM B 338 101.3 MHz 7 August 1, 2006
WKRZ-FM B 357 98.5 MHz 8.7 August 1, 2006
WKRF-FM A 267 107.9 MHz 0.84 August 1, 2006
WSHG-FM A 22 102.3 MHz 5.8 August 1, 2006
WWFH-FM A 207 103.1 MHz 0.73 August 1, 2006
Wichita, KS..... KEYN-FM C1 262 103.7 MHz 100 June 1, 2005
KFBZ-FM C 301 105.3 MHz 100 June 1, 2005
KQAM-AM B * 1480 kHz 5-D June 1, 2005
1-N
KFH-AM B * 1330 kHz 5-D June 1, 2005
5-N
KNSS-AM C * 1240 kHz 0.63 June 1, 2005
KDGS-FM C3 100 93.9 MHz 25 June 1, 2005
KWSJ-FM C2 150 98.7 MHz 50 June 1, 2005
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EXPIRATION DATE
FCC HAAT POWER IN OF
MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE
- --------- ------------- ----- ----------- --------- ------------ -----------
Gainesville/
Ocala, FL..... WKTK-FM C1 299 98.5 MHz 100 February 1, 2004
WSKY-FM C2 289 97.3 MHz 13.5 February 1, 2004
Madison, WI..... WOLX-FM B 396 94.9 MHz 37 December 1, 2004
WMMM-FM A 175 105.5 MHz 2 December 1, 2004
WBZU-FM A 74 105.1 MHz 6 December 1, 2004
Longview/Kelso,
WA............ KBAM-AM D * 1270 kHz 5-D February 1, 2006
0.083-N
KEDO-AM C * 1400 kHz 1 February 1, 2006
KLYK-FM A 262 105.5 MHz 0.7 February 1, 2006
KRQT-FM C3 528 107.1 MHz 0.74 February 1, 2006
* Not applicable for AM transmission facilities.
(1) Metropolitan market served; city of license may differ.
(2) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during the nighttime broadcasting hours,
which results in reducing the radio station's coverage during the nighttime
hours of operation. Both power ratings are shown, where applicable. For FM
stations, the maximum effective radiated power in the main lobe is given.
(3) KXTR-AM also has a construction permit to broadcast with call letters
KWSJ-AM at 1660 kHz in the expanded AM band with 10 kw-D and 1 kw-N. The
FCC rules require that at the end of a five year transition period we must
elect to operate on either the 1250 kHz frequency or the 1660 kHz frequency
and surrender the other frequency to the FCC.
TRANSFERS OR ASSIGNMENT OF LICENSES. The Communications Act prohibits the
assignment of broadcast licenses or the transfer of control of a broadcast
licensee without the prior approval of the FCC. In determining whether to grant
such approval, the FCC considers a number of factors pertaining to the licensee
(and proposed licensee), including:
- compliance with the various rules limiting common ownership of media
properties in a given market;
- the "character" of the licensee and those persons holding
"attributable" interests in the licensee; and
- compliance with the Communications Act's limitations on alien
ownership as well as compliance with other FCC regulations and
policies.
To obtain FCC consent to assign or transfer control of a broadcast license,
appropriate applications must be filed with the FCC. If the application involves
a "substantial change" in ownership or control, the application must be placed
on public notice for not less than 30 days during which time petitions to deny
or other objections against the application may be filed by interested parties,
including members of the public. Informal objections to assignment and transfer
of control applications may be filed any time up until the FCC acts on the
application. If the application does not involve a "substantial change" in
ownership or control, it is a "pro forma" application. The "pro forma"
application is nevertheless subject to having informal objections filed against
it. When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer of the broadcast license to any party other than the assignee or
transferee specified in the application. If the FCC grants an assignment or
transfer application, interested parties have 30 days from public notice of the
grant to seek reconsideration of that grant. The FCC usually has an additional
ten days to set aside the grant on its own motion.
MULTIPLE OWNERSHIP RULES. The Communications Act and FCC rules impose
specific limits on the number of commercial radio stations an entity can own in
a single market. These rules may preclude us from acquiring certain stations we
might otherwise seek to acquire. The rules also effectively prevent us from
selling stations in a market to a buyer that has reached its ownership limit in
the market. The local radio ownership rules are as follows:
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- in markets with 45 or more commercial radio stations, ownership is
limited to eight commercial stations, no more than five of which can
be either AM or FM;
- in markets with 30 to 44 commercial radio stations, ownership is
limited to seven commercial stations, no more than four of which can
be either AM or FM;
- in markets with 15 to 29 commercial radio stations, ownership is
limited to six commercial stations, no more than four of which can be
either AM or FM; and
- in markets with 14 or fewer commercial radio stations, ownership is
limited to five commercial stations or no more than 50% of the
market's total, whichever is lower, and no more than three of which
can be either AM or FM.
The FCC is also reportedly considering proposing a policy that would give
special review to a proposed transaction if it would enable a single owner to
attain a high degree of revenue concentration in a market. In connection with
this, the FCC has invited comment on the impact of concentration in public
notices concerning proposed transactions, and has delayed or refused its consent
in some cases because of revenue concentrations.
The FCC has revised its radio/television cross-ownership rule to allow for
greater common ownership of television and radio stations. The revised
radio/television cross-ownership rule permits a single owner to own up to two
television stations, consistent with the FCC's rules on common ownership of
television stations, together with one radio station in all markets. In
addition, an owner will be permitted to own additional radio stations, not to
exceed the local ownership limits for the market, as follows:
- in markets where 20 media voices will remain after the consummation of
the proposed transaction, an owner may own an additional 5 radio
stations, or, if the owner only has one television station, an
additional 6 radio stations; and
- in markets where 10 media voices will remain after the consummation of
the proposed transaction, an owner may own an additional 3 radio
stations.
A "media voice" includes each independently-owned, full power television
and radio station and each daily newspaper, plus one voice for all cable
television systems operating in the market.
In addition to the limits on the number of radio stations that a single
owner may own, the FCC's broadcast/newspaper cross-ownership rule prohibits the
same owner from owning a broadcast station and a daily newspaper in the same
geographic market.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations directly or indirectly controlling broadcast licenses, the
interests of officers, directors and those who, directly or indirectly, have the
right to vote 5% or more of the corporation's voting stock are generally
attributable. In addition, certain passive investors are attributable if they
hold 20% or more of the corporation's voting stock. The FCC recently revoked a
rule that formerly provided that interests of minority shareholders in a
corporation were not attributable if a single entity or individual held 50% or
more of that corporation's voting stock. In revoking the rule, the FCC has,
however, grandfathered as non-attributable those minority stock interests that
were held as of the date of the FCC's order.
The FCC has adopted a rule, known as the equity-debt-plus or EDP rule that
causes certain creditors or investors to be attributable owners of a station,
regardless of whether there is a single majority shareholder. Under this rule, a
major programming supplier or a same-market owner will be an attributable owner
of a station if the supplier or owner holds debt or equity, or both, in the
station that is greater than 33% of the value of the station's total debt plus
equity. A major programming supplier includes any programming supplier that
provides more than 15% of the station's weekly programming hours. A same-market
owner includes any attributable owner of a media company, including broadcast
stations, cable television and newspapers, located in the same market as the
station, but only if the owner is attributable under an FCC attribution rule
other than the EDP rule. The attribution rules limit the number of radio
stations we may acquire or own in any market.
ALIEN OWNERSHIP RULES. The Communications Act prohibits the issuance or
holding of broadcast licenses by aliens, including any corporation if more than
20% of its capital stock is owned or voted by aliens. In addition, the FCC may
prohibit any corporation from holding a broadcast license if the corporation is
directly or indirectly controlled by any other corporation of which more than
25% of the capital stock is owned of record or voted by aliens, if the FCC finds
that the prohibition is in the public interest. These restrictions apply in
modified form to other forms of business organizations, including partnerships
and LLCs. Our articles of incorporation prohibit the ownership, voting and
transfer of our capital stock in violation of the FCC restrictions, and prohibit
the issuance of capital stock or the voting rights such capital stock represents
to or for the account of aliens or corporations otherwise subject to domination
or control by aliens in excess of the FCC limits. The articles of incorporation
authorize our board of directors to enforce these prohibitions. In addition, the
articles of incorporation provide that shares of our capital stock determined by
our board of directors to be owned beneficially by an
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alien or an entity directly or indirectly owned by aliens in whole or in part
shall be subject to redemption by us by action of the board of directors to the
extent necessary, in the judgment of the board of directors, to comply with
these alien ownership restrictions.
TIME BROKERAGE AGREEMENTS. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as time brokerage
agreements. While these agreements may take varying forms, under a typical time
brokerage agreement, separately owned and licensed radio stations agree to enter
into cooperative arrangements of varying types, subject to compliance with the
requirements of antitrust laws and with FCC's rules and policies. Under these
arrangements, separately-owned stations could agree to function cooperatively in
programming, advertising sales and similar matters, subject to the requirement
that the licensee of each station maintain independent control over the
programming and operations of its own station. One typical type of time
brokerage agreement is a programming agreement between two separately-owned
radio stations serving a common service area, whereby the licensee of one
station provides substantial portions of the broadcast programming for airing on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during those
program segments.
The FCC's rules provide that a radio station that brokers more than 15% of
the weekly broadcast time on another station serving the same market will be
considered to have an attributable ownership interest in the brokered station
for purposes of FCC's multiple ownership limits. As a result, in a market where
we own a radio station, we would not be permitted to enter into a time brokerage
agreement with another radio station in the same market if we could not own the
brokered station under the multiple ownership rules, unless our programming on
the brokered station constituted 15% or less of the brokered station's
programming time on a weekly basis. FCC rules also prohibit a broadcast station
from duplicating more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage agreement
where the brokered and brokering stations which it owns or programs serve
substantially the same area.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. A licensee continues to be required, however, to present
programming that is responsive to issues of the station's community of license
and to maintain records demonstrating this responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates renewal applications of a licensee, although listener
complaints may be filed at any time, are required to be maintained in the
station's public file and generally may be considered by the FCC at any time.
Stations also must pay regulatory and application fees and follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, obscene and indecent broadcasts, and technical
operations, including limits on human exposure to radio frequency radiation. The
FCC restricts the broadcast of indecent programming and prohibits the broadcast
of obscene programming.
On January 20, 2000, the FCC adopted new rules prohibiting employment
discrimination by broadcast stations on the basis of race, religion, color,
national origin, and gender; and requiring broadcasters to implement programs to
promote equal employment opportunities at their stations. The rules generally
require broadcast stations to disseminate information about job openings widely
so that all qualified applicants, including minorities and women, have an
adequate opportunity to compete for the job. Broadcasters may fulfill this
requirement by sending the station's job vacancy information to organizations
that request it, participating in community outreach programs, or designing an
alternative recruitment program. Broadcasters with five or more full-time
employees must place in their public files annually a report detailing their
recruitment efforts and must file a statement with the FCC certifying compliance
with the rules every two years. Broadcasters with ten or more full-time
employees must file their annual reports with the FCC midway through their
license term. Broadcasters also must file employment information with the FCC
annually for statistical purposes. The FCC recently suspended the effectiveness
of its EEO rules in response to a January 16, 2001 decision of the Court of
Appeals for the District of Columbia district that vacated the FCC rules.
The FCC recently issued a decision holding that a broadcast station may not
deny a candidate for federal political office a request for broadcast
advertising time solely on the grounds that the amount of time requested is not
the standard length of time which the station offers to its commercial
advertisers. This decision is currently being reconsidered by the FCC. The
effect that this FCC decision will have on our programming and commercial
advertising is uncertain.
We employ a number of on-air personalities and generally enter into
employment agreements with these personalities to protect our interests in those
relationships that we believe to be valuable. The loss of some of these
personalities could result in a short-term loss of audience share, but we do not
believe that the loss would have a material adverse effect on our business.
PROPOSED AND RECENT CHANGES. Congress and the FCC may in the future
consider and adopt new laws, regulations and policies regarding a wide variety
of matters that could (1) affect, directly or indirectly, the operation,
ownership and profitability of our radio stations, (2) result in the loss of
audience share and advertising revenues for our radio stations, and (3) affect
our ability to acquire additional radio stations or to finance those
acquisitions. Such matters may include:
- regulatory fees, spectrum use fees, or other fees on FCC licenses;
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- foreign ownership of broadcast licenses;
- restatement in revised form of FCC's equal employment opportunity
rules and revisions to the FCC's rules relating to political
broadcasting, including free air time to candidates;
- technical and frequency allocation matters;
- proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages on radio; and
- changes in the FCC's cross-interest, multiple ownership and
attribution policies, including the definition of the local market for
multiple ownership purposes.
The FCC currently is considering standards for evaluating, authorizing, and
implementing terrestrial digital audio broadcasting technology, including
In-Band On-Channel(TM) technology for FM radio stations. The advantages of
digital audio broadcasting over traditional analog broadcasting technology
include improved sound quality and the ability to offer a greater variety of
auxiliary services. In-Band On-Channel(TM) technology would permit an FM station
to transmit radio programming in both analog and digital formats, or in digital
only formats, using the bandwidth that the radio station is currently licensed
to use. It is unclear what regulations the FCC will adopt regarding digital
audio broadcasting or In-Band On-Channel(TM) technology and what effect such
regulations would have on our business or the operations of our radio stations.
On January 20, 2000, the FCC voted to adopt rules creating a new low power
FM radio service. The new low power stations will operate at a maximum power of
between 10 and 100 watts in the existing FM commercial and non-commercial band.
Low power stations may be used by governmental and non-profit organizations to
provide noncommercial educational programming or public safety and
transportation radio services. No existing broadcaster or other media entity,
including us, will be permitted to have an ownership interest or enter into any
program or operating agreement with any low power FM station. During the first
two years of the new service, applicants must be based in the area that they
propose to serve. Applicants will not be permitted to own more than one station
nationwide during the initial two year period. After the initial two year
period, entities will be allowed to own up to five stations nationwide, and
after three years, the limit will be raised to ten stations nationwide. A single
person or entity may not own two low power stations whose transmitters are less
than seven miles from each other. The authorizations for the new stations will
not be transferable. The FCC has begun to accept applications for new low power
FM stations.
At this time it is difficult to assess the competitive impact of these new
stations. Although the new low power stations must comply with certain technical
requirements aimed at protecting existing FM radio stations from interference,
we cannot be certain of the level of interference that low power stations will
cause after they begin operating. Moreover, if low power FM stations are
licensed in the markets in which we operate, the low power stations may compete
for listeners and advertisers. The low power stations may also limit our ability
to obtain new licenses or to modify our existing facilities, or cause
interference to areas of existing service that are not protected by the FCC's
rules, any of which may have a material adverse affect on our business.
Finally, the FCC has adopted procedures for the auction of broadcast
spectrum in circumstances where two or more parties have filed for new or major
change applications which are mutually exclusive. Such procedures may limit our
efforts to modify or expand the broadcast signals of our stations.
We cannot predict what other matters might be considered in the future by
the FCC or Congress, nor can we judge in advance what impact, if any, the
implementation of any of these proposals or changes might have on our business.
FEDERAL ANTITRUST LAWS. The agencies responsible for enforcing the federal
antitrust laws, the Federal Trade Commission or the Department of Justice, may
investigate certain acquisitions. We cannot predict the outcome of any specific
Department of Justice or Federal Trade Commission investigation. Any decision by
the Federal Trade Commission or the Department of Justice to challenge a
proposed acquisition could affect our ability to consummate the acquisition or
to consummate it on the proposed terms.
For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Act requires the parties to file Notification and Report Forms with the Federal
Trade Commission and the Department of Justice and to observe specified waiting
period requirements before consummating the acquisition. If the investigating
agency raises substantive issues in connection with a proposed transaction, then
the parties frequently engage in lengthy discussions or negotiations with the
investigating agency concerning possible means of addressing those issues,
including restructuring the proposed acquisition or divesting assets. In
addition, the investigating agency could file suit in federal court to enjoin
the acquisition or to require the divestiture of assets, among other remedies.
Acquisitions that are not required to be reported under the Hart-Scott-Rodino
Act may be investigated by the Federal Trade Commission or the Department of
Justice under the antitrust laws before or after consummation. In addition,
private parties may under certain circumstances bring legal action to challenge
an acquisition under the antitrust laws.
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As part of its increased scrutiny of radio station acquisitions, the
Department of Justice has stated publicly that it believes that local marketing
agreements, joint sales agreements, time brokerage agreements and other similar
agreements customarily entered into in connection with radio station transfers
could violate the Hart-Scott-Rodino Act if such agreements take effect prior to
the expiration of the waiting period under the Hart-Scott-Rodino Act.
Furthermore, the Department of Justice has noted that joint sales agreements may
raise antitrust concerns under Section 1 of the Sherman Act and has challenged
joint sales agreements in certain locations. The Department of Justice also has
stated publicly that it has established certain revenue and audience share
concentration benchmarks with respect to radio station acquisitions, above which
a transaction may receive additional antitrust scrutiny. However, to date, the
Department of Justice has also investigated transactions that do not meet or
exceed these benchmarks, and has cleared transactions that do exceed these
benchmarks.
EMPLOYEES
On February 28, 2001, we had a staff of 1541 full-time employees and 610
part-time employees. We are a party to collective bargaining agreements with the
American Federation of Television and Radio Artists (AFTRA), which apply to some
of our programming personnel, and we are a party to a collective bargaining
agreement with the International Brotherhood of Electrical Workers (IBEW), which
applies to some of our engineering personnel. The Seattle AFTRA collective
bargaining agreement will expire January 31, 2002. The Kansas City AFTRA
collective bargaining agreement will expire on September 29, 2001 and our Boston
AFTRA collective bargaining agreement, as extended, expired on September 14,
1999. We are currently renegotiating this agreement and cannot predict the
outcome of this negotiation. The Boston IBEW collective bargaining agreement
expires April 30, 2001. We believe that our relations with our employees are
good.
ENVIRONMENTAL
As the owner, lessee or operator of various real properties and facilities,
we are subject to various federal, state and local environmental laws and
regulations. Historically, compliance with these laws and regulations has not
had a material adverse effect on our business. There can be no assurance,
however, that compliance with existing or new environmental laws and regulations
will not require us to make significant expenditures of funds.
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by retailers.
Our revenues and broadcast cash flows are typically lowest in the first calendar
quarter.
ITEM 2. PROPERTIES AND FACILITIES
The types of properties required to support each of our radio stations
include offices, studios and transmitter/antenna sites. We typically lease our
studio and office space with lease terms that expire in five to ten years,
although we do own some of our facilities. A station's studios are generally
housed with its offices in downtown or business districts. We generally consider
our facilities to be suitable and of adequate size for our current and intended
purposes. We own many of our main transmitter and antenna sites and lease the
remainder of our transmitter/antenna sites with lease terms that expire,
including renewal options, in periods generally ranging up to twenty years. The
transmitter/antenna site for each station is generally located so as to provide
maximum market coverage, consistent with the station's FCC license. In general,
we do not anticipate difficulties in renewing facility or transmitter/antenna
site leases or in leasing additional space or sites if required.
We own substantially all of our other equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by our
stations are generally in good condition, although opportunities to upgrade
facilities are continuously reviewed. Substantially all of the property that we
own secures our borrowings under our credit facility.
ITEM 3. LEGAL PROCEEDINGS
We currently and from time to time are involved in litigation incidental to
the conduct of our business, but we are not a party to any lawsuit or proceeding
which, in the opinion of management, 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 FCC, for a
purchase price of $25.0 million. Notwithstanding our efforts to pursue this
transaction, the seller was nonresponsive. 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 are
pursuing our legal action against the seller and seeking dismissal of the
cross-complaint. We estimate that the impact of an unfavorable outcome will not
materially impact our financial position, results of operations or cash flows.
We cannot determine if and when the transaction might occur.
14
18
In October 1999, The Radio Music License Committee, of which we are a
participant, filed a motion in the New York courts against Broadcast Music, Inc.
commencing a rate-making proceeding, on behalf of the radio industry, seeking a
determination of fair and reasonable industry-wide license fees. We are
currently operating under interim license agreements for the period commencing
January 1, 1997 at the rates and terms reflected in prior agreements. We
estimate that the impact of an unfavorable outcome of the motion will not
materially impact our financial position, results of operations or cash flows.
In December 2000, the U.S. Copyright Office, under the Digital Millennium
Copyright Act, issued a final rule which provides that AM and FM radio broadcast
signals transmitted simultaneously over a digital communications network are
subject to the sound recording copyright owner's exclusive right of performance.
This would result in the imposition of license fees for Internet streaming and
other digital media. As a result of this decision, we must now participate in an
arbitration proceeding at the U.S. Copyright Office to determine the amount of
the fees that are due from the use of sound recordings in Internet streaming.
We, along with other broadcasters and the National Association of Broadcasters,
previously commenced a legal action in New York challenging the imposition of
these license fees. In addition, we, along with other radio broadcasters, have
commenced a legal action seeking declaratory relief as to the impact of the
final rule of the Copyright Office. We intend to pursue these actions. However,
we cannot determine the likelihood of success. We estimate that the impact of an
unfavorable determination will not materially impact our financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
15
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
PRICE RANGE OF OUR CLASS A COMMON STOCK
Our Class A common stock is listed on The New York Stock Exchange under the
symbol "ETM."
The table below shows, for the quarters indicated, the reported high and
low trading prices of our Class A common stock on The New York Stock Exchange.
PRICE RANGE
HIGH LOW
Calendar Year 1999
First Quarter (beginning January 29)....... $35.38 $28.31
Second Quarter............................. 42.75 31.75
Third Quarter.............................. 41.94 35.00
Fourth Quarter............................. 67.75 35.13
Calendar Year 2000
First Quarter.............................. 68.69 38.13
Second Quarter............................. 50.75 35.81
Third Quarter.............................. 50.56 25.31
Fourth Quarter............................. 39.81 25.31
Calendar Year 2001
First Quarter (through March 14)........... 50.50 32.75
The initial public offering of our Class A common stock was priced on January
28, 1999 at a price of $22.50 per share.
As of March 14, 2001, there were approximately 69 shareholders of record of
our Class A common stock, $.01 par value. This number does not include the
number of shareholders whose shares are held of record by a broker or clearing
agency but does include each such brokerage house or clearing agency as one
record holder. Based upon available information, we believe we have
approximately 6,000 beneficial owners of our Class A common stock. There are 3
shareholders of record of our Class B common stock, $.01 par value, and 1
shareholder of record of our Class C common stock, $.01 par value.
Since becoming a public company in January 1999, we have not declared any
dividends on our common stock. We have no plans to declare or pay cash dividends
in the foreseeable future because we intend to retain our earnings, if any, to
finance the expansion of our business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the board of directors
and will depend upon, among other factors, our earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions, including
the provisions of our credit facility and provisions applicable to the 6.25%
Convertible Preferred Securities Term Income Deferrable Equity Securities
(TIDES) of our subsidiary trust, and other considerations that the board of
directors deems relevant.
On February 3, 1999, we sold 11,300,000 shares of our Class A common stock
and one of our shareholders sold 2,327,500 shares of our Class A common stock in
our initial public offering pursuant to a Registration Statement on Form S-1
(Registration No. 333-61381), which was declared effective by the Securities and
Exchange Commission on January 28, 1999. Credit Suisse First Boston Corporation
was the managing underwriter. The net proceeds to us were approximately $236.2
million, all of which we used to reduce outstanding indebtedness under our
credit facility and to pay other corporate obligations.
On October 6, 1999, we sold 8,000,000 shares of our Class A Common Stock
and some of our shareholders sold an aggregate of 750,000 shares of our Class A
common stock pursuant to a Registration Statement on Form S-1 (Registration No.
333-86397), which was declared effective by the Commission on September 30,
1999. Credit Suisse First Boston Corporation was the managing underwriter. The
net proceeds to us were approximately $276.1 million, all of which was used to
reduce outstanding debt and to fund the Sinclair acquisition.
On October 6, 1999, we sold $125.0 million in aggregate principal amount of
TIDES pursuant to a Registration Statement on Form S-1 (Registration No.
333-86843), which was declared effective by the Commission on September 30,
1999. Credit Suisse First Boston Corporation was the managing underwriter. The
net proceeds to us were approximately $120.5 million, all of which was used to
reduce outstanding debt and to fund the Sinclair acquisition.
RECENT SALES OF UNREGISTERED SECURITIES
16
20
In January 1999, we effected a 185 for one stock split of our outstanding
shares of voting and non-voting common stock. Each share of prior common stock
held by Joseph M. Field, our Chairman of the Board and Chief Executive Officer,
and David J. Field, our President and Chief Operating Officer, was exchanged for
one share of Class B common stock and each share of prior common stock held by
all other shareholders was exchanged for one share of Class A common stock.
On January 28, 1999, we converted a 7% Subordinated Convertible Note due
2003 in the principal amount of $25.0 million held by Chase Equity Associates,
L.P., an affiliate of Chase Capital Partners, into 2,327,500 shares of Class A
common stock and 1,995,669 shares of Class C common stock.
Both transactions were intended to be exempt from the registration
requirements of the Securities Act by virtue of Section 3(a)(9) thereof.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- Historically, we operated with an October 1st to September 30th fiscal
year. Effective January 1, 1999, we changed for financial reporting
purposes from a fiscal year ending September 30th to a fiscal year
ending December 31st. Accordingly, the selected historical financial
data includes information as of and for the three-month transition
period ended December 31, 1998, and, for comparison purposes, the
three months ended December 31, 1997 and the twelve months ended
December 31, 1998.
- Immediately prior to our initial public offering in January 1999,
Chase Capital converted a 7% Subordinated Convertible Note due 2003 in
the principal amount of $25 million into 2,327,500 shares of our Class
A common stock and 1,995,669 shares of our Class C common stock. The
Chase Capital convertible subordinated note has been retired and we
have no further obligation with respect to the note.
- Before completing our initial public offering, we were an S
corporation, and accordingly, we were not liable for federal and
certain state corporate income taxes. Instead, our shareholders
included our taxable income or loss in their federal and those state
income tax returns. Immediately before our initial public offering, we
became a C corporation, and accordingly, we are now subject to federal
and state corporate income taxes. The pro forma amounts shown in the
table reflect provisions for state and federal income taxes, applied
to income before income taxes and extraordinary item and the effect of
the adjustment to reflect indexing of the Chase Capital convertible
subordinated note (the amount of this adjustment is not tax
deductible), as if we had been taxed as a C corporation.
- As a result of our becoming a C corporation immediately prior to our
initial public offering, generally accepted accounting principles
required us to provide for deferred income taxes of $79.8 million to
reflect the cumulative temporary differences between book and income
tax bases of our assets and liabilities.
- For purposes of our historical financial statements, the term "pro
forma" refers solely to the adjustments necessary to reflect our
status as if we were a C corporation rather than an S corporation as
of the beginning of the periods presented.
- All per share data gives effect to our recapitalization, which we
consummated immediately prior to our initial public offering. In the
recapitalization, we effected a 185 for one stock split and the
exchange of our prior common stock for Class A common stock and Class
B common stock.
- 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 gains on sale
of assets.
- Broadcast cash flow margin represents broadcast cash flow as a
percentage of net revenue.
- EBITDA before net expense (income) from time brokerage agreement
fees consists of operating income plus depreciation and
amortization, non-cash compensation expense (which is otherwise
included in corporate general and administrative expenses), net
expense (income) from time brokerage agreement fees and the
elimination of gains and losses on sale of assets.
- After tax cash flow consists of income (loss) before extraordinary
item, plus the following: depreciation and amortization, non-cash
compensation expense (which is otherwise included in corporate
general and administrative expense), deferred tax provision, the
elimination of any gains or losses on sale of assets, investments
and derivative instruments (net of current tax) and the
elimination of any adjustments to reflect the indexing of the
convertible subordinated note. Pro forma after tax cash
17
21
flow consists of pro forma income (loss) before extraordinary item, to
reflect taxes as if we were a C corporation during the periods
presented.
- The data is presented in thousands, other than earnings per share.
Although broadcast cash flow, EBITDA before net expense (income) from time
brokerage agreement fees 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, EBITDA before net expense (income) from time
brokerage agreement fees and after tax cash flow in isolation or as substitutes
for operating income, cash flows from operating activities or any other measure
for determining our operating performance or liquidity that is calculated in
accordance with generally accepted accounting principles. In addition, because
broadcast cash flow, EBITDA before net expense (income) from time brokerage
agreement fees 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.
18
22
TWELVE MONTHS
THREE MONTHS ENDED ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------------------------------- ---------------------- -------------
1996 1997 1998 1997 1998 1998
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
OPERATING DATA:
Net revenues ................................ $ 48,675 $ 93,862 $ 132,998 $ 28,399 $ 47,363 $ 151,962
Operating expenses (income):
Station operating expenses ............... 31,659 61,280 88,599 18,868 29,990 99,721
Depreciation and amortization ............ 2,960 7,685 13,066 2,880 4,358 14,544
Corporate general and administrative
expenses ............................... 2,872 3,249 4,527 849 1,850 5,528
Net expense (income) from time brokerage
agreement fees ......................... (879) (476) 2,399 -- 1,236 3,635
Gains on sale of assets .................. (119) (197,097) (8,661) (43) (69,648) (78,266)
--------- --------- --------- --------- --------- ---------
Total operating expenses (income) ..... 36,493 (125,359) 99,930 22,554 (32,214) (45,162)
--------- --------- --------- --------- --------- ---------
Operating income ............................ 12,182 219,221 33,068 5,845 79,577 106,800
Other expense (income):
Interest expense ......................... 5,196 11,388 14,663 2,996 5,732 17,399
Financing cost of Entercom - obligated
mandatorily redeemable convertible
preferred securities of Entercom
Communications Capital Trust ........... -- -- -- -- -- --
Adjustment to reflect indexing of the
convertible subordinated note .......... -- 29,070 8,841 14,903 29,503 23,441
Equity loss from unconsolidated investee . -- -- -- -- -- --
Loss on investments ...................... -- -- -- -- -- --
Interest income .......................... -- (482) (410) (127) (146) (429)
Other non-operating expenses (income) .... (67) 1,986 82 25 723 780
--------- --------- --------- --------- --------- ---------
Total other expense ................... 5,129 41,962 23,176 17,797 35,812 41,191
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item ........................ 7,053 177,259 9,892 (11,952) 43,765 65,609
Income taxes ................................ 274 489 453 81 310 682
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item ..... 6,779 176,770 9,439 (12,033) 43,455 64,927
Extraordinary item, net of taxes ............ 539 -- 2,376 -- -- 2,376
--------- --------- --------- --------- --------- ---------
Net income (loss) ........................... $ 6,240 $ 176,770 $ 7,063 $ (12,033) $ 43,455 $ 62,551
========= ========= ========= ========= ========= =========
Net Income (Loss) Per Share - Basic:
Income (loss) before extraordinary item .....
Extraordinary item, net of taxes ............
Net income (loss) per share - basic .........
Net Income (Loss) Per Share - Diluted:
Income (loss) before extraordinary item .....
Extraordinary item, net of taxes ............
Net income (loss) per share - diluted .......
PRO FORMA DATA:
Income (loss) before income taxes and
extraordinary item ........................ $ 7,053 $ 177,259 $ 9,892 $ (11,952) $ 43,765 $ 65,609
Pro forma income taxes ...................... 2,680 78,405 7,119 1,121 27,842 33,840
--------- --------- --------- --------- --------- ---------
Pro forma income (loss) before extraordinary
item ...................................... 4,373 98,854 2,773 (13,073) 15,923 31,769
Extraordinary item, net of pro forma taxes .. 348 -- 1,488 -- -- 1,488
--------- --------- --------- --------- --------- ---------
Pro forma net income (loss) ................. $ 4,025 $ 98,854 $ 1,285 $ (13,073) $ 15,923 $ 30,281
========= ========= ========= ========= ========= =========
Pro forma basic income (loss) per share
before extraordinary item ................ $ 0.20 $ 4.59 $ 0.12 $ (0.61) $ 0.64 $ 1.32
Pro forma diluted income (loss) per
share before extraordinary item .......... $ 0.20 $ 4.59 $ 0.12 $ (0.61) $ 0.64 $ 1.32
Weighted average common shares outstanding -
basic .................................... 21,534 21,534 22,239 21,534 24,742 24,104
Weighted average common shares outstanding -
diluted .................................. 21,534 21,534 22,239 21,534 24,742 24,104
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ................... $ 5,292 $ 3,626 $ 6,666 $ 3,497 $ 6,469 $ 6,469
Intangibles and other assets ................ 119,269 300,029 428,763 313,889 504,825 504,825
Total assets ................................ 150,575 364,743 522,945 378,138 681,034 681,034
Senior debt, including current portion ...... 111,000 117,000 253,784 127,000 330,281 330,281
Total shareholders' equity .................. 5,079 179,019 182,970 166,986 225,467 225,467
OTHER DATA:
Broadcast cash flow ......................... $ 17,016 $ 32,582 $ 44,399 $ 9,531 $ 17,373 $ 52,241
Broadcast cash flow margin .................. 35.0% 34.7% 33.4% 33.6% 36.7% 34.4%
YEAR ENDED DECEMBER 31,
--------------------------
1999 2000
----------- -----------
OPERATING DATA:
Net revenues ................................ $ 215,001 $ 352,025
Operating expenses (income):
Station operating expenses ............... 135,943 206,608
Depreciation and amortization ............ 21,564 43,475
Corporate general and administrative
expenses ............................... 8,100 12,497
Net expense (income) from time brokerage
agreement fees ......................... 652 11
Gains on sale of assets .................. (1,986) (41,465)
----------- -----------
Total operating expenses (income) ..... 164,273 221,126
----------- -----------
Operating income ............................ 50,728 130,899
Other expense (income):
Interest expense ......................... 11,182 37,760
Financing cost of Entercom - obligated
mandatorily redeemable convertible
preferred securities of Entercom
Communications Capital Trust ........... 1,845 7,813
Adjustment to reflect indexing of the
convertible subordinated note .......... -- --
Equity loss from unconsolidated investee . -- 1,100
Loss on investments ...................... -- 5,688
Interest income .......................... (3,253) (512)
Other non-operating expenses (income) .... -- --
----------- -----------
Total other expense ................... 9,774 51,849
----------- -----------
Income (loss) before income taxes and
extraordinary item ........................ 40,954 79,050
Income taxes ................................ 100,913 31,796
----------- -----------
Income (loss) before extraordinary item ..... (59,959) 47,254
Extraordinary item, net of taxes ............ 918 --
----------- -----------
Net income (loss) ........................... $ (60,877) $ 47,254
=========== ===========
Net Income (Loss) Per Share - Basic:
Income (loss) before extraordinary item ..... $ (1.58) $ 1.05
Extraordinary item, net of taxes ............ $ .03 $ --
----------- -----------
Net income (loss) per share - basic ......... $ (1.61) $ 1.05
=========== ===========
Net Income (Loss) Per Share - Diluted:
Income (loss) before extraordinary item ..... $ (1.58) $ 1.04
Extraordinary item, net of taxes ............ $ .03 $ --
----------- -----------
Net income (loss) per share - diluted ....... $ (1.61) $ 1.04
=========== ===========
PRO FORMA DATA:
Income (loss) before income taxes and
extraordinary item ........................ $ 40,954
Pro forma income taxes ...................... 20,278
-----------
Pro forma income (loss) before extraordinary
item ...................................... 20,676
Extraordinary item, net of pro forma taxes .. 918
-----------
Pro forma net income (loss) ................. $ 19,758
===========
Pro forma basic income (loss) per share
before extraordinary item ................ $ 0.55
Pro forma diluted income (loss) per
share before extraordinary item .......... $ 0.54
Weighted average common shares outstanding -
basic .................................. 37,922 45,209
Weighted average common shares outstanding -
diluted .................................. 38,238 45,614
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ................... $ 11,262 $ 13,257
Intangibles and other assets ................ 1,225,335 1,276,921
Total assets ................................ 1,396,048 1,473,928
Senior debt, including current portion ...... 465,770 461,260
Total shareholders' equity .................. 686,611 735,701
OTHER DATA:
Broadcast cash flow ......................... $ 79,058 $ 145,417
Broadcast cash flow margin .................. 36.8% 41.3%
19
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TWELVE MONTHS
THREE MONTHS ENDED ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------------------------------- ---------------------- -------------
1996 1997 1998 1997 1998 1998
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
EBITDA before net expense (income) from
time brokerage agreement fees .......... $ 14,144 $ 29,333 $ 39,872 $ 8,682 $ 15,523 $ 46,713
After tax cash flow ...................... 7,311 16,590 21,028 5,003 7,985 24,010
Cash flows related to:
Operating activities ................... 12,773 8,859 23,019 7,341 11,158 26,836
Investing activities ................... (96,502) (13,695) (153,651) (17,470) (86,894) (223,075)
Financing activities ................... 87,457 3,170 133,672 10,000 75,539 199,211
YEAR ENDED DECEMBER 31,
--------------------------
1999 2000
----------- -----------
EBITDA before net expense (income) from
time brokerage agreement fees .......... $ 71,419 $ 133,577
After tax cash flow ...................... 52,465 89,721
Cash flows related to:
Operating activities ................... 40,700 69,475
Investing activities ................... (712,323) (64,684)
Financing activities ................... 676,416 (2,796)
20
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
A radio broadcasting company derives its revenues primarily from the
sale of broadcasting time to local and national advertisers. The advertising
rates that a radio station is able to charge and the number of advertisements
that can be broadcast without jeopardizing listener levels largely determine
those revenues. Advertising rates are primarily based on three factors:
- a station's audience share in the demographic groups targeted
by advertisers, as measured principally by quarterly reports
issued by The Arbitron Ratings Company;
- the number of radio stations in the market competing for the
same demographic groups; and
- the supply of and demand for radio advertising time.
In fiscal 2000, we generated 75.6% of our gross revenues from local
advertising, which is sold primarily by each individual local radio station's
sales staff, and 22.7% from national spot advertising, which is sold by
independent advertising sales representatives. We generated the balance of our
2000 revenues principally from network advertising, event revenue and rental
income from tower sites.
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. Consequently, there is no
difference in the method of revenue and operating expense recognition between a
station operated by us under a time brokerage agreement or similar sales
agreement and a station owned and operated by us.
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, because Arbitron reports ratings quarterly, any increased
ratings and therefore increased advertising revenues tend to lag behind the
incurrence of advertising and promotional spending.
We calculate "same station" growth by comparing the performance of
stations operated by us throughout the relevant period to the comparable
performance in the prior year's corresponding period, adjusted for significant
changes to sports contracts, excluding the effect of barter revenues and
expenses.
For purposes of the following discussion, pro forma net income
represents historical income before income taxes and extraordinary item adjusted
as if we were treated as a C corporation during all relevant periods at an
effective tax rate of 38%, applied to income before income taxes and
extraordinary item and the effect of the adjustment to reflect indexing of the
convertible subordinated note (the amount of this adjustment is not tax
deductible).
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results in conjunction with our consolidated financial
statements and related notes included elsewhere in this report. Historically, we
operated with an October 1st to September 30th fiscal year. Effective January 1,
1999, we changed for financial reporting purposes from a fiscal year ending
September 30th to a fiscal year ending December 31st. Accordingly, the following
results of operations include a discussion of the year ended December 31, 2000
compared to the year ended December 31, 1999 and a discussion of the year ended
December 31, 1999 compared to the twelve months ended December 31, 1998. In
addition, the following results of operations includes a discussion of the
three-month transition period ended December 31, 1998 compared to the three
months ended December 31, 1997. 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. Our results of
operations for the year ended December 31, 2000 as compared to the year ended
December 31, 1999, were heavily impacted by our acquisition of 45 radio stations
from Sinclair Broadcast Group, Inc. in 1999 and 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
NET REVENUES $ 215,001 $352,025
Increase of $ 137,024 or 63.7%
---------------------------------------------------------------
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25
Net revenues increased 63.7% to $352.0 million for the year ended
December 31, 2000 from $215.0 million for the year ended December 31, 1999. Of
the increase, $101.5 million is attributable to stations that we acquired or
that we were in the process of acquiring since January 1, 1999, offset by $5.2
million for stations that we divested (including $1.8 million in revenues from a
sports contract for which we discontinued selling advertising) during the same
period. On a same station basis, net revenues increased 12.7% to $338.4 million
from $300.4 million. Same station revenue growth was led by increases in
Sacramento, Milwaukee, Norfolk, Greenville and Boston due to improved selling
efforts.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
STATION OPERATING EXPENSES $ 135,943 $ 206,608
Increase of $ 70,665 or 52.0%
------------------------------------------------------------------------
Percentage of Net Revenues 63.2% 58.7%
Station operating expenses increased 52.0% to $206.6 million for the
year ended December 31, 2000 from $135.9 million for the year ended December 31,
1999. Of the increase, $63.6 million is attributable to stations that we
acquired or that we were in the process of acquiring since January 1, 1999,
offset by $6.6 million for stations that we divested (including $4.4 million in
expenses from a sports contract for which we discontinued selling advertising)
during the same period. On a same station basis, station operating expenses
increased 5.1% to $195.9 million from $186.3 million.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
DEPRECIATION AND AMORTIZATION $ 21,564 $ 43,475
Increase of $ 21,911 or 101.6%
-----------------------------------------------------------------------
Percentage of Net Revenues 10.0% 12.3%
Depreciation and amortization increased 101.6% to $43.5 million for the
year ended December 31, 2000 from $21.6 million for the year ended December 31,
1999. The increase was mainly attributable to our acquisitions since January 1,
1999, offset by divestitures during the same period.
YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 8,100 $ 12,497
Increase of $ 4,397 or 54.3%
----------------------------------------------------------------------
Percentage of Net Revenues 3.8% 3.6%
Corporate general and administrative expenses increased 54.3% to $12.5
million for the year ended December 31, 2000 from $8.1 million for the year
ended December 31, 1999. The increase was mainly attributable to higher
administrative expenses associated with supporting our growth. Also included in
the years ended December 31, 2000 and 1999 is $0.7 million and $0.5 million,
respectively, in non-cash stock-based compensation expense.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
INTEREST EXPENSE (INCLUDING THE FINANCING COST OF TIDES) $ 13,027 $ 45,573
Increase of $ 32,546 or 249.8%
-------------------------------------------------------------------------------------
Percentage of Net Revenues 6.1% 12.9%
Interest expense, including the financing cost on our 6.25% Convertible
Preferred Securities Term Income Deferrable Equity Securities (TIDES), increased
249.8% to $45.6 million for the year ended December 31, 2000 from $13.0 million
for the year ended December 31, 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 due to the use of the
proceeds from the disposition of radio station assets.
22
26
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 40,954 $ 79,050
Increase of $ 38,096 or 93.0%
-------------------------------------------------------------------------------------
Percentage of Net Revenues 19.0% 22.5%
Income before income taxes and extraordinary item increased 93.0% to
$79.1 million for the year ended December 31, 2000 from $41.0 million for the
year ended December 31, 1999. The increase was mainly attributable to (1) an
increase in gains on sale of assets of $41.5 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 $40.7 million
due to increases in revenues from existing and newly acquired stations and
improved expense management from newly acquired stations, offset by: (1) an
increase of $32.5 million in net interest expense and financing costs as a
result of the factors described above under interest expense; (2) an increase in
expense of $6.8 million from the recognition of a loss on investments and an
equity loss from an unconsolidated affiliate; and (3) a decrease in interest
income of $2.7 million as a result of the absence this year of excess cash
available from our October 1999 Class A Common Stock and TIDES offerings during
the period prior to the closing on December 16, 1999, of the acquisition of 42
radio stations from Sinclair, including a radio station under a time brokerage
agreement.
EXTRAORDINARY ITEM, NET OF TAXES
The extraordinary item for the year ended December 31, 1999 resulted
from the write-off of $1.5 million ($0.9 million, net of taxes) of unamortized
finance charges due to the early extinguishment of debt. The early
extinguishment of debt resulted from the refinancing of our previous credit
facility.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
NET INCOME (LOSS) $ (60,877) $ 47,254
Increase of $ 108,131
---------------------------------------------------------------------------------
Net income increased to $47.3 million for the year ended December 31,
2000 from a net loss of $60.9 million for the year ended December 31, 1999. The
increase was mainly attributable to: (1) the absence this year of an adjustment
made during the prior year 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); (2) a net increase in 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 (3) an improvement in operating income, excluding
gains on sale of assets, of $24.4 million, net of tax, primarily as a result of
an improvement in revenues of existing and newly acquired stations and an
improvement in expense management of newly acquired stations, offset by: (1) an
increase in interest expense of $19.5 million, net of tax, for the reasons
described under interest expense; (2) an increase in expense of $4.0 million,
net of tax, from the recognition of a loss on investments and an equity loss
from an unconsolidated affiliate and (3) a decrease in interest income of $1.6
million, net of tax, as a result of the absence this year of excess cash
available from our October 1999 Class A Common Stock and TIDES offerings during
the period prior to the closing on December 16, 1999, of the acquisition of 42
radio stations from Sinclair, including a radio station under a time brokerage
agreement.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
NET INCOME TO PRO FORMA NET INCOME $ 19,758 $ 47,254
Increase of $ 27,496 or 139.2%
---------------------------------------------------------------------------------
Net income increased 139.2% to $47.3 million for the year ended
December 31, 2000 from pro forma net income of $19.8 million for the year ended
December 31, 1999. The increase was primarily attributable to all of the factors
described under net income (loss) above, except for the adjustment to record a
one-time non-cash deferred income tax expense of $79.8 million, which is
excluded from the definition of pro forma net income.
23
27
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
OTHER DATA (AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW $ 79,058 $ 145,417
Increase of $ 66,359 or 83.9%
---------------------------------------------------------------------------------
Broadcast cash flow increased 83.9% to $145.4 million for the year
ended December 31, 2000 from $79.1 million for the year ended December 31, 1999.
Of the increase, $38.0 million is attributable to stations that we acquired or
that we were in the process of acquiring since January 1, 1999 and $2.6 million
is attributable to the elimination of a broadcast cash flow deficit from a
sports contract for which we discontinued selling advertising, offset by $1.2
million for stations that we divested during the same period. On a same station
basis, broadcast cash flow increased 25.4% to $140.7 million from $112.3
million.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW MARGIN 36.8% 41.3%
Increase of 4.5% or 12.3%
---------------------------------------------------------------------------------
Our broadcast cash flow margin increased to 41.3% for the year ended
December 31, 2000 from 36.8% for the year ended December 31, 1999. The increase
is attributable to improved revenues and expense management. On a same station
basis, our broadcast cash flow margin increased to 41.6% from 37.4%.
YEAR ENDED
----------
DECEMBER 31, 1999 DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
AFTER TAX CASH FLOW TO PRO FORMA AFTER TAX CASH FLOW $ 52,465 $ 89,721
Increase of $ 37,256 or 71.0%
---------------------------------------------------------------------------------
After tax cash flow increased 71.0% to $89.7 million for the year ended
December 31, 2000 from pro forma after tax cash flow of $52.5 million for the
year ended December 31, 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 prior period. The amount of the deferred income tax
expense was $33.0 million for the year ended December 31, 2000 and the amount of
the pro forma deferred income tax expense was $11.0 million for the year ended
December 31,1999. The amount of the deferred income tax expense attributable to
the gains on sale of assets, loss on investments and equity loss from an
unconsolidated affiliate was $13.9 million for the year ended December 31, 2000
and $27,000 for the year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31,
1998
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
NET REVENUES $ 151,962 $215,001
Increase of $ 63,039 or 41.5%
---------------------------------------------------------------------------------
Net revenues increased 41.5% to $215.0 million for the year ended
December 31, 1999 from $152.0 million for the twelve months ended December 31,
1998. Of the increase, $40.0 million is attributable to stations acquired or
that we were in the process of acquiring since January 1, 1998, offset by $3.0
million for stations that we divested or that we were in the process divesting
during the same period. On a same station basis, net revenues increased 18.3% to
$209.2 million from $176.9 million. Same station revenue growth was led by
increases in Boston and Seattle due to improved selling efforts. A strategic
realignment of station formats in Sacramento resulted in significant gains in
ratings and revenues.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
STATION OPERATING EXPENSES $ 99,721 $ 135,943
Increase of $ 36,222 or 36.3%
---------------------------------------------------------------------------------
Percentage of Net Revenues 65.6% 63.2%
24
28
Station operating expenses increased 36.3% to $135.9 million for the
year ended December 31, 1999 from $99.7 million for the twelve months ended
December 31, 1998. Of the increase, $31.1 million is attributable to stations
that we acquired or that we were in the process of acquiring since January 1,
1998, offset by $2.9 million for stations that we divested or that we were in
the process of divesting during the same period. On a same station basis,
station operating expenses increased 7.7% to $131.7 million from $122.3 million.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
DEPRECIATION AND AMORTIZATION $ 14,544 $ 21,564
Increase of $ 7,020 or 48.3%
---------------------------------------------------------------------------------
Percentage of Net Revenues 9.6% 10.0%
Depreciation and amortization increased 48.3% to $21.6 million for the
year ended December 31, 1999 from $14.5 million for the twelve months ended
December 31, 1998. The increase was mainly attributable to our acquisitions net
of divestitures since January 1, 1998.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 5,528 $ 8,100
Increase of $ 2,572 or 46.5%
---------------------------------------------------------------------------------
Percentage of Net Revenues 3.6% 3.8%
Corporate general and administrative expenses increased 46.5% to $8.1
million for the year ended December 31, 1999 from $5.5 million for the twelve
months ended December 31, 1998. The increase was mainly attributable to higher
administrative expenses associated with supporting our growth and increasing
staff and expenses to operate as a public company. Also included in the years
ended December 31, 1999 is $0.5 million in non-cash stock-based compensation
expense.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
INTEREST EXPENSE (INCLUDING THE FINANCING COST OF TIDES) $ 17,399 $ 13,027
Decrease of $ (4,372) or (25.1)%
---------------------------------------------------------------------------------
Percentage of Net Revenues 11.4% 6.1%
Interest expense, including the financing cost of TIDES, decreased
25.1% to $13.0 million for the year ended December 31, 1999 from $17.4 million
for the twelve months ended December 31, 1998. The decrease was mainly
attributable to (1) a reduction in outstanding indebtedness due to the use of
the proceeds of our initial public offering and the proceeds of our October 1999
Class A Common Stock and TIDES offerings and (2) a reduction due to the
elimination of the 7% stated interest on the conversion of the convertible
subordinated note, offset by an increase in outstanding indebtedness used to
fund the acquisition of radio station assets and the interest expense on the
TIDES.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 65,609 $ 40,954
Decrease of $ (24,655) or (37.6)%
---------------------------------------------------------------------------------
Percentage of Net Revenues 43.2% 19.0%
Income before income taxes and extraordinary item decreased 37.6% to
$41.0 million for the year ended December 31, 1999 from $65.6 million for the
twelve months ended December 31, 1998. Of the decrease, $76.3 million is
attributable to a decrease in gains on sale of assets, offset by: (1) $17.2
million due to increases in revenues from existing stations and improved
revenues and expense management from newly acquired stations; (2) $23.4 million
resulting from the conversion of the convertible subordinated note, which in the
prior period had caused a $23.4 million decrease in income to reflect indexing;
(3) $4.4 million due to a decrease in interest expense for the reasons described
under interest expense; (5) $3.0 million due to a decrease in net expense
(income) from time brokerage agreement fees; and (6) an increase in interest
income of $2.8 million as a result of excess cash available from our October
1999 Class A Common Stock and TIDES offerings during the period prior to the
closing of the Sinclair acquisition.
25
29
EXTRAORDINARY ITEM, NET OF TAXES
The extraordinary item for the year ended December 31, 1999 resulted
from the write-off of $1.5 million ($0.9 million, net of taxes) of unamortized
finance charges due to the early extinguishment of debt. The early
extinguishment of debt resulted from the refinancing of our previous credit
facility.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
PRO FORMA NET INCOME $ 30,281 $ 19,758
Decrease of $ (10,523) or (34.8)%
---------------------------------------------------------------------------------
As a result of the factors described above, pro forma net income
decreased 34.8% to $19.8 million for the year ended December 31, 1999 from $30.3
million for the twelve months ended December 31, 1998. Of the decrease, $46.8
million, net of tax, is attributable to a decrease in gains on sale of assets,
offset by; (1) $10.5 million, net of tax, due to increases in revenues from
existing stations and improved revenues and expense management from newly
acquired stations; (2) $23.4 million resulting from the conversion of the
convertible subordinated note, which in the prior period had caused a $23.4
million decrease in income to reflect indexing; (3) $2.7 million, net of tax,
due to a decrease in interest expense for the reasons described under interest
expense; (4) $1.8 million, net of tax, due to a decrease in net expense (income)
from time brokerage agreement fees; and (5) an increase in interest income of
$1.7 million, net of tax, as a result of excess cash available from our October
1999 Class A Common Stock and TIDES offerings during the period prior to the
Sinclair acquisition.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
OTHER DATA (AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW $ 52,241 $ 79,058
Increase of $ 26,817 or 51.3%
---------------------------------------------------------------------------------
Broadcast cash flow increased 51.3% to $79.1 million for the year ended
December 31, 1999 from $52.2 million for the twelve months ended December 31,
1998. Of the increase, $7.7 million is attributable to stations that we acquired
or that we were in the process of acquiring since January 1, 1998, offset by
$0.1 million for stations that we divested or that we were in the process of
divesting during the same period. On a same station basis, broadcast cash flow
increased 41.9% to $77.5 million from $54.6 million.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW MARGIN 34.4% 36.8%
Increase of 2.4% or 7.0%
---------------------------------------------------------------------------------
Our broadcast cash flow margin increased to 36.8% for the year ended
December 31, 1999 from 34.4% for the twelve months ended December 31, 1998. The
increase is attributable to improved revenues and expense management. On a same
station basis, our broadcast cash flow margin increased to 37.1% from 30.9%.
TWELVE MONTHS ENDED YEAR ENDED
------------------- ----------
DECEMBER 31, 1998 DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
PRO FORMA AFTER TAX CASH FLOW $ 24,010 $ 52,465
Increase of $ 26,455 or 118.5%
---------------------------------------------------------------------------------
Pro forma after tax cash flow increased 118.5% to $52.5 million for the
year ended December 31, 1999 from $24.0 million for the twelve months ended
December 31, 1998. 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 periods presented. The amount of the deferred pro forma
income tax expense was $11.0 million for the year ended December 31, 1999 and
$5.7 million for the twelve months ended December 31,1998.
26
30
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
NET REVENUES $ 28,399 $ 47,363
Increase of $ 18,964 or 66.8%
---------------------------------------------------------------------------------
Net revenues increased 66.8% to $47.4 million for the three months
ended December 31, 1998 from $28.4 million for the three months ended December
31, 1997. Of the increase, $17.9 million is attributable to stations that we
acquired or that we were in the process of acquiring since October 1, 1997,
offset by $2.7 million for stations that we divested or that we were in the
process of divesting during the same period. On a same station basis, net
revenues increased 16.5% to $46.9 million from $40.3 million. Same station
revenue growth was led by increases in Boston, Seattle, Kansas City and Portland
due to improved selling efforts.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
STATION OPERATING EXPENSES $ 18,868 $ 29,990
Increase of $ 11,122 or 58.9%
---------------------------------------------------------------------------------
Percentage of Net Revenues 66.4% 63.3%
Station operating expenses increased 58.9% to $30.0 million for the
three months ended December 31, 1998 from $18.9 million for the three months
ended December 31, 1997. Of the increase, $11.3 million is attributable to
stations that we acquired or that we were in the process of acquiring since
October 1, 1997, offset by $1.6 million for stations that we divested or that
were in the process of divesting during the same period. On a same station
basis, station operating expenses increased 3.4% to $29.4 million from $28.4
million.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
DEPRECIATION AND AMORTIZATION $ 2,880 $ 4,358
Increase of $ 1,478 or 51.3%
---------------------------------------------------------------------------------
Percentage of Net Revenues 10.1% 9.2%
Depreciation and amortization increased 51.3% to $4.4 million for the
three months ended December 31, 1998 from $2.9 million for the three months
ended December 31, 1997. The increase was mainly attributable to our
acquisitions net of divestitures since October 1, 1997.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 849 $ 1,850
Increase of $ 1,001 or 117.9%
---------------------------------------------------------------------------------
Percentage of Net Revenues 3.0% 3.9%
Corporate general and administrative expenses increased 117.9% to $1.9
million for the three months ended December 31, 1998 from $0.8 million for the
three months ended December 31, 1997. The increase was mainly attributable to
higher administrative expenses associated with supporting our growth and
increasing staff and expenses in anticipation of operating as a public company.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
INTEREST EXPENSE $ 2,996 $ 5,732
Increase of $ 2,736 or 91.3%
---------------------------------------------------------------------------------
Percentage of Net Revenues 10.5% 12.1%
Interest expense increased 91.3% to $5.7 million for the three months
ended December 31, 1998 from $3.0 million for the three months ended December
31, 1997. The increase was mainly attributable to indebtedness that we incurred
in connection with acquisitions.
27
31
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ (11,952) $ 43,765
Increase of $ 55,717
---------------------------------------------------------------------------------
Percentage of Net Revenues (42.1)% 92.4%
Income (loss) before income taxes and extraordinary item increased to
$43.8 million for the three months ended December 31, 1998 from a loss of $12.0
million for the three months ended December 31, 1997. Of the increase, $69.6
million is attributable to gains on the sale of assets from our disposition of
stations in the Tampa radio market during the three months ended December 31,
1998, offset by $14.6 million which is attributable to an increase in expense
resulting from an adjustment to reflect indexing of the convertible subordinated
note.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
PRO FORMA NET INCOME (LOSS) $ (13,073) $ 15,923
Increase of $ 28,996
---------------------------------------------------------------------------------
As a result of the factors described above, pro forma net income (loss)
increased to $15.9 million for the three months ended December 31, 1998 from a
loss of $13.1 million for the three months ended December 31, 1997. Of the
increase, $43.2 million is attributable to gains on the sale of assets from the
disposition of stations in the Tampa radio market during the three months ended
December 31, 1998, offset by $14.6 million which is attributable to an increase
in expense resulting from an adjustment to reflect indexing of the convertible
subordinated note.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
OTHER DATA (AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW $ 9,531 $ 17,373
Increase of $ 7,842 or 82.3%
---------------------------------------------------------------------------------
Broadcast cash flow increased 82.3% to $17.4 million for the three
months ended December 31, 1998 from $9.5 million for the three months ended
December 31, 1997. Of the increase, $6.9 million is attributable to stations
that we acquired or that we were in the process of acquiring since October 1,
1997, offset by $1.1 million for stations that we divested or that we were in
the process of divesting during the same period. On a same station basis,
broadcast cash flow increased 48.0% to $17.5 million from $11.8 million.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
BROADCAST CASH FLOW MARGIN 33.6% 36.7%
Increase of 3.1% or 9.3%
---------------------------------------------------------------------------------
The broadcast cash flow margin increased to 36.7% for the three months
ended December 31, 1998 from 33.6% for the three months ended December 31, 1997.
The increase in broadcast cash flow margin is attributable to improved revenues
and expense management associated with newly acquired stations. On a same
station basis, our broadcast cash flow margin increased to 37.4 % from 29.4%.
THREE MONTHS ENDED
------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
PRO FORMA AFTER TAX CASH FLOW $ 5,003 $ 7,985
Increase of $ 2,982 or 59.6%
---------------------------------------------------------------------------------
Pro forma after tax cash flow increased 59.6% to $8.0 million for the
three months ended December 31, 1998 from $5.0 million for the three months
ended December 31, 1997. 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 periods presented. The amount of the deferred pro forma
income tax expense was $0.2 million and $0.3 million for the three months ended
December 31, 1998 and 1997, respectively.
28
32
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. Our results of operations for the year ended
December 31, 2000 as compared to the year ended December 31, 1999, were heavily
impacted by our acquisition of 45 radio stations from Sinclair in 1999 and 2000.
Operating Activities
Net cash flows provided by operating activities were $69.5 million for
the year ended December 31, 2000, as compared to $40.7 million and $26.8 million
for the year ended December 31,1999 and the twelve months ended December 31,
1998, 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
stations during those periods. For the year ended December 31, 2000, cash flows
provided by operating activities were positively affected primarily by: (1) the
acquisition of 45 radio stations from Sinclair (42 radio stations on December
16, 1999, including one station under a time brokerage agreement that we
subsequently acquired in 2000, and three radio stations on July 20, 2000,
excluding the station we acquired from Sinclair and immediately sold) and (2)
other radio station acquisitions, offset by (1) the required divestiture of two
radio stations in Kansas City, excluding the station we acquired from Sinclair
and immediately sold; and (2) an increase in accounts receivable on acquired
stations, net of the Kansas City divestiture.
Investing and Financing Activities
Net cash flows used by investing activities were $64.7 million for the
year ended December 31, 2000, as compared to $712.3 million and $223.1 million
for the year ended December 31, 1999 and the twelve months ended December 31,
1998, respectively, as a result of the net impact of acquisitions, divestitures
and capital expenditures. Net cash flows used by financing activities were $2.8
million for the year ended December 31, 2000, as compared to net cash flows
provided by financing activities of $676.4 million and $199.2 million for the
year ended December 31, 1999 and the twelve months ended December 31, 1998,
respectively. The cash flows for the year ended December 31, 2000, reflect (1)
acquisitions and investments consummated and the related borrowings and (2) the
proceeds from the disposition of the Kansas City stations. The cash flows for
the year ended December 31, 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) net proceeds from our October 1999 Class
A Common Stock and TIDES offerings and the related payment of long-term debt;
and (4) the distribution to our S corporation shareholders of $88.1 million
primarily from the funds available from the sale of our Tampa stations.
Our business generally does not require substantial investment of
capital. Our capital expenditures totaled $9.5 million in the year ended
December 31, 2000, as compared to $14.4 million and $8.6 million in the year
ended December 31, 1999 and the twelve months ended December 31, 1998,
respectively. Despite an increase in the average number of radio stations owned
throughout this year as compared to the average number of radio stations owned
throughout the prior year, primarily from the acquisition of 45 radio stations
from Sinclair, and despite the continued consolidation and relocation of studio
facilities in certain markets, our capital expenditures declined in the year
ended December 31, 2000 as compared to the prior year.
On February 3, 1999, upon the consummation of our initial public
offering, we received net proceeds of $236.2 million, after deducting expenses,
underwriting discounts and commissions. We used these proceeds to reduce
outstanding indebtedness under our former credit facility and to pay other
corporate obligations. Shortly after reducing indebtedness under our former
credit facility, in February 1999 we borrowed approximately $58.0 million to
purchase three Boston radio stations from CBS. On October 6, 1999, we completed
our Class A Common Stock and TIDES offerings and received $276.1 million and
$120.5 million in proceeds, respectively, after deducting discounts,
commissions, fees and expenses. The proceeds were used to reduce outstanding
indebtedness. We used the net proceeds from our October 1999 Class A Common
Stock offering and the TIDES offering, together with cash on hand and proceeds
from our bank facility, to finance the $700.4 million in cash to consummate the
purchase of 41 stations from Sinclair on December 16, 1999.
In addition to debt service and quarterly distributions under the
TIDES, our principal liquidity requirements will be for working capital and
general corporate purposes, including capital expenditures, and, if appropriate
opportunities arise, acquisitions of additional radio stations. For fiscal year
2001, we estimate that capital expenditures will be between $10.0 million and
$12.0 million. The estimated amount for capital expenditures includes a $2.0
million commitment as of December 31, 2000, to fund construction of a studio
relocation. We are also committed to fund certain strategic investments in the
amount of approximately $9.7 million as of December 31, 2000, for which we are
existing equity partners. We believe that cash flow from operating activities,
together with available revolving and term credit 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 there can be no assurance that we would be able to
obtain such financing on terms acceptable to us. As of December 31, 2000, we had
approximately $461.0 million of borrowings outstanding under our bank facility
(in addition to an outstanding letter of credit in the amount of $5.8 million),
of which most of the outstanding debt was assumed in connection with the
acquisition of the 45 radio stations from Sinclair.
29
33
Upon closing the Sinclair acquisition on December 16, 1999, our
effective tax rate increased from 38% to 40% as a result of adding stations in
additional states which on average have higher income tax rates than in those
states in which we were already operating. For the year ended December 31, 1999,
we also recorded a non-cash deferred income tax expense of approximately $3.9
million to reflect the increase in the effective tax rate and its effect on
previously reported temporary differences between the tax and financial
reporting bases of our assets and liabilities.
We entered into our bank facility, dated as of December 16, 1999, with
a syndicate of banks for $650.0 million in senior secured 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 our 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 KeyBank
N.A.'s base rate plus a spread of up to 1.125%, depending on our leverage ratio.
Although we may borrow, repay and re-borrow under the revolving credit facility,
the aggregate maximum amount that we can have outstanding at any one time is
reduced on a quarterly basis beginning on September 30, 2002 in amounts that
vary from $12.2 million to $16.3 million for each loan. Under the bank facility,
the reducing revolving credit facility and multi-draw term loan mature on
September 30, 2007. 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. We expect to use the credit available under the revolving credit
facility to fund pending and future acquisitions. 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. However, there can be no guarantee that, upon
request, we will receive commitments for any of the incremental loans. The
amount available under the bank facility was $183.2 million as of December 31,
2000.
RECENT ACCOUNTING 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. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. All derivatives, whether
designated in hedging relationships or not, will be required to be recorded on
the balance sheet at fair value. If the derivative is designated in a fair value
hedge, the changes in the fair value of the derivative and the hedged item will
be recognized in earnings. If the derivative is designated as a cash flow hedge,
changes in the fair value of the derivative will be recorded in other
comprehensive income ("OCI") and will be recognized in the income statement when
the hedged item affects earnings. SFAS No. 133 defines new requirements for
designation and documentation of hedging relationships as well as on going
effectiveness assessments in order to use hedge accounting. A derivative that
does not qualify as a hedge will be marked to fair value through earnings. In
June 1999, the FASB issued SFAS No. 137 which extended 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. In June 2000, the FASB issued SFAS No. 138, an amendment to SFAS No.
133. As of January 1, 2001, we will record a $0.4 million loss as an accumulated
transition adjustment to earnings relating to derivative instruments that do not
qualify for hedge accounting. In addition, as of January 1, 2001, we will record
a $0.6 million loss as an accumulated transition adjustment to earnings and a
$1.1 million loss as an accumulated transition adjustment to OCI for designated
cash flow hedges. We calculated the transition adjustment in accordance with
tentative accounting guidance issued by the Derivatives Implementation Group,
and therefore, the guidance could be subject to change. The Derivatives
Implementation Group is a committee appointed by the FASB and assigned the
responsibility of answering implementation and interpretation questions related
to this new accounting standard.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, SAB 101 entitled, "Revenue Recognition in Financial
Statements," as amended, effective as of October 1, 2000, which summarizes the
Commission's views in applying generally accepted accounting principles to
revenue recognition. The adoption of this bulletin had no effect on our
financial statements.
In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44 entitled "Accounting for Certain Transactions involving
Stock Compensation," which provides clarification to Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." This interpretation
is effective on a prospective basis from July 1, 2000. The adoption of this
interpretation had no effect on our financial statements.
INFLATION
Inflation has affected our performance in terms of higher costs for
radio station operating expenses, including wages, and equipment. Although the
exact impact is indeterminable, we believe we have offset these higher costs by
increasing the effective advertising rates of most of our broadcasting stations.
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RISK FACTORS
Many statements contained in this report are forward-looking in nature.
These statements are based on current expectations and actual results could
differ materially. Among the factors that could cause actual results to differ
are the following:
INTEGRATING ACQUISITIONS IS DIFFICULT.
We have acquired 93 radio stations since January 1, 1997 and we expect
to make acquisitions of other stations and station groups in the future. The
integration of acquisitions involves numerous risks, including:
- difficulties in the integration of operations and systems and
the management of a large and geographically diverse group of
stations;
- the diversion of management's attention from other business
concerns; and
- the potential loss of key employees of acquired stations.
We cannot assure you that we will be able to integrate successfully any
operations, systems or management that might be acquired in the future. In
addition, in the event that the operations of a new business do not meet
expectations, we may restructure or write-off the value of some or all of the
assets of the new business.
WE MAY NOT BE SUCCESSFUL IN IDENTIFYING AND CONSUMMATING FUTURE ACQUISITIONS,
WHICH IS AN IMPORTANT ELEMENT OF OUR BUSINESS STRATEGY.
We pursue growth, in part, through the acquisition of individual radio
stations and groups of radio stations. Our consummation of all future
acquisitions will be subject to various conditions, including FCC and other
regulatory approvals. The FCC must approve any transfer of control or assignment
of broadcast licenses. In addition, acquisitions may encounter intense scrutiny
under federal and state antitrust laws. Our future acquisitions may be, subject
to notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and to a waiting period and possible review by the Department of Justice and the
Federal Trade Commission.
Any delays, injunctions, conditions or modifications by any of these
federal agencies could have a negative effect on us and result in the
abandonment of all or part of attractive acquisition opportunities. We cannot
predict whether we will be successful in identifying future acquisition
opportunities or what the consequences will be of any acquisitions.
Depending on the nature, size and timing of future acquisitions, we may
require additional financing. We cannot assure you that additional financing
will be available to us on acceptable terms. Radio broadcasting is a rapidly
consolidating industry, with many companies seeking to consummate acquisitions
and increase their market share. In this environment, we compete and will
continue to compete with many other buyers for the acquisition of radio
stations. Some of those competitors may be able to outbid us for acquisitions
because they have greater financial resources. As a result of these and other
factors, our ability to identify and consummate future acquisitions is
uncertain.
WE MUST RESPOND TO THE RAPID CHANGES IN TECHNOLOGY, SERVICES AND STANDARDS THAT
CHARACTERIZE OUR INDUSTRY IN ORDER TO REMAIN COMPETITIVE.
The radio broadcasting industry is subject to rapid technological
change, evolving industry standards and the emergence of new media technologies
and services. We cannot assure you that we will have the resources to acquire
new technologies or to introduce new services that could compete with these new
technologies. Several new media technologies and services are being developed or
introduced, including the following:
- satellite delivered digital audio radio service, which could
result in the introduction of new subscriber based satellite
radio services with numerous niche formats;
- audio programming by cable systems, direct broadcast satellite
systems, personal communications systems, Internet content
providers and other digital audio broadcast formats;
- in-band on-channel digital radio, which provides
multi-channel, multi-format digital radio services in the same
bandwidth currently occupied by traditional AM and FM radio
services; and
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- low-power FM radio, which could result in additional FM radio
broadcast outlets.
We cannot predict the effect, if any, that competition arising from new
technologies or regulatory change may have on the radio broadcasting industry or
on the financial condition and results of operations of our company.
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD HAVE IMPORTANT CONSEQUENCES TO YOU.
We have indebtedness that is substantial in relation to our
shareholders' equity. At December 31, 2000, we had long-term indebtedness of
$461.2 million and shareholders' equity of $735.7 million. In addition to our
obligations on our long-term indebtedness, we have quarterly interest
obligations on the debentures held by the trust that fund distributions on the
TIDES. These obligations are substantial in amount and could have a substantial
impact on you. For example, these obligations could:
- require us to dedicate a substantial portion of our cash flow
from operations to debt service, thereby reducing the
availability of cash flow for other purposes, including
funding future expansion and ongoing capital expenditures;
- impair our ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general
corporate or other purposes;
- limit our ability to compete, expand and make capital
improvements;
- increase our vulnerability to economic downturns, limit our
ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions; and
- limit or prohibit our ability to pay dividends and make other
distributions.
Moreover, we may borrow up to an additional $183.2 million under our
existing bank facility. In addition, at any time prior to December 31, 2001, we
may solicit incremental loans up to $350.0 million. Any additional borrowings
would further increase the amount of our indebtedness and the associated risks.
THE COVENANTS IN OUR CREDIT FACILITY RESTRICT OUR FINANCIAL AND OPERATIONAL
FLEXIBILITY.
Our credit facility contains covenants that restrict, among other
things, our ability to borrow money, make particular types of investments or
other restricted payments, swap or sell assets, or merge or consolidate. An
event of default under our bank facility could allow the lenders to declare all
amounts outstanding to be immediately due and payable. We have pledged
substantially all of our consolidated assets and the stock of our subsidiaries
to secure the debt under our credit facility. If the amounts outstanding under
the credit facility were accelerated, the lenders could proceed against our
consolidated assets and the stock of our subsidiaries. Any event of default,
therefore, could have a material adverse effect on our business. Our bank
facility also requires us to maintain specified financial ratios. Our ability to
meet these financial ratios can be affected by events beyond our control, and we
cannot assure you that we will meet those ratios. We also may incur future debt
obligations that might subject us to restrictive covenants that could affect our
financial and operational flexibility or subject us to other events of default.
BECAUSE OF OUR HOLDING COMPANY STRUCTURE, WE DEPEND ON OUR SUBSIDIARIES FOR CASH
FLOW, AND OUR ACCESS TO THIS CASH FLOW IS RESTRICTED.
We operate as a holding company. All of our radio stations are
currently owned and operated by our subsidiaries. Entercom Radio, our wholly
owned subsidiary, is the borrower under our credit facility and all of our
station-operating subsidiaries are subsidiaries of Entercom Radio. Further, we
guaranteed Entercom Radio's obligations under the credit facility on a senior
secured basis. Our obligations on the TIDES, which were purchased by the trust
that sells the TIDES, are subordinated to our obligations on this guarantee.
As a holding company, our only source of cash to pay our obligations,
including corporate overhead and other trade payables, are distributions from
our subsidiaries of their net earnings and cash flow. We currently expect that
the net earnings and cash flow of our subsidiaries will be retained and used by
them in their operations, including servicing their debt obligations, before
distributions are made to us. Even if our subsidiaries elect to make
distributions to us, we cannot assure you that applicable state law and
contractual restrictions, including the dividend covenants contained in our
credit facility, would permit such dividends or distributions.
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WE FACE MANY UNPREDICTABLE BUSINESS RISKS, BOTH GENERAL AND SPECIFIC TO THE
RADIO BROADCASTING INDUSTRY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
FUTURE OPERATIONS.
Our future operations are subject to many business risks, including
those risks that specifically influence the radio broadcasting industry, which
could have a material adverse effect on our business including:
- economic conditions, both generally and relative to the radio
broadcasting industry;
- shifts in population, demographics or audience tastes;
- the level of competition for advertising revenues with other
radio stations, television stations and other entertainment
and communications media;
- priorities of advertisers;
- fluctuations in operating costs;
- technological changes and innovations;
- changes in labor conditions;
- new laws, including proposals to eliminate the tax
deductibility of certain expenses incurred by advertisers;
- changes in governmental regulations and policies and actions
of federal regulatory bodies, including the United States
Department of Justice, the Federal Trade Commission and the
FCC; and
- the requirement to pay fees for the use of sound recordings in
Internet streaming.
Given the inherent unpredictability of these variables, we cannot with
any degree of certainty predict what effect, if any, these variables will have
on our future operations. Generally, advertising tends to decline during
economic recession or downturn. Consequently, our advertising revenue is likely
to be adversely affected by a recession or downturn in the United States
economy, the economy of an individual geographic market in which we own or
operate radio stations or other events or circumstances that adversely affect
advertising activity.
DEPENDENCE ON SEATTLE RADIO STATIONS.
The radio stations we own or operate in Seattle generated approximately
23.9% of our net revenues and approximately 29.2% of our broadcast cash flow for
the fiscal year ended December 31, 2000. Accordingly we have greater exposure to
any operating difficulties that may arise at our Seattle stations or to adverse
events or conditions that affect the Seattle economy than if we were more
geographically diverse.
OUR CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER EFFECTIVELY CONTROLS OUR
COMPANY, AND MEMBERS OF HIS IMMEDIATE FAMILY ALSO OWN A SUBSTANTIAL EQUITY
INTEREST IN US. THEIR INTERESTS MAY CONFLICT WITH YOURS.
As of March 14, 2001, Joseph M. Field, our Chairman of the Board and
Chief Executive Officer, beneficially owns 1,734,075 shares of our Class A
common stock and 9,782,555 shares of our Class B common stock, representing
approximately 71.1% of the total voting power of all of our outstanding common
stock. As of March 14, 2001, David J. Field, our President, Chief Operating
Officer, one of our directors and the son of Joseph M. Field, beneficially owns
2,167,191 shares of our Class A common stock and 749,250 shares of our
outstanding Class B common stock, representing approximately 6.9% of the total
voting power of all of our outstanding common stock. Collectively, Joseph M.
Field and David J. Field beneficially own all of our outstanding Class B common
stock. Other members of the Field family also own shares of Class A common
stock.
Shares of Class B common stock are transferable only to Joseph M.
Field, David J. Field, certain of their family members or trusts for any of
their benefit. Upon any other transfer, shares of our Class B common stock
convert automatically into shares of our Class A common stock on a
share-for-share basis. Shares of our Class B common stock are entitled to ten
votes only when they are voted by Joseph M. Field or David J. Field, subject to
certain exceptions where they are restricted to one vote. Joseph M. Field
generally is able to control the vote on all matters submitted to the vote of
shareholders and, therefore, is able to direct our management and policies,
except with respect to those matters where the shares of our Class B common
stock are only entitled to one vote and those matters requiring a class
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vote under the provisions of our articles of incorporation, bylaws or applicable
law, including, without limitation, the election of the two Class A directors.
Without the approval of Joseph M. Field, we will be unable to consummate
transactions involving an actual or potential change of control, including
transactions in which investors might otherwise receive a premium for your
shares over then current market prices.
WE ARE DEPENDENT ON FEDERALLY-ISSUED LICENSES TO OPERATE OUR RADIO STATIONS AND
ARE SUBJECT TO EXTENSIVE FEDERAL REGULATION.
The radio broadcasting industry is subject to extensive regulation by
the FCC under the Communications Act of 1934. We are required to obtain licenses
from the FCC to operate our radio stations. Licenses are normally granted for a
term of eight years and are renewable. Although the vast majority of FCC radio
station licenses are routinely renewed, we cannot assure you that the FCC will
approve our future renewal applications or that the renewals will not include
conditions or qualifications. The non-renewal, or renewal with substantial
conditions or modifications, of one or more of our licenses could have a
material adverse effect on us.
We must comply with extensive FCC regulations and policies in the
ownership and operation of our radio stations. FCC regulations limit the number
of radio stations that a licensee can own in a market, which could restrict our
ability to consummate future transactions and in certain circumstances could
require us to divest some radio stations. For example, in connection with the
Sinclair Kansas City acquisition we were required to dispose of three radio
stations in Kansas City. The FCC also requires radio stations to comply with
certain technical requirements to limit interference between two or more radio
stations. If the FCC relaxes these technical requirements, it could impair the
signals transmitted by our radio stations and could have a material adverse
effect on us. Moreover, these FCC regulations and others may change over time
and we cannot assure you that those changes would not have a material adverse
effect on us.
OUR RADIO STATIONS MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THEIR RESPECTIVE
MARKETS FOR ADVERTISING REVENUES.
Our radio broadcasting stations are in a highly competitive business.
Our radio stations compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media, such as newspapers, magazines, network and cable television, outdoor
advertising and direct mail. Audience ratings and market shares are subject to
change, and any change in a particular market could have a material adverse
effect on the revenue of our stations located in that market. While we already
compete in some of our markets with other stations with similar programming
formats, if another radio station in a market were to convert its programming
format to a format similar to one of our stations, if a new station were to
adopt a comparable format or if an existing competitor were to strengthen its
operations, our stations could suffer a reduction in ratings and/or advertising
revenue and could incur increased promotional and other expenses. Other radio
broadcasting companies may enter into the markets in which we operate or may
operate in the future. These companies may be larger and have more financial
resources than we have. We cannot assure you that any of our stations will be
able to maintain or increase their current audience ratings and advertising
revenues.
THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our business depends upon the continued efforts, abilities and
expertise of our executive officers and other key executives, including Joseph
M. Field, our Chairman of the Board and Chief Executive Officer, David J. Field,
our President and Chief Operating Officer, John C. Donlevie, Esq., our Executive
Vice President, Secretary and General Counsel, and Stephen F. Fisher, our
Executive Vice President and Chief Financial Officer. We believe that the loss
of one or more of these individuals could have a material adverse effect on our
business.
ITEM 7A. 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 call the rate hedging transactions, designed to mitigate our
exposure to significantly higher floating interest rates. These transactions are
referred to as a "collar" and a "swap". A collar consists of a rate cap
agreement that establishes an upper limit or "cap" for the base LIBOR rate and a
rate floor agreement that establishes a lower limit or "floor" for the base
LIBOR rate. Collar agreements covering a rate cap and a rate floor 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 February 28, 2001, we
have rate hedging transactions in place for a total notional amount of $263.0
million. Based upon the variable-rate debt at December 31, 2000, a 100 basis
point change in interest rates would change annual interest expense by
approximately $4.1 million.
Our credit exposure under these agreements is limited to the cost of
replacing an agreement in the event of non-performance by our counter-party. To
minimize this risk, we select high credit quality counter-parties.
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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 these 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 for
each of the rate hedging transactions. The three-month LIBOR rate at December
31, 2000 was marginally higher than the rate at December 31, 1999. An
unrecognized loss resulted from a combination of a benefit from an increase in
interest rates offset by a reduction in the remaining term under each of the
transactions.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, together with related notes
and the report of Deloitte & Touche LLP, our independent accountants, are set
forth on the pages indicated in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers
required by this Item 10 is incorporated in this report by reference to the
applicable information set forth in our proxy statement for the 2001 Annual
Meeting of Shareholders to be held May 4, 2001, which is expected to be filed
with the Commission within 120 days after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated in this report
by reference to the information set forth under the caption "Executive Officers
Compensation" in the 2001 proxy statement. The sections entitled "Compensation
Committee Report on Executive Compensation" and "Performance Graph" in the 2001
proxy statement are not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated in this report
by reference to the information set forth under the caption "Security Ownership
of Certain Beneficial Owners and Management" in the 2001 proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated in this report
by reference to the information set forth under the caption "Certain
Relationships and Related Transactions" in the 2001 proxy statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Page
----
Independent Auditors' Report. 38
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and December 31, 2000 39
Statements of Operations for the Year Ended September 30, 1998, Three
Months Ended December 31, 1997 (unaudited) and 1998, Twelve Months
Ended December 31, 1998 (unaudited) and Years Ended December 31,
1999 and 2000 41
Statements of Comprehensive Income (Loss) for the Year Ended September 30,
1998, Three Months Ended December 31, 1997 (unaudited) and 1998,
Twelve Months Ended December 31, 1998 (unaudited) and Years Ended
December 31, 1999 and 2000 43
Statements of Shareholders' Equity for the Year Ended September 30, 1998,
Three Months Ended December 31, 1998 and Years Ended December 31,
1999 and 2000 44
Statements of Cash Flows for the Year Ended September 30, 1998, Three
Months Ended December 31, 1997 (unaudited) and 1998, Twelve Months
Ended December 31, 1998 (unaudited) and Years Ended December 31,
1999 and 2000 46
Notes to Consolidated Financial Statements 48
2. Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
3. Exhibits
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
3.01 Amended and Restated Articles of Incorporation of the
Registrant(2)
3.02 Form of Amended and Restated Bylaws of the Registrant(2)
4.01 Lock-up Release Agreement, dated as of May 6, 1999, between
Chase Equity Associates L.P. and Credit Suisse Boston
Corporation(3)
4.02 Form of Indenture for the Convertible Subordinated Debentures
due 2014 among Entercom Communications Corp., as issuer, and
Wilmington Trust Company, as indenture trustee(4)
10.01 Registration Rights Agreement, dated as of May 21, 1996,
between the Registrant and Chase Equity Associates, L.P.(2)
10.02 Employment Agreement, dated June 25, 1993, between the
Registrant and Joseph M. Field, as amended(2)
10.03 Employment Agreement, dated December 17, 1998, between the
Registrant and David J. Field, as amended(2)
10.04 Employment Agreement, dated December 17, 1998, between the
Registrant and John C. Donlevie, as amended(2)
10.05 Employment Agreement, dated November 13, 1998, between the
Registrant and Stephen F. Fisher(2)
10.06 Entercom 1998 Equity Compensation Plan(2)
10.07 Asset Purchase Agreement, dated as of May 11, 2000, among the
Registrant, Entercom Kansas City, LLC, Entercom Kansas City
License, LLC, and Susquehanna Radio Corp. (See table of
contents for list of omitted schedules and exhibits, which the
Registrant hereby agrees to furnish supplementally to the
Securities and Exchange Commission upon request)(3)
10.08 Credit Agreement, dated as of December 16, 1999, by and among
Entercom Radio, LLC, as the Borrower, the Registrant, as a
Guarantor, Banc of America Securities
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EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
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 Willkes-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)
11.01 Reconciliation of Net Income (Loss) and Pro Forma Net Income
(Loss) Per Common Share (1) 72
21.01 Information Regarding Subsidiaries of the Registrant (1) 75
23.01 Consent of Deloitte & Touche LLP, Philadelphia, Pa. (1) 77
(1) Filed herewith.
(2) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-61381)
(3) Incorporated by reference to our Quarterly Report on Form 10-Q. (File No.
001-14461)
(4) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-86843)
(5) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-86397)
(6) Incorporated by reference to our Current Report on Form 8-K. (File No.
001-14461)
(b) Reports filed on Form 8-K
None to report.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Entercom Communications Corp.:
We have audited the accompanying consolidated balance sheets of
Entercom Communications Corp. and subsidiaries as of December 31, 1999 and 2000,
and the related consolidated statements of operations, comprehensive income
(loss), shareholders' equity, and cash flows for the year ended September 30,
1998, for the three month period ended December 31, 1998, and for the years
ended December 31, 1999, and 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14 (a) 2. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Entercom Communications
Corp. and subsidiaries at December 31, 1999 and 2000, and the results of their
operations and their cash flows for the year ended September 30, 1998, for the
three month period ended December 31, 1998, and for the years ended December 31,
1999, and 2000 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 14, 2001
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CONSOLIDATED FINANCIAL STATEMENTS OF ENTERCOM COMMUNICATIONS CORP.
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS)
ASSETS
DECEMBER 31, DECEMBER 31,
----------- -----------
1999 2000
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 11,262 $ 13,257
Accounts receivable (net of allowance for doubtful accounts of $1.4 million in 1999
and $2.2 million in 2000) 51,926 70,937
Prepaid expenses and deposits 4,247 3,852
Prepaid and refundable taxes 705
Deferred tax assets 1,773 1,499
Station acquisition deposits 1,212 688
----------- -----------
Total current assets 70,420 90,938
----------- -----------
INVESTMENTS - (NOTE 2) 9,870 12,116
----------- -----------
PROPERTY AND EQUIPMENT - AT COST (NOTE 2):
Land, land easements and land improvements 9,833 10,082
Building 9,375 10,404
Equipment 66,780 77,409
Furniture and fixtures 11,338 12,125
Leasehold improvements 6,565 8,967
----------- -----------
103,891 118,987
Accumulated depreciation (16,837) (26,532)
----------- -----------
87,054 92,455
Capital improvements in progress 3,369 1,498
----------- -----------
Net property and equipment 90,423 93,953
----------- -----------
RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES - NET
Net of accumulated amortization of $32.0 million in 1999 and $63.0 million in 2000
(Notes 2,3,and 4) 1,214,969 1,265,816
----------- -----------
DEFERRED CHARGES AND OTHER ASSETS -NET
Net of accumulated amortization of $0.8 million in 1999 and $2.1 million in 2000
(Notes 2, 3 and 5) 10,366 11,105
----------- -----------
TOTAL $ 1,396,048 $ 1,473,928
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
39
43
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, DECEMBER 31,
----------- -----------
1999 2000
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 18,380 $ 18,967
Accrued liabilities:
Salaries 6,188 6,042
Interest 1,208 1,744
Other 798 1,017
Income taxes payable 946
Long-term debt due within one year 10 11
----------- -----------
Total current liabilities 27,530 27,781
----------- -----------
SENIOR DEBT - (NOTE 7A) 465,760 461,249
DEFERRED TAX LIABILITIES 91,147 124,197
----------- -----------
Total liabilities 584,437 613,227
----------- -----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF SUBSIDIARY HOLDING SOLELY CONVERTIBLE
DEBENTURES OF THE COMPANY (NOTE 8) 125,000 125,000
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY (NOTE 11):
Preferred Stock $.01 par value; authorized 25,000,000 shares; none issued
Class A common stock $.01 par value; voting; authorized 200,000,000 shares; 333 342
issued and outstanding 33,251,321 in 1999 and 34,212,384 in 2000
Class B common stock $.01 par value; voting; authorized 75,000,000 shares; 105 105
issued and outstanding 10,531,805 in 1999 and 2000
Class C common stock $.01 par value; nonvoting; authorized 25,000,000 shares;
issued and outstanding 1,396,836 in 1999 and 495,669 in 2000 14 5
Additional paid-in capital 744,933 747,442
Accumulated deficit (59,104) (11,850)
Unearned compensation (192) (329)
Accumulated other comprehensive income (loss) 522 (14)
----------- -----------
Total shareholders' equity 686,611 735,701
----------- -----------
TOTAL $ 1,396,048 $ 1,473,928
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40
44
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED),
THREE MONTHS ENDED DECEMBER 31, 1998,
TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ----------- ----------- ----------- ----------- -----------
1998 1997 1998 1998 1999 2000
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
NET REVENUES ............................... $ 132,998 $ 28,399 $ 47,363 $ 151,962 $ 215,001 $ 352,025
OPERATING EXPENSES (INCOME):
Station operating expenses .............. 88,599 18,868 29,990 99,721 135,943 206,608
Depreciation and amortization ........... 13,066 2,880 4,358 14,544 21,564 43,475
Corporate general and administrative
expenses .............................. 4,527 849 1,850 5,528 8,100 12,497
Net expense from time brokerage agreement
fees .................................. 2,399 1,236 3,635 652 11
Gains on sale of assets ................. (8,661) (43) (69,648) (78,266) (1,986) (41,465)
--------- --------- --------- --------- --------- ---------
Total operating expenses (income) ....... 99,930 22,554 (32,214) 45,162 164,273 221,126
--------- --------- --------- --------- --------- ---------
OPERATING INCOME ........................... 33,068 5,845 79,577 106,800 50,728 130,899
OTHER EXPENSE (INCOME):
Interest expense (Note 7) ............... 14,663 2,996 5,732 17,399 11,182 37,760
Financing cost of Company-obligated
mandatorily redeemable convertible
preferred securities of subsidiary
holding solely convertible debentures
of the Company ........................ 1,845 7,813
Adjustment to reflect indexing of the
Convertible Subordinated Note (Note 7D) 8,841 14,903 29,503 23,441
Interest income ......................... (410) (127) (146) (429) (3,253) (512)
Equity loss from unconsolidated affiliate
(Note 2) .............................. 1,100
Loss on investments (Note 2) ............ 5,688
Other non-operating expenses ............ 82 25 723 780
--------- --------- --------- --------- --------- ---------
Total other expense ..................... 23,176 17,797 35,812 41,191 9,774 51,849
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ....................... 9,892 (11,952) 43,765 65,609 40,954 79,050
INCOME TAXES
Income Taxes - C Corporation ............ 20,943 31,796
Income Taxes - S Corporation ............ 453 81 310 682 125
Deferred income taxes for conversion from
an S to a C Corporation .............. 79,845
--------- --------- --------- --------- --------- ---------
Total income taxes ...................... 453 81 310 682 100,913 31,796
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .... 9,439 (12,033) 43,455 64,927 (59,959) 47,254
EXTRAORDINARY ITEM:
Debt extinguishment (net of taxes of $25,
$25 and $612, respectively, for the
periods presented) .................... 2,376 2,376 918
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) .......................... $ 7,063 $ (12,033) $ 43,455 $ 62,551 $ (60,877) $ 47,254
========= ========= ========= ========= ========= =========
NET INCOME (LOSS) PER SHARE:
Basic:
Income (loss) before extraordinary item.. $ (1.58) $ 1.05
Extraordinary item, net of taxes......... $ 0.03
--------- ---------
NET INCOME (LOSS) PER SHARE - BASIC $ (1.61) $ 1.05
========= =========
NET INCOME (LOSS) PER SHARE:
Diluted:
Income (loss) before extraordinary item.. $ (1.58) $ 1.04
Extraordinary item, net of taxes......... $ 0.03
--------- ---------
NET INCOME (LOSS) PER SHARE - DILUTED $ (1.61) $ 1.04
========= =========
41
45
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED),
THREE MONTHS ENDED DECEMBER 31, 1998,
TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(CONTINUED)
THREE MONTHS THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ----------- ----------- ----------- ----------- -----------
1998 1997 1998 1998 1999 2000
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
PRO FORMA DATA (UNAUDITED):
PRO FORMA NET INCOME (LOSS) DATA:
Income (loss) before income taxes and
extraordinary item .................... $ 9,892 $ (11,952) $ 43,765 $ 65,609 $ 40,954
Pro forma income taxes .................. 7,119 1,121 27,842 33,840 20,278
----------- ----------- ----------- ----------- -----------
Pro forma income (loss) before
extraordinary item .................... 2,773 (13,073) 15,923 31,769 20,676
Extraordinary item, net of pro forma
taxes ................................. 1,488 1,488 918
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME (LOSS) ................ $ 1,285 $ (13,073) $ 15,923 $ 30,281 $ 19,758
=========== =========== =========== =========== ===========
PRO FORMA NET INCOME (LOSS) PER SHARE:
Basic:
Pro forma income (loss) before
extraordinary item .................. $ 0.12 $ (0.61) $ 0.64 $ 1.32 $ 0.55
Extraordinary item, net of pro forma
taxes ............................... 0.06 0.06 0.03
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss) per share
- basic ............................. $ 0.06 $ (0.61) $ 0.64 $ 1.26 $ 0.52
=========== =========== =========== =========== ===========
Diluted:
Pro forma income (loss) before
extraordinary item .................. $ 0.12 $ (0.61) $ 0.64 $ 1.32 $ 0.54
Extraordinary item, net of pro forma
taxes ............................... 0.06 0.06 0.03
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss) per share
- diluted ........................... $ 0.06 $ (0.61) $ 0.64 $ 1.26 $ 0.51
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES:
Basic ................................... 22,238,843 21,534,000 24,742,443 24,104,000 37,921,623 45,209,036
Diluted ................................. 22,238,843 21,534,000 24,742,443 24,104,000 38,237,723 45,613,829
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
42
46
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED),
THREE MONTHS ENDED DECEMBER 31, 1998,
TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS)
THREE THREE TWELVE
MONTHS MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
------------ ----------- ----------- ----------- ----------- -----------
1998 1997 1998 1998 1999 2000
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
NET INCOME (LOSS) $ 7,063 ($12,033) $ 43,455 $ 62,551 ($60,877) $ 47,254
OTHER COMPREHENSIVE INCOME (LOSS), (NET OF TAX):
Unrealized gains on investments - $870 in 1999
and unrealized loss on investments - $893
in 2000 522 (536)
-------- -------- -------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 7,063 ($12,033) $ 43,455 $ 62,551 ($60,355) $ 46,718
======== ======== ======== ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
43
47
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1998,
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
--------------------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL RETAINED
-------------------- -------------------- --------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
---------- -------- ---------- -------- ---------- -------- ---------- ---------
Balance, September 30, 1997 11,002,194 $ 110 10,531,805 $ 105 $ 178,804
Net income for the year 7,063
Dividends (3,112)
---------- ------ ---------- ------ ------- ------ ---------- ---------
Balance, September 30, 1998 11,002,194 110 10,531,805 105 182,755
Net income for the period 43,455
Dividends (958)
---------- ------ ---------- ------ ------- ------ ---------- ---------
Balance, December 31, 1998 11,002,194 110 10,531,805 105 225,252
Net loss for the year (60,877)
Dividends (88,113)
Transfer of S Corporation retained
earnings to paid-in capital $ 135,366 (135,366)
Sale of Common Stock A 11,300,000 113 236,044
Conversion of Convertible
Subordinated Note to Common
Stock A and C 2,327,500 23 1,995,669 $ 20 96,387
Conversion of Common Stock C to
Common Stock A 598,833 6 (598,833) (6)
Compensation expense related to
granting of stock options 402
Issuance of Common Stock A related
to an incentive plan 11,682 1 464
Sale of Common Stock A 8,000,000 80 276,020
Compensation expense related to
granting of Restricted stock 11,112 250
Net unrealized gain on investments
---------- ------ ---------- ------ ------- ------ ---------- ---------
Balance, December 31, 1999 33,251,321 333 10,531,805 105 1,396,836 14 744,933 (59,104)
Net income for the year 47,254
Conversion of Common Stock C to
Common Stock A 901,167 9 (901,167) (9)
Compensation expense related to
granting of stock options 528
Compensation expense related to
granting of Restricted stock 5,000 266
Issuance of Common Stock A related
to an incentive plan 28,247 899
Exercise of stock options 26,649 816
Net unrealized loss on investments
---------- ------ ---------- ------ ------- ------ ---------- ---------
Balance, December 31, 2000 34,212,384 $ 342 10,531,805 $ 105 495,669 $ 5 $ 747,442 $ (11,850)
========== ====== ========== ====== ======= ====== ========== =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
44
48
ACCUMULATED
UNEARNED OTHER
COMPEN- COMPREHENSIVE
SATION INCOME (LOSS) TOTAL
-------- ------------- ---------
$ 179,019
7,063
(3,112)
---------
182,970
43,455
(958)
--------
225,467
(60,877)
(88,113)
-
236,157
96,430
-
402
465
276,100
$ (192) 58
$ 522 522
---------- -------- --------
(192) 522 686,611
47,254
-
528
(137) 129
899
816
(536) (536)
--------- --------- ---------
$ (329) $ (14) $ 735,701
========= ========= =========
45
49
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED),
THREE MONTHS ENDED DECEMBER 31, 1998,
TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
TWELVE
THREE MONTHS THREE MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ----------- ----------- ----------- ----------- -----------
1998 1997 1998 1998 1999 2000
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss) ........................... $ 7,063 $ (12,033) $ 43,455 $ 62,551 $ (60,877) $ 47,254
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ............. 13,066 2,880 4,358 14,544 21,564 43,475
Extraordinary items ....................... 2,401 2,401 1,530
Deferred tax provision .................... 89,374 32,993
Gain on dispositions and exchanges of ..... (8,661) (43) (69,648) (78,266) (1,986) (41,465)
assets
Non-cash stock-based compensation expense . 461 657
Interest accrued .......................... 1,925 477 506 1,954
Adjustment to reflect indexing of the
Convertible Subordinated Note ........... 8,841 14,903 29,503 23,441
Equity loss from unconsolidated affiliate . 1,100
Loss on investments ....................... 5,688
Changes in assets and liabilities which
provided (used) cash:
Accounts receivable ..................... (7,728) 135 (5,987) (13,850) (12,458) (19,011)
Prepaid expenses ........................ (589) 981 (115) (1,685) 1,054 (1,451)
Prepaid and refundable taxes ............ (696)
Accounts payable, accrued liabilities
and income taxes payable .............. 6,695 16 8,381 15,060 2,038 931
Minority interest ....................... 6 25 705 686
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,019 7,341 11,158 26,836 40,700 69,475
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment ......... (11,183) (5,012) (2,400) (8,571) (14,357) (9,532)
Acquisition of limited partnership interest . (3,138)
Proceeds from sale of property, equipment,
intangibles and other assets .............. 9,724 68 75,016 84,672 2,781 57,196
Proceeds from exchanges of radio stations ... 3,132 3,132
Payments for exchanges of radio stations .... (306) (306)
Purchases of radio station assets (Note 3) .. (152,791) (15,987) (82,903) (219,707) (763,068) (100,733)
Proceeds held in escrow from sale of Tampa .. (75,000) (75,000) 75,000
stations
Deferred charges and other assets ........... (3,329) (50) (622) (3,901) (656) (2,212)
Purchase of investments ..................... (1,000) (1,000) (8,000) (9,927)
Station acquisition deposits ................ 1,102 3,511 15 (2,394) (885) 524
--------- --------- --------- --------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES ..... (153,651) (17,470) (86,894) (223,075) (712,323) (64,684)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from initial public offering ... 236,157
Net proceeds from stock offering ............ 276,100
Proceeds from issuance of Entercom-obligated
mandatorily redeemable convertible
preferred securities of Entercom
Communications Capital Trust ("TIDES") .... 125,000
Deferred financing expenses related to TIDES
and long-term debt ........................ (8,683)
Proceeds from issuance of long-term debt .... 277,286 13,000 79,500 343,786 551,000 47,000
Payments of long-term debt .................. (140,502) (3,000) (3,003) (140,505) (415,509) (51,511)
Proceeds from issuance of common stock
related to an incentive plan .............. 464 899
Proceeds from exercise of stock options
816
Dividends paid to S Corporation shareholders (3,112) (958) (4,070) (88,113)
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES ............................ 133,672 10,000 75,539 199,211 676,416 (2,796)
--------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................ 3,040 (129) (197) 2,972 4,793 1,995
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,626 3,626 6,666 3,497 6,469 11,262
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ........ $ 6,666 $ 3,497 $ 6,469 $ 6,469 $ 11,262 $ 13,257
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--
Cash paid (refunded) during the period for:
Interest ................................. $ 11,541 $ 2,980 $ 5,698 $ 14,259 $ 11,187 $ 37,201
========= ========= ========= ========= ========= =========
Interest on TIDES ........................ $ 1,845 $ 7,813
========= =========
Income taxes (refunded) .................. $ 293 $ 31 $ 60 $ 322 $ 10,851 $ (472)
========= ========= ========= ========= ========= =========
46
50
ENTERCOM COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED),
THREE MONTHS ENDED DECEMBER 31, 1998,
TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(CONTINUED)
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTMENTS AND FINANCING ACTIVITIES
In connection with the radio station exchange transactions completed by the
Company, the non-cash portion of assets recorded was $22,500 for the year
ended September 30, 1998.
In connection with the Company's initial public offering completed by the
Company during the year ended December 31, 1999, the Convertible
Subordinated Note, net of deferred finance charges, was converted into
equity in the amount of $96,400.
In connection with the issuance of certain awards of Restricted Stock for
11,112 shares and 5,000 shares of Class A Common Stock for the years ended
December 31, 1999 and 2000, respectively, the Company increased its
additional paid-in-capital by $250 and $266 for the years ended December 31,
1999 and 2000, respectively.
The Company issued 1.4 million stock options in each of the years ended
December 31, 1999 and 2000.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
47
51
ENTERCOM COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION
Audited Financial Statements - The financial statements and
accompanying notes have been audited for the periods presented except for the
three-month period ended December 31, 1997 and the twelve-month period ended
December 31, 1998 which are unaudited.
Nature of Business - Entercom Communications Corp. (the "Company") is a
radio broadcasting company operating one reportable business segment, whose
business is devoted to acquiring, developing and operating radio broadcast
properties throughout the United States. The Company owns or operates three or
more radio stations in the following markets: Boston, Seattle, Portland,
Sacramento, Kansas City, Milwaukee, Norfolk, New Orleans, Greensboro, Buffalo,
Memphis, Rochester, Greenville/Spartanburg, Wilkes-Barre/Scranton, Wichita,
Madison, and Longview/Kelso and owns two stations in Gainesville/Ocala.
Effective January 28, 1999 (the "Revocation Date"), in connection with
the initial public offering (the "IPO"), the Company revoked its S Corporation
election with the Internal Revenue Service and therefore the last day the
Company was taxed as an S Corporation was January 27, 1999. As a result, all of
the Company's net income after January 27, 1999 has been taxed to the Company
rather than taxed to the Company's shareholders. The Company's effective tax
rate for state and federal income taxes for the period subsequent to January 27,
1999 is at a combined rate of 38%, applied to taxable income before income
taxes, which is adjusted for permanent differences between tax and book income.
Upon the acquisition of the 41 radio properties from Sinclair Broadcast Group
("Sinclair") on December 16, 1999, the Company's combined effective tax rate
increased to 40% as a result of adding facilities in additional states which on
average have higher income tax rates.
On January 29, 1999, the Company's Class A common stock began trading
on the New York Stock Exchange. On February 3, 1999, the Company completed the
IPO, pursuant to which 13,627,500 shares of Class A Common Stock were sold to
the public at a price of $22.50 per share. Of the 13,627,500 shares sold, the
Company sold 11,300,000 and Chase Capital Partners ("Chase Capital"), the sole
selling shareholder, sold 2,327,500 shares. The net proceeds to the Company,
after deducting underwriting discounts and other offering expenses were
approximately $236.2 million.
On September 30, 1999, the Company and certain shareholders of the
Company entered into an underwriting agreement to sell 8,750,000 shares of Class
A Common Stock of which 8,000,000 shares were sold by the Company and 750,000
shares were sold by selling shareholders. The Company completed this offering on
October 6, 1999 and sold 8,000,000 shares of Class A Common Stock at a price per
share of $36.00. The net proceeds to the Company, after deducting underwriting
discounts and other offering expenses, were approximately $276.1 million.
Concurrent with and as a result of the revocation of its S Corporation
election and its conversion to a C Corporation, the Company recorded a non-cash
deferred income tax expense of approximately $79.8 million 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. Upon the closing on the
acquisition of the radio properties from Sinclair on December 16, 1999, the
Company recorded a non-cash deferred income tax expense of approximately $3.9
million. This amount reflects an increase in the Company's effective tax rate
from 38% to 40% and its effect on previously reported temporary differences
between the tax and financial reporting bases of the Company's assets and
liabilities.
Unaudited Pro Forma Adjustments - The unaudited pro forma net income
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 income before income taxes and extraordinary item, excluding the
effect of the adjustment to reflect indexing of the Convertible Subordinated
Note (as such adjustment is not tax deductible) of $8.8 million for the year
ended September 30, 1998, $14.9 million and $29.5 million for the three-month
periods ended December 31, 1997 and 1998 and $23.4 million for the twelve-month
period ended December 31, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the liability method of accounting for deferred income
taxes. Deferred income taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's assets and
liabilities based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
48
52
For periods prior to January 28, 1999, the Company was taxed as an S
Corporation for federal and certain state income taxes. As an S Corporation, the
Company's shareholders were obligated for payment of the income taxes on their
proportionate share of the Company's taxable income. Effective on January 28,
1999, in connection with the Company's IPO, the shareholders' revoked their S
Corporation election. As a result, all of the Company's taxable income
subsequent to January 27, 1999 was taxed to the Company rather than to the
shareholders.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company, its former general partnership
interest, its former limited partnership interest (acquired on January 22,
1999), and its subsidiaries, all of which are wholly-owned. All inter-company
transactions and balances have been eliminated in consolidation.
Management's Use of Estimates - The preparation of consolidated
financial statements, in accordance with generally accepted accounting
principles, requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities, as of the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment - Depreciation on property and equipment is
determined on a straight-line basis. The estimated useful lives for depreciation
are as follows:
Land Improvements......................................... 10 years
Building.................................................. 20 years
Equipment................................................. 5-20 years
Furniture and fixtures.................................... 5-10 years
Leasehold improvements.................................... Lease term
Revenue Recognition - Revenue from the sale of commercial broadcast
time to advertisers is recognized when the commercials are broadcast. Revenues
presented in the financial statements are reflected on a net basis, after
deducting fees paid to or deducted by advertising agencies, usually at a rate of
15% of gross revenues. Promotional fees are recognized as services are rendered.
All revenue is recognized in accordance with the Securities and Exchange
Commission's ("SEC") Staff Accounting Bulletin, SAB 101, Revenue Recognition in
Financial Statements, which summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition.
Concentration of Credit Risk - The Company's revenues and accounts
receivable relate primarily to the sale of advertising within the radio
stations' broadcast areas. Credit is extended based on an evaluation of the
customers' financial condition, and generally, collateral is not required.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations. The Company also maintains deposit
accounts with financial institutions. At times, such deposits may exceed FDIC
insurance limits.
Radio Broadcasting Licenses and Other Intangibles - Broadcasting
licenses and other intangibles are being amortized on a straight-line basis over
40 years.
Impairment of Long-Lived Assets - In accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company evaluates the recoverability of its long-lived
assets which include broadcasting licenses, other intangibles, deferred charges,
and other assets whenever events or changes in circumstance indicate that the
carrying amount may not be recoverable. If indications are that the carrying
amount of the asset is not recoverable, the Company will estimate the future
cash flows expected to result from use of the asset and its eventual
disposition. If the sum of the expected future cash flows (non-discounted and
without interest charges) is less than the carrying amount of the asset, the
Company would recognize an impairment loss. The impairment loss recognized would
be measured as the amount by which the carrying amount of the asset exceeds its
estimated fair value.
Deferred Charges - The costs related to the issuance of debt are
capitalized and accounted for as amortization expense over the lives of the
related debt. During the year ended September 30, 1998, the three-month periods
ended December 31, 1997 and 1998, the twelve-month period ended December 31,
1998 and the years ended December 31, 1999 and 2000, the Company recognized
amortization of debt issuance costs, exclusive of extraordinary expense for the
extinguishment of debt, of $0.5 million, $0.2 million, $0.1 million, $0.4
million and $0.3 million and $0.9 million, respectively, which amounts are
included in amortization expense in the accompanying consolidated statements of
operations.
Net Income (Loss) and Pro Forma Net Income (Loss) Per Common Share -
Net income (loss) and pro forma net income (loss) per share are calculated in
accordance with SFAS No. 128, "Earnings Per Share" which requires presentation
of basic net income (loss) per share and diluted net income (loss) per share.
Basic net income (loss) per share excludes dilution and is computed by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted net income (loss)
per share is computed in the same manner as basic net income (loss) after
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assuming issuance of common stock for all potentially dilutive equivalent
shares, which includes (1) stock options (using the treasury stock method), (2)
the Term Income Deferrable Equity Securities ("TIDES") after eliminating from
net income (loss) the interest expense, net of taxes, on the TIDES; and (3) the
Convertible Subordinated Note after eliminating from net income (loss) the
interest expense, net of taxes, on the Convertible Subordinated Note.
Anti-dilutive instruments are not considered in this calculation. For the year
ended September 30, 1998, the three-month periods ended December 31, 1997 and
1998 and the twelve-month period ended December 31, 1998, the effect of the
conversion of the Convertible Subordinated Note on the calculation of the pro
forma net income (loss) per share was anti-dilutive. For the year ended December
31, 1999, the effect of the TIDES and stock options was anti-dilutive in the
calculation of the net loss per share and the effect of the TIDES was
anti-dilutive and stock options was dilutive in the calculation of pro forma net
income per share. For the year ended December 31, 2000, the effect of the TIDES
was anti-dilutive and the effect of the stock options was dilutive in the
calculation of net income per share.
Corporate General and Administrative Expense - Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to any of the Company's individual business properties.
Net Expense (Income) from Time Brokerage Agreement ("TBA") Fees - Net
expense (income) from TBA fees consists of fees paid by or earned by the Company
under agreements which permit an acquirer to program and market stations prior
to acquisition. The Company sometimes enters into such agreements prior to the
consummation of station acquisitions and dispositions. Under the TBAs relating
to the Company's acquisitions, the expense from TBA fees was approximately $2.5
million, $1.6 million, $4.1 million and $0.7 million for the year ended
September 30, 1998, the three-month period ended December 31, 1998, the
twelve-month period ended December 31, 1998 and the year ended December 31,
1999, respectively. Under the TBAs relating to the Company's dispositions, the
income from TBA fees was approximately $0.1 million, $0.4 million, and $0.5
million for the year ended September 30, 1998, the three-month period ended
December 31, 1998 and the twelve-month period ended December 31, 1998,
respectively. Amounts reflected in net revenues and station expenses from
operations under TBAs, excluding expense (income) from TBA fees, were
approximately $7.8 million and $5.0 million, $8.3 million and $5.6 million,
$16.1 million and $10.6 million, $1.7 million and $1.2 million and $0.9 million
and $0.6 million for the year ended September 30, 1998, the three-month period
ended December 31, 1998, the twelve-month period ended December 31, 1998 and the
years ended December 31, 1999 and 2000, respectively.
Barter Transactions - The Company provides advertising broadcast time
in exchange for certain products, supplies, and services. The terms of the
exchanges generally permit the Company to preempt such broadcast time in favor
of advertisers who purchase time on regular terms. The Company includes the
value of such exchanges in both broadcasting revenues and operating costs and
expenses. Barter valuation is based upon management's estimate of fair value of
the products, supplies and services received. For the year ended September 30,
1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month
period ended December 31, 1998 and the years ended December 31, 1999 and 2000,
barter transactions amounted to approximately $1.0 million, $0.2 million, $0.5
million, $1.2 million, $1.8 million and $3.2 million, respectively
Cash and Cash Equivalents - Cash and cash equivalents consist primarily
of amounts held on deposit with financial institutions, including investments
held in financial institutions, in immediately available money market accounts.
Incentive Compensation Plans - The Company accounts for stock
compensation in accordance with the requirements of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation",
requires disclosure of the pro forma effects on net income and net income per
share had the fair value recognition provisions of SFAS No. 123 been adopted
(Note 13). The Company also adopted Financial Accounting Standards Board
Interpretation No.44, "Accounting for Certain Transactions involving Stock
Compensation", effective July 1, 2000.
Investments - Investments are composed of equity securities recorded
in the financial statements in the amounts of $9.9 million and $12.1 million at
December 31, 1999 and December 31, 2000, respectively. The Company's investment
strategy is to seek long-term strategic investments to enhance its core
business. The Company is currently limited to an initial aggregate investment,
at cost, of $50.0 million under its existing Bank Facility. The Company accounts
for these investments as follows:
Investments Carried Under the Equity Method - For those investments
where the Company has the ability to exercise significant influence over the
operating and financial policies of the investee, the investment is accounted
for under the equity method of accounting in accordance with APB No 18, "The
Equity Method of Accounting for Investments in Common Stock". During the year
ended December 31, 2000, the Company invested in a 32% interest in Local Media
Internet Venture, Inc. ("LMIV"), a company formed with other radio broadcasters
in a venture whose purpose is to enhance the synergies and opportunities between
radio and the internet. As of December 31, 2000, the Company's investment in
LMIV was $3.0 million and for the year ended December 31, 2000, the Company
recorded a loss of $0.7 million, net of an income tax benefit of $0.4 million,
in the statement of operations under equity loss from unconsolidated affiliate.
As of December 31, 2000, the Company is committed to invest in LMIV over the
following two years, an additional amount of $9.0 million.
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Investments Carried at Fair Value or Cost - For those investments where
the Company does not have a significant influence, the investments are carried
at fair value based upon quoted market prices or historical cost when quoted
market prices are unavailable. The net unrealized gains or losses on these
investments, net of tax, are reported in the statements of comprehensive income
(loss) and as a separate component of shareholders' equity. For the year ended
September 30, 1998, the three-month periods ended December 31, 1997 and 1998 and
the twelve-month period ended December 31, 1998, there were no unrealized gains
or losses. For the year ended December 31, 1999, the amount of unrealized gains
on these investments was $0.5 million, net of income taxes of $0.4 million. For
the year ended December 31, 2000, the amount of unrealized loss on these
investments was $0.7 million, net of an income tax benefit of $0.4 million. When
the Company has determined that the value of the investment is other than
temporarily impaired, the Company recognizes through the income statement a loss
on investment. For the year ended September 30, 1998, the three-month periods
ended December 31, 1997 and 1998, the twelve-month period ended December 31,
1998 and the year ended December 31, 1999, there were no realized losses on
investments. For the year ended December 31, 2000, the Company recorded a
realized loss of $3.4 million, net of an income tax benefit of $2.2 million, in
the statement of operations under loss on investments. As of December 31, 2000,
the Company is committed to invest an additional amount of $0.7 million in an
investment.
Derivative Financial Instruments - Periodically, the Company enters
into derivative financial instruments, including interest rate exchange
agreements ("Swaps") and interest rate collar agreements ("Collars") to manage
its exposure to fluctuations in interest rates. Under a Swap agreement, the
Company pays a fixed rate on the notional amount to a bank and the bank pays to
the Company a variable rate on the notional amount equal to a base LIBOR rate. A
rate collar agreement establishes two separate agreements: an upper limit or
"cap" for the base LIBOR rate and a lower limit or "floor" for the base LIBOR
rate. The Company's derivative activities, all of which are for purposes other
than trading, are initiated within the guidelines of corporate risk-management
policies. As derivative contracts are initiated, the Company designates the
instruments individually as hedges of underlying financial instruments or
anticipated transactions. Management reviews the correlation and effectiveness
of its derivatives on a periodic basis. Any fees associated with these
derivatives are amortized over their term. Under these derivatives, the
differentials to be received or paid are recognized as an adjustment to interest
expense over the life of the contract. Gains and losses on termination of these
instruments are recognized as interest expense when terminated. The fair value
of these instruments and the changes in the fair value as a result of changes in
market interest rates are not recognized in these consolidated financial
statements.
Recent Accounting 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". SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, is effective for fiscal quarters of
fiscal years beginning after June 15, 2000 and should not be applied
retroactively to financial statements of prior periods. SFAS No. 133 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. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. All derivatives, whether designated in
hedging relationships or not, will be required to be recorded on the balance
sheet at fair value. If the derivative is designated in a fair value hedge, the
changes in the fair value of the derivative and the hedged item will be
recognized in earnings. If the derivative is designated as a cash flow hedge,
changes in the fair value of the derivative will be recorded in other
comprehensive income ("OCI") and will be recognized in the income statement when
the hedged item affects earnings. SFAS No. 133 defines new requirements for
designation and documentation of hedging relationships as well as on going
effectiveness assessments in order to use hedge accounting. A derivative that
does not qualify as a hedge will be marked to fair value through earnings. As of
January 1, 2001, a $0.4 million loss will be recorded as an accumulated
transition adjustment to earnings relating to derivative instruments with a
notional amount of $30.0 million that do not qualify for hedge accounting. In
addition, as of January 1, 2001, the Company will record a $0.6 million loss as
an accumulated transition adjustment to earnings and a $1.1 million loss as an
accumulated transition adjustment to OCI for designated cash flow hedges with a
notional amount of $233.0 million. The Company has calculated the transition
adjustment in accordance with tentative accounting guidance issued by the
Derivatives Implementation Group, and therefore, the guidance could be subject
to change.
In December 1999, the SEC issued Staff Accounting Bulletin, SAB 101,
entitled "Revenue Recognition in Financial Statements" as amended, effective as
of October 1, 2000, which summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition. The adoption of this
Bulletin had no effect on the Company's financial position or results of
operations.
In March 2000, the FASB issued Financial Accounting Series
Interpretation No. 44 entitled "Accounting for Certain Transactions involving
Stock Compensation," which provides clarification to Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." The adoption of this
Interpretation had no effect on the Company's financial position or results of
operations.
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Reclassifications - Certain reclassifications have been made to the
prior years' financial statements to conform to the current year presentation.
3. ACQUISITIONS, DIVESTITURES AND OTHER SIGNIFICANT EVENTS
During each of the periods presented, the Company consummated
acquisitions of radio stations. All of these acquisitions were accounted for
under the purchase method of accounting (unless otherwise noted below), and the
purchase price, including transaction costs, was allocated to the assets based
upon their respective fair values as determined in most cases by an independent
appraisal as of the purchase dates. Gains on exchange transactions are
determined based on the excess of the estimated fair value of the station assets
acquired, as determined by an independent appraisal, plus any cash received,
over the Company's carrying basis in the station assets exchanged plus cash paid
by the Company, all less transaction costs.
FOR THE YEAR ENDED SEPTEMBER 30, 1998
On November 26, 1997, the Company acquired the assets of KSSJ-FM,
serving the Sacramento, California radio market, from Susquehanna Radio Corp.,
KTHX License Investment Co. and KTHX Radio Inc. for $15.9 million in cash. The
Company incurred transaction costs of approximately $0.1 million related to this
acquisition. Broadcasting licenses and other intangibles in the amount of $15.8
million were recorded in connection with this transaction.
On January 1, 1998, the Company acquired the assets of KCTC-AM, serving
the Sacramento, California radio market, from American Radio Systems,
Corporation ("ARS") for $4.0 million. Broadcasting licenses and other
intangibles in the amount of $2.7 million were recorded in connection with this
transaction.
On January 1, 1998, the Company acquired the assets of KUDL-FM and
WDAF-AM, serving the Kansas City, Kansas/Missouri radio market from ARS. As
consideration for the assets received, which included the receipt of $7.1
million in cash from ARS, the Company transferred the assets of KLOU-FM, serving
the St. Louis radio market, to ARS resulting in a gain of $0.3 million. The
Company incurred transaction costs of approximately $0.3 million related to this
acquisition. Broadcasting licenses and other intangibles in the amount of $12.8
million were recorded in connection with this transaction. The total purchase
price of this transaction was $15.4 million.
On May 7, 1998, the Company acquired the assets of WSKY-FM, serving the
Gainesville/Ocala, Florida radio market, from Gator Broadcasting Co. ("Gator")
for $2.0 million in cash 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 Federal
Communications Commission ("FCC") order permitting the upgrade became final and
on October 2, 2000, the Company completed the upgrade under the agreement for
$0.9 million in cash. The Company incurred transaction costs of approximately
$0.1 million related to this acquisition. Including the cost of the upgrade,
broadcasting licenses and other intangibles in the amount of $2.6 million were
recorded in connection with this transaction.
On May 15, 1998, the Company acquired the assets of KBAM-AM and
KRQT-FM, serving the Longview, Washington radio market, from Armak Broadcasters
Inc. for $1.0 million in cash. Broadcasting licenses and other intangibles in
the amount of $0.4 million were recorded in connection with this transaction.
On June 19, 1998, the Company acquired from Sinclair Broadcast Group
the assets of KFXX-AM, KRSK-FM and KKSN-FM, all serving the Portland, Oregon
radio market, and WBEE-FM, WBZA-FM (formerly WBBF-FM), WBBF-FM (formerly
WQRV-FM) and WBBF-AM (formerly WEZO-AM) all serving the Rochester, New York
radio market. The purchase price for the stations was $126.5 million in cash.
The Company began operating these stations on March 1, 1998 under a TBA. The
Company incurred transaction costs of approximately $0.5 million related to this
acquisition. Broadcasting licenses and other intangibles in the amount of $121.3
million were recorded in connection with this transaction.
On August 13, 1998 the Company acquired from Capital Broadcasting, Inc.
the assets and rental leases used in connection with the operation of a tower
facility serving the Kansas City, Kansas/Missouri radio market for a purchase
price of $2.0 million in cash.
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
On December 11, 1998, the Company acquired the assets of WRKO-AM and
WEEI-AM, serving the Boston radio market, from CBS Radio, Inc. ("CBS") for $82.0
million in cash (the "First Boston Transaction"). The Company incurred
transaction costs of approximately $0.3 million related to this acquisition.
Broadcasting licenses and other intangibles in the amount of $77.8 million were
recorded in connection with this transaction. The Company had operated these
stations under a TBA since September 1998.
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On December 14, 1998, the Company acquired the assets of KSLM-AM,
serving the Salem, Oregon radio market, from Willamette Broadcasting Radio, Inc
(the "Willamette Transaction") for $0.6 million in cash. Broadcasting licenses
and other intangibles in the amount of $0.5 million were recorded in connection
with this transaction.
On December 22, 1998, the Company sold the assets of WLLD-FM and
WYUU-FM, serving the Tampa Florida radio market to CBS for $75.0 million in cash
(the "Tampa Transaction"), resulting in a gain of approximately $69.6 million.
FOR THE YEAR ENDED DECEMBER 31, 1999
On January 22, 1999, in a related party transaction, a wholly-owned
subsidiary of the Company purchased a 1% limited partnership interest in ECI
License Company, L.P. ("Partnership") for $3.4 million in cash. ECI License
Company, L.P. was a limited partnership in which the Company was the general
partner, owning a 99% general partnership interest. The Partnership owned
certain of the Company's FCC licenses. The acquisition effectively gave the
Company a 100% interest in its FCC licenses. On December 31, 1999, the
Partnership was merged into the Company and the Partnership along with the
entity holding the 1% limited partnership interest was dissolved.
On February 22, 1999, the Company acquired the assets of WAAF-FM and
WQSX-FM in Boston and WVEI-AM (formerly WWTM-AM) in Worchester from CBS for
$58.0 million in cash (the "Second Boston Transaction"). The Company incurred
transaction costs of approximately $0.2 million related to this acquisition.
Broadcasting licenses and other intangibles in the amount of $55.7 million were
recorded in connection with this transaction. The Company had operated these
stations under a TBA since September 1998.
On April 22, 1999, the Company sold a building located in Seattle,
Washington for cash of $1.3 million, resulting in a gain of approximately $0.5
million.
On June 11, 1999, the Company acquired the assets of KXTR-AM (formerly
KKGM-AM), serving the Kansas City, Kansas/Missouri radio market from Mortenson
Broadcasting Company of Canton, LLC for the sum of $2.8 million in cash.
Broadcasting licenses and other intangibles in the amount of $2.5 million were
recorded in connection with this transaction.
On August 20, 1999, the Company entered into an agreement with Sinclair
Broadcast Group ("Sinclair") which consisted of two separate asset purchase
agreements for the purchase of: (1) Sinclair's 42 stations in eight markets and
other assets for which the purchase price was $702.5 million ("First Sinclair
Transaction") and (2) Sinclair's four Kansas City stations for which the
purchase price was $122.0 million ("Sinclair Kansas City"). On December 16,
1999, under the First Sinclair Transaction, the Company acquired 41 of
Sinclair's radio properties for a purchase price of $700.4 million in cash. This
transaction included 26 FM and 15 AM radio stations in eight markets including
Milwaukee, New Orleans, Memphis, Buffalo, Norfolk, Greensboro/Winston-Salem/High
Point, Greenville/Spartanburg and Wilkes-Barre/Scranton. The Company also began
operations at WKRF-FM in the Wilkes-Barre/Scranton market on December 16, 1999
under a TBA. In addition, the Company was responsible for certain capital
expenditures of approximately $2.5 million, for which the Company fulfilled its
obligation as of December 31, 2000. In connection with the First Sinclair
Transaction, the Company recorded broadcasting licenses and other intangibles in
the amount of $668.8 million and incurred transaction costs in the amount of
$1.7 million. On July 20, 2000, the Company completed the acquisition of
Sinclair Kansas City and on November 3, 2000, the Company completed the
acquisition of WKRF-FM (see below).
FOR THE YEAR ENDED DECEMBER 31, 2000
On February 23, 2000, the Company acquired from the Wichita Stations
Trust ("Wichita Trust") a trust formed for the benefit of Capstar Broadcasting
Corporation as required by federal regulations, all of the assets related to
radio stations KEYN-FM, KFBZ-FM (formerly KWCY-FM, formerly KWSJ-FM), KQAM-AM,
KFH-AM and KNSS-AM, serving the Wichita, Kansas radio for $8.0 million in cash.
Broadcasting licenses and other intangibles in the amount of $6.3 million were
recorded in connection with this transaction. With the acquisition of the two
radio stations described below, the Company owns 7 radio stations serving the
Wichita, Kansas radio market.
On May 31, 2000, the Company acquired under two separate asset purchase
agreements from Gary and Ann Violet, 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 in cash. 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, the assets of
Sinclair Kansas City, consisting 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 in cash. Including this
transaction, the Company completed the acquisition of 45
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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 (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 and transaction
costs in the amount of $0.6 million were recorded in connection with this
transaction.
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. 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.
On August 31, 2000, the Company acquired from Woodward Communications,
Inc. the assets of WOLX-FM, WMMM-FM and WBZU-FM (formerly 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.
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 (see above).
On November 3, 2000, the Company completed the acquisition 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. With this acquisition, the
Company completed the purchase of all of the radio stations under agreement with
Sinclair (see above).
OTHER SIGNIFICANT EVENTS
Effective July 1, 1997, the Company entered into a Joint Sales
Agreement ("JSA") with Classic Radio, Inc. ("Classic"), whereby the Company
serves as the exclusive sales agent for the Classic-owned KING-FM radio station
located in Seattle Washington. This agreement is a continuation of a
relationship under a prior JSA that expired on June 30, 1997. Under the JSA,
which continues through June 30, 2002, the Company receives all revenues from
the sale of advertising time broadcast on KING-FM and is required to pay a
monthly fee to Classic based upon calculations as defined in the agreement.
Under the terms of the JSA, the Company is responsible for all costs incurred in
selling the advertising time. Classic is responsible for all costs incurred in
operating the station. Net revenues and expenses incurred by the Company under
this contract during the year ended September 30, 1998, the three-month periods
ended December 31,1997 and 1998, the twelve-month period ended December 31, 1998
and the years ended December 31, 1999 and 2000, were, $3.6 million and $ 2.3
million, $1.0 million and $06 million, $1.1 million and $0.6 million, $3.7
million and $2.3 million, $3.9 million and $2.3 million and $4.0 million and
$2.4 million, respectively.
On October 7, 1997, the Company, in a transaction with Kanza Inc.,
exchanged the broadcasting frequency and the transmitter related assets of
KCMO-AM, Kansas City, Missouri for the broadcasting frequency and transmitter
related assets of WHB-AM, Kansas City, Missouri. The Company incurred
transaction costs of $0.2 million. The transaction was accounted for as a
non-monetary exchange of similar productive assets and no gain or loss was
recognized. The assets received were recorded at the historical cost of the
assets surrendered. On July 20, 2000, Susquehanna purchased the assets of
KCMO-AM along with other Kansas City radio station assets (see above).
On May 7, 1998, the Company sold certain rights in a license for the
Vancouver, Washington radio market to Jacor Communications and Smith
Broadcasting, Inc. for $10.0 million in cash. The Company acquired an interest
in these rights at a cost of $1.3 million. The sale resulted in a gain of $8.5
million.
On June 25, 1998, the Company completed its transaction with McKenzie
River Broadcasting Company ("McKenzie") whereby McKenzie received FCC approval
to reclassify the broadcast license of its KMGE-FM station, serving Eugene,
Oregon radio market, from a class C to a Class C-1. Such a reclassification of
that station allowed the Company to seek approval from the FCC for construction
and operation of an enhanced transmission facility for its KNRK-FM station
serving the Portland, Oregon radio market. In consideration for its agreement,
McKenzie was paid approximately $1.2 million in cash and the Company recorded
this amount as broadcast licenses.
On September 16, 1998, the Company completed an agreement with American
Radio Systems, Inc. and American Radio Systems License Corp. (collectively
referred to as "ARS") to exchange certain assets used in the operation of radio
stations
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serving the Sacramento radio market. ARS provided KRAK-FM's license and
transmission facility to the Company in exchange for KRXQ-FM's license and
transmission facility and $4.5 million. Each of the stations retained its own
call letters, programming format and studio and office property and equipment,
and the parties provided each other with reciprocal covenants against
programming competition on the respective frequencies for a period of two years.
ARS also transferred the intellectual property comprising program format for use
by the Company on its recently acquired KSSJ-FM in that market. The transaction
was accounted for as a non-monetary exchange of similar productive assets and no
gain or loss was recognized. The assets received were recorded at the historical
cost of the assets surrendered plus the $3.8 million paid to ARS. In a related
transaction the Company sold the KRXQ-FM transmitter site, including broadcast
tower facilities to ARS for $0.8 million, resulting in a loss of approximately
$34,000.
Prior to the revocation of its S Corporation election, the Company
declared a dividend (the "S Distribution"), conditioned upon consummation of the
IPO, payable to its former S Corporation shareholders in the amount of $88.1
million, which the Company estimated would be the undistributed balance of the
income of the Company which has been taxed or was taxable to its S Corporation
shareholders as of the Revocation Date. The S Distribution of $88.1 million was
paid as of June 30, 1999.
Prior to the IPO, Chase Capital, which held a Convertible Subordinated
Promissory Note of the Company (the "Convertible Subordinated Note") in the
principal amount of $25.0 million, converted the Convertible Subordinated Note
into 2,327,500 shares of Class A Common Stock and 1,995,669 shares of Class C
Common Stock (the "Chase Conversion"). At the time of the Chase Conversion, the
market value of the shares into which the Convertible Subordinated Note was
convertible, was approximately $97.3 million (the principal amount of the
Convertible Subordinated Note plus accrued interest amounted to approximately
$29.9 million, and the cumulative adjustment to reflect indexing of the
Convertible Subordinated Note was approximately $67.4 million). The amount of
$96.5 million, net of the write off of unamortized deferred financing costs of
$.0.8 million, was recorded as an increase to shareholders' equity. The
Convertible Subordinated Note has been retired and there is no further
obligation due.
On September 30, 1999, the Company and certain shareholders of the
Company entered into an underwriting agreement to sell 8,750,000 shares of Class
A Common Stock of which 8,000,000 shares were sold by the Company and 750,000
shares were sold by selling shareholders. The Company completed this offering on
October 6, 1999 and sold 8,000,000 shares of Class A Common Stock at a price per
share of $36.00. The net proceeds to the Company after deducting underwriting
discounts and other offering expenses, was $276.1 million.
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 December 31, 2000, had all occurred as of January 1,
1999, after giving effect to certain adjustments, including the conversion from
an S Corporation, depreciation and amortization of assets and interest expense
on any debt incurred to fund the acquisitions which would have been incurred had
such acquisitions and other transactions occurred as of January 1, 1999. These
unaudited pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of what would have occurred had the acquisition
and other transactions been made as of that date or results which may occur in
the future.
(UNAUDITED)
YEAR ENDED
DECEMBER 31
1999 2000
--------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues $ 315,532 $ 355,314
========= =========
Income before extraordinary item and gains on sale of assets $ 9,534 $ 25,225
========= =========
Income before extraordinary item $ 35,605 $ 21,152
========= =========
Net income $ 34,687 $ 21,152
========= =========
Net income per share - basic $ 0.91 $ 0.47
========= =========
Net income per share - diluted $ 0.87 $ 0.46
========= =========
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4. RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES
Radio Broadcasting Licenses and other intangibles consist of the
following:
DECEMBER 31, DECEMBER 31,
1999 2000
----------- -----------
(AMOUNTS IN THOUSANDS)
FCC Licenses $ 1,242,665 $ 1,323,985
Other Intangibles 4,322 4,783
----------- -----------
Subtotal 1,246,987 1,328,768
Less accumulated amortization (32,018) (62,952)
----------- -----------
Total Radio broadcasting licenses and other intangibles $ 1,214,969 $ 1,265,816
=========== ===========
5. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
DECEMBER 31, DECEMBER 31,
1999 2000
------------ ------------
(AMOUNTS IN THOUSANDS)
Debt issuance costs less accumulated amortization of $73
and $932 in 1999 and 2000, respectively $ 8,610 $ 7,946
Software costs less accumulated amortization of $292
and $667 in 1999 and 2000, respectively 479 2,084
Leasehold premium less accumulated amortization of $413
and $461 in 1999 and 2000, respectively 1,277 1,062
Other deferred charges less accumulated amortization of
$9 in 2000 -- 13
-------- --------
$ 10,366 $ 11,105
======== ========
6. INCOME TAXES
Income tax expense, is summarized as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1999 2000
-------- --------
(AMOUNTS IN THOUSANDS)
Current:
Federal $ 9,083 $ (967)
State 1,844 (230)
-------- --------
Total current 10,927 (1,197)
-------- --------
Deferred:
Federal 78,202 26,643
State 11,172 6,350
-------- --------
Total deferred 89,374 32,993
-------- --------
Total income taxes $100,301 $ 31,796
======== ========
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Approximately $0.6 million of benefit for income taxes was allocated to
an extraordinary item in connection with the early extinguishment of debt in the
accompanying consolidated statements of operations for the year ended December
31, 1999 (Actual and Pro Forma). For purposes of the foregoing components of
provision for income taxes, the allocation affects the current components of the
provision.
The Company revoked its S Corporation election on January 28, 1999. The
last day the Company was taxed as an S Corporation was January 27, 1999. As a
result of the revocation of its S Corporation election and conversion to a C
Corporation, the Company recorded a non-cash deferred income tax expense of
approximately $79.8 million 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. The adjustment is reflected in results for the year ended December
31, 1999 (Actual).
Upon closing the acquisition of radio properties from Sinclair on
December 16, 1999, the Company recorded a non-cash deferred income tax expense
of approximately $3.9 million. This amount reflects an increase in the Company's
effective tax rate from 38% to 40% and its effect on previously reported
temporary differences between the tax and financial reporting bases of the
Company's assets and liabilities as a result of adding facilities in additional
states which on average have higher income tax rates. The adjustment is
reflected in results for the year ended December 31, 1999 (Actual and Pro
Forma).
Income tax expense computed using the United States federal statutory
rates is reconciled to the reported income tax provisions as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1999 2000
-------- --------
(AMOUNTS IN THOUSANDS)
Federal statutory income tax rate 35% 35%
Computed tax expense at federal statutory rates
on income before income taxes $ 14,344 $ 27,668
State income taxes (net of federal tax benefit) 1,834 3,953
S Corporation termination and conversion to a C Corporation 79,845 --
Deferred state income tax rate adjustment 3,891 --
Nondeductible expenses and other 387 176
-------- --------
Income tax provision $100,301 $ 31,796
======== ========
The tax effects of significant temporary differences which compromise
the net deferred tax assets and liabilities are as follows:
DECEMBER 31 DECEMBER 31
1999 2000
-------- --------
(AMOUNTS IN THOUSANDS)
Current deferred tax assets:
Employee benefits $ 599 $ 460
Provision for doubtful accounts -- 454
Other 1,174 585
--------- ---------
Total net current assets 1,773 1,499
--------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment and intangibles (91,331) (125,234)
Employee benefits 184 1,038
--------- ---------
Total net noncurrent liabilities (91,147) (124,197)
--------- ---------
Net deferred tax liabilities $ (89,374) $(122,697)
========= =========
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7. DEBT
(A) SENIOR DEBT
Senior debt consists of the following:
DECEMBER 31, DECEMBER 31,
1999 2000
-------- --------
(AMOUNTS IN THOUSANDS)
Notes payable, due September 30, 2007 $465,500 $461,000
Other 270 260
-------- --------
Total 465,770 461,260
Amounts due within one year 10 11
-------- --------
$465,760 $461,249
======== ========
The Company's term and revolving credit facilities were refinanced on
February 13, 1998, under a bank credit agreement (the "Credit Agreement") with
Key Corporate Capital Inc., as administrative agent. The Credit Agreement
provided for a $300.0 million Senior Secured Revolving Credit Facility. The
Credit Agreement was amended on October 8, 1998 to increase the maximum
borrowing capacity to $350.0 million. On December 16, 1999, the Credit Agreement
was replaced with a new bank credit agreement (see below).
The Company's Credit Agreement was refinanced on December 16, 1999,
under a new bank credit agreement (the "Bank Facility") with Banc of America
Securities LLC as the lead and syndication agent and Key Corporate Capital Inc.,
as administrative agent. The Bank Facility 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 multi-draw term loan ("Term Loan"), which
was fully drawn as of September 29, 2000. The Bank Facility is secured by (1) a
pledge of 100% of the Company's capital stock and other equity interest in all
subsidiaries; (2) a security interest in all present and future assets and
properties; (3) a security interest in all major tangible and intangible
personal property assets of the Company and any future subsidiaries as well as a
negative pledge on all real property, and (4) an assignment of all major leases
and rights, as appropriate. Under the terms of the Bank Facility, the Company is
restricted from the distribution of any dividends. The Bank Facility requires
the Company to comply with certain financial covenants and leverage ratios that
are defined terms within the agreement and that include but are not limited to
the following: (1) Total Debt to Operating Cash Flow, (2) Operating Cash Flow to
Interest Expense, (3) Operating Cash Flow to Pro Forma Debt Service and (4)
Operating Cash Flow to Fixed Charges. Management believes the Company is in
compliance with all of the terms of the agreement. The Bank Facility also
provides that at any time prior to December 31, 2001, the Company may solicit
additional incremental loans up to $350.0 million, subject to syndicate
approval, and will be governed under the same terms as the Term Loan.
The availability under the Revolver and Term Loan, which mature on
September 30, 2007, reduces on a quarterly basis beginning September 30, 2002 in
quarterly amounts that vary from $12.2 million to $16.3 million for each Loan.
The Company has the option to elect to pay interest at a rate equal to LIBOR (in
increments with durations of 1, 2, 3 or 6 months) plus 0.75% or the prime rate.
Upon the occurrence of certain events, the Company's borrowing costs can
increase to a maximum of LIBOR plus 2.375% or prime plus 1.125%. The interest
payable on LIBOR rate is payable at the end of the selected duration but not
less frequently than every three months and on prime rates is payable at the end
of each calendar quarter. The weighted average interest rate under the Credit
Agreement at December 31, 1999 and 2000 was 8.1%. and 7.7%, respectively. The
Company also pays a commitment fee which varies depending on certain financial
covenants and the amount of the unused commitment, from 0.25% or 0.5% per annum,
on the average unused balance of the Bank Facility. The amount available under
the Bank Facility as of December 31, 2000, was $183.2 million.
(B) INTEREST RATE TRANSACTIONS
The Company enters into interest rate transactions to diversify its
risk associated with interest rate fluctuations against the variable debt
discussed in 7 (A) above and to comply with certain covenants under the Bank
Facility. Under these transactions, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed rate and floating
rate interest amounts calculated by reference to an agreed notional principal
amount against the variable debt. The total notional amount of these
transactions was $129.0 million at December 31, 1999 and $263.0 million at
December 31, 2000. These agreements, with initial terms that vary from 2 years
to 7 years, effectively fix the interest at rates that vary from 5.8% to 8.5% on
current borrowings.
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(C) AGGREGATE PRINCIPAL MATURITIES
Aggregate principal maturities on Senior debt are as follows (amounts
in thousands):
Fiscal years ending December 31:
2001 $ 11
2002 24,386
2003 56,886
2004 65,011
2005 87,261
Thereafter 227,705
--------
Total $461,260
========
The extraordinary charges for the years ended September 30, 1998 and
December 31, 1999, are the result of write-offs ($1.5 million and $0.9 million
respectively, net of pro forma tax benefits) of unamortized finance charges
resulting from the early extinguishment of long-term debt.
(D) CONVERTIBLE SUBORDINATED NOTE
On May 21, 1996, the Company entered into a convertible subordinated
note purchase agreement with an investment partnership in the principal amount
of $25.0 million (the "Convertible Subordinated Note"). Interest on the note
accrued at the rate of 7% per annum. Such interest compounded annually and was
deferred and payable with principal in one installment on May 21, 2003. The
payment due date could be deferred by one year under certain circumstances. The
obligations of the Company under the note were subordinate to the obligations of
the notes payable to the banks as noted in (A) above.
The Convertible Subordinated Note was convertible by the holder in
certain events and circumstances such as a public offering of the Company's
capital stock, a change of control of the Company, a sale of substantially all
of the Company's assets, a merger or consolidation into a publicly traded
company or the Company's ceasing to be an S Corporation. In the event of
conversion, the holders would receive shares of the common stock of the Company
representing an ownership interest of approximately 15% of the Company prior to
such event in lieu of principal and interest. In connection with the Company's
IPO, Chase Capital (the holder of the Note) elected to convert the Convertible
Subordinated Note into 2,327,500 shares of Class A Common Stock and 1,995,669
shares of Class C Common Stock (the "Chase Conversion") and there was no further
obligation due by the Company.
The Company accounted for this instrument as indexed debt since under
certain circumstances, the holder of the Convertible Subordinate Note had the
option to put ("Put Option") the note to the Company and receive, at the option
of the Company, either cash or a new note which would equal the fair market
value of the shares of common stock into which the Convertible Subordinate Note
would be convertible. Accordingly, the Company's statements of income for the
year ended September 30, 1998, the three-month periods ended December 31, 1997
and 1998 and the twelve-month period ended December 31, 1998 reflected an
"adjustment to reflect indexing of the Convertible Subordinated Note".
The adjustment to reflect indexing of the Convertible Subordinated Note
had been determined by reference to the difference between the estimated market
value of the shares of Common Stock into which the note was convertible pursuant
to the terms of the Put Option and the sum of the principal outstanding of $25.0
million plus interest accrued at 7% per annum. Such estimated market value was
calculated using comparable publicly held broadcast companies' multiples of
broadcast cash flow.
(E) OUTSTANDING LETTERS OF CREDIT
The Company is required to maintain a letter of credit in connection
with a sports contract that expires on November 15, 2005. As of December 31,
2000, the amount of the outstanding letter of credit was $5.8 million.
8. 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
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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 ("Debenture"). Upon the due date of
the Debentures, the Company will pay the outstanding amount due to the trust and
the trust will redeem all of the outstanding TIDES. 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. The Company completed this offering on October 6, 1999,
and issued 2,500,000 TIDES at $50.00 per TIDES.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined using
the best available market information and appropriate valuation methodologies.
However, considerable judgement is necessary in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange or the value that ultimately will be realized upon
maturity or disposition. Additionally, because of the variety of valuation
techniques permitted under SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," comparability of fair values among entities may not be
meaningful. The use of different market assumptions or estimation methodologies
may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair
value of financial instruments for which it was practicable to estimate that
value:
Cash and cash equivalents, accounts receivable and accounts payable,
including accrued liabilities: The carrying amounts of these assets and
liabilities approximates fair value because of the short maturity of these
instruments.
Long-term debt: The amounts outstanding under the credit facility bear
interest at current market rates and the carrying amounts approximate fair
market value at December 31, 1999 and 2000.
Interest rate swaps and collars: The fair value of the interest rate
swap and collar contracts is estimated by obtaining quotations from brokers. The
fair value is an estimate of the amounts that the Company would receive (pay) at
the reporting date if the contracts were transferred to other parties or
cancelled by either party. At December 31, 1999 and 2000, the fair value of
these contracts were an asset of $1.2 million and a liability of $2.1 million,
respectively.
TIDES: The fair value of the Company's Convertible Preferred
Securities, Term Income Deferrable Equity Securities at December 31, 1999
approximated the $125.0 million carrying value as the value did not materially
change from the value at the date of issue, October 6, 1999, and the value at
December 31, 1999. At December 31, 2000, the carrying value of the TIDES was
$125.0 million and the fair value, which was based on available market prices,
was $113.8 million.
Outstanding Letters of Credit: The Company had letters of credit
outstanding in the amounts of $12.5 million and $5.8 million as of December 31,
1999 and 2000. The Company does not believe it is practicable to estimate the
fair value of these financial instruments and does not expect any material
losses from their resolution since performance is not likely to be required.
10. COMMITMENTS AND CONTINGENCIES
ACQUISITIONS
The Company entered into a preliminary agreement on February 6, 1996
for the Company 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 treble damages, an injunction, attorney's fees
and costs and filed a separate action against the Company's President asking for
treble damages, an injunction, attorney's fees and costs. This separate action
against the Company's President was dismissed without leave to amend in February
2000. The
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Company is pursuing legal action against Royce and seeking dismissal of the
cross-complaint. The Company estimates that the impact of an unfavorable outcome
will not materially impact the financial position, results of operations or cash
flows of the Company. The Company cannot determine if and when the transaction
might occur.
OTHER
The Company's employment agreement with its Chairman and Chief
Executive Officer renews automatically each calendar year unless terminated by
either party in accordance with the contract. Under the terms of the agreement,
the current base compensation is $600,000 and is increased or decreased annually
by a percentage equal to the percentage of inflation or deflation over the
immediately preceding twelve month period, provided that the base salary shall
never be less than $500,000. The board of directors may approve additional
salary, bonuses, fees, or other compensation. Total base compensation for the
year ended September 30, 1998, the three-month periods ended December 31,1997
and 1998, the twelve-month period ended December 31,1998 and the years ended
December 31, 1999 and 2000, was approximately $555,000, $136,000, $140,000,
$558,000, $563,000 and $600,000, respectively.
The Company's employment agreements with its Executive Officers, David
J. Field, President, Chief Operating Officer and Director and John C. Donlevie,
Executive Vice President, Secretary, General Counsel and Director, provides that
the agreement may be terminated at will by either party (1) immediately if good
cause for termination exists, or (2) upon thirty days notice in the absence of
good cause. Pursuant to these employment agreements, the current annual
salaries, effective January 1, 2000, of Mr. Field and Mr. Donlevie are $450,000
and $265,000, respectively. The Company's employment agreement with Stephen F.
Fisher, Executive Vice President and Chief Financial Officer, provides that the
agreement may be terminated at will by either party (1) immediately if good
cause for termination exists or (2) upon at least 120 days notice prior to the
end of the current yearly term. Mr. Fisher's current annual salary, effective
January 1, 2000, is $300,000. Each of the above employment agreements provides
for yearly salary adjustments for inflation and an annual discretionary bonus.
In connection with the relocation of a studio site in one of the
Company's radio markets, the Company has incurred approximately $1.0 million in
costs as of December 31, 2000 and expects to incur an additional $2.0 million
under a commitment to complete the construction project in the first quarter of
the year 2001.
Rental expense is incurred principally for office and broadcasting
facilities. Rental expense during the year ended September 30, 1998, the
three-month periods ended December 31, 1997 and 1998, the twelve-month period
ended December 31, 1998 and the years ended December 31, 1999 and 2000 was
approximately $2.8 million, $0.6 million, $0.8 million, $3.1 million, $3.7
million and $6.3 million, respectively.
The Company also has various commitments under the following types of
contracts: (1) sports programming; (2) on-air talent; (3) operating leases; and
(4) television advertising, with aggregate minimum annual commitments as of
December 31, 2000 as follows:
OPERATING SPORTS ON-AIR TELEVISION
LEASES PROGRAMMING TALENT ADVERTISING
--------- ----------- -------- -----------
(AMOUNTS IN THOUSANDS)
Fiscal years ending December 31:
2001 $ 5,894 $ 18,300 $ 11,140 $ 1,200
2002 5,651 16,717 5,169 1,200
2003 5,001 9,450 1,623 1,200
2004 4,726 8,310 100 1,200
2005 4,326 8,500 - -
Thereafter 24,786 - - -
--------- --------- -------- --------
$ 50,384 $ 61,277 $ 18,032 $ 4,800
========= ========= ======== ========
In October 1999, The Radio Music License Committee, of which
the Company is a participant, filed a motion in the New York courts against
Broadcast Music, Inc. commencing a rate-making proceeding, on behalf of
the radio industry, seeking a determination of fair and reasonable industry-wide
license fees. The Company is currently operating under interim license
agreements for the period commencing January 1, 1997 at the rates and terms
reflected in prior agreements.
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The Company's management estimates that the impact of an unfavorable outcome of
the motion will not materially impact the financial position, results of
operations or cash flows of the Company.
In December 2000, the U.S. Copyright Office, under the Digital
Millennium Copyright Act, issued a final rule that AM and FM radio broadcast
signals transmitted simultaneously over a digital communications network, are
subject to the sound recording copyright owner's exclusive right of performance.
This would result in the imposition of license fees for Internet streaming and
other digital media. As a result of this decision, the Company must now
participate in an arbitration proceeding at the U.S. Copyright Office to
determine the amount of the fees that are due from the use of sound recordings
in Internet streaming. The Company, along with other broadcasters and the
National Association of Broadcasters, previously commenced a legal action in New
York challenging the imposition of these license fees. In addition, the Company
has commenced a legal action, together with other radio broadcasters, seeking
declaratory relief as to the impact of the final rule of the Copyright Office.
The Company intends to pursue this action. However, the Company cannot determine
the likelihood of success. The Company's management estimates that the impact of
an unfavorable determination will not materially impact the financial position,
results of operations or cash flows of the Company.
The Company is subject to various outstanding claims that 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 adversely affect the financial position,
results of operations or cash flows of the Company.
11. SHAREHOLDERS' EQUITY
For the year ended September 30, 1998, the three-month periods ended
December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and
the years ended December 31, 1999, the Company paid total dividends of
approximately $2.8 million, $3.1 million, $0 million, $1.0 million, $4.1 million
and $88.1 million, respectively. These amounts include special dividends paid to
the Company's shareholders to compensate them for federal and state income tax
obligations attributable to pass-through taxable income generated by the Company
when it was taxed as a sub-chapter S Corporation prior to the Revocation Date.
No dividends were paid by the Company after the Revocation Date relating to the
Company's activities as a C Corporation.
On June 24, 1998, the Board of Directors and the shareholders of the
Company approved the Company's amended and restated Articles of Incorporation to
provide for, among other things, an increase in the aggregate number of shares
which the Company has authority to issue to 350,000,000 shares, par value $.01
per share, consisting of the following: (1) 200,000,000 shares of Class A Common
Stock; (2) 75,000,000 shares of Class B Common Stock; (3) 50,000,000 shares of
Class C Common Stock and (4) 25,000,000 shares of Preferred Stock. Such change
occurred just prior to the effective date of the Company's initial public
offering. The rights of each share of Common Stock are essentially identical
other than with respect to voting rights. The Class A Common Stock entitles the
holders thereof to one vote per share, the Class B Common Stock entitles the
holders thereof to ten votes per share, subject to certain exceptions and the
Class C Common Stock has no voting rights, except as otherwise required by law.
Subject to any necessary approval of the Federal Communications Commission, the
Class B Common Stock and the Class C Common Stock are convertible in whole or in
part at any time into Class A Common Stock on a share-for-share basis. There are
also no liquidation preferences for any class of stock.
On May 11, 1999, November 15, 1999, May 9, 2000, May 15, 2000, August
22, 2000 and November 2, 2000, Chase Capital converted 300,000 shares, 298,833
shares, 300,000 shares, 1,167 shares, 300,000 shares and 300,000 shares,
respectively, from shares of Class C Common Stock to shares of Class A Common
Stock.
In connection with the adoption of the Company's amended and restated
Articles of Incorporation, the Company declared a 185 for 1 stock split payable
to shareholders at the time the Amended and Restated Articles of Incorporation
became effective. The accompanying consolidated financial statements give effect
to these transactions as if they had occurred on September 30, 1997.
12. EMPLOYEE SAVINGS AND BENEFIT PLANS
The Company sponsors a 401(k) savings plan that includes a provision
under which the Company contributes 50% of the amount of any eligible employee's
contribution to the plan up to a maximum employer contribution of 3% of an
employee's compensation. The maximum eligible employee contribution under the
plan was $10,000, $10,000 and $10,500 for the plan years ended December 31,
1998, 1999 and 2000, respectively. The Company may at its discretion suspend
future matching contributions. The Company contributed approximately $0.6
million, $0.1 million, $0.2 million, $0.6 million, $0.8 million and $1.5 million
under the 401(k) plan for the year ended September 30, 1998, the three-month
periods ended December 31, 1997 and 1998, the twelve-month period ended December
31, 1998 and the years ended December 31, 1999 and 2000, respectively.
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13. STOCK OPTIONS AND RESTRICTED STOCK
The Company accounts for stock-based compensation plans under APB
Opinion No. 25 for employees and under FASB No. 123 for non-employees. On June
24, 1998, the Company adopted an Equity Compensation Plan (the "Compensation
Plan"). The Compensation Plan allows officers (including those also serving as
directors) and other employees, non-employee directors and key advisors and
consultants, selected by a Committee of Board of Directors, to receive incentive
stock options, nonqualified stock options, restricted stock and stock
appreciation rights in the Common Stock of the Company. All of the restricted
stock and options vest over a four-year period and the options expire ten years
from the date of grant. The Company has reserved 10% of the combined classes of
Common Stock outstanding at the time of grant for issuance under the
Compensation Plan. The Company recognized non-cash compensation expense (1) for
the granting of restricted stock and (2) for options granted where the option
price is less than the market value of shares on the grant date and for options
issued to non-employees. For the year ended December 31, 1999, the Company
issued 11,112 shares of restricted stock and 1,426,523 in options of which
1,150,961 options were issued at market value at the date of grant and 275,562
options were issued with an exercise price at 80% of the market value at the
date of grant. For the year ended December 31, 2000, the Company issued 5,000
shares of restricted stock and 1,430,250 in options, of which 1,380,250 in
options were issued at market value at the date of grant and 50,000 in options
were issued at less that market value at the date of grant. For the year ended
December 31, 1999, the Company recognized non-cash stock-based compensation
expense of $0.4 million for options granted at prices below market value and for
options issued to non-employees and $0.1 million for restricted stock. For the
year ended December 31, 2000, the Company recognized non-cash stock-based
compensation expense of $0.5 million for options granted at prices below market
value and $0.1 million for restricted stock. As of December 31, 2000, the
Company will recognize non-cash compensation expense in future periods of $0.6
million, $0.6 million and $0.2 million for the years ended December 31, 2001,
2002 and 2003, respectively.
A summary of the status of the Company's stock options granted and
changes during the year is presented below:
DECEMBER 31, 1999 DECEMBER 31, 2000
---------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- --------------
Outstanding at beginning of year -- -- 1,404,519 $ 31.83
Granted 1,426,523 $ 31.69 1,430,250 $ 35.34
Exercised -- -- (26,649) $ 21.66
Cancelled (22,004) $ 22.50 (84,724) $ 32.12
--------- ---------
Outstanding at end of year 1,404,519 $ 31.83 2,723,396 $ 33.76
========= =========
Options exercisable at year end -- -- 331,580 $ 32.85
Weighted-average fair value of options
granted during the year, net of cancellations $ 31.83 $ 35.54
The following table summarizes information about stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING WEIGHTED WEIGHTED AVERAGE
NUMBER OF OPTIONS WEIGHTED-AVERAGE AVERAGE NUMBER OF EXERCISE PRICE
OUTSTANDING AT REMAINING EXERCISE OPTIONS OF OPTIONS
EXERCISE PRICES DECEMBER 31, 2000 CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISABLE
- --------------------- ----------------- ---------------- -------- ----------- -----------
$18.00 $18.00 270,562 8.1 $18.00 63,896 $18.00
$22.50 $22.50 459,784 8.1 $22.50 112,859 $22.50
$25.75 $27.75 733,000 9.9 $27.74 -- --
$28.19 $42.88 473,150 9.2 $40.95 10,725 $34.43
$43.94 $45.31 135,500 9.3 $43.96 -- --
$46.88 $46.88 532,900 8.8 $46.88 133,225 $46.88
$46.94 $59.44 118,500 9.1 $51.38 10,875 $54.04
--------- ---- ------ ------- ------
$18.00 $59.44 2,723,396 9.0 $33.76 331,580 $32.85
========= ==== ====== ======= ======
At December 31, 2000, approximately 4.5 million shares of the Company's
Class A Common Stock were authorized for awards under the plan, of which
approximately 1.8 million shares remained available for future award.
63
67
The fair value of the options was estimated at the date of grant using
a Black-Scholes option-pricing model with the following weighted-average
assumptions for 1999 and 2000: expected stock volatility ranging from 34% to
74%; dividend yields of 0%; risk-free interest rates ranging from of 5.4% to
6.5%; and expected lives ranging from five to six years from the date of grant.
Had the Company determined compensation cost for the Equity Compensation Plan
based on the fair value at the grant dates for awards in 1999 and 2000
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would have been reduced to the pro forma amounts
indicated below:
YEAR ENDED DECEMBER 31
----------------------
1999 2000
---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net income (loss) - As reported ($60,877) $47,254
Additional compensation expense, net of taxes of $0.9 million and
$3.3 in 1999 and 2000, respectively 1,362 4,955
-------- -------
Net income (loss) - Pro Forma ($62,239) $42,299
======== =======
Basic net income (loss) per share - As reported ($1.61) $1.05
======== =======
Basic net income (loss) per share - Pro Forma ($1.64) $0.94
======== =======
Diluted net income (loss) per share - As reported ($1.61) $1.04
======== =======
Diluted net income (loss) per share - Pro Forma ($1.64) $0.93
======== =======
On June 24, 1998, the Company adopted an Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan allows the participants to purchase
shares of the Company's Common Stock at a purchase price equal to 85% of the
market value of such shares on the purchase date. Under this plan, during which
there should be no expense recognized on the difference between the market value
and the purchase price, 11,682 shares and 28,247 shares were purchased during
the years ended December 31, 1999 and 2000. The shares of Common Stock reserved
for issuance under the Purchase Plan was 1,850,000, leaving a balance of shares
available for purchase as of December 31, 2000 of 1.8 million.
14. NET INCOME (LOSS) AND PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share and pro forma basic net income
(loss) per common share is calculated by dividing net income (loss) and pro
forma net income (loss) by the weighted average number of common shares
outstanding during the reporting period.
Diluted loss per common share and pro forma diluted loss per common
share is calculated using the same number of shares outstanding as basic as any
increase in the number of shares assumed would be anti-dilutive. Accordingly,
the following is not assumed for purposes of computing the potential dilutive
effect on diluted loss per share and pro forma diluted loss per share of: (1)
the exercise of 1.4 million options outstanding during the year ended December
31, 1999, as adjusted to 0.3 million shares on a weighted average basis, using
the treasury stock method, (2) the conversion of the Convertible Subordinated
Note, after eliminating interest expense, net of tax, on the Convertible
Subordinated Note, for the three-month period ended December 31, 1997 and (3)
the conversion of 2.5 million TIDES into 2.8 million shares, as adjusted to 0.7
million shares on a weighted average basis, after eliminating interest expense,
net of tax, on the TIDES, for the year ended December 31, 1999.
Pro forma diluted net income per common share and diluted net income
per common share is calculated using the same number of shares outstanding as
basic and adjusted for the assumed exercise of 1.4 million and 1.4 million
options outstanding, as adjusted to 0.3 million shares and 0.4 million shares on
a weighted average basis, using the treasury stock method, for the years ended
December 31, 1999 and 2000, respectively. Accordingly, the following is not
assumed for purposes of computing the potential dilutive effect on diluted net
income per share and pro forma diluted net income per share of: (1) the
conversion of the Convertible Subordinated Note after eliminating interest
expense, net of tax, on the Convertible Subordinated Note for the year ended
September 30, 1998, the three-month period ended December 31,1998 and the
twelve-month period ended December 31, 1998 and (2) the conversion of 2.5
million TIDES into 2.8 million shares, as adjusted to 0.7 million shares and 2.8
million shares on a weighted average basis, after eliminating interest expense,
net of tax, on the TIDES, for the years ended December 31,1999 and 2000,
respectively.
The amounts used in calculating net income (loss) per share are as
follows:
64
68
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1999 2000
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARES)
Net income (loss) ($60,877) $ 47,254
============ ============
Weighted average shares outstanding - basic 37,921,623 45,209,036
Dilutive effect of options - 404,793
------------ ------------
Weighted average shares outstanding - diluted 37,921,623 45,613,829
============ ============
Options to purchase 1,404,519 shares of common stock were outstanding
during 1999, but were excluded from the computation of diluted loss per share as
their effect was anti-dilutive. Options to purchase 1,143,400 shares of common
stock at a range of $42.44 to $59.35 were outstanding during 2000, but were
excluded from the computation of diluted earnings per share because the
options exercise price was greater than the average market price of the common
stock.
The amounts used in calculating pro forma net income per share are as
follows:
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31 DECEMBER 31
------------ ----------- -----------
1998 1998 1999
------------ ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
Pro forma net income before extraordinary item $ 2,773 $ 15,923 $ 20,676
Extraordinary item, net of pro forma taxes 1,488 -- 918
----------- ----------- -----------
Pro forma net income $ 1,285 $ 15,923 $ 19,758
=========== =========== ===========
Weighted average shares outstanding - basic
21,534,000 21,534,000 37,921,623
Shares adjusted under SAB 1.b.3
704,843 3,208,443 --
Dilutive effect of options -- -- 316,100
----------- ----------- -----------
Weighted average shares outstanding - diluted 22,238,843 24,742,443 38,237,723
=========== =========== ===========
For the year ended September 30, 1998 and the three months ended
December 31, 1998, the Company excluded from the computation of pro forma net
income per share 4,323,169 shares issuable on the conversion of the Convertible
Subordinated Note as their effect was anti-dilutive.
15. RELATED PARTY TRANSACTIONS
On January 22, 1999, a wholly owned subsidiary of the Company purchased
a 1% limited partnership interest in Partnership from Investors for an amount of
$3.4 million. At the time of the purchase, the shareholders of Investors held
stock in the Company on a percentage basis equal to the percentage of shares
held in Investors.
65
69
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------
1999:
Net revenues $ 39,599 $55,946 $59,204 $60,252
Operating income $ 3,376 $14,215 $15,753 $17,384
Net income (loss) $(80,427) $ 7,152 $ 8,053 $ 4,345
Basic earnings (loss) per share $ (2.48) $ 0.19 $ 0.22 $ 0.10
======== ======= ======= =======
Weighted basic average common shares outstanding 32,478 37,168 37,172 44,742
======== ======= ======= =======
Diluted earnings (loss) per share $ (2.48) $ 0.19 $ 0.21 $ 0.10
======== ======= ======= =======
Weighted diluted average common and common
equivalents shares outstanding 32,803 37,583 37,506 45,143
======== ======= ======= =======
2000:
Net revenues $ 70,877 $96,941 $92,462 $91,745
Operating income $ 11,029 $27,437 $66,697 $25,736
Net income (loss) $ (86) $ 9,463 $33,186 $ 4,691
Basic earnings (loss) per share $ (0.00) $ 0.21 $ 0.73 $ 0.10
======== ======= ======= =======
Weighted basic average common shares outstanding 45,188 45,201 45,215 45,231
======== ======= ======= =======
Diluted earnings (loss) per share $ (0.00) $ 0.21 $ 0.71 $ 0.10
======== ======= ======= =======
Weighted diluted average common and common
equivalents shares outstanding 45,508 45,506 48,410 45,461
======== ======= ======= =======
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE FOR THE YEAR ENDED
DECEMBER 31, 1999, DIFFERS FROM THE SUM OF BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE FOR THE QUARTERS DURING THE RESPECTIVE YEAR DUE TO THE
DIFFERENT PERIODS USED TO CALCULATE NET INCOME (LOSS) AND WEIGHTED AVERAGE
SHARES OUTSTANDING. DILUTED NET INCOME PER COMMON SHARE FOR THE YEAR ENDED
DECEMBER 31, 2000, DIFFERS FROM THE SUM OF DILUTED NET INCOME (LOSS) PER COMMON
SHARE FOR THE QUARTERS DURING THE RESPECTIVE YEAR DUE TO THE DILUTIVE EFFECT OF
THE ASSUMED CONVERSION OF THE TIDES DURING THE THIRD QUARTER OF THE YEAR (TIDES
WERE ANTI-DILUTIVE FOR ALL OTHER QUARTERS OF THE YEAR).
Reclassifications - Certain reclassifications have been made to the prior years'
financial statements to conform to the current year presentation.
66
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, we have duly caused this report to be signed on our
behalf by the undersigned, thereunto duly authorized, in Bala Cynwyd,
Pennsylvania, on March __, 2001.
ENTERCOM COMMUNICATIONS CORP.
By: /s/ JOSEPH M. FIELD
-------------------
Joseph M. Field
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ JOSEPH M. FIELD Chairman of the Board and Chief March 21, 2001
- --------------------------------------------- Executive Officer (Principal
Joseph M. Field Executive Officer)
/s/ DAVID J. FIELD President, Chief Operating March 21, 2001
- --------------------------------------------- Officer and a Director
David J. Field
/s/JOHN C. DONLEVIE Executive Vice President, March 21, 2001
- --------------------------------------------- Secretary, General Counsel and
John C. Donlevie a Director
/s/ STEPHEN F. FISHER Executive Vice President and Chief March 21, 2001
- --------------------------------------------- Financial Officer (Principal
Stephen F. Fisher Financial and Accounting Officer
/s/ MARIE H. FIELD Director March 21, 2001
- ---------------------------------------------
Marie H. Field
/s/ HERBERT KEAN, M.D. Director March 21, 2001
- ---------------------------------------------
Herbert Kean, M.D.
/s/ LEE HAGUE Director March 21, 2001
- ---------------------------------------------
Lee Hague
/s/ THOMAS H. GINLEY, JR., M.D. Director March 21, 2001
- ---------------------------------------------
Thomas H. Ginley, Jr. M.D.
67
71
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ S. GORDON ELKINS Director March 21, 2001
- ---------------------------------------------
S. Gordon Elkins
/s/ MICHAEL R. HANNON Director March 21, 2001
- ---------------------------------------------
Michael R. Hannon
/s/ DAVID J. BERKMAN Director March 21, 2001
- ---------------------------------------------
David J. Berkman
68
72
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ENTERCOM COMMUNICATIONS CORP.
YEAR ENDED SEPTEMBER 30, 1998,
THREE MONTHS ENDED DECEMBER 31, 1998 AND
YEARS ENDED DECEMBER 31, 1999 AND 2000
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS DEDUCTIONS BALANCE AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD AND EXPENSES FROM RESERVES OF PERIOD
- ------------------------------- ---------- ------------ ------------- --------------
Year Ended September 30, 1998 $ 292,000 $ 920,000 ($845,000) $ 367,000
Three-month period ended December 31, 1998 $ 367,000 $ 327,000 ($101,000) $ 593,000
Year Ended December 31, 1999 $ 593,000 $2,000,000 ($1,164,000) $1,429,000
Year Ended December 31, 2000 $1,429,000 $3,670,000 ($2,893,000) $2,206,000
69
73
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
3.01 Amended and Restated Articles of Incorporation of the Registrant(2)
3.02 Form of Amended and Restated Bylaws of the Registrant(2)
4.01 Lock-up Release Agreement, dated as of May 6, 1999, between Chase Equity
Associates L.P. and Credit Suisse Boston Corporation(3)
4.02 Form of Indenture for the Convertible Subordinated Debentures due 2014 among
Entercom Communications Corp., as issuer, and Wilmington Trust Company, as
indenture trustee(4)
10.01 Registration Rights Agreement, dated as of May 21, 1996, between the Registrant
and Chase Equity Associates, L.P.(2)
10.02 Employment Agreement, dated June 25, 1993, between the Registrant and Joseph M.
Field, as amended(2)
10.03 Employment Agreement, dated December 17, 1998, between the Registrant and David
J. Field, as amended(2)
10.04 Employment Agreement, dated December 17, 1998, between the Registrant and John
C. Donlevie, as amended(2)
10.05 Employment Agreement, dated November 13, 1998, between the Registrant and
Stephen F. Fisher(2)
10.06 Entercom 1998 Equity Compensation Plan(2)
10.07 Asset Purchase Agreement, dated as of May 11, 2000, among the Registrant,
Entercom Kansas City, LLC, Entercom Kansas City License, LLC, and Susquehanna
Radio Corp. (See table of contents for list of omitted schedules and exhibits,
which the Registrant hereby agrees to furnish supplementally to the Securities
and Exchange Commission upon request) (3)
10.08 Credit Agreement, dated as of December 16, 1999, by and 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 Willkes-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)
11.01 Reconciliation of Net Income (Loss) and Pro Forma Net Income (Loss) Per Common
Share (1) 72
21.01 Information Regarding Subsidiaries of the Registrant (1) 75
23.01 Consent of Deloitte & Touche LLP, Philadelphia, Pa. (1) 77
(1) Filed herewith.
(2) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-61381)
(3) Incorporated by reference to our Quarterly Report on Form 10-Q. (File No.
001-14461)
(4) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-86843)
(5) Incorporated by reference to our Registration Statement on Form S-1. (File
No. 333-86397)
70
74
(6) Incorporated by reference to our Current Report on Form 8-K. (File No.
001-14461)
(b) Reports on Form 8-K
None to report.
71