10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________ to ________ Commission file number 333-60575 INTEREP NATIONAL RADIO SALES, INC. ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) New York 13-1865151 ------------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 100 Park Avenue, New York, New York 10017 ------------------------------------- ------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (212) 916-0700 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 |X| No |_| As of August 10, 2000, there were 5,207,161 outstanding shares of the registrant's Class A common stock, $0.01 par value per share, and 4,083,468 outstanding shares of the registrant's Class B common stock, $0.01 par value per share. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. INTEREP NATIONAL RADIO SALES, INC. CONSOLIDATED BALANCE SHEETS (in thousands except share data)
June 30, December 31, 2000 1999 ---------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents........................................................................... $33,410 $66,725 Marketable securities............................................................................... 9,800 --- Receivables, less allowance for doubtful accounts of $2,234 and $2,159, respectively................ 31,455 32,082 Representation contract buyouts receivable.......................................................... 4,800 7,529 Current portion of deferred representation contract costs........................................... 40,164 37,228 Prepaid expenses and other current assets........................................................... 1,112 1,028 --------- --------- Total current assets................................................................................ 120,741 144,592 --------- --------- Fixed assets, net................................................................................... 5,355 5,727 Deferred representation contract costs.............................................................. 61,403 55,103 Representation contract buyouts receivable.......................................................... 2,519 3,569 Investments and other assets........................................................................ 21,361 17,329 --------- --------- Total assets........................................................................................ $211,379 $226,320 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses .............................................................. $16,410 $18,534 Accrued interest.................................................................................... 5,000 5,000 Representation contract buyouts payable............................................................. 29,660 26,301 Accrued employee-related liabilities................................................................ 3,635 7,623 --------- --------- Total current liabilities........................................................................... 54,705 57,458 --------- --------- Long-term debt...................................................................................... 100,000 100,000 --------- --------- Representation contract buyouts payable............................................................. 28,523 29,876 --------- --------- Other noncurrent liabilities........................................................................ 5,167 5,500 --------- --------- Commitments and contingencies Shareholders' equity: Class A common stock $0.01 par value -- 20,000,000 shares authorized, 5,205,409 and 5,416,667 shares issued at June 30, 2000 and December 31, 1999, respectively............................ 52 54 Class B common stock, $0.01 par value -- 10,000,000 shares authorized, 4,085,220 and 4,923,962 shares issued at June 30, 2000 and December 31, 1999, respectively............................ 41 49 Additional paid-in-capital.......................................................................... 39,663 45,881 Accumulated deficit................................................................................. (16,772) (12,498) --------- --------- Total shareholders' equity.......................................................................... 22,984 33,486 --------- --------- Total liabilities and shareholders' equity.......................................................... $211,379 $226,320 ========= =========
The accompanying Notes to the Unaudited Interim Consolidated Financial Statements are an integral part of these balance sheets. -2- INTEREP NATIONAL RADIO SALES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) (unaudited)
For the For the Three Months Six Months Ended June 30, Ended June 30, ---------------- --------------- 2000 1999 2000 1999 ---- ---- ---- ---- Commission revenues .......................................... $26,888 $24,194 $46,994 $41,705 Contract termination revenue.................................. 7 1,237 817 3,742 --------- --------- -------- -------- Total revenues................................................ 26,895 25,431 47,811 45,447 --------- --------- -------- -------- Operating expenses: Selling expenses.............................................. 17,196 15,981 32,760 30,627 General and administrative expenses........................... 3,059 2,587 5,966 5,186 Depreciation and amortization expense......................... 6,725 6,744 12,317 16,246 --------- --------- -------- -------- Total operating expenses...................................... 26,980 25,312 51,043 52,059 --------- --------- -------- -------- Operating income (loss)....................................... (85) 119 (3,232) (6,612) Interest expense, net......................................... 2,113 2,430 3,942 4,812 --------- --------- -------- -------- Loss before benefit for income taxes.......................... (2,198) (2,311) (7,174) (11,424) Benefit for income taxes...................................... (860) (948) (2,900) (4,684) --------- --------- -------- -------- Net loss ..................................................... $(1,338) $(1,363) $(4,274) $(6,740) ========= ========= ======== ======== Basic and diluted loss per share.............................. $(0.14) $(0.23) $(0.43) $(1.14) ========= ========= ======== ========
The accompanying Notes to the Unaudited Interim Consolidated Financial Statements are an integral part of these statements. -3- INTEREP NATIONAL RADIO SALES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
For the Six Months Ended June 30, ------------------- 2000 1999 ---- ---- Cash flows from operating activities: Net loss.......................................................................................... $(4,274) $(6,740) Adjustments to reconcile loss to net cash provided by operating activities: Depreciation and amortization..................................................................... 12,317 16,246 Changes in assets and liabilities- Receivables....................................................................................... Receivables....................................................................................... 627 1,518 Representation contract buyouts receivable........................................................ 3,779 5,402 Prepaid expenses and other current assets......................................................... (84) (596) Other noncurrent assets........................................................................... (3,619) (3,200) Accounts payable and accrued expenses............................................................. (2,124) (3,659) Accrued interest.................................................................................. --- 28 Accrued employee-related liabilities.............................................................. (3,988) (3,957) Other noncurrent liabilities...................................................................... (333) (4,963) ----------- ---------- Net cash provided by operating activities......................................................... 2,301 79 ----------- ---------- Cash flows from investing activities: Additions to fixed assets......................................................................... (317) (2,078) Increase in other investments..................................................................... (1,340) --- Purchase of marketable securities................................................................. (9,800) --- ----------- ---------- Net cash used in investing activities............................................................. (11,457) (2,078) ----------- ---------- Cash flows from financing activities: Station representation contract payments.......................................................... (17,931) (14,686) Stock repurchases................................................................................. (6,228) (12) Other, net........................................................................................ --- 82 ----------- ---------- Net cash used in financing activities............................................................. (24,159) (14,616) ----------- ---------- Net decrease in cash and cash equivalents......................................................... (33,315) (16,615) Cash and cash equivalents, beginning of period.................................................... 66,725 32,962 ----------- ---------- Cash and cash equivalents, end of period.......................................................... $33,410 $16,347 =========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest paid............................................................................... $5,000 $4,972 Income taxes paid........................................................................... 172 1,080 Non-cash investing and financing activities: Station representation contracts acquired................................................... $19,936 $12,704 =========== ==========
The accompanying Notes to the Unaudited Interim Consolidated Financial Statements are an integral part of these statements. -4- INTEREP NATIONAL RADIO SALES, INC. NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (in thousands except share information) 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Interep National Radio Sales, Inc. ("Interep"), together with its subsidiaries (collectively, the "Company"), and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. All significant intercompany transactions and balances have been eliminated. The consolidated financial statements as of June 30, 2000 and 1999 are unaudited; however, in the opinion of management, such statements include all adjustments necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Consolidated Financial Statements for the year ended December 31, 1999, which are available upon request of the Company. Due to the seasonal nature of the Company's business, the results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ended December 31, 2000. Revenue Recognition The Company is a national representation ("rep") firm serving radio broadcast clients throughout the United States. Commission revenue is derived from sales of advertising time for radio stations under representation contracts. Commissions and fees are recognized in the month the advertisement is broadcast. In connection with its unwired network business, the Company collects fees for unwired network radio advertising and, after deducting its commissions, remits the fees to the respective radio stations. In instances when the Company is not legally obligated to pay a station until the corresponding receivable is paid, fees payable to stations have been offset against the related receivable from advertising agencies in the accompanying consolidated balance sheets. Representation Contract Termination Revenue and Contract Acquisition Costs The Company's station representation contracts usually renew automatically from year to year unless either party provides written notice of termination at least twelve months prior to the next automatic renewal date. In accordance with industry practice, in lieu of termination, an arrangement is normally made for the purchase of such contracts by a successor representative firm. The purchase price paid by the successor representation firm is generally based upon the historic commission income projected over the remaining contract period, plus two months. Costs of obtaining station representation contracts are deferred and amortized over the life of the new contract. Such amortization is included in the accompanying consolidated statements of operations as a component of depreciation and amortization expense. Amounts that are to be amortized during the next year are included as current assets in the accompanying consolidated balance sheets. Income earned from the loss of station representation contracts (contract termination revenue) is recognized on the effective date of the buyout agreement. In addition, costs incurred as a result of commission rate reductions are deferred and amortized over the remaining life of the existing representation agreement. Such amortization is included in the accompanying consolidated statements of operations as a component of depreciation and amortization expense. -5- Earnings (Loss) Per Share Basic loss per share (EPS) for each of the respective periods has been computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Basic EPS has been computed using the weighted average shares of common stock outstanding of 9,640,803 and 5,907,859 for the three months ended June 30, 2000 and 1999, respectively, and 9,937,744 and 5,908,385 for the six months ended June 30, 2000 and 1999, respectively. Diluted EPS reflects the potential dilution that could occur if the outstanding options to purchase common stock were exercised. Diluted EPS has been computed using the weighted average shares of common stock outstanding of 9,640,803 and 5,907,859 for the three months ended June 30, 2000 and 1999, respectively, and 9,937,744 and 5,908,385 for the six months ended June 30, 2000 and 1999, respectively. 2. Segment Reporting In 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information". The Statement requires the Company to report segment financial information consistent with the presentation made to the Company's management for decision making purposes. The Company is managed as one segment and all revenues are derived solely from radio representation operations and related activities. The Company's management decisions are based on operating cash flow (defined as operating income before depreciation, amortization, and management fees), general and administrative expenses of $5,966 and $5,186 for the six months ended June 30, 2000 and 1999, respectively, and adjusted EBITDA (income excluding contract termination revenue before interest, taxes, depreciation and amortization)of $8,268 and $5,892 for the six months ended June 30, 2000 and 1999, respectively. 3. Stockholders' Equity In January 2000, the Company's Employee Stock Ownership Plan sold 812,500 shares of Class B common stock pursuant to an underwriters' over-allotment provision in connection with the Company's initial public offering in December 1999. Upon the sale, these shares were converted to shares of Class A common stock. On March 31, 2000, the Board of Directors of the Company authorized a program to repurchase up to 1,000,000 shares of its Class A common stock in open market transactions. On May 1, 2000, the Board of Directors authorized an additional 1,000,000 shares to be repurchased at the Company's discretion based upon market conditions. As of June 30, 2000, 1,050,000 shares had been repurchased under this program for an aggregate cost of $6,228. 4. Commitments and Contingencies The Company may be involved in various legal actions from time to time arising in the normal course of business. In the opinion of management, there are no matters outstanding that would have a material adverse effect on the consolidated financial position or results of operations of the Company. In February 2000, a client of the Company was served a summons and complaint in an action filed in New York State Supreme Court for alleged breach of various national sales representation agreements. The plaintiffs seek damages of approximately $8 million. The Company has agreed to indemnify the defendant from and against any loss, liability, cost or expense incurred in the action. Management believes the defendant has meritorious factual and legal defenses to the action and intends to vigorously defend the claims. In December 1999, the Company's representation agreement with Clear Channel Communications was terminated. In April 2000, the Company filed an action in the Supreme Court of the State of New York seeking damages arising out of Clear Channel's alleged breach of contract of its national sales representation agreement with the Company. As of June 30, 2000, the Company had $7.3 million of current deferred costs on representation contract purchases and $9.4 million of current representation contract buyout payables resulting from the purchase of the Clear Channel representation agreement in 1996. Management believes that the deferred costs will be realized and the buyout payables will be assumed as part of the outcome of this action. -6- 5. Guarantor Subsidiaries Effective January 1, 2000, the Company transferred all of its operations to its wholly-owned subsidiaries. Accordingly, the financial information previously provided for guarantor subsidiaries is no longer meaningful or required, as the guarantor subsidiaries' results of operations are the same as the Company's consolidated results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion is based on and should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere in this Report. Some of the statements contained in this Report are "forward-looking statements" that are not based on historical facts and that reflect management's current views and estimates about future economic circumstances, industry conditions and our performance and financial results. Because these forward-looking statements are based on many assumptions and involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Overview We derive a substantial majority of our revenues from commissions on sales by us of national spot radio advertising air time for the radio stations we represent. Generally, national spot advertising time is purchased by advertising agencies or media buying services retained by advertisers. We receive commissions from our client radio stations based on the national spot radio advertising billings of the station, net of standard advertising agency and media buying services commissions. We enter into written representation contracts with our clients which include negotiated commission rates. Because commissions are based on the prices paid to radio stations for spots, our revenue base is regularly and automatically adjusted for inflation. Our operating results generally depend on: . increases and decreases in the size of the total national spot radio advertising market; . changes in our share of this market; . acquisitions and terminations of representation contracts; and . operating expense levels. The effect of these factors on our financial condition and results of operations has varied from period to period. Total U.S. national spot radio advertising annual revenues have grown from an estimated $1.29 billion to an estimated $2.31 billion during the five years ended December 31, 1999. The performance of the national spot radio advertising market is influenced by a number of factors, including, but not limited to, general economic conditions, consumer attitudes and spending patterns, the share of total advertising spent on radio and the share of total radio advertising represented by national spot radio. Our share of the national spot advertising market changes as a result of increases and decreases in the amount of national spot advertising broadcast by our clients. Moreover, our market share increases as we acquire representation contracts with new client stations and decreases if current client representation contracts are terminated. Thus, our ability to attract new clients and to retain existing clients significantly affects our market share. The value of representation contracts which have been acquired or terminated during the last few years has tended to increase due to a number of factors, including the consolidation of ownership in the radio broadcast industry following the passage of the Telecommunications Act of 1996. In recent years, we have increased our representation contract acquisition activity, and we have devoted a significant amount of our resources to these acquisitions. At the same time, we have received an increased amount of contract termination revenue. We base -7- our decisions to acquire a representation contract on the market share opportunity presented and an analysis of the costs and net benefits to be derived. We continuously seek opportunities to acquire additional representation contracts on attractive terms, while maintaining our current clients. Our ability to acquire and maintain representation contracts has had, and will continue to have, a significant impact on our revenues and cash flows. Following industry practice, we generally act as the exclusive national rep firm for each of our client radio stations under a written contract. If a station terminates its contract prior to the scheduled termination date, the station is typically obligated to make a payment to us, as required by the contract or in accordance with industry practice. This amount is approximately equal to the commissions we would have earned during the unexpired term of the canceled contract, plus an additional two months of "spill-over" commissions. "Spill-over" commissions are those earned on advertising placed or committed to prior to the contract termination but broadcast later. In practice, a successor rep firm enters a new contract with the station and assumes the obligation to make the termination payments. These payments are usually made in equal monthly installments over a period of one-half the number of months remaining under the terminated contract. To illustrate, assume a station terminates a representation contract with a competing rep firm and that contract has a remaining unexpired term of 12 months. If we acquire the representation contract, our payment obligation to the competing rep firm would be 14 months of commissions payable in seven equal monthly installments. However, certain contracts representing material revenues permit clients in certain circumstances to terminate their agreements with less than 12-months' notice and pay termination and evergreen payments over shorter periods of time. We recognize revenues on a contract termination as of the effective date of the termination. When a contract is terminated, we write off in full the unamortized portion, if any, of the expense we originally incurred on our acquisition of the contract. When we enter into a representation contract with a new client, we amortize the contract acquisition cost in equal monthly installments over the life of the new contract. As a result, our operating income is affected, negatively or positively, by the acquisition or loss of client stations. We are unable to forecast any trends in contract buyout activity, or in the amount of revenues or expenses that will likely be associated with buyouts during a particular period. Generally, the amount of revenue resulting from the buyout of a representation contract depends on the length of the remaining term of the contract and the revenue generated under the contract during the 12-month "trailing period" preceding the date of termination. The amount recognized by us as contract termination revenue in any period is not, however, indicative of contract termination revenue that may be realized in any future period. Historically, the level of buyout activity has varied from period to period. Additionally, the length of the remaining terms, and the commission revenue generation, of the contracts which are terminated in any period vary to a considerable extent. Accordingly, while buyout activity and the size of buyout payments has increased since 1996, its impact on our revenues and income is expected to be uncertain, due to the variables of contract length and commission generation. While the commission revenues generated under a representation contract during a trailing period is used in calculating the buyout amount we pay to acquire that contract, it should not be relied on as an indicator of the future commission revenues we will generate under that contract. Our revenues will depend on a number of factors, including the amount of national spot advertising broadcast by the station involved. This, in turn, will be affected by factors such as general and local economic conditions, consumer attitudes and spending patterns, the share of total advertising spent on radio and the share of total radio advertising represented by national spot radio. During 1999, we entered the Internet advertising business. Revenues and expenses from this business will be affected by the level of advertising on the Internet generally, the prices obtained for advertising on the Internet and our ability to obtain contracts from high-traffic Internet websites and from Internet advertisers. Our selling and corporate expense levels are dependent on management decisions regarding operating and staffing levels and on inflation. Selling expenses represent all costs associated with our marketing, sales and sales support functions. Corporate expenses include items such as corporate management, corporate communications, financial services, advertising and promotion expenses, Internet advertising development expenses and employee benefit plan contributions. Our business normally follows the pattern of advertising expenditures in general. It is seasonal to the extent that radio advertising spending increases during the fourth calendar quarter in connection with the Christmas -8- season and tends to be weaker during the first calendar quarter. Radio advertising also generally increases during the second and third quarters due to holiday-related advertising, school vacations and back-to-school sales. Additionally, radio tends to experience increases in the amount of advertising revenues as a result of special events such as presidential election campaigns. Further, the level of advertising revenues of radio stations, and therefore our level of revenues, is susceptible to prevailing general and local economic conditions and the corresponding increases or decreases in the budgets of advertisers, as well as market conditions and trends affecting advertising expenditures in specific industries. Results of Operations Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Commission revenue. Commission revenue for the second quarter of 2000 increased to $26.9 million, or approximately 11.1%, from $24.2 million in the comparable 1999 period. This $2.7 million increase was primarily attributable to increased sales of national spot advertising on client stations and commissions generated by new representation contracts, offset, in part, by the loss of commission revenues from terminated contracts, principally those with stations owned by Clear Channel Communications Inc., which were terminated in December 1999. Our new Internet advertising business, which we began in 1999, earned commissions of approximately $0.2 million in the second quarter of 2000. Contract termination revenue. Contract termination revenue in the second quarter of 2000 decreased to less than $0.1 million from $1.2 million in the second quarter of 1999, a decrease of $1.2 million. This decrease was attributable to the fact that fewer contracts were terminated in the second quarter of 2000 as compared to the comparable 1999 period. Selling expenses. Selling expenses for the second quarter of 2000 increased to $17.2 million from $16.0 million during the comparable 1999 period. This increase of $1.2 million, or approximately 7.6%, was primarily due to employee compensation increases associated with the growth in commission revenues. Costs relating to our entry into the Internet advertising business were approximately $0.5 million in the second quarter of 2000, as compared to $0.3 million in the first quarter of 1999. General and administrative expenses. General and administrative expenses for the second quarter of 2000 increased to $3.1 million from $2.6 million for second quarter of 1999. This $0.5 million or 19.2% increase reflected new expenses related to our becoming a public company. Depreciation and amortization. Depreciation and amortization for the second quarter of 2000 and 1999 was virtually unchanged at $6.7 million. Amortization of new representation contracts offset the reduction resulting from the completion of the amortization of certain older representation contracts. Operating loss. Operating loss for the second quarter of 2000 was less than $0.1 million, as compared to a profit of $0.1 million during the comparable 1999 period, for the reasons discussed above. Interest expense, net. Interest expense, net decreased $0.3 million, or 13.1%, to $2.1 million for the second quarter of 2000, from $2.4 million for the second quarter of 1999. This decrease resulted primarily from interest received on cash reserves, which partially offset interest payable on our Senior Subordinated Notes. Benefit for income taxes. The benefit for income taxes for the second quarter of 2000 and 1999 was virtually unchanged at $0.9 million, reflecting the small change in operating profit/loss. Net Loss. Our net loss after tax was approximately $1.3 million for the second quarter of 2000, a decrease of less than $0.1 million from the comparable 1999 period, and was due to the factors discussed above. -9- Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Commission revenue. Commission revenue for the first half of 2000 increased to $47.0 million, or approximately 12.7%, from $41.7 million in the comparable 1999 period. This $5.3 million increase was primarily attributable to increased sales of national spot advertising on client stations and commissions generated by new representation contracts, offset, in part, by the loss of commission revenues from terminated contracts, principally those with stations owned by Clear Channel, which were terminated in December 1999. Our new Internet advertising business earned commissions of approximately $0.4 million in the second half of 2000. Contract termination revenue. Contract termination revenue in the first half of 2000 decreased to $0.8 million from $3.7 million in the first half of 1999, a decrease of $2.9 million, or 78.2%. This decrease was attributable to the fact that fewer contracts were terminated in the first half of 2000 as compared to the comparable 1999 period. Selling expenses. Selling expenses for the first half of 2000 increased to $32.8 million from $30.6 million during the comparable 1999 period. This increase of approximately $2.2 million, or 7.0%, was primarily due to employee compensation increases associated with the growth in commission revenues. Costs relating to our entry into the Internet advertising business amounted to approximately $1.0 million in the first half of 2000, as compared to $0.5 million in the same period of 1999. General and administrative expenses. General and administrative expenses for the first half of 2000 increased to $6.0 million from $5.2 million for the comparable period of 1999. This $0.8 million or 15.0% increase primarily reflects new expenses related to our becoming a public company. Depreciation and amortization. Depreciation and amortization decreased to $12.3 million, or 24.2%, during the first half of 2000, from $16.2 in the comparable 1999 period. This decrease of $3.9 million was primarily due to the completion of the amortization of certain representation contracts, partially offset by the amortization of new representation contacts. Operating loss. The operating loss for the first half of 2000 was $3.2 million, a decline of $3.4 million, or 51.1%, compared to $6.6 million during the first half of 1999, for the reasons discussed above. Interest expense, net. Interest expense, net decreased $0.9 million, or 18.1%, to $3.9 million for the first half of 2000, from $4.8 million for the first half of 1999. This decrease primarily resulted from interest received on cash reserves, which partially offset interest payable on our Senior Subordinated Notes. Benefit for income taxes. The benefit for income taxes for the first half of 2000 declined $1.8 million, or 38.1%, to $2.9 million, compared to $4.7 million for the first half of 1999. This decrease resulted from the lower operating loss in the first half of 2000. Net Loss. Our net loss after tax of approximately $4.3 million for the first half of 2000, a decrease of $2.5 million, or 36.6%, from the comparable 1999 period. This improvement was attributable to the factors discussed above. Liquidity and Capital Resources Our cash requirements have been primarily funded by cash provided from operations and financing transactions. In December 1999 we closed our initial public offering, which resulted in net proceeds of $46.8 million. At June 30, 2000, we had cash and cash equivalents of $33.4 million and working capital of $66.0 million. Cash provided by operating activities during the first half of 2000 was $2.3 million, as compared to $0.1 million during the first half of 1999. This fluctuation was primarily attributable to changes in receivables pertaining to representation contract buyouts. The first half of our fiscal year is normally weaker than the second half due to seasonality. -10- Net cash used in investing activities is primarily attributable to the purchase of marketable securities, capital expenditures and investments in private companies. Net cash used in investing activities was $11.5 million in the first six months of 2000, of which $9.8 million was invested in marketable securities, $1.3 million was invested in Internet advertising firms and the balance was used for capital expenditures. In December 1999, Ralph Guild acquired additional shares in one of such firms from its founders at a price higher than we paid. In February 2000, we invested an additional $1.14 million in the same firm, on the same terms as our initial investment. Overall cash used for financing activities of $24.2 million during the first half of 2000 was used for acquisitions of representation contracts, and $6.2 million was used to purchase shares of our Class A Common Stock in the open market under our stock repurchase program announced in March 2000. In general, as we acquire new representation contracts, we use more cash and, as our contracts are terminated, we receive additional cash. For the reasons noted above in "Overview", we are not able to predict the amount of cash we will require for contract acquisitions, or the cash we will receive on contract terminations, from period to period. In July 1998 we issued 10% Senior Subordinated Notes in the aggregate principal amount of $100.0 million due July 1, 2008. Interest on the Senior Subordinated Notes is payable in semi-annual payments of $5.0 million. The Senior Subordinated Notes, while guaranteed by our subsidiaries, are unsecured and are junior in right of payment to any amounts outstanding under the revolving credit agreement described below, as well as to certain other indebtedness. We used a portion of the net proceeds from the issuance of the Senior Subordinated Notes to repay the then outstanding balance of our bank debt. Additionally, we redeemed all of the outstanding shares of our then outstanding Series A preferred stock and Series B preferred stock, together with all of the associated shares of common stock then subject to redemption. As of December 31, 1999, we terminated our $10.0 million revolving credit facility. We had never borrowed any amounts under that agreement. We issued the Senior Subordinated Notes under an indenture that limits our ability to engage in various activities. Among other things: . we are generally not able to pay any dividends to our stockholders, other than dividends payable in shares of common stock; . we can only incur additional indebtedness under limited circumstances; and . certain types of mergers, asset sales and changes of control either are not permitted or permit the note holders to demand immediate redemption of their Senior Subordinated Notes. The Senior Subordinated Notes may not be redeemed by us prior to July 1, 2003, except that we may redeem up to 30% of the Senior Subordinated Notes with the proceeds of equity offerings. If certain events occurred which would be deemed to involve a change of control under the indenture, we would be required to offer to repurchase all of the Senior Subordinated Notes at a price equal to 101% of their aggregate principal, plus unpaid interest. We believe that the liquidity resulting from our initial public offering and the transactions described above, together with anticipated cash from continuing operations, should be sufficient to fund our operations and anticipated needs for required representation contract acquisition payments, and to make the required 10% annual interest payments on our Senior Subordinated Notes, for at least the next 12 months. We may not, however, generate sufficient cash flow for these purposes or to repay the notes at maturity. Our ability to fund our operations and required contract acquisition payments and to make scheduled principal and interest payments will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may also need to refinance all or a portion of our Senior Subordinated Notes on or prior to maturity. There can be no assurance that we will be able to effect any such refinancing on commercially reasonable terms, if at all. -11- Year 2000 Assessment We have dedicated resources over the past two years to address the potential hardware, software and other computer and technology issues and related concerns associated with the transition to the Year 2000 and to confirm that our service providers took similar measures. As a result of those efforts, we have not experienced any material disruptions in our operations in connection with the transition to the Year 2000. We will continue to monitor our operations, and those of our service providers, for potential Year 2000-related problems. However, we do not anticipate that we will discover any future Year 2000 issues that will have a material effect on our business, results of operations or financial condition. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We are exposed to market risk from changes in interest rates that may adversely affect our results of operations and financial condition. We seek to minimize the risks from these interest rate fluctuations through our regular operating and financing activities. Our policy is not to use financial instruments for trading or other speculative purposes. We are not currently a party to any financial instruments. PART II. OTHER INFORMATION Item 1. Legal Proceedings. On April 10, 2000, we commenced an action against Clear Channel Communications, Inc. ("Clear Channel") and Katz Communications, Inc. ("Katz") in the Supreme Court of the State of New York, County of New York. The action arose out of the following: In February 1996, Clear Channel terminated its representation contract with Katz and entered into a new representation contract with us. As part of that transaction, we undertook to pay Katz approximately $23,000,000 of buyout payments and have made more than $14,000,000 of such payments to date. In October 1999, Clear Channel announced that it had agreed to merge with AM/FM, Inc., the corporate parent of Katz. In December 1999, Clear Channel terminated its representation contract with us and reassigned the representation of its stations to Katz. We have claimed that Clear Channel breached its representation contract with us by wrongfully terminating it in December 1999. We are seeking an aggregate of approximately $56,000,000 of damages from the defendants, including, among other things, buyout payments which we claim are owed to us as a result of Clear Channel's breach, and a declaration that we are not required to make any further buyout payments to Katz. The court is currently considering motions in this action. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The Exhibits filed with this Report are listed on the Exhibit Index immediately following the signature page. (b) Reports on Form 8-K. No Reports on Form 8-K were filed during the three months ended June 30, 2000. -12- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTEREP NATIONAL RADIO SALES, INC. August 10, 2000 By /s/ William J. McEntee, Jr. -------------------------------- William J. McEntee, Jr. Vice President and Chief Financial Officer -13- EXHIBIT INDEX 27.1 Financial Data Schedule. -14-