URBAN ONE, INC. - Quarter Report: 2008 June (Form 10-Q)
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
________________
Form 10-Q
________________
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2008
Commission
File No. 0-25969
________________
RADIO
ONE, INC.
(Exact
name of registrant as specified in its charter)
________________
Delaware
|
52-1166660
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
5900
Princess Garden Parkway,
7th
Floor
Lanham,
Maryland 20706
(Address
of principal executive offices)
(301) 306-1111
Registrant’s
telephone number, including area code
________________
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 þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer o Accelerated
filer þ Non-accelerated
filer 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 þ
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
at August 1,
2008
|
Class A
Common Stock, $.001 Par Value
|
3,078,434
|
Class B
Common Stock, $.001 Par Value
|
2,861,843
|
Class C
Common Stock, $.001 Par Value
|
3,121,048
|
Class D
Common Stock, $.001 Par Value
|
88,026,704
|
TABLE
OF CONTENTS
Page
|
||
PART
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Consolidated
Statements of Operations for the Three Months and Six Months Ended
June
30, 2008 and 2007 (Unaudited)
|
4
|
Consolidated
Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007
(As
Adjusted)
|
5
|
|
Consolidated
Statement of Changes in Stockholders’ Equity for the Six Months Ended June
30, 2008 (Unaudited)
|
6
|
|
Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2008 and
2007
(Unaudited)
|
7
|
|
Notes
to Consolidated Financial Statements
(Unaudited)
|
8
|
|
Consolidating
Financial
Statements
|
23 | |
Consolidating
Statement of Operations for the Three Months Ended June 30, 2008
(Unaudited)
|
24 | |
Consolidating
Statement of Operations for the Three Months Ended June 30, 2007
(Unaudited)
|
25 | |
Consolidating
Statement of Operations for the Six Months Ended June 30, 2008
(Unaudited)
|
26 | |
Consolidating
Statement of Operations for the Six Months Ended June 30, 2007
(Unaudited)
|
27 | |
Consolidating
Balance Sheet as of June 30, 2008
(Unaudited)
|
28 | |
Consolidating
Balance Sheet as of December 31, 2007
(Unaudited)
|
29 | |
Consolidating
Statement of Cash Flows for the Six Months Ended June 30, 2008
(Unaudited)
|
30 | |
Consolidating
Statement of Cash Flows for the Six Months Ended June 30, 2007
(Unaudited)
|
31 | |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
32 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
48 |
Item
4.
|
Controls
and
Procedures
|
48 |
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
49 |
Item
1A.
|
Risk
Factors
|
49 |
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
49 |
Item
3.
|
Defaults
Upon Senior
Securities
|
49 |
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
50 |
Item
5.
|
Other
Information
|
50 |
Item
6.
|
Exhibits
|
50 |
SIGNATURES
|
51 |
2
CAUTIONARY
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
document contains 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. These
forward-looking statements do not relay historical facts, but rather reflect
our
current expectations concerning future operations, results and events. You
can
identify some of these forward-looking statements by our use of words such
as
“anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “likely,”
“may,” “estimates” and similar expressions or our discussion of matters in a
manner that anticipates operations, results or events in future periods. We
cannot guarantee that we will achieve these plans, intentions or expectations.
Because these statements apply to future events, they are subject to risks
and
uncertainties that could cause actual results to differ materially from those
forecasts or anticipated in the forward-looking statements. These risks,
uncertainties and factors include, but are not limited to:
|
•
|
economic
conditions, both
generally and relative to the radio broadcasting and media
industries;
|
|
•
|
fluctuations
in the demand for
advertising across our various
media;
|
|
•
|
risks
associated with the
implementation and execution of our business diversification
strategy;
|
|
•
|
increased
competition in our
markets and in the radio broadcasting and media
industries;
|
|
•
|
changes
in media audience
measurement methodologies;
|
|
•
|
changes
in our key personnel and
on-air talent;
|
|
•
|
increases
in the costs of our
programming, including on-air
talent;
|
|
•
|
increased
competition from new
technologies;
|
|
•
|
the
impact of our acquisitions,
dispositions and similar
transactions;
|
|
•
|
our
high degree of
leverage; and
|
|
•
|
other
factors mentioned in our
filings with the Securities and Exchange Commission including the
factors
discussed in detail in Item 1A, “Risk Factors,” in our 2007 report on
Form 10-K.
|
You
should not place undue reliance on
these forward-looking statements, which reflect our view as of the date of
this
report. We undertake no obligation to publicly update or revise any
forward-looking statements because of new information, future events or
otherwise.
3
RADIO
ONE, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||||||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||||||
(Unaudited)
|
|||||||||||||||||
(As
Adjusted – See Note 1)
|
(As
Adjusted – See Note 1)
|
||||||||||||||||
(In
thousands, except share data)
|
|||||||||||||||||
NET
REVENUE
|
$
|
83,432
|
$
|
82,620
|
$
|
155,930
|
$
|
156,660
|
|||||||||
OPERATING
EXPENSES:
|
|||||||||||||||||
Programming
and technical
|
20,853
|
17,969
|
39,918
|
36,174
|
|||||||||||||
Selling,
general and administrative
|
27,773
|
25,852
|
52,463
|
48,107
|
|||||||||||||
Corporate
selling, general and
administrative
|
17,807
|
8,376
|
24,337
|
16,219
|
|||||||||||||
Depreciation
and amortization
|
5,171
|
3,667
|
8,835
|
7,383
|
|||||||||||||
Impairment
of long-lived assets
|
—
|
5,506
|
—
|
5,506
|
|||||||||||||
Total
operating expenses
|
71,604
|
61,370
|
125,553
|
113,389
|
|||||||||||||
Operating
income
|
11,828
|
21,250
|
30,377
|
43,271
|
|||||||||||||
INTEREST
INCOME
|
130
|
294
|
331
|
561
|
|||||||||||||
INTEREST
EXPENSE
|
15,160
|
18,577
|
32,419
|
36,647
|
|||||||||||||
EQUITY
IN
(INCOME) LOSS OF AFFILIATED COMPANY
|
(29
|
)
|
3,088
|
2,799
|
7,306
|
||||||||||||
OTHER
INCOME (EXPENSE),
net
|
982
|
—
|
971
|
(8
|
)
|
||||||||||||
Loss
before provision (benefit)
for income taxes, minority interest in income of subsidiaries and
discontinued operations
|
(2,191
|
)
|
(121
|
)
|
(3,539
|
)
|
(129
|
)
|
|||||||||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
9,761
|
(801
|
)
|
18,659
|
651
|
||||||||||||
MINORITY
INTEREST IN INCOME OF SUBSIDIARIES
|
1,058
|
919
|
1,881
|
1,825
|
|||||||||||||
Net
loss from continuing
operations
|
(13,010
|
)
|
(239
|
)
|
(24,079
|
)
|
(2,605
|
)
|
|||||||||
INCOME
(LOSS)
FROM DISCONTINUED OPERATIONS, net of tax
|
1,334
|
(4,832
|
)
|
(6,447
|
)
|
(5,448
|
)
|
||||||||||
NET
LOSS
|
$
|
(11,676
|
)
|
$
|
(5,071
|
)
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
|||||
BASIC
AND
DILUTED NET LOSS FROM CONTINUING OPERATIONS PER COMMON
SHARE
|
$
|
(0.13
|
)
|
$
|
—
|
$
|
(0.24
|
)
|
$
|
(0.03
|
)*
|
||||||
BASIC
AND DILUTED NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS PER COMMON
SHARE
|
$
|
0.01
|
$
|
(0.05
|
)
|
$
|
(0.07
|
)
|
$
|
(0.06
|
)*
|
||||||
BASIC
AND DILUTED NET LOSS PER COMMON SHARE
|
$
|
(0.12
|
)
|
$
|
(0.05
|
)
|
$
|
(0.31
|
)
|
$
|
(0.08
|
)*
|
|||||
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|||||||||||||||||
Basic
|
98,403,298
|
98,710,633
|
98,560,790
|
98,710,633
|
|||||||||||||
Diluted
|
98,403,298
|
98,710,633
|
98,560,790
|
98,710,633
|
* Earnings
per share
amounts may not add due to rounding.
The
accompanying notes are an integral
part of these consolidated financial statements.
4
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
June
30, 2008
|
December 31,
2007
|
|||||||
(Unaudited)
|
(As
Adjusted-
|
|||||||
See
Note 1)
|
||||||||
(In
thousands, except share data)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$
|
10,681
|
$
|
24,247
|
||||
Trade
accounts receivable, net of allowance for doubtful accounts of $1,988
and
$2,021, respectively
|
59,383
|
50,425
|
||||||
Prepaid
expenses and other current assets
|
5,185
|
6,118
|
||||||
Deferred
income tax asset
|
14,919
|
15,147
|
||||||
Current
assets from discontinued operations
|
688
|
3,249
|
||||||
Total
current assets
|
90,856
|
99,186
|
||||||
PROPERTY
AND EQUIPMENT,
net
|
50,869
|
44,740
|
||||||
GOODWILL
|
164,727
|
146,156
|
||||||
RADIO
BROADCASTING LICENSES,
net
|
1,152,684
|
1,118,747
|
||||||
OTHER
INTANGIBLE ASSETS,
net
|
55,734
|
45,418
|
||||||
INVESTMENT
IN AFFILIATED COMPANY
|
47,319
|
48,399
|
||||||
OTHER
ASSETS
|
8,167
|
8,573
|
||||||
NON-CURRENT
ASSETS FROM DISCONTINUED OPERATIONS
|
72
|
152,123
|
||||||
Total
assets
|
$
|
1,570,428
|
$
|
1,663,342
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$
|
3,904
|
$
|
4,958
|
||||
Accrued
interest
|
18,200
|
19,004
|
||||||
Accrued
compensation and related benefits
|
21,115
|
16,319
|
||||||
Income
taxes payable
|
1,430
|
4,463
|
||||||
Other
current liabilities
|
11,807
|
12,124
|
||||||
Current
portion of long-term debt
|
39,297
|
26,004
|
||||||
Current
liabilities from discontinued operations
|
977
|
2,704
|
||||||
Total
current liabilities
|
96,730
|
85,576
|
||||||
LONG-TERM
DEBT, net of
current portion
|
704,825
|
789,500
|
||||||
OTHER
LONG-TERM LIABILITIES
|
4,424
|
5,227
|
||||||
DEFERRED
INCOME TAX LIABILITY
|
167,290
|
149,950
|
||||||
NON-CURRENT
LIABILITIES FROM DISCONTINUED OPERATIONS
|
—
|
483
|
||||||
Total
liabilities
|
973,269
|
1,030,736
|
||||||
MINORITY
INTEREST IN SUBSIDIARIES
|
2,313
|
3,889
|
||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Convertible
preferred stock, $.001 par value, 1,000,000 shares authorized;
no shares outstanding at June 30, 2008 and December 31,
2007
|
—
|
—
|
||||||
Common
stock — Class A, $.001 par value, 30,000,000 shares
authorized; 3,439,761 and 4,321,378 shares issued and outstanding as
of June 30, 2008 and December 31, 2007, respectively
|
3
|
4
|
||||||
Common
stock — Class B, $.001 par value, 150,000,000 shares
authorized; 2,861,843 and 2,861,863 shares issued and outstanding as
of June 30, 2008 and December 31, 2007,
respectively
|
3
|
3
|
||||||
Common
stock — Class C, $.001 par value, 150,000,000 shares
authorized; 3,121,048 shares issued and outstanding as of June 30,
2008
and December 31, 2007, respectively
|
3
|
3
|
||||||
Common
stock — Class D, $.001 par value, 150,000,000 shares
authorized; 88,161,704 and 88,638,576 shares issued and outstanding
as of June 30, 2008 and December 31, 2007,
respectively
|
88
|
89
|
||||||
Accumulated
other comprehensive (loss) income
|
(822
|
)
|
644
|
|||||
Stock
subscriptions receivable
|
(1,737
|
)
|
(1,717
|
)
|
||||
Additional
paid-in capital
|
1,042,416
|
1,044,273
|
||||||
Accumulated
deficit
|
(445,108
|
)
|
(414,582
|
)
|
||||
Total
stockholders’ equity
|
594,846
|
628,717
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
1,570,428
|
$
|
1,663,342
|
The
accompanying notes are an integral part of these consolidated financial
statements.
5
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
Convertible
Preferred Stock
|
Common
Stock Class A
|
Common
Stock Class B
|
Common
Stock Class
C
|
Common
Stock Class D
|
Comprehensive
Loss
|
Accumulated
Other Comprehensive Income (Loss)
|
Stock
Subscriptions Receivable
|
Additional
Paid-In Capital
|
Accumulated
Deficit
|
Total
Stockholders’ Equity
|
|||||||||||||||||||||||||||||
(As
Adjusted – See Note 1)
|
|||||||||||||||||||||||||||||||||||||||
(In
thousands, except share data)
|
|||||||||||||||||||||||||||||||||||||||
BALANCE,
as of December 31, 2007
|
$
|
—
|
$
|
4
|
$
|
3
|
$
|
3
|
$
|
89
|
$
|
644
|
$
|
(1,717
|
)
|
$
|
1,044,273
|
$
|
(414,582
|
)
|
$
|
628,717
|
|||||||||||||||||
Comprehensive
loss:
|
|||||||||||||||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
$
|
(30,526
|
)
|
—
|
—
|
—
|
(30,526
|
)
|
(30,526
|
)
|
||||||||||||||||||||||||
Change
in unrealized loss on derivative and hedging activities, net of
taxes
|
—
|
—
|
—
|
—
|
—
|
(1,466
|
)
|
(1,466
|
)
|
—
|
—
|
—
|
(1,466
|
)
|
|||||||||||||||||||||||||
Comprehensive
loss
|
$
|
(31,992
|
)
|
||||||||||||||||||||||||||||||||||||
Repurchase
of 187,369 shares of Class A and 1,884,860 shares of Class
D
|
—
|
(1
|
)
|
—
|
—
|
(1
|
)
|
—
|
—
|
(2,773
|
)
|
—
|
(2,775
|
)
|
|||||||||||||||||||||||||
Vesting
of non-employee restricted stock
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
90
|
—
|
90
|
|||||||||||||||||||||||||||||
Stock-based
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
826
|
—
|
826
|
|||||||||||||||||||||||||||||
Interest
income on stock subscriptions receivable
|
—
|
—
|
—
|
—
|
—
|
—
|
(20
|
)
|
—
|
—
|
(20
|
)
|
|||||||||||||||||||||||||||
BALANCE,
as of June 30, 2008
|
$
|
—
|
$
|
3
|
$
|
3
|
$
|
3
|
$
|
88
|
$
|
(822
|
)
|
$
|
(1,737
|
)
|
$
|
1,042,416
|
$
|
(445,108
|
)
|
$
|
594,846
|
The
accompanying notes are an integral part of these consolidated financial
statements.
6
RADIO
ONE, INC. AND SUBSIDIARIES
|
|||||||||
CONSOLIDATED
STATEMENT
OF CASH FLOWS
|
|||||||||
For
the Six Months Ended June
30,
|
|||||||||
2008
|
2007
|
||||||||
(As
Adjusted - See Note
1)
|
|||||||||
(In
thousands)
|
|||||||||
|
|||||||||
CASH
FLOWS FROM OPERATING
ACTIVITIES:
|
|||||||||
Net
loss
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
|||
Adjustments
to reconcile loss to
net cash from operating activities:
|
|||||||||
Depreciation
and
amortization
|
8,835
|
7,383
|
|||||||
Amortization
of debt financing
costs
|
1,361
|
1,069
|
|||||||
Amortization
of production
content
|
—
|
332
|
|||||||
Deferred
income
taxes
|
17,592
|
(6,983
|
)
|
||||||
Impairment
of long-lived
assets
|
—
|
5,506
|
|||||||
Equity
in loss of affiliated
company
|
2,799
|
7,306
|
|||||||
Minority
interest in income of
subsidiaries
|
1,881
|
1,825
|
|||||||
Stock-based
compensation and other
non-cash compensation
|
849
|
1,949
|
|||||||
Amortization
of contract
inducement and termination fee
|
(947
|
)
|
(906
|
)
|
|||||
Change
in interest due on stock
subscription receivable
|
(20
|
)
|
(39
|
)
|
|||||
Effect
of change in operating
assets and liabilities, net of assets acquired:
|
|||||||||
Trade
accounts receivable,
net
|
(3,811
|
)
|
(1,822
|
)
|
|||||
Prepaid
expenses and other current
assets
|
1,525
|
(1,687
|
)
|
||||||
Income
tax
receivable
|
—
|
1,296
|
|||||||
Other
assets
|
(4,301
|
)
|
(1,595
|
)
|
|||||
Accounts
payable
|
(3,480
|
)
|
(6,322
|
)
|
|||||
Accrued
interest
|
(804
|
)
|
(31
|
)
|
|||||
Accrued
compensation and related
benefits
|
4,863
|
(302
|
)
|
||||||
Income
taxes
payable
|
(3,033
|
)
|
538
|
||||||
Other
liabilities
|
(2,453
|
)
|
1,602
|
||||||
Net
cash flows provided from
operating activities from discontinued operations
|
814
|
13,816
|
|||||||
Net
cash flows (used in) provided
from operating activities
|
(8,856
|
)
|
14,882
|
||||||
CASH
FLOWS FROM INVESTING
ACTIVITIES:
|
|||||||||
Purchase
of property and
equipment
|
(4,036
|
)
|
(3,879
|
)
|
|||||
Equity
investments
|
—
|
|
(10,714
|
)
|
|||||
Acquisitions
|
(70,426
|
)
|
—
|
||||||
Purchase
of other intangible
assets
|
(1,046
|
)
|
(80
|
)
|
|||||
Proceeds
from sale of
assets
|
150,224
|
—
|
|||||||
Deposits
and payments for station
purchases and other assets
|
161
|
(3,668
|
)
|
||||||
Net
cash flows provided from (used
in) investing activities
|
74,877
|
(18,341
|
)
|
||||||
CASH
FLOWS FROM FINANCING
ACTIVITIES:
|
|||||||||
Repayment
of other
debt
|
(987
|
)
|
—
|
||||||
Repayment
of credit
facility
|
(150,909
|
)
|
(27
|
)
|
|||||
Proceeds
from credit
facility
|
79,000
|
—
|
|||||||
Repurchase
of common
stock
|
(2,775
|
)
|
—
|
||||||
Payment
of
dividend to minority
interest
shareholders
|
(3,916
|
)
|
(2,940
|
) | |||||
Net
cash flows used in financing
activities
|
(79,587
|
)
|
(2,967
|
)
|
|||||
DECREASE
IN CASH AND CASH
EQUIVALENTS
|
(13,566
|
)
|
(6,426
|
)
|
|||||
CASH
AND CASH EQUIVALENTS,
beginning of period
|
24,247
|
32,406
|
|||||||
CASH
AND CASH EQUIVALENTS, end of
period
|
$
|
10,681
|
$
|
25,980
|
|||||
SUPPLEMENTAL
DISCLOSURE OF CASH
FLOW INFORMATION:
|
|||||||||
Cash
paid
for:
|
|||||||||
Interest
|
$
|
33,223
|
$
|
36,714
|
|||||
Income
taxes
|
$
|
5,408
|
$
|
2,932
|
|||||
Supplemental
Note: In
July 2007, a seller financed loan of $2.6 million was incurred when
the
Company acquired the assets of WDBZ-AM, a radio station located
in the Cincinnati metropolitan area. The balance as of
June 30, 2008 is $17,000.
|
|||||||||
The
accompanying notes are an
integral part of these consolidated financial
statements.
|
7
RADIO
ONE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization
Radio
One, Inc. (a Delaware corporation
referred to as “Radio One”)
and subsidiaries (collectively, the
“Company”)
is one of the nation’s
largest radio broadcasting companies and the largest broadcasting company that
primarily targets African-American and urban listeners. While our primary source
of revenue is the sale of local and national advertising for broadcast on our
radio stations, we have
recently diversified
our
revenue streams and have made
acquisitions and investments in other complementary media properties.
In April
2008, we completed
our acquisition
of Community Connect Inc.
(“CCI”),
an online social networking company
that hosts the website BlackPlanet, the largest social networking site primarily
targeted at African-Americans. This acquisition is consistent with
our operating strategy of becoming a multi-media entertainment and information
content provider to African-American consumers. Our other media
acquisitions and investments include our approximate 36% ownership interest
in
TV One, LLC (“TV One”), an African-American targeted cable television network
that we invested in with an affiliate of Comcast Corporation and other
investors; our 51% ownership interest in Reach Media, Inc. (“Reach Media”),
which operates the Tom Joyner Morning Show; and our acquisition of certain
assets of Giant Magazine, LLC (“Giant Magazine”), an urban-themed lifestyle and
entertainment magazine. Through our national multi-media presence, we
provide advertisers with a unique and
powerful delivery mechanism to the African-American
audience.
At
the same time that we have been
diversifying our operations, we have recently
completed
the
sale of approximately $287.9
million
of
radio
assets. While
maintaining a core
radio franchise, these dispositions
have allowed
the
Company to more strategically
allocate its resources consistent with our long-term multi-media operating
strategy. We
currently
own
53 broadcast
stations
located in 16 urban markets in
the United
States.
As
part of our consolidated financial
statements, consistent with our financial reporting structure and how the
Company currently manages its businesses, we have provided selected financial
information on the Company’s two reportable segments: (i) Radio Broadcasting and
(ii) Internet/Publishing. (See Note 10 – Segment
Information.)
(b) Interim
Financial Statements
The
interim consolidated financial
statements included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). In management’s opinion, the interim financial data presented herein
include all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States have
been condensed or omitted pursuant
to such rules and regulations.
Results
for interim periods are not
necessarily indicative of results to be expected for the full year. This
Form 10-Q should be read in conjunction with the financial statements and
notes thereto included in the Company’s 2007 Annual Report on
Form 10-K.
Certain
reclassifications associated
with accounting for discontinued operations have been made to the accompanying
prior period financial statements to conform to the current period presentation.
Where applicable, these financial statements have been identified as “As
Adjusted”. These reclassifications had no effect on previously reported net
income or loss, or any other previously reported statements of operations,
balance sheet or cash flow amounts. (See Note 3 —Discontinued
Operations, for further
discussion.)
During
the second quarter of 2008, Radio One was advised that prior period financial
statements of TV One, an affiliate accounted for under the equity method, had
been restated to correct certain errors that affected the reported amount of
members’ equity and liabilities. These restatement adjustments had a
corresponding effect on the Company’s share of the earnings of TV One reported
in prior periods. Under the guidance of Staff Accounting Bulletin
(“SAB”) No. 99, “Materiality” and SAB No. 108,
“Considering the Effects
of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements,” the Company has determined the errors are
immaterial to our consolidated financial statements for all prior
periods. However, because the effects of correcting the cumulative
prior period errors would be material to our second quarter 2008 consolidated
financial statements, we have adjusted certain previously reported amounts
in
the accompanying 2007 interim consolidated financial statements. The impact
on
the financial statements is as follows (in thousands):
Selected Balance Sheet Data | ||||||||||||
As
Previously Reported,
December
31, 2007
|
Adjustments
|
As
Adjusted,
December
31, 2007
|
||||||||||
Investment
in Affiliated Company
|
$ | 52,782 | $ | (4,383 | ) | $ | 48,399 | |||||
Total
Assets
|
$ | 1,667,725 | $ | (4,383 | ) | $ | 1,663,342 | |||||
Accumulated
Deficit
|
$ | (410,199 | ) | $ | (4,383 | ) | $ | (414,582 | ) | |||
Total
Stockholders’ Equity
|
$ | 633,100 | $ | (4,383 | ) | $ | 628,717 |
8
Selected Statement of Operations Data | ||||||||||||||||||||||||
Three
Months Ended June 30, 2007
|
Six
Months Ended June 30, 2007
|
|||||||||||||||||||||||
As
Previously Reported**
|
Adjustments
|
As
Adjusted
|
As
Previously Reported**
|
Adjustments
|
As
Adjusted
|
|||||||||||||||||||
Equity
in Loss of Affiliated Company
|
$ | 4,271 | $ | (1,183 | ) | $ | 3,088 | $ | 4,763 | $ | 2,543 | $ | 7,306 | |||||||||||
Loss
before benefit for income taxes, minority interest in income of
subsidiaries and discontinued operations
|
$ | (1,304 | ) | $ | 1,183 | $ | (121 | ) | $ | 2,414 | $ | (2,543 | ) | $ | (129 | ) | ||||||||
Net
loss from continuing operations
|
$ | (1,422 | ) | $ | 1,183 | $ | (239 | ) | $ | (62 | ) | $ | (2,543 | ) | $ | (2,605 | ) | |||||||
Net
loss
|
$ | (6,254 | ) | $ | 1,183 | $ | (5,071 | ) | $ | (5,509 | ) | $ | (2,543 | ) | $ | (8,052 | ) | |||||||
Basic
and Diluted Net Loss from Continuing Operations per Common
Share
|
$ | (0.01 | ) | $ | 0.01 | * | $ | 0.00 | $ | 0.00 | $ | (0.03 | ) | $ | (0.03 | )* | ||||||||
Basic
and Diluted Net Loss from Discontinued Operations per Common
Share
|
(0.05 | ) | 0.00 | * | (0.05 | ) | (0.06 | ) | 0.00 | (0.06 | )* | |||||||||||||
Basic
and Diluted Net Loss per Common Share
|
$ | (0.06 | ) | $ | 0.01 | * | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.08 | )* |
*
Earnings per share amounts may not add due to rounding.
**
As adjusted to reflect the impact of discontinued operations for the Company’s
Los Angeles station.
(c) Financial
Instruments
Financial
instruments as of June 30, 2008 and December 31, 2007 consisted of
cash and cash equivalents, short-term investments, trade accounts receivable,
accounts payable, accrued expenses, long-term debt and subscriptions receivable.
The carrying amounts approximated fair value for each of these financial
instruments as of June 30, 2008 and December 31, 2007, except for the
Company’s outstanding senior subordinated notes. The 87/8% senior
subordinated notes had a fair value of approximately $248.2 million and
$282.0 million as of June 30, 2008 and December 31, 2007,
respectively. The 63/8% senior
subordinated notes had a fair value of approximately $148.0 million and
$166.5 million as of June 30, 2008 and December 31, 2007,
respectively. The fair value was determined based on the fair market value
of
similar instruments.
(d) Revenue
Recognition
The
Company recognizes revenue for broadcast advertising when a commercial is
broadcast and is reported, net of agency and outside sales representative
commissions, in accordance with SAB No. 104, Topic 13, “Revenue Recognition, Revised
and
Updated.” Agency and outside sales representative commissions are
calculated based on a stated percentage applied to gross billing. Generally,
clients remit the gross billing amount to the agency or outside sales
representative, and the agency or outside sales representative remits the gross
billing, less their commission, to the Company. Agency and outside sales
representative commissions were approximately $9.4 million and $9.9 million
during the three months ended June 30, 2008 and 2007, respectively. Agency
and outside sales representative commissions were approximately
$17.3 million and $18.1 million during the six months ended
June 30, 2008 and 2007, respectively.
CCI,
which the Company acquired in April 2008, currently generates the majority
of
the Company’s internet revenue, and derives such revenue principally from
advertising services, including advertising aimed at diversity recruiting.
Advertising services include the sale of banner and sponsorship
advertisements. Advertising revenue is recognized either as
impressions (the number of times advertisements appear in viewed pages) are
delivered, when “click through” purchases or leads are reported, or ratably over
the contract period, where applicable. CCI has a diversity recruiting agreement
with Monster, Inc. (“Monster”). Under the agreement Monster posts job
listings and advertising on CCI’s websites and CCI earns revenue for displaying
the images on its websites.
Publishing
revenue generated by Giant Magazine, mainly advertising,
subscription and newsstand sales, is recognized when the issue is available
for
sale.
(e) Barter
Transactions
The
Company provides broadcast advertising time in exchange for programming content
and certain services. In accordance with guidance provided by the
Emerging Issues Task Force (“EITF”) No. 99-17,“Accounting
for Advertising Barter Transactions,”
the terms of these exchanges generally permit the Company to preempt such
broadcast time in favor of advertisers who purchase time in exchange for cash.
The Company includes the value of such exchanges in both broadcasting net
revenue and station operating expenses. The valuation of barter time is based
upon the fair value of the network advertising time provided for the programming
content and services received. For the three months ended June
30,
2008 and 2007, barter transaction revenues were reflected in net revenue of
$603,000
and $564,000,
respectively. For the six
months
ended June
30,
2008 and 2007, barter transaction revenues were reflected in net revenue of
approximately
$1.2
million and
$1.1
million,
respectively. Additionally, barter transaction costs were reflected in
programming and technical expenses and selling, general and administrative
expenses of $558,000
and $41,000
and $498,000
and $93,000,
in the respective three month periods ended June
30,
2008 and 2007. For the six
months
ended June
30,
2008 and 2007,
barter
transaction costs were reflected in programming and technical expenses and
selling, general and administrative expenses of approximately
$1.1
million and
$82,000
and $999,000
and $134,000,
respectively.
(f) Comprehensive
Loss
The
Company’s comprehensive loss
consists of net loss and other items recorded directly to the equity accounts.
The objective is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events during the period,
other
than transactions with owners. The Company’s other comprehensive income (loss)
consists of gains on derivative instruments that qualify for cash flow hedge
treatment.
9
The
following table sets forth the
components of comprehensive loss:
Three
Months
EndedJune 30,
|
Six
Months
EndedJune 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(In
thousands)
|
(In
thousands)
|
|||||||||||||||
Net
loss
|
$
|
(11,676
|
)
|
$
|
(5,071
|
)
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
||||
Other
comprehensive income
(loss) (net of tax benefit of $0 and $270, and tax provision of
$0 of $71, respectively):
|
||||||||||||||||
Derivative
and hedging activities
|
1,682
|
408
|
(1,466
|
)
|
166
|
|||||||||||
Comprehensive
loss
|
$
|
(9,994
|
)
|
$
|
(4,663
|
)
|
$
|
(31,992
|
)
|
$
|
(7,887
|
)
|
|
(g) Fair
Value Measurements
|
In
September 2006, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 157, “Fair
Value
Measurements,” which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The standard responds to investors’ requests for more
information about: (1) the extent to which companies measure assets and
liabilities at fair value; (2) the information to measure fair value; and
(3) the effect that fair value measurements have on earnings. SFAS
No. 157 is applied whenever another standard requires (or permits) assets
or liabilities to be measured at fair value. The standard does not expand the
use of fair value to any new circumstances. We adopted SFAS No. 157 effective
January 1, 2008. The FASB deferred the effective date of SFAS No. 157 as it
relates to fair value measurement requirements for nonfinancial assets and
liabilities that are not remeasured at fair value on a recurring
basis until the beginning of our 2009 fiscal year.
The
fair value framework requires
the categorization of assets and liabilities into three levels based upon the
assumptions (inputs) used to price the assets or liabilities. Level 1 provides
the most reliable measure of fair value, whereas Level 3 generally requires
significant management judgment. The three levels are defined as
follows:
|
Level
1: Inputs are
unadjusted quoted prices in active markets for identical assets and
liabilities that can be accessed at measurement
date.
|
|
Level
2: Observable
inputs
other than those included in Level 1. For example, quoted prices
for
similar assets or liabilities in active
markets or quoted prices
for identical assets or liabilities in inactive
markets.
|
|
Level
3: Unobservable
inputs reflecting management’s own assumptions about the inputs used in
pricing the asset or liability.
|
As
of June 30,
2008, the fair values of our financial
liabilities are categorized as follows:
|
|
Total
|
|
Level
1
|
Level
2
|
|
Level
3
|
|
||||||
|
|
(In
thousands)
|
|
|||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|||||||
Interest
rate swaps
(a)
|
$
|
824
|
$
|
—
|
$
|
824
|
$
|
—
|
||||||
Employment
agreement award
(b)
|
|
4,554
|
|
—
|
—
|
|
|
4,554
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total
liabilities
|
|
$
|
5,378
|
|
$
|
—
|
$
|
824
|
|
$
|
4,554
|
|
||
(a) Based
on London Interbank
Offered Rate
(“LIBOR”).
|
|
|||||||||||||
(b)
Pursuant to an
employment agreement (“the Employment Agreement”) executed in April 2008,
the Chief Executive Officer (“CEO”) will be eligible to receive an award
amount equal to 8% of any proceeds from distributions or other liquidity
events in excess of the return of the Company’s aggregate investment in TV
One. The Company’s obligation to pay the award will be triggered only
after the Company’s recovery of the aggregate amount of its capital
contribution in TV One and only upon actual receipt of distributions
of
cash or marketable securities or proceeds from a liquidity event
with
respect to the Company’s membership interest in TV One. The CEO was fully
vested in the award upon execution of the Employment Agreement, and
the
award lapses upon expiration of the Employment Agreement or earlier
if the
CEO voluntarily leaves the Company or is terminated for cause. The
Company
engaged an independent third party to perform a fair valuation of
the
award. (See Note 6 – Derivative
Instruments.)
|
|
(h)
Software Development Costs
|
The
Company has adopted American Institute of Certified Public Accountants (“AICPA”)
Statement of Position 98-1, “Accounting for the Costs
of Computer
Software Developed or Obtained for Internal Use.” Accordingly, direct
internal and external costs associated with the development of the features
and
functionality of the Company’s software, incurred during the application
development stage, are capitalized and amortized using the straight-line method
of the estimated life of three years.
10
|
(i) Impact
of Recently Issued
Accounting Pronouncements
|
In
March 2008, the FASB issued SFAS No.
161,“Disclosures
about
Derivative Instruments and Hedging Activities." SFAS No. 161 requires
disclosure
of the fair value of derivative instruments and their gains and losses in a
tabular format. It also provides for more information about an
entity’s liquidity by requiring disclosure of derivative features that are
credit risk related. Finally, it requires cross referencing within
footnotes to enable financial statement users to locate important information
about derivative instruments. This statement is effective for interim
periods beginning after December 15, 2008, although early application is
encouraged. The Company has not completed its assessment of the
impact this new pronouncement will have on disclosures to the Company’s
consolidated financial statements.
In
December 2007, the FASB issued
SFAS No. 141R,“Business
Combinations.” SFAS
No. 141R replaces SFAS No. 141, and requires the acquirer of a business to
recognize and measure the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at fair value. SFAS
No. 141R also requires transactions costs related to the business combination
to
be expensed as incurred. SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The effective date for the Company will be January 1,
2009. We have not determined the impact of SFAS No. 141R related to
future acquisitions, if any, on our consolidated financial
statements.
In
December 2007, the FASB issued
SFAS No. 160,“Noncontrolling
Interests in Consolidated Financial Statements-An amendment of ARB No.
51.” This statement
amends ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should
be
reported as equity in the consolidated financial statements. This
statement is effective for fiscal years beginning after December 15,
2008. The effective date for the Company will be January 1, 2009. We
have not determined the impact this new pronouncement will have on the
consolidated financial statements.
In
December 2007, the SEC
issued 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 second quarter of 2008, we used the “simplified” method under SAB
No. 107, and we expect to continue to use the “simplified” method in future
periods if the facts and circumstances permit.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value
Option for Financial Assets and Financial Liabilities,” which permits companies
to choose to
measure certain financial instruments and other items at fair value that are
not
currently required to be measured at fair value. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. Effective
January 1,
2008, the Company adopted SFAS No. 159, which provides entities the option
to measure many financial instruments and certain other items at fair value.
Entities that choose the fair value option will recognize unrealized gains
and
losses on items for which the fair value option was elected in earnings at
each
subsequent reporting date. The Company has currently chosen not to elect the
fair value option for any items that are not already required to be measured
at
fair value in accordance with generally accepted accounting
principles.
In
June 2006, the FASB issued Financial Accounting Standards Board Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty
in Income Taxes -
Interpretation of SFAS No. 109,” which clarifies the accounting
for uncertainty in income taxes. FIN No. 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN No. 48 requires that the Company recognize the impact of a tax
position in the financial statements, if it is more likely than not that the
position would be sustained on audit, based on the technical merits of the
position. FIN No. 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The provisions of FIN No. 48 are effective
beginning January 1, 2007, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
The
impact to the Company of adopting FIN No. 48 on its financial
statements was a $923,000 increase to accumulated deficit and a corresponding
increase to income tax reserve as of January 1, 2007.
In
June 2008, the Company purchased the
assets of WPRS-FM (formerly
WXGG-FM), a radio station
located in the Washington, DC
metropolitan area for $38.0
million. Since April 2007 and until closing, the station had been
operated under a local
marketing agreement (“LMA”),
and the results of its operations had
been included in the Company’s consolidated financial statements since the
inception of the LMA. The station was consolidated with the Company’s
existing Washington, DC
operations in April 2007. The
Company’s preliminary purchase price allocation consisted of approximately
$33.9 million to radio broadcasting license, approximately $1.3 million to
definitive-lived intangibles (acquired income leases), $981,000 to goodwill
and
approximately $1.8 million to fixed assets on the Company’s consolidated balance
sheet as of June 30, 2008.
In
April 2008, the Company completed
a merger to acquire CCI for
$38.0 million in cash. CCI is an on line
social networking company operating
branded websites including BlackPlanet, MiGente, and
AsianAvenue. The Company’s preliminary purchase price allocation
consisted of approximately $10.2 million to current assets, $4.6 million to
fixed assets, $17.0 million to goodwill, $13.3 million to
definitive-lived intangibles (registered membership lists and relationships,
advertiser relationships and lists, favorable subleases, trademarks, trade
names, etc.), and $5.0 million to current liabilities on the Company’s
consolidated balance sheet as of June 30, 2008.
In
July 2007, the Company purchased the
assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan
area for approximately
$2.6 million, financed by the seller, of which $17,000 was
owed as of June 30,
2008. Since August 2001 and until
closing, the station had been operated under an LMA,
and the results of its operations
had been included in the Company’s consolidated financial statements since the
inception of the LMA. The station was consolidated with the Company’s existing
Cincinnati operations
in 2001. (See
Note 12 —Related
Party
Transactions.)
11
3. DISCONTINUED
OPERATIONS:
Between
December 2006 and June 2008, the
Company closed on the sale of the assets of 20 radio
stations in seven markets
for approximately $287.9
million
in cash. The assets and
liabilities of these stations have been classified as discontinued operations
as
of June 30,
2008 and December 31, 2007, and the
stations’ results of operations for the three and six month
periods ended June 30,
2008 and 2007 have been classified as
discontinued operations in the accompanying consolidated financial statements.
For the three months
ended
June 30, 2008, the Company
used approximately
$131.0 million
of the proceeds from these
asset sales to pay down debt. For
the period beginning December 2006
and ending June 30, 2008,
the Company used approximately $262.0 million
of the proceeds from these
asset sales to pay down debt.
Los
Angeles
Station: In
May 2008, the Company
closed on the sale of the assets of its radio station KRBV-FM, located in the
Los Angeles metropolitan
area, to Bonneville
International Corporation (“Bonneville”) for approximately $137.5 million
in cash. Bonneville began operating the station under an LMA on April 8,
2008.
Miami
Station: In
April 2008, the Company
closed on the sale of the assets of its radio station WMCU-AM (formerly
WTPS-AM), located in the Miami metropolitan
area, to Salem
Communications Holding Corporation (“Salem”)
for approximately $12.3 million
in cash. Salem began
operating the station under an LMA
effective October 18, 2007.
Augusta
Stations: In
December 2007, the
Company closed on the sale of the assets all of its five radio stations in
the
Augusta metropolitan
area to Perry Broadcasting
Company for approximately $3.1 million in cash.
Louisville
Station: In
November 2007, the
Company closed on the sale of the assets of its radio station WLRX-FM in the
Louisville metropolitan
area to WAY FM Media Group,
Inc. for approximately $1.0 million in cash.
Dayton
and
Louisville Stations: In September 2007, the
Company closed on the sale of the assets all of its five radio stations in
the
Dayton metropolitan area and five of its six radio stations in the Louisville
metropolitan area to Main Line Broadcasting, LLC for approximately
$76.0 million in cash.
Minneapolis
Station: In
August 2007, the Company
closed on the sale of the assets of its radio station KTTB-FM in the
Minneapolis metropolitan
area to Northern Lights
Broadcasting, LLC for approximately $28.0 million in
cash.
Boston
Station: In
December 2006, the
Company closed on the sale of the assets of its radio station WILD-FM in the
Boston metropolitan
area to Entercom Boston,
LLC (“Entercom”) for approximately $30.0 million in cash. Entercom began
operating the station under an LMA effective August 18,
2006.
The
following table summarizes the operating results for these stations for the
three and six months ended June 30, 2008 and 2007:
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|||||||||||
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|||||
|
(In
thousands)
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
(57
|
)
|
|
$
|
9,887
|
|
|
$
|
2,361
|
|
|
$
|
18,354
|
|
Station
operating
expenses
|
|
|
133
|
|
|
|
8,407
|
|
|
|
4,220
|
|
|
|
17,505
|
|
Depreciation
and
amortization
|
|
|
—
|
|
|
|
522
|
|
|
|
79
|
|
|
|
1,002
|
|
Impairment
of long-lived
assets
|
|
|
—
|
|
|
|
10,395
|
|
|
|
5,076
|
|
|
|
10,395
|
|
Other
income
(expense)
|
|
|
18
|
|
|
|
(131
|
)
|
|
|
116
|
|
|
|
(131
|
)
|
Gain on
sale of
assets
|
|
|
1,857
|
|
|
|
—
|
|
|
|
1,632
|
|
|
|
—
|
|
Income
(loss) before income
taxes
|
|
|
1,685
|
|
|
|
(9,568
|
)
|
|
|
(5,266
|
)
|
|
|
(10,679
|
)
|
Provision
(benefit) for income
taxes
|
|
|
351
|
|
|
|
(4,736
|
)
|
|
|
1,181
|
|
|
|
(5,231
|
)
|
Income
(loss) from discontinued
operations, net of tax
|
|
$
|
1,334
|
|
|
$
|
(4,832
|
)
|
|
$
|
(6,447
|
)
|
|
$
|
(5,448
|
)
|
The
assets and liabilities of these stations classified as discontinued operations
in the accompanying consolidated balance sheets consisted of the
following:
|
June
30,
2008
|
|
|
December 31,
2007
|
|
|||
|
|
(In
thousands)
|
|
|||||
Currents
assets:
|
|
|
|
|
||||
Accounts
receivable, net of allowance for doubtful accounts
|
|
$
|
688
|
|
|
$
|
2,725
|
|
Prepaid
expenses and other current assets
|
|
|
—
|
|
|
524
|
|
|
Total
current assets
|
|
|
688
|
|
|
|
3,249
|
|
Property
and equipment, net
|
|
|
71
|
|
|
|
3,349
|
|
Intangible
assets, net
|
|
|
—
|
|
|
|
148,388
|
|
Other
assets
|
|
|
1
|
|
|
|
386
|
|
Total
assets
|
|
$
|
760
|
|
|
$
|
155,372
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Other
current liabilities
|
|
$
|
977
|
|
|
$
|
2,704
|
|
Total
current liabilities
|
|
|
977
|
|
|
|
2,704
|
|
Other
long-term liabilities
|
|
|
—
|
|
|
|
483
|
|
Total
liabilities
|
|
$
|
977
|
|
|
$
|
3,187
|
|
12
4. GOODWILL,
RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS:
The
fair value of goodwill and
radio broadcasting licenses is determined on a market basis using a discounted
cash flow model considering the market’s revenue, the number of stations, the
performance of the stations, the Company’s performance and estimated multiples
for the sale of stations in the market. Because the assumptions used in
estimating the fair value of goodwill and radio broadcasting licenses are based
on current conditions, a change in market conditions or in the discount rate
could have a significant effect on the estimated value of goodwill or radio
broadcasting licenses. A significant decrease in the fair value of goodwill
or
radio broadcasting licenses in a market could result in an impairment charge.
The Company performs an impairment test as of October 1st of each
year, or when other conditions suggest impairment may have
occurred.
During
the three and six months
ended June 30, 2008, the Company evaluated certain
long-lived assets where warranted for potential impairment due to its asset
disposition strategy. For the three month
period ended June 30, 2008, there were no impairment indicators that occurred
that required management to complete an impairment test. The carrying value
of
our goodwill and our radio broadcast licenses were equivalent to the current
fair market value. During the three months ended June 30, 2008, the Company
increased the carrying value of goodwill by approximately $17.0 million in
connection with the CCI acquisition and by $981,000 in connection with the
acquisition of WPRS-FM (formerly WXGG-FM).
During
the
six months
ended June
30, 2008,
the carrying
value of the radio broadcast license for KRBV-FM in Los
Angeles exceeded
the sales
price called for in the executed asset purchase agreement less the related
costs
to sell the property. Accordingly, as part of discontinued operations for the
six months
ended June
30, 2008,
the Company
reduced the carrying value of radio broadcasting licenses by approximately
$5.1 million.
The
carrying amounts of radio
broadcasting licenses at June 30, 2008 and December 31, 2007 were
approximately $1.2 billion and $1.1 billion, respectively.
The carrying amount
of
goodwill at June 30, 2008 and December 31, 2007 was approximately
$164.7 million and $146.2 million, respectively.
Other
intangible assets,
excluding goodwill and radio broadcasting licenses, are being amortized on
a
straight-line basis over various periods. Other intangible assets consist of
the
following:
June 30,
2008
|
December 31,
2007
|
Period of
Amortization
|
|||||||
(In
thousands)
|
|||||||||
Trade
names
|
$
|
17,024
|
$
|
16,848
|
2-5 Years
|
||||
Talent
agreements
|
19,549
|
19,549
|
10 Years
|
||||||
Debt
financing costs
|
20,828
|
20,850
|
Term
of debt
|
||||||
Intellectual
property
|
14,686
|
14,532
|
4-10 Years
|
||||||
Affiliate
agreements
|
7,769
|
7,769
|
1-10 Years
|
||||||
Acquired
income leases
|
1,236
|
—
|
3-9
years
|
||||||
Non-compete
agreements
|
1,048
|
—
|
1-3
years
|
||||||
Advertiser
agreements, relationships and lists
|
4,199
|
—
|
2-7
years
|
||||||
Favorable
office and transmitter leases
|
5,489
|
—
|
Term
of lease
|
||||||
Registered
membership lists
|
6,851
|
—
|
2.5
years
|
||||||
Other
intangibles
|
1,430
|
5,651
|
6-60 Years
|
||||||
100,109
|
85,199
|
||||||||
Less:
Accumulated amortization
|
(44,375
|
)
|
(39,781
|
)
|
|||||
Other
intangible assets, net
|
$
|
55,734
|
$
|
45,418
|
Amortization
expense of intangible
assets for the six months ended June 30, 2008 and 2007 was approximately
$3.3 million and $2.5 million, respectively. The amortization of
deferred financing costs was charged to interest expense for all periods
presented.
The
following table presents the
Company’s estimate of amortization expense for each of the five succeeding years
for intangible assets, excluding deferred financing costs.
(In
thousands)
|
||||
July
– December 2008
|
$
|
7,505
|
||
2009
|
$
|
9,407
|
||
2010
|
$
|
7,952
|
||
2011
|
$
|
5,098
|
||
2012
|
$
|
4,811
|
Actual
amortization expense may vary as
a result of future acquisitions and dispositions.
5. INVESTMENT
IN AFFILIATED COMPANY:
In
January 2004, together with an
affiliate of Comcast Corporation and other investors, the Company launched
TV
One, an entity formed to operate a cable television network featuring lifestyle,
entertainment and news-related programming targeted primarily towards
African-American viewers. At that time, we committed to make a cumulative cash
investment of $74.0 million in TV One, of which $60.3 million had been
funded as of June
30, 2008. The initial four
year commitment period for funding the capital was extended to December 31,
2008, due in part to TV One’s lower
than anticipated capital needs during the initial commitment period. In December
2004, TV One entered into a distribution agreement with DIRECTV and certain
affiliates of DIRECTV became investors in TV One. As of June 30,
2008, the Company owned approximately
36% of TV One on a fully-converted basis.
The
Company has recorded its investment
at cost and has adjusted the carrying amount of the investment to recognize
the
change in the Company’s claim on the net assets of TV One resulting from
operating losses of TV One as well as other capital transactions of TV One
using
a hypothetical liquidation at book value approach. For the three month period
ended June 30,
2008, the Company’s allocable share of
TV One’s operating income
was
$29,000 as compared to
the three
month period ended June 30,
2007 in which the
Company’s allocable share of TV
One’s operating losses was approximately $3.1 million.
For the six month
periods ended June 30,
2008 and 2007, the Company’s allocable
shares of
TV One’s operating losses
were approximately
$2.8
million
and $7.3 million,
respectively. The recognition of income
for
the three month period ended
June 30,
2008 resulted from a small net income of
TV One, compared to overall losses
during the
same period in
2007.
13
The
Company also entered into separate
network services and advertising services agreements with TV One in 2003. Under
the network services agreement, which expires in January 2009, the Company
is
providing TV One with administrative and operational support services. Under
the
advertising services agreement, the Company is providing a specified amount
of
advertising to TV One over a term of five years ending in January 2009. In
consideration for providing these services, the Company has received equity
in
TV One and receives an annual fee of $500,000 in cash for providing services
under the network services agreement.
The
Company is accounting for the
services provided to TV One under the advertising and network services
agreements in accordance with EITF Issue No. 00-8,“Accounting
by a
Grantee for an Equity Instrument to Be Received in Conjunction with Providing
Goods or Services.” As services are provided
to
TV One, the Company is recording revenue based on the fair value of the most
reliable unit of measurement in these transactions. For the advertising services
agreement, the most reliable unit of measurement has been determined to be
the
value of underlying advertising time that is being provided to TV One. For
the
network services agreement, the most reliable unit of measurement has been
determined to be the value of the equity received in TV One. As a result, the
Company is re-measuring the fair value of the equity received in consideration
of its obligations under the network services agreement in each subsequent
reporting period as the services are provided. The Company
recognized $847,000
and approximately $1.0 million in revenue relating
to these two
agreements for each of the three month periods ended June 30,
2008 and 2007, respectively, and
recognized
approximately $2.0 million and $2.2
million
in revenue relating to these two
agreements for each of the six month
periods ended June 30,
2008 and 2007, respectively.
6.
|
DERIVATIVE
INSTRUMENT AND HEDGING ACTIVITIES:
|
Hedging
Activities
In
June 2005, pursuant to the Credit Agreement (as defined in Note 7 -
Long-Term Debt), the
Company entered into four fixed rate swap agreements to reduce interest rate
fluctuations on certain floating rate debt commitments. Two of the four $25.0
million swap agreements expired in June 2007 and 2008, respectively. The Company
accounts for the remaining swap agreements using the mark-to-market method
of
accounting.
The
remaining swap agreements have the following terms:
Agreement
|
Notional
Amount
|
Expiration
|
Fixed
Rate
|
|||
No. 1
|
$25.0
million
|
June
16, 2010
|
4.27%
|
|||
No. 2
|
$25.0
million
|
June
16, 2012
|
4.47%
|
Each
swap agreement has been accounted for as a qualifying cash flow hedge of the
Company’s senior bank term debt, in accordance with SFAS No. 133 “Accounting for Derivative
Instruments and Hedging Activities,” whereby changes
in the fair market value are reflected as adjustments to the fair value of
the
derivative instruments as reflected on the accompanying consolidated financial
statements.
Under
the remaining swap agreements, the Company pays the fixed rate listed in the
table above. The counterparties to the agreements pay the Company a floating
interest rate based on the three-month LIBOR, for which measurement and
settlement is performed quarterly. The counterparties to these agreements are
international financial institutions. The Company estimates the net fair value
of these instruments as of June 30, 2008 to be a liability of $824,000. The
fair value of the interest swap agreements is estimated by obtaining quotations
from the financial institutions that are parties to the Company’s swap
agreements. The fair value is an estimate of the net amount that the Company
would pay on June 30, 2008, if the agreements were transferred to other
parties or cancelled by the Company.
Costs
incurred to execute the swap agreements are deferred and amortized over the
term
of the swap agreements. The amounts incurred by the Company, representing the
effective difference between the fixed rate under the swap agreements and the
variable rate on the underlying term of the debt, are included in interest
expense in the accompanying consolidated statements of operations. In the event
of early termination of these swap agreements, any gains or losses would be
amortized over the respective lives of the underlying debt or recognized
currently if the debt is terminated earlier than initially
anticipated.
Derivative
Instruments
The Company recognizes all derivatives at fair value, whether designated in
hedging relationships or not, on the balance sheet as either an asset or
liability. The accounting for changes in the fair value of a derivative,
including certain derivative instruments embedded in other contracts, depends
on
the intended use of the derivative and the resulting designation. If the
derivative is designated as a fair value hedge, the changes in the fair value
of
the derivative and the hedged item are recognized in the statement of
operations. If the derivative is designated as a cash flow hedge, changes in
the
fair value of the derivative are recorded in other comprehensive income and
are
recognized in the statement of operations when the hedged item affects net
income. If a derivative does not qualify as a hedge, it is marked to fair value
through the statement of operations. Any fees associated with these
derivatives are amortized over their term.
As of June 30, 2008, the Company was party to an employment agreement (“the
Employment Agreement”) executed in
April 2008 with the CEO which calls for
an award that
has been accounted for as a derivative instrument without a hedging relationship
in accordance with the guidance provided in SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” Pursuant to the Employment
Agreement,
the CEO is eligible to receive an award amount equal to 8% of any proceeds
from
distributions or other liquidity events in excess of the return of the Company’s
aggregate investment in TV One. With the assistance of a third party appraiser,
the Company estimated the fair value of the award at June 30, 2008 to be
approximately $4.6 million, and accordingly, recorded compensation expense
and a
liability for this amount. The Company’s obligation to pay the award will be
triggered only after the Company’s recovery of the aggregate amount of its
capital contribution in TV One and only upon actual receipt of distributions
of
cash or marketable securities or proceeds from a liquidity event with respect
to
the Company’s membership interest in TV One. The CEO was fully vested in the
award upon execution of the Employment Agreement, and the award lapses upon
expiration of the Employment Agreement.
14
7. LONG-TERM
DEBT:
Long-term
debt consists of the
following:
June 30,
2008
|
December 31,
2007
|
|||||||
(In
thousands)
|
||||||||
87/8% senior
subordinated notes
|
$
|
292,000
|
$
|
300,000
|
||||
63/8% senior
subordinated notes
|
200,000
|
200,000
|
||||||
Credit
facilities
|
251,578
|
314,500
|
||||||
Capital
lease
|
527
|
—
|
||||||
Seller
financed acquisition loan
|
17
|
1,004
|
||||||
Total
long-term debt
|
744,122
|
815,504
|
||||||
Less:
current portion
|
39,297
|
26,004
|
||||||
Long
term debt, net of current portion
|
$
|
704,825
|
$
|
789,500
|
As of June 30,
2008, the Company had outstanding $200.0 million of its 63/8%
senior subordinated notes due in February 2013 and $292.0 million of its 87/8%
senior subordinated notes due in July 2011. In June 2008, the Company
repurchased approximately $8.0 million of its 87/8%
senior subordinated notes due in July 2011. The Company recorded in the
statements of operations a gain on the extinguishment of debt of approximately
$1.0 million, net of the write-off of deferred financing costs of $65,000. (See
Note 13 – Subsequent
Events.)
Credit
Facilities
In
June 2005, the Company entered into
a credit agreement with a syndicate of banks (the “Credit Agreement”). The
agreement was amended in April 2006 and September 2007 to modify certain
financial covenants and other provisions. The term of the Credit Agreement
is
seven years and the total amount available under the Credit Agreement is
$800.0 million, consisting of a $500.0 million revolving facility and
a $300.0 million term loan facility. Borrowings under the credit facilities
are subject to compliance with certain provisions including but not limited
to
financial covenants. The Company may use proceeds from the credit facilities
for
working capital, capital expenditures made in the ordinary course of business,
its common stock repurchase program, permitted direct and indirect investments
and other lawful corporate purposes. The Credit Agreement contains affirmative
and negative covenants that the Company must comply with, including
(a) maintaining an interest coverage ratio of no less than 1.90 to 1.00
from January 1, 2006 to September 13, 2007, and no less than 1.60 to
1.00 from September 14, 2007 to June 30, 2008, and no less than 1.75 to 1.00
from July 1, 2008 to December 31, 2009, and no less than 2.00 to 1.00 from
January 1, 2010 to December 31, 2010, and no less than 2.25 to 1.00 from
January 1, 2011 and thereafter, (b) maintaining a total leverage ratio
of no greater than 7.00 to 1.00 beginning April 1, 2006 to September 13,
2007, and no greater than 7.75 to 1.00 beginning September 14, 2007
to March 31, 2008, and no greater than 7.50 to 1.00
beginning April 1, 2008 to September 30, 2008, and no
greater than 7.25 to 1.00 beginning October 1, 2008
to June 30, 2010, and no greater than 6.50 to 1.00
beginning July 1, 2010 to September 30, 2011, and no greater
than 6.00 to 1.00 beginning October 1, 2011 and thereafter,
(c) limitations on liens, (d) limitations on the sale of assets,
(e) limitations on the payment of dividends, and (f) limitations on
mergers, as well as other customary covenants. Simultaneous with entering into
the Credit Agreement, the Company borrowed $437.5 million to
retire all outstanding obligations under its previous credit agreement.
The
Company was in compliance with all debt covenants as of June 30, 2008. At the
date of the filing of this Form 10-Q and based on current projections, the
Company's management believes it will be in compliance with all debt
covenants for
the next 12 months. Based
on the fiscal
year end 2007 excess cash flow calculation, the Company made a debt principal
prepayment of approximately $6.0 million in
May
2008.
The
Company’s borrowings under the Credit Agreement are secured by substantially all
of the assets of the Company and certain of its subsidiaries.
As
of June 30, 2008, the Company had outstanding approximately $251.6 million
on
its credit facility. During the six months ended June 30, 2008, we borrowed
approximately $79.0 million from our credit facility to fund the
acquisitions of CCI and WPRS-FM (formerly WXGG-FM), and repaid approximately
$141.9 million.
Senior
Subordinated Notes
The
indentures governing the Company’s
senior subordinated notes also contain covenants that restrict, among other
things, the ability of the Company to incur additional debt, purchase capital
stock, make capital expenditures, make investments or other restricted payments,
swap or sell assets, engage in transactions with related parties, secure
non-senior debt with assets, or merge, consolidate or sell all or substantially
all of its assets.
Throughout
July 2008, the Company
continued to repurchase its 87/8%
senior
subordinated notes due in July 2011. (See Note 13 – Subsequent
Events.)
Future
minimum principal payments of
long-term debt as of June 30, 2008 are as follows:
Senior
Subordinated Notes
|
Credit
and Other Facilities
|
|||||||
(In
thousands)
|
||||||||
July —
December 2008
|
$
|
—
|
$
|
19,706
|
||||
2009
|
—
|
43,811
|
||||||
2010
|
—
|
48,442
|
||||||
2011
|
292,000
|
48,442
|
||||||
2012
|
—
|
91,721
|
||||||
2013
and thereafter
|
200,000
|
—
|
||||||
Total
long-term debt
|
$
|
492,000
|
$
|
252,122
|
15
8. INCOME
TAXES:
The
Company has determined that minor fluctuations in its projected income would
create significant changes to the estimated annual effective tax rate. Pursuant
to FIN No. 18, “Accounting for
Income Taxes in Interim Periods,” the Company has provided for tax
expense using an actual calculation for certain filing jurisdictions for both
the three and six months ended June 30, 2008.
During
the fourth quarter 2007, except for deferred tax assets (“DTAs”) in its
historically profitable filing jurisdictions, and DTAs that may be benefited
by
future reversing deferred tax liabilities (“DTLs”), the Company recorded a full
valuation allowance for all other DTAs, mainly net loss carryforwards (“NOLs”),
as it was determined that more likely than not, the DTAs would not be
realized. The Company reached this determination based on its then
cumulative loss position and the uncertainty of future taxable income.
Consistent with that prior realizability assessment, the Company has recorded
a
full valuation allowance in the amount of approximately $8.5 million and $17.0
million, respectively, for additional DTAs generated from continuing operations
for the three and six months ended June 30, 2008. The most significant factor
affecting this valuation allowance relates to current period tax amortization
of
indefinite-lived intangibles which created DTLs that cannot be assumed to
reverse in a period to benefit DTAs, mainly NOLs, created by the amortization.
These DTLs would reverse in some future indefinite period when the intangible
asset is either sold or impaired.
On
January 1, 2007, the Company adopted the provisions of FIN No. 48, “Accounting for Uncertainty
in Income Taxes -
Interpretation of SFAS No. 109,” which recognizes the impact of
a tax position in the financial statements if it is more likely than not that
the position would be sustained on audit based on the technical merits of the
position. The nature of the uncertainties pertaining to our income tax position
is primarily due to various state tax positions. As of June 30, 2008, we had
approximately $4.6 million in unrecognized tax benefits. Accrued interest and
penalties related to unrecognized tax benefits is recognized as a component
of
tax expense. As such, during the three and six months ended June 30, 2008,
the
Company recorded interest of $7,000 and $15,000, respectively, related to
unrecognized tax benefits and as of June 30, 2008, the Company recorded a
liability of $100,000 for accrued interest. The Company estimates the possible
change in unrecognized tax benefits prior to June 30, 2009 would be $0 to a
reduction of $200,000, due to expiring statutes.
The
Company’s April 2008 purchase of 100% of both the common and convertible
preferred stock of CCI via a merger is being treated as a stock acquisition.
Typically, for income tax purposes, in stock acquisitions where the purchase
price exceeds the tax basis of the underlying assets (including separately
identified intangibles), with the residual allocated to goodwill, a DTL is
usually recorded to reflect the difference between the book and tax basis for
the assets acquired, exclusive of goodwill. At the time of acquisition, CCI
had
DTAs resulting from NOLs, depreciation and provision for doubtful accounts,
and
had, prior to our acquisition, recorded a full valuation allowance against
those
DTAs given its realizability assessment and the lack of future taxable income.
The amount of the DTL that resulted from the purchase price allocation was
approximately $6.1 million, and was equally offset by CCI’s DTA, gross of its
valuation allowance; therefore, no net DTL was recorded for this
acquisition.
9. STOCKHOLDERS’
EQUITY:
In
March 2008, the
Company’s board of directors authorized a repurchase of shares of the
Company’s Class A and Class D common
stock through December 31, 2009 of up to $150.0 million,
the maximum
amount allowable under the Credit Agreement. The amount and timing
of such
repurchases will be based on pricing, general economic and market conditions,
and the restrictions contained in the agreements governing the Company’s credit
facilities and subordinated debt and certain other factors. As of June 30, 2008,
the Company
repurchased 187,369 shares of Class A common stock at an average price of $1.39
and 1.9 million shares of Class
D common stock at an average price
of $1.33.
As
of June 30, 2008, the Company
had
$69.2 million in capacity available
under the share repurchase program.
In
2005, the Company
utilized approximately
$78.0
million to repurchase
common stock leaving
capacity
of
$72.0 million under the Credit
Agreement.
The
Company continues
to have an open stock repurchase authorization with respect to its Class
A and Class D common stock. (See Note 13 – Subsequent
Events.)
Stock
Option and Restricted Stock Grant Plan
Radio
One may issue
up to 10,816,198 shares of Class D Common Stock under the Company’s
Stock Option and Restricted Stock Grant Plan (“Plan”). At inception of the Plan,
the Company’s board of directors authorized 1,408,099 shares of
Class A common stock to be issuable under this plan. As of June 30,
2008, 5,494,434 shares were available for grant. The options are
exercisable in installments determined by the compensation committee of the
Company’s board of directors at the time of grant. The options expire as
determined by the compensation committee, but no later than ten years from
the
date of the grant. The Company uses an average life for all option awards.
The
Company settles stock options upon exercise by issuing
stock.
The
Company uses the
Black-Scholes (“BSM”) valuation model to calculate the fair value of stock-based
awards. The BSM incorporates various assumptions including volatility, expected
life, and interest rates. For options granted during the three months ended
June 30, 2008, the Company used the BSM option-pricing model and
determined: (1) the term by using the simplified plain-vanilla method as
allowed under SAB No. 110; (2) a historical volatility over a period
commensurate with the expected term, with the observation of the volatility
on a
daily basis; and (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.
The Company granted 1,913,650 options during the three months ended
June 30, 2008. The Company did not grant stock options during the three
months ended June 30, 2007. The Company granted 1,913,650 and 100,000 stock
options for the six months ended June 30, 2008 and 2007, respectively. The
per share weighted-average fair value of options granted during the three months
ended June 30, 2008 was $0.74. The per share weighted-average fair value of
options granted during the six months ended June 30, 2008 and 2007 was
$0.74 and $3.94, respectively.
16
These
fair values were derived using
the BSM with the following weighted-average assumptions:
For
the Three
Months Ended
June 30,
|
For
the Six Months Ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Average
risk-free interest rate
|
3.37
|
%
|
—
|
3.37
|
%
|
4.81
|
%
|
||||||
Expected
dividend yield
|
0.00
|
%
|
—
|
0.00
|
%
|
0.00
|
%
|
||||||
Expected
lives
|
6.5
years
|
—
|
6.5
years
|
7.7
years
|
|||||||||
Expected
volatility
|
49.66
|
%
|
—
|
49.66
|
%
|
40.00
|
%
|
Transactions
and other information
relating to the stock options for the period ended June 30, 2008 are
summarized below:
Number
of
Options
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||
(In
years)
|
|||||||||||||
Balance
as of December 31, 2007
|
4,384,000
|
$
|
14.04
|
—
|
—
|
||||||||
Granted
|
1,913,000
|
1.41
|
—
|
—
|
|||||||||
Exercised
|
—
|
—
|
—
|
—
|
|||||||||
Forfeited,
Cancelled
|
341,000
|
14.50
|
—
|
—
|
|||||||||
Balance
as of June 30, 2008
|
5,956,000
|
$
|
9.96
|
7.05
|
—
|
||||||||
Vested
and expected to vest as of
June 30, 2008
|
5,536,000
|
$
|
9.96
|
7.05
|
—
|
||||||||
Unvested
as of June 30, 2008
|
2,335,000
|
$
|
2.79
|
9.56
|
—
|
||||||||
Exercisable
as of June 30, 2008
|
3,621,000
|
$
|
14.58
|
5.43
|
—
|
The
aggregate intrinsic value in the
table above represents the total pre-tax intrinsic value (the difference between
the Company’s closing price on the last day of trading during the three months
ended June 30, 2008 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had
all the option holders exercised their options on June 30, 2008. This
amount changes based on the fair market value of the Company’s stock. The number
of options that vested during the three and six months ended June 30, 2008
were 180,073 and 197,198 respectively.
As
of June 30, 2008, approximately
$2.5 million of total unrecognized compensation cost related to stock
options issued is expected to be recognized over a weighted-average period
of
approximately 1.5 years. The stock option weighted-average fair value per share
was $1.06 at June 30, 2008.
The
Company granted 525,000 and 68,000
shares of restricted stock during the three month period ended June 30,
2008 and 2007, respectively. The Company granted 525,000 and 148,500 shares
of
restricted stock during the six month period ended June 30, 2008 and 2007,
respectively.
As
of June 30, 2008, approximately
$1.4 million of total unrecognized compensation cost related to restricted
stock grants is expected to be recognized over a weighted-average period of
1.5
years.
Transactions
and other information
relating to restricted stock grants for the period ended June 30, 2008 are
summarized below:
Number
of
Restricted
Shares
|
Weighted-Average
Fair Value at Grant Date
|
|||||||
Unvested
as of December 31, 2007
|
232,000
|
$
|
6.20
|
|||||
Granted
|
525,000
|
$
|
1.41
|
|||||
Vested
|
(49,000
|
)
|
$
|
7.42
|
||||
Forfeited,
Cancelled, Expired
|
—
|
$
|
—
|
|||||
Unvested
as of June 30, 2008
|
708,000
|
$
|
2.56
|
17
10. SEGMENT
INFORMATION:
The
Company has two reportable segments: (i) Radio Broadcasting and (ii)
Internet/Publishing. These two segments operate in the United States and are
consistently aligned with the Company’s management of its businesses and its
financial reporting structure.
The
Radio Broadcasting segment consists of all radio station broadcasts and Reach
Media results of operations. The Internet/Publishing segment includes the
results of our online business, Giant Magazine and the operations of CCI.
Corporate/Eliminations/Other represents financial activity associated with
our
corporate staff and offices, inter-company activity between the two segments
and
activity associated with a small film venture. Inter-company revenue earned
and
expenses charged between segments are recorded at fair value and eliminated
in
consolidation.
The
accounting policies as described in the summary of significant accounting
policies included in the Company’s Annual Report filed on Form 10-K for the year
ended December 31, 2007, and in Note 1 to these consolidated financial
statements are applied consistently across the two segments.
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
SEGMENTED
CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||
FOR
THE THREE MONTHS ENDED JUNE
30, 2008
|
||||||||||||||||
|
Corporate/
|
|
||||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
||||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|||||||||||||||
|
(In
thousands)
|
|||||||||||||||
NET
REVENUE
|
|
$
|
80,282
|
|
|
$
|
4,187
|
|
|
$
|
(1,037
|
)
|
|
$
|
83,432
|
|
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and
technical
|
|
|
18,912
|
|
|
|
2,796
|
|
|
|
(944
|
)
|
|
|
20,764
|
|
Selling,
general and
administrative
|
|
|
23,639
|
|
|
|
4,604
|
|
|
|
(754
|
)
|
|
|
27,489
|
|
Corporate
selling, general and
administrative
|
|
|
1,897
|
|
|
|
—
|
|
|
|
15,654
|
|
|
|
17,551
|
|
Stock-based
compensation
|
|
|
322
|
|
|
|
51
|
|
|
|
256
|
|
|
|
629
|
|
Depreciation
and
amortization
|
|
|
3,311
|
|
|
|
1,502
|
|
|
|
358
|
|
|
|
5,171
|
|
Total
operating
expenses
|
|
|
48,081
|
|
|
|
8,953
|
|
|
|
14,570
|
|
|
|
71,604
|
|
Operating
income (loss)
|
|
|
32,201
|
|
|
|
(4,766
|
)
|
|
|
(15,607
|
)
|
|
|
11,828
|
|
INTEREST
INCOME
|
|
|
19
|
|
|
|
—
|
|
|
111
|
|
|
|
130
|
|
|
INTEREST
EXPENSE
|
|
|
51
|
|
|
|
10
|
|
|
|
15,099
|
|
|
|
15,160
|
|
EQUITY
IN INCOME OF
AFFILIATED
COMPANY
|
|
|
—
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
OTHER
(EXPENSE) INCOME,
net
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
1,014
|
|
|
|
982
|
|
Income
(loss)
before
provision for income taxes
and minority interest in income of subsidiary and discontinued
operations
|
|
|
32,169
|
|
|
|
(4,808
|
)
|
|
|
(29,552
|
)
|
|
|
(2,191
|
)
|
PROVISION
FOR INCOME
TAXES
|
|
|
9,761
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,761
|
|
MINORITY
INTEREST IN INCOME OF
SUBSIDIARIES
|
|
|
—
|
|
|
|
—
|
|
|
|
1,058
|
|
|
|
1,058
|
|
Net
income (loss) from
continuing operations
|
|
|
22,408
|
|
|
|
(4,808
|
)
|
|
|
(30,610
|
)
|
|
|
(13,010
|
)
|
INCOME
FROM
DISCONTINUED
OPERATIONS, net of tax
|
|
|
1,334
|
|
|
|
—
|
|
|
|
—
|
|
|
1,334
|
|
|
Net
income (loss)
|
|
$
|
23,742
|
|
|
$
|
(4,808
|
)
|
|
$
|
(30,610
|
)
|
|
$
|
(11,676
|
)
|
RADIO
ONE, INC. AND
SUBSIDIARIES
|
|||||||||||||||
SELECTED
BALANCE SHEET INFORMATION
|
|||||||||||||||
AS
OF JUNE 30,
2008
|
|||||||||||||||
|
Corporate/
|
|
|||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
|||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|||||
|
(Unaudited)
|
||||||||||||||
|
(In
thousands)
|
||||||||||||||
Total
Assets
|
|
$
|
1,441,069
|
|
|
$
|
43,336
|
|
$
|
86,023
|
|
$
|
1,570,428
|
18
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
SEGMENTED
CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||
FOR
THE THREE MONTHS ENDED JUNE
30, 2007
|
|
|||||||||||||||
|
Corporate/
|
|
||||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
||||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|
||||||||||||||
|
(As
Adjusted - See Note
1)
|
|
||||||||||||||
|
(In
thousands)
|
|
||||||||||||||
NET
REVENUE
|
|
$
|
82,895
|
|
|
$
|
319
|
|
|
$
|
(594
|
)
|
|
$
|
82,620
|
|
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and
technical
|
|
|
17,935
|
|
|
|
806
|
|
|
|
(897
|
)
|
|
|
17,844
|
|
Selling,
general and
administrative
|
|
|
24,986
|
|
|
|
596
|
|
|
|
(116
|
)
|
|
|
25,466
|
|
Corporate
selling, general and
administrative
|
|
|
1,952
|
|
|
|
—
|
|
|
|
6,158
|
|
|
|
8,110
|
|
Stock-based
compensation
|
|
|
484
|
|
|
|
27
|
|
|
|
266
|
|
|
|
777
|
|
Depreciation
and
amortization
|
|
|
3,355
|
|
|
|
22
|
|
|
|
290
|
|
|
|
3,667
|
|
Impairment
of long-lived
assets
|
|
|
5,506
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,506
|
|
Total
operating
expenses
|
|
|
54,218
|
|
|
|
1,451
|
|
|
|
5,701
|
|
|
|
61,370
|
|
Operating
income (loss)
|
|
|
28,677
|
|
|
|
(1,132
|
)
|
|
|
(6,295
|
)
|
|
|
21,250
|
|
INTEREST
INCOME
|
|
|
2
|
|
|
|
—
|
|
|
|
292
|
|
|
|
294
|
|
INTEREST
EXPENSE
|
|
|
301
|
|
|
|
—
|
|
|
|
18,276
|
|
|
|
18,577
|
|
EQUITY
IN LOSS OF AFFILIATED
COMPANY
|
|
|
—
|
|
|
|
—
|
|
|
|
3,088
|
|
|
|
3,088
|
|
Income
(loss)
before benefit
from income
taxes and minority interest in income of subsidiary and discontinued
operations
|
|
|
28,378
|
|
|
|
(1,132
|
)
|
|
|
(27,367
|
)
|
|
|
(121
|
)
|
BENEFIT FROM
INCOME
TAXES
|
|
|
(801
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(801
|
)
|
MINORITY
INTEREST IN INCOME OF
SUBSIDIARIES
|
|
|
—
|
|
|
|
—
|
|
|
|
919
|
|
|
|
919
|
|
Net
income (loss) from
continuing
operations
|
|
|
29,179
|
|
|
|
(1,132
|
)
|
|
|
(28,286
|
)
|
|
|
(239
|
)
|
LOSS
FROM
DISCONTINUED OPERATIONS, net
of tax
|
|
|
(4,832
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,832
|
)
|
Net
income (loss)
|
|
$
|
24,347
|
|
|
$
|
(1,132
|
)
|
|
$
|
(28,286
|
)
|
|
$
|
(5,071
|
)
|
RADIO
ONE, INC. AND
SUBSIDIARIES
|
|||||||||||||||
SELECTED
BALANCE SHEET INFORMATION
|
|||||||||||||||
AS
OF JUNE 30, 2007
|
|||||||||||||||
|
Corporate/
|
|
|||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
|||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|||||
|
(Unaudited)
|
||||||||||||||
|
(In
thousands)
|
||||||||||||||
Total
Assets
|
|
$
|
2,080,417
|
|
|
$
|
1,520
|
|
$
|
96,176
|
|
$
|
2,178,113
|
19
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
SEGMENTED
CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||
FOR
THE SIX MONTHS ENDED JUNE 30,
2008
|
||||||||||||||||
|
Corporate/
|
|
||||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
||||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|||||||||||||||
|
(In
thousands)
|
|||||||||||||||
NET
REVENUE
|
|
$
|
152,924
|
|
|
$
|
5,038
|
|
|
$
|
(2,032
|
)
|
|
$
|
155,930
|
|
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and
technical
|
|
|
37,643
|
|
|
|
4,043
|
|
|
|
(1,890
|
)
|
|
|
39,796
|
|
Selling,
general and
administrative
|
|
|
46,870
|
|
|
|
6,598
|
|
|
|
(1,461
|
)
|
|
|
52,007
|
|
Corporate
selling, general and
administrative
|
|
|
3,829
|
|
|
|
—
|
|
|
|
20,129
|
|
|
|
23,958
|
|
Stock-based
compensation
|
|
|
489
|
|
|
|
89
|
|
|
|
379
|
|
|
|
957
|
|
Depreciation
and
amortization
|
|
|
6,543
|
|
|
|
1,527
|
|
|
|
765
|
|
|
|
8,835
|
|
Total
operating
expenses
|
|
|
95,374
|
|
|
|
12,257
|
|
|
|
17,922
|
|
|
|
125,553
|
|
Operating
income (loss)
|
|
|
57,550
|
|
|
|
(7,219
|
)
|
|
|
(19,954
|
)
|
|
|
30,377
|
|
INTEREST
INCOME
|
|
|
60
|
|
|
|
—
|
|
|
|
271
|
|
|
|
331
|
|
INTEREST
EXPENSE
|
|
|
711
|
|
|
|
10
|
|
|
|
31,698
|
|
|
|
32,419
|
|
EQUITY
IN LOSS OF AFFILIATED
COMPANY
|
|
|
—
|
|
|
|
—
|
|
|
|
2,799
|
|
|
|
2,799
|
|
OTHER (EXPENSE)
INCOME,
net
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
1,017
|
|
|
|
971
|
|
Income
(loss)
before
provision for income taxes
and minority interest in income of subsidiary and discontinued
operations
|
|
|
56,899
|
|
|
|
(7,275
|
)
|
|
|
(53,163
|
)
|
|
|
(3,539
|
)
|
PROVISION
FOR INCOME
TAXES
|
|
|
18,659
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,659
|
|
MINORITY
INTEREST IN INCOME OF
SUBSIDIARIES
|
|
|
—
|
|
|
|
—
|
|
|
|
1,881
|
|
|
|
1,881
|
|
Net
income (loss) from
continuing
operations
|
|
|
38,240
|
|
|
|
(7,275
|
)
|
|
|
(55,044
|
)
|
|
|
(24,079
|
)
|
LOSS
FROM
DISCONTINUED OPERATIONS, net
of tax
|
|
|
(6,447
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(6,447
|
)
|
|
Net
income (loss)
|
|
$
|
31,793
|
|
|
$
|
(7,275
|
)
|
|
$
|
(55,044
|
)
|
|
$
|
(30,526
|
)
|
20
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
SEGMENTED
CONSOLIDATING STATEMENT OF OPERATIONS
|
||||||||||||||||
FOR
THE SIX MONTHS ENDED JUNE 30,
2007
|
||||||||||||||||
|
Corporate/
|
|
||||||||||||||
|
Radio
|
|
|
Internet/
|
|
|
Eliminations/
|
|
||||||||
|
Broadcasting
|
|
|
Publishing
|
|
|
Other
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|||||||||||||||
|
(As
Adjusted - See Note
1)
|
|||||||||||||||
|
(In
thousands)
|
|||||||||||||||
NET
REVENUE
|
|
$
|
156,011
|
|
|
$
|
1,686
|
|
|
$
|
(1,037
|
)
|
|
$
|
156,660
|
|
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and
technical
|
|
|
35,914
|
|
|
|
1,794
|
|
|
|
(1,794
|
)
|
|
|
35,914
|
|
Selling,
general and
administrative
|
|
|
46,468
|
|
|
|
992
|
|
|
|
(126
|
)
|
|
|
47,334
|
|
Corporate
selling, general and
administrative
|
|
|
3,926
|
|
|
|
—
|
|
|
|
11,734
|
|
|
|
15,660
|
|
Stock-based
compensation
|
|
|
1,007
|
|
|
|
27
|
|
|
|
558
|
|
|
|
1,592
|
|
Depreciation
and
amortization
|
|
|
6,774
|
|
|
|
44
|
|
|
|
565
|
|
|
|
7,383
|
|
Impairment
of long-lived
assets
|
|
|
5,506
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,506
|
|
Total
operating
expenses
|
|
|
99,595
|
|
|
|
2,857
|
|
|
|
10,937
|
|
|
|
113,389
|
|
Operating
income (loss)
|
|
|
56,416
|
|
|
|
(1,171
|
)
|
|
|
(11,974
|
)
|
|
|
43,271
|
|
INTEREST
INCOME
|
|
|
16
|
|
|
|
—
|
|
|
|
545
|
|
|
|
561
|
|
INTEREST
EXPENSE
|
|
|
301
|
|
|
|
—
|
|
|
|
36,346
|
|
|
|
36,647
|
|
EQUITY
IN LOSS OF AFFILIATED
COMPANY
|
|
|
—
|
|
|
|
—
|
|
|
|
7,306
|
|
|
|
7,306
|
|
OTHER
EXPENSE
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
Income
(loss)
before
provision for income taxes
and minority interest in income of subsidiary and discontinued
operations
|
|
|
56,125
|
|
|
|
(1,171
|
)
|
|
|
(55,083
|
)
|
|
|
(129
|
)
|
PROVISION
FOR INCOME
TAXES
|
|
|
651
|
|
|
|
—
|
|
|
|
—
|
|
|
|
651
|
|
MINORITY
INTEREST IN INCOME OF
SUBSIDIARIES
|
|
|
—
|
|
|
|
—
|
|
|
|
1,825
|
|
|
|
1,825
|
|
Net
income (loss) from
continuing
operations
|
|
|
55,474
|
|
|
|
(1,171
|
)
|
|
|
(56,908
|
)
|
|
|
(2,605
|
)
|
LOSS
FROM
DISCONTINUED OPERATIONS, net
of tax
|
|
|
(5,448
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,448
|
)
|
Net
income (loss)
|
|
$
|
50,026
|
|
|
$
|
(1,171
|
)
|
|
$
|
(56,908
|
)
|
|
$
|
(8,053
|
)
|
11. CONTRACT
TERMINATION:
In
connection with the termination in 2005 of the Company’s sales representation
agreements with Interep National Radio Sales, Inc., (“Interep”), and its
subsequent agreement with Katz Communications, Inc. (“Katz”), as the Company’s
sole national sales representative, Katz paid the Company $3.4 million as an
inducement to enter into subsequent agreements and agreed to pay Interep
approximately $5.3 million to satisfy the company’s termination
obligations. The Company is amortizing both over the four-year life
of the subsequent Katz agreements as a reduction to selling, general, and
administrative expense. As of June 30, 2008, $316,000 of the deferred
termination obligation and inducement amount is reflected in other long-term
liabilities on the accompanying consolidated balance sheets, and approximately
$1.9 million is reflected in other current liabilities.
21
12. RELATED
PARTY TRANSACTIONS:
In
2000, an officer of the Company, the
former Chief Financial Officer (“Former CFO”), purchased shares of the Company’s
common stock. The Former CFO purchased 333,334 shares of the
Company’s Class A common stock and 666,666 shares of the Company’s
Class D common stock. The stock was purchased with the proceeds of full
recourse loans from the Company in the amount of approximately
$7.0 million. In September 2005, the Former CFO repaid a portion of his
loan. The partial repayment of approximately $7.5 million was effected
using 300,000 shares of the Company’s Class A common stock and
230,000 shares of the Company’s Class D common stock owned by the
Former CFO. All shares transferred to the Company in satisfaction of this loan
have been retired. As of June 30, 2008, the remaining principal and
interest balance on the Former CFO’s loan was approximately $1.7 million,
which includes accrued interest in the amount of $200,000. The Former CFO was
employed with the Company through December 31, 2007, and pursuant to an
agreement with the Company, the loan became due in full in July 2008. Pursuant
to his employment agreement, the Former CFO was also eligible to receive a
retention bonus in the amount of approximately $3.1 million in cash on July
1,
2008, for having remained employed with the Company through December 31, 2007.
The $3.1 million retention bonus is a pro rata portion of a $7.0 million
retention bonus called for in his employment agreement, had he remained employed
with the Company for ten years, and is based on the number of days of employment
between October 18, 2005 and December 31, 2007. In July 2008,
the Former CFO settled the remaining balance of the loan in full the by
offsetting the loan with his after-tax proceeds from the $3.1 million retention
bonus, in addition to paying a cash amount of $34,000 to the Company.
The
Company’s CEO and its Founder and Chairperson own a music company called Music
One (“Music One”). The Company occasionally engages in promoting the recorded
music products and events of Music One, and Music One sometimes provides talent
services for Radio One events. The Company also provides and charges Music
One
for office space and administrative services. For the three months ended June
30, 2008, the Company provided advertising and made payments to Music One for
talent and sponsorship activities in the amounts of $15,000 and $85,000,
respectively. For the six months ended June 30, 2008, the Company provided
advertising and made payments to Music One for talent and sponsorship activities
in the amounts of $61,000 and $124,000, respectively.
As
of December 31, 2007, the Company had
an additional loan outstanding to the Former CFO in the amount of $88,000.
The
loan was due on demand and accrued interest at 5.6%, totaling an amount of
$53,000 as of December 31, 2007. In January 2008, the Former CFO repaid the
full remaining balance of the loan in cash in the amount of
$140,000.
In
July 2007, the Company closed on an
agreement to acquire the assets of WDBZ-AM, a radio station located in the
Cincinnati metropolitan
area from Blue Chip
Communications, Inc. (“Blue Chip”) for approximately $2.6 million in seller
financing, of which $17,000 remained outstanding as of June 30, 2008. The
financing is a 5.1% interest bearing loan payable monthly through July 2008.
Blue Chip is owned by a former member of the Company’s board of directors. The
transaction was approved by a special committee of independent directors
appointed by the board of directors. Additionally, the Company retained an
independent valuation firm to provide a fair value appraisal of the station.
Prior to the closing, and since August of 2001, the Company consolidated WDBZ-AM
within its existing Cincinnati operations,
and operated WDBZ-AM under
an LMA for no annual fee, the results of which were incorporated in the
Company’s financial statements.
13. SUBSEQUENT
EVENTS:
During
July 2008, the Company repurchased in the open market, approximately $19.8
million of its 87/8%
senior
subordinated notes due July 1, 2011 at a price of 86.0% of par value. The
Company recorded a gain on the extinguishment of debt of approximately $2.7
million, net of the write-off of deferred financing costs of
$151,000. The Company borrowed $17.0 million from its revolving
credit facility to fund the repurchase. The notes outstanding as of
June 30, 2008 were $292.0 million.
During
July 2008, the Company repurchased 135,000 shares of Class D common stock in
the
amount of $180,711 at an average price of $1.34 per share and 180,000 shares
of
Class A common stock in the amount of $218,124 at an average price of $1.21
per
share. As of July 31, 2008, the Company has $68.8 million in capacity available
under the share repurchase program.
22
CONSOLIDATING
FINANCIAL STATEMENTS
The
Company conducts a portion of its business through its subsidiaries. All of
the
Company’s restricted subsidiaries (“Subsidiary Guarantors”) have fully and
unconditionally guaranteed the Company’s 87/8% senior
subordinated notes due 2011, the 63/8% senior
subordinated notes due 2013 and the Company’s obligations under the Credit
Agreement.
Set
forth below are consolidating financial statements for the Company and the
Subsidiary Guarantors as of June 30, 2008 and 2007 and for the three and
six month periods then ended. Also included is the consolidating balance sheet
for the Company and the Subsidiary Guarantors as of June 30, 2008 and
December 31, 2007. The equity method of accounting has been used by the
Company to report its investments in subsidiaries. Separate financial statements
for the Subsidiary Guarantors are not presented based on management’s
determination that they do not provide additional information that is material
to investors.
23
RADIO
ONE, INC. AND
SUBSIDIARIES
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR
THE THREE MONTHS
ENDED JUNE 30, 2008
Combined
Guarantor
Subsidiaries
|
Radio
One, Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
NET
REVENUE
|
$
|
38,734
|
$
|
44,698
|
$
|
—
|
$
|
83,432
|
||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and technical
|
10,042
|
10,811
|
—
|
20,853
|
||||||||||||
Selling,
general and administrative
|
16,905
|
10,868
|
—
|
27,773
|
||||||||||||
Corporate
selling, general and administrative
|
—
|
17,807
|
—
|
17,807
|
||||||||||||
Depreciation
and amortization
|
2,996
|
2,175
|
—
|
5,171
|
||||||||||||
Total
operating expenses
|
29,943
|
41,661
|
—
|
71,604
|
||||||||||||
Operating
income
|
8,791
|
3,037
|
—
|
11,828
|
||||||||||||
INTEREST
INCOME
|
2
|
128
|
—
|
130
|
||||||||||||
INTEREST
EXPENSE
|
10
|
15,150
|
—
|
15,160
|
||||||||||||
EQUITY
IN INCOME OF AFFILIATED COMPANY
|
—
|
(29
|
)
|
—
|
(29
|
)
|
||||||||||
OTHER
INCOME
|
—
|
982
|
—
|
982
|
||||||||||||
Income
(loss) before provision
for income taxes, minority interest in income of subsidiaries and
discontinued operations
|
8,783
|
(10,974
|
)
|
—
|
(2,191
|
)
|
||||||||||
PROVISION
FOR INCOME TAXES
|
6,793
|
2,968
|
—
|
9,761
|
||||||||||||
MINORITY
INTEREST IN INCOME OF SUBSIDIARIES
|
—
|
1,058
|
—
|
1,058
|
||||||||||||
Net
income (loss) before equity
in income of subsidiaries and discontinued
operations
|
1,990
|
(15,000
|
)
|
—
|
(13,010
|
)
|
||||||||||
EQUITY
IN INCOME OF
SUBSIDIARIES
|
—
|
1,887
|
(1,887
|
)
|
—
|
|||||||||||
Net
income (loss) from continuing operations
|
1,990
|
(13,113
|
)
|
(1,887
|
)
|
(13,010
|
)
|
|||||||||
(LOSS)
INCOME FROM DISCONTINUED
OPERATIONS, net of tax
|
(103
|
)
|
1,437
|
—
|
1,334
|
|||||||||||
Net
income (loss)
|
$
|
1,887
|
$
|
(11,676
|
)
|
$
|
(1,887
|
)
|
$
|
(11,676
|
)
|
The
accompanying notes are an integral
part of this consolidating financial statement.
24
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR
THE THREE MONTHS ENDED JUNE 30, 2007
Combined
Guarantor
Subsidiaries
|
Radio
One, Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(As
Adjusted – See Note 1)
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||
NET
REVENUE
|
$
|
37,232
|
$
|
45,388
|
$
|
—
|
$
|
82,620
|
||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and technical
|
7,512
|
10,457
|
—
|
17,969
|
||||||||||||
Selling,
general and administrative
|
13,663
|
12,189
|
—
|
25,852
|
||||||||||||
Corporate
selling, general and administrative
|
—
|
8,376
|
—
|
8,376
|
||||||||||||
Depreciation
and amortization
|
1,474
|
2,193
|
—
|
3,667
|
||||||||||||
Impairment
of long-lived assets
|
5,506
|
—
|
—
|
5,506
|
||||||||||||
Total
operating expenses
|
28,155
|
33,215
|
—
|
61,370
|
||||||||||||
Operating
income
|
9,077
|
12,173
|
—
|
21,250
|
||||||||||||
INTEREST
INCOME
|
—
|
294
|
—
|
294
|
||||||||||||
INTEREST
EXPENSE
|
1
|
18,576
|
—
|
18,577
|
||||||||||||
EQUITY
IN LOSS OF AFFILIATED COMPANY
|
—
|
3,088
|
—
|
3,088
|
||||||||||||
Income
(loss) before provision (benefit) for income taxes, minority interest
in
income of subsidiaries and discontinued operations
|
9,076
|
(9,197
|
)
|
—
|
(121
|
)
|
||||||||||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
5,061
|
(5,862
|
)
|
—
|
(801
|
)
|
||||||||||
MINORITY
INTEREST IN INCOME OF SUBSIDIARIES
|
—
|
919
|
—
|
919
|
||||||||||||
Net
income (loss) before equity in income of subsidiaries and discontinued
operations
|
4,015
|
(4,254
|
)
|
—
|
(239
|
)
|
||||||||||
EQUITY
IN INCOME OF SUBSIDIARIES
|
—
|
(1,339
|
)
|
1,339
|
—
|
|||||||||||
Net
income (loss) from continuing operations
|
4,015
|
(5,593
|
)
|
1,339
|
(239
|
)
|
||||||||||
(LOSS)
INCOME FROM DISCONTINUED OPERATIONS, net of tax
|
(5,354
|
)
|
522
|
—
|
(4,832
|
)
|
||||||||||
Net
loss
|
$
|
(1,339)
|
$
|
(5,071
|
)
|
$
|
1,339
|
$
|
(5,071
|
)
|
The
accompanying notes are an integral part of this consolidating financial
statement.
25
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR
THE SIX MONTHS ENDED JUNE 30, 2008
Combined
Guarantor
Subsidiaries
|
Radio
One, Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
NET
REVENUE
|
$
|
70,700
|
$
|
85,230
|
$
|
—
|
$
|
155,930
|
||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and technical
|
18,391
|
21,527
|
—
|
39,918
|
||||||||||||
Selling,
general and administrative
|
30,129
|
22,334
|
—
|
52,463
|
||||||||||||
Corporate
selling, general and administrative
|
—
|
24,337
|
—
|
24,337
|
||||||||||||
Depreciation
and amortization
|
4,404
|
4,431
|
—
|
8,835
|
||||||||||||
Total
operating expenses
|
52,924
|
72,629
|
—
|
125,553
|
||||||||||||
Operating
income
|
17,776
|
12,601
|
—
|
30,377
|
||||||||||||
INTEREST
INCOME
|
2
|
329
|
—
|
331
|
||||||||||||
INTEREST
EXPENSE
|
10
|
32,409
|
—
|
32,419
|
||||||||||||
EQUITY
IN LOSS OF AFFILIATED COMPANY
|
—
|
2,799
|
—
|
2,799
|
||||||||||||
OTHER
INCOME
|
—
|
971
|
—
|
971
|
||||||||||||
Income
(loss) before provision for income taxes, minority interest in income
of
subsidiaries and discontinued operations
|
17,768
|
(21,307
|
)
|
—
|
(3,539
|
)
|
||||||||||
PROVISION
FOR INCOME TAXES
|
12,801
|
5,858
|
—
|
18,659
|
||||||||||||
MINORITY
INTEREST IN INCOME OF SUBSIDIARIES
|
—
|
1,881
|
—
|
1,881
|
||||||||||||
Net
income (loss) before equity in income of subsidiaries and discontinued
operations
|
4,967
|
(29,046
|
)
|
—
|
(24,079
|
)
|
||||||||||
EQUITY
IN INCOME OF SUBSIDIARIES
|
—
|
5,007
|
(5,007
|
)
|
—
|
|||||||||||
Net
income (loss) from continuing operations
|
4,967
|
(24,039
|
)
|
(5,007
|
)
|
(24,079
|
)
|
|||||||||
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS, net of tax
|
40
|
(6,487
|
)
|
—
|
(6,447
|
)
|
||||||||||
Net
income (loss)
|
$
|
5,007
|
$
|
(30,526
|
)
|
$
|
(5,007
|
)
|
$
|
(30,526
|
)
|
The
accompanying notes are an integral part of this consolidating financial
statement.
26
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATING
STATEMENT OF OPERATIONS
FOR
THE SIX MONTHS ENDED JUNE 30, 2007
Combined
Guarantor
Subsidiaries
|
Radio
One,
Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(As
Adjusted – See Note 1)
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||
NET
REVENUE
|
$
|
71,320
|
$
|
85,340
|
$
|
—
|
$
|
156,660
|
||||||||
OPERATING
EXPENSES:
|
||||||||||||||||
Programming
and technical
|
14,909
|
21,265
|
—
|
36,174
|
||||||||||||
Selling,
general and administrative
|
25,903
|
22,204
|
—
|
48,107
|
||||||||||||
Corporate
selling, general and administrative
|
—
|
16,219
|
—
|
16,219
|
||||||||||||
Depreciation
and amortization
|
2,982
|
4,401
|
—
|
7,383
|
||||||||||||
Impairment
of long-lived assets
|
5,506
|
—
|
—
|
5,506
|
||||||||||||
Total
operating expenses
|
49,300
|
64,089
|
—
|
113,389
|
||||||||||||
Operating
income
|
22,020
|
21,251
|
—
|
43,271
|
||||||||||||
INTEREST
INCOME
|
—
|
561
|
—
|
561
|
||||||||||||
INTEREST
EXPENSE
|
1
|
36,646
|
—
|
36,647
|
||||||||||||
EQUITY
IN LOSS OF AFFILIATED COMPANY
|
—
|
7,306
|
—
|
7,306
|
||||||||||||
OTHER
EXPENSE
|
—
|
(8
|
)
|
—
|
(8
|
)
|
||||||||||
Income
(loss) before provision (benefit) for income taxes, minority interest
in
income of subsidiaries and discontinued operations
|
22,019
|
(22,148
|
)
|
—
|
(129
|
)
|
||||||||||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
5,910
|
(5,259
|
)
|
—
|
651
|
|||||||||||
MINORITY
INTEREST IN INCOME OF SUBSIDIARIES
|
—
|
1,825
|
—
|
1,825
|
||||||||||||
Net
income (loss) before equity in income of subsidiaries and discontinued
operations
|
16,109
|
(18,714
|
)
|
—
|
(2,605
|
)
|
||||||||||
EQUITY
IN INCOME OF SUBSIDIARIES
|
—
|
12,305
|
(12,305
|
)
|
—
|
|||||||||||
Net
income (loss) from continuing operations
|
16,109
|
(6,409
|
)
|
(12,305
|
)
|
(2,605
|
)
|
|||||||||
LOSS
FROM DISCONTINUED OPERATIONS, net of tax
|
(3,804
|
)
|
(1,644
|
)
|
—
|
(5,448
|
)
|
|||||||||
Net
income (loss)
|
$
|
12,305
|
$
|
(8,053
|
)
|
$
|
(12,305
|
)
|
$
|
(8,053
|
)
|
The
accompanying notes are an integral part of this consolidating financial
statement.
27
RADIO
ONE, INC. AND SUBSIDIARIES
CONSOLIDATING
BALANCE SHEET
AS
OF JUNE 30, 2008
Combined
Guarantor
Subsidiaries
|
Radio
One,
Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
ASSETS
|
||||||||||||||||
CURRENT
ASSETS:
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
2,290
|
$
|
8,391
|
$
|
—
|
$
|
10,681
|
||||||||
Trade
accounts receivable, net of allowance for doubtful
accounts
|
31,180
|
28,203
|
—
|
59,383
|
||||||||||||
Prepaid
expenses and other current assets
|
2,347
|
2,838
|
—
|
5,185
|
||||||||||||
Deferred
income tax asset
|
2,282
|
12,637
|
—
|
14,919
|
||||||||||||
Current
assets from discontinued operations
|
201
|
487
|
—
|
688
|
||||||||||||
Total
current assets
|
38,300
|
52,556
|
—
|
90,856
|
||||||||||||
PROPERTY
AND EQUIPMENT, net
|
28,689
|
22,180
|
—
|
50,869
|
||||||||||||
INTANGIBLE
ASSETS, net
|
956,323
|
416,822
|
—
|
1,373,145
|
||||||||||||
INVESTMENT
IN SUBSIDIARIES
|
—
|
959,679
|
(959,679
|
)
|
—
|
|||||||||||
INVESTMENT
IN AFFILIATED COMPANY
|
—
|
47,319
|
—
|
47,319
|
||||||||||||
OTHER
ASSETS
|
—
|
8,167
|
—
|
8,167
|
||||||||||||
NON-CURRENT
ASSETS FROM DISCONTINUED OPERATIONS
|
62
|
10
|
—
|
72
|
||||||||||||
Total
assets
|
$
|
1,023,374
|
$
|
1,506,733
|
$
|
(959,679
|
)
|
$
|
1,570,428
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||
CURRENT
LIABILITIES:
|
||||||||||||||||
Accounts
payable
|
$
|
1,395
|
$
|
2,509
|
$
|
—
|
$
|
3,904
|
||||||||
Accrued
interest
|
—
|
18,200
|
—
|
18,200
|
||||||||||||
Accrued
compensation and related benefits
|
3,656
|
17,459
|
—
|
21,115
|
||||||||||||
Income
taxes payable
|
—
|
1,430
|
—
|
1,430
|
||||||||||||
Other
current liabilities
|
33,073
|
(21,266
|
)
|
—
|
11,807
|
|||||||||||
Current
portion of long-term debt
|
—
|
39,297
|
—
|
39,297
|
||||||||||||
Current
liabilities from discontinued operations
|
(17,557
|
)
|
18,534
|
—
|
977
|
|||||||||||
Total
current liabilities
|
20,567
|
76,163
|
—
|
96,730
|
||||||||||||
LONG-TERM
DEBT, net of current portion
|
—
|
704,825
|
—
|
704,825
|
||||||||||||
OTHER
LONG-TERM LIABILITIES
|
—
|
4,424
|
—
|
4,424
|
||||||||||||
DEFERRED
INCOME TAX LIABILITY
|
43,128
|
124,162
|
—
|
167,290
|
||||||||||||
Total
liabilities
|
63,695
|
909,574
|
—
|
973,269
|
||||||||||||
MINORITY
INTEREST IN SUBSIDIARIES
|
—
|
2,313
|
—
|
2,313
|
||||||||||||
STOCKHOLDERS’
EQUITY:
|
||||||||||||||||
Common
stock
|
—
|
97
|
—
|
97
|
||||||||||||
Accumulated
other comprehensive loss
|
—
|
(822
|
)
|
—
|
(822
|
)
|
||||||||||
Stock
subscriptions receivable
|
—
|
(1,737
|
)
|
—
|
(1,737
|
)
|
||||||||||
Additional
paid-in capital
|
276,663
|
1,042,416
|
(276,663
|
)
|
1,042,416
|
|||||||||||
Retained
earnings (accumulated deficit)
|
683,016
|
(445,108
|
)
|
(683,016
|
)
|
(445,108
|
)
|
|||||||||
Total
stockholders’ equity
|
959,679
|
594,846
|
(959,679
|
)
|
594,846
|
|||||||||||
Total
liabilities and stockholders’ equity
|
$
|
1,023,374
|
$
|
1,506,733
|
$
|
(959,679
|
)
|
$
|
1,570,428
|
The
accompanying notes are an integral part of this consolidating financial
statement.
28
RADIO
ONE, INC. AND
SUBSIDIARIES
CONSOLIDATING
BALANCE SHEET
AS
OF DECEMBER 31, 2007
Combined
Guarantor Subsidiaries
|
Radio
One, Inc.
|
Eliminations
|
Consolidated
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(As
Adjusted – See Note 1)
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||
ASSETS
|
||||||||||||||||
CURRENT
ASSETS:
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
822
|
$
|
23,425
|
$
|
—
|
$
|
24,247
|
||||||||
Trade
accounts receivable, net of allowance for doubtful
accounts
|
25,297
|
25,128
|
—
|
50,425
|
||||||||||||
Prepaid
expenses and other current assets
|
2,340
|
3,778
|
—
|
6,118
|
||||||||||||
Deferred
income tax asset
|
2,282
|
12,865
|
—
|
15,147
|
||||||||||||
Current
assets from discontinued operations
|
622
|
2,627
|
—
|
3,249
|
||||||||||||
Total
current assets
|
31,363
|
67,823
|
—
|
99,186
|
||||||||||||
PROPERTY
AND EQUIPMENT, net
|
25,203
|
19,537
|
—
|
44,740
|
||||||||||||
INTANGIBLE
ASSETS, net
|
926,711
|
383,610
|
—
|
1,310,321
|
||||||||||||
INVESTMENT
IN SUBSIDIARIES
|
—
|
937,270
|
(937,270
|
)
|
—
|
|||||||||||
INVESTMENT
IN AFFILIATED COMPANY
|
—
|
48,399
|
—
|
48,399
|
||||||||||||
OTHER
ASSETS
|
631
|
7,942
|
—
|
8,573
|
||||||||||||
NON-CURRENT
ASSETS FROM DISCONTINUED OPERATIONS
|
65
|
152,058
|
—
|
152,123
|
||||||||||||
Total
assets
|
$
|
983,973
|
$
|
1,616,639
|
$
|
(937,270
|
)
|
$
|
1,663,342
|
|||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||
CURRENT
LIABILITIES:
|
||||||||||||||||
Accounts
payable
|
$
|
1,026
|
$
|
3,932
|
$
|
—
|
$
|
4,958
|
||||||||
Accrued
interest
|
—
|
19,004
|
—
|
19,004
|
||||||||||||
Accrued
compensation and related benefits
|
3,007
|
13,312
|
—
|
16,319
|
||||||||||||
Income
taxes payable
|
(1
|
)
|
4,464
|
—
|
4,463
|
|||||||||||
Other
current liabilities
|
3,447
|
8,677
|
—
|
12,124
|
||||||||||||
Current
portion of long-term debt
|
—
|
26,004
|
—
|
26,004
|
||||||||||||
Current
liabilities from discontinued operations
|
343
|
2,361
|
—
|
2,704
|
||||||||||||
Total
current liabilities
|
7,822
|
77,754
|
—
|
85,576
|
||||||||||||
LONG-TERM
DEBT, net of current portion
|
—
|
789,500
|
—
|
789,500
|
||||||||||||
OTHER
LONG-TERM LIABILITIES
|
1,994
|
3,233
|
—
|
5,227
|
||||||||||||
DEFERRED
INCOME TAX LIABILITY
|
36,887
|
113,063
|
—
|
149,950
|
||||||||||||
NON-CURRENT
LIABILITIES FROM DISCONTINUED OPERATIONS
|
—
|
483
|
—
|
483
|
||||||||||||
Total
liabilities
|
46,703
|
984,033
|
—
|
1,030,736
|
||||||||||||
MINORITY
INTEREST IN SUBSIDIARIES
|
—
|
3,889
|
—
|
3,889
|
||||||||||||
STOCKHOLDERS’
EQUITY:
|
||||||||||||||||
Common
stock
|
—
|
99
|
—
|
99
|
||||||||||||
Accumulated
other comprehensive income
|
—
|
644
|
—
|
644
|
||||||||||||
Stock
subscriptions receivable
|
—
|
(1,717
|
)
|
—
|
(1,717
|
)
|
||||||||||
Additional
paid-in capital
|
277,174
|
1,044,273
|
(277,174
|
)
|
1,044,273
|
|||||||||||
Retained
earnings (accumulated deficit)
|
660,096
|
(414,582
|
)
|
(660,096
|
)
|
(414,582
|
)
|
|||||||||
Total
stockholders’ equity
|
937,270
|
628,717
|
(937,270
|
)
|
628,717
|
|||||||||||
Total
liabilities and stockholders’ equity
|
$
|
983,973
|
$
|
1,616,639
|
$
|
(937,270
|
)
|
$
|
1,663,342
|
The
accompanying notes are an integral part of this consolidating financial
statement.
29
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
CONSOLIDATING
STATEMENT OF CASH
FLOWS
|
||||||||||||||||
FOR
THE SIX MONTHS ENDED JUNE 30,
2008
|
||||||||||||||||
|
Combined
|
|
||||||||||||||
|
Guarantor
|
|
|
Radio
|
|
|||||||||||
|
Subsidiaries
|
|
|
One,
Inc.
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|||||
|
(In
thousands)
|
|||||||||||||||
|
||||||||||||||||
CASH
FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||||||||||
Net
income
(loss)
|
|
$
|
5,007
|
|
|
$
|
(30,526
|
)
|
|
$
|
(5,007
|
)
|
|
$
|
(30,526
|
)
|
Adjustments
to reconcile income
(loss) to net cash from operating activities:
|
||||||||||||||||
Depreciation
and
amortization
|
|
|
4,404
|
|
|
|
4,431
|
|
|
|
—
|
|
|
|
8,835
|
|
Amortization
of debt financing
costs
|
|
|
—
|
|
|
|
1,361
|
|
|
|
—
|
|
|
|
1,361
|
|
Deferred
income
taxes
|
|
|
—
|
|
|
|
17,592
|
|
|
|
—
|
|
|
|
17,592
|
|
Equity
in loss of affiliated
company
|
|
|
—
|
|
|
|
2,799
|
|
|
|
—
|
|
|
|
2,799
|
|
Minority
interest in income of
subsidiaries
|
|
|
—
|
|
|
|
1,881
|
|
|
|
—
|
|
|
|
1,881
|
|
Stock-based
compensation and other
non-cash compensation
|
|
|
—
|
|
|
|
849
|
|
|
|
—
|
|
|
|
849
|
|
Amortization
of contract
inducement and termination fee
|
|
|
—
|
|
|
|
(947
|
)
|
|
|
—
|
|
|
|
(947
|
)
|
Change
in interest due on stock
subscription receivable
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(20
|
)
|
Effect
of change in operating
assets and liabilities, net of assets acquired:
|
||||||||||||||||
Trade
accounts receivable,
net
|
|
|
(5,883
|
)
|
|
|
2,072
|
|
|
|
—
|
|
|
|
(3,811
|
)
|
Prepaid
expenses and other current
assets
|
|
|
(7
|
)
|
|
|
1,532
|
|
|
|
—
|
|
|
|
1,525
|
|
Other
assets
|
|
|
—
|
|
|
|
(4,301
|
)
|
|
|
—
|
|
|
|
(4,301
|
)
|
Due
to corporate/from
subsidiaries
|
|
|
(3,071
|
)
|
|
|
3,071
|
|
|
|
—
|
|
|
|
—
|
|
Accounts
payable
|
|
|
369
|
|
|
|
(3,849
|
)
|
|
|
—
|
|
|
|
(3,480
|
)
|
Accrued
interest
|
|
|
—
|
|
|
|
(804
|
)
|
|
|
—
|
|
|
|
(804
|
)
|
Accrued
compensation and related
benefits
|
|
|
649
|
|
|
|
4,214
|
|
|
|
—
|
|
|
|
4,863
|
|
Income
taxes
payable
|
|
|
—
|
|
|
|
(3,033
|
)
|
|
|
—
|
|
|
|
(3,033
|
)
|
Other
liabilities
|
|
|
—
|
|
|
|
(2,453
|
)
|
|
|
—
|
|
|
|
(2,453
|
)
|
Net
cash flows provided from
operating activities from discontinued operations
|
|
|
—
|
|
|
|
814
|
|
|
|
—
|
|
|
|
814
|
|
Net
cash flows provided from (used
in) operating activities
|
|
|
1,468
|
|
|
|
(5,317
|
)
|
|
|
(5,007
|
)
|
|
|
(8,856
|
)
|
CASH
FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||||||
Purchase
of property and
equipment
|
|
|
—
|
|
|
|
(4,036
|
)
|
|
|
—
|
|
|
|
(4,036
|
)
|
Acquisitions
|
|
|
—
|
|
|
|
(70,426
|
)
|
|
|
—
|
|
|
|
(70,426
|
)
|
Investment
in
subsidiaries
|
|
|
—
|
|
|
|
(5,007
|
)
|
|
|
5,007
|
|
|
|
—
|
|
Purchase
of other intangible
assets
|
|
|
—
|
|
|
|
(1,046
|
)
|
|
|
—
|
|
|
|
(1,046
|
)
|
Proceeds
from sale of
assets
|
|
|
—
|
|
|
|
150,224
|
|
|
|
—
|
|
|
|
150,224
|
|
Deposits
and payments for station
purchases and other assets
|
|
|
—
|
|
|
|
161
|
|
|
|
—
|
|
|
|
161
|
|
Net
cash flows provided from
investing activities
|
|
|
—
|
|
|
|
69,870
|
|
|
|
5,007
|
|
|
|
74,877
|
|
CASH
FLOWS FROM FINANCING
ACTIVITIES:
|
—
|
|||||||||||||||
Repayment
of other
debt
|
|
|
—
|
|
|
|
(987
|
)
|
|
|
—
|
|
|
|
(987
|
)
|
Repayment
of credit
facility
|
|
|
—
|
|
|
|
(150,909
|
)
|
|
|
—
|
|
|
|
(150,909
|
)
|
Proceeds
from credit
facility
|
|
|
—
|
|
|
|
79,000
|
|
|
|
—
|
|
|
|
79,000
|
|
Repurchase
of common
stock
|
|
|
—
|
|
|
|
(2,775
|
)
|
|
|
—
|
|
|
|
(2,775
|
)
|
Payment
of dividend to minority
interest shareholders
|
|
|
—
|
|
|
|
(3,916
|
)
|
|
|
—
|
|
|
|
(3,916
|
)
|
Net
cash flows used in financing
activities
|
|
|
—
|
|
|
|
(79,587
|
)
|
|
|
—
|
|
|
|
(79,587
|
)
|
INCREASE
(DECREASE) IN CASH AND
CASH EQUIVALENTS
|
|
|
1,468
|
|
|
|
(15,034
|
)
|
|
|
—
|
|
|
|
(13,566
|
)
|
CASH
AND CASH EQUIVALENTS,
beginning of period
|
|
|
822
|
|
|
|
23,425
|
|
|
|
—
|
|
|
|
24,247
|
|
CASH
AND CASH EQUIVALENTS, end of
period
|
|
$
|
2,290
|
|
|
$
|
8,391
|
|
|
$
|
—
|
|
|
$
|
10,681
|
|
The
accompanying notes are an
integral part of these consolidated financial
statements.
|
30
RADIO
ONE, INC. AND
SUBSIDIARIES
|
||||||||||||||||
CONSOLIDATING
STATEMENT OF CASH
FLOWS
|
||||||||||||||||
FOR THE
SIX MONTHS
ENDED JUNE
30,
2007
|
||||||||||||||||
|
Combined
|
|
||||||||||||||
|
Guarantor
|
|
|
Radio
|
|
|||||||||||
|
Subsidiaries
|
|
|
One,
Inc.
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|||||
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|||||||
(As
Adjusted – See Note
1)
|
||||||||||||||||
|
(In
thousands)
|
|||||||||||||||
CASH
FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||||||||||
Net
income
(loss)
|
|
$
|
12,305
|
|
|
$
|
(8,053
|
)
|
|
$
|
(12,305
|
)
|
|
$
|
(8,053
|
)
|
Adjustments
to reconcile net
income (loss) to net cash from operating
activities:
|
||||||||||||||||
Depreciation
and
amortization
|
|
|
2,982
|
|
|
|
4,401
|
|
|
|
|
|
|
7,383
|
|
|
Amortization
of debt financing
costs
|
|
|
—
|
|
|
|
1,069
|
|
|
|
—
|
|
|
|
1,069
|
|
Amortization
of production
content
|
|
|
—
|
|
|
|
332
|
|
|
|
—
|
|
|
|
332
|
|
Deferred
income
taxes
|
|
|
—
|
|
|
|
(6,983
|
)
|
|
|
—
|
|
|
|
(6,983
|
)
|
Impairment
of long-lived
assets
|
|
|
5,506
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,506
|
|
Equity
in loss of affiliated
company
|
|
|
—
|
|
|
|
7,306
|
|
|
|
—
|
|
|
|
7,306
|
|
Minority
interest in income of
subsidiaries
|
|
|
—
|
|
|
|
1,825
|
|
|
|
—
|
|
|
|
1,825
|
|
Stock-based
compensation and other
non-cash compensation
|
|
|
410
|
|
|
|
1,539
|
|
|
|
—
|
|
|
|
1,949
|
|
Amortization
of contract
inducement and termination fee
|
|
|
(906
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(906
|
)
|
Change
in interest due on stock
subscription receivable
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
(39
|
)
|
Effect
of change in operating
assets and liabilities, net of assets acquired:
|
||||||||||||||||
Trade
accounts receivable,
net
|
|
|
(2,468
|
)
|
|
|
646
|
|
|
|
—
|
|
|
|
(1,822
|
)
|
Prepaid
expenses and other current
assets
|
|
|
(414
|
)
|
|
|
(1,273
|
)
|
|
|
—
|
|
|
|
(1,687
|
)
|
Income
tax
receivable
|
|
|
—
|
|
|
|
1,296
|
|
|
|
—
|
|
|
|
1,296
|
|
Other
assets
|
|
|
39
|
|
|
|
(1,634
|
)
|
|
|
—
|
|
|
|
(1,595
|
)
|
Due
to corporate/from
subsidiaries
|
|
|
(32,265
|
)
|
|
|
32,265
|
|
|
|
—
|
|
|
|
—
|
|
Accounts
payable
|
|
|
(232
|
)
|
|
|
(6,090
|
)
|
|
|
—
|
|
|
|
(6,322
|
)
|
Accrued
interest
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
(31
|
)
|
Accrued
compensation and related
benefits
|
|
|
(448
|
)
|
|
|
146
|
|
|
|
—
|
|
|
|
(302
|
)
|
Income
taxes
payable
|
|
|
—
|
|
|
|
538
|
|
|
|
—
|
|
|
|
538
|
|
Other
liabilities
|
|
|
127
|
|
|
|
1,475
|
|
|
|
—
|
|
|
|
1,602
|
|
Net
cash provided from (used in)
operating activities from discontinued operations
|
|
|
15,376
|
|
|
|
(1,560
|
)
|
|
|
—
|
|
|
|
13,816
|
|
Net
cash flows provided from (used
in) operating activities
|
|
|
12
|
|
|
|
27,175
|
|
|
|
(12,305
|
)
|
|
|
14,882
|
|
CASH
FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||||||
Purchase
of property and
equipment
|
|
|
—
|
|
|
|
(3,879
|
)
|
|
|
—
|
|
|
|
(3,879
|
)
|
Equity
investments
|
|
|
—
|
|
|
|
(10,714
|
)
|
|
|
—
|
|
|
|
(10,714
|
)
|
Investment
in
subsidiaries
|
|
|
—
|
|
|
|
(12,305
|
)
|
|
|
12,305
|
|
|
|
—
|
|
Purchase
of other intangible
assets
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
(80
|
)
|
Deposits
and payments for station
purchases and other assets
|
|
|
—
|
|
|
|
(3,668
|
)
|
|
|
—
|
|
|
|
(3,668
|
)
|
Net
cash flows used (in from)
provided from investing activities
|
|
|
—
|
|
|
|
(30,646
|
)
|
|
|
12,305
|
|
|
|
(18,341
|
)
|
CASH
FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||||||||||
Repayment
of credit
facility
|
—
|
(27 | ) |
—
|
(27 | ) | ||||||||||
Payment
of dividend to minority
interest shareholders
|
|
|
—
|
|
|
|
(2,940
|
)
|
|
|
—
|
|
|
|
(2,940
|
)
|
Net
cash flows used in financing
activities
|
|
|
—
|
|
|
|
(2,967
|
)
|
|
|
—
|
|
|
|
(2,967
|
)
|
INCREASE
(DECREASE) IN CASH AND
CASH EQUIVALENTS
|
|
|
12
|
|
|
|
(6,438
|
)
|
|
|
—
|
|
|
|
(6,426
|
)
|
CASH
AND CASH EQUIVALENTS,
beginning of period
|
|
|
884
|
|
|
|
31,522
|
|
|
|
—
|
|
|
|
32,406
|
|
CASH
AND CASH EQUIVALENTS, end of
period
|
|
$
|
896
|
|
|
$
|
25,084
|
|
|
$
|
—
|
|
|
$
|
25,980
|
|
The
accompanying notes are an
integral part of these consolidated financial
statements.
|
31
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results
of
Operations
The
following information should be
read in conjunction with “Selected Financial Data” and the Consolidated
Financial
Statements and Notes thereto included elsewhere in this report and
the audited
financial statements and Management’s Discussion and Analysis contained
in our Annual
Report on Form 10-K for the year ended December 31,
2007.
Introduction
Revenue
We
primarily derive revenue from the
sale of advertising time and program sponsorships to local and national
advertisers. Advertising revenue is affected primarily by the advertising rates
our radio stations and programs are able to charge, as well as the overall
demand for radio advertising time in a market. These rates are largely based
upon a radio station’s audience share in the demographic groups targeted by
advertisers, the size of the market, the number of radio stations in the related
market, and the supply of and demand for radio advertising time. Advertising
rates are generally highest during morning and afternoon commuting
hours.
During
the three and six months
ended June 30,
2008, approximately 58.7%
and
58.8% of our net revenue was
generated from
local advertising and approximately 35.7%
and
35.9% was generated from national
advertising,
including network advertising. In comparison, during the three months
and six months ended
June
30,
2007, approximately 59.4%
and
58.5% of our net revenue was
generated from
local advertising and approximately 36.5%
and
37.4% was generated from national
advertising,
including network advertising. National advertising also includes advertising
revenue generated from Giant Magazine. The balance of revenue was generated
from
tower rental income, ticket sales and revenue related to our sponsored events,
management fees, magazine subscriptions, newsstand revenue and other
revenue.
In
the broadcasting industry, radio
stations often utilize trade or barter agreements to reduce cash expenses by
exchanging advertising time for goods or services. In order to maximize cash
revenue from our spot inventory, we closely monitor the use of trade and barter
agreements.
Community
Connect Inc. (“CCI”), which the Company acquired in April 2008, currently
generates the majority of the Company’s internet revenue, and derives such
revenue principally from advertising services, including diversity recruiting.
Advertising services include the sale of banner and sponsorship
advertisements. Advertising revenue is recognized either as
impressions (the number of times advertisements appear in viewed pages) are
delivered, when “click through” purchases or leads are reported, or ratably over
the contract period, where applicable. CCI has a diversity recruiting agreement
with Monster, Inc. (“Monster”). Under the agreement, Monster posts
job listings and advertising on CCI websites and CCI earns revenue for
displaying the images on its websites.
Expenses
Our
significant broadcast expenses are
(i) employee salaries and commissions, (ii) programming expenses,
(iii) marketing and promotional expenses, (iv) rental of premises for
office facilities and studios, (v) rental of transmission tower space and
(vi) music license royalty fees. We strive to control these expenses by
centralizing certain functions such as finance, accounting, legal, human
resources and management information systems and the overall programming
management function. We also use our multiple stations, market presence and
purchasing power to negotiate favorable rates with certain vendors and national
representative selling agencies.
We
generally incur marketing and
promotional expenses to increase our audiences. However, because Arbitron
reports ratings quarterly, except in our Philadelphia and
Houston
markets,
which
have monthly reports ratings, any
changed ratings and the effect on advertising revenue tends to lag behind the
incurrence of advertising and promotional expenditures.
In
addition to salaries and commissions,
major expenses for our internet business include membership traffic acquisition
costs, software product design, post application software development and
maintenance, database and server support costs, the help desk function, data
center expenses connected with Internet Service Provider (“ISP”) hosting
services and other internet content delivery expenses. Major expenses for our
publishing business include salaries, commissions, and costs associated with
printing, production and circulation of magazine issues.
Measurement
of Performance
We
monitor and evaluate the growth and
operational performance of our business using net income and the following
key
metrics:
(a) Net
revenue: The
performance of an individual radio station or group of radio stations in a
particular market is customarily measured by its ability to generate net
revenue. Net revenue consists of gross revenue, net of local and national agency
and outside sales representative commissions consistent with industry practice.
Net revenue is recognized in the period in which advertisements are broadcast
or, in the case of Giant Magazine, the month in which a particular issue is
available for sale. Net revenue also includes advertising aired in exchange
for
goods and services, which is recorded at fair value, revenue from sponsored
events and other revenue. Net revenue for CCI is recognized
as impressions are delivered, as “click throughs” are reported or ratably over
contract periods, where applicable.
(b) Station
operating
income: Net
(loss) income before depreciation and amortization, income taxes, interest
income, interest expense, equity in loss of affiliated company, minority
interest in income of subsidiaries, other (income) expense,
corporate expenses and
stock-based compensation expenses, impairment of long-lived
assets
and loss from discontinued
operations, net of tax, is commonly referred to in our industry as station
operating income. Station operating income is not a measure of financial
performance under generally accepted accounting principles. Nevertheless, we
believe station operating income is often a useful measure of a broadcasting
company’s operating performance and is a significant basis used by our
management to measure the operating performance of our stations within the
various markets. Station operating income provides helpful information about
our
results of operations, apart from expenses associated with our physical plant,
income taxes provision, investments, impairment charges, debt
financings, overhead and non-cash
compensation. Station operating income is frequently used as a basis for
comparing businesses in our industry, although our measure of station operating
income may not be comparable to similarly titled measures of other companies.
Station operating income does not represent operating loss or cash flow from
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to those
measurements as an indicator of our performance.
(c) Station
operating
income margin: Station operating income
margin represents station operating income as a percentage of net revenue.
Station operating income margin is not a measure of financial performance under
generally accepted accounting principles. Nevertheless, we believe that station
operating income margin is a useful measure of our performance because it
provides helpful information about our profitability as a percentage of our
net
revenue.
32
Summary
of Performance
The
tables below provide a summary of
our performance based on the metrics described above:
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(In
thousands, except margin data)
|
||||||||||||||||
Net revenue
|
$
|
83,432
|
$
|
82,620
|
$
|
155,930
|
$
|
156,660
|
||||||||
Station
operating income
|
35,179
|
39,310
|
64,127
|
73,412
|
||||||||||||
Station
operating income margin
|
42.2
|
%
|
47.6
|
%
|
41.1
|
%
|
46.9
|
%
|
||||||||
Net
loss
|
$
|
(11,676
|
)
|
$
|
(5,071
|
)
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
The
reconciliation of net loss to
station operating income is as follows:
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Net
loss as reported
|
$
|
(11,676
|
)
|
$
|
(5,071
|
)
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
||||
Add
back non-station operating
income items included in net loss:
|
||||||||||||||||
Interest
income
|
(130
|
)
|
(294
|
)
|
(331
|
)
|
(561
|
)
|
||||||||
Interest
expense
|
15,160
|
18,577
|
32,419
|
36,647
|
||||||||||||
Provision
(benefit) for income taxes
|
9,761
|
(801
|
)
|
18,659
|
651
|
|||||||||||
Corporate
selling, general and
administrative, excluding non-cash and stock-based
compensation
|
17,551
|
8,110
|
23,958
|
15,660
|
||||||||||||
Stock-based
compensation
|
629
|
777
|
957
|
1,592
|
||||||||||||
Equity
in (income) loss of affiliated company
|
(29
|
)
|
3,088
|
2,799
|
7,306
|
|||||||||||
Gain
on retirement of debt
|
(1,015
|
)
|
—
|
(1,015
|
)
|
—
|
||||||||||
Other
expense, net
|
33
|
—
|
44
|
8
|
||||||||||||
Depreciation
and amortization
|
5,171
|
3,667
|
8,835
|
7,383
|
||||||||||||
Minority
interest in income of subsidiaries
|
1,058
|
919
|
1,881
|
1,825
|
||||||||||||
Impairment
of long-lived assets
|
—
|
5,506
|
—
|
5,506
|
||||||||||||
(Income)
loss from
discontinued operations, net of tax
|
(1,334
|
)
|
4,832
|
6,447
|
5,448
|
|||||||||||
Station
operating income
|
$
|
35,179
|
$
|
39,310
|
$
|
64,127
|
$
|
73,412
|
33
RADIO
ONE, INC. AND SUBSIDIARIES
RESULTS
OF OPERATIONS
The
following table summarizes our historical consolidated results of
operations:
Three
Months Ended June 30, 2008
Compared to Three Months Ended June 30, 2007 (In thousands)
Three
Months Ended June 30,
|
||||||||||||||
2008
|
2007
(1) (2)
|
Increase/(Decrease)
|
||||||||||||
(Unaudited)
|
||||||||||||||
Statements
of Operations:
|
||||||||||||||
Net
revenue
|
$
|
83,432
|
$
|
82,620
|
$
|
812
|
1.0
|
%
|
||||||
Operating
expenses:
|
||||||||||||||
Programming
and technical, excluding stock-based compensation
|
20,764
|
17,844
|
2,920
|
16.4
|
||||||||||
Selling,
general and administrative, excluding stock-based
compensation
|
27,489
|
25,466
|
2,023
|
7.9
|
||||||||||
Corporate
selling, general and administrative, excluding stock-based
compensation
|
17,551
|
8,110
|
9,441
|
116.4
|
||||||||||
Stock-based
compensation
|
629
|
777
|
(148
|
) |
(19.0
|
)
|
||||||||
Depreciation
and amortization
|
5,171
|
3,667
|
1,504
|
41.0
|
||||||||||
Impairment
of long-lived assets
|
—
|
5,506
|
(5,506
|
) |
(100.0
|
)
|
||||||||
Total
operating expenses
|
71,604
|
61,370
|
10,234
|
16.7
|
||||||||||
Operating
income
|
11,828
|
21,250
|
(9,422
|
) |
(44.3
|
)
|
||||||||
Interest
income
|
130
|
294
|
(164
|
) |
(55.8
|
)
|
||||||||
Interest
expense
|
15,160
|
18,577
|
(3,417
|
) |
(18.4
|
)
|
||||||||
Gain
on retirement of debt
|
1,015
|
—
|
1,015
|
—
|
||||||||||
Equity
in (income) loss of affiliated company
|
(29
|
)
|
3,088
|
(3,117
|
) |
(100.9
|
)
|
|||||||
Other
expense, net
|
(33
|
)
|
—
|
(33
|
) |
—
|
||||||||
Loss
before provision/(benefit) for income taxes, minority interest in
income
of subsidiaries and discontinued operations
|
(2,191
|
)
|
(121
|
)
|
(2,070
|
) |
(1,710.7
|
)
|
||||||
Provision/(benefit)
for income taxes
|
9,761
|
(801
|
)
|
10,562
|
1,318.6
|
|||||||||
Minority
interest in income of subsidiaries
|
1,058
|
919
|
139
|
15.1
|
||||||||||
Net
loss from continuing operations
|
(13,010
|
)
|
(239
|
)
|
(12,771
|
) |
(5,343.5
|
)
|
||||||
Income
(loss) from discontinued operations, net of tax
|
1,334
|
(4,832
|
)
|
6,166
|
127.6
|
|||||||||
Net
loss
|
$
|
(11,676
|
)
|
$
|
(5,071
|
)
|
$
|
(6,605
|
) |
(130.3
|
)%
|
(1) |
Certain
reclassifications associated with
accounting for discontinued operations have been made to the accompanying
prior period financial statements to conform to the current period
presentation. These reclassifications had no effect on previously
reported net income or loss, or any other previously reported statements
of operations, balance sheet or cash flow amounts.
|
|
(2) |
During the second
quarter of
2008, Radio One was advised that prior period financial statements
of TV
One, LLC (“TV One”), an affiliate accounted for under the equity method,
had been restated to correct certain errors that affected the reported
amount of members’ equity and liabilities. These restatement
adjustments had a corresponding effect on the Company’s share of the
earnings of TV One reported in prior periods. We have adjusted
certain previously reported amounts in the accompanying 2007 interim
consolidated financial statements.
|
Net
revenue
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|||
$83,432
|
$82,620
|
$812
|
1.0%
|
During
the three months ended June 30,
2008, we recognized approximately $83.4 million in net revenue compared to
approximately $82.6 million during the same period in 2007. These amounts are
net of agency and outside sales representative commissions, which were
approximately $9.4 million during the three months ended 2008, compared to
approximately $9.9 million during the same period in 2007. The increase in
net
revenue was due primarily to approximately $3.6 million in net revenue generated
by CCI, an online social networking company, which was acquired by the Company
in April 2008. While the Company’s total radio net revenue performance
outperformed that of the markets in which we operate,
nonetheless, we experienced a decrease
in net revenue consistent with the overall radio industry revenue decline,
with
a significant fall off of national revenue driving almost the entire decline.
On
a per market basis, we experienced considerable revenue declines in our
Houston and
Atlanta
markets,
and more modest declines in our
Detroit,
Cincinnati
and Washington,
DC markets.
These declines were offset in
part from increases in net revenue in our Indianapolis and
Raleigh-Durham markets, increases in
net revenue from new syndicated programs, increased internet revenue
from our station websites
and increased political
advertising revenue.
Reach Media had a decline in
net revenue due to TV licensing revenue generated in the prior year’s second
quarter, which did not reoccur in the current second quarter. Excluding the
approximately $3.6 million generated by CCI, net revenue declined 3.4% for
the
three months ended June 30, 2008, compared to the same period in
2007.
34
Operating
Expenses
Programming
and technical, excluding stock-based
compensation
|
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$20,764
|
$17,844
|
$2,920
|
16.4%
|
Programming
and technical expenses
include expenses associated with on-air talent and the management and
maintenance of the systems, tower facilities, and studios used in the creation,
distribution and broadcast of programming content on our radio stations.
Programming and technical expenses for radio also include expenses associated
with our programming research activities and music royalties. Expenses
associated with the printing and publication of Giant Magazine issues are also
included in programming and technical. For our internet business, programming
and technical expenses include software product design, post-application
software development and
maintenance, database and server support costs, the help desk function, data
center expenses connected with ISP hosting services and other internet content
delivery expenses. Increased programming and technical expenses were primarily
due to approximately $1.7 million in spending by CCI, which was acquired in
April 2008. Programming and technical expenses also increased $581,000 due
to
costs associated with other internet initiatives, including the launch
of three
new
internet sites during the second
quarter. Related to our radio business, additional programming and technical
spending was also driven by additional compensation, higher on-air talent
expenses, mostly for our new syndicated radio shows and music royalties. The
increased radio programming and technical expenses were offset in part from
savings in research and travel and entertainment. Excluding approximately $2.2
million spending for our internet initiative and CCI’s
expenses, programming and
technical expenses increased 3.8% for the three months ended June 30, 2008,
compared to the same period in 2007.
Selling,
general and administrative, excluding stock-based compensation
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$27,489
|
$25,466
|
$2,023
|
7.9%
|
Selling,
general and administrative
expenses include expenses associated with our sales departments, offices and
facilities and personnel (outside of our corporate headquarters), marketing
and
promotional expenses, special events and sponsorships and back office expenses.
Expenses to secure ratings data for our radio stations and visitors’ data for
our websites are also included in selling, general and administrative expenses.
In addition, selling, general and administrative expenses for radio and internet
also include expenses related to the advertising traffic (scheduling and
insertion) functions. Selling, general and administrative expenses also include
membership traffic acquisition costs for our online business. Increased selling,
general and administrative expenses were primarily due to approximately $1.8
million in spending by CCI, which was acquired in April 2008. Another
approximately $1.5 million increase was due to additional spending on our
internet initiative, which includes $550,000 for costs associated with a certain
membership traffic agreement. Increases in selling, general and administrative
expenses for our radio business were driven by higher ratings research
associated with a new contract with Arbitron and its new
portable people meter (“PPM”)
methodology. These increases were offset partially from savings associated
with
less promotional spending, reduced travel and entertainment, savings from the
suspension of our 401(k) match program, less commissions and national
representative fees and fewer sponsored events. Excluding the approximately
$3.3
million in spending on our internet initiative and CCI’s spending, selling,
general and administrative expenses decreased 4.7% for the three months ended
June 30, 2008, compared to the same period in 2007.
Corporate
selling, general and administrative, excluding stock-based
compensation
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$17,551
|
$8,110
|
$9,441
|
116.4%
|
Corporate
selling, general and
administrative expenses consist of expenses associated with maintaining our
corporate headquarters and facilities, including personnel. Increased corporate
selling, general and administrative expenses were primarily due to compensation
costs associated with new employment agreements for the Company’s Chief
Executive Officer (“CEO”) and the Founder
and Chairperson. Specifically,
the increased compensation included approximately $10.4 million
in bonuses for the CEO, of which
approximately $5.8 million was for a signing and a “make whole” bonus paid, and
another approximately $4.6
million
was recorded, but not paid, for
a bonus associated with potential distribution proceeds from the Company’s
investment in TV One. Additional corporate selling, general and
administrative expenses
resulted
from compensation
for recent hires and increased severance expenses. These increased expenses
were
offset in part by the absence of approximately $1.7 million in spending for
legal and professional fees incurred last year in association with the voluntary
review of our historical stock option grant practices, savings from the
suspension of our 401(k) match program, reduced travel and entertainment,
reduced contract labor and less expense associated with officer retention
bonuses. Excluding last year’s spending of approximately $1.7 million for last
year’s stock options review, corporate selling, general and administrative
expenses increased 137.1%
for the three months ended June 30,
2008, compared to the same period in 2007. Excluding both the approximately
$1.7
million for last year’s stock options review, and the CEO’s bonuses associated
with his new employment agreement, corporate selling, general and administrative
expenses increased 12.0%
for the three months ended June 30,
2008, compared to the same period in 2007.
Stock-based
compensation
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$629
|
$777
|
$(148)
|
(19.0)%
|
Stock-based
compensation consists of
expenses associated with our January 1, 2006 adoption of Statement of
Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based
Payment.” SFAS No. 123(R)
eliminated accounting for share-based payments based on Accounting Principles
Board (“APB”) Opinion No. 25,“Accounting
for
Stock Issued to Employees,” and requires measurement
of
compensation cost for all stock-based awards at fair value on date of grant
and
recognition of compensation over the service period for awards expected to
vest.
The decrease in stock-based compensation for the three months ended June 30,
2008 was primarily due to cancellations, forfeitures and the completion of
the
vesting period for certain stock options. The decrease was offset in part due
to
expense for additional restricted stock grants associated with new employment
agreements for the CEO, the
Founder
and Chairperson and
the Chief
Financial Officer (“CFO”).
35
Depreciation
and amortization
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$5,171
|
$3,667
|
$1,504
|
41.0%
|
The
increase in depreciation and
amortization expense for the three months ended June 30, 2008 was due primarily
to the acquisition
of
CCI, which occurred in
April 2008, and which accounted for almost all of the approximately $1.5
million increase.
Approximately $971,000 of the
increase attributable to CCI is driven by amortization of assets acquired as
part of the CCI purchase, mainly registered membership lists, advertiser
relationships and a favorable office space sublease. Additional depreciation
and
amortization expense for capital expenditures made subsequent to June 30, 2007
were equally offset by a decline in amortization expense associated with certain
affiliate agreements acquired as part of our purchase of 51% of Reach Media
in 2005.
Impairment
of long-lived assets
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$—
|
$5,506
|
$(5,506)
|
(100.0)%
|
The
decrease in impairment of long-lived assets for the three months ended
June 30, 2008 was related to a one-time, non-cash charge recorded last
second quarter for the impairment of goodwill and the radio broadcasting license
for our WILD-AM station in the Boston market.
Interest
income
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$130
|
$294
|
$(164)
|
(55.8)%
|
The
decrease in interest income for the
three months ended June 30, 2008 was due primarily to lower cash balances,
cash equivalents and short-term investments and a decline in interest
rates.
Interest
expense
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$15,160
|
$18,577
|
$(3,417)
|
(18.4)%
|
The
decrease in interest expense for the
three months ended June 30, 2008 was due primarily to a decline in interest
expense associated with debt pay downs, resulting in overall lower borrowings
and lower interest rates which impacted the variable portion of our debt.
Interest expense was further reduced as there were less
fees incurred with the operation of
WPRS-FM (formerly WXGG-FM) pursuant to a local marketing agreement
(“LMA”),
which began in April 2007. We closed
on the purchase of the assets of WPRS-FM in June 2008 for approximately $38.0
million in cash.
Gain
on retirement of debt
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$1,015
|
$—
|
$1,015
|
—
|
The
gain on retirement of debt for the
three months
ended June 30, 2008 was due to
the repurchase of
$8.0 million of the Company’s
previously outstanding $300.0 million 87/8 senior
subordinated notes. An amount of
$292.0 million remains outstanding as of June 30, 2008.
36
Equity
in (income) loss of affiliated company
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$(29)
|
$3,088
|
$(3,117)
|
(100.9)%
|
Equity
in (income) loss
of affiliated company primarily
reflects our estimated equity in the net (income) loss
of TV One. The income for
the three months ended June 30, 2008
was due primarily to a
small
net income generated
by TV One, thus contributing
to our share of this income. The
Company’s share of
this income
is
driven by TV One’s current capital
structure and the Company’s ownership of the
equity securities of TV One that are
currently allocated to
its
net income. An
adjustment was made to equity
in (income) loss of affiliated company for the quarter ended June 30, 2007
to
correct for a change in TV One’s
capital structure. Pursuant to Staff Accounting Bulletin (“SAB”) 99,
“Materiality”
and
SAB 108 “Considering
the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements,”
we decreased the previously
reported equity in loss of affiliated
company for the three month period
ended June 30, 2007 by approximately $1.2 million.
Provision
(benefit) for income taxes
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$9,761
|
$(801)
|
$10,562
|
1,318.6%
|
During
the three months ended June 30,
2008, the provision for income taxes increased to approximately $9.8 million
from a tax benefit of $801,000 for the same period in 2007. In prior years,
we
recorded a deferred tax liability (“DTL”) related to the amortization of
indefinite-lived assets that are deducted for tax purposes, but not deducted
for
book purposes. Also in prior years, the Company generated deferred tax assets
(“DTAs”), mainly federal and state net operating loss (“NOLs”) carryforwards. In
the fourth quarter of 2007, except for DTAs in its historically profitable
filing jurisdictions, and DTAs associated with definite-lived assets, the
Company recorded a full valuation allowance for all other DTAs, including NOLs,
as it was determined that more likely than not, the DTAs would not be realized.
As a result, approximately $8.5 million of the increase in the provision for
income taxes is due primarily to recording a full valuation allowance against
the additional NOLs generated from the tax deductible amortization of
indefinite-lived assets for the three months ended June 30, 2008.
Minority
interest in income of subsidiaries
Three
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$1,058
|
$919
|
$139
|
15.1%
|
The
increase in minority interest in
income of subsidiaries is due primarily to an increase in Reach Media’s net
income for the three months ended June 30, 2008 compared to the same period
in
2007.
Income
(loss) from discontinued operations, net of tax
Three
Months Ended June
30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|||
$1,334
|
$(4,832)
|
$6,166
|
127.6%
|
The
income
(loss)
from
discontinued operations, net of
tax, resulted
from the April 2008 closing on
the sale of the assets of radio station WMCU-AM (formerly WTPS-AM), located
in
the Miami metropolitan
area. This compares to a
loss from discontinued operations, net of tax, for
the three months ended June 30,
2007, which resulted from entering into definitive agreements to sell the assets
of our Los Angeles, Augusta, Louisville, Dayton, Minneapolis and Boston WILD-FM
stations, and approximately $10.4 million in impairment charges that were
recorded in last year’s second quarter based on the sale prices
of those agreements. The
income (loss)
from discontinued operations, net
of tax, also
includes a tax provision of
$351,000
for the three months ended June 30,
2008, compared to a tax benefit of approximately $4.7 million for the same
period in 2007.
37
RADIO
ONE, INC. AND SUBSIDIARIES
RESULTS
OF OPERATIONS
The
following table summarizes our historical consolidated results of
operations:
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
(In thousands)
Six
Months Ended June 30,
|
||||||||||||||||
2008
|
2007
(1) (2)
|
Increase/(Decrease)
|
||||||||||||||
(Unaudited)
|
||||||||||||||||
|
||||||||||||||||
Statements
of Operations:
|
||||||||||||||||
Net
revenue
|
$
|
155,930
|
$
|
156,660
|
$
|
(730
|
)
|
(0.5
|
)%
|
|||||||
Operating
expenses:
|
||||||||||||||||
Programming
and technical, excluding stock-based compensation
|
39,796
|
35,914
|
3,882
|
10.8
|
||||||||||||
Selling,
general and administrative, excluding stock-based
compensation
|
52,007
|
47,334
|
4,673
|
9.9
|
||||||||||||
Corporate
selling, general and administrative, excluding stock-based
compensation
|
23,958
|
15,660
|
8,298
|
53.0
|
||||||||||||
Stock-based
compensation
|
957
|
1,592
|
(635
|
)
|
(39.9
|
)
|
||||||||||
Depreciation
and amortization
|
8,835
|
7,383
|
1,452
|
19.7
|
||||||||||||
Impairment
of long-lived assets
|
—
|
5,506
|
(5,506
|
)
|
(100.0
|
)
|
||||||||||
Total
operating expenses
|
125,553
|
113,389
|
12,164
|
10.7
|
||||||||||||
Operating
income
|
30,377
|
43,271
|
(12,894
|
)
|
(29.8
|
)
|
||||||||||
Interest
income
|
331
|
561
|
(230
|
)
|
(41.0
|
)
|
||||||||||
Interest
expense
|
32,419
|
36,647
|
(4,228
|
)
|
(11.5
|
)
|
||||||||||
Gain
on retirement of debt
|
1,015
|
—
|
1,015
|
—
|
||||||||||||
Equity
in loss of affiliated company
|
2,799
|
7,306
|
(4,507
|
)
|
(61.7
|
)
|
||||||||||
Other expense,
net
|
(44
|
)
|
(8
|
)
|
(36
|
)
|
(450.0
|
)
|
||||||||
Loss
before provision for income taxes, minority interest in income of
subsidiaries and discontinued operations
|
(3,539
|
)
|
(129
|
)
|
(3,410
|
)
|
(2,643.4
|
)
|
||||||||
Provision
for income taxes
|
18,659
|
651
|
18,008
|
2,766.2
|
||||||||||||
Minority
interest in income of subsidiaries
|
1,881
|
1,825
|
56
|
3.1
|
||||||||||||
Net
loss from continuing operations
|
(24,079
|
)
|
(2,605
|
)
|
(21,474
|
)
|
(824.3
|
)
|
||||||||
Loss from
discontinued operations, net of tax
|
(6,447
|
)
|
(5,448
|
)
|
(999
|
)
|
(18.3
|
)
|
||||||||
Net
loss
|
$
|
(30,526
|
)
|
$
|
(8,053
|
)
|
$
|
(22,473
|
)
|
(279.1
|
)%
|
(1) |
Certain
reclassifications associated with
accounting for discontinued operations have been made to the
accompanying
prior period financial statements to conform to the current period
presentation. These reclassifications had no effect on previously
reported net income or loss, or any other previously reported
statements
of operations, balance sheet or cash flow amounts.
|
|
(2) | During the second quarter of 2008, Radio One was advised that prior period financial statements of TV One, LLC (“TV One”), an affiliate accounted for under the equity method, had been restated to correct certain errors that affected the reported amount of members’ equity and liabilities. These restatement adjustments had a corresponding effect on the Company’s share of the earnings of TV One reported in prior periods. We have adjusted certain previously reported amounts in the accompanying 2007 interim consolidated financial statements. |
Net
revenue
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$155,930
|
$156,660
|
$(730)
|
(0.5)%
|
During
the six months ended June 30, 2008, we recognized approximately $155.9
million in net revenue compared to approximately $156.7 million during the
same
period in 2007. These amounts are net of agency and outside sales representative
commissions, which were approximately $17.3 million during the six months
ended 2008, compared to approximately $18.1 million during the same period
in 2007. Net
revenue included
approximately $3.6 million in net
revenue generated by CCI which was acquired by the Company in April 2008. While
the Company’s total radio net revenue performance outperformed that of the
markets in which we operate,
nonetheless, we experienced a decrease
in net revenue consistent with the overall radio industry revenue decline,
with
a significant fall off of national revenue driving almost the entire decline.
On
a per market basis, we experienced considerable revenue declines in our
Houston,
Atlanta
and Detroit
markets, and more modest declines in
our Dallas
and Cincinnati
markets. These declines were offset in
part from increases in net revenue in our Indianapolis
market, increases in net revenue
from a
certain special event, revenue from
new syndicated programs, increased internet revenue from our station websites
and increased political advertising revenue.
Reach Media had a decline in
net revenue due to
its cancelled
TV shows,
the absence of TV licensing revenue
and the discontinuation of certain sponsored events. Excluding the approximately
$3.6 million generated by CCI, net revenue declined 2.8% for the six months
ended June 30, 2008, compared to the same period in 2007.
38
Operating
Expenses
Programming
and technical, excluding stock-based compensation
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$39,796
|
$35,914
|
$3,882
|
10.8%
|
Programming
and technical expenses
include expenses associated with on-air talent and the management and
maintenance of the systems, tower facilities, and studios used in the creation,
distribution and broadcast of programming content on our radio stations.
Programming and technical expenses for radio also include expenses associated
with our programming research activities and music royalties. Expenses
associated with the printing and publication of Giant Magazine issues are also
included in programming and technical. For our internet business, programming
and technical expenses include software product design, post-application
software development and
maintenance, database and server support costs, the help desk function, data
center expenses connected with ISP hosting services and other internet content
delivery expenses. Increased programming and technical expenses were primarily
due to approximately $1.7 million in spending by CCI, which was acquired in
April 2008 and approximately
$1.0 million for our
internet initiative, which launched three new
sites during the second quarter.
Increased programming and technical expenses for
our radio business was driven
primarily by additional compensation, higher on-air talent expenses, mostly
for
our new syndicated radio shows, and
music royalties. The increased radio
programming and technical expenses were offset in part from savings in research
and travel and entertainment. Excluding approximately $2.6 million
for spending on our internet
initiative, as well as CCI’s expenses, programming and technical expenses
increased 3.4% for the three months ended June 30, 2008, compared to the same
period in 2007.
Selling,
general and administrative, excluding stock-based compensation
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$52,007
|
$47,334
|
$4,673
|
9.9%
|
Selling,
general and administrative
expenses include expenses associated with our sales departments, offices and
facilities and personnel (outside of our corporate headquarters), marketing
and
promotional expenses, special events and sponsorships and back office expenses.
Expenses to secure ratings data for our radio stations and visitors’ data for
our websites are also included in selling, general and administrative expenses.
In addition, selling, general and administrative expenses for radio and internet
include expenses related to the advertising traffic (scheduling and insertion)
functions. Selling, general and administrative expenses also include membership
traffic acquisition costs for our online business. Increased selling, general
and administrative expenses were primarily due to approximately $1.8 million
in
spending by CCI, which was acquired in April 2008. Another approximately $2.3
million increase was due to additional spending on our internet initiative,
which includes $550,000 for costs associated with a membership traffic
agreement. Increases in selling, general and administrative expenses for our
radio business were driven by expenses for a certain large special event held
in
first quarter, increased bad debt expenses and higher ratings research
associated with a new contract with Arbitron and its new
PPM methodology. These increases
were offset partially from savings associated with less promotional spending,
reduced travel and entertainment, savings from the suspension of our 401(k)
match program, less commissions and national representative fees and fewer
other
sponsored events. Excluding approximately $4.1 million in spending for our
internet initiative and CCI’s spending, selling, general and administrative
expenses increased 1.4% for the six months
ended June 30, 2008, compared to
the same period in 2007. Excluding the approximately $4.1 million for
the internet initiative and CCI and approximately $1.9 million for the large
first quarter special event, selling, general and administrative
expenses decreased 2.4% for the six months ended June 30, 2008, compared to
the
same period in 2007.
Corporate
selling, general and administrative, excluding stock-based
compensation
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$23,958
|
$15,660
|
$8,298
|
53.0%
|
Corporate
expenses consist of expenses associated with our corporate headquarters and
facilities, including personnel. The increase in corporate expenses during
the
six months ended June 30, 2008 was primarily due to compensation
costs
associated with new employment agreements for the Company’s CEO and the Founder
and Chairperson. Specifically,
the increased compensation included approximately $10.4
million in bonuses for the CEO, of
which approximately $5.8 million was for a signing and a “make whole” bonus
paid, and another approximately $4.6
million was recorded, but not paid, for
a bonus associated with potential distribution proceeds from the Company’s
investment in TV One. Additional corporate selling, general and
administrative resulted from compensation for recent hires and increased
severance expenses. These increased expenses were offset in part by the absence
of approximately $2.7 million in spending for legal and professional fees
incurred last year in association with the voluntary review of our historical
stock option grant practices, savings from the suspension of our 401(k) match
program, reduced travel and entertainment, reduced contract labor and less
expense associated with officer retention bonuses. Excluding last year’s
spending of approximately $2.7 million for the stock options review, corporate
selling, general and administrative expenses increased 85.2%
for the six months ended June 30,
2008, compared to the same period in 2007. Excluding both the approximately
$2.7
million for last year’s stock options review and the approximately $10.4
million for the CEO’s bonuses
associated with his new employment agreement, corporate selling, general
and administrative expenses increased 5.1% for the six months ended June 30,
2008, compared to the same period in 2007.
Stock-based
compensation
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$957
|
$1,592
|
$(635)
|
(39.9)%
|
Stock-based
compensation consists of expenses associated with SFAS No. 123(R),
“Share-Based Payment,”
which requires measurement
of compensation cost for all stock-based
awards at fair value on date of grant and recognition of compensation expense
over the service period for awards expected to vest. Stock based compensation
also includes expenses associated with restricted stock grants. The decrease in stock-based
compensation
for the six months ended June 30, 2008 was primarily due to cancellations,
forfeitures and the completion of the vesting period for certain stock options.
The decrease was offset in part due to expense for additional restricted stock
grants associated with new employment agreements for the CEO, the Founder
and Chairperson and the CFO.
39
Depreciation
and amortization
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$8,835
|
$7,383
|
$1,452
|
19.7%
|
The
increase in depreciation and
amortization expense for the six months ended June 30, 2008 was due primarily
to
the acquisition
of
CCI, which occurred in
April 2008, and which accounted for almost all of the approximately $1.5
million increase.
Approximately $971,000 of the
increase attributable to CCI is driven by amortization of assets acquired as
part of the CCI purchase, mainly registered membership lists, advertiser
relationships and a favorable office space sublease. Additional depreciation
and
amortization expense for capital expenditures made subsequent to June 30, 2007
were offset by a decline in amortization expense associated with certain
affiliate agreements acquired as part of our purchase of 51% of Reach Media
in 2005.
Impairment
of long-lived assets
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$—
|
$5,506
|
$(5,506)
|
(100.0)%
|
The
decrease in impairment of long-lived assets for the six months ended
June 30, 2008 was related to a one-time, non-cash charge recorded in the
prior year’s second quarter for the impairment of goodwill and the radio
broadcasting license for our WILD-AM station in the Boston market.
Interest
income
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$331
|
$561
|
$(230)
|
(41.0)%
|
The
decrease in interest income for the six months ended June 30, 2008 is
primarily due to lower average cash balances, cash equivalents and short-term
investments and a decline in interest rates.
Interest
expense
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$32,419
|
$36,647
|
$(4,228)
|
(11.5)%
|
The
decrease in interest expense for the
six months ended June 30, 2008 was due primarily to a decline in interest
expense associated with debt pay downs, resulting in overall lower borrowings
and lower interest rates which impacted the variable portion of our debt.
Interest expense was offset in part by higher less fees incurred with the
operation of WPRS-FM (formerly WXGG-FM) pursuant to an LMA,
which began in April 2007. We
closed on the purchase of the assets of WPRS-FM in June 2008 for approximately
$38.0 million in cash.
Gain
on retirement of debt
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$1,015
|
$—
|
$1,015
|
—
|
The
gain on retirement of debt for the
six months ended June 30, 2008 was due to the redemption of $8.0 million of
the
Company’s previously outstanding $300.0 million 87/8 senior
subordinated notes. The remaining balance
outstanding as of
June 30, 2008 is $292.0
million.
40
Equity
in loss of affiliated company
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$2,799
|
$7,306
|
$(4,507)
|
(61.7)%
|
Equity
in loss of affiliated company
primarily reflects our estimated equity in the net loss of TV One. The decreased
loss for the six months ended June 30, 2008 was due primarily to smaller net
losses generated by TV One, thus contributing to a decrease in our share of
those losses. The Company’s share of those losses is driven by TV
One’s current capital structure and the Company’s ownership of the
equity securities of TV One that are
currently absorbing its net losses. An
adjustment was made to equity
in loss of affiliated company for the quarter ended June 30, 2007 to correct for a change in TV One’s capital
structure. Pursuant to SAB 99, “Materiality”
and
SAB 108 “Considering
the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements,”
we increased the previously
reported equity in loss of affiliated
company for the six month period
ended June 30, 2007 by approximately $2.5 million.
Provision
for income taxes
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$18,659
|
$651
|
$18,008
|
2,766.2%
|
During
the six months ended June 30,
2008, the provision for income taxes increased to approximately $18.7 million
from $651,000 for the same period in 2007. In prior years, we recorded a DTL
related to the amortization of indefinite-lived assets that are deducted for
tax
purposes, but not deducted for book purposes. Also in prior years, the Company
generated DTAs, mainly federal and state NOL carryforwards. In the fourth
quarter of 2007, except for DTAs in its historically profitable filing
jurisdictions, and DTAs associated with definite-lived assets, the Company
recorded a full valuation allowance for all other DTAs, including NOLs, as
it
was determined that more likely than not, the DTAs would not be realized. As
a
result, approximately $17.0 million of the increase in the provision for income
taxes is due primarily to recording a full valuation allowance against the
additional NOLs generated from the tax deductible amortization of
indefinite-lived assets for the six months ended June 30,
2008.
Minority
interest in income of subsidiaries
Six
Months Ended June 30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|
||
$1,881
|
$1,825
|
$56
|
3.1%
|
The
increase in minority interest in income of subsidiaries is due to an increase
in
Reach Media’s net income for the six months ended June 30, 2008, compared
to the same period in 2007.
Loss
from discontinued operations, net
of tax
Six
Months Ended June
30,
|
Increase/(Decrease)
|
|||
2008
|
2007
|
|||
$(6,447)
|
$(5,448)
|
$(999)
|
(18.3)%
|
The
loss from discontinued
operations, net of tax,
for
the six months ended
June 30, 2008 resulted from a gain on the April 2008 closing on the sale of
the
assets of radio station WMCU-AM (formerly WTPS-AM), located in the Miami
metropolitan area, which was more than offset by a loss on the May 2008 closing
on the sale of the assets of radio station KRBV-FM, located in the Los
Angeles metropolitan
area. This 2008 loss compares
to a loss from discontinued
operations, net of tax,
for
the six months ended
June 30, 2007, which resulted from entering into definitive agreements to sell
the assets of our Los
Angeles, Augusta,
Louisville,
Dayton,
Minneapolis
and
Boston WILD-FM stations.
Approximately $5.1 million and $10.4 million in impairment charges were recorded
for the six months ended June 30, 2008 and June 30, 2007, respectively, based
on
the sale prices
of those agreements. The loss
from discontinued operations, net of tax, also
includes a tax provision of
approximately $1.2 million for the six months ended June 30, 2008, compared
to a
tax benefit of approximately $5.2 million for the same period in
2007.
41
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary source of liquidity is cash provided by operations and, to the extent
necessary, borrowings available under our credit facilities and other debt
or
equity financing.
In
June 2005, the Company entered into
a credit agreement with a syndicate of banks (the “Credit Agreement”). The
agreement was amended in April 2006 and September 2007 to modify certain
financial covenants and other provisions. The term of the Credit Agreement
is
seven years and the total amount available under the Credit Agreement is
$800.0 million, consisting of a $500.0 million revolving facility and
a $300.0 million term loan facility. Borrowings under the credit facilities
are subject to compliance with certain provisions including but not limited
to
financial covenants. The Company may use proceeds from the credit facilities
for
working capital, capital expenditures made in the ordinary course of business,
its common stock repurchase program, permitted direct and indirect investments
and other lawful corporate purposes. The Credit Agreement contains affirmative
and negative covenants that the Company must comply with, including
(a) maintaining an interest coverage ratio of no less than 1.90 to 1.00
from January 1, 2006 to September 13, 2007, and no less than 1.60 to
1.00 from September 14, 2007 to June 30, 2008, and no less than 1.75 to
1.00 from July 1, 2008 to December 31, 2009, and no less than 2.00 to 1.00
from January 1, 2010 to December 31, 2010, and no less than 2.25 to 1.00
from January 1, 2011 and thereafter, (b) maintaining a total leverage
ratio of no greater than 7.00 to 1.00 beginning April 1, 2006 to September
13, 2007, and no greater than 7.75 to 1.00 beginning September 14, 2007
to March 31, 2008, and no greater than 7.50 to 1.00
beginning April 1, 2008 to September 30, 2008, and no
greater than 7.25 to 1.00 beginning October 1, 2008
to June 30, 2010, and no greater than 6.50 to 1.00
beginning July 1, 2010 to September 30, 2011, and no greater
than 6.00 to 1.00 beginning October 1, 2011 and thereafter,
(c) limitations on liens, (d) limitations on the sale of assets,
(e) limitations on the payment of dividends, and (f) limitations on
mergers, as well as other customary covenants. Simultaneous with entering
into
the Credit Agreement, the Company borrowed $437.5 million to
retire all outstanding obligations under its previous credit agreement.
The
Company was in compliance with all debt covenants as of June 30, 2008. At
the
date of the filing of this Form 10-Q and based on current projections, the
Company's management believes it will be in compliance with all debt
covenants for
the next 12 months. Based
on the fiscal
year end 2007 excess cash flow calculation, the Company made a debt principal
prepayment of approximately $6.0 million in
May
2008.
During
the six months ended June 30, 2008, we borrowed approximately
$79.0 million from our credit facility to fund the acquisitions of CCI and
WPRS-FM (formerly WXGG-FM), and repaid approximately $141.9
million.
As
of June 30, 2008, we had approximately $431.2 million of borrowing
capacity. Taking into consideration the financial covenants under the Credit
Agreement, $105.9 million of that amount is available for borrowing. Both the
term loan and the revolving facilities bear interest, at our option, at a rate
equal to either (i) the London Interbank Offered Rate (“LIBOR”) plus a
spread that ranges from 0.63% to 1.50%, or (ii) the prime rate plus a
spread of up to 0.50%. The amount of the spread varies depending on our leverage
ratio. We also pay a commitment fee that varies depending on certain financial
covenants and the amount of unused commitment, up to a maximum of 0.375% per
annum on the unused commitment of the revolving facility.
The
Credit Agreement requires the Company from time to time to protect ourselves
from interest rate fluctuations using interest rate hedge agreements. As a
result, we have entered into various fixed rate swap agreements designed to
mitigate our exposure to higher floating interest rates. These swap agreements
require that we pay a fixed rate of interest on the notional amount to a bank
and that the bank pays to us a variable rate equal to three-month LIBOR. As of
June 30, 2008, we had two swap agreements in place for a total notional
amount of $50.0 million, and the periods remaining on these two swap
agreements range in duration from 23.5 to 47.5 months.
Our
credit exposure under the swap agreements is limited to the cost of replacing
an
agreement in the event of non-performance by our counter-party; however, we
do
not anticipate non-performance. All of the swap agreements are tied to the
three-month LIBOR, which may fluctuate significantly on a daily basis. The
valuation of each swap agreement is affected by the change in the three-month
LIBOR and the remaining term of the agreement. Any increase in the three-month
LIBOR results in a more favorable valuation, while a decrease results in a
less
favorable valuation.
42
The
following table summarizes the interest rates in effect with respect to our
debt
as of June 30, 2008:
Type
of Debt
|
Amount
Outstanding
|
|
Applicable
Interest Rate
|
|||||
(In
millions)
|
||||||||
Senior
bank term debt (swap matures June 16, 2012)(1)
|
$ | 25.0 | 6.72 | % | ||||
Senior
bank term debt (swap matures June 16, 2010)(1)
|
$ | 25.0 | 6.52 | % | ||||
Senior
bank term debt (subject to variable interest rates)(2)
|
$ | 134.1 | 5.13 | % | ||||
Senior
bank revolving debt (subject to variable interest
rates)(2)
|
$ | 67.5 | 5.13 | % | ||||
87/8% senior
subordinated notes (fixed rate)
|
$ | 292.0 | 8.88 | % | ||||
63/8% senior
subordinated notes (fixed rate)
|
$ | 200.0 | 6.38 | % |
(1)
|
A
total of $50.0 million is subject to fixed rate swap agreements that
became effective in June 2005. Under our fixed rate swap agreements,
we
pay a fixed rate plus a spread based on our leverage ratio, as defined
in
our Credit Agreement. That spread is currently set at 2.25% and is
incorporated into the applicable interest rates set forth
above.
|
(2)
|
Subject
to rolling 90-day LIBOR plus a spread currently at 2.25%; incorporated
into the applicable interest rate set forth
above.
|
The
indentures governing our senior subordinated notes require that we comply with
certain financial covenants limiting our ability to incur additional debt.
Such
terms also place restrictions on us with respect to the sale of assets, liens,
investments, dividends, debt repayments, capital expenditures, transactions
with
affiliates, consolidation and mergers, and the issuance of equity interests,
among other things. Our Credit Agreement also requires compliance with financial
tests based on financial position and results of operations, including a
leverage ratio, an interest coverage ratio and a fixed charge coverage ratio,
all of which could effectively limit our ability to borrow under the Credit
Agreement or to otherwise raise funds in the debt market.
The
following table provides a comparison of our statements of cash flows for the
six months ended June 30, 2008 and 2007:
2008
|
2007
|
|||||||
(In
thousands)
|
||||||||
Net
cash flows (used in) provided from operating activities
|
$ | (8,856 | ) | $ | 14,882 | |||
Net
cash flows provided from (used in) investing activities
|
$ | 74,877 | $ | (18,341 | ) | |||
Net
cash flows (used in) from financing activities
|
$ | (79,587 | ) | $ | (2,967 | ) |
Net
cash flows used in operating activities were approximately $8.9 million for
the six months ended June 30, 2008 compared to net cash flows provided from
operating activities of approximately $14.9 million for the six months
ended June 30, 2007. Cash flows from operating activities for the six
months ended June 30, 2008 decreased from the prior year due primarily to a
decrease in net income of approximately $22.5 million and a decrease in
overall working capital.
Net
cash flows provided from investing activities were approximately
$74.9 million for the six months ended June 30, 2008 compared to net
cash flows used in investing activities of approximately $18.3 million for
the six months ended June 30, 2007. Capital expenditures, including digital
tower and transmitter upgrades, and deposits for station equipment and purchases
were approximately $4.0 million and $3.9 million for the six months ended
June 30, 2008 and 2007, respectively. During the six months ended June 30,
2008, we sold the stations in our Los Angeles and Miami markets and received
proceeds of approximately $150.2 million. During the same period we
acquired CCI and closed on our acquisition of WPRS-FM using approximately $70.4
million in funds. We funded approximately $8.5 million of our
investment commitment in TV One for the six months ended June 30,
2007.
Net
cash flows used in financing activities were approximately $79.6 million and
$3.0 million for the six months ended June 30, 2008 and 2007,
respectively. During the six months ended June 30, 2008, we borrowed
approximately $79.0 million from our credit facility and repaid
approximately $150.9 million in outstanding debt. Reach Media also
paid approximately $3.9 million and $3.0 million in dividends to minority
interest shareholders for the six months ended June 30, 2008 and 2007,
respectively.
From
time to time we
consider opportunities to acquire additional radio stations, primarily in the
top 60 African-American markets, and to make strategic acquisitions,
investments and divestitures. In June 2008, the Company
purchased the
assets of WPRS-FM (formerly
WGXX-FM), a radio station
located in the Washington, DC
metropolitan area for approximately
$38.0 million. Since April 2007 and up until closing, the station had
been operated under an LMA, and the results of its operations had been included
in the Company’s consolidated financial statements since the inception of the
LMA. The station was consolidated with the Company’s existing
Washington, DC
operations in April 2007. This purchase was funded
from borrowings under our credit facilities of $35.0 million. In April 2008, we acquired
CCI, an
online social networking
company, for $38.0 million in cash, and we borrowed $34.0 million from our
credit facility to close this transaction. In July 2007, we acquired the assets
of WDBZ-AM, a radio station located in the Cincinnati
metropolitan area, for approximately
$2.6 million in seller financing. Up until closing in July 2007, we had
been operating WDBZ-AM pursuant to an LMA since August 2001. Other than our
agreement with an affiliate of Comcast Corporation, DIRECTV and other investors
to fund TV One (the balance of our commitment was approximately
$13.7 million
at June 30,
2008) we have no other definitive
agreements to acquire radio stations or to make strategic investments. However,
subject to successful fund raising efforts, we may have a commitment to invest
up to $2.0 million in QCP Capital Partners, L.P. (“QCP”), a private equity fund.
In October 2007, the Company committed (subject to the completion and execution
of requisite legal documentation) to invest in QCP, with a target amount of
$200.0 million, which is in the early stages of being raised. If QCP is
successful in its fundraising process, the Company has committed to invest
1% of
the fund
total, with a maximum investment of
$2.0 million, which the Company would expect to contribute to the fund over
a multi-year period, as is typical with funds of this type. Additionally, the
Company will become a member of the general partner of QCP, and become a
member of QCP Capital Partners, LLC, the management company for QCP. The
Company also agreed to provide a working capital line of credit to QCP Capital
Partners, LLC, in the amount of $775,000. As of June 30,
2008, the Company had provided
$438,000
under the line of credit. The line
of credit is unsecured and bears interest at 7%. The final repayment of all
principal and interest is due from QCP Capital Partners, LLC to the Company
no
later than December 31, 2009.
We
anticipate that any future
acquisitions or strategic investments will be financed through funds generated
from operations, cash on hand, draws from our existing
credit
facilities, equity
financings, permitted debt financings, debt financings through unrestricted
subsidiaries or a combination of these sources. However, there can be no
assurance that financing from any of these sources, if available, will be
available on favorable terms.
43
As of June 30, 2008, we had two standby letters of credit totaling $550,000
in connection with our annual insurance policy renewals. In addition, we had
a
letter of credit of $295,000 in connection with a contract that we inherited
as
part of the acquisition of CCI and a letter of credit for $500,000 which expired
in July 2008 that was in connection with a special event. To date, there has
been no activity on these standby letters of credit.
Our ability to meet our debt service obligations and reduce our total debt,
our
ability to refinance the 87/8% senior
subordinated notes at or prior to their scheduled maturity date in 2011, and
our
ability to refinance the 63/8% senior
subordinated notes at or prior to their scheduled maturity date in 2013 will
depend upon our future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. In the next twelve months, our principal liquidity
requirements will be for working capital, continued business development,
strategic investment opportunities and for general corporate purposes, including
capital expenditures.
We
believe that, based on current levels of operations and anticipated internal
growth, for the foreseeable future, cash flows from operations together with
other available sources of funds will be adequate to make required payments
of
interest on our indebtedness, to fulfill our commitment to fund TV One, to
fund acquisitions, to fund anticipated capital expenditures and working capital
requirements and to enable us to comply with the payment terms of our debt
agreements. However, in order to finance future acquisitions or investments,
if
any, we may require additional financing and there can be no assurance that
we
will be able to obtain such financing on terms acceptable to us.
Credit
Rating Agencies
On
a continuing basis, credit rating
agencies such as Moody’s Investor Services (“Moody’s”) and Standard &
Poor’s (“S&P”) evaluate our debt. On December 20, 2007, Moody’s downgraded
our corporate family rating to B1 from Ba3 and our $800 million secured credit
facility ($500 million revolver, $300 million term loan) to Ba2 from Ba1.
In addition, Moody’s downgraded our 87/8%
senior subordinated notes and
63/8%
senior subordinated notes to B3 from
B1. While noting that our rating outlook was stable, the ratings downgrade reflected
the Company’s operating performance, weaker than previously expected credit
metrics and limited borrowing capacity under financial covenants. On
February 26, 2008, S&P placed its rating on the Company on credit watch with
negative implications. The credit watch was based on the Company’s narrow
margin of covenant compliance as of December 31, 2007 and uncertainty
surrounding compliance following impending step-downs in certain covenant
ratios. On March 13, 2008, Moody's placed all of the Company’s debt
ratings of under review for possible further downgrade. The review was
prompted by the Company’s operating performance in the fourth quarter of 2007
due to the overall radio market decline combined with the Company’s
underperformance relative to its markets.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
accounting policies are described in Note 1 of the Consolidated Financial
Statements in our Annual Report on Form 10-K. We prepare our consolidated
financial statements in conformity with accounting principles generally accepted
in the United States, which require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates. In Management’s Discussion and Analysis
contained in our Annual Report on Form 10-K for the year ended
December 31, 2007, we summarized the policies and estimates that we believe
to be most critical in understanding the judgments involved in preparing our
financial statements and the uncertainties that could affect our results of
operations, financial condition and cash flows. There have been no material
changes in such policies or estimates since we filed our Annual Report on
Form 10-K for the year ended December 31, 2007.
|
Stock-Based
Compensation
|
The
Company accounts for stock-based
compensation in accordance with SFAS No. 123(R), “Share-Based
Payment.” Under
the provisions of SFAS No. 123(R), stock-based compensation cost is
estimated at the grant date based on the award’s fair value as calculated by the
Black-Scholes (“BSM”) valuation option-pricing model and is recognized as
expense ratably over the requisite service period. The BSM
incorporates various highly subjective assumptions including expected stock
price volatility, for which historical data is heavily relied upon, expected
life of options granted, forfeiture rates and interest rates. If any of the
assumptions used in the BSM model change significantly, stock-based compensation
expense may differ materially in the future from that previously
recorded.
|
Goodwill
and
Radio Broadcasting Licenses
|
We
have made several radio station
acquisitions in the past for which a significant portion of the purchase price
was allocated to goodwill and
radio broadcasting licenses.
Goodwill exists whenever the purchase price exceeds the fair value of tangible
and identifiable intangible net assets acquired in business combinations. As
of
June 30, 2008, we had approximately $1.3 billion in goodwill and
radio broadcasting licenses, which
represents approximately 84% of our total assets. In accordance with
SFAS No. 142,“Goodwill
and Other
Intangible Assets,” for
such assets owned as of October 1, we test annually
for impairment during each
fourth quarter or when circumstances suggest that an impairment exists. Asset
impairment exists when the carrying value of these assets exceeds their
respective fair value. When the carrying value exceeds fair value, an impairment
amount is charged to operations for the excess. In total, as part of
discontinued operations for our Los Angeles station,
we recorded approximately $5.1
million in impairment charges for the six months ended June 30, 2008 and
impairment charges of approximately $15.9 million were recorded for the three
and six months ended June 30, 2007 as part of continuing
operations for our
Boston market
($5.5 million) and as part of
discontinued operations for our Augusta, Minneapolis and Louisville markets
($10.4 million). We believe estimating the value of goodwill and
radio broadcasting licenses is a
critical accounting estimate because:
|
•
|
the
carrying value of goodwill and
radio broadcasting licenses is significant in relation to our total
assets;
|
|
•
|
the
estimate is highly judgmental
and contains assumptions incorporating variables including, but not
limited to, discounted cash flows, market revenue and growth projections,
stations performance, profitability margins, capital expenditures,
multiples for station sales, the weighted-average cost of capital
and
terminal values; and
|
|
•
|
our
recent asset dispositions and
corresponding multiples and sale prices have, and could continue
to result
in impairment of these
assets.
|
44
Changes
in our estimated fair values as
a result of either future asset dispositions or our annual impairment testing
could result in future write-downs to the carrying values of these assets.
See
also Note 1 of our Consolidated Financial Statements - Organization
and
Summary of Significant Accounting Policies and Note 4 of our Consolidated
Financial Statements - Goodwill,
Radio
Broadcasting Licenses and Other Intangible Assets.
|
Impairment
of Intangible Assets
Excluding Goodwill and Radio Broadcasting
Licenses
|
Intangible
assets, excluding goodwill
and radio broadcasting licenses, are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset or group
of assets may not be fully recoverable. These events or changes in circumstances
may include a significant deterioration of operating results, changes in
business plans, or changes in anticipated future cash flows. If an impairment
indicator is present, we will evaluate recoverability by a comparison of the
carrying amount of the assets to future discounted net cash flows expected
to be
generated by the assets. Assets are grouped at the lowest level for which there
is identifiable cash flows that are largely independent of the cash flows
generated by other asset groups. If the assets are impaired, the impairment
is
measured by the amount by which the carrying amount exceeds the fair value
of
the assets determined by estimates of discounted cash flows. The discount rate
used in any estimate of discounted cash flows would be the rate required for
a
similar investment of like risk.
Allowance
for Doubtful
Accounts
We
must make estimates of the
uncollectability of our accounts receivable. We specifically review historical
write-off activity by market, large customer concentrations, customer credit
worthiness and changes in our customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. In the past four years,
including the quarter
ended
June
30,
2008,
our historical results have usually
averaged approximately 5.1%
of our outstanding trade receivables
and have been a reliable method to estimate future allowances. If the financial
condition of our customers or markets were to deteriorate, adversely affecting
their ability to make payments, additional allowances could be
required.
|
Revenue
Recognition
|
We
recognize revenue for broadcast
advertising when the commercial is broadcast and we report revenue net of agency
and outside sales representative commissions in accordance with
SAB No. 104, Topic 13,“Revenue
Recognition, Revised and Updated.” When applicable, agency
and
outside sales representative commissions are calculated based on a stated
percentage applied to gross billing. Generally, advertisers remit the gross
billing amount to the agency or outside sales representative, and the agency
or
outside sales representative remits the gross billing, less their commission,
to
us. We recognize revenue for Giant Magazine, mainly advertising,
subscriptions and
newsstand sales in the
month in which a particular issue is available for sale.
CCI,
the online social networking company acquired by the Company in April 2008,
recognizes its advertising revenue as impressions (the number of times
advertisements appear in viewed pages) are delivered, when “click through”
purchases or leads are reported, or ratably over the contract period, where
applicable.
|
Equity
Accounting
|
We
account for our investment in TV One
under the equity method of accounting in accordance with APB Opinion
No. 18,“The
Equity Method
of Accounting for Investments in Common Stock,”and other related interpretations.
We
have recorded our investment at cost and have adjusted the carrying amount
of
the investment to recognize the change in Radio One’s claim on the net assets of
TV One resulting from losses of TV One as well as other capital transactions
of
TV One using a hypothetical liquidation at book value approach. We will review
the realizability of the investment if conditions are present or events occur
to
suggest that an impairment of the investment may exist. We have determined
that
although TV One is a variable interest entity (as defined by
FIN No. 46(R), “Consolidation
of
Variable Interest Entities,”) the Company is not
the primary
beneficiary of TV One. See Note 5 - Investment
in
Affiliated Company for
further discussion.
|
Contingencies
and
Litigation
|
We
regularly evaluate our exposure
relating to any contingencies or litigation and record a liability when
available information indicates that a liability is probable and estimable.
We
also disclose significant matters that are reasonably possible to result in
a
loss, or are probable but for which an estimate of the liability is not
currently available. To the extent actual contingencies and litigation outcomes
differ from amounts previously recorded, additional amounts may need to be
reflected.
|
Estimate
of Effective Tax
Rates
|
In
past years, we estimated the
provision for income taxes, income tax liabilities, deferred tax assets and
liabilities, and any valuation allowances in accordance with
SFAS No. 109, “Accounting
for Income Taxes” and FIN
No. 18, “Accounting
for
Income Taxes in Interim Periods.” We estimate effective
tax rates based
on local tax laws and statutory rates, apportionment factors, taxable income
for
our filing jurisdictions and disallowable items, among other factors. Audits
by
the Internal Revenue Service or state and local tax authorities could yield
different interpretations from our own, and differences between taxes recorded
and taxes owed per our filed returns could cause us to record additional
taxes.
For
the three and six months
ended June 30,
2008, the Company has determined that
minor fluctuations in its projected income would create significant changes
to
the estimated annual effective tax rate. Pursuant to FIN No. 18, the Company
has
provided for tax expense using an actual calculation for certain filing
jurisdictions for the three and six months
ended June 30,
2008.
To
address the exposures of unrecognized
tax positions, in January 2007, we adopted FIN No. 48,“Accounting
for
Uncertainty in Income Taxes - Interpretation of
SFAS No. 109,”
which recognizes the
impact of a tax position in the financial statements if it
is more likely than not that the position would be sustained on audit based
on
the technical merits of the position. As of June 30,
2008, we had approximately
$4.6 million
in unrecognized tax benefits.
Future outcomes of our tax positions may be more or less than the currently
recorded liability, which could result in recording additional taxes, or
reversing some portion of the liability, and recognizing a tax benefit once
it
is determined the liability is either inadequate or no longer necessary as
potential issues get resolved, or as statutes of limitations in various tax
jurisdictions close.
45
Realizability
of Deferred Tax
Balances
During
the fourth quarter 2007, except
for deferred tax assets (“DTAs”) in its historically profitable jurisdictions,
and DTAs that may be benefited by future reversing deferred tax liabilities
(“DTLs”), the Company recorded a full valuation allowance for all other DTAs,
mainly net loss carryforwards (“NOLs”), as it was determined that more likely
than not, the DTAs would not be realized. The Company reached this
determination based on its then cumulative loss position and the uncertainty
of
future taxable income. Consistent with that prior realizability assessment,
the
Company has recorded a full valuation allowance in the amount of approximately
$8.5 million and $17.0 million for additional DTAs generated from continuing
operations for the three and six months ended June 30, 2008, respectively.
For
remaining DTAs that were not fully reserved, we believe that these assets will
be realized within the carryforward period; however, if we do not generate
the
projected levels of future taxable income, an additional valuation allowance
may
need to be recorded.
Fair
Value
Measurements
Pursuant
to SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” the Company has
accounted for an award called for in the CEO’s employment agreement (“the
Employment Agreement”) as a derivative instrument. According to the Employment
Agreement, which was executed in April 2008, the CEO is eligible to receive an award amount equal
to 8% of
any proceeds from distributions or other liquidity events in excess of the
return of the Company’s aggregate investment in TV One. The Company’s obligation
to pay the award will be triggered only after the Company’s recovery of the
aggregate amount of its capital contribution in TV One and only upon actual
receipt of distributions of cash or marketable securities or proceeds from
a
liquidity event with respect to the Company’s membership interest in TV
One. The
CEO was fully vested in the award
upon execution of the agreement, and the award lapses upon expiration
of the Employment Agreement
or earlier if the CEO
voluntarily leaves the Company or is terminated for cause.
With
the assistance of a third party
appraiser, the Company estimated the fair value of the award at June 30, 2008
was approximately $4.6 million, and accordingly, recorded compensation expense
and a liability for that amount. The fair valuation incorporated a number of
assumptions and estimates, including but not limited to TV One’s future
financial projections, probability factors and the likelihood of various
scenarios that would trigger payment of the award. As the Company
will measure changes in the fair value of this award at each reporting period,
different estimates or assumptions may result in a change to the fair value
of
the award amount previously recorded.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
March 2008, the FASB issued SFAS No.
161,“Disclosures
about
Derivative Instruments and Hedging Activities.” SFAS No. 161 requires
disclosure of the fair value of derivative instruments and their gains and
losses in a tabular format. It also provides for more information
about an entity’s liquidity by requiring disclosure of derivative features that
are credit risk related. Finally, it requires cross referencing
within footnotes to enable financial statement users to locate important
information about derivative instruments. This statement is effective
for interim periods beginning after December 15, 2008, although early
application is encouraged. The Company has not completed its
assessment of the impact this new pronouncement will have on the consolidated
financial statements.
In
December 2007, the FASB issued SFAS
No. 141R,“Business
Combinations.” SFAS No. 141R replaces
SFAS
No. 141, and requires the acquirer of a business to recognize and measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree at fair value. SFAS No. 141R also requires
transactions costs related to the business combination to be expensed as
incurred. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15,
2008. The effective date for the Company will be January 1,
2009. We have not determined the impact of SFAS No. 141R related to
future acquisitions, if any, on our consolidated financial
statements.
In
December 2007, the FASB issued SFAS
No. 160,“Noncontrolling
Interests in Consolidated Financial Statements-An amendment of ARB No.
51.” This
statement amends ARB No. 51 to establish accounting and reporting standards
for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. It clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should
be
reported as equity in the consolidated financial statements. This
statement is effective for fiscal years beginning after December 15,
2008. The effective date for this Company will be January 1,
2009. We have not determined the impact this new pronouncement would
have on the consolidated financial statements.
In
December 2007, the SEC
issued 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 second quarter of 2008, we used the “simplified ”
method under SAB No. 107, and we expect to continue to use the “simplified
” method in future periods if the facts and circumstances permit.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value
Option for Financial Assets and Financial Liabilities,” which permits companies
to choose to
measure certain financial instruments and other items at fair value that are
not
currently required to be measured at fair value. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. Effective
January 1, 2008, the Company adopted SFAS No. 159, which provides
entities the option to measure many financial instruments and certain other
items at fair value. Entities that choose the fair value option will recognize
unrealized gains and losses on items for which the fair value option was elected
in earnings at each subsequent reporting date. The Company has currently chosen
not to elect the fair value option for any items that are not already required
to be measured at fair value in accordance with generally accepted accounting
principles.
In
June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty
in Income Taxes -
Interpretation of SFAS No. 109,” which clarifies the accounting
for uncertainty in income taxes. FIN No. 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN No. 48 requires that the Company recognize the impact of a tax
position in the financial statements, if it is more likely than not that the
position would be sustained on audit, based on the technical merits of the
position. FIN No. 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The provisions of FIN No. 48 are effective
beginning January 1, 2007, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
The
impact to the Company of adopting FIN No. 48 on its financial
statements was a $923,000 increase to accumulated deficit and a corresponding
increase to income tax reserve as of January 1, 2007.
46
CAPITAL
AND COMMERCIAL COMMITMENTS
Long-term
debt
The
total amount available under our existing Credit Agreement with a syndicate
of
banks is $800.0 million, consisting of a $500.0 million revolving
facility and a $300.0 million term loan facility. As of June 30, 2008,
we had approximately $251.6 million in debt outstanding under the Credit
Agreement. We also have outstanding $200.0 million 63/8% senior
subordinated notes due 2013 and $292.0 million 87/8% senior
subordinated notes due 2011. See “Liquidity and Capital Resources.” (See Note 13 – Subsequent
Events.)
Lease
obligations
We
have non-cancelable operating leases
for office space, studio space, broadcast towers and transmitter facilities
and
a non-cancelable capital lease for equipment that expire over the next
22 years.
Operating
Contracts
and Agreements
We
have other operating contracts and
agreements including employment contracts, on-air talent contracts, severance
obligations, retention bonuses, consulting agreements, equipment rental
agreements, programming related agreements, and other general operating
agreements that expire over the next seven years.
Contractual
Obligations Schedule
The
following table represents our
contractual obligations as of June 30, 2008:
Payments
Due by Period
|
||||||||||||||||||||||||||||
Contractual
Obligations
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
and Beyond
|
Total
|
|||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||
87/8% Senior
subordinated notes(1)
|
$
|
12,958
|
$
|
25,915
|
$
|
25,915
|
$
|
304,958
|
$
|
—
|
$
|
—
|
$
|
369,746
|
||||||||||||||
63/8% Senior
subordinated notes(1)
|
6,375
|
12,750
|
12,750
|
12,750
|
12,750
|
206,375
|
263,750
|
|||||||||||||||||||||
Credit
facilities(2)
|
27,707
|
58,799
|
61,250
|
58,367
|
99,366
|
—
|
305,489
|
|||||||||||||||||||||
Capital
lease obligation
|
317
|
225
|
9
|
—
|
—
|
—
|
551
|
|||||||||||||||||||||
Other
operating contracts/ agreements(3)(4)(5)
|
31,188
|
38,835
|
21,477
|
22,014
|
21,979
|
22,484
|
157,977
|
|||||||||||||||||||||
Operating
lease obligations
|
4,375
|
8,126
|
7,047
|
5,716
|
4,086
|
13,065
|
42,415
|
|||||||||||||||||||||
Total
|
$
|
82,920
|
$
|
144,650
|
$
|
128,448
|
$
|
403,805
|
$
|
138,181
|
$
|
241,924
|
$
|
1,139,928
|
(1)
|
Includes
interest obligations
based on current effective interest rate on senior subordinated notes
outstanding as of June 30, 2008.
|
(2)
|
Includes
interest obligations
based on current effective interest rate and projected interest expense
on
credit facilities outstanding as of June 30,
2008.
|
(3)
|
Includes
employment contracts,
severance obligations, on-air talent contracts, consulting agreements,
equipment rental agreements, programming related agreements, and
other
general operating
agreements.
|
(4)
|
Includes
a retention bonus of
approximately $2.0 million pursuant to an employment agreement with
the Chief Administrative Officer (“CAO”) for remaining employed with the
Company through and including October 31, 2008. If the CAO’s
employment ends before October 31, 2008, the amount paid will be a
pro rata portion of the retention bonus based on the number of days
of
employment between October 31, 2004 and October 31,
2008.
|
(5)
|
Includes
a retention bonus of approximately $3.1 million paid to the former
Chief Financial Officer (“Former CFO”). Pursuant to the Former
CFO’s employment agreement, the Former CFO was entitled to
a $7.0 million retention bonus for remaining employed with the Company
for
ten years or a pro rata portion of the $7.0 million if his employment
terminated earlier. The $3.1 million amount is a pro rata portion
based on
the number of days of employment between October 18, 2005 and December 31,
2007. In July 2008, the Former CFO settled an outstanding
loan in the amount of approximately $1.7 million by offsetting the
loan
with his after-tax proceeds from the $3.1 million retention
bonus. (See Note 12 – Related Party
Transactions.)
|
Reflected
in the obligations above, as
of June 30, 2008, we had two swap agreements in place for a total notional
amount of $50.0 million. The periods remaining on the swap agreements range
in duration from 23.5 to 47.5 months. If we terminate our interest swap
agreements before they expire, we will be required to pay early termination
fees. Our credit exposure under these agreements is limited to the cost of
replacing an agreement in the event of non-performance by our counter-party;
however, we do not anticipate non-performance.
47
RELATED
PARTY TRANSACTIONS
In
2000, an officer of the Company, the
former Chief Financial Officer (“Former CFO”), purchased shares of the Company’s
common stock. The Former CFO purchased 333,334 shares of the
Company’s Class A common stock and 666,666 shares of the Company’s
Class D common stock. The stock was purchased with the proceeds of full
recourse loans from the Company in the amount of approximately
$7.0 million. In September 2005, the Former CFO repaid a portion of his
loan. The partial repayment of approximately $7.5 million was effected
using 300,000 shares of the Company’s Class A common stock and
230,000 shares of the Company’s Class D common stock owned by the
Former CFO. All shares transferred to the Company in satisfaction of this loan
have been retired. As of June 30, 2008, the remaining principal and
interest balance on the Former CFO’s loan was approximately $1.7 million,
which includes accrued interest in the amount of $200,000. The Former CFO was
employed with the Company through December 31, 2007, and pursuant to an
agreement with the Company, the loan became due in full in July 2008. Pursuant
to his employment agreement, the Former CFO was also eligible to receive a
retention bonus in the amount of approximately $3.1 million in cash on July
1,
2008, for having remained employed with the Company through December 31, 2007.
The $3.1 million retention bonus is a pro rata portion of a $7.0 million
retention bonus called for in his employment agreement, had he remained employed
with the Company for ten years, and is based on the number of days of employment
between October 18, 2005 and December 31, 2007. In July 2008,
the Former CFO settled the remaining balance of the loan in full the by
offsetting the loan with his after-tax proceeds from the $3.1 million retention
bonus, in addition to paying a cash amount of $34,000 to the Company.
The
Company’s CEO and its Founder and Chairperson own a music company called Music
One (“Music One”). The Company occasionally engages in promoting the recorded
music products and events of Music One, and Music One sometimes provides talent
services for Radio One events. The Company also provides and charges Music
One
for office space and administrative services. For the three months ended June
30, 2008, the Company provided advertising and made payments to Music One for
talent and sponsorship activities in the amounts of $15,000 and $85,000,
respectively. For the six months ended June 30, 2008, the Company provided
advertising and made payments to Music One for talent and sponsorship activities
in the amounts of $61,000 and $124,000, respectively.
As
of December 31, 2007, the Company had
an additional loan outstanding to the Former CFO in the amount of $88,000.
The
loan was due on demand and accrued interest at 5.6%, totaling an amount of
$53,000 as of December 31, 2007. In January 2008, the Former CFO repaid the
full remaining balance of the loan in cash in the amount of
$140,000.
In
July 2007, the Company closed on an
agreement to acquire the assets of WDBZ-AM, a radio station located in the
Cincinnati metropolitan
area from Blue Chip
Communications, Inc. (“Blue Chip”) for approximately $2.6 million in seller
financing, of which $17,000 remained outstanding as of June 30, 2008. The
financing is a 5.1% interest bearing loan payable monthly through July 2008.
Blue Chip is owned by a former member of the Company’s board of directors. The
transaction was approved by a special committee of independent directors
appointed by the board of directors. Additionally, the Company retained an
independent valuation firm to provide a fair value appraisal of the station.
Prior to the closing, and since August 2001, the Company consolidated
WDBZ-AM within its existing Cincinnati operations,
and operated WDBZ-AM under
an LMA for no annual fee, the results of which were incorporated in the
Company’s financial statements.
Item 3: Quantitative
and
Qualitative Disclosures About Market Risk
For
quantitative and qualitative
disclosures about market risk affecting Radio One, see Item 7A:
“Quantitative and Qualitative Disclosures about Market Risk” in our Annual
Report on Form 10-K, for the fiscal year ended December 31, 2007.
Our exposure related to market risk has not changed materially since
December 31, 2007.
Item 4. Controls
and
Procedures
Evaluation
of disclosure controls and procedures
We
have carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer
(“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end
of
the period covered by this report. Based on this evaluation, our CEO and CFO
concluded that as of such date, our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC reports. Disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are
controls and procedures that are designed to ensure that information required
to
be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
In
designing and evaluating the
disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our disclosure controls and
procedures are designed to provide a reasonable level of assurance of reaching
our desired disclosure controls objectives. Our management, including our CEO
and CFO, has concluded that our disclosure controls and procedures are effective
in reaching that level of reasonable assurance.
Changes
in internal control over
financial reporting
During
the three months ended June 30,
2008, there were no changes in our internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
48
PART II.
OTHER INFORMATION
Item 1. Legal
Proceedings
There
has been no material change to our legal proceedings as set forth in the most
recently filed Form 10-K.
Item 1A. Risk
Factors
In
addition to the other information set forth in this report, you should carefully
consider the risk factors discussed in Part I, "Item 1A. Risk Factors" in our
Annual Report on Form 10-K for the year ended December 31, 2007 (the "2007
Annual Report"), which could materially affect our business, financial condition
or future results. The risks described in our 2007 Annual Report, as updated
by
our quarterly reports on Form 10-Q, are not the only risks facing our Company.
Additional risks and uncertainties not currently known to us, or that we
currently deem to be immaterial, may also materially adversely affect our
business, financial condition and/or operating results. The risk factor set
forth below is in addition to those in the 2007 Annual Report.
We
are currently not in compliance with NASDAQ rules for continued listing of
our
Class A Common Stock
Our
Class A Common Stock is currently not in compliance with NASDAQ rules for
continued listing on the NASDAQ Global Market and is at risk of being
delisted. This may subject us to decreased liquidity of our Class A
common stock. On May
21, 2008, the Company received a letter (the “Notification”) from The
NASDAQ
Stock Market notifying the Company that
for the prior
30 consecutive trading days, the
Company’s Class A common shares (the “Class A Shares”) had
not maintained a minimum market value
of publicly held shares (“MVPHS”) of $5.0 million
as required for continued inclusion by
Marketplace Rule 4450(a)(2) (the “Rule”). In
accordance with Marketplace Rule
4450(e)(1), the Company was
provided 90 calendar days, or until
August 19, 2008, to regain compliance. If, at anytime before August
19, 2008, the MVPHS of the Company’s Class A common stock is $5.0
million or greater for a minimum
of 10
consecutive trading days, NASDAQ will provide written notification that the
Company complies with the Rule. If compliance with this Rule cannot
be demonstrated by August 19, 2008, NASDAQ will provide written notification
that the Class A Shares will be delisted. At that time, the
Company has the right to appeal NASDAQ’s determination to a listing
qualifications panel. The notification does
not affect the
Class D Common Shares which represent over 95%
of the Company’s outstanding public
float. The Company’s Class A Shares maintain their right to convert
into Class D Shares.
Item 2. Unregistered
Sales of
Equity Securities and Use of Proceeds
During
the three months and six months
ending June 30, 2008, we made repurchases of our Class A and
Class D common stock pursuant to the $150.0 million stock repurchase
program adopted by our board of directors on March 20, 2008.
The
following table provides information
on our repurchases during the three months ended June 30,
2008.
|
|
|
|
|
|
|
|
|
|
|
(d)
|
||||||
|
|
|
|
|
|
|
|
|
|
(c)
|
|
Maximum
|
|||||
|
|
|
|
|
|
|
Total
Number of
Shares
|
|
Approximate
Dollar
|
||||||||
|
|
(a)
|
|
(b)
|
|
Purchased
as
Part
|
|
Value
of Shares that
May
|
|||||||||
|
|
Total
Number
of
|
|
Average
Price
|
|
of
Publicly
Announced
|
|
Yet
Be Purchased
Under
|
|||||||||
Period
|
|
Shares
Purchased
(1)
|
|
Paid
per
Share
|
|
Plans
or
Programs
|
|
The
Plans or
Programs
|
|||||||||
June 1,
2008 — June 30,
2008
|
|
187,369
|
Class
A
|
|
$
|
1.39
|
|
|
|
187,369
|
|
|
$
|
69,225,165
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1,
2008 — June 30,
2008
|
|
1,884,860
|
Class
D
|
|
$
|
1.33
|
|
|
|
1,884,860
|
|
|
|
69,225,165
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,072,229
|
|
|
|
|
|
|
|
2,072,229
|
|
|
$
|
69,225,165
|
|
(1) | In March 2008, the Company’s board of directors authorized a repurchase of shares of the Company’s Class A and Class D common stock through December 31, 2009 of up to $150.0 million, the maximum amount allowable under the Credit Agreement. The amount and timing of such repurchases will be based on pricing, general economic and market conditions, and the restrictions contained in the agreements governing the Company’s credit facilities and subordinated debt and certain other factors. As of June 30, 2008, the Company repurchased 187,369 shares of Class A common stock at an average price of $1.39 and 1.9 million shares of Class D common stock at an average price of $1.33. As of June 30, 2008, the Company had $69.2 million in capacity available under the share repurchase program. |
In
2005, the Company utilized
approximately $78.0
million to repurchase common stock
leaving capacity
of
$72.0 million under the Credit
Agreement.
Item 3. Defaults
Upon Senior
Securities
None.
49
Item 4. Submission
of Matters to
a Vote of Security Holders
On
May 28, 2008, the Company held its
Annual Meeting of its holders of common stock pursuant to a Notice of Annual
Meeting of Stockholders and Proxy Statement dated April 17, 2008, a copy of
which has been previously filed with the Securities and Exchange
Commission. Stockholders were asked to vote upon the following
proposals:
1) The
election of Terry L. Jones
and Brian W. McNeill as Class A directors to serve until the 2009 annual
meeting of stockholders or until their successors are duly elected and
qualified.
2) The
election of Catherine L.
Hughes, Alfred C. Liggins, III, D. Geoffrey Armstrong, Ronald E. Blaylock
and B. Doyle Mitchell, Jr. as directors to serve until the 2009 annual
meeting of stockholders or until their successors are duly elected and
qualified.
3) The
ratification of the
appointment of Ernst & Young LLP as independent auditors for Radio One
for the year ending December 31, 2008.
The
results of the voting on the
proposals were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Votes
|
|||||||||||
Class
A
|
Class
B
|
||||||||||
|
|||||||||||
Proposal 1
|
|||||||||||
Jones
|
For
|
2,671,864
|
|||||||||
Withhold
Authority
|
144,794
|
||||||||||
McNeill
|
For
|
1,894,970
|
|||||||||
Withhold
Authority
|
921,687
|
||||||||||
Proposal 2
|
|||||||||||
Hughes
|
For
|
2,039,065
|
28,618,430
|
||||||||
Withhold
Authority
|
777,593
|
||||||||||
Liggins
|
For
|
2,027,807
|
28,618,430
|
||||||||
Withhold
Authority
|
788,850
|
||||||||||
Armstrong
|
For
|
2,687,752
|
28,618,430
|
||||||||
Withhold
Authority
|
128,906
|
||||||||||
Blaylock
|
For
|
2,687,709
|
28,618,430
|
||||||||
Withhold
Authority
|
128,949
|
||||||||||
Mitchell
|
For
|
2,687,698
|
28,618,430
|
||||||||
Withhold
Authority
|
128,959
|
||||||||||
Proposal 3
|
For
|
2,664,990
|
28,618,430
|
||||||||
Against
|
68,073
|
||||||||||
Abstain
|
83,594
|
Item 5. Other
Information
None.
Item 6. Exhibits
Exhibit
Number
|
Description
|
2.1
|
Agreement
and Plan of Merger, dated as of April 10, 2008 among Radio One, Inc.,
CCI
Acquisition Sub, Inc. and Community Connect Inc. (incorporated by
reference to Radio One’s Current Report on Form 8-K filed April 15,
2008 (File No. 000-25969)).
|
10.16
|
Employment
Agreement dated as of March 31, 2008 between Radio One, Inc. and
Peter D.
Thompson. (incorporated by reference to Radio One’s
Current Report on Form 8-K filed April 2, 2008 (File No.
000-25969)).
|
10.17
|
Employment
Agreement between Radio One, Inc. and Alfred C. Liggins, III dated
April
16, 2008 (incorporated by reference to Radio One’s Current Report on
Form 8-K filed April 18, 2008 (File No.
000-25969)).
|
10.18
|
Employment
Agreement between Radio One, Inc. and Catherine L. Hughes dated April
16,
2008 (incorporated by reference to Radio One’s Current Report on
Form 8-K filed April 18, 2008 (File No.
000-25969)).
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
50
SIGNATURE
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.
RADIO
ONE, INC.
/s/ PETER
D. THOMPSON
Peter
D. Thompson
Executive
Vice President and Chief
Financial Officer (Principal Accounting Officer)
August
11, 2008
51