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CONTINGENCIES, GUARANTOR ARRANGEMENTS AND COMMITMENTS (Block)
 12 Months Ended
Dec. 31, 2012
Commitments And Contingencies Disclosure Abstract  
Commitments And Contingencies Disclosure Text Block

19.       CONTINGENCIES, GUARANTOR ARRANGEMENTS AND COMMITMENTS

 

Contingencies

 

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that 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.

 

Insurance

 

The Company uses a combination of insurance and self-insurance mechanisms to mitigate the potential liabilities for workers' compensation, general liability, property, directors' 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 $0.6 million.

 

Broadcast Licenses

 

       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 Federal Communications Commission (the “FCC”) concludes that programming broadcast by a Company station was obscene, indecent or profane and such conduct warrants license revocation.  The FCC's authority to impose a fine for the broadcast of such material is $325,000 for a single incident, with a maximum fine of up to $3,000,000 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 investigated other complaints from the public that some of the Company's stations broadcast indecent programming. These investigations remain pending.  The FCC initiated an investigation into an incident where a person died after participating in a contest at one of the Company's stations and this investigation remains pending. The Company has determined that, at this time, the amount of potential fines and penalties, if any, is not fixed or determinable.

 

       The Company has filed, on a timely basis, renewal applications for those radio stations with radio broadcasting licenses that are subject to renewal with the FCC. The Company's costs to renew its licenses with the FCC are nominal and are expensed as incurred rather than capitalized. Certain licenses were not renewed prior to the renewal date. 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 applications.

 

Music Licensing

 

       During January 2012, American Society of Composers, Authors and Publishers (“ASCAP”) and the Radio Music Licensing Committee (“RMLC”), of which the Company is a participant, entered into a settlement agreement that was approved by the court and covers the period from January 1, 2010 through December 31, 2016. This settlement also includes a credit for fees previously paid. The credit, which is available over the term of the agreement, is recorded when realized as a reduction to the Company's station operating expenses in the statement of operations.

 

       During August 2012, Broadcast Music, Inc. (“BMI”) and the RMLC entered into a settlement agreement that was approved by the court and covers the period from January 1, 2010 through December 31, 2016. This settlement also includes a credit for fees previously paid. The Company recognized this benefit during the third quarter of 2012 as a reduction to its station operating expenses.

 

       As background on these settlement agreements, the Company's previous agreements with BMI and ASCAP each expired as of December 31, 2009. In January 2010, the RMLC filed motions in the New York courts against BMI and ASCAP on behalf of the radio industry, seeking interim fees and a determination of fair and reasonable industry-wide license fees. The courts approved reduced interim fees for ASCAP and BMI.

Commitments

 

Disposition Of Multiple Tower Sites               

 

       The Company sold certain tower sites in 2009. Due to the Company's continuing involvement through a potential earn-out in the year 2013, the transaction was classified under the financing method.

       For further discussion, see Note 8.

Other

 

       Rental expense is incurred principally for office and broadcasting facilities. Certain of the leases contain clauses that provide for contingent rental expense based upon defined events such as cost of living adjustments and/or maintenance costs in excess of pre-defined amounts. Rental expense does not include any payments made in connection with financing method lease obligations as described under Note 8, Financing Method Lease Obligations.

 

       The following table provides the Company's rent expense for the periods indicated:

 

  Years Ended December 31,
  2012 2011 2010
  (amounts in thousands)
          
Rent Expense $ 12,748 $ 12,719 $ 12,072

       The Company also has various commitments under the following types of contracts: (1) operating leases; (2) sports programming; (3) on-air talent; and (4) other contracts with aggregate minimum annual commitments as of December 31, 2012 as follows:

 

    Programming   
 Operating And Related   
 Leases Contracts Total
 (amounts in thousands)
Years ending December 31,        
2013$ 12,717 $ 67,902 $ 80,619
2014  11,594   43,989   55,583
2015  10,365   28,129   38,494
2016  8,938   24,238   33,176
2017  7,643   2,228   9,871
Thereafter  21,125   1,210   22,335
 $ 72,382 $ 167,696 $ 240,078

Guarantor Arrangements

 

       The Company recognizes, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The following is a summary of agreements that the Company has determined are within the scope of guarantor arrangements:

 

  • The Company enters into indemnification agreements in the ordinary course of business. Under these agreements, the Company typically indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company believes that the estimated fair value of these agreements is minimal. Accordingly, the Company has not recorded liabilities for these agreements as of December 31, 2012.

     

  • Under the Company's Credit Facility, the Company is required to reimburse lenders for any increased costs that they may incur in the event of a change in law, rule or regulation resulting in their reduced returns from any change in capital requirements. The Company cannot estimate the potential amount of any future payment under this provision, nor can the Company predict if such an event will ever occur.

     

  • In connection with many of the Company's acquisitions, the Company enters into time brokerage agreements or local marketing agreements for specified periods of time, usually six months or less, whereby the Company typically indemnifies the owner and operator of the radio station, their employees, agents and contractors from liability, claims and damages arising from the activities of operating the radio station under such agreements. The maximum potential amount of any future payments the Company could be required to make for any such previous indemnification obligations is indeterminable at this time. The Company has not, however, previously incurred any significant costs to defend lawsuits or settle claims relating to any such indemnification obligation.

Financial Statements Of Parent As Guarantor

 

       The condensed financial data of Entercom Communications Corp., excluding all subsidiaries (the “Parent Company”), has been prepared in accordance with Rule 12-04 of Regulation S-X. The Parent Company's financial data includes the financial data of Entercom Communications Corp., excluding all subsidiaries.

       

       The Parent Company's condensed financial data (other than the statements of shareholders' equity and comprehensive income (loss) as these statements are not condensed) has been prepared using the same accounting principles and policies described in the notes to the financial statements, with the only exception that the Parent Company accounts for its investment in its subsidiaries using the equity method.

 

       Radio, which is a wholly owned subsidiary of the Parent Company, holds the ownership interest in various subsidiary companies that own the operating assets, including broadcasting licenses, permits, authorizations and cash royalties. Radio is the borrower under the Credit Facility as described in Note 7(A) and is the issuer of the Senior Notes, described in Note 7(B). The Parent Company and each direct and indirect subsidiary of Radio is a guarantor of Radio's obligations under the Credit Facility and the Company's Senior Notes. The assets securing both the Credit Facility and the Senior Notes are subject to customary release provisions which would enable the Company to sell such assets free and clear of encumbrance, subject to certain conditions and exceptions.

 

       Financial statements of the subsidiaries are not included in accordance with Rule 3-10 of Regulation S-X as: (1) the Parent Company has no independent assets or operations; (2) Radio is a 100% owned finance subsidiary of the Parent Company; (3) the Parent Company has guaranteed the Credit Facility and Senior Notes; (4) all of the Parent Company's direct and indirect subsidiaries other than Radio have guaranteed the Credit Facility and Senior Notes; (5) all of the guarantees are full and unconditional (subject to the customary automatic release provisions); and (6) all of the guarantees are joint and several.

 

       Under both the Credit Facility and the indenture governing the Senior Notes, Radio is permitted to make distributions to the Parent Company in amounts, as defined, which are required to pay the Parent Company's reasonable overhead costs, including income taxes and other costs associated with conducting the operations of Radio and its subsidiaries.

       

The following tables set forth the condensed financial data (other than the statements of shareholders' equity as these statements are not condensed) of the Parent Company:

 

  • the balance sheets as of December 31, 2012 and 2011;
  • the statements of operations for the years ended December 31, 2012, 2011 and 2010;
  • the statements of comprehensive income (loss) for the years ended December 31, 2012, 2011 and 2010;
  • the statements of shareholders' equity for the years ended December 31, 2012, 2011 and 2010; and
  • the statements of cash flows for the years ended December 31, 2012, 2011 and 2010.

 

 

 ENTERCOM COMMUNICATIONS CORP.
 CONDENSED PARENT COMPANY BALANCE SHEETS
 (amounts in thousands)
        
   2012 2011
 ASSETS      
        
 Current Assets $ 1,968 $ 2,580
 Property And Equipment - Net   895   647
 Deferred Charges And      
  Other Assets - Net   1,991   2,473
 Investment In Subsidiaries / Intercompany   284,584   266,502
 TOTAL ASSETS $ 289,438 $ 272,202
        
 LIABILITIES AND      
 SHAREHOLDERS' EQUITY      
 Current Liabilities $ 9,697 $ 10,031
 Long Term Liabilities   15,024   13,260
 Total Liabilities   24,721   23,291
 Shareholders' Equity:      
  Class A, B and C Common Stock   384   382
  Additional Paid-In Capital    601,847   597,327
  Accumulated Deficit   (337,514)   (348,798)
 Total shareholders' equity   264,717   248,911
 TOTAL LIABILITIES AND       
  SHAREHOLDERS' EQUITY $ 289,438 $ 272,202
        
 See notes to condensed Parent Company financial statements.

ENTERCOM COMMUNICATIONS CORP.
CONDENSED PARENT COMPANY INCOME STATEMENTS
(amounts in thousands)
          
  YEARS ENDED DECEMBER 31,
  2012 2011 2010
          
NET REVENUES $ 659 $ 652 $ 626
          
OPERATING (INCOME) EXPENSE:         
Depreciation and amortization expense   920   852   1,287
Corporate general and administrative expenses   25,717   26,464   21,811
Merger and acquisition costs   -   1,542   -
Net (gain) loss on sale or disposal of assets   -   (28)   (63)
Total operating expense    26,637   28,830   23,035
OPERATING INCOME (LOSS)   (25,978)   (28,178)   (22,409)
          
Net interest expense, including amortization         
of deferred financing expense   (46)   58   1
Other income   (118)   (32)   (49)
Income from equity investment in subsidiaries   (49,556)   (80,270)   (89,392)
TOTAL OTHER (INCOME) EXPENSE   (49,720)   (80,244)   (89,440)
          
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)   23,742   52,066   67,031
          
INCOME TAXES (BENEFIT)   12,474   (14,211)   20,595
NET INCOME (LOSS) $ 11,268 $ 66,277 $ 46,436
          
See notes to condensed Parent Company financial statements.

ENTERCOM COMMUNICATIONS CORP.
PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
         
    
 YEARS ENDED DECEMBER 31,
 2012 2011 2010
         
NET INCOME (LOSS)$11,268  $66,277  $46,436
         
OTHER COMPREHENSIVE INCOME (LOSS),        
NET OF TAXES (BENEFIT):        
         
Net unrealized gain (loss) on derivatives,        
net of taxes (benefit) 0   7,277   6,155
         
COMPREHENSIVE INCOME (LOSS)$11,268  $73,554  $52,591
         
See notes to condensed Parent Company financial statements.

ENTERCOM COMMUNICATIONS CORP.
PARENT COMPANY STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
(amounts in thousands, except share data)
 
             Retained Accumulated   
 Common Stock Additional Earnings Other   
 Class A Class B Paid-in (AccumulatedComprehensive  
 Shares Amount Shares Amount Capital Deficit) Income (Loss) Total
Balance, December 31, 2009 29,755,161 $ 297  7,457,532 $ 75 $ 588,622 $ (461,610) $ (13,432) $ 113,952
Net income (loss) -   -  -   -   -   46,436   -   46,436
Conversion of Class B common stock                      
to Class A common stock 90,000   1  (90,000)   (1)   -   -   -   -
Compensation expense related to granting                     
of stock options -   -  -   -   549   -   -   549
Compensation expense related to granting                     
of restricted stock units 941,213   10  -   -   4,969   -   -   4,979
Exercise of stock options 97,725   1  -   -   129   -   -   130
Purchase of vested employee restricted                      
stock units (183,531)   (2)  -   -   (1,626)   -   -   (1,628)
Forfeitures of dividend equivalents -   -  -   -   -   94   -   94
Net unrealized gain (loss) on derivatives -   -  -   -   -   -   6,155   6,155
Balance, December 31, 2010 30,700,568   307  7,367,532   74   592,643   (415,080)   (7,277)   170,667
Net income (loss) -   -  -   -   -   66,277   -   66,277
Conversion of Class B common stock                      
to Class A common stock 170,000   2  (170,000)   (2)   -   -   -   -
Compensation expense related to granting                     
of stock options -   -  -   -   462   -   -   462
Compensation expense related to granting                     
of restricted stock units 416,906   4  -   -   7,205   -   -   7,209
Exercise of stock options 53,625   -  -   -   71   -   -   71
Purchase of vested employee restricted                     
stock units (297,098)   (3)  -   -   (3,054)   -   -   (3,057)
Forfeitures of dividend equivalents -   -  -   -   -   5   -   5
Net unrealized gain (loss) on derivatives -   -  -   -   -   -   7,277   7,277
Balance, December 31, 2011 31,044,001   310  7,197,532   72   597,327   (348,798)   -   248,911

ENTERCOM COMMUNICATIONS CORP.
PARENT COMPANY STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
(amounts in thousands, except share data)
             Retained Accumulated   
 Common Stock Additional Earnings Other   
 Class A Class B Paid-in (AccumulatedComprehensive  
 Shares Amount Shares Amount Capital Deficit) Income (Loss) Total
Net income (loss) -   -  -   -   -   11,268   -   11,268
Compensation expense related to granting                     
of stock options -   -  -   -   210   -   -   210
Compensation expense related to granting                     
of restricted stock units 280,072   3  -   -   5,541   -   -   5,544
Exercise of stock options 101,350   1  -   -   134   -   -   135
Purchase of vested employee restricted                      
stock units (199,376)   (2)  -   -   (1,365)   -   -   (1,367)
Forfeitures of dividend equivalents -   -  -   -   -   16   -   16
Balance, December 31, 2012 31,226,047 $ 312  7,197,532 $ 72 $ 601,847 $ (337,514) $ - $ 264,717
                      
See notes to consolidated financial statements.

ENTERCOM COMMUNICATIONS CORP.
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
(amounts in thousands)
          
  YEARS ENDED DECEMBER 31,
  2012 2011 2010
          
OPERATING ACTIVITIES:         
Net cash provided by (used in) operating activities $ (16,074) $ (16,974) $ 661
          
INVESTING ACTIVITIES:         
Additions to property and equipment   (500)   (349)   (36)
Deferred charges and other assets   (842)   (1,154)   (325)
Proceeds (distributions) from investments in subsidiaries   18,712   21,810   2,119
Net cash provided by (used in) investing activities   17,370   20,307   1,758
          
FINANCING ACTIVITIES:         
Proceeds from the exercise of stock options   135   71   130
Purchase of vested restricted stock units   (1,367)   (3,057)   (1,628)
Payment of dividend equivalents on vested restricted stock units   (43)   (512)   (874)
Net cash provided by (used in) financing activities   (1,275)   (3,498)   (2,372)
          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   21   (165)   47
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   248   413   366
CASH AND CASH EQUIVALENTS, END OF YEAR $ 269 $ 248 $ 413
          
See notes to condensed Parent Company financial statements.

Accounting Policies

 

The Parent Company follows the accounting policies as described in Note 2 to the consolidated financial statements of Entercom Communications Corp.

 

Debt – For a discussion of debt obligations of the Company, refer to Note 7 in the consolidated financial statements included elsewhere herein.

 

Commitments and Contingencies – For a discussion of the commitments and contingencies of the Company, refer to this note.

 

Other - For further information, reference should be made to the notes to the consolidated financial statements of the Company.

 

Revision Of Prior Period Financial Statements - In connection with the preparation of the Company's financial statements for the year ended December 31, 2012, the Company identified a prior period error in the income taxes reported for the year ended December 31, 2011. The Company assessed the materiality of this error and concluded that it was not material to any of its issued financial statements. The Company has revised the affected period presented herein to reflect the correct accounting. This non-cash item did not impact the Company's operating income or operating cash flows for the current or prior period and had no impact on its cash taxes. For further discussion, refer to Note 1 in the accompanying notes to the financial statements.

 

Prior Period Correction Refer to Note 13, Income Taxes, for a discussion of a prior period correction for the year ended December 31, 2011 of $6.0 million that was made to record an income tax benefit to other comprehensive income (loss) and to increase income tax expense by the same amount.