Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended June 30, 2008

 

 

or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                   to           

 

Commission File Number: 001-14461

 

Entercom Communications Corp.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

 

23-1701044

(State or other jurisdiction of incorporation or organization)

 

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

 

401 City Avenue, Suite 809

Bala Cynwyd, Pennsylvania 19004

(Address of principal executive offices and zip code)

 

(610) 660-5610

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

 

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

 

Large accelerated filer x

Accelerated filer o

 

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class A common stock,  $.01 par value – 30,248,202 Shares Outstanding as of July 28, 2008

(Class A Shares Outstanding include 1,490,119 unvested restricted stock units)

Class B common stock,  $.01 par value – 7,607,532 Shares Outstanding as of July 28, 2008

 

 

 



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

 

INDEX

 

Part I   Financial Information

 

 

 

 

 

Item 1.

Financial Statements

1

 

Item 2.

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

30

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

Item 4.

Controls and Procedures

42

 

 

 

 

Part II  Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

43

 

Item 1A.

Risk Factors

43

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

Item 3.

Defaults Upon Senior Securities

43

 

Item 4.

Submission of Matters to a Vote of Security Holders

43

 

Item 5.

Other Information

44

 

Item 6.

Exhibits

45

 

 

 

 

Signatures

46

 

 

 

 

Exhibit Index

47

 

i



Table of Contents

 

Private Securities Litigation Reform Act Safe Harbor Statement

 

This report contains, in addition to historical information, statements by us with regard to our expectations as to financial results and other aspects of our business that involve risks and uncertainties and may constitute forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

 

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

 

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

 

Key risks to our company are described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2008 and as may be supplemented by the risks described under Part II, Item 1A, of our quarterly reports on Form 10-Q.

 



Table of Contents

 

PART I

 

FINANCIAL INFORMATION

 

ITEM 1.          Financial Statements

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 AND DECEMBER 31, 2007

(amounts in thousands)

(unaudited)

 

ASSETS

 

 

 

JUNE 30,

 

DECEMBER 31,

 

 

 

2008

 

2007

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

5,506

 

$

10,945

 

Accounts receivable, net of allowance for doubtful accounts

 

94,580

 

90,289

 

Prepaid expenses and deposits

 

6,825

 

5,578

 

Prepaid and refundable income taxes

 

760

 

15,059

 

Deferred tax assets

 

2,028

 

2,223

 

Short-term investment

 

159

 

 

Total current assets

 

109,858

 

124,094

 

 

 

 

 

 

 

INVESTMENTS

 

1,563

 

1,901

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

Land, land easements and land improvements

 

17,313

 

17,323

 

Buildings

 

21,393

 

21,341

 

Equipment

 

122,142

 

116,570

 

Furniture and fixtures

 

14,621

 

14,174

 

Leasehold improvements

 

19,633

 

17,326

 

 

 

195,102

 

186,734

 

Accumulated depreciation

 

(105,781

)

(97,819

)

 

 

89,321

 

88,915

 

Capital improvements in progress

 

900

 

908

 

Net property and equipment

 

90,221

 

89,823

 

 

 

 

 

 

 

RADIO BROADCASTING LICENSES

 

1,410,341

 

1,316,983

 

 

 

 

 

 

 

GOODWILL

 

50,834

 

115,614

 

 

 

 

 

 

 

ASSETS HELD FOR SALE

 

14,707

 

131,685

 

 

 

 

 

 

 

INVESTMENT IN DECONSOLIDATED SUBSIDIARIES

 

 

119,251

 

 

 

 

 

 

 

DEFERRED CHARGES AND OTHER ASSETS - Net

 

21,281

 

20,001

 

 

 

 

 

 

 

TOTAL

 

$

1,698,805

 

$

1,919,352

 

 

See notes to condensed consolidated financial statements.

 

1



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 AND DECEMBER 31, 2007

(amounts in thousands)

(unaudited)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

JUNE 30,

 

DECEMBER 31,

 

 

 

2008

 

2007

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

1,033

 

$

5,781

 

Accrued expenses

 

16,081

 

11,288

 

Accrued liabilities:

 

 

 

 

 

Salaries

 

8,194

 

8,142

 

Interest

 

2,895

 

4,393

 

Advertiser obligations and other commitments

 

1,383

 

1,436

 

Other

 

4,056

 

4,328

 

Current portion of long-term debt

 

22

 

21

 

Total current liabilities

 

33,664

 

35,389

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

Senior debt

 

811,186

 

823,697

 

7.625% senior subordinated notes

 

108,254

 

150,000

 

Deferred tax liabilities

 

184,422

 

235,579

 

Other long-term liabilities

 

15,131

 

13,920

 

Total long-term liabilities

 

1,118,993

 

1,223,196

 

Total liabilities

 

1,152,657

 

1,258,585

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock

 

 

 

Class A, B and C common stock

 

379

 

387

 

Additional paid-in capital

 

582,417

 

595,915

 

Retained earnings (deficit)

 

(41,438

)

64,597

 

Accumulated other comprehensive income (loss)

 

4,790

 

(132

)

Total shareholders’ equity

 

546,148

 

660,767

 

 

 

 

 

 

 

TOTAL

 

$

1,698,805

 

$

1,919,352

 

 

See notes to condensed consolidated financial statements.

 

2



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

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

(unaudited)

 

 

 

SIX MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

NET REVENUES

 

$

219,170

 

$

224,855

 

 

 

 

 

 

 

OPERATING (INCOME) EXPENSE:

 

 

 

 

 

Station operating expenses, including non-cash compensation expense of $1,113 in 2008 and $1,468 in 2007

 

138,615

 

143,032

 

Depreciation and amortization

 

11,535

 

8,039

 

Corporate general and administrative expenses, including non-cash compensation expense of $4,605 in 2008 and  $3,116 in 2007

 

15,355

 

15,402

 

Impairment loss

 

184,587

 

45,353

 

Time brokerage agreement (income) fees

 

(143

)

7,499

 

Net (gain) on sale or disposal of assets

 

(9,999

)

(419

)

Total operating expense

 

339,950

 

218,906

 

OPERATING INCOME (LOSS)

 

(120,780

)

5,949

 

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

Interest expense, including amortization of deferred financing costs of $842 in 2008 and $814 in 2007

 

24,410

 

24,592

 

Interest and dividend income

 

(267

)

(338

)

(Gain) loss on early extinguishment of debt

 

(2,384

)

458

 

Net gain on derivative instruments

 

(34

)

(107

)

Net (gain) loss on investments

 

211

 

(222

)

Other income

 

(3,256

)

 

TOTAL OTHER EXPENSE

 

18,680

 

24,383

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT

 

(139,460

)

(18,434

)

INCOME TAX BENEFIT

 

(52,336

)

(5,362

)

LOSS FROM CONTINUING OPERATIONS

 

(87,124

)

(13,072

)

Income (loss) from discontinued operations, net of income tax provision (benefit)

 

(3,977

)

11

 

NET LOSS

 

$

(91,101

)

$

(13,061

)

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

Loss from continuing operations

 

$

(2.34

)

$

(0.33

)

Income (loss) from discontinued operations, net of income tax provision (benefit)

 

(0.10

)

0.00

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

$

(2.44

)

$

(0.33

)

 

 

 

 

 

 

DIVIDENDS DECLARED AND PAID PER COMMON SHARE

 

$

0.48

 

$

0.76

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

Basic and Diluted

 

37,304,858

 

39,102,341

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2008 AND 2007

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

(unaudited)

 

 

 

THREE MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

NET REVENUES

 

$

123,780

 

$

125,000

 

 

 

 

 

 

 

OPERATING (INCOME) EXPENSE:

 

 

 

 

 

Station operating expenses, including non-cash compensation expense of $730 in 2008 and $949 in 2007

 

74,525

 

74,819

 

Depreciation and amortization

 

5,533

 

3,955

 

Corporate general and administrative expenses, including non-cash compensation expense of $1,415 in 2008 and $1,784 in 2007

 

7,020

 

7,702

 

Impairment loss

 

184,587

 

45,353

 

Time brokerage agreement (income) fees

 

(45

)

3,459

 

Net (gain) loss on sale or disposal of assets

 

22

 

(537

)

Total operating expense

 

271,642

 

134,751

 

OPERATING LOSS

 

(147,862

)

(9,751

)

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

Interest expense, including amortization of deferred financing costs of $414 in 2008 and $412 in 2007

 

10,846

 

12,552

 

Interest and dividend income

 

(188

)

(154

)

(Gain) loss on early extinguishment of debt

 

(615

)

458

 

Net gain on derivative instruments

 

 

(77

)

Net (gain) loss on investments

 

135

 

(147

)

Other income

 

(3,256

)

 

TOTAL OTHER EXPENSE

 

6,922

 

12,632

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT

 

(154,784

)

(22,383

)

INCOME TAX BENEFIT

 

(58,491

)

(9,875

)

LOSS FROM CONTINUING OPERATIONS

 

(96,293

)

(12,508

)

Income (loss) from discontinued operations, net of income tax provision (benefit)

 

(33

)

11

 

NET LOSS

 

$

(96,326

)

$

(12,497

)

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC  AND DILUTED

 

 

 

 

 

Income loss from continuing operations

 

$

(2.60

)

$

(0.32

)

Income (loss) from discontinued operations, net of income tax provision (benefit)

 

(0.00

)

0.00

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

$

(2.60

)

$

(0.32

)

 

 

 

 

 

 

DIVIDENDS DECLARED AND PAID PER COMMON SHARE

 

$

0.10

 

$

0.38

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

Basic and Diluted

 

36,965,906

 

38,821,310

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(amounts in thousands)

(unaudited)

 

 

 

SIX MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

NET LOSS

 

$

(91,101

)

$

(13,061

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX BENEFIT/PROVISION:

 

 

 

 

 

Unrealized gain (loss) on investments, net of a tax provision of $86 in 2008 and a tax benefit of $41 in 2007

 

132

 

(115

)

Unrealized gain on derivatives, net of a tax provision of $3,101 in 2008

 

4,790

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(86,179

)

$

(13,176

)

 

See notes to condensed consolidated financial statements.

 

5



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

THREE MONTHS ENDED JUNE 30, 2008 AND 2007

(amounts in thousands)

(unaudited)

 

 

 

THREE MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

 

 

 

 

 

 

NET LOSS

 

$

(96,326

)

$

(12,497

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, NET OF TAX PROVISION:

 

 

 

 

 

Unrealized gain on investments, net of a tax provision of $70 in 2008 and $78 in 2007

 

108

 

120

 

Unrealized gain on derivatives, net of a tax provision of $4,215 in 2008

 

6,510

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(89,708

)

$

(12,377

)

 

See notes to condensed consolidated financial statements.

 

6



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

SIX MONTHS ENDED JUNE 30, 2008 AND YEAR ENDED DECEMBER 31, 2007

(amounts in thousands, except share data)

(unaudited)

 

 

 

Common Stock

 

Additional

 

Retained

 

 

 

Accumulated
Other

 

 

 

 

 

Class A

 

Class B

 

paid-in

 

Earnings

 

Unearned

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

(Deficit)

 

Compensation

 

Income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2006

 

32,379,345

 

$

324

 

8,046,805

 

$

80

 

$

641,889

 

$

134,655

 

$

 

$

144

 

$

777,092

 

Net loss

 

 

 

 

 

 

(8,357

)

 

 

(8,357

)

Conversion of Class B common stock to Class A common stock

 

439,273

 

4

 

(439,273

)

(4

)

 

 

 

 

 

Accounting change, net of taxes

 

 

 

 

 

 

(1,850

)

 

 

(1,850

)

Compensation expense related to granting of stock options

 

 

 

 

 

212

 

 

 

 

212

 

Compensation expense related to granting of restricted stock

 

488,677

 

5

 

 

 

9,059

 

 

 

 

9,064

 

Issuance of common stock related to an incentive plan

 

22,525

 

 

 

 

465

 

 

 

 

 

 

 

465

 

Exercise of stock options (including tax benefits)

 

21,585

 

 

 

 

559

 

 

 

 

559

 

Common stock repurchase

 

(2,176,039

)

(22

)

 

 

(54,979

)

 

 

 

(55,001

)

Purchase of vested employee restricted stock units

 

(42,666

)

 

 

 

(1,290

)

 

 

 

(1,290

)

Payments of dividends

 

 

 

 

 

 

(57,992

)

 

 

(57,992

)

Dividend equivalents on restricted stock units (net of for-feitures and payments)

 

 

 

 

 

 

(1,859

)

 

 

(1,859

)

Net unrealized loss on investments

 

 

 

 

 

 

 

 

(276

)

(276

)

Balance, December 31, 2007

 

31,132,700

 

311

 

7,607,532

 

76

 

595,915

 

64,597

 

 

(132

)

660,767

 

Net loss

 

 

 

 

 

 

 

(91,101

)

 

 

(91,101

)

Compensation expenses related to granting of stock options

 

 

 

 

 

204

 

 

 

 

204

 

Compensation expense related to granting of restricted stock

 

508,950

 

5

 

 

 

4,335

 

 

 

 

4,340

 

Issuance of common stock related to an incentive plan

 

24,681

 

 

 

 

215

 

 

 

 

215

 

Exercise of stock option (including tax benefits)

 

 

 

 

 

 

 

 

 

 

 

Common stock repurchase

 

(1,302,100

)

(13

)

 

 

(13,247

)

 

 

 

(13,260

)

Purchase of vested employee restricted stock units

 

(116,029

)

 

 

 

(1,360

)

 

 

 

(1,360

)

Payment of dividends

 

 

 

 

 

(3,645

)

(14,301

)

 

 

(17,946

)

Dividend equivalents on restricted stock units (net of for-feitures of payments)

 

 

 

 

 

 

(633

)

 

 

(633

)

Net unrealized gain on investments

 

 

 

 

 

 

 

 

132

 

132

 

Net unrealized gain on derivatives

 

 

 

 

 

 

 

 

4,790

 

4,790

 

Balance, June 30, 2008

 

30,248,202

 

$

303

 

7,607,532

 

$

76

 

$

582,417

 

$

(41,438

)

$

 

$

4,790

 

$

546,148

 

 

See notes to condensed consolidated financial statements.

 

7



Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(amounts in thousands)

(unaudited)

 

 

 

SIX MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(91,101

)

$

(13,061

)

(Income) loss from discontinued operations before impairment loss, net of tax provision

 

37

 

(11

)

Impairment loss from discontinued operations

 

6,675

 

 

Deferred tax benefit from discontinued operations

 

(2,735

)

 

Loss from continuing operations

 

(87,124

)

(13,072

)

 

 

 

 

 

 

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

 

 

 

 

 

Depreciation and amortization (includes amortization of station operating expenses)

 

11,535

 

8,042

 

Amortization of deferred financing costs

 

842

 

814

 

Deferred taxes

 

(52,336

)

1,577

 

Tax benefit on exercise of options

 

 

29

 

Provision for bad debts

 

1,412

 

1,511

 

Net gain on sale or disposal of assets

 

(9,999

)

(419

)

Non-cash stock-based compensation expense

 

5,718

 

4,584

 

Net (gain) loss on investments

 

211

 

(222

)

Net gain on derivative instruments

 

(34

)

(107

)

Deferred rent

 

145

 

14

 

Unearned revenue - long-term

 

(20

)

(19

)

Net gain (loss) on extinguishment of debt

 

(2,384

)

458

 

Deferred compensation

 

1,175

 

794

 

Tax benefit for vesting of restricted stock unit awards

 

(474

)

(1,199

)

Impairment loss

 

184,587

 

45,353

 

Other income

 

(3,500

)

 

Changes in assets and liabilities (net of effects of acquisitions and dispositions in all years and the effect of deconsolidation activities in 2008 and 2007):

 

 

 

 

 

Accounts receivable

 

(5,691

)

(10,289

)

Prepaid expenses and deposits

 

(1,246

)

(2,409

)

Prepaid and refundable income taxes

 

14,298

 

(7,433

)

Accounts payable and accrued liabilities

 

(1,732

)

4,441

 

Prepaid expenses - long-term

 

200

 

 

Net cash provided by continuing operating activities

 

55,583

 

32,448

 

Net cash (used in) provided by discontinued operating activities

 

(37

)

23

 

Net cash provided by operating activities

 

55,546

 

32,471

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Additions to property and equipment

 

(4,498

)

(6,830

)

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

 

21,006

 

33

 

Purchases of radio station assets

 

(374

)

 

Deferred charges and other assets

 

(848

)

(347

)

Purchases of investments

 

(6

)

(2

)

Proceeds from investments

 

193

 

2,199

 

Proceeds from insurance recovery

 

3,500

 

523

 

Station acquisition deposits and costs

 

4,141

 

(438

)

Net cash provided by (used in) investing activities

 

23,114

 

(4,862

)

 

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Table of Contents

 

ENTERCOM COMMUNICATIONS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(amounts in thousands)

(unaudited)

 

 

 

SIX MONTHS ENDED
JUNE 30,

 

 

 

2008

 

2007

 

FINANCING ACTIVITIES:

 

 

 

 

 

Deferred financing expenses related to bank facility and senior subordinated debt

 

 

(4,634

)

Proceeds from issuance of long-term debt

 

56,000

 

628,500

 

Payments of long-term debt

 

(68,511

)

(574,509

)

Retirement of senior subordinated debt

 

(38,765

)

 

 

Purchase of the Company’s common stock

 

(13,260

)

(47,375

)

Proceeds from issuance of employee stock plan

 

183

 

219

 

Proceeds from the exercise of stock options

 

 

529

 

Purchase of vested restricted stock units

 

(1,360

)

(1,284

)

Payment of dividend equivalents on vested restricted stock units

 

(914

)

(96

)

Payment of dividends

 

(17,946

)

(29,627

)

Tax benefit for vesting of restricted stock awards

 

474

 

1,199

 

Net cash used in financing activities

 

(84,099

)

(27,078

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(5,439

)

531

 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

10,945

 

10,795

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

5,506

 

$

11,326

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

24,273

 

$

23,565

 

Income taxes

 

$

22

 

$

339

 

Dividends

 

$

17,946

 

$

29,627

 

 

SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES -

 

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

 

In connection with the issuance of 0.5 million and 0.4 million restricted stock units (net of forfeitures) during the six months ended June 30, 2008 and 2007, respectively, the Company will increase its paid in capital in the amount of $6.0 million and $11.5 million over the vesting period of the restricted stock units.

 

See notes to condensed consolidated financial statements.

 

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ENTERCOM COMMUNICATIONS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

 

1.                                      BASIS OF PRESENTATION

 

The condensed consolidated interim unaudited financial statements included herein have been prepared by Entercom Communications Corp. and its subsidiaries (collectively, the “Company”) in accordance with: (i) generally accepted accounting principles for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented.  All such adjustments are of a normal, recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.

 

This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements as of and for the year ended December 31, 2007 and filed with the SEC on February 22, 2008, as part of the Company’s Annual Report on Form 10-K.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

 

Recent Accounting Pronouncements

 

FAS No. 161

 

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard (“FAS”) No. 161, “Disclosures about Derivative Instruments and Hedging Activities -an amendment of FASB Statement No. 133.” FAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The guidance in FAS No. 161 is effective on January 1, 2009. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently assessing the impact of FAS No. 161.

 

SFAS 133 DIG No. E23

 

In December 2007, the FASB approved for issuance certain clarifications on the use of the shortcut method for measuring effectiveness under paragraph 68(b) of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its interaction with FAS No. 157, “Fair Value Measurements.” See Note 1 below for further discussion of FAS No. 157. The Company applied this guidance prospectively to interest rate transactions upon the adoption of FAS No. 157 on January 1, 2008.

 

SAB No. 110

 

In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 110 that modified SAB No. 107 regarding the use of a “simplified” method in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123R, “Share-Based Payment.”  Under SAB No. 107, the use of the simplified method was not allowed beyond December 31, 2007. SAB No. 110 allows, however, the use of the “simplified” method beyond December 31, 2007 under certain circumstances. During the first six months of 2008, the Company used the simplified method under SAB No. 107, and the Company expects to continue to use the simplified method in future periods if the facts and circumstances permit.

 

FAS No. 160

 

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51.”  FAS No. 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity.  FAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority

 

10



Table of Contents

 

interests, with all other requirements applied prospectively.  FAS No. 160 is effective for the Company as of January 1, 2009.  The Company does not anticipate that the adoption of FAS No. 160 will have an effect on the Company’s financial position, results of operations or cash flows.

 

FAS No. 141R

 

In December 2007, the FASB issued FAS No. 141R (as revised), “Business Combinations,” that will significantly change how business combinations are accounted for through the use of fair values in financial reporting and will impact financial statements both on the acquisition date and in subsequent periods. Some of the changes, such as the accounting for contingent consideration, will introduce more volatility into earnings, and could impact the Company’s acquisition strategy.  FAS No. 141R, which is effective for the Company as of January 1, 2009, will apply to all business combinations that will close on or after January 1, 2009.

 

FAS No. 159

 

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” FAS No. 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. Entities electing the fair value option would be required to recognize changes in fair value in earnings. FAS No. 159 was effective for the Company as of January 1, 2008. The Company did not elect to adopt FAS No. 159 on current assets and liabilities, but may elect to do so in the future.

 

FAS No. 157

 

In September 2006, the FASB issued FAS No. 157, “Fair Value Measurements,” which provides guidance for using fair value to measure assets and liabilities. FAS No. 157 was effective for the Company as of January 1, 2008.  The adoption of FAS No. 157 did not have a material effect on the Company’s financial position, results of operations or cash flows.

 

2.                                      SHARE-BASED COMPENSATION

 

Under the Entercom Equity Compensation Plan (the “Plan”), 0.9 million shares are available for future grant as of June 30, 2008.  At the shareholders’ meeting on May 13, 2008, the Company’s shareholders approved certain amendments to the Plan including: (i) an increase to the sub-limit for restricted stock units from 2.0 million to 3.0 million shares; and (ii) the addition of certain performance criteria for purposes of eliminating expense deduction limitations for income tax purposes.

 

Restricted Stock Units

 

Restricted Stock Units With Service And Market Conditions

 

As of June 30, 2008, none of the Company’s 0.3 million restricted stock units with service and market conditions vested, as the applicable milestones were not reached.

 

For the six months ended June 30, 2008 and 2007, no restricted stock units with service and market conditions were issued.

 

Restricted Stock Unit Activity

 

During the six months ended June 30, 2008, the Company issued 0.5 million restricted stock units (net of forfeitures) at a weighted average fair value of $11.70 and will increase its additional paid-in capital by $6.0 million over the vesting period of the restricted stock units. During the six months ended June 30, 2007, the Company issued 0.4 million restricted stock units (net of forfeitures) at a weighted average fair value of $29.22 and will increase its additional paid-in capital by $11.5 million over the vesting period of the restricted stock units. During the six months ended June 30, 2008 and 2007, 0.4 million units and 0.2 million units, respectively, of restricted stock were both vested and released.

 

As of June 30, 2008, there was $16.7 million of unamortized compensation expense, net of estimated forfeitures, related to unvested restricted stock units, which is expected to be amortized over a remaining weighted-average recognition period of 2.7 years.

 

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A summary of the Company’s outstanding restricted stock units as of June 30, 2008, and changes in restricted stock units during the six months ended June 30, 2008, is as follows:

 

 

 

Number of
Restricted
Stock
Units

 

Weighted-
Average
Purchase
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value As Of
June 30,
2008

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units outstanding as of December 31, 2007

 

1,407,680

 

 

 

 

 

 

 

Restricted stock units awarded

 

525,700

 

 

 

 

 

 

 

Restricted stock units released

 

(426,511

)

 

 

 

 

 

 

Restricted stock units forfeited

 

(16,750

)

 

 

 

 

 

 

Restricted stock units outstanding as of June 30, 2008

 

1,490,119

 

$

 

1.7

 

$

10,460,635

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units vested and expected to vest

 

1,328,691

 

$

 

1.7

 

$

9,007,023

 

Restricted stock units exercisable (vested and deferred)

 

45,639

 

$

 

0.0

 

$

320,386

 

Weighted average remaining recognition period in years

 

2.7

 

 

 

 

 

 

 

 

Options

 

There were 0.2 million options granted during the six months ended June 30, 2008, and there were no options granted during the six months ended June 30, 2007. For options granted during the six months ended June 30, 2008, the Company used the Black-Scholes option-pricing model and determined: (1) the term by using the simplified plain-vanilla method as allowed under SAB No. 110 (see Note 1, Recent Accounting Pronouncements); (2) a historical volatility over a period commensurate with the expected term, with the observation of the volatility on a daily basis; (3) a risk-free interest rate that was consistent with the expected term of the stock options and based on the U.S. Treasury yield curve in effect at the time of the grant; and (4) an annual dividend yield based upon the Company’s most recent quarterly dividend per common share at the time of the grant.

 

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

 

 

 

Six Months
Ended
June 30,
2008

Expected life

 

6.25 years

Expected volatility factor

 

30.9% to 32.3%

Risk-free interest rate

 

2.7% to 3.3%

Expected dividend yield

 

3.7% to 14.6%

 

The total intrinsic value of options exercised was $78 thousand during the six months ended June 30, 2007 (no options were exercised during the six months ended June 30, 2008). For the six months ended June 30, 2007, cash received from stock option exercises was $529 thousand and the income tax benefit from stock option exercises was $29 thousand.

 

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The following table presents the option activity for the six months ended June 30, 2008:

 

 

 

Number of
Options

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value
As of
June 30,
2008

 

 

 

 

 

 

 

 

 

 

 

Options outstanding as of December 31, 2007

 

2,344,100

 

$

29.74

 

 

 

 

 

Options granted

 

185,150

 

$

12.17

 

 

 

 

 

Options exercised

 

 

$

 

 

 

 

 

Options forfeited

 

(3,000

)

$

25.45

 

 

 

 

 

Options expired

 

(14,195

)

$

31.89

 

 

 

 

 

Outstanding as of June 30, 2008

 

2,512,055

 

$

28.44

 

5.8

 

$

 

 

 

 

 

 

 

 

 

 

 

Options vested and expected to vest as of June 30, 2008

 

2,422,051

 

$

28.78

 

5.6

 

$

 

Options vested and exercisable as of June 30, 2008

 

1,768,405

 

$

32.30

 

4.3

 

$

 

Weighted average remaining recognition period in years

 

3.3

 

 

 

 

 

 

 

 

As of June 30, 2008, $1.1 million of accumulated unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, is expected to be recognized in future periods over a weighted average period of 3.3 years.

 

The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2008:

 

 

 

 

 

Options
Outstanding

 

Options
Exercisable

 

Exercise Prices

 

Number of
Options
Outstanding
at June 30,
2008

 

Weighted
Average
Remaining
Contractual
Life

 

Weighted
Average
Exercise
Price

 

Number of
Options
Exercisable
at June 30,
2008

 

Weighted
Average
Exercise
Price

 

$

10.90

 

$

18.00

 

449,957

 

7.3

 

$

14.55

 

115,557

 

$

18.00

 

$

22.50

 

$

23.87

 

499,044

 

7.4

 

$

23.60

 

99,044

 

$

22.50

 

$

27.75

 

$

27.75

 

436,993

 

2.4

 

$

27.75

 

436,993

 

$

27.75

 

$

28.19

 

$

34.44

 

81,375

 

4.2

 

$

32.57

 

72,250

 

$

32.50

 

$

35.05

 

$

35.05

 

876,000

 

6.3

 

$

35.05

 

875,875

 

$

35.05

 

$

36.25

 

$

52.05

 

168,686

 

3.7

 

$

45.27

 

168,686

 

$

45.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,512,055

 

5.8

 

$

28.44

 

1,768,405

 

$

32.30

 

 

Recognized Non-Cash Compensation Expense

 

For the six months ended June 30, 2008 and 2007, the Company recorded an income tax benefit of $2.0 million and $1.6 million, respectively, related to the stock-based compensation expense recognized under SFAS No. 123R of $5.7 million and $4.6 million, respectively.

 

 For the three months ended June 30, 2008 and 2007, the Company recorded an income tax benefit of $0.7 million and $1.1 million, respectively, related to the stock-based compensation expense recognized under SFAS No. 123R of $2.1 million and $2.7 million, respectively.

 

Tax Benefit, Or Additional Paid-In-Capital Pool

 

In connection with the vesting of restricted stock units issued under the Company’s 2006 Option Exchange Program, the Company received tax deductions in excess of previously recorded tax benefits.  As a result, the Company recorded a windfall tax benefit of $0.5 million and $1.2 million for the six months ended

 

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June 30, 2008 and 2007, respectively, that was classified as a financing cash inflow in the condensed consolidated statements of cash flows.

 

For the six months ended June 30, 2008, the Company utilized its paid-in-capital pool of $1.7 million in current and previously recorded tax benefits.

 

3.                                      INTANGIBLE ASSETS AND GOODWILL

 

(A) Indefinite-Lived Intangibles

 

Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and certain intangible assets are not amortized. Instead, these assets are reviewed at least annually for impairment and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The Company has determined that broadcasting licenses are deemed to have indefinite useful lives.

 

Other than goodwill, the Company uses a direct value method to determine the fair value of all intangible assets required to be: (i) recognized under SFAS No. 141; and (ii) tested for impairment under the provisions of SFAS No. 142.

 

Broadcasting Licenses

 

The Company performs its annual impairment test on its broadcasting licenses in the first quarter of each year by: (i) determining the reporting unit; and (ii) comparing the carrying amount of the broadcasting licenses reflected on the balance sheet in each reporting unit to the fair value of the reporting unit’s broadcasting licenses.

 

During each of the first quarters of 2008 and 2007, the Company completed the non-amortizing intangible asset impairment test for broadcasting licenses and determined that: (1) the reporting unit was a radio market; and (2) the fair value of the broadcasting licenses was equal to or greater than the amount reflected in the balance sheet for each of the Company’s markets.  Based upon the results of each of the asset impairment tests, no impairment charges were recorded during the first quarter for each of these years. Please refer to Note 14, Assets Held For Sale And Discontinued Operations, for a discussion of an impairment to broadcasting licenses on assets held for sale.

 

In connection with the Company’s annual review of its goodwill during the second quarter of 2008 as described in Note 3 below, the Company determined that the fair value of several of its markets’ broadcasting licenses was impaired under the second step of its goodwill analysis. As a result, for the six months ended June 30, 2008 the Company recorded an impairment loss in the Denver, Greenville, Indianapolis and Memphis markets on a aggregate basis of $117.0 million and reduced its carrying value of broadcasting licenses. Contributing factors to the impairment were a decline in the available advertising dollars in these markets and its effect on the Company’s operations, coupled with changes in the anticipated growth of these markets. Other than as described above, no event occurred or circumstances changed after these first quarter tests were conducted that would, more likely than not, change the fair value of broadcasting licenses below the amount reflected in the balance sheets and, accordingly, no other impairment charges were recorded for the six months ended June 30, 2008 and 2007.  The amount of unamortized broadcasting licenses reflected in the balance sheet as of June 30, 2008 was $1.4 billion.

 

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

 

 

 

Carrying
Amount

 

 

 

(amounts in
thousands)

 

 

 

 

 

Balance as of December 31, 2007

 

$

1,316,983

 

Acquisitions

 

210,358

 

Loss on impairment

 

(117,000

)

Balance as of June 30, 2008

 

$

1,410,341

 

 

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Table of Contents

 

Goodwill

 

The Company performs its annual impairment test on its goodwill during the second quarter of each year by: (1) determining the reporting unit; and (2) comparing the fair value for each reporting unit with the amount reflected on the balance sheet. If the fair value for any reporting unit is less than the amount reflected in the balance sheet, an indication exists that the amount of goodwill attributed to a reporting unit may be impaired, and the Company is required to perform a second step of the impairment test. In the second step, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS No. 141, to the amount reflected in the balance sheet.

 

To determine the fair value, the Company uses an income or market approach for each reporting unit. The market approach compares recent sales and offering prices of similar properties. The income approach uses the subject property’s income generated over a specified time and capitalized at an appropriate market rate to arrive at an indication of the most probable selling price.

 

The Company performed its annual impairment test and, as a result, the Company recorded an impairment loss of: (1) $67.6 million on an aggregate basis for the Denver and Indianapolis markets during the second quarter of 2008 (see the related impairment of broadcasting licenses as described in Note 3, above); and (2) $45.4 million for the Denver market during the second quarter of 2007. Contributing factors to the impairment were a decline in the available advertising dollars in these markets and its effect on the Company’s operations, coupled with changes in the anticipated growth of the broadcasting industry and its impact on prices paid for radio stations. If actual market conditions are less favorable than those projected by the industry or the Company, or if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the Company’s goodwill below the amount reflected in the balance sheet, the Company may be required upon retesting to recognize impairment charges in future periods. Please refer to Note 14, Assets Held For Sale And Discontinued Operations, for a discussion of an impairment to goodwill on assets held for sale. The amount of goodwill reflected in the Company’s balance sheet as of June 30, 2008 was $50.8 million.

 

The following table presents the changes in goodwill for the six months ended June 30, 2008:

 

 

 

Carrying
Amount

 

 

 

(amounts in
thousands)

 

 

 

 

 

Balance as of December 31, 2007

 

$

115,614

 

Acquisitions

 

2,807

 

Loss on impairment

 

(67,587

)

Balance as of June 30, 2008

 

$

50,834

 

 

(B) Definite-Lived Intangibles

 

The Company has definite-lived intangible assets that consist of advertiser lists and customer relationships, acquired advertising contracts and income leases. These assets are amortized over the period for which the assets are expected to contribute to the Company’s future cash flows and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The amount of the amortization expense for definite-lived intangible assets was $2.8 million and $0.1 million for the six months ended June 30, 2008 and 2007, respectively.  The amount of the amortization expense for definite-lived intangible assets was $1.1 million and under $0.1 million for the three months ended June 30, 2008 and 2007, respectively.  As of June 30, 2008, the Company reflected $1.0 million in unamortized definite-lived assets, which amount is included in deferred charges and other assets on the balance sheet.

 

The following is an estimate of the amortization expense for definite-lived assets, in thousands, for each of the succeeding years ending December 31:

 

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Table of Contents

 

 

 

Definitive-
Lived
Assets

 

Years ending December 31,

 

 

 

2008 (excludes the six months ended June 30, 2008)

 

$

99

 

2009

 

157

 

2010

 

122

 

2011

 

84

 

2012

 

81

 

Thereafter

 

498

 

Total

 

$

1,041

 

 

4.                                      ACQUISITIONS AND UNAUDITED PRO FORMA SUMMARY

 

Acquisitions And Dispositions For The Six Months Ended June 30, 2008

 

Exchange:  Four Stations In Cincinnati, Ohio, And Three Stations In Seattle, Washington, In Exchange For Three Stations In San Francisco, California

 

On March 14, 2008, the Company completed an exchange transaction with Bonneville International Corporation (“Bonneville”) to exchange four radio stations in Cincinnati, Ohio, and three radio stations in Seattle, Washington, for three radio stations in San Francisco, California, and $1.0 million in cash. No cash was required by the Company to complete this transaction.

 

The fair value of the assets acquired in exchange for the assets disposed were accounted for under FAS No. 153, “Exchanges of Non-monetary Assets - an Amendment of APB Opinion No. 29,” which resulted in a fair value of $220.0 million.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company used market and income approaches.

 

On February 26, 2007, the Company commenced operations of the San Francisco stations pursuant to a time brokerage agreement (“TBA”), and Bonneville commenced operations of the Cincinnati and Seattle stations pursuant to a TBA. During the period of the TBA, the Company: (i) included net revenues and station operating expenses associated with operating the San Francisco stations in the Company’s financial statements; and (ii) excluded net revenues and station operating expenses associated with operating the Cincinnati stations and three of the Seattle stations in the Company’s condensed consolidated financial statements. TBA income and TBA fees were equal in amount under the TBA agreements (other than the first three months when TBA income exceeded TBA expense by $0.3 million).  During the period subsequent to the acquisition of the Cincinnati stations, there were no revenues or station operating expenses reported by the Company, as Bonneville operated these stations pursuant to a TBA.

 

As a result of the exchange transaction, the Company recorded $2.8 million of goodwill which is fully deductible for income tax purposes. The exchange transaction provided the Company with entry into the San Francisco market, where management believes it can increase the market share of the acquired stations. Upon completion of the transactions described herein, the Company: (1) owns and operates three stations in San Francisco; (2) continues to own and operate four radio stations in the Seattle market; and (3) exited the Cincinnati market.  The Company reported a gain on sale or disposal of assets of $10.0 million, which was primarily attributable to the disposition of the three radio stations in the Seattle market.

 

The following is a summary of those radio stations that were included in the exchange:

 

Markets

 

Radio Stations

 

Transactions

San Francisco, CA

 

KDFC-FM; KBWF-FM; and KOIT-FM

 

Company acquired from Bonneville on March 14, 2008

Seattle, WA

 

KBSG-FM; KIRO-AM; and KTTH-AM

 

Company disposed to Bonneville on March 14, 2008

Cincinnati, OH

 

WKRQ-FM; WSWD-FM; WUBE-FM; and WYGY-FM

 

Company disposed to Bonneville on March 14, 2008

 

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For the three radio stations acquired in San Francisco, the aggregate purchase price, including transaction costs of $0.4 million, was allocated as follows and is based upon information available at this time and is subject to change:

 

Description

 

Amount

 

Useful Lives

 

 

(in thousands)

 

 

 

 

 

 

 

Leasehold improvements

 

$

 1,919

 

7 years

Furniture and equipment

 

173

 

5 years

Equipment

 

2,032

 

3 to 5 years

Total tangible assets

 

4,124

 

 

 

 

 

 

 

Advertiser lists and customer relationships

 

56

 

3 years

Acquired advertising contracts

 

2,039

 

less than 1 year

Broadcasting licenses

 

210,358

 

non-amortizing

Goodwill

 

2,807

 

non-amortizing

Total intangible assets

 

215,260

 

 

 

 

 

 

 

Total assets

 

219,384

 

 

Asset retirement liabilities

 

(10

)

7 years

Net assets acquired

 

$

 219,374

 

 

 

Austin, Texas

 

On January 15, 2008, the Company sold the radio station assets of KLQB-FM, formerly KXBT-FM, in Austin, Texas, for $20.0 million in cash.  The buyer had operated this station under a TBA since February 26, 2007. The Company believes that the divestiture of this station will not alter the competitive position of the remaining three stations the Company currently operates in this market.  No gain or loss was reported on the sale.

 

Acquisitions And Dispositions For The Six Months Ended June 30, 2007

 

There were no acquisitions or dispositions during the six months ended June 30, 2007.

 

Other Transactions

 

During May 2007, the Company completed an agreement to purchase land for $1.9 million in cash for the purpose of relocating and consolidating two of its Portland, Oregon, transmitter sites.

 

Unaudited Pro Forma Summary Of Financial Information

 

The following pro forma information presents the consolidated results of operations as if any acquisitions which occurred had all occurred as of the beginning of each period presented, after giving effect to certain adjustments, including depreciation and amortization of assets and interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions occurred as of the beginning of the periods presented. For purposes of this presentation, the data does not reflect on a pro forma basis dispositions of radio stations (other than the disposition of: (1) a radio station in Cincinnati to Cumulus as the Company has never operated this station; and (2) the disposition to Bonneville of  radio stations in Seattle and Cincinnati as this disposition was in exchange for the assets as described under Note 4).  In addition, the tables reflect on a pro forma basis as if the discontinued operations in Rochester were not discontinued. 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 acquisitions been made as of that date or results which may occur in the future.

 

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Six Months Ended June 30,

 

 

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

(amounts in thousands, except per
share data)

 

 

 

Pro Forma

 

Pro Forma

 

 

 

 

 

 

 

Net revenues

 

$

220,610

 

$

227,317

 

Net loss

 

$

(97,427

)

$

(11,654

)

Net loss per common share - basic and diluted

 

$

(2.61

)

$

(0.30

)

 

 

 

Three Months Ended June 30,

 

 

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

(amounts in thousands, except per
share data)

 

 

 

Pro Forma

 

Pro Forma

 

 

 

 

 

 

 

Net revenues

 

$

124,180

 

$

128,171

 

Net loss

 

$

(96,533

)

$

(12,524

)

Net loss per common share - basic and diluted

 

$

(2.61

)

$

(0.32

)

 

5.                                      SENIOR DEBT

 

Bank Facility

 

In June 2007, the Company entered into a credit agreement (the “Bank Facility”) with a syndicate of banks for a $1,050 million senior secured credit facility that matures in June 2012. The Bank Facility is comprised of $650 million in revolving credit (“Revolver”) and a $400 million term loan (“Term A”). The Company is required to make repayments of the Term A beginning September 2009 in quarterly amounts starting at $15 million and increasing to $60 million. The Bank Facility is secured by a pledge of 100% of the capital stock and other equity interest in all of the Company’s wholly owned subsidiaries. The Bank Facility requires the Company to comply with certain financial covenants and leverage ratios which are defined terms within the agreement, including: (1) Total Debt to Operating Cash Flow; and (2) Operating Cash Flow to Interest Expense.

 

As of June 30, 2008, the Company had $811.0 million, as well as a $1.5 million letter of credit, outstanding under the Bank Facility. Subject to covenant compliance at the time of each borrowing, the amount available under the Revolver as of June 30, 2008 was $237.5 million.

 

Deferred Financing Expenses

 

In connection with the replacement of the former credit facility with the Bank Facility, the Company reviewed the unamortized deferred financing costs to determine the amount subject to extinguishment under the provisions of EITF No. 98-14, “Debtor’s Accounting in Line-of-Credit or Revolving-Debt Arrangements.”  Under this provision, the Company: (1) recorded $0.5 million of the former credit facility’s unamortized deferred financing costs as a loss on early extinguishment of debt to the statement of operations during the second quarter of 2007; (2) deferred $2.2 million of the former credit facility’s unamortized deferred financing expenses that will be amortized under the effective interest rate method over the life of the Bank Facility; and (3) recorded $4.6 million of deferred financing expenses related to the Bank Facility that will be amortized under the effective interest rate method over the life of the Bank Facility.

 

6.             SENIOR SUBORDINATED NOTES

 

During the six months ended June 30, 2008, the Company repurchased $41.7 million of its $150.0 million 7.625% Senior Subordinated Notes (the “Notes”) due March 1, 2014. For the six and three months ended June 30, 2008, the Company recorded in the statements of operations a gain on the extinguishment of debt of $2.4 million and $0.6 million, respectively, net of the write-off of deferred financing costs of $0.6 million and $0.2 million, respectively.  The Notes outstanding as of June 30, 2008 were $108.3 million.

 

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7.                                      DERIVATIVES AND HEDGING ACTIVITIES

 

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 fixed rate Swap, the Company pays a fixed rate on a notional amount to a bank, and the bank pays to the Company a variable rate on the notional amount equal to the Company’s Eurodollar borrowing rate. A Collar establishes two separate agreements: an upper limit or “Cap” and a lower limit or “Floor” for the Company’s Eurodollar borrowing rate.

 

As of June 30, 2008, the Company had the following derivatives outstanding, which were designated as cash flow hedges that qualified for hedge accounting treatment:

 

Type of
Hedge

 

Notional
Amount

 

Effective
Date

 

Collar

 

Fixed
LIBOR
Rate

 

Expiration
Date

 

Effective
Date That
Notional
Amount
Decreases

 

Notional
Amount
After
Decrease

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

225.0

 

January 28, 2008

 

n/a

 

3.03%

 

January 28, 2011

 

January 28, 2010

 

$

 150.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

 

 

 

 

{

Cap

 

4.00%

}

 

 

 

 

 

 

 

 

$

100.0

 

February 28, 2008

Floor

 

2.14%

February 28, 2011

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

125.0

 

March 28, 2008

 

n/a

 

2.91%

 

September 28, 2011

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

100.0

 

May 28, 2008

 

n/a

 

3.62%

 

May 28, 2012

 

n/a

 

n/a

 

 

For the six months ended June 30, 2008, the Company recorded the change in the fair value of these derivatives as a gain of $4.8 million (net of a tax provision of $3.1 million) to the statement of other comprehensive loss as these derivatives were effective under the provisions of SFAS No. 133. The fair value of these derivatives was determined under the provisions of SFAS No. 157 using observable market based inputs (a level two measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the transaction’s counterparty for assets and the creditworthiness of the Company for liabilities).  For the three months ended June 30, 2008, the Company recorded the change in the fair value of these derivatives as a gain of $6.5 million (net of a tax provision of $4.2 million) to the statement of other comprehensive loss. As of June 30, 2008, the fair value of these derivatives was an asset of $7.9 million, which amount was recorded as a long-term asset in the balance sheet.

 

The following table presents the accumulated derivative gain (loss) recorded in the statements of comprehensive loss during the six months ended June 30, 2008 and 2007:

 

Other Comprehensive Loss

 

Accumulated Derivative
Gain (Loss)

 

Net Change
Accumulated Derivative
Gain (Loss)

 

Net Amount Of Accumulated
Derivative Gain
Reclassified To The
Consolidated Statement
Of Operations

 

June 30,

 

December 31,

 

Six Months Ended June 30,

 

Six Months Ended June 30,

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,790

 

$

 

$

4,790

 

$

 

$

 

$

 

 

The following table presents the accumulated derivative gain (loss) recorded in the statements of comprehensive loss during the three months ended June 30, 2008 and 2007:

 

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Other Comprehensive Loss

 

Net Change
Accumulated Derivative
Gain (Loss)

 

Net Amount Of Accumulated
Derivative Gain
Reclassified To The
Consolidated Statement
Of Operations

 

Three Months Ended June 30,

 

Three Months Ended June 30,

 

2008

 

2007

 

2008

 

2007

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

$

6,510

 

$

 

$

 

$

 

 

Accounting For Derivative Instruments And Hedging Activities

 

The Company recognizes at fair value all derivatives, whether designated in hedging relationships or not, in the balance sheet as either an asset or liability. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions.  Management reviews the correlation and effectiveness of its derivatives on a periodic basis.

 

8.                                      CONTINGENCIES

 

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings.  In the opinion of management, any potential liability of the Company which may arise out of, or with respect to, these matters will not materially affect the Company’s financial position, results of operations or cash flows.

 

The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’ compensation, general liability, property, director and officers’ liability, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by considering claims experience, demographic factors, severity factors, outside expertise and other actuarial assumptions. Under one of these policies, the Company is required to maintain a letter of credit in the amount of $1.5 million.

 

On January 25, 2007, a wrongful death suit was filed against the Company relating to an on-air contest. The lawsuit seeks various damages, which may not be fully covered by the Company’s insurance policy. The FCC has also initiated an investigation into this contest. The Company cannot comment at this time on the prospects for any outcome of these proceedings.

 

The Company could face increased costs in the form of fines and a greater risk that the Company could lose any one or more of its broadcasting licenses if the FCC concludes that programming broadcast by a Company station was obscene, indecent or profane and such conduct warrants license revocation.  As of July 2007, the FCC’s authority to impose a fine for the broadcast of such material was increased to $325,000 for a single incident, with a maximum fine of up to $3.0 million for a continuing violation. In the past, the FCC has issued Notices of Apparent Liability and a Forfeiture Order with respect to several of the Company’s stations proposing fines for certain programming which the FCC deemed to have been “indecent.” These cases are the subject of pending administrative appeals. The FCC has also commenced several other investigations based on allegations received from the public that some of the Company’s stations broadcast indecent programming.  The Company has cooperated in these investigations, which remain pending.  The Company estimates that the imposition of the proposed fines would not materially impact the Company’s financial position, results of operations or cash flows.

 

The Company has filed, on a timely basis, renewal applications for those radio stations for which their radio broadcasting licenses are subject to renewal with the FCC. Certain licenses were not renewed prior to the renewal date, which is not unusual. The Company continues to operate these radio stations under their existing licenses until the licenses are renewed.  The FCC may delay the renewal pending the resolution of open inquiries. The affected stations are, however, authorized to continue operations until the FCC acts upon the renewal application.

 

The Company’s six radio stations located in New Orleans, Louisiana, were affected by Hurricane Katrina and the subsequent flooding. The Company has completed the relocation and construction of new studio

 

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and office facilities as well as the strengthening of certain of its transmitter facilities to better withstand a similar event of this nature. During the six months ended June 30, 2008 and 2007, the Company recovered $3.5 million and $0.5 million, respectively, under its insurance policies which were reported as other income in the statement of operations.  The Company does not expect to recover any additional material amounts related to Hurricane Katrina under its insurance policies.

 

Guarantor Arrangements

 

The Company enters into indemnification agreements in the ordinary course of business and other agreements which include indemnification provisions.  The Company believes the estimated fair value of these agreements is minimal and has not recorded liabilities for these agreements as of June 30, 2008.

 

9.                                      SHAREHOLDERS’ EQUITY

 

Dividends

 

The following table presents a summary of the Company’s dividend activity during the six months ended June 30, 2008:

 

Payment
Date

 

Amount
Per
Common
Share

 

June 27, 2008

 

$

0.10

 

March 28, 2008

 

$

0.38

 

 

Dividend Equivalents

 

The Company’s grants of restricted stock units include the right, upon vesting, to receive a dividend equivalent amount equal to the aggregate of all dividends which would have been paid on the restricted stock units. For the six months ended June 30, 2008 and 2007, the Company paid $0.9 million and $0.1 million, respectively, to the holders of restricted stock units that vested during these periods. The dividend equivalent amount, accrued and unpaid on unvested restricted stock units, was $2.5 million as of June 30, 2008.  The Company recognizes the tax benefit for income tax purposes as a reduction to its income tax expense rather than as an increase to its paid-in capital as all dividend equivalent payments are made to the restricted stock holders upon the vesting of the units.

 

Repurchases Of Vested Restricted Stock Units

 

Upon vesting, unless an employee elects to pay the tax withholding obligation in cash, the Company withholds shares of stock in an amount sufficient to cover the employee’s tax withholding obligations.  As a result, during the six months ended June 30, 2008 and 2007, the Company was deemed to have repurchased 116 thousand and 42 thousand shares of stock, respectively.

 

Share Repurchase Programs

 

On April 23, 2008, the Company’s Board of Directors extended a $100.0 million share repurchase program that was due to expire on May 5, 2008. As of June 30, 2008, the Company has $27.0 million in capacity available under this extended share repurchase program which expires on June 30, 2009.

 

During the six months and three months ended June 30, 2008, the Company repurchased 1.3 million shares in the amount of $13.3 million at an average price of $10.18 per share.  During the six months and three months ended June 30, 2007, the Company repurchased 1.8 million and 1.4 million shares, respectively,  in the amount of $47.4 million and $37.4 million, respectively, at an average price of $25.85 and $25.27 per share, respectively.

 

10.                               DEFERRED COMPENSATION PLANS

 

The Company provides certain of its employees and the Board of Directors with an opportunity to defer a portion of their compensation on a tax-favored basis. The obligations by the Company to pay these benefits under these plans represent unsecured general obligations that rank equally with the Company’s other unsecured and unsubordinated indebtedness.  As of June 30, 2008, $4.0 million was deferred under these plans and was

 

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Table of Contents

 

included in other long-term liabilities. The Company also recorded a deferred tax asset of $1.6 million in connection with this liability. For the six months ended June 30, 2008 and 2007, the Company recorded deferred compensation income of $0.3 million and deferred compensation expense of $0.2 million, respectively, to corporate general and administrative expense.   For the three months ended June 30, 2008 and 2007, the Company recorded deferred compensation income of $0.1 million and deferred compensation expense of $0.2 million, respectively, to corporate general and administrative expense.

 

11.                               NET INCOME (LOSS) PER SHARE

 

The effect of stock options and restricted stock units in the calculation of net loss per share, using the treasury stock method, was anti-dilutive for the six and three months ended June 30, 2008 and 2007.

 

The following table sets forth the computations of basic and diluted EPS for the six months ended June 30, 2008 and 2007:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

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

 

 

 

Net Loss

 

Shares

 

EPS

 

Net Loss

 

Shares

 

EPS

 

Basic net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(87,124

)

37,304,858

 

$

(2.34

)

$

(13,072

)

39,102,341

 

$

(0.33

)

Income (loss) from discontinued operations

 

(3,977

)

 

(0.10

)

11

 

 

 

Net loss

 

$

(91,101

)

37,304,858

 

$

(2.44

)

$

(13,061

)

39,102,341

 

$

(0.33

)

Impact of options and restricted stock units

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(87,124

)

37,304,858

 

$

(2.34

)

(13,072

)

39,102,341

 

$

(0.33

)

Income (loss) from discontinued operations

 

(3,977

)

 

(0.10

)

11

 

 

 

Net loss

 

$

(91,101

)

37,304,858

 

$

(2.44

)

$

(13,061

)

39,102,341

 

$

(0.33

)

 

For the six months ended June 30, 2008 and 2007, 0.1 million and 0.4 million incremental shares, respectively, were not included in diluted loss per share as the shares were anti-dilutive when reporting a net loss.

 

In computing the incremental shares under the treasury stock method for the six months ended June 30, 2008, 1.3 million restricted stock units and options to purchase 2.5 million shares of common stock at a range of $10.42 to $52.05, were excluded from the computation as they were anti-dilutive.

 

In computing the incremental shares under the treasury stock method for the six months ended June 30, 2007, 0.3 million restricted stock units and options to purchase 1.7 million shares of common stock at a range of $27.71 to $52.05, were excluded from the computation as they were anti-dilutive.

 

The following table sets forth the computations of basic and diluted EPS for the three months ended June 30, 2008 and 2007:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

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

 

 

 

Net Loss

 

Shares

 

EPS

 

Net Loss

 

Shares

 

EPS

 

Basic net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(96,293

)

36,965,906

 

$

(2.60

)

$

(12,508

)

38,821,310

 

$

(0.32

)

Income (loss) from discontinued operations

 

(33

)

 

 

11

 

 

 

 

Net loss

 

$

(96,326

)

36,965,906

 

$

(2.60

)

$

(12,497

)

38,821,310

 

$

(0.32

)

Impact of options and restricted stock units

 

 

 

 

 

 

 

 

 

$

 

Diluted net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(96,293

)

36,965,906

 

$

(2.60

)

$

(12,508

)

38,821,310

 

$

(0.32

)

Income (loss) from discontinued operations

 

(33

)

 

 

11

 

 

 

Net loss

 

$

(96,326

)

36,965,906

 

$

(2.60

)

$

(12,497

)

38,821,310

 

$

(0.32

)

 

For the three months ended June 30, 2008 and 2007, under 0.1 million and 0.3 million incremental shares, respectively, were not included in diluted loss per share as the shares were anti-dilutive when reporting a net loss.

 

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In computing the incremental shares under the treasury stock method for the three months ended June 30, 2008, 1.4 million restricted stock units and options to purchase 2.5 million shares of common stock at a range of $9.48 to $52.05, were excluded from the computation as they were anti-dilutive.

 

In computing the incremental shares under the treasury stock method for the three months ended June 30, 2007, 0.5 million restricted stock units and options to purchase 1.7 million shares of common stock at a range of $26.94 to $52.05, were excluded from the computation as they were anti-dilutive.

 

12.                               INCOME TAXES

 

Effective Tax Rate - Overview

 

The Company’s income tax rates for the six months and three months ended June 30, 2008 were based on the estimated annual effective tax rate for 2008, which includes: (1) the effect of permanent differences between income subject to income tax for book and tax purposes; and (2) any discrete items of tax. The Company’s effective tax rate, which can fluctuate from quarter to quarter, is higher than the federal statutory rate of 35% primarily as a result of the provision for state taxes (net of a federal tax deduction).

 

The Company’s effective income tax rate may be impacted by: (1) changes in the level of income in any of the Company’s taxing jurisdictions; (2) changes in the statutes and rules applicable to taxable income in the jurisdictions in which the Company operates; (3) changes in the expected outcome of income tax audits; (4) changes in the estimate of expenses that are not deductible for tax purposes; (5) income taxes in certain states where the states’ current taxable income is dependent on factors other than the Company’s consolidated net income; and (6) the effect of recording changes in the Company’s Financial Interpretation No. (“FIN”) 48 liabilities.

 

An impairment loss will result in an income tax benefit during the period incurred as the amortization of broadcasting licenses and goodwill is deductible for income tax purposes.

 

Tax Benefit For The Six Months and Three Months Ended June 30, 2008

 

The effective income tax benefit on loss from continuing operations before income tax benefit was 37.5% and 37.8% for the six months and three months ended June 30, 2008, respectively.

 

Tax Benefit For The Six Months and Three Months Ended June 30, 2007

 

The effective income tax benefit on loss from continuing operations before income tax benefit for the six months and three months ended June 30, 2007 was 29.1% and 44.1%, respectively.

 

 The effective income tax benefit of 29.1% for the six months ended June 30, 2007 was negatively impacted primarily by a discrete item of tax of  $2.9 million, due to the commencement of operations in 2007 in states which on average have higher income tax rates than in states in which the Company previously operated and its effect on previously reported temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities.

 

The effective income tax benefit of 44.1% for the three months ended June 30, 2007 was positively impacted by recent favorable Internal Revenue Service guidance that removed the limits on the deduction of cash and non-cash compensation expense for certain executive compensation.

 

Income Tax Payments

 

The Company received income tax refunds of $14.3 million and $14.2 million for the six months and three months ended June 30, 2008, respectively.  The Company made income tax payments of less than $0.1 million for the six months and three months ended June 30, 2008. The Company made income tax payments of $0.4 million and $0.2 million for the six months and three months ended June 30, 2007, respectively.

 

Deferred Tax Liabilities

 

As of June 30, 2008 and December 31, 2007, the Company had net non-current deferred tax liabilities of $184.4 million and $235.6 million, respectively. The income tax accounting process to determine the deferred tax liabilities involves estimating 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 period in

 

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which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.

 

Deferred Tax Assets

 

The Company’s net current deferred tax assets as of June 30, 2008 and December 31, 2007 were $2.0 million and $2.2 million, respectively. The Company establishes a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.  In assessing a valuation allowance for deferred tax assets, the Company estimates future taxable income and provides a valuation allowance when it is more likely than not that the deferred tax asset will not be utilized. Future taxable income could be materially different from amounts estimated, in which case the valuation allowance would be adjusted. The Company has a valuation allowance of $1.8 million primarily due to: (1) the five-year limitation for tax purposes of utilizing a loss on investments for federal and state income taxes as only investment gains can be used to offset these losses; and (2) a ten-year limitation for tax purposes of recognizing an income tax credit in one of the states in which the Company operates. Based upon the years in which taxable temporary differences are anticipated to reverse, as of June 30, 2008, management believes it is more likely than not that the Company will realize the benefits of the deferred tax asset balance (net of recorded allowances). On a quarterly basis, management assesses whether it remains more likely than not that the deferred tax assets will be realized.

 

The Company has certain non-current deferred tax assets related to the issuance of awards under the Company’s Plan as described under Note 2, Share-Based Compensation, that are offset against the deferred tax liabilities described above.  The Company adjusts the deferred tax assets when the share-based award expires.  The Company may not fully realize the deferred tax asset at the time of vesting due to the current price of the Company’s Class A common stock.

 

FIN 48, Uncertain Tax Positions

 

For the six months ended June 30, 2008 and 2007, the Company recorded changes to its FIN 48 liabilities to the statements of operations as income tax expense of $0.1 million and $0.2 million, respectively, which amounts consisted primarily of interest and penalties. For each of the three months ended June 30, 2008 and 2007, the Company recorded changes to its FIN 48 liabilities to the statements of operations as income tax expense of $0.1 million, which amount consisted primarily of interest and penalties.  The Company’s FIN 48 liabilities as of June 30, 2008 and December 31, 2007 were $4.3 million and $4.2 million, which amounts were recorded in the balance sheets as long-term tax liabilities. The Company reviews its estimates on a quarterly basis, and any change in its FIN 48 liabilities will result in an adjustment to its income tax expense in the statement of operations in each period measured.

 

13.                               ACCOUNTS RECEIVABLE AND RELATED ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Accounts receivable are comprised primarily of advertising that has aired on the Company’s radio stations, but for which payment has not been collected, net of agency commissions and an estimated allowance for doubtful accounts. Estimates of the allowance for doubtful accounts are recorded based on management’s judgment of the collectibility of the accounts receivable based on historical information, relative improvements or deteriorations in the age of the accounts receivable and changes in current economic conditions.

 

The accounts receivable balances and reserve for doubtful accounts as of June 30, 2008 and December 31, 2007 are presented in the following table:

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Accounts receivable

 

$

97,489

 

$

93,035

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

(2,909

)

(2,746

)

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts

 

$

94,580

 

$

90,289

 

 

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Table of Contents

 

As of June 30, 2008 and December 31, 2007, the Company had recorded accounts receivable credits in the amounts of $2.2 million and $2.8 million, respectively, which amounts are included in the balance sheets under other current liabilities.

 

As of June 30, 2008 and December 31, 2007, the Company had recorded $0.7 million and $0.3 million, respectively, as short-term unearned revenues, which amount is included in the balance sheets under other current liabilities.

 

14.                               ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

Assets Held For Sale

 

Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria of paragraph 30 of SFAS No. 144. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. At June 30, 2008, the Company had classified as assets held for sale fixed and intangible assets related to the pending disposal of stations in the Portland, Oregon and Rochester, New York markets. The major categories of these assets were as follows:

 

 

 

Assets Held For Sale

 

 

 

 

 

 

 

Rochester

 

 

 

 

 

 

 

WFKL-FM

 

 

 

 

 

Portland

 

WRMM-FM

 

 

 

Total

 

KTRO-AM

 

WZNE-FM

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

Building

 

$

27

 

$

18

 

$

9

 

Equipment

 

2,436

 

284

 

2,152

 

Furniture and fixtures

 

358

 

 

358

 

 

 

2,821

 

302

 

2,519

 

Accumulated depreciation and amortization

 

408

 

245

 

163

 

Net property and equipment

 

2,413

 

57

 

2,356

 

 

 

 

 

 

 

 

 

Radio broadcasting licenses

 

11,939

 

3,650

 

8,289

 

Other intangibles

 

355

 

 

355

 

 

 

12,294

 

3,650

 

8,644

 

 

 

 

 

 

 

 

 

Assets held for sale

 

$

14,707

 

$

3,707

 

$

11,000

 

 

During the first quarter of 2008, the Company reviewed its carrying amount for the Rochester assets held for sale and determined that an impairment loss of $4.0 million (net of an income tax benefit of $2.7 million) was necessary due to: (1) the continued decline in advertising revenues; (2) the filing of an application with the FCC to place these stations into a disposition trust; and (3) the potential for a forced sale by the disposition trustee.  On July 14, 2008, the Company completed the sale of the Rochester assets pursuant to an agreement of sale that was entered into by the Company on April 28, 2008. See Note 8, Contingencies And Commitments, for further discussion of this transaction.

 

Pending Disposition In Rochester, New York

 

On April 28, 2008, the Company entered into an agreement to sell three radio stations (WRMM-FM, WZNE-FM and WFKL-FM) to a buyer for $13.3 million in cash. In addition, pursuant to a TBA, on May 1, 2008 the buyer commenced operation of these stations.

 

On July 14, 2008, the Company completed the sale of these radio stations and received net cash proceeds of $12.2 million. During the third quarter of 2008, the Company expects to record a $0.7 million gain on the disposition. Upon disposition of these stations, the Company continues to own and operate five radio stations in the Rochester market.

 

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Table of Contents

 

As background on this disposition, on November 30, 2007, the Company purchased from CBS Radio Stations Inc. (“CBS”) the assets of four radio stations serving the Rochester radio market. Under certain regulatory requirements, the Company agreed to divest three radio stations, two of which were the radio stations acquired from CBS.

 

Pending Disposition In Portland, Oregon

 

On January 31, 2007, the Company entered into an agreement to sell KTRO-AM (formerly KKSN-AM) in Portland, Oregon, for $4.2 million in cash. Concurrently with entering into the agreement, the Company also entered into a TBA that was effective on February 1, 2007. The Company expects that this transaction, which is subject to FCC approval, will close in the first half of 2009. The Company believes that the divestiture of this station will not alter the competitive position of the remaining six stations the Company currently operates in this market.

 

Discontinued Operations

 

In connection with the pending dispositions of radio broadcasting assets as of June 30, 2008 in the Portland and Rochester markets as described above and the disposition of radio broadcasting assets in the Cincinnati market on March 14, 2008 (the assets were acquired on November 30, 2007 and December 5, 2007), the Company applied the provisions of SFAS No. 144, which requires that in a period in which a component of an entity has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component, including any gain or loss recognized, in discontinued operations.

 

The Company did not report as discontinued operations the disposition of the radio stations in Cincinnati or in Portland for the following reasons: (1) there was no activity in the Cincinnati market by the Company since the Company’s acquisition of four stations in the Cincinnati market on November 30, 2007, as Bonneville operated these stations pursuant to a TBA for the period from February 26, 2007 through March 14, 2008; and (2) the pending disposal of a station in the Portland market did not meet the criteria for the reclassification of operating results to discontinued operations due to the expected migration of cash flows from the pending station disposal to other Company-owned radio stations.

 

The Company did not allocate any interest expense for the periods presented, as it is anticipated that no debt would be required to be repaid under the Company’s Bank Facility as a result of the disposition of these radio station assets.

 

Selected financial information related to discontinued operations in the Rochester market for the six months and three months ended June 30, 2008 and 2007 is as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

 

 

(amounts in thousands)

 

 

 

 

 

Net broadcast revenues

 

$

1,440

 

$

347

 

 

 

 

 

 

 

Station operating expenses

 

1,477

 

316

 

Depreciation and amortization

 

 

12

 

Impairment loss

 

6,675

 

 

Total operating expenses

 

8,152

 

328

 

Income (loss) before income taxes (benefit)

 

(6,712

)

19

 

Income taxes (benefit)

 

2,735

 

8

 

Income (loss) from discontinued operations, net of income taxes (benefit)

 

$

(3,977

)

$

11

 

 

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Table of Contents

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

Net broadcast revenues

 

$

401

 

$

179

 

 

 

 

 

 

 

Station operating expenses

 

454

 

154

 

Depreciation and amortization

 

 

6

 

Total operating expenses

 

454

 

160

 

Income (loss) before income taxes (benefit)

 

(53

)

19

 

Income taxes (benefit)

 

(20

)

8

 

Income (loss) from discontinued operations, net of income taxes (benefit)

 

$

(33

)

$

11

 

 

15.                               FAIR VALUE MEASUREMENTS

 

Effective January 1, 2008, the Company adopted FAS No. 157, which requires enhanced disclosures about assets and liabilities carried at fair value.

 

As defined in FAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. FAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the fair value hierarchy defined by FAS No. 157 are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to FAS No. 157 and includes in level 3 all of those whose fair value is based on significant unobservable inputs.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2008. The financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

 

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Table of Contents

 

 

 

 

 

Value Measurements At Reporting
Date Using

 

Description

 

June 30,
2008

 

Quoted Prices
In Active
Markets For
Identical
Assets Or
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

 

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Available For Sale Securities

 

$

1,722

 

$

159

 

$

 

$

1,563

 

Interest Rate Cash Flow Hedges

 

$

7,892

 

$

 

$

7,892

 

$

 

 

For available-for-sale securities, the Company uses quoted equity prices for identical assets and liabilities that are available in active markets (level 1).  For the Company’s interest rate hedges, the Company pays a fixed rate and receives a variable interest rate that is observable based upon a forward interest rate curve and is therefore considered a level 2 item.

 

For the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (level 3), the following is a reconciliation of the activity during the six months ended June 30, 2008:

 

 

 

Available
For Sale
Securities

 

 

 

(amounts
in thousands)

 

 

 

 

 

Assets

 

 

 

Balance as of December 31, 2007

 

$

1,557

 

Purchases

 

6

 

Balance as of March 31, 2008 and June 30, 2008

 

$

1,563

 

 

16.                               DEFERRED CHARGES AND OTHER ASSETS

 

Deferred charges and other assets, including definite-lived intangible assets, consist of the following:

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(amounts in thousands)

 

Debt issuance costs, net

 

$

6,902

 

$

8,340

 

Interest rate derivative instruments

 

7,892

 

 

Software costs, net

 

2,848

 

2,542

 

Prepaid assets - long term

 

1,600

 

1,800

 

Acquired advertising contracts, net

 

 

618

 

Deferred contracts and other agreements, net

 

935

 

1,012

 

Leasehold premium, net

 

839

 

884

 

Station deposits and acquisition costs

 

8

 

4,572

 

Advertiser lists and customer relationships, net

 

100

 

64

 

Other

 

157

 

169

 

 

 

$

21,281

 

$

20,001

 

 

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Table of Contents

 

17.                               SUBSEQUENT EVENTS

 

During July 2008, the Company repurchased in the open market $6.3 million of its 7.625% Senior Subordinated Notes due March 1, 2014 (see Note 6 for further discussion).

 

On July 14, 2008, the Company completed the sale of three Rochester, New York, radio stations (see Note 14, Assets Held For Sale).

 

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Table of Contents

 

ITEM 2.                 Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

In preparing the discussion and analysis contained in this Item 2, we presume that readers have read or have access to the discussion and analysis contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2008. In addition, you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following results of operations include a discussion of the six months and three months ended June 30, 2008 as compared to the six months and three months ended June 30, 2007.  Our results of operations during the relevant periods represent the operations of the radio stations: (1) owned by us; (2) operated by us pursuant to time brokerage agreements (“TBAs”); or (3) stations owned by us but operated by others pursuant to TBAs.

 

We discuss net revenues, station operating expenses and operating income by comparing the performance of stations owned or operated by us throughout a relevant period to the performance of those same stations in the prior period whether or not owned or operated by us. We use these comparisons to assess the performance of our operations by analyzing the effect of acquisitions and dispositions of stations on net revenues and station operating expenses throughout the periods measured.

 

Results of Operations

 

The following significant factors affected our results of operations for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007:

 

Acquisitions

 

·                  On March 14, 2008, we acquired through an exchange agreement three radio stations in San Francisco, California, from Bonneville International Corporation (“Bonneville”). We began operating these stations on February 26, 2007 under a TBA that in 2008 increased our net revenues, station operating expenses and depreciation and amortization expense.

 

·                  On December 10, 2007, we acquired WVEI-FM (formerly WBEC-FM), a station in Springfield, Massachusetts, for $5.8 million in cash. We began operating this station on February 10, 2006 under a TBA by simulcasting the format of WEEI-AM (a radio station owned and operated by us in the Boston, Massachusetts, market). The impact to 2008 was an increase in our depreciation and amortization expense and interest expense.

 

·                  On November 30, 2007, we acquired from CBS Radio Stations Inc. (“CBS”) four radio stations in Austin, Texas, and three radio stations in Memphis, Tennessee, for $101.0 million in cash. We began operating these stations on November 1, 2006 under a TBA. The impact to 2008 was an increase in our depreciation and amortization expense and interest expense and a decrease in our TBA expense.

 

·                  On November 30, 2007, we acquired from CBS four radio stations in Cincinnati, Ohio, for $119.0 million in cash. From November 1, 2006 through February 25, 2007, we operated three of these stations under a TBA. On February 26, 2007, Bonneville began operating the same three stations under a TBA with us.  The impact to 2008 was a decrease in our net revenues, station operating expenses and TBA fees and an increase to our interest expense.

 

·                  On November 30, 2007, we acquired from CBS four stations in Rochester, New York, for $42.0 million in cash. The impact to 2008 was an increase to our net revenues, station operating expenses, depreciation and amortization expense and interest expense.

 

Dispositions

 

·                  On July 14, 2008 we sold three of our eight Rochester, New York radio stations, which the buyer began operating on May 1, 2008 under a TBA with us. These three stations were recognized as discontinued operations and required us to conform the prior year’s financial statements to the current year’s presentation.

 

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Table of Contents

 

·                  On March 14, 2008, we sold to Bonneville through an exchange agreement, three of our seven Seattle, Washington, radio stations which Bonneville began operating on February 26, 2007 under a TBA with us.  The impact to 2008, due to the cessation of operation of these stations on February 26, 2007, was a decrease in our net revenues, station operating expenses and depreciation and amortization expense.

 

·                  On March 14, 2008, we sold to Bonneville, through an exchange agreement, a Cincinnati, Ohio radio station we acquired from Cumulus Media Partners, LLC (“Cumulus”) on December 5, 2007. Pursuant to a TBA agreement with Cumulus, we operated this station from November 1, 2006 through February 25, 2007. On February 26, 2007, Bonneville began operating this station under a TBA with us.  The impact to 2008, due to the cessation of operation of this station on February 26, 2007, was a decrease in our net revenues and station operating expenses.

 

·                  On January 15, 2008, we sold KLQB-FM (formerly KXBT-FM), Austin, Texas, to Univision Radio Broadcasting Texas, L.P. (“Univision”) for $20.0 million in cash.  Univision began operating KLQB-FM under a TBA on February 26, 2007 (a station we began operating on November 1, 2006 under a TBA agreement with CBS). The impact to 2008, due to the cessation of operation of this station on February 26, 2007 and the sale on January 15, 2008, was a decrease in our net revenues, station operating expenses and interest expense.

 

Financing

 

·                  Our interest expense decreased due to: (1) a decrease in interest rates; and (2) the redemption of a portion of our Senior Subordinated Notes that had a higher interest rate than the rate under our senior debt. This decrease was offset by: (1) increased borrowings used to finance: (a) acquisitions during the fourth quarter of 2007 in the amount of $268.3 million; (b) stock repurchases during the second quarter of 2008 of $13.3 million and during the third quarter of 2007 of $7.6 million; and (c) the payment of quarterly cash dividends to our shareholders; and (2) interest expense of $0.9 million related to the resolution of certain litigation.

 

·                  During the six months ended June 30, 2008, we repurchased $41.7 million of Senior Subordinated Notes and recognized a net gain on extinguishment of debt of $2.4 million.

 

·                  On June 18, 2007, we entered into a new credit facility that resulted in the recognition of a $0.5 million loss on the early extinguishment of debt related to the write-off of deferred financing costs during the second quarter of 2007.

 

Other

 

·                  During the second quarters of 2008 and 2007, we recorded an impairment loss of $184.6 million and $45.4 million, respectively, in connection with our annual impairment review of goodwill under the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142.

 

·                  During the second quarter of 2008, we recovered $3.5 million from our insurance company for damages resulting from Hurricane Katrina.

 

·                  During the first quarter of 2008, we reviewed our carrying amount for the Rochester assets held for sale and determined that an impairment loss of $4.0 million (net of an income tax benefit of $2.7 million) was necessary as a result of the status of our ongoing divestiture process.

 

·                  During the first quarter of 2007, we recorded a discrete income tax expense adjustment of $2.9 million as we commenced operations in 2007 in states which on average have higher income tax rates than in states in which we previously operated.

 

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Table of Contents

 

Six  Months Ended June 30, 2008 As Compared To The Six Months Ended June 30, 2007

 

Net Revenues:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Net Revenues

 

$

219.2

 

$

224.9

 

Amount of Change

 

$

(5.7

)

 

 

Percentage Change

 

(2.5

)%

 

 

 

Our overall decrease in net revenues was primarily due to: (1) the commencement of operations by other parties under TBAs on: (i) February 26, 2007 for three of our seven Seattle stations; (ii) February 26, 2007 for four stations in the Cincinnati market; and (iii) February 26, 2007 for a station in the Austin market; and (2) a challenging and varied advertising environment as we experienced decreases in net revenues for many of our radio stations in markets such as Denver, New Orleans, Portland and Sacramento.  Our decrease in net revenues was offset by: (a) the commencement by us of operations under a TBA on February 26, 2007 of three stations in the San Francisco market; (b) increases in net revenues for our radio stations in markets such as Austin, Boston and Norfolk; and (c) the acquisition on November 30, 2007 of radio stations in the Rochester market.

 

Same Station Considerations:

 

·              Net revenues in 2008 were not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·              Net revenues in 2007 would have been higher by $0.9 million if we had adjusted net revenues to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

Station Operating Expenses:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Station Operating Expenses

 

$

138.6

 

$

143.0

 

Amount of Change

 

$

(4.4

)

 

 

Percentage Change

 

(3.1

)%

 

 

 

The decrease in station operating expenses was primarily due to the factors leading to the decrease in net revenues as described above as certain variable expenses decrease with a corresponding decrease in net revenues.

 

Same Station Considerations:

 

·              Station operating expenses in 2008 were not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·                                          Station operating expenses in 2007 would have been lower by $0.4 million if we had adjusted station operating expenses to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

Depreciation And Amortization Expenses:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Depreciation and Amortization Expenses

 

$

11.5

 

$

8.0

 

Amount of Change

 

$

3.5

 

 

 

Percentage Change

 

43.8

%

 

 

 

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Depreciation and amortization expense increased due to the acquisitions of radio station assets in the amount of $268.3 million in the fourth quarter of 2007, which included certain amortizable assets with lives of a short duration.

 

Corporate General And Administrative Expenses:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Corporate General and Administrative Expenses

 

$

15.4

 

$

15.4

 

Amount of Change

 

$

0.0

 

 

 

Percentage Change

 

0.0

%

 

 

 

Corporate general and administrative expenses in 2008 remained flat from 2007. Non-cash compensation expense increased by $1.5 million due to: (a) the cumulative effect of equity awards issued over multiple years, including 2008, with the awards vesting over periods of up to four years; and (b) the acceleration of vesting of equity awards for a key officer. The increase in non-cash compensation expense was offset by a decrease in other corporate general and administrative expenses, primarily due to a decrease in legal expenses of $0.8 million primarily associated with certain legal proceedings in the six months ended June 30, 2007 which did nor reoccur in 2008.

 

Operating Income (Loss):

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Operating Income (Loss)

 

$

(120.8

)

$

5.9

 

Amount of Change

 

$

(126.7

)

 

 

Percentage Change

 

NM

 

 

 

 

The decrease in operating income was primarily due to: (1) an increase in impairment loss of $139.2 million due to a $184.6 million impairment loss in connection with our review of goodwill in the second quarter of 2008 as compared to a $45.4 million impairment loss in the second quarter of 2007; and (2) an increase in Depreciation and Amortization Expenses as described above. This decrease was offset by: (1) a decrease in time brokerage agreement fees of $7.6 million, primarily due to the cessation of a TBA with CBS on November 30, 2007; and (2) an increase in net gain on sale or disposal of assets of $9.6 million primarily related to our Bonneville exchange agreement.

 

                Same Station Considerations:

 

·                                          Operating income in 2008 was not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·                                          Operating income in 2007 would have been higher by $1.3 million if we had adjusted operating income to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

Interest Expense:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Interest Expense

 

$

24.4

 

$

24.6

 

Amount of Change

 

$

(0.2

)

 

 

Percentage Change

 

(0.1

)%

 

 

 

The decrease in interest expense was primarily due to: (1) a decline in interest rates during the six months ended June 30, 2008 as compared to the six months ended June 30, 2007; and (2) the repurchase of our senior subordinated notes with a higher interest rate than the replacement debt during the first two quarters of 2008. This decrease was offset by higher average outstanding debt under our senior credit agreement used to

 

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finance: (i) the acquisition of radio station assets in several markets in the amount of $268.3 million during the fourth quarter of 2007; (ii) the repurchase of our common stock in the amount of $13.3 million during the second quarter of 2008 and $7.6 million during the third quarter of 2007; and (iii) quarterly dividend payments during the trailing four quarters ended June 30, 2008.

 

Loss From Continuing Operations Before Income Tax Benefit:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Loss From Continuing Operations Before Income Tax Benefit

 

$

(139.5

)

$

(18.4

)

Amount of Change

 

$

(121.1

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in loss from continuing operations before income tax benefit was mainly attributable to an decrease in operating income for the reasons described above under Operating Income (Loss). The decrease in operating income to an operating loss was offset by: (1) a $3.3 million increase in other income related to an insurance recovery; and (2) a $2.4 million gain on the retirement of our senior subordinated debt.

 

Income Tax Benefit:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Income Tax Benefit

 

$

(52.3

)

$

(5.4

)

Amount of Change

 

$

(46.9

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in income tax benefit was primarily the result of an increase in Loss From Continuing Operations Before Income Tax Benefit as described above.  In addition, income taxes for the six months ended June 30, 2007 were affected by a discrete item of tax in the amount of $2.9 million (resulting from the commencement of operations in 2007 in states which on average have higher income tax rates than in states in which we previously operated and the resulting effect on previously reported temporary differences between the tax and financial reporting bases of our assets and liabilities).

 

Our effective income tax rate was a tax benefit of 37.5% for the six months ended June 30, 2008 and is based upon our estimated annual tax benefit of 37.7%. For the six months ended June 30, 2007, the effective income tax rate was a tax benefit of 29.1% (exclusive of the discrete item of tax in the amount of $2.9 million as described above).

 

For the six months ended June 30, 2008, the income tax benefit of $52.3 million was deferred.  For the six months ended June 30, 2007, the income tax benefit of $5.4 million was comprised of a current tax credit of $6.9 million and a deferred tax expense of $1.5 million.

 

Income (Loss) From Discontinued Operations, Net Of Income Tax Provision (Benefit):

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Income (Loss) from Discontinued Operations, Net Of Income Tax Provision (Benefit)

 

$

(4.0

)

$

 

Amount of Change

 

$

(4.0

)

 

 

Percentage Change

 

NM

 

 

 

 

The change to a loss from discontinued operations, net of income tax benefit, was primarily due to a non-cash impairment loss of $4.0 million (net of an income tax benefit of $2.7 million) in the first quarter of 2008 for the Rochester assets held for sale.

 

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Table of Contents

 

Net Loss:

 

 

 

Six Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Net Loss

 

$

(91.1

)

$

(13.1

)

Amount of Change

 

$

(78.0

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in net loss was primarily attributable to the reasons described above under Loss From Continuing Operations Before Income Tax Benefit, net of income tax benefit, and Income (Loss) From Discontinued Operations, Net Of Income Tax Provision (Benefit).

 

Three Months Ended June 30, 2008 As Compared To The Three Months Ended June 30, 2007

 

Net Revenues:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Net Revenues

 

$

123.8

 

$

125.0

 

Amount of Change

 

$

(1.2

)

 

 

Percentage Change

 

(1.0

)%

 

 

 

Our overall decrease in net revenues was primarily due to decreases in net revenues for our radio stations in markets such as Denver, New Orleans, Portland and Sacramento due to a challenging and varied advertising environment in those markets. This decrease was offset by (1) increases in net revenues for our radio stations in markets such as Austin, Boston and Norfolk; and (2) the acquisition on November 30, 2007 of radio stations in the Rochester market.

 

Same Station Considerations:

 

·              Net revenues in 2008 were not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·              Net revenues in 2007 would have been higher by $1.6 million if we had adjusted net revenues to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

Station Operating Expenses:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Station Operating Expenses

 

$

74.5

 

$

74.8

 

Amount of Change

 

$

(0.3

)

 

 

Percentage Change

 

(0.4

)%

 

 

 

The decrease in station operating expenses was primarily due to the factors leading to the decrease in net revenues as described above as certain variable expenses decrease with a corresponding decrease in net revenues.

 

Same Station Considerations:

 

·              Station operating expenses in 2008 were not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·                                          Station operating expenses in 2007 would have been higher by $1.4 million if we had adjusted station operating expenses to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

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Table of Contents

 

Depreciation And Amortization Expenses:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Depreciation and Amortization Expenses

 

$

5.5

 

$

4.0

 

Amount of Change

 

$

1.5

 

 

 

Percentage Change

 

37.5

%

 

 

 

Depreciation and amortization expense increased due to the acquisitions of radio station assets in the amount of $268.3 million in the fourth quarter of 2007, which included certain amortizable assets with lives of a short duration.

 

Corporate General And Administrative Expenses:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Corporate General and Administrative Expenses

 

$

7.0

 

$

7.7

 

Amount of Change

 

$

(0.7

)

 

 

Percentage Change

 

(9.1

)%

 

 

 

The decrease in corporate general and administrative expenses was primarily due to: (1) a decrease in non-cash compensation expense of $0.4 million; and (2) a deferred compensation expense reduction of $0.3 million due to a decrease in the value of the unfunded obligation.  This decrease was offset by the effects of inflation.

 

Operating Loss:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Operating Loss

 

$

(147.9

)

$

(9.8

)

Amount of Change

 

$

(138.1

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in operating loss was primarily due to: (1) an increase in impairment loss of $139.2 million in connection with our review of goodwill in the second quarter of 2008; and (2) an increase in Depreciation and Amortization Expenses as described above. This increase in operating loss was offset by a decrease in time brokerage agreement fees of $3.5 million, primarily due to the cessation of a TBA with CBS on November 30, 2007.

 

Same Station Considerations:

 

·                  Operating income in 2008 was not impacted for any acquisitions and dispositions of radio stations as of the beginning of the period.

 

·                  Operating income in 2007 would have been higher by $0.2 million if we had adjusted operating income to give effect to acquisitions and dispositions of radio stations as of the beginning of the period.

 

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Table of Contents

 

Interest Expense:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Interest Expense

 

$

10.8

 

$

12.6

 

Amount of Change

 

$

(1.8

)

 

 

Percentage Change

 

(14.3

)%

 

 

 

The decrease in interest expense was primarily attributable to: (1) a decline in interest rates during the three months ended June 30, 2008 as compared to the three months ended June 30, 2007; and (2) the repurchase of our senior subordinated notes with a higher interest rate than the replacement debt during the first two quarters of 2008. This decrease was offset by higher average outstanding debt under our senior credit agreement used to finance: (i) the acquisition of radio station assets in several markets in the amount of $268.3 million during the fourth quarter of 2007; (ii) the repurchase of our common stock of $13.3 million during the second quarter of 2008 and $7.6 million during the third quarter of 2007; and (3) quarterly dividend payments during the trailing four quarters ended June 30, 2008.

 

Loss From Continuing Operations Before Income Tax Benefit:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Loss From Continuing Operations Before Income Tax Benefit

 

$

(154.8

)

$

(22.4

)

Amount of Change

 

$

(132.4

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in loss from continuing operations before income tax benefit was primarily attributable to an increase in operating loss for the reasons described above under Operating Loss. The increase operating loss was offset by other income of $3.5 million related to an insurance recovery.

 

Income Tax Benefit:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Income Tax Benefit

 

$

(58.5

)

$

(9.9

)

Amount of Change

 

$

(48.6

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in income tax benefit was primarily the result of an increase in Loss From Continuing Operations Before Income Tax Benefit due to the reasons described under Operating Loss.

 

Our effective income tax rate was a tax benefit of 37.8% for the three months ended June 30, 2008 and is based upon our estimated annual tax benefit of 37.7%. For the three months ended June 30, 2007, the effective income tax rate was a tax benefit of 44.1% (exclusive of the impact to the rate in either period for discrete items).

 

For the three months ended June 30, 2008, the income tax benefit of $58.5 million was deferred.  For the three months ended June 30, 2007, the income tax benefit of $9.9 million was comprised of a current tax credit of $0.3 million and a deferred tax credit of $9.6 million.

 

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Table of Contents

 

Net Loss:

 

 

 

Three Months Ended

 

 

 

June 30, 2008

 

June 30, 2007

 

 

 

(dollars in millions)

 

Net Loss

 

$

(96.3

)

$

(12.5

)

Amount of Change

 

$

(83.8

)

 

 

Percentage Change

 

NM

 

 

 

 

The increase in net loss was primarily attributable to the reasons described above under Loss From Continuing Operations Before Income Tax Benefit, net of income tax benefit.

 

Liquidity And Capital Resources

 

Bank Facility

 

On June 18, 2007, we entered into a credit agreement (the “Bank Facility”) with a syndicate of banks for a $1,050 million senior secured credit facility that matures on June 30, 2012, which is comprised of $650 million in revolving credit (“Revolver”) and a $400 million term loan (“Term A”). We used the proceeds of $400 million from the Term A and $152 million from the Revolver to pay all of the outstanding debt under our former senior credit facility as well as transaction expenses. The Term A reduces beginning September 30, 2009 in quarterly amounts starting at $15 million and increasing to $60 million.  We expect to use the remainder of the Revolver to: (1) provide for working capital; and (2) provide for general corporate purposes, including capital expenditures and any or all of the following: repurchases of Class A common stock, dividends, repurchases of our senior subordinated notes, and acquisitions. The Bank Facility is secured by a pledge of 100% of the capital stock and other equity interest in all of our wholly owned subsidiaries. The Bank Facility requires us to comply with certain financial covenants and leverage ratios which are defined terms within the agreement. Management believes we are in compliance with all financial covenants and leverage ratios and all other terms of the Bank Facility.

 

Liquidity

 

During the six months ended June 30, 2008, we decreased our net outstanding debt by $54.3 million (includes a $3.0 million discount on the retirement of our senior subordinated debt) due in part to the cash available from the sale of a station in Austin, Texas, for $20.0 million as well as the receipt of $14.3 million in refunded income taxes.  As of June 30, 2008, we had outstanding $920.9 million in debt, including: (1) $811.0 million under our Bank Facility; (2) $1.5 million in a letter of credit; and (3) $108.3 million in senior subordinated notes.  As of June 30, 2008, we had credit available of $237.5 million under the Bank Facility, subject to compliance with the covenants under the Bank Facility at the time of borrowing and after giving effect to our use of the borrowed funds.  As of June 30, 2008, we had $5.5 million in cash and cash equivalents.  If our revenues were to decline for a sustained period of time, our ability to maintain compliance with the financial covenants in our credit facility will become increasingly difficult without remedial measures.

 

Operating Activities

 

Net cash flows provided by operating activities were $55.5 million and $32.5 million for the six months ended June 30, 2008 and 2007, respectively. The increase in 2008 was mainly attributable to a net decrease in working capital requirements of $21.5 million, primarily due to a $21.7 million reduction in working capital requirements for prepaid and refundable income taxes.  As described above, during the six months ended June 30, 2008, we received $14.3 million in refunded income taxes.

 

Investing Activities

 

Net cash flows provided by investing activities were $23.1 million for the six months ended June 30, 2008 and net cash flows used in investing activities were $4.9 million for the six months ended June 30, 2007.

 

For the six months ended June 30, 2008, the cash provided by investing activities primarily reflects $20.0 million in proceeds from the sale of a station in Austin, offset by cash used in investing activities for the additions to property and equipment of $4.5 million.  For the six months ended June 30, 2007, cash used in investing activities was primarily for additions to property and equipment of $6.8 million.

 

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Table of Contents

 

Financing Activities

 

Net cash flows used in financing activities were $84.1 million and $27.1 million for the six months ended June 30, 2008 and 2007, respectively.

 

For the six months ended June 30, 2008, the cash flows used in financing activities primarily reflect the net repayment of debt (including the repurchase of our senior subordinated notes) of $51.3 million, the repurchase of our common stock of $13.3 million and the payment of dividends of $17.9 million. For the six months ended June 30, 2007, the cash flows used in financing activities primarily reflect the repurchase of common stock of $47.4 million and the payment of dividends of $29.6 million, offset by net borrowings of long-term debt of $54.0 million.

 

Dividends

 

We have used a portion of our capital resources to pay dividends in the aggregate amount of $17.9 million during the six months ended June 30, 2008.  On April 23, 2008, our Board of Directors approved a second quarter 2008 dividend in the amount of $0.10 per share, which was less than previous authorizations of $0.38 per share.

 

Share Repurchase Programs

 

On April 23, 2008, the Company’s Board of Directors extended a $100 million share repurchase program that was due to expire on May 5, 2008. As of June 30, 2008, the Company has $27.0 million in capacity available under this extended share repurchase program which expires on June 30, 2009.

 

Senior Subordinated Note Repurchases

 

We may from time to time seek to repurchase and retire our outstanding debt through cash purchases, open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material. During the six months ended June 30, 2008, we repurchased and retired $41.7 million of our senior subordinated notes.

 

Income Taxes

 

During the six months ended June 30, 2008, we paid a nominal amount in income taxes. We anticipate that it will not be necessary to make any additional quarterly estimated federal, and most state, income tax payments for the remainder of 2008 based upon existing prepayments and expected quarterly taxable income for the remainder of 2008.

 

Capital Expenditures

 

Capital expenditures for the six months ended June 30, 2008 were $4.5 million. We anticipate that capital expenditures in 2008 will consist of: (1) an amount of $5.0 million for capital expenditures incurred in the ordinary course of business; and (2) between $4.0 million and $5.0 million primarily for: (a) the consolidation and/or relocation of our studio and office facilities in certain markets; and (b) the continued implementation of HD digital radio transmission capabilities.

 

Contractual Obligations

 

The following table reflects a summary as of June 30, 2008 of our contractual obligations for the remainder of the year 2008 and thereafter:

 

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Table of Contents

 

 

 

Payments due by period

 

 

 

 

 

Less than

 

1 to 3

 

3 to 5

 

More Than 5

 

Contractual Obligations:

 

Total

 

1 year

 

years

 

years

 

years

 

 

 

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt obligations (1)

 

$

1,074,520

 

$

19,617

 

$

76,066

 

$

860,931

 

$

117,907

 

Operating lease obligations

 

78,546

 

5,649

 

23,087

 

17,623

 

32,187

 

Purchase obligations (2)

 

302,773

 

41,533

 

116,040

 

70,727

 

74,473

 

Other long-term liabilities (3)

 

199,553

 

661

 

1,754

 

1,204

 

195,934

 

Total

 

$

1,655,392

 

$

67,460

 

$

216,947

 

$

950,485

 

$

420,501

 

 


(1)                    (a)          Our Bank Facility had outstanding debt in the amount of $811.0 million as of June 30, 2008. The maturity under our Bank Facility could be accelerated if we do not maintain certain covenants.

(b)         Under our 7.625% senior subordinated notes, the maturity could be accelerated if we do not maintain certain covenants or could be repaid in cash by us at our option prior to the due date of the notes.

(c)          The above table includes projected interest expense under the remaining term of our Bank Facility and our 7.625% senior subordinated notes.

 

(2)                    (a)          We have $2.0 million in liabilities primarily related to: (i) our obligation to provide a letter of credit; and (ii) construction obligations.

(b)         In addition to the above, purchase obligations of $300.8 million include contracts primarily for on-air personalities, sports programming rights, ratings services, music licensing fees, equipment maintenance and certain other operating contracts.

 

(3)                                 Included in the table above, within total other long-term liabilities of $199.6 million, are deferred income tax liabilities of $184.4 million that are recognized for all temporary differences between the tax and financial reporting bases of our 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. Deferred tax liabilities may vary according to changes in tax laws, tax rates and our operating results.  As a result, it is impractical to determine whether there will be a cash impact to an individual year. Therefore, deferred income tax liabilities, including Financial Interpretation No. (“FIN”) 48 liabilities, have been reflected in the above table in the column labeled as “More Than 5 Years.”

 

Off-Balance Sheet Arrangements

 

Under our pending transactions to dispose of radio station assets, we determined that FIN 46R was not applicable as of June 30, 2008.

 

Recent Accounting Pronouncements

 

See Note 1 to the accompanying financial statements, Basis Of Presentation - New Accounting Pronouncements, for a discussion of the status and potential impact of new accounting pronouncements.

 

Critical Accounting Policies

 

The SEC defines critical accounting policies as those that are most important to the portrayal of a company’s financial condition and results and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

There have been no material changes to our critical accounting policies from the information provided in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2007.

 

For a more comprehensive list of our accounting policies, please see Note 2, Significant Accounting Policies, accompanying the consolidated financial statements included in our latest annual report on Form 10-K for the year ended December 31, 2007. Note 2 to the consolidated financial statements included with Form 10-K contains several other policies, including policies governing the timing of revenue recognition, that are important

 

40



Table of Contents

 

to the preparation of our consolidated financial statements, but do not meet the SEC’s definition of critical accounting policies because they do not involve subjective or complex judgments.  In addition, for further discussion of new accounting policies that were effective for us on January 1, 2008, please refer to the new accounting pronouncements under Note 1 to the accompanying notes to the financial statements.

 

ITEM 3.                  Quantitative And Qualitative Disclosures About Market Risk

 

We are exposed to market risk from changes in interest rates on our variable rate senior debt.  From time to time, we may seek to limit our exposure to interest rate volatility through the use of derivative rate hedging instruments.  If the borrowing rates under LIBOR were to increase 1% above the current rates as of June 30, 2008, our interest expense on our senior debt would increase by approximately $3.7 million on an annual basis, including any interest benefit or interest expense associated with the use of derivative rate hedging instruments as described below. We do not have interest rate risk related to our senior subordinated notes, which have a fixed interest rate of 7.625%.

 

During the six months ended June 30, 2008, we entered into the following derivative rate hedging transactions in the aggregate notional amount of $550.0 million to fix interest on our variable rate debt. These rate hedging transactions are tied to the one-month LIBOR interest rate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date That

 

Notional

 

Type

 

 

 

 

 

 

 

 

 

Fixed

 

 

 

 

 

Notional

 

Amount

 

of

 

Notional

 

Effective

 

 

 

 

 

LIBOR

 

 

 

Expiration

 

Amount

 

After

 

Hedge

 

Amount

 

Date

 

 

 

Collar

 

Rate

 

 

 

Date

 

Decreases

 

Decrease

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

225.0

 

Jan. 28, 2008

 

 

 

n/a

 

3.03

%

 

 

Jan. 28, 2011

 

Jan. 28, 2010

 

$

150.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar

 

 

 

 

 

{

 

Cap

 

4.00

%

}

 

 

 

 

 

 

 

 

 

$

100.0

 

Feb. 28, 2008

 

 

Floor

 

2.14

%

 

Feb. 28, 2011

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

125.0

 

March 28, 2008

 

 

 

n/a

 

2.91

%

 

 

Sept. 28, 2011

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

$

100.0

 

May 28, 2008

 

 

 

n/a

 

3.62

%

 

 

May 28, 2012

 

n/a

 

n/a

 

 

On February 28, 2008, our derivative rate hedging transaction, that effectively fixed LIBOR at 5.8% for a notional amount of $30.0 million, matured.

 

The fair value (based upon current market rates) of the rate hedging transactions is included as derivative instruments in long-term liabilities as the maturity dates on these instruments are greater than one year. The fair value of the hedging transaction is affected by a combination of several factors, including the change in the one-month LIBOR rate and the forward interest rate to maturity. Any increase in the one-month LIBOR rate and/or the forward interest rate to maturity results in a more favorable valuation, while any decrease in the one-month LIBOR rate and/or forward interest rate to maturity results in a less favorable valuation. Our credit exposure under these hedging agreements, or similar agreements we may enter into in the future, is the cost of replacing an agreement in the event of nonperformance by our counter-party. As of June 30, 2008, our derivative instrument was an asset of $7.9 million, which amount included a reduction in value for nonperformance in accordance with the fair value provisions of SFAS No. 157, “Fair Value Measurement,” that was effective for us as of January 1, 2008.

 

Our cash equivalents are money market instruments consisting of short-term government securities and repurchase agreements that are fully collateralized by government securities.  We do not believe that we have any material credit exposure with respect to these assets.

 

Our credit exposure related to our accounts receivable does not represent a significant concentration of credit risk due to the quantity of advertisers, the minimal reliance on any one advertiser, the multiple markets in which we operate and the wide variety of advertising business sectors.

 

See also additional disclosures regarding liquidity and capital resources made under Part 1, Item 2, Liquidity and Capital Resources, above.

 

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ITEM 4.                  Controls And Procedures

 

Evaluation Of Controls And Procedures

 

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to ensure that: (i) information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on the foregoing, our President/Chief Executive Officer and Executive Vice President - Operations/Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes In Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II
OTHER INFORMATION

 

ITEM 1.                  Legal Proceedings

 

Except as described below, there have been no material developments relating to the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on February 22, 2008.

 

ITEM 1A.               Risk Factors

 

There have been no material changes from the Risk Factors described in our Form 10-K, filed with the SEC on February 22, 2008.

 

ITEM 2.                  Unregistered Sales Of Equity Securities And Use Of Proceeds

 

During the three-month period ending June 30, 2008, there were repurchases of our Class A common stock pursuant to a $100.0 million share repurchase program adopted by our Board of Directors on May 8, 2006. This share repurchase program was extended on May 3, 2007 and on April 23, 2008 and is due to expire on June 30, 2009. There were also elections by employees to withhold shares of stock upon vesting of restricted stock units to cover withholding tax obligations. The following table provides information on our repurchases during the three months ended June 30, 2008:

 

Period

 

(a)
Total
Number of
Shares
Purchased

 

(b)
Average
Price Paid
Per Share

 

(c)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

 

(d)
Maximum
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under The Plans
or Programs

 

April 1, 2008 - April 30, 2008 (1)

 

287,700

 

$

10.24

 

287,700

 

$

37,268,615

 

May 1, 2008 - May 31, 2008 (1)

 

714,400

 

$

10.79

 

714,400

 

$

29,562,264

 

June 1, 2008 - June 30, 2008 (1) (2)

 

301,825

 

$

8.70

 

300,000

 

$

26,953,046

 

Total

 

1,303,925

 

 

 

1,302,100

 

 

 

 


(1) On April 23, 2008, our Board of Directors extended to June 30, 2009 a plan to repurchase up to $100.0 million of our common stock (the “May 2008 Plan”) that was due to expire on May 5, 2008.

 

(2) In connection with employee tax obligations related to the vesting of restricted stock units during the three months ended June 30, 2008 and in accordance with elections by certain employees, the Company is deemed to have purchased in June 2008, 1,825 shares at an average price of $9.19 per share to satisfy  employees’ tax obligations.  These shares are included in the above table.

 

ITEM 3.                  Defaults Upon Senior Securities

 

None.

 

ITEM 4.                  Submission Of Matters To A Vote Of Security Holders

 

(a)          On May 13, 2008, we held our annual meeting of shareholders.

 

(b)         At our annual meeting of shareholders: (i) David J. Berkman and Daniel E. Gold were elected as Class A directors for one-year terms expiring at the 2009 annual meeting of shareholders; and (ii) Joseph M. Field, David J. Field, John C. Donlevie, Robert S. Wiesenthal and Michael J. Wolf  were elected as directors for one-year terms expiring at the 2009 annual meeting of shareholders.

 

(c)          The following matters were voted on and approved at our annual meeting of shareholders: (i) the election of Class A directors; (ii) the election of directors other than Class A directors; (iii) the approval of an amendment and restatement of the Entercom Equity Compensation Plan; (iv) the approval of the Annual Incentive Plan; and (v) the ratification of the selection of

 

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PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ended December 31, 2008.

 

The results of voting at the annual meeting of shareholders were as follows:

 

(i)            Election of Class A Directors

 

Nominee

 

For

 

Withheld

 

David J. Berkman

 

25,106,182

 

1,549,207

 

Daniel E. Gold

 

26,386,554

 

268,835

 

 

(ii)           Election of Other Than Class A Directors

 

Nominee

 

For

 

Withheld

 

Joseph M. Field

 

95,926,731

 

833,978

 

David J. Field

 

95,926,601

 

834,108

 

John C. Donlevie

 

95,949,291

 

811,418

 

Robert S. Wiesenthal

 

95,222,207

 

1,538,502

 

Michael J. Wolf

 

96,555,384

 

205,325

 

 

(iii)          Approval of an Amendment and Restatement of the Entercom Equity Compensation Plan

 

For

 

Against

 

Abstain

 

78,646,937

 

15,586,390

 

27,585

 

 

(iv)          Approval of the Entercom Annual Incentive Plan

 

For

 

Against

 

Abstain

 

93,222,657

 

1,238,258

 

51,402

 

 

(v)                                 Ratification of The Selection Of PricewaterhouseCoopers LLP As Our Independent Registered Public Accounting Firm

 

For

 

Against

 

Abstain

 

96,673,107

 

72,630

 

14,968

 

 

ITEM 5.                  Other Information

 

None.

 

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Table of Contents

 

ITEM 6.  Exhibits

 

Exhibit
Number

 

Description

3.01

 

Amended and Restated Articles of Incorporation of the Entercom Communications Corp. as further amended on December 19, 2007. (1)

3.02

 

Amended and Restated Bylaws of the Entercom Communications Corp. (2)

4.01

 

Indenture dated as of March 5, 2002 by and among Entercom Radio, LLC and Entercom Capital, Inc., as co-issuers, the Guarantors named therein and HSBC Bank USA, as trustee. (3)  (Originally filed as Exhibit 4.02)

4.02

 

First Supplemental Indenture dated as of March 5, 2002 by and among Entercom Radio, LLC and Entercom Capital, Inc., as co-issuers, the Guarantors named therein and HSBC Bank USA, as trustee. (3)  (Originally filed as Exhibit 4.03)

10.01

 

Entercom Equity Compensation Plan. (4)

10.02

 

Entercom Annual Incentive Plan. (5)

31.01

 

Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (6)

31.02

 

Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (6)

32.01

 

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (7)

32.02

 

Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (7)

 


(1)                                 Incorporated by reference to Exhibit 3.01 of our Amendment to Registration Statement on Form S-1, as filed on January 27, 1999 (File No. 333-61381) and Exhibit 3.1 of our Current Report on Form 8-K as filed on December 21, 2007.

(2)                                 Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K as filed on February 21, 2008.

(3)                                 Incorporated by reference to an exhibit of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as filed on May 13, 2002.

(4)                                 Incorporated by reference to Exhibit A of our 2008 Proxy Statement on Schedule 14A as filed on March 24, 2008.

(5)                                 Incorporated by reference to Exhibit B of our 2008 Proxy Statement on Schedule 14A as filed on March 24, 2008.

(6)                                 Filed herewith.

(7)                                 These exhibits are submitted herewith as “accompanying” this Quarterly Report on Form 10-Q and shall not be deemed to be “filed” as part of such Quarterly Report on Form 10-Q.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ENTERCOM COMMUNICATIONS CORP.

 

(Registrant)

 

 

 

 

Date: August 6, 2008

/S/ David J. Field

 

Name: David J. Field

 

Title: President and Chief Executive Officer

 

(principal executive officer)

 

 

 

 

Date: August 6, 2008

/S/ Stephen F. Fisher

 

Name: Stephen F. Fisher

 

Title: Executive Vice President - Operations and Chief

 

Financial Officer (principal financial officer)

 

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EXHIBIT INDEX

 

Exhibit Number

 

Description

3.01

 

Amended and Restated Articles of Incorporation of the Entercom Communications Corp. as further amended on December 19, 2007. (1)

3.02

 

Amended and Restated Bylaws of the Entercom Communications Corp. (2)

4.01

 

Indenture dated as of March 5, 2002 by and among Entercom Radio, LLC and Entercom Capital, Inc., as co-issuers, the Guarantors named therein and HSBC Bank USA, as trustee. (3) (Originally filed as Exhibit 4.02)

4.02

 

First Supplemental Indenture dated as of March 5, 2002 by and among Entercom Radio, LLC and Entercom Capital, Inc., as co-issuers, the Guarantors named therein and HSBC Bank USA, as trustee. (3) (Originally filed as Exhibit 4.03)

10.01

 

Entercom Equity Compensation Plan. (4)

10.02

 

Entercom Annual Incentive Plan. (5)

31.01

 

Certification of President and Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (6)

31.02

 

Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a), as created by Section 302 of the Sarbanes-Oxley Act of 2002. (6)

32.01

 

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (7)

32.02

 

Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. (7)

 


(1)                                 Incorporated by reference to Exhibit 3.01 of our Amendment to Registration Statement on Form S-1, as filed on January 27, 1999 (File No. 333-61381) and Exhibit 3.1 of our Current Report on Form 8-K as filed on December 21, 2007.

(2)                                 Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K as filed on February 21, 2008.

(3)                                 Incorporated by reference to an exhibit of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, as filed on May 13, 2002.

(4)                                 Incorporated by reference to Exhibit A of our 2008 Proxy Statement on Schedule 14A as filed on March 24, 2008.

(5)                                 Incorporated by reference to Exhibit B of our 2008 Proxy Statement on Schedule 14A as filed on March 24, 2008.

(6)                                 Filed herewith.

(7)                                 These exhibits are submitted herewith as “accompanying” this Quarterly Report on Form 10-Q and shall not be deemed to be “filed” as part of such Quarterly Report on Form 10-Q.

 

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