Derivative Financial Instruments

12 Months Ended

Dec. 31, 2012

Derivative Financial Instruments

8. Derivative Financial Instruments

The Company’s derivative financial instruments consist of the following:

May 2005 Option

In May 2005, the Company entered into an interest rate option agreement (the “May 2005 Option”), that provided Bank of America, N.A. the right to enter into an underlying swap agreement with the Company during certain periods.

The May 2005 Option was exercised effective March 11, 2009. This instrument was not highly effective in mitigating the risks in the Company’s cash flows, and therefore the Company deemed it speculative, and accounted for changes in the May 2005 Option’s value as interest expense. The May 2005 Option expired on March 31, 2011 in accordance with its terms. The Company reported interest income related to the May 2005 Option of $0.0 million, $3.7 million and $12.0 million during the years ended December 31, 2012, 2011 and 2010 respectively.

Interest Rate Cap

On December 8, 2011, the Company entered into an interest rate cap agreement with JPMorgan (the “Interest Rate Cap”) to limit the Company’s exposure to interest rate risk. The Interest Rate Cap has an aggregate notional amount of $71.3 million. The agreement caps the LIBOR-based variable interest rate component of the Company’s long-term debt at a maximum of 3.0% on an equivalent amount of the Company’s term loans. The consolidated balance sheets as of December 31, 2012 and 2011 include long-term assets of $0.0 million and $0.4 million, respectively, attributable to the fair value of this Interest Rate Cap. The Company reported interest expense of $0.3 million and $0.1 million during the years ended December 31, 2012 and 2011, respectively, inclusive of the change in fair value adjustment related to this Interest Rate Cap. The Interest Rate Cap matures on December 8, 2015.

The Company does not utilize financial instruments for trading or other speculative purposes.

Green Bay Option

On April 10, 2009, Clear Channel and the Company entered into an LMA whereby the Company is responsible for operating (i.e., programming, advertising, etc.) five Green Bay radio stations and must pay Clear Channel a monthly fee of approximately $0.2 million over a five year term (expiring December 31, 2013), in exchange for the Company retaining the operating profits for managing the radio stations. Clear Channel also has a put option (the “Green Bay Option”) that allows it to require the Company to repurchase the five Green Bay radio stations at any time during the two-month period commencing July 1, 2013 (or earlier if the LMA is terminated before this date) for $17.6 million (the fair value of the radio stations as of April 10, 2009). The Company accounts for the Green Bay Option as a derivative contract. Accordingly, the fair value of the Green Bay Option is recorded as a liability offsetting the gain at the acquisition date with subsequent changes in the fair value recorded through earnings. The fair value of the Green Bay Option was determined using inputs that are supported by little or no market activity (a “Level 3” fair value measurement). The fair value represents an estimate of the net amount that the Company would pay if the option was transferred to another party as of the date of the valuation.

The consolidated balance sheets as of December 31, 2012 and December 31, 2011 reflect other current liabilities and other long term liabilities, respectively, of $11.4 million related to fair value of the Green Bay Option. Accordingly, the Company recorded $0.0 million and $3.4 million of expense in realized loss on derivative instruments associated with marking to market the Green Bay Option to reflect the fair value of the option during the years ended December 31, 2012 and 2011, respectively.

The location and fair value amounts of derivatives in the consolidated balance sheets are shown in the following table:

Information on the Location and Amounts of Derivatives Fair Values in the

Consolidated Balance Sheets (dollars in thousands)

		Fair Value
		December  31, 2012			December  31, 2011
Derivative Instrument	Balance Sheet Location
Derivatives not designated as hedging instruments:
Interest rate cap	Other assets	$	44		$	376
Green Bay Option	Other liabilities		(11,386	)		—
Green Bay Option	Other current liabilities		—			(11,398	)
	Total	$	(11,342	)	$	(11,022	)

The location and effect of derivatives in the statements of operations are shown in the following table (dollars in thousands):

		Amount of Expense (Income) Recognized on Derivatives For the Year Ended
Derivative Instrument	Statement of Operations Location	December 31, 2012	December 31, 2011
Interest rate cap	Interest expense	$332	$101
Green Bay Option	Realized (gain) losses on derivative instrument	(12)	3,368
May 2005 Option	Interest income	—	(3,683)
	Total	$320	$(214)