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ETM > SEC Filings for ETM > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for ENTERCOM COMMUNICATIONS CORP


9-May-2013

Quarterly Report


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 27, 2013. 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 three months ended March 31, 2013 as compared to the three months ended March 31, 2012. Our results of operations during the relevant periods represent the operations of the radio stations owned or operated by us.

We evaluate 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. Same station comparisons are used by us and those in the industry to assess the effect of acquisitions and dispositions on our operations throughout the periods measured. For those acquisitions and dispositions that management considers as material, we include these stations in our same station computations. The acquisition noted below was not considered material.

On May 1, 2012, we commenced operations under a time brokerage agreement ("TBA") of KBLX-FM, a station licensed to San Francisco, California. On June 28, 2012, we acquired KBLX-FM for $25.0 million in cash.

Results Of Operations For The Year-To-Date

The following significant factors affected our results of operations for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012.

During November 2012, we modified our $425 million senior secured credit agreement (the "Credit Facility") that primarily reduced our interest rates.

In June 2012, we acquired KBLX-FM, a station in San Francisco, California, which complemented our existing San Francisco station cluster. We commenced operations of KBLX-FM under a TBA on May 1, 2012 that increased our revenues and station operating expenses.


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Three Months Ended March 31, 2013 As Compared To The Three Months Ended March 31, 2012

                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                    2013        2012       % Change
                                                         (dollars in millions)
   NET REVENUES                                    $ 78.4      $ 80.0             (2 %)
   OPERATING EXPENSE:
   Station operating expenses                        58.0        59.7             (3 %)
   Depreciation and amortization expense              2.4         2.8            (14 %)
   Corporate general and administrative expenses      6.2         6.6             (6 %)

   Total operating expense                           66.6        69.1             (4 %)

   OPERATING INCOME (LOSS)                           11.8        10.9              8 %

   OTHER (INCOME) EXPENSE:
   Net interest expense                              11.5        14.1            (18 %)
   Other income and expense                            -         (0.8 )

   TOTAL OTHER EXPENSE                               11.5        13.3            (14 %)

   INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)        0.3        (2.4 )           NM

   INCOME TAXES (BENEFIT)                             0.6        (1.4 )           NM

   NET INCOME (LOSS)                               $ (0.3 )    $ (1.0 )           70 %

Net Revenues

Net revenues for the three months ended March 31, 2013 were down versus the prior year due to sluggish demand for advertising since the beginning of the year. Advertising demand continues to fluctuate and reflects the uneven performance of the general economy.

Net revenues increased the most for our stations in the Indianapolis and Kansas City markets, offset by revenue decreases for our stations located in the Greensboro and Greenville markets. Net revenues were favorably impacted by:
(1) our acquisition of KBLX-FM which we began operating on May 1, 2012 under a TBA; and (2) our joint sales agreement that was effective July 1, 2012 with two Gainesville stations not owned by us.

Due to the continued uncertainties surrounding the economy, it is difficult for management to provide any guidance on future revenue trends.

Station Operating Expenses

Station operating expenses decreased primarily due to cost reduction initiatives that commenced at various times during the prior year. In addition, certain sales costs, which vary with revenue, decreased due to the decrease in net revenues for the current quarter.

Depreciation And Amortization Expense

Depreciation and amortization expense decreased in 2013 primarily due to a trend of lower capital expenditures over the past several years.

Corporate General And Administrative Expenses

Corporate general and administrative expenses decreased primarily due to a decline in non-cash compensation expense of $0.3 million, which reflects a decrease in the number and fair value of grants over the past several years.


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Operating Income

Operating income increased primarily due to a decrease in station operating expenses of $1.7 million, a decrease in depreciation and amortization expense of $0.4 million and a decrease in corporate general and administrative expense of $0.4 million.

The increase in operating income was offset by a reduction in net revenues of $1.6 million.

Interest Expense

The decrease in interest expense was primarily due to: (1) lower interest rates as a result of the November 2012 modification to our Credit Facility; and
(2) lower outstanding debt upon which interest is computed.

Income (Loss) Before Income Taxes (Benefit)

The increase was primarily attributable to the decrease in interest expense and an increase in operating income.

Income Taxes (Benefit)

For the current period, the income tax rate was 176%, primarily due to discrete items of income tax expense and an adjustment for expenses that are not deductible for tax purposes. The impact of these items to the income tax rate is typically substantially greater in the first quarter of the year as income before taxes is the lowest as compared to subsequent quarters. We estimate that our 2013 annual tax rate before discrete items, which may fluctuate from quarter to quarter, will be in the low 40% range.

For the prior period, the income tax rate was 56%, which includes an adjustment for expenses that are not deductible for tax purposes, and the recognition of an additional tax benefit related to discrete items arising during the period.

As of March 31, 2013 and December 31, 2012, our net deferred tax liabilities were $24.3 million and $23.8 million, respectively. The deferred tax liabilities primarily relate to differences between the book and tax bases of our broadcasting licenses and goodwill.

Net Income (Loss)

The decrease in net loss was primarily attributable to the reasons described above under Income (Loss) Before Income Taxes (Benefit).

Future Impairments

We may find it necessary to take impairment charges in future periods based on conditions at that time. Any such impairment could be material.

Liquidity And Capital Resources

Liquidity

As of March 31, 2013, we had $331.7 million outstanding under our Credit Facility and $220 million in principal for our Senior Notes. In addition, we have outstanding financing method lease obligations of $12.6 million and a $0.4 million letter of credit. As of March 31, 2013, we had $6.5 million in cash and cash equivalents.

The Credit Facility

On November 23, 2011, we entered into a new credit agreement with a syndicate of lenders for a $425 million Credit Facility, which is comprised of: (a) a $50 million revolving credit facility (the "Revolver") that matures on November 23, 2016; and (b) a $375 million term loan (the "Term B Loan") that matures on November 23, 2018. The Term B Loan amortizes in quarterly installments of $0.9 million and any remaining principal and interest is due at maturity (except for certain mandatory principal prepayments of excess cash flow and other events as described below).


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The undrawn amount of the Revolver was $49.6 million as of March 31, 2013. The amount of the Revolver available to us is a function of covenant compliance at the time of borrowing. Based on our financial covenant analysis as of March 31, 2013, we would not be limited in these borrowings.

The Term B Loan requires annual mandatory prepayments of a portion of our Excess Cash Flow. We estimate that the Excess Cash Flow payment due in the first quarter of 2014, which is net of prepayments made through March 31, 2013, will be approximately $28 million. The amount is included under the current portion of long-term debt and is subject to change based on actual results, which could differ materially.

As of March 31, 2013, we are in compliance with all financial covenants and all other terms of the Credit Facility in all material respects. Our ability to maintain compliance with our covenants will be highly dependent on our results of operations. A default under our Credit Facility or the indenture governing our Senior Notes could cause a cross default in the other. Any event of default could have a material adverse effect on our business and financial condition.

We believe that over the next 12 months we can continue to maintain our compliance with these covenants. We believe that cash on hand and cash from operating activities, together with available borrowings under the Revolver, will be sufficient to permit us to meet our liquidity requirements over the next 12 months, including our debt repayments. Our operating cash flow remains positive, and we believe that it is adequate to fund our operating needs. As a result, we have not been required to rely upon, and we do not anticipate being required to rely upon, the Revolver to fund our operations.

Failure to comply with our financial covenants or other terms of our Credit Facility and any subsequent failure to negotiate and obtain any required relief from our lenders could result in the acceleration of the maturity of all outstanding debt. Under these circumstances, the acceleration of our debt could have a material adverse effect on our business. We may seek from time to time to amend our Credit Facility or obtain other funding or additional financing, which may result in higher interest rates.

Credit Facility's Financial Covenants

As of March 31, 2013, our Consolidated Leverage Ratio was 4.7 times versus a covenant maximum of 6.75 times and our Consolidated Interest Coverage Ratio was 2.6 times versus a covenant minimum of 1.6 times. These covenants become more restrictive over time.


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The following tables present the computations as defined under our Credit Facility:

Consolidated Leverage Ratio Computations:
(amounts in thousands, except ratios)
Numerator: Consolidated Funded Indebtedness
Senior debt outstanding                                                 $ 331,806
Senior Notes at maturity                                                  220,000
Letter of credit outstanding                                                  370

Total debt outstanding                                                    552,176
Less cash outstanding, not to exceed $40 million                           (6,494 )

Consolidated Funded Indebtedness                                        $ 545,682

Denominator: Consolidated Operating Cash Flow
Net income                                                              $  12,066
Income taxes                                                               14,387
Depreciation and amortization                                              10,404
Impairment loss                                                            22,307
Interest expense                                                           50,854
Non-cash compensation expense                                               5,499
Deferred non-cash charges                                                     892
Loss on debt extinguishment                                                   747
Pro forma adjustment to reflect the one-month period prior to the
commencement of KBLX-FM operations on May 1, 2012                             558
Pro forma for tower disposition as of beginning of period                    (753 )

Consolidated Operating Cash Flow                                        $ 116,961

Consolidated Leverage Ratio                                                  4.67

Consolidated Interest Coverage Ratio Computations:
(amounts in thousands, except ratios)
Numerator: Consolidated Operating Cash Flow                             $ 116,961

Denominator: Consolidated Interest Charges
Interest expense                                                        $  50,854
Less: Interest income and certain deferred financing expense               (4,590 )
Less: Interest expense associated with the tower transaction                 (753 )
Add: Interest expense associated with the KBLX-FM acquisition as
of the beginning of the period                                                175

Consolidated Interest Charges                                           $  45,686

Consolidated Interest Coverage Ratio                                         2.56

The Senior Notes

Simultaneously with entering into the Credit Facility on November 23, 2011, we issued the Senior Notes which mature on December 1, 2019 in the amount of $220 million. Interest on the Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year.

In addition to the parent, Entercom Communications Corp., all of our existing subsidiaries (other than Entercom Radio, LLC, which is a finance subsidiary and is the issuer of the Senior Notes), jointly and severally guaranteed the Senior Notes. Under certain covenants, our subsidiary guarantors are restricted from paying dividends or distributions in excess of amounts defined under the Senior Notes, and the subsidiary guarantors are limited in their ability to incur additional indebtedness under certain restrictive covenants.


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A default under our Senior Notes could cause a default under our Credit Facility. Any event of default could have a material adverse effect on our business and financial condition.

Operating Activities

Net cash flows provided by operating activities were $19.8 million and $18.6 million for the three months ended March 31, 2013 and 2012, respectively. The cash flows from operating activities increased primarily due to the decrease in interest expense as a result of the modification to the Term B Loan during the fourth quarter of 2012.

Investing Activities

Net cash flows used in investing activities were $0.9 million and $0.7 million for the three months ended March 31, 2013 and 2012, respectively.

For the three months ended March 31, 2013 and 2012, the cash used in investing activities primarily reflects the additions to property and equipment of $1.0 million and $0.9 million, respectively.

Financing Activities

Net cash flows used in financing activities were $21.3 million and $10.5 million for the three months ended March 31, 2013 and 2012, respectively.

For the three months ended March 31, 2013 and 2012, the cash flows used in financing activities primarily reflect the reduction to our net borrowings under our Credit Facility of $20.8 million and $10.0 million, respectively.

Dividends

We do not currently pay, and have not paid for the past several years, any dividends on our common stock. Any future dividends will be at the discretion of the Board of Directors based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in our Credit Facility or the Indentures governing our Notes.

Income Taxes

During the three months ended March 31, 2013, we paid a nominal amount in state income taxes. We anticipate that it will not be necessary to make any quarterly estimated federal and state income tax payments for the remainder of 2013 based upon existing prepayments, expected quarterly income subject to tax and available net operating loss carryovers.

Contractual Obligations

There have been no material changes from the contractual obligations listed in our Form 10-K for the year ended December 31, 2012, filed with the SEC on February 27, 2013.

Off-Balance Sheet Arrangements

As of March 31, 2013, we had no off-balance sheet arrangements, other than as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 27, 2013.

Critical Accounting Policies

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, 2012 and filed with the SEC on February 27, 2013.

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