form10-qjune302009.htm
 
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, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   o   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 July 31, 2009
Class A Common Stock, $.001 Par Value
2,981,847
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
47,784,454
 

 
 
 
 
TABLE OF CONTENTS

   
Page
   
PART I. FINANCIAL INFORMATION
  
   
Item 1.
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2009 and 2008 (Unaudited)
4
 
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008
5
 
Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2009 (Unaudited)
6
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008  (Unaudited)
7
 
Notes to Consolidated Financial Statements (Unaudited) 
8
 
Consolidating Financial Statements                                                            
29
 
Consolidating Statement of Operations for the Three Months Ended June 30, 2009 (Unaudited)
30
 
Consolidating Statement of Operations for the Three Months Ended June 30, 2008 (Unaudited)
31
 
Consolidating Statement of Operations for the Six Months Ended June 30, 2009 (Unaudited)
32
 
Consolidating Statement of Operations for the Six Months Ended June 30, 2008 (Unaudited)
33
 
Consolidating Balance Sheet as of June 30, 2009 (Unaudited)
34
 
Consolidating Balance Sheet as of December 31, 2008
35
 
Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2009 (Unaudited)
36
 
Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2008 (Unaudited)
37
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
59
Item 4.
Controls and Procedures                                                                                                                                          
59
   
PART II. OTHER INFORMATION
  
   
Item 1.
Legal Proceedings                                                                                                                                         
60
Item 1A.
Risk Factors                                                                                                                                         
60
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
61
Item 3.
Defaults Upon Senior Securities                                                                                                                                          
61
Item 4.
Submission of Matters to a Vote of Security Holders                                                                                                                                          
62
Item 5.
Other Information                                                                                                                                         
62
Item 6.
Exhibits                                                                                                                                         
62
 
SIGNATURES                                                                                                                                         
63
 
 


 
2
 
CERTAIN DEFINITIONS

Unless otherwise noted, the terms “Radio One,” “the Company,” “we,” “our” and “us” refer to Radio One, Inc. and its subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements do not relay historical facts, but rather reflect our current expectations concerning future operations, results and events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. 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.  You can also identify a forward-looking statement in that such statements discuss matters in a way that anticipates operations, results or events that have not already occurred but rather will or may occur in future periods.  We cannot guarantee that we will achieve any forward-looking plans, intentions, results, operations or expectations.  Because these statements apply to future events, they are subject to risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially from those forecasted or anticipated in the forward-looking statements.  These risks, uncertainties and factors include (in no particular order), but are not limited to:

 
•
the effects the current global financial and economic crisis, credit and equity market volatility and the current and future states of  the U.S. economy may continue to have on our business and financial condition and the business and financial condition of our advertisers;

 
•
fluctuations within the economy could negatively impact our ability to meet our cash needs and our ability to maintain compliance with our debt covenants;

 
•
fluctuations in the demand for advertising across our various media given the current economic environment;

 
•
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 ratings and measurement methodologies;

 
•
regulation by the Federal Communications Commission relative to maintaining our broadcasting licenses, enacting media ownership rules and enforcing of indecency rules;

 
•
changes in our key personnel and on-air talent;

 
•
increases in the costs of our programming, including on-air talent, content acquisition cost and royalties;

 
•
financial losses that may be sustained due to impairment charges against our broadcasting licenses, goodwill and other intangible assets, particularly in light of the current economic environment;

 
•
our incurrence of net losses over the past three fiscal years;

 
•
increased competition from new technologies;

 
•
the impact of our acquisitions, dispositions and similar transactions;

 
•
our high degree of leverage and potential inability to refinance our debt given current market conditions;

 
•
our current non-compliance with NASDAQ rules for continued listing of our Class A and Class D common stock; 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 2008 Annual Report on Form 10-K/A.

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,
  
   
2009
    
2008
  
2009
    
2008
  
   
(Unaudited)
                   
   
(In thousands, except share data)
  
                               
NET  REVENUE
  
$
70,083
    
$
83,432
  
$
130,754
    
$
155,930
  
OPERATING EXPENSES:
                              
Programming and technical
    
19,282
      
20,853
    
39,899
      
39,918
  
Selling, general and administrative
    
21,435
      
27,773
    
45,104
      
52,463
  
Corporate selling, general and administrative
    
 5,608
      
17,807
    
11,098
      
24,337
  
Depreciation and amortization
    
5,259
      
5,171
    
10,514
      
8,835
  
Impairment of long-lived assets
    
—
      
—
    
48,953
      
—
  
Total operating expenses
    
51,584
      
71,604
    
155,568
      
125,553
  
Operating income (loss)
    
18,499
      
11,828
    
(24,814
)
    
30,377
  
INTEREST INCOME
    
 47
      
130
    
 65
      
331
  
INTEREST EXPENSE
    
 9,033
      
15,160
    
19,812
      
32,419
  
GAIN ON RETIREMENT OF DEBT
    
—
      
1,015
    
 1,221
      
1,015
  
EQUITY IN (INCOME) LOSS OF AFFILIATED COMPANY
    
(747
) 
    
(29
)
  
(1,897
)
    
2,799
  
OTHER EXPENSE, net
    
114
      
33
    
64
      
44
  
Income (loss) before provision for income taxes, noncontrolling interest in income of subsidiaries and (loss) income from discontinued operations
    
10,146
      
(2,191
)
  
(41,507
)
    
(3,539
)
PROVISION FOR INCOME TAXES
    
1,777
      
9,761
    
 8,848
      
18,659
  
Net income (loss) from continuing operations
    
8,369
      
(11,952
)
  
(50,355
)
    
(22,198
)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS,  net of tax
    
(89
) 
    
1,334
    
 69
      
 (6,447
)
CONSOLIDATED NET INCOME (LOSS)
    
8,280
      
(10,618
)
  
(50,286
)
    
(28,645
)
NONCONTROLLING INTEREST IN INCOME OF SUBSIDIARIES
    
1,067
      
1,058
    
1,938
      
1,881
  
CONSOLIDATED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
  
$
7,213
    
$
(11,676
)
$
(52,224
)
  
$
(30,526
)
                               
BASIC AND DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
                              
Continuing operations
  
$
0.12
    
$
(0.13
)
$
(0.81
)*
  
$
(0.24
)
Discontinued operations, net of tax
    
—
      
0.01
    
—
 *
    
(0.07
)
Net income (loss) attributable to common stockholders
  
$
0.12
    
$
(0.12
)
$
(0.80
)*
  
$
(0.31
)
                               
WEIGHTED AVERAGE SHARES OUTSTANDING:
                              
Basic
    
59,421,562
      
98,403,298
    
64,920,155
      
98,560,790
  
Diluted
    
60,034,168
      
98,403,298
    
64,920,155
      
98,560,790
  

*  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
  
  
As of
  
   
June 30, 2009
    
December 31, 2008
  
   
(Unaudited)
        
             
   
(In thousands, except share data)
  
ASSETS
            
CURRENT ASSETS:
            
Cash and cash equivalents
  
$
22,153
    
$
22,289
  
Trade accounts receivable, net of allowance for doubtful accounts of $2,893 and $3,789, respectively
    
49,429
      
49,937
  
Prepaid expenses and other current assets
    
4,667
      
5,560
  
Deferred tax assets
    
71
      
108
  
Current assets from discontinued operations
    
 28
      
303
  
Total current assets
    
76,348
      
78,197
  
PROPERTY AND EQUIPMENT, net
    
44,734
      
48,602
  
GOODWILL
    
138,145
      
137,095
  
RADIO BROADCASTING LICENSES
    
714,838
      
763,657
  
OTHER INTANGIBLE ASSETS, net
    
38,901
      
44,217
  
INVESTMENT IN AFFILIATED COMPANY
    
50,379
      
47,852
  
OTHER ASSETS
    
3,253
      
5,797
  
NON-CURRENT ASSETS FROM DISCONTINUED OPERATIONS
    
—
      
60
  
Total assets
  
$
1,066,598
    
$
1,125,477
  
                 
LIABILITIES AND EQUITY
                
CURRENT LIABILITIES:
                
Accounts payable
  
$
2,795
    
$
3,691
  
Accrued interest
    
9,396
      
10,082
  
Accrued compensation and related benefits
    
 8,546
      
10,534
  
Income taxes payable
    
1,394
      
30
  
Other current liabilities
    
11,595
      
12,477
  
Current portion of long-term debt
    
18,010
      
43,807
  
Current liabilities from discontinued operations
    
122
      
582
  
Total current liabilities
    
51,858
      
81,203
  
LONG-TERM DEBT, net of current portion
    
655,529
      
631,555
  
OTHER LONG-TERM LIABILITIES
    
10,078
      
11,008
  
DEFERRED TAX LIABILITIES
    
92,294
      
86,236
  
Total liabilities
    
809,759
      
810,002
  
                 
STOCKHOLDERS’ EQUITY:
                
Convertible preferred stock, $.001 par value, 1,000,000 shares authorized; no shares outstanding at June 30, 2009 and December 31, 2008
    
—
      
—
  
Common stock — Class A, $.001 par value, 30,000,000 shares authorized; 2,981,841 and 3,016,730 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively
    
3
      
3
  
Common stock — Class B, $.001 par value, 150,000,000 shares authorized; 2,861,843 shares issued and outstanding as of June 30, 2009 and December 31, 2008, 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, 2009 and December 31, 2008, respectively
    
3
      
3
  
Common stock — Class D, $.001 par value, 150,000,000 shares authorized; 49,135,754 and 69,971,551 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively
    
49
      
70
  
Accumulated other comprehensive loss
    
(2,506
)
    
(2,981
) 
Additional paid-in capital
    
1,025,117
      
1,033,921
  
Accumulated deficit
    
(769,749
)
    
(717,525
)
Total stockholders’ equity
    
252,920
      
313,494
  
Noncontrolling interest
    
3,919
      
1,981
  
Total equity
    
256,839
      
315,475
  
Total liabilities and equity
  
$
1,066,598
    
$
1,125,477
  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
 
5
 

RADIO ONE, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
 
   
Radio One Inc. Stockholders
          
   
Convertible Preferred Stock
    
Common Stock Class A
    
Common Stock Class B
    
Common
Stock Class C
    
Common Stock Class D
    
Comprehensive Loss
  
Accumulated Other Comprehensive Loss
  
Additional Paid-In Capital
  
Accumulated Deficit
  
Noncontrolling 
Interest
  
Total Equity
  
   
(In thousands, except share data)
  
BALANCE, as of December 31, 2008
  
$
—
    
$
3
    
$
3
    
$
3
    
$
70
        
$
(2,981
) 
$
1,033,921
  
$
(717,525
) 
$
1,981
  
$
315,475
  
Comprehensive loss:
                                                                            
Consolidated net loss
    
—
      
—
      
—
      
—
      
—
    
$
(50,286
)
  
—
    
—
    
(52,224
) 
  
1,938
    
(50,286
)
Change in unrealized loss on derivative and hedging activities, net of taxes
    
—
      
—
      
—
      
—
      
—
      
475
    
475
    
—
    
—
    
—
    
475
  
Comprehensive loss
                                          
$
(49,811
)
                              
Repurchase of 34,889 shares of Class A common stock and 20,835,797 shares of Class D common stock
    
—
      
—
      
—
      
—
      
(21
) 
          
—
    
(9,883
) 
  
—
    
—
    
(9,904
) 
Vesting of non-employee restricted stock
    
—
      
—
      
—
      
—
      
—
            
—
    
316
    
—
    
—
    
316
  
Stock-based compensation expense
    
—
      
—
      
—
      
—
      
—
            
—
    
763
    
—
    
—
    
 763
  
BALANCE, as of June 30, 2009
  
$
—
    
$
3
    
$
3
    
$
3
    
$
49
          
$
(2,506
)
$
1,025,117
  
$
(769,749
) 
$
3,919
  
$
256,839
  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
6
 

RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
 
   
Six Months Ended June 30,
  
   
2009
    
2008
  
   
(Unaudited)
  
             
   
(In thousands)
  
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
            
Net loss attributable to common stockholders
  
$
(52,224
)
  
$
(30,526
) 
Noncontrolling interest in income of subsidiaries
    
1,938
      
1,881
  
Consolidated net loss
    
(50,286
)
    
(28,645
) 
Adjustments to reconcile consolidated net loss to net cash from operating activities:
                
Depreciation and amortization
    
10,514
      
8,835
  
Amortization of debt financing costs
    
1,205
      
1,361
  
Deferred income taxes
    
5,999
      
17,592
  
Impairment of long-lived assets
    
48,953
      
—
  
Equity in (income) loss of affiliated company
    
(1,897
) 
    
2,799
  
Stock-based and other compensation
    
1,079
      
849
  
Gain on retirement of debt
    
(1,221
)
    
(1,015
) 
Change in interest due on stock subscriptions receivable
    
—
      
(20
)
Amortization of contract inducement and termination fee
    
(947
)
    
(947
)
Effect of change in operating assets and liabilities, net of assets acquired:
                
Trade accounts receivable
    
508
      
(3,811
)
Prepaid expenses and other assets
    
893
      
1,525
  
Other assets
    
2,544
      
(3,286
)
Accounts payable
    
(896
)
    
(3,480
)
Accrued interest
    
(687
)
    
(804
)
Accrued compensation and related benefits
    
(1,988
)
    
4,863
  
Income taxes payable
    
1,364
      
(3,033
)
Other liabilities
    
(1,812
)
    
4,467
 
Net cash flows from operating activities of discontinued operations
    
(464
 )     
814
  
Net cash flows from (used in) operating activities
    
12,861
      
(1,936
) 
CASH FLOWS USED IN INVESTING ACTIVITIES:
                
Purchases of property and equipment
    
(2,287
)
    
(4,036
)
Acquisitions
    
—
      
(70,426
)
Purchase of other intangible assets
    
(263
)
    
(1,046
)
Proceeds from sale of assets
    
—
      
150,224
  
Deposits for station equipment and purchases and other assets
    
—
      
161
  
Net cash flows (used in) provided from investing activities
    
(2,550
)
    
74,877
  
CASH FLOWS USED IN FINANCING ACTIVITIES:
                
Repayment of other debt
    
(153
)
    
(987
)
Proceeds from credit facility
    
111,500
      
79,000
  
Repayment of credit facility
    
(110,670
)
    
(150,909
) 
Repurchase of senior subordinated notes
    
(1,220
)
    
(6,920
) 
Repurchase of common stock
    
(9,904
)
    
(2,775
) 
Payment of dividend to noncontrolling interest shareholders of Reach Media, Inc.
    
—
      
(3,916
)
Net cash flows used in financing activities
    
(10,447
)
    
(86,507
)
DECREASE IN CASH AND CASH EQUIVALENTS
    
(136
)
    
(13,566
)
CASH AND CASH EQUIVALENTS, beginning of period
    
22,289
      
24,247
  
CASH AND CASH EQUIVALENTS, end of period
  
$
22,153
    
$
10,681
  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid for:
                
Interest
  
$
19,293
    
$
31,877
  
Income taxes
  
$
1,612
    
$
5,282
  

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, 2009 and 2008 was $0 and $17,000, respectively. 
 
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 its 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 acquired 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 (“Giant Magazine”) of Giant Magazine, LLC, 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.   
 
      During the period December 2006 to May 2008, we completed the sale of approximately $287.9 million of our non-core radio assets.  While we maintained our core radio franchise, these dispositions have allowed the Company to more strategically allocate its resources consistent with its 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 2008 Annual Report on Form 10-K/A.
 
      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.)
 
      (c)  Financial Instruments
 
     Financial instruments as of June 30, 2009 and December 31, 2008 consisted of cash and cash equivalents, 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, 2009 and December 31, 2008, except for the Company’s outstanding senior subordinated notes. The 87/8% Senior Subordinated Notes due July 2011 had a carrying value of $101.5 million and a fair value of approximately $40.6 million as of June 30, 2009, and a carrying value of $104.0 million and a fair value of approximately $52.0 million as of December 31, 2008. The 63/8% Senior Subordinated Notes due February 2013 had a carrying value of $200.0 million and a fair value of approximately $64.0 million as of June 30, 2009,  and a carrying value of $200.0 million and a fair value of approximately $60.0 million as of December 31, 2008. The fair values were determined based on the current trading values of these instruments.
 
 
8
 
      (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 $7.4 million and $9.4 million during the three months ended June 30, 2009 and 2008, respectively. Agency and outside sales representative commissions were approximately $12.9 million and $17.3 million during the six months ended June 30, 2009 and 2008, 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. This agreement ends December 2009.
 
      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, 2009 and 2008, barter transaction revenues reflected in net revenue were $819,000 and $603,000, respectively. For the six months ended June 30, 2009 and 2008, barter transaction revenues reflected in net revenue were approximately $1.6 million and $1.2 million, respectively. Additionally, barter transaction costs were reflected in programming and technical expenses and selling, general and administrative expenses of $778,000 and $558,000 and $41,000 and $41,000 for the three month periods ended June 30, 2009 and 2008.  For the six month periods ended June 30, 2009 and 2008, barter transaction costs were reflected in programming and technical expenses and selling, general and administrative expenses of approximately $1.5 million and $1.1 million and $83,000 and $83,000, respectively,
 
       (f)  Comprehensive Loss
 
      The Company’s comprehensive loss consists of net loss attributable to common stockholders 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 income (losses) on derivative instruments that qualify for cash flow hedge treatment. (See Note 6 - Derivative Instruments and Hedging Activities.) 
 
      The following table sets forth the components of comprehensive loss:
 
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
       
Consolidated net income (loss) 
  
$
8,280
    
$
(10,618
) 
  
$
(50,286
) 
  
$
(28,645
) 
Other comprehensive income (loss) (net of tax benefit of $0 for all periods):
                                
Derivative and hedging activities
    
420
      
 1,682
      
 475
      
 (1,466
) 
Comprehensive income (loss)
    
8,700
      
(8,936
)
    
(49,811
)
    
(30,111
)
Comprehensive income (loss) attributable to the noncontrolling interest
    
— 
      
— 
      
— 
      
— 
  
Comprehensive income (loss)
  
$
8,700
    
$
(8,936
) 
  
$
(49,811
) 
  
$
(30,111
) 


 
9
 

 (g) Goodwill and Radio Broadcasting Licenses
 
 In connection with past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and radio broadcasting licenses are not amortized, but are tested annually for impairment at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on October 1 of each year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Impairment exists when the asset carrying values exceed their respective fair values, and the excess is then recorded to operations as an impairment charge. With the assistance of a third party valuation firm, we test for license impairment at the unit of accounting level using the income approach, which involves, but is not limited to judgmental assumptions about projected revenue growth, future operating margins discount rates and terminal values. In testing for goodwill impairment, we follow a two-step approach, also using the income approach that first estimates the fair value of the reporting unit. If the carrying value of the reporting unit exceeds its fair value, we then determine the implied goodwill after allocating the reporting unit’s fair value of assets and liabilities. Any excess of carrying value over its respective implied goodwill is written off in order to reduce the reporting unit’s carrying value to fair value. We then perform a reasonableness test by comparing the average implied multiple arrived at based on our cash flow projections and estimated fair values to multiples for actual recently completed sale transactions.

Since our annual impairment testing performed for assets owned as of October 1, 2008,  the continuing economic downturn caused further deterioration to the 2009 outlook for the radio industry, and resulted in  significant revenue and profitability declines beyond levels assumed in our 2008 annual and year end impairment testing. Hence, during the first quarter of 2009, we performed an interim impairment assessment, the result of which was to record approximately $49.0 million in impairment charges against radio broadcasting licenses in 11 of our 16 markets. Since our interim first quarter 2009 assessment, no new or additional impairment indicators have emerged, hence, no interim impairment testing was warranted. There was no impairment charge recorded for the three and six month periods ended June 30, 2008, respectively.  (See Note 4 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.)

 
(h) 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. Effective January 1, 2008, we adopted SFAS No. 157 for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. Effective January 1, 2009, we adopted SFAS No. 157 for all non-financial instruments accounted for at fair value on a non-recurring basis. SFAS No. 157 establishes a new framework for measuring fair value and expands related disclosures.
 
      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.


 
10
 

      As of June 30, 2009 and December 31, 2008, the fair values of our financial liabilities are categorized as follows:
  
 
Total
  
Level 1
  
Level 2
  
Level 3
  
 
(In thousands)
  
     
As of June 30, 2009 
                
Liabilities subject to fair value measurement:
                
Interest rate swaps (a)
  
$
2,506
    
$
—
    
$
2,506
    
$
—
  
Employment agreement award (b)
    
4,214
      
—
      
—
      
4,214
  
Total
  
$
6,720
    
$
—
    
$
2,506
    
$
4,214
  
                                 
As of December 31, 2008 
                                
Liabilities subject to fair value measurement:
                                
Interest rate swaps (a)
  
$
2,981
    
$
—
    
$
2,981
    
$
—
  
Employment agreement award (b)
    
4,326
      
—
      
—
      
4,326
  
Total
  
$
7,307
    
$
—
    
$
2,981
    
$
4,326
  
   
(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 reviewed the factors underlying this award during the quarter ended June 30, 2009 and at December 31, 2008. 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 in April 2011, or earlier if the CEO voluntarily leaves the Company or is terminated for cause. The Company engaged a third party valuation firm to perform a fair valuation of the award. (See Note 6 – Derivative Instruments and Hedging Activities.)
  
 

 
      The following table presents the changes in Level 3 liabilities measured at fair value on a recurring basis for the six months ended June 30, 2009.
 
   
Employment Agreement Award
  
   
(In thousands)
  
       
Balance at December 31, 2008 
  
$
4,326
  
Gains included in earnings (realized/unrealized)
    
(112
)
Changes in accumulated other comprehensive loss
    
—
  
Purchases, issuances, and settlements  
    
—
  
Balance at June 30, 2009
  
$
4,214
  
         
The amount of total gains for the period included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date
  
$
(112
)
 
      Gains included in earnings (realized/unrealized) were recorded in the consolidated statement of operations as corporate selling, general and administrative expenses for the six months ended June 30, 2009.
 
      Certain assets and liabilities are measured at fair value on a non-recurring basis.  These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.  Included in this category are goodwill, radio broadcasting licenses and other intangible assets, net, that are written down to fair value when they are determined to be impaired.

 
11
 
      As of June 30, 2009, each major category of assets and liabilities measured at fair value on a non-recurring basis during the period are categorized as follows:
  
   
Total
    
Level 1
    
Level 2
  
Level 3
    
Total
Gains (Losses)
  
   
(In millions)
  
As of June 30, 2009 
                            
Non-recurring assets subject to fair value measurement:
                            
Goodwill 
  
$ 
138.1
    
$
—
    
$ 
—
  
$ 
138.1
    
$ 
—
  
Radio broadcasting licenses
    
714.8
      
—
      
—
    
714.8
      
—
  
Other intangible assets, net 
    
 38.9
      
—
      
—
    
38.9
      
—
  
Total
  
$
891.8
    
$
—
    
$
—
  
$
891.8
    
$
—
  
 
      As of December 31, 2008, the total recorded carrying value of goodwill and radio broadcasting licenses was approximately $137.1 million and $763.7 million, respectively. Pursuant to SFAS No. 142, and in connection with its interim impairment testing performed for asset values as of February 28, 2009, carrying values for radio broadcasting licenses in 11 of the Company’s 16 markets were written down to fair values, resulting in a total license carrying value of approximately $714.8 million as of June 30, 2009. The license write-downs resulted in an impairment charge of approximately $49.0 million, which was recorded against earnings, for the quarter ended March 31, 2009. Since our first quarter 2009 assessment, no new or additional impairment indicators emerged, hence, no further interim impairment testing was warranted. The interim testing resulted in no impairment to goodwill. A description of the Level 3 inputs and the information used to develop the inputs is discussed in Note 4 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.
 
      As of December 31, 2008, the total recorded carrying value of other intangible assets excluding goodwill and radio broadcasting licenses was approximately $44.2 million. Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” no impairment indicators existed during the three months and six months ended June 30, 2009, and therefore, no impairment assessment was warranted. Considering applicable amortization and interest expense of approximately $2.6 million for the second quarter of 2009 and $2.7 million for the first quarter of 2009, the carrying value of other intangible assets excluding goodwill and radio broadcasting licenses was approximately $38.9 million as of June 30, 2009.
 
 
 (i) Impact of Recently Issued Accounting Pronouncements
 
      In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles: a replacement of FASB Statement No. 162,” which became the source of authoritative non-SEC U.S. GAAP for non-governmental entities. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of SFAS No. 168 will have a material impact on its consolidated financial statements.

      In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 addresses accounting and disclosure requirements related to subsequent events. It requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued. Companies are required to disclose the date through which subsequent events have been evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. Effective for the quarter ended June 30, 2009, the Company adopted SFAS No. 165. The Company has provided the required disclosures regarding subsequent events in Note 14 – Subsequent Events.

      In April 2009, the FASB issued FASB Staff Position (“FSP”) No. SFAS 107-1 and Accounting Pronouncement Bulletin (“APB”) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements.  This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods.  FSP No. SFAS 107-1 and APB No. 28-1 became effective for the Company during the quarter ended June 30, 2009.  The additional disclosures required by FSP No. SFAS 107-1 and APB No. 28-1 are included in Note 1 – Organization and Summary of Significant Accounting Policies.

      In April 2008, the FASB issued FSP No. SFAS 142-3, “Determination of the Useful Life of Intangible Assets,” which amends the guidance in SFAS No. 142, “Goodwill and Other Intangible Assets,” about estimating the useful lives of recognized intangible assets, and requires additional disclosures related to renewing or extending the terms of recognized intangible assets. FSP No. SFAS 142-3 became effective as of January 1, 2009. The adoption of FSP No. SFAS 142-3 did not have a material effect on the Company’s consolidated financial statements.

     In November 2008, the FASB issued EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations.” EITF 08-6 discusses the accounting for contingent consideration agreements of an equity method investment and the requirement for the investor to recognize its share of any impairment charges recorded by the investee. EITF 08-6 requires the investor to record share issuances by the investee as if it has sold a portion of its investment with any resulting gain or loss being reflected in earnings. EITF 08-6 was effective for the Company on January 1, 2009. The adoption of EITF 08-6 did not have any impact on the Company’s consolidated financial statements.
12
 
      In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.”  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. Effective January 1, 2009, the Company adopted SFAS No. 161. The Company’s adoption of SFAS No. 161 had no impact on its financial condition or results of operations.  (See Note 6 – Derivative Instruments and Hedging Activities.)

 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 transaction costs related to the business combination to be expensed as incurred. In April 2009, the FASB issued FSP No. SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP No. 141R-1 amends and clarifies SFAS No. 141R to address application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Both SFAS No. 141R and FSP No. SFAS 141R-1 is effective for business combinations for which the acquisition date is on or after the January 1, 2009. Effective January 1, 2009, the Company adopted SFAS No. 141R and FSP No. SFAS 141R-1. The Company’s adoption of SFAS No. 141R and FSP No. SFAS 141R-1 has had no effect on the Company’s consolidated financial statements. The Company expects SFAS No. 141R and FSP No. SFAS 141R-1 to have an impact on its accounting for future business combinations, but the effect is dependent upon the acquisitions that are made in the future.
      
      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. Effective January 1, 2009, the Company adopted SFAS No. 160.  SFAS No. 160 changed the accounting and reporting for minority interests, which is now characterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 required retroactive adoption of the presentation and disclosure requirements for existing minority interests, with all other requirements applied prospectively. Reflected in the December 31, 2008 Form 10-K/A, minority interests characterized as liabilities in the consolidated balance sheet was approximately $2.0 million. This amount has been recharacterized as noncontrolling interests and classified as a component of stockholders’ equity.
 
      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. We currently use 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 September 2006, the FASB issued SFAS No. 157, which provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for more information about: (1) the extent to which companies measure assets and liabilities at fair value; (2) the information used to measure fair value; and (3) the effect that fair value measurements have on earnings. SFAS No. 157 will apply 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. The Company adopted SFAS No. 157 effective January 1, 2008. In February 2008, the FASB issued FSP on Statement 157, “Effective Date of FASB Statement No. 157,” ("FSP No. SFAS 157-2").  FSP No. SFAS 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed on a recurring basis, to fiscal years beginning after November 15, 2008.  Effective January 1, 2009, the Company adopted FSP No. SFAS 157-2. The adoption of FSP No. SFAS 157-2 did not have a material impact on the Company’s consolidated financial statements.

 
13
 

       (j) Liquidity

The Company continually projects its anticipated cash needs, which include (but is not limited to) its operating needs, capital requirements, the TV One funding commitment and principal and interest payments on its indebtedness. Management’s most recent operating income and cash flow projections considered the current economic crisis, which has reduced advertising demand in general, as well as the limited credit environment. As of the filing of this Form 10-Q, management believes the Company can meet its liquidity needs through June 30, 2010 with cash and cash equivalents on hand, projected cash flows from operations and, to the extent necessary, through additional borrowing available under the Credit Agreement, which was approximately $8.0 million at June 30, 2009. Based on these projections, management also believes the Company will be in compliance with its debt covenants through June 30, 2010. However, a continued worsening economy, or other unforeseen circumstances, may negatively impact the Company’s operations beyond those assumed in its projections. Management considered the risks that the current economic conditions may have on its liquidity projections, as well as the Company’s ability to meet its debt covenant requirements. If economic conditions deteriorate unexpectedly to an extent that we could not meet our liquidity needs or it appears that noncompliance with debt covenants is likely to result, the Company would implement several remedial measures, which could include further operating cost and capital expenditure reductions, and further de-leveraging actions, which may include repurchases of discounted senior subordinated notes and other debt repayments, subject to our available liquidity to make such repurchases. If these measures are not successful in maintaining compliance with our debt covenants, the Company would attempt to negotiate for relief through an amendment with its lenders or waivers of covenant noncompliance, which could result in higher interest costs, additional fees and reduced borrowing limits. There is no assurance that the Company would be successful in obtaining relief from its debt covenant requirements in these circumstances. Failure to comply with its debt covenants and a corresponding failure to negotiate a favorable amendment or waivers with the Company’s lenders could result in the acceleration of the maturity of all the Company’s outstanding debt, which would have a material adverse effect on the Company’s business and financial position.

 
2.  ACQUISITIONS:

In June 2008, the Company purchased the assets of WPRS-FM, a radio station located in the Washington, DC metropolitan area for $38.0 million in cash.  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 final purchase price allocation consisted of approximately $33.9 million to radio broadcasting license, approximately $1.3 million to definitive-lived intangibles (acquired favorable income leases), $965,000 to goodwill and approximately $1.8 million to fixed assets on the Company’s consolidated balance sheet as of June 30, 2009.

In April 2008, the Company acquired CCI for $38.0 million in cash. CCI is an online social networking company operating branded websites including BlackPlanet, MiGente, and AsianAvenue. The Company’s final purchase price allocation consists of approximately $10.2 million to current assets, $4.6 million to fixed assets, $21.4 million to goodwill, $9.9 million to definite-lived intangibles (brand names, advertiser relationships and lists, favorable subleases, trademarks, trade names, etc.), and $6.0 million to current liabilities on the Company’s consolidated balance sheet as of June 30, 2009.

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. The sales price was financed by a loan from the seller, which was paid in full in July 2008. Since August 2001 and up until closing, the station had been operated under a LMA, and the results of its operations had been included in the Company’s consolidated financial statements since the LMA. The station was consolidated with the Company’s existing Cincinnati operations in 2001. In accordance with SFAS No. 142, during the first quarter 2009, we impaired radio broadcasting licenses in the Cincinnati market (which consists of a total of three stations) by approximately $3.3 million. (See Note 4 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.)
 
 
3.  DISCONTINUED OPERATIONS:

Between December 2006 and May 2008, the Company sold the assets of 20 radio stations in seven markets for approximately $287.9 million in cash. The remaining assets and liabilities of these stations have been classified as discontinued operations as of June 30, 2009 and December 31, 2008, and the stations’ results of operations for the three month and six months ended June 30, 2009 and 2008 have been classified as discontinued operations in the accompanying consolidated financial statements. For the period beginning December 1, 2006 and ending December 31, 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 sold 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.

 
14
 
Miami Station:  In April 2008, the Company sold the assets of its radio station WMCU-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 sold the assets 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 sold 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 sold the assets 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 sold 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 sold 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, 2009 and 2008:

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
                                 
Net revenue
  
$
—
    
$
(57
) 
  
$
—
    
$
2,361
  
Station operating expenses
    
85
      
133
      
(162
) 
    
4,220
  
Depreciation and amortization
    
—
      
—
      
—
      
79
  
Impairment of long-lived assets
    
—
      
—
      
—
      
5,076
  
Other income
    
—
      
18
      
—
      
116
  
Gain on sale of assets
    
—
      
1,857
      
—
      
1,632
  
(Loss) income before income taxes
    
(85
) 
    
1,685
      
162
      
(5,266
)
Provision for income taxes
    
4
      
351
      
93
      
1,181
  
(Loss) income from discontinued operations, net of tax
  
$
(89
) 
  
$
1,334
    
$
69
    
$
(6,447
)

The assets and liabilities of these stations classified as discontinued operations in the accompanying consolidated balance sheets consisted of the following:
 
   
As of
  
   
June 30, 2009
    
December 31, 2008
  
   
(In thousands)
  
Currents assets:
            
Accounts receivable, net of allowance for doubtful accounts
  
$
28
    
$
303
  
Total current assets
    
28
      
303
  
Property and equipment, net
    
—
      
60
  
Total assets
  
$
28
    
$
363
  
Current liabilities:
                
Other current liabilities
  
$
122 
    
$
582
  
Total current liabilities
    
122 
      
582
  
Total liabilities
  
$
122 
    
$
582
  
 
15
 
4.  GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS:
      
In the past, we have made acquisitions whereby a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. Effective January 1, 2002, in accordance with SFAS No. 142, we do not amortize our radio broadcasting licenses and goodwill. Instead, we perform a test for impairment annually, or when events or changes in circumstances or other conditions suggest an impairment may have occurred. Other intangible assets continue to be amortized on a straight-line basis over their useful lives. We perform our annual impairment test as of October 1 of each year.

Since our annual impairment testing performed as of October 1, 2008, the prolonged economic downturn has caused further deterioration to the 2009 outlook for the radio industry, and has resulted in further significant revenue and profitability declines. As a result, during the three months ended March 31, 2009, we made considerable reductions to our internal projections. Given the adverse impact on terminal values, we deemed the worsening radio outlook and the lowering of our internal projections as triggering events that warranted interim impairment testing during the first quarter of 2009, which we performed as of February 28, 2009. The outcome of our interim testing was to record impairment charges against radio broadcasting licenses in 11 of our 16 markets, for approximately $49.0 million, for the three months ended March 31, 2009. Since our first quarter 2009 assessment, no new or additional impairment indicators emerged, and therefore, no interim impairment testing was warranted. There was no impairment charge recorded for the three and six month periods ended June 30, 2008.

We utilize the services of a third party valuation firm when evaluating our radio broadcasting licenses for impairment, and the testing is done at the unit of accounting level as determined by EITF 02-7, “Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets,” using the income approach method. The income approach method involves a 10-year model that incorporates several variables, including, but not limited to, discounted cash flows of a typical market participant, market revenue and long-term growth projections, estimated market share for the typical participant and estimated profit margins based on market size and station type. The model also assumes outlays for capital expenditures, future terminal values, an effective tax rate assumption and a discount rate based on the weighted-average cost of capital of the radio broadcast industry.

The impairment testing of goodwill is performed at the reporting unit level, and is also done with the assistance of a third party valuation firm. We had 21 reporting units as of our interim and annual goodwill impairment assessment dates. In testing for the impairment of goodwill, we also use the income approach method. The approach involves a 10-year model with similar variables as described above, except that the discounted cash flows are generally based on the Company’s actual and projected market share and performance for its markets. We follow a two-step process to evaluate if a potential impairment exists for goodwill. The first step of the process involves estimating the fair value of each reporting unit. If the reporting unit’s fair value is less than its carrying value, a second step is performed to allocate the fair value of the reporting unit to the individual assets and liabilities of the reporting unit in order to determine the implied fair value of the reporting unit’s goodwill as of the impairment assessment date. Any excess of the carrying value of the goodwill over the implied fair value of the goodwill is written off to reduce the reporting unit’s carrying value to its estimated fair value.

Below are key assumptions used in the income approach model for estimating asset fair values for the annual impairment testing performed October 1, 2008 and subsequent interim impairment testing performed February 28, 2009.

Radio Broadcasting Licenses
October 1, 2008
February 28, 2009
Discount Rate
10.5%
10.5%
2009 Market Growth Rate Range
(8.0)%
(13.1)% - (17.7)%
Out-year  Market Growth Rate Range
1.5% - 2.5%
1.5% - 2.5%
Market Share Range
1.2% - 27.0%
0.9% - 27.0%
Operating Profit Margin Range
20.0% - 50.7%
14.9% - 50.7%

Goodwill
October 1, 2008
February 28, 2009
Discount Rate
10.5%
10.5%
2009 Market Growth Rate Range
(8.0)%
(13.1)% - (17.7)%
Out-year Market Growth Rate Range
1.5% - 2.5%
1.5% - 2.5%
Market Share Range
1.1% - 23.0%
2.8% - 22.0%
Operating Profit Margin Range
18.0% - 60.0%
15.0% - 61.5%

In arriving at the estimated fair values for radio broadcasting licenses and goodwill, we also performed a reasonableness test on the fair value results by calculating our implied multiple based on our cash flow projections and our estimated fair values, and by reviewing our estimated fair values in comparison to the market capitalization of the Company.

 
16
 
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:

   
As of
    
   
June 30, 2009
    
December 31, 2008
  
Period of Amortization
   
(In thousands)
    
               
Trade names
  
$
17,131
    
$
17,109
  
2-5 Years
Talent agreement
    
19,549
      
19,549
  
10 Years
Debt financing costs
    
15,702
      
15,586
  
Term of debt
Intellectual property
    
13,011
      
13,011
  
4-10 Years
Affiliate agreements
    
7,769
      
7,769
  
1-10 Years
Acquired income leases
    
1,282
      
1,282
  
3-9 Years
Non-compete agreements
    
1,260
      
1,260
  
1-3 Years
Advertiser agreements
    
6,613
      
6,613
  
2-7 Years
Favorable office and transmitter leases
    
3,655
      
3,655
  
2-60 Years
Brand names
    
2,539
      
2,539
  
2.5 Years
Other intangibles
    
1,231
      
1,241
  
1-5 Years
     
89,742
      
89,614
    
Less: Accumulated amortization
    
(50,841
)
    
(45,397
)
  
Other intangible assets, net
  
$
38,901
    
$
44,217
    
 
Amortization expense of intangible assets for the six months ended June 30, 2009 and 2008 was approximately $4.2 million and $3.3 million, respectively. The amortization of deferred financing costs was charged to interest expense for all periods presented. The amount of deferred financing costs included in interest expense for the six months ended June 30, 2009 and 2008 was approximately $1.2 million and $1.3 million, respectively.

The following table presents the Company’s estimate of amortization expense for the remainder of years 2009 and 2010 through 2013 for intangible assets, excluding deferred financing costs.

   
(In thousands)
  
       
2009
  
$
4,686
  
2010
  
$ 
7,247
  
2011
  
$
6,206
  
2012
  
$
5,924
  
2013
  
$
4,846
  

Actual amortization expense may vary as a result of future acquisitions and dispositions.
 

17
 
5.  INVESTMENT IN AFFILIATED COMPANY:

In January 2004, the Company, together with an affiliate of Comcast Corporation and other investors, 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, 2009. The initial four year commitment period for funding the capital was extended to October 1, 2009, 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, 2009, 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 months ended June 30, 2009 and 2008, the Company’s allocable share of TV One’s net income was $747,000 and $29,000, respectively. For the six months ended June 30, 2009 and 2008, the Company’s allocable share of TV One’s net income (losses) was approximately $1.9 million and $(2.8) million, respectively.

We entered into separate network services and advertising services agreements with TV One in 2003. Under the network services agreement, we are providing TV One with administrative and operational support services and access to Radio One personalities. This agreement was originally scheduled to expire in January 2009, and has now been extended to January 2010. Under the advertising services agreement, we are providing a specified amount of advertising to TV One. This agreement was also originally scheduled to expire in January 2009 and has now been extended to January 2011. In consideration of providing these services, we have received equity in TV One, and receive an annual cash fee of $500,000 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 $337,000 and $847,000, in revenue relating to these two agreements for the three months ended June 30, 2009 and 2008, respectively. The Company recognized $956,000 and approximately $2.0 million in revenue relating to these two agreements for the six months ended June 30, 2009 and 2008, respectively.


 
18
 
 
6.  
   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
       
SFAS No. 161 amends and expands the disclosure requirements of FASB Statement No. 133, ”Accounting for Derivative Instruments and Hedging Activities”  (“SFAS No. 133”), with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The fair values and the presentation of the Company’s derivative instruments in the consolidated balance sheet are as follows: 
 
 
Liability Derivatives
  
  
As of June 30, 2009
  
As of December 31, 2008
  
 
(In thousands)
  
     
 
Balance Sheet Location
  
Fair Value
  
Balance Sheet Location
  
Fair Value
  
Derivatives designated as hedging instruments under SFAS No. 133:
                
Interest rate swaps
Other Long-Term Liabilities
   $ 2,506  
Other Long-Term Liabilities
   $ 2,981  
                     
Derivatives not designated as hedging instruments under SFAS No.133:
                    
Employment agreement award
Other Long-Term Liabilities
     4,214  
Other Long-Term Liabilities
     4,326  
Total derivatives
     $ 6,720       $ 7,307  
 
        The effect and the presentation of the Company’s derivative instruments on the consolidated statement of operations are as follows:
  
 Derivatives in SFAS No. 133 Cash Flow Hedging Relationships
  
Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion)
  
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)
  
Gain (Loss) in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
   
Amount
  
Location
  
Amount
  
Location
  
Amount
Three Months Ended June 30,
 (In thousands)
 
   
2009
    
2008
      
2009
    
2008
      
2009
    
2008
  
Interest rate swaps
   $420     $1,682  
 Interest expense
   $(395)     $(269)  
 Interest expense
   $-     $-  


 Derivatives in SFAS No. 133 Cash Flow Hedging Relationships
  
Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion)
  
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)
  
Gain (Loss) in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
   
Amount
  
Location
  
Amount
  
Location
  
Amount
Six Months Ended June 30,
 (In thousands)
 
   
2009
    
2008
      
2009
    
2008
      
2009
    
2008
  
Interest rate swaps
   $475     $(1,466)  
 Interest expense
   $(711)     $(202)  
 Interest expense
   $-     $-  
 

 
19
 
 
Derivatives Not Designated as Hedging Instruments Under SFAS No. 133
Location of Gain (Loss) in Income on Derivative
Amount of Gain (Loss) in Income on Derivative
   
Three Months Ended June 30,
   
2009
  
2008
   
(In thousands)
     
Employment agreement award
Corporate selling, general and administrative expense
 $(10)   $-

Derivatives Not Designated as Hedging Instruments Under SFAS No. 133
Location of Gain (Loss) in Income on Derivative
Amount of Gain (Loss) in Income on Derivative
   
Six Months Ended June 30,
   
2009
  
2008
   
(In thousands)
     
Employment agreement award
Corporate selling, general and administrative expense
 $112   $-

 
      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 fair value 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
    
%
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 debt, in accordance with SFAS No. 133, 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.
 
20
 
      The Company’s objectives in using interest rate swaps are to manage interest rate risk associated with the Company’s floating rate debt commitments and to add stability to future cash flows. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 
 
      The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009, such derivatives were used to hedge the variable cash flows associated with existing floating rate debt commitments.  The ineffective portion of the change in fair value of the derivatives, if any, is recognized directly in earnings. There was no hedging ineffectiveness during the three months and six months ended June 30, 2009 and 2008.  
 
      Amounts reported in Accumulated Other Comprehensive Loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s floating rate debt. During the next 12 months, the Company estimates that an additional amount of approximately $1.3 million will be reclassified as an increase to interest expense.
 
      Under the 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, 2009 to be a liability of approximately $2.5 million. The fair value of the interest rate swap agreements is estimated by obtaining quotations from the financial institutions, which are parties to the Company’s swap agreements. 
 
      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.
 
      Other Derivative Instruments
 
      The Company recognizes all derivatives at fair value, whether designated in hedging relationships or not, in 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, 2009, the Company was party to an 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. 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. The Company reassessed the estimated fair value of the award at June 30, 2009 to be approximately $4.2 million, and accordingly, adjusted its liability to 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 in April 2011, or earlier if the CEO voluntarily leaves the Company, or is terminated for cause.

 
21
 
7.  LONG-TERM DEBT:
 
      Long-term debt consists of the following:
 
   
As of
  
   
June 30, 2009
    
December 31, 2008
  
   
(In thousands)
  
Credit Facilities:
                
87/8/% Senior Subordinated Notes due July 2011
  
$
101,510
    
$
103,951
  
63/8% Senior Subordinated Notes due February 2013
    
200,000
      
200,000
  
Senior bank term debt
    
54,029
      
164,701
  
Senior bank revolving debt
    
318,000
      
206,500
  
Capital lease
    
-
      
210
  
Total long-term debt
    
673,539
      
675,362