| ENTERCOM COMMUNICATIONS CORP ITEM 1A RISK FACTORS Many statements contained in this report are forward-looking in nature |
| These statements are based on current plans, intentions or expectations and actual results could differ materially as we cannot guarantee that we will achieve these plans, intentions or expectations |
| Our future operations are subject to many business risks, including those risks that specifically influence the radio broadcasting industry, which could have a material adverse effect on our business including: • economic conditions, both generally and relative to the radio broadcasting industry; • shifts in population, demographics or audience tastes; • the level of competition for advertising revenues with other radio stations and other entertainment and communications media; • technological changes and innovations; • new laws and regulations; and • changes in governmental regulations and policies and actions of federal regulatory bodies, including the FCC, the Department of Justice and the Federal Trade Commission |
| Given the inherent unpredictability of these variables, we cannot with any degree of certainty predict what effect, if any, these variables will have on our future operations |
| Generally, advertising tends to decline during economic recession or downturn |
| Consequently, our advertising revenue is likely to be adversely affected by a recession or downturn in the United States economy, the economy of an individual geographic market in which we own or operate radio stations, or other events or circumstances that adversely affect advertising activity |
| Our radio broadcasting stations are in a highly competitive business |
| Our radio stations compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as newspapers, magazines, Internet, network and cable television, outdoor advertising and direct mail |
| Audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on the revenue of our stations located in that market |
| While we already compete in some of our markets with other stations with similar programming formats, if another radio station in a market were to convert its programming format to a format similar to one of our stations, if a new station were to adopt a comparable format or if an existing competitor were to strengthen its operations, our stations could suffer a reduction in ratings and/or advertising revenue and could incur increased promotional and other expenses |
| Other radio broadcasting companies may enter into the markets in which we operate or may operate in the future |
| These companies may be larger and have more financial resources than we have |
| We cannot be assured that any of our stations will be able to maintain or increase their current audience ratings and advertising revenues |
| FCC regulations prohibit the broadcast of obscene material at any time and indecent material between the hours of 6:00 a |
| The FCC has recently indicated that it is enhancing its enforcement efforts relating to the regulation of indecency and has threatened on more than one occasion to initiate license revocation proceedings against a broadcast licensee who commits a “serious” indecency violation |
| Legislation has been introduced in Congress that would dramatically increase the penalties for broadcasting indecent programming and potentially subject broadcasters to license revocation, renewal or qualification proceedings in the event that they broadcast indecent material |
| In addition, the FCC’s heightened focus on the indecency regulatory scheme, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations |
| Several of our stations are currently subject to indecency-related inquiries and/or proposed fines at the FCC’s Enforcement Bureau as well as objections to our 11 ______________________________________________________________________ license renewals based on such inquiries and proposed fines and we may in the future become subject to additional inquiries or proceedings related to our stations’ broadcast of indecent or obscene material |
| To the extent that these inquiries or other proceedings result in the imposition of fines, a settlement with the FCC, revocation of any of our station licenses or denials of license renewal applications, our results of operation and business could be materially adversely affected |
| The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act (see for example, the discussion of FCC regulations contained in Part I, Item I of this Form 10-K) |
| We are required to obtain licenses from the FCC to operate our radio stations |
| Licenses are normally granted for a term of eight years and are renewable |
| Although the vast majority of FCC radio station licenses are routinely renewed, we cannot be assured that the FCC will approve our future renewal applications or that the renewals will not include conditions or qualifications |
| The non-renewal, or renewal with substantial conditions or modifications, of one or more of our licenses could have a material adverse effect on us |
| We must comply with extensive FCC regulations and policies in the ownership and operation of our radio stations |
| FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate future transactions and in certain circumstances could require us to divest some radio stations |
| The FCC’s rules governing our radio station operations impose costs on our operations, and changes in those rules could have an adverse effect on our business |
| The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations |
| If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on us |
| Moreover, these FCC regulations and others may change over time, and we cannot be assured that those changes would not have a material adverse effect on us |
| The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services |
| There is increased competition for audio distribution |
| These new technologies and services, some of which are commercial free, include the following: • satellite delivered digital audio radio service, which has resulted in subscriber-based satellite radio services with numerous niche formats; • audio programming by cable systems, direct broadcast satellite systems, personal communications systems, Internet content providers and other digital audio broadcast formats; • personal digital audio devices (eg, audio via WiFi, mobile phones, iPods® and mp3® players); • digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and • low-power FM radio, which could result in additional FM radio broadcast outlets |
| We cannot predict the effect, if any, that competition arising from new technologies or regulatory change may have on the radio broadcasting industry or on our financial condition and results of operations |
| We May Not Be Successful In Identifying And Consummating Future Acquisitions We pursue growth, in part, through the acquisition of individual radio stations and groups of radio stations |
| Our consummation of all future acquisitions will be subject to various conditions, including FCC and other regulatory approvals |
| The FCC must approve any transfer of control or assignment of broadcast licenses |
| In addition, acquisitions may encounter intense scrutiny under federal and state antitrust laws |
| Depending on the nature, size and timing of future acquisitions, we may require additional financing |
| We cannot be assured that additional financing will be available to us on acceptable terms |
| We compete with many other buyers for the acquisition of radio stations |
| Some of those competitors may be able to outbid us for acquisitions because they have greater financial resources |
| As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain |
| The integration of acquisitions involves numerous risks, including: • difficulties in the integration of operations and systems and the management of a large and geographically diverse group of stations; • the diversion of management’s attention from other business concerns; and • the potential loss of key employees of acquired stations |
| The risks of integration are magnified during any period of significant growth |
| We cannot be assured that we will be able to integrate successfully any operations, systems or management that might be acquired in the future |
| In addition, in the event that the operations of a new business do not meet expectations, we may restructure or write off the value of some or all of the assets of the new business |
| We have indebtedness that is substantial in relation to our shareholders’ equity |
| At December 31, 2005, we have long-term indebtedness of dlra577dtta2 million (excluding outstanding letters of credit of dlra0dtta4 million) and shareholders’ equity of dlra885dtta7 million |
| This indebtedness is substantial in amount and could have an impact on us |
| For example, these obligations could: • require us to dedicate a substantial portion of our cash flow from operations to debt service, thereby reducing the availability of cash flow for other purposes, including funding future expansion and ongoing capital expenditures; • impair our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes; • limit our ability to compete, expand and make capital improvements; • increase our vulnerability to economic downturns, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and • limit or prohibit our ability to pay dividends and make other distributions |
| As of December 31, 2005, dlra372dtta6 million was available under our current dlra800dtta0 million Bank Revolver, subject to compliance with the covenants under the Bank Revolver at the time of borrowing |
| Moreover, under certain circumstances, we may need to modify or enter into a new bank facility to close on any future acquisitions |
| We also may seek to obtain other funding or additional financing for any or all of the following transactions: (1) the acquisition of radio stations; (2) the full or partial redemption of our outstanding debt; (3) the payment of a dividend; and (4) the buyback of our Class A common stock |
| We have no assurances that we will be able to obtain other funding, additional financing or the approvals, if necessary, for any of these transactions |
| Any additional borrowings would further increase the amount of our indebtedness and the associated risks |
| Our Bank Revolver and our Senior Subordinated Notes contain covenants that restrict, among other things, our ability to borrow money, make particular types of investments or other restricted payments, swap or sell assets, or merge or consolidate |
| An event of default under our Bank Revolver or our Senior Subordinated Notes could allow the lenders to declare all amounts outstanding to be immediately due and payable |
| We have pledged substantially all of the stock or equity interests of our subsidiaries to secure the debt under our Bank Revolver |
| If the amounts outstanding under the Senior Subordinated Notes were accelerated, the lenders could proceed against the stock or equity interests of our subsidiaries |
| A default under our Senior Subordinated Notes could cause a default under our Bank Revolver |
| Any event of default, therefore, could have a material adverse effect on our business |
| Our senior bank agreement also requires us to maintain specified financial ratios |
| Our ability to meet these financial ratios can be affected by operating performance or other events beyond our control, and we 13 ______________________________________________________________________ cannot be assured that we will meet those ratios |
| We also may incur future debt obligations in connection with future acquisitions that might subject us to restrictive covenants that could affect our financial and operational flexibility or subject us to other events of default |
| The debt we incur in connection with future acquisitions may require us to modify or enter into a new bank facility if certain covenants in our current bank facility would be violated, subjecting us to an event of default |
| All of our radio stations are currently owned and operated by our subsidiaries |
| Entercom Radio, LLC, our wholly owned subsidiary, is the borrower under our credit facility and our senior subordinated debt |
| All of our station-operating subsidiaries and FCC license subsidiaries are subsidiaries of Entercom Radio, LLC Further, we guaranteed Entercom Radio, LLC’s obligations under the Bank Revolver on a senior secured basis and under the Senior Subordinated Notes on an unsecured basis, junior to our Bank Revolver |
| As a holding company, our only source of cash to pay our obligations, including corporate overhead and other trade payables, are distributions from our subsidiaries of their net earnings and cash flow |
| We currently expect that the net earnings and cash flow of our subsidiaries will be retained and used by them in their operations, including servicing their debt obligations, before distributions are made to us |
| Even if our subsidiaries elect to make distributions to us, we cannot be assured that applicable state law and contractual restrictions, including the dividend covenants contained in our Bank Revolver and Senior Subordinated Notes, would permit such dividends or distributions |
| As of February 13, 2006, Joseph M Field, our Chairman of the Board, beneficially owned 1cmam418cmam202 shares of our Class A common stock and 7cmam222cmam555 shares of our Class B common stock, representing approximately 63dtta6prca of the total voting power of all of our outstanding common stock |
| As of February 13, 2006, David J Field, our President and Chief Executive Officer, one of our directors and the son of Joseph M Field, beneficially owned 2cmam438cmam308 shares of our Class A common stock and 749cmam250 shares of our outstanding Class B common stock, representing approximately 8dtta9prca of the total voting power of all of our outstanding common stock |
| Collectively, Joseph M Field and David J Field and other members of the Field family beneficially own all of our outstanding Class B common stock |
| Other members of the Field family and Trusts for their benefit also own shares of Class A common stock |
| Shares of Class B common stock are transferable only to Joseph M Field, David J Field, certain of their family members or trusts for any of their benefit |
| Upon any other transfer, shares of our Class B common stock automatically convert into shares of our Class A common stock on a one-for-one basis |
| Shares of our Class B common stock are entitled to ten votes only when they are voted by Joseph M Field or David J Field, subject to certain exceptions where they are restricted to one vote |
| Joseph M Field generally is able to control the vote on all matters submitted to the vote of shareholders and, therefore, is able to direct our management and policies, except with respect to those matters where the shares of our Class B common stock are only entitled to one vote and those matters requiring a class vote under the provisions of our articles of incorporation, bylaws or applicable law, including, without limitation, the election of the two Class A directors |
| Without the approval of Joseph M Field, we will be unable to consummate transactions involving an actual or potential change of control, including transactions in which investors might otherwise receive a premium for their shares over then current market prices |
| The market for our Class A common stock could fall substantially if Joseph M Field or members of his family sell large amounts of shares of our Class A common stock in the public market, including any shares of our Class B common stock (as described in the above paragraph) which are automatically converted to Class A common stock when sold |
| These sales, or the possibility of such sales, could make it more difficult for us to raise capital by selling equity or equity-related securities in the future |
| Joseph M Field controls the decision as to whether a change in control will occur for our Company |
| There are also provisions contained in our articles of incorporation, by-laws and Pennsylvania law that could make it more difficult for a third party to acquire control of our Company |
| In addition, FCC approval for transfers of control of FCC licenses and assignments of FCC licenses are required |
| These restrictions and limitations could adversely affect the trading price of our Class A common stock |
| For the year ended December 31, 2005, we generated in excess of 50prca of our net revenues in 5 of our 20 markets (Seattle, Boston, Sacramento, Portland and Kansas City) |
| Accordingly we may have greater exposure to adverse events or conditions that affect the economy in any of these markets, which could have a material adverse effect on our financial position and results of operations |
| The continued existence of any cross-media rules may limit the prospective buyers in the market of any stations we may wish to sell |
| The ownership rules also effectively prevent us from selling stations in a market to a buyer that has reached its ownership limit in the market |
| Our Class A common stock has been publicly traded since January 29, 1999 |
| The market price of our Class A common stock has been subject to fluctuations since the date of our initial public offering |
| The stock market has from time to time experienced price and volume fluctuations that have affected the market prices of securities |
| As a result, the market price of our Class A common stock could materially decline, regardless of our operating performance |
| Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key executives |
| We believe that the loss of one or more of these individuals could have a material adverse effect on our business |
| Any adverse change in the US economy in general, and consumer confidence and spending in particular, could have a material adverse effect on our financial position and results of operations and on the future price of our Class A common stock |
| As of December 31, 2005, our FCC licenses and goodwill comprise 87dtta1prca of our total assets |
| Annual impairment reviews required under SFAS Nodtta 142, “Goodwill and Other Intangible Assets,’’ may result in future impairment losses |
| Hurricane Katrina and its aftermath severely impacted the operations of our six radio stations in New Orleans, Louisiana |
| It is unknown at this time how long it will take for the New Orleans business community, resident population and the advertising market to recover |
| At this time, we expect the business community, resident population and the advertising market to recover over a period of time |
| If actual market conditions are less favorable than those projected by us or the industry, however, we may be required to recognize impairment charges in future periods |
| These impairment charges could have a material impact on our consolidated results of operations, financial position or cash flows |
| 15 ______________________________________________________________________ Our Failure To Comply Under The Sarbanes-Oxley Act of 2002 Could Cause A Loss Of Confidence In The Reliability Of Our Financial Statements |
| We have undergone a comprehensive effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002 |
| Compliance was required as of December 31, 2005 |
| This effort included documenting and testing our internal controls |
| As of December 31, 2005, we did not identify any material weaknesses in our internal controls as defined by the Public Company Accounting Oversight Board |
| In future years, there are no assurances that we will not have material weaknesses that would be required to be reported or that we will be able to comply with the reporting deadline requirements of Section 404 |
| A reported material weakness or the failure to meet the reporting deadline requirements of Section 404 could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements |
| This loss of confidence could cause a decline in the market price of our stock |