Entercom

Nothing in this document should be construed as investment advice. It is intended to provide general background information on the companies that operate radio stations listed in this directory, and provide a few pieces of information about how the company is being affected by the 2008/2009 global economic problems.

Entercom (Website) is one of the largest radio-only broadcasting companies in the United States.  Entercom  operates 33 AM and 76 FM radio stations.  Most of their stations are located in medium sized radio markets.  Entercom is heavily involved in sports broadcasting, especially the Boston Red Sox baseball games.

The company’s headquarters is located in Bala Cynwyd, Pennsylvania, a suburb of Philadelphia.   Entercom Class A stock is traded on the NYSE under the symbol “ETM”.

History

Entercom’s story begins in 1968 in Pennsylvania.  The company is started by its current chairman Joseph Field.  Mr Field is an attorney.  He believed FM radio was about to become dominant over AM and acquired three FM stations in suburban Philadelphia,  He limited acquisitions to only what he could prudently afford.

In 1973, the company acquires station KMTT in Seattle, Washington.  In 1995, Entercom acquired 3 stations in Portland, Oregon.

Following the end of the national ownership cap, the race to become big starts.  A New York station is traded to Viacom/CBS for more stations in Seattle.  In 1999, the cautious Mr Field sticks his neck out further acquiring WRKO in Boston and a group of related stations and going $200 million in debt.

In 1999, the gloves come off and it’s IPO time.  Entercom raises $236 million and pays down some of its existing debt(!), and announces it will purchase the Sinclair Radio Group’s 46 radio stations for $824 Million.  At this point, the company has 88 radio stations.  Over the next 10 years, the company buys and sells a few stations at a time until it reaches about 110 stations. Entercom generally wants to be the big fish in medium sized markets than a small fish in a major market.

One of the smaller markets where Entercom has a large presence is New Orleans.  Following the devastation (natural and man-made) of Hurricane Katrina, Entercom played a key role in organizing a network of stations (along with Clear Channel) to broadcast emergency information and help coordinate the response with the residents.

In 2007, Howie Carr – one of the best known voices in Boston talk radio decided when his contract with Entercom was up at WRKO, he wanted to go to work at rival station WTKK-FM.   However, Howie’s contract had a clause that prohibited him talking with rivals prior to the expiration of his contract with Entercom.   When he announced his intention to leave, Entercom announced they would block his move to WTKK on the basis of Howie’s contract.  The judges through all of the appeals sided with Entercom.  Entercom eventually had to match the terms of WTKK’s offer, but Howie is still at WRKO.

Probably partly due to the extended period of time Entercom’s network of regional talk stations were Howie-less, the company formed a regional sports talk network branded around station WEEI, that carries the games of the Boston Red Sox throughout the New England area and Howie Carr lost most of the affiliates that had been carrying his show.

Major Stations – top 25 markets

+-------------+---------------------+--------+
| streamname  | CityName            | State  |
+-------------+---------------------+--------+
| WKAF FM/HD1 | BROCKTON            | MA     |
| WEEI AM     | BOSTON              | MA     |
| WRKO AM     | BOSTON              | MA     |
| WAAF FM/HD1 | WESTBOROUGH         | MA     |
| WMKK FM/HD1 | LAWRENCE            | MA     |
| KISW FM/HD1 | SEATTLE             | WA     |
| KMTT FM/HD1 | TACOMA              | WA     |
| KNDD FM/HD1 | SEATTLE             | WA     |
| KKWF FM/HD1 | SEATTLE             | WA     |
| KALC FM/HD1 | DENVER              | CO     |
| KOSI FM/HD1 | DENVER              | CO     |
| KQMT FM/HD1 | DENVER              | CO     |
| KEZW AM     | AURORA              | CO     |
| KFXX AM     | PORTLAND            | OR     |
| KGON FM/HD1 | PORTLAND            | OR     |
| KNRK FM/HD1 | CAMAS               | WA     |
| KRSK FM/HD1 | SALEM               | OR     |
| KWJJ FM/HD1 | PORTLAND            | OR     |
| KTRO AM     | VANCOUVER           | WA     |
| KVXX AM     | SALEM               | OR     |
| KYCH FM/HD1 | PORTLAND            | OR     |

Ownership

There are three classes of stock

  • Class A – 29.5 mllion shares, trading on the NYSE under symbol ETM.  One vote for share.
  • Class B – 7.6 million shares – each one has 10 votes, and ownership is restricted to only several people, mostly members of the Field Family
  • Class C – non-voting, no shares outstanding.

Management

Joseph M. Field is the Chairman and controls 64.9% of the voting due to the common practice of 10:1 Class B non-proportional voting rights.

David J. Field (his son) is President and CEO

Institutional Owners:

Class A Owner Location Approx
# Shares
Dimensioanl Fund Advisors Austin, TX 2 million
Barclays Global Investors London, UK 1.6 million
Goldman Sachs New York 1.4 million
Perkins Investment Management Chicago 1.2 million
Mac Per Wolf Co Chicago 1.1 million

Financial Condition as of 2008 (10-K)

In summary, Entercom is one of the least troubled of the Big Radio Companies.   While they borrowed a lot of money to acquire the Sinclair radio stations, and took a large hit on writedown of their station licenses, if you ignore the non-cash writedown, they are still generating significantly more cash income than what is needed to cover their debt service.    They are aggressively trying to pay down debt by selling some assets and otherwise preparing for a long drought.  The aren’t yet in violation of their credit facility covenants and their interest expense is still low.   They still have stockholder equity.  If the economy and value of radio licenses rebound some day, Entercom is still likely to be in business and can benefit from tax loss carryforwards.   The company has been aggressively buying back its own Class A stock at the depressed prices.

Key Balance Sheet Items: (2008)

Total Assets:  $996 Million

  • Value of Radio Station licenses: $768 million
  • Goodwill and other intangible Assets:  $45 Million
  • Cash:  $4 Million
  • Accounts Receivable: $75 Million  (62 days of revenue)
  • Land, Buildings, Equipment (net) $84 Million

Debt:

  • Current Liabilities:  $62 million
  • Long Term Debt:  $803 Million

Stockholder Equity:  $100 Million

Credit Facility

The company has a $1,050 Million credit facility from a group of 19 banks.   It consists of a $450 million term loan and $600 million in revolving credit.  As of the end of 2008, the company had borrowed $750 million from the facility and had the ability to still borrow $112 million in additional funds (subject to the terms of the facility).   [$89.2 million as of March 31, 2009].  For 2008, the average cost of the money was 1.5%  (before the costs of the interest rate swaps)

The company also has $83M outstanding in long term notes (7.625%) that are subordinated behind the credit facility.  In 2009, the company decided to end its relationship with the Moody and S&P bond ratings services and aggressively buying back this higher cost debt.

Swap transactions

The company is using Interest Rate Swaps to hedge and protect itself from future increases in interest rates on about half of their borrowed money.

10-k Notes

Profitability

All numbers in $million 2008 2007 2006 2005 2004
Radio Revenue 438 468 439 431 422
License Impairment 835 84
Operating Income
(Without Impairment)
125 43 126 152 145
Long Term Debt Balance 834 970 676 577 483
Debt Service Cost 45 51 44 29 22

Stock Performance

Over the last 5 years, Entercom’s performance has closely matched that of similar companies in the radio business (there aren’t many), but has significantly underperformed the S&P 500.

The company was notified in December 2008 by the NYSE that its stock will be delisted unless it is able to cause the stock price to return to above $1/share.   The company had paid a dividend up until the 4th quarter of 2008, but has suspended the dividend for now.  By suspending the dividend and buying back stock, the company was back above $1/share by March 2009.

The closing price for Entercom’s Class A stock after its IPO in 1999 was $30.75.    The stock peaked at 66 5/8 on January 21, 2000.  For the next decade the stock mainly stayed in a range from $30-$50…  in mid 2007 as the potential from trouble from “Mark to Market” and exposure to changing interest rates, the stock started a significant decline, and was down to $5/share by September 2008.  In eary October, it fell off a cliff and hit a low of $.55/share.  The stock has since partially rebounded at closed on May 22, 2009 at $1.86

If you bought at the IPO price 10 years ago, you have lost 94% of your investment.  Until recently the stock did pay a cash divident so your actual return was better than that number.  If you bought the stock at its all time low, your investment had  returned 238% in about 7 months.

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