XML 51 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Policies)
 3 Months Ended
Mar. 31, 2013
Accounting Policies [Abstract]  
Consolidation, Policy [Policy Text Block]

(a) Organization

 

 Radio One, Inc. (a Delaware corporation referred to as “Radio One”) and its subsidiaries (collectively, the “Company”) is an urban-oriented, multi-media company that primarily targets African-American and urban consumers. Our core business is our radio broadcasting franchise that is the largest radio broadcasting operation that primarily targets African-American and urban listeners. We currently own and/or operate 54 broadcast stations located in 16 urban markets in the United States.  While our primary source of revenue is the sale of local and national advertising for broadcast on our radio stations, our strategy is to operate the premier multi-media entertainment and information content provider targeting African-American and urban consumers. Thus, we have diversified our revenue streams by making acquisitions and investments in other complementary media properties. Our other media interests include our approximately 51.1% (See Note 2 - Acquisitions) controlling ownership interest in TV One, LLC (“TV One”), an African-American targeted cable television network that we own with an affiliate of Comcast Corporation; our 80.0% controlling ownership interest in Reach Media, Inc. (“Reach Media”), which operates the Tom Joyner Morning Show and our other syndicated programming assets; and our ownership of Interactive One, LLC (“Interactive One”), an online platform serving the African-American community through social content, news, information, and entertainment websites, including News One, UrbanDaily and HelloBeautiful and online social networking websites, including BlackPlanet, MiGente and Asian Avenue.  Through our national multi-media presence, we provide advertisers with a unique and powerful delivery mechanism to the African-American and urban audiences.   

 

As of June 2011, our then remaining Boston radio station was made the subject of a local marketing agreement (“LMA”) whereby we made available, for a fee, air time on this station to another party. In addition, beginning as of November 1, 2012, our Columbus, Ohio radio station, WJKR-FM (The Jack, 98.9 FM) was also made the subject of an LMA, and on February 15, 2013, the Company sold that station’s assets. The remaining assets and liabilities of stations sold and stations that we do not operate as they are the subject of an LMA have been classified as discontinued operations as of March 31, 2013 and December 31, 2012, and the results from operations of those stations for the three months ended March 31, 2013 and 2012, have been reclassified as discontinued operations in the accompanying consolidated financial statements.

 

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 four reportable segments: (i) Radio Broadcasting; (ii) Reach Media; (iii) Internet; and (iv) Cable Television. (See Note 10 – Segment Information.)
Basis of Accounting, Policy [Policy Text Block]

(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 (“GAAP”) 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 2012 Annual Report on Form 10-K, as amended on Form 10-K/A.
Fair Value of Financial Instruments, Policy [Policy Text Block]

(c)  Financial Instruments

 

Financial instruments as of March 31, 2013, and December 31, 2012, consisted of cash and cash equivalents, investments, trade accounts receivable, accounts payable, accrued expenses, long-term debt and redeemable noncontrolling interest. The carrying amounts approximated fair value for each of these financial instruments as of March 31, 2013 and December 31, 2012, respectively, except for the Company’s outstanding senior subordinated notes. The 63/8% Senior Subordinated Notes which were due and paid in full in February 2013 had a carrying value of $747,000 and a fair value of approximately $740,000 as of December 31, 2012. The 121/2%/15% Senior Subordinated Notes due May 2016 had a carrying value of approximately $327.0 million and a fair value of approximately $328.7 million as of March 31, 2013, and a carrying value of approximately $327.0 million and a fair value of approximately $293.5 million as of December 31, 2012. The fair values, classified as Level 2, were determined based on the trading values of these instruments in an inactive market as of the reporting date. The Company’s 10% Senior Secured TV One Notes due March 2016 are classified as Level 3 since they are not market traded financial instruments.
Revenue Recognition, Policy [Policy Text Block]

(d)  Revenue Recognition

 

Within our Radio Broadcasting and Reach Media segments, 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 Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.”  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. For our Radio Broadcasting and Reach Media segments, agency and outside sales representative commissions were approximately $6.9 million and $7.1 million for the three months ended March 31, 2013 and 2012, respectively.

 

Interactive One generates the majority of the Company’s internet revenue, and derives such revenue principally from advertising services on non-radio station branded websites, 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 are made or leads are generated, or ratably over the contract period, where applicable.

 

TV One, the driver of revenues in our Cable Television segment, derives advertising revenue from the sale of television air time to advertisers and recognizes revenue when the advertisements are run. TV One also receives affiliate fees and records revenue during the term of various affiliation agreements based on the most recent subscriber counts reported by the applicable affiliate.
Advertising Barter Transactions, Policy [Policy Text Block]

(e)  Barter Transactions

 

The Company provides advertising time in exchange for programming content and certain services and accounts for these exchanges in accordance with ASC 605, “Revenue Recognition.” The terms of these exchanges generally permit the Company to preempt such time in favor of advertisers who purchase time in exchange for cash. The Company includes the value of such exchanges in both 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 March 31, 2013 and 2012, barter transaction revenues were $618,000 and $722,000, respectively. Additionally, barter transaction costs were reflected in programming and technical expenses and selling, general and administrative expenses of $549,000 and $680,000 and $69,000 and $42,000, for the three months ended March 31, 2013 and 2012, respectively.
Earnings Per Share, Policy [Policy Text Block]

(f) Earnings Per Share

 

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.  The Company’s potentially dilutive securities include stock options and restricted stock. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a net loss, as the inclusion of the potentially dilutive common shares would have an anti-dilutive effect.

 

The following table sets forth the calculation of basic and diluted earnings per share (in thousands, except share and per share data):

 

    Three Months Ended March 31,  
    2013     2012  
    (Unaudited)  
Numerator:                
  Net loss attributable to common stockholders   $ (18,106 )   $ (79,242 )
Denominator:                
  Denominator for basic net loss per share - weighted-average outstanding shares     49,861,964       49,994,974  
  Effect of dilutive securities:                
  Stock options and restricted stock     -       -  
  Denominator for diluted net loss per share - weighted-average outstanding shares     49,861,964       49,994,974  
                 
Net loss attributable to common stockholders per share -basic    $ (0.36 )   $ (1.58 )
Net loss attributable to common stockholders per share -diluted    $ (0.36 )   $ (1.58 )

 

 

All stock options and restricted stock awards were excluded from the diluted calculation for the three months ended March 31, 2013 and 2012, as their inclusion would have been anti-dilutive.  The following table summarizes the potential common shares excluded from the diluted calculation.

  

    Three Months Ended March 31,  
    2013     2012  
    (Unaudited)  
    (In thousands)  
             
Stock options     4,630       4,811  
Restricted stock awards     57       119  
Fair Value Measurement, Policy [Policy Text Block]
(g) Fair Value Measurements

 

We report our financial and non-financial assets and liabilities measured at fair value on a recurring and non-recurring basis under the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

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 (i.e., 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 March 31, 2013, and December 31, 2012, the fair values of our financial assets and liabilities are categorized as follows:

  

 

    Total     Level 1     Level 2     Level 3  
    (Unaudited)  
    (In thousands)  
As of March 31, 2013                        
Assets subject to fair value measurement:                        
Corporate debt securities (a)   $ 1,300     $ 1,300     $ —     $ —  
Mutual funds (a)     1,980       1,980       —       —  
Total   $ 3,280     $ 3,280     $ —     $ —  
                                 
Liabilities subject to fair value measurement:                                
Incentive award plan (b)   $ 5,345     $ —     $ —     $ 5,345  
Employment agreement award (c)     11,836       —       —       11,836  
Total   $ 17,181     $ —     $ —     $ 17,181  
                                 
Mezzanine equity subject to fair value measurement:                                
Redeemable noncontrolling interests (d)   $ 13,012     $ —     $ —     $ 13,012  
                                 
As of December 31, 2012                                
Assets subject to fair value measurement:                                
Corporate debt securities (a)   $ 192     $ 192     $ —     $ —  
Mutual funds (a)     1,502       1,502       —       —  
Total   $ 1,694     $ 1,694     $ —     $ —  
                                 
Liabilities subject to fair value measurement:                                
Incentive award plan (b)   $ 5,345     $ —     $ —     $ 5,345  
Employment agreement award (c)     11,374       —       —       11,374  
Total   $ 16,719     $ —     $ —     $ 16,719  
                                 
Mezzanine equity subject to fair value measurement:                                
Redeemable noncontrolling interests (d)   $ 12,853     $ —     $ —     $ 12,853  

 

(a) Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

 

(b) These balances are measured based on the estimated enterprise fair value of TV One. Significant inputs to the discounted cash flow analysis include forecasted operating results, discount rate and a terminal value. For the period ended March 31, 2013, the Company determined that there was no change in TV One’s enterprise fair value since the December 31, 2012 valuation.

 

(c)   Pursuant to an employment agreement (the “Employment Agreement”) executed in April 2008, the Chief Executive Officer (“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 reviews the factors underlying this award at the end of each quarter including the valuation of TV One and an assessment of the probability that the employment agreement will be renewed and contain this provision. 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 if the CEO voluntarily leaves the Company or is terminated for cause. In estimating the fair value of the award, the Company determined that there was no change in TV One’s enterprise fair value since the December 31, 2012 valuation (See Note 6 – Derivative Instruments and Hedging Activities.)  The terms of the April 2008 employment agreement remain in effect including eligibility for the TV One award.  

 

(d)   The redeemable noncontrolling interest in Reach Media is measured at fair value using a discounted cash flow methodology.  A third-party valuation firm assisted the Company in estimating the fair value. Significant inputs to the discounted cash flow analysis include forecasted operating results, discount rate and a terminal value.

  

      The following table presents the changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2013 and 2012:

 

   

 

 

Incentive Award Plan

     Employment Agreement Award     Redeemable Noncontrolling Interests  
    (In thousands)  
                   
Balance at December 31, 2012   $ 5,345     $ 11,374     $ 12,853  
Losses included in earnings (unrealized)     —       462       —  
Net loss attributable to noncontrolling interests     —       —       (187 )
Change in enterprise fair value     —       —       346  
Balance at March 31, 2013   $ 5,345     $ 11,836     $ 13,012  
                         
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at the reporting date   $ —     $ (462 )   $ —  

 

   

 

 

Incentive Award Plan

     Employment Agreement Award     Redeemable Noncontrolling Interests  
    (In thousands)  
                   
Balance at December 31, 2011   $ 5,096     $ 10,346     $ 20,343  
Losses included in earnings (unrealized)     —       350       —  
Net income attributable to noncontrolling interests     —       —       (221 )
Change in enterprise fair value     —       —       3,330  
Balance at March 31, 2012   $ 5,096     $ 10,696     $ 23,452  
                         
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at the reporting date   $ —     $ (350 )   $ —  

 

Gains (losses) included in earnings were recorded in the consolidated statements of operations as corporate selling, general and administrative expenses for the three months ended March 31, 2013 and 2012.

 

For Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

 

            As of
March 31, 2013		   As of
December 31, 2012		   As of
March 31, 2012
Level 3 liabilities   Valuation Technique   Significant Unobservable Inputs   Significant Unobservable Input Value
                     
Incentive award plan   Discounted Cash Flow   Discount Rate   10.75%   10.75%   11.50%
Incentive award plan   Discounted Cash Flow   Long-term Growth Rate   3.00%   3.00%   3.00%
Employment agreement award   Discounted Cash Flow   Discount Rate   10.75%   10.75%   11.50%
Employment agreement award   Discounted Cash Flow   Long-term Growth Rate   3.00%   3.00%   3.00%
Redeemable noncontrolling interest   Discounted Cash Flow   Discount Rate   12.50%   11.50%   12.50%
Redeemable noncontrolling interest   Discounted Cash Flow   Long-term Growth Rate   2.00%   2.00%   2.50%

  

Any significant increases or decreases in discount rate or long-term growth rate inputs could result in significantly higher or lower fair value measurements.

 

Certain assets and liabilities are measured at fair value on a non-recurring basis using Level 3 inputs as defined in ASC 820.  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, as well as content assets that are periodically written down to net realizable value. The Company concluded these assets were not impaired during the three months ended March 31, 2012, and therefore, were reported at carrying value as opposed to fair value.  The Company recorded impairment of approximately $1.4 million related to our Cincinnati radio broadcasting licenses during the three months ended March 31, 2013.
New Accounting Pronouncements, Policy [Policy Text Block]

(h) Impact of Recently Issued Accounting Pronouncements

 

In May 2011, the FASB issued ASU 2011-04, which provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The Company adopted this guidance on January 1, 2012, and it did not have a significant impact on the Company’s financial statements.

 

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which was subsequently modified in December 2011 by ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This ASU amends existing presentation and disclosure requirements concerning comprehensive income, most significantly by requiring that comprehensive income be presented with net income in a continuous financial statement, or in a separate but consecutive financial statement. The provisions of this ASU (as modified) are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company's financial statements, other than presentation and disclosure.

 

In September 2011, the FASB issued ASU 2011-08, which provides companies with an option to perform a qualitative assessment that may allow them to skip the two-step impairment test. ASU 2011-08 amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, companies will need to perform a more detailed two-step goodwill impairment test which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this guidance on January 1, 2012, and it did not have a significant impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income. ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013, and it did not have a significant impact on the Company’s financial statements.
Liquidity Disclosure [Policy Text Block]

(i) Liquidity and Uncertainties Related to Going Concern

 

On March 31, 2011, the Company entered into a new senior credit facility (the “2011 Credit Agreement”).  Under the 2011 Credit Agreement, beginning June 30, 2011, we became required to maintain compliance with certain financial ratios (as detailed in Note 7 — Long-Term Debt).  Based on our current projections, we expect to be in compliance with these financial ratios and other covenants over the next twelve months.
Redeemable Noncontrolling Interest Policy [Policy Text Block]
(j) Redeemable noncontrolling interest

 

Redeemable noncontrolling interests are interests in subsidiaries that are redeemable outside of the Company’s control either for cash or other assets. These interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each reporting period or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations.  The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital.
Investment, Policy [Policy Text Block]

(k) Investments

 

Investment Securities

 

Investments consist primarily of corporate fixed maturity securities and mutual funds.

 

Investments with original maturities in excess of three months and less than one year are classified as short-term investments. Long-term investments have original maturities in excess of one year.

 

Debt securities are classified as “available-for-sale” and reported at fair value. Investments in available-for-sale fixed maturity securities are classified as either current or noncurrent assets based on their contractual maturities. Fixed maturity securities are carried at estimated fair value based on quoted market prices for the same or similar instruments. Investment income is recognized when earned and reported net of investment expenses. Unrealized gains and losses are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized, unless the losses are deemed to be other than temporary. Realized gains or losses, including any provision for other-than-temporary declines in value, are included in the statements of operations. For purposes of computing realized gains and losses, the specific-identification method of determining cost was used.

 

Evaluating Investments for Other than Temporary Impairments

 

The Company periodically performs evaluations, on a lot-by-lot and security-by-security basis, of its investment holdings in accordance with its impairment policy to evaluate whether any declines in the fair value of investments are other than temporary. This evaluation consists of a review of several factors, including but not limited to: length of time and extent that a security has been in an unrealized loss position, the existence of an event that would impair the issuer’s future earnings potential, and the near-term prospects for recovery of the market value of a security. The FASB has issued guidance for recognition and presentation of other than temporary impairment (“OTTI”), or FASB OTTI guidance. Accordingly, any credit-related impairment of fixed maturity securities that the Company does not intend to sell, and is not likely to be required to sell, is recognized in the consolidated statements of operations, with the noncredit-related impairment recognized in accumulated other comprehensive loss.

 

The Company believes that it has adequately reviewed its investment securities for OTTI and that its investment securities are carried at fair value. However, over time, the economic and market environment (including any ratings change for any such securities, including US treasuries and corporate bonds) may provide additional insight regarding the fair value of certain securities, which could change management’s judgment regarding OTTI. This could result in realized losses relating to other than temporary declines being charged against future income. Given the judgments involved, there is a continuing risk that further declines in fair value may occur and material OTTI may be recorded in future periods.
Launch Support [Policy Text Block]

(l) Launch Support

 

TV One has entered into certain affiliate agreements requiring various payments by TV One for launch support. Launch assets are assets used to initiate carriage under new affiliation agreements and are amortized over the term of the respective contracts. Amortization is recorded as a reduction to revenue to the extent that revenue is recognized from the vendor, and any excess amortization is recorded as launch support amortization expense. The weighted-average amortization period for launch support is approximately 10.9 years at each of March 31, 2013, and December 31, 2012. The remaining weighted-average amortization period for launch support is 2.1 years and 2.4 years as of March 31, 2013, and December 31, 2012, respectively. For each of the three months ended March 31, 2013, and 2012, launch asset amortization of approximately $2.5 million was recorded as a reduction of revenue.
Content Assets [Policy Text Block]

(m) Content Assets

 

TV One has entered into contracts to acquire entertainment programming rights and programs from distributors and producers. The license periods granted in these contracts generally run from one year to perpetuity. Contract payments are made in installments over terms that are generally shorter than the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins and the program is available for its first airing.

 

Program rights are recorded at the lower of amortized cost or estimated net realizable value. Program rights are amortized based on the greater of the usage of the program or term of license. Estimated net realizable values are based on the estimated revenues directly associated with the program materials and related expenses. The Company recorded additional amortization expense of $0 and $96,000 as a result of evaluating its contracts for recoverability for the three months ended March 31, 2013, and 2012, respectively. All produced and licensed content is classified as a long-term asset, except for the portion of the unamortized content balance that will be amortized within one year which is classified as a current asset.