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| RGCI > SEC Filings for RGCI > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
• Based on deteriorating global economic conditions and volatility in the equity markets, we performed an impairment analysis on our indefinite-lived intangible assets and goodwill during the third quarter of 2008. Based primarily upon declining radio station
transaction multiples, decreases in our common stock price, and changes in the cost of capital, we determined that the fair value of goodwill and FCC licenses for certain markets were less than the carrying values recorded in our financial statements. Due to the timing and complexity of fair value calculations, we have not completed our impairment analysis. However, based on preliminary valuations, we recorded a pre-tax impairment charge of $66.6 million for FCC licenses and approximately $0.9 million for goodwill. We will complete our analysis during the fourth quarter, but expect no significant changes to our preliminary valuation.
• We recorded an other-than-temporary impairment loss of approximately $1.0 million on an investment in notes receivable during the third quarter due to changing market conditions potentially affecting the collectibility of the investment.
• We incurred approximately $1.0 million in capital expenditures through the first nine months of 2008 for our consolidation capital expenditure project related to a new operating facility for our Evansville, Indiana market, which was completed during the third quarter of 2008.
• Currently, we have 24 FM stations, one AM station, and one secondary channel for each of two converted FM stations broadcasting in digital, or high definition, radio ("HD Radio"). The conversion to HD Radio will enable these stations to broadcast digital-quality sound and also provide additional services, such as on-demand traffic, weather and sports scores. Additionally, this new technology will enable each converted radio station to broadcast additional channels of programming for public, private or subscription services, as well as data transmission. The economic benefit, if any, to our stations that have converted to HD Radio currently cannot be measured. Any future economic benefit to our stations as a result of digital conversion is not known at this time.
• We continue to develop our Interactive initiative, which focuses on generating revenues through our stations' websites. During the first nine months of 2008, approximately 1.7% of Regent's net broadcast revenue was generated by Interactive revenue. Our integrated selling effort, which combines the sale of our Interactive products with sales of our traditional broadcasting spots, contributed to the increase in Interactive revenue, which increased approximately 110% over the amount generated during the entire 2007 year. We anticipate increased economic benefits from our Interactive initiative throughout the remainder of 2008 and beyond.
• On August 11, 2008, we received a notice from The Nasdaq Stock Market ("Nasdaq") indicating that we had failed to comply with the minimum bid price requirement for continued listing set forth in Nasdaq Marketplace rule 4450(a)(5) because the bid price of our common stock closed under $1.00 per share for 30 consecutive business days. In accordance with Nasdaq Marketplace Rule 4450(e)(2), we were provided 180 calendar days, or until February 9, 2009, to regain compliance with the aforementioned rules. To regain compliance, the closing bid price of our common stock must remain at or above $1.00 per share for a minimum of 10 consecutive business days prior to February 9, 2009. In the event that we do not regain compliance with the bid price rule by February 9, 2009, our common stock could be delisted from The Nasdaq Global Market. On October 22, 2008, we received notification from Nasdaq that it had suspended enforcement of the bid price and market value of publicly held shares requirement through January 16, 2009. The effect of this suspension of enforcement will postpone Regent's compliance deadline until May 14, 2009.
RESULTS OF OPERATIONS
The key factors that have affected our business are discussed and analyzed in
the following paragraphs. This commentary should be read in conjunction with our
condensed consolidated financial statements and the related footnotes included
herein.
Our financial results are seasonal. Historically, and as is typical in the
radio broadcasting industry, we expect our first calendar quarter to produce the
lowest revenues for the year. Our operating results in any period may be
affected by advertising and promotion expenses that do not necessarily produce
commensurate revenues until the impact of the advertising and promotion is
realized in future periods.
During the first quarter of 2008, we disposed of our four Watertown, New York
radio stations. We applied the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets," ("SFAS 144") to the disposal, which requires that in a period in which
a component of an entity has been disposed of or is classified as held for sale,
the income statement of a business enterprise for current and prior periods
shall report the results of operations of the component, including any gain or
loss recognized, in discontinued operations. Accordingly, all results of
operations for the first nine months of 2008 and 2007 related to the Watertown,
New York market, including an allocated portion of interest expense, have been
reclassified to discontinued operations.
Comparison of three months ended September 30, 2008 to three months ended
September 30, 2007
Results from continuing operations for the quarter ended September 30, 2008
compared to September 30, 2007 were negatively impacted by changes in the timing
of two of our non-traditional revenue events. The Taste of Country event in our
Buffalo, New York market and the El Paso Downtown Street Festival event in our
El Paso, Texas market, which were previously held in the third quarter of 2007,
were held during the second quarter of 2008. Decreases from the timing change
were partially offset by increased revenues generated by our Interactive
initiative and increased political advertising revenue. National revenues
declined in the majority of our markets during the quarter.
Net Broadcast Revenues
Net broadcast revenues for Regent decreased 1.6% to approximately
$25.3 million in the third quarter of 2008, from approximately $25.7 million in
the third quarter of 2007. The following table provides a summary of the net
broadcast revenue variance for the comparable three-month periods (in
thousands):
Net broadcast revenue variance:
(Decrease)
increase in net
broadcast %
revenue Change
Local revenue $ (554 ) 2.6 %
National revenue (247 ) 8.8 %
Political revenue 447 312.7 %
Barter revenue (76 ) 8.4 %
Other 29 5.0 %
Net broadcast revenue variance $ (401 ) 1.6 %
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Local revenue - The 2.6% decrease in local advertising revenue during the
third quarter of 2008 was due primarily to the timing of two non-traditional
revenue events. The Taste of Country event in our Buffalo, New York market and
the El Paso Downtown Street Festival event in our El Paso, Texas market, which
were previously held in the third quarter of 2007, were held during the second
quarter of 2008. Excluding the impact of these events, total local revenue
increased approximately 1.9% over the comparable 2007 quarter. Increases in our
local agency and Interactive revenues during the quarter were offset partially
by decreases in local direct revenues. Local revenue decreased primarily in our
Evansville, Indiana and Grand Rapids, Michigan markets. The decreases were
primarily due to reduced advertiser spending as a result of declines in the
local economic conditions of these markets. These declines were partially offset
by increases in local revenue in our Bloomington, Illinois, Lafayette,
Louisiana, and Utica, New York markets. Bloomington continued to benefit from
strong agricultural advertising during the quarter, after a decline in the same
quarter of the previous year. Our Lafayette market benefited from a combination
of higher station ratings and increased weather-related business. Our Utica
market benefited from strong sales initiatives for local and agency business, as
well as an increase in non-traditional revenues.
National revenue - National revenue decreased approximately 8.8% during the
quarter, as many of our broadcast markets were negatively impacted by lower
levels of national advertising being spent in the market.
Political revenue - Political advertising revenue increased substantially
over the prior year, primarily in our Ft. Collins, Colorado and Buffalo, New
York markets. Ft. Collins saw an influx of political advertising revenue for
state ballot propositions and initiatives, as well as for federal senate and
congressional races, while Buffalo benefited from local and state governmental
races and ballot initiatives.
Barter revenue - The decline in barter revenue during the quarter was due
primarily to the timing of when advertisers elected to air their commercials.
Station Operating Expenses
Station operating expenses of $15.3 million in the third quarter of 2008
decreased by 5.5% from $16.2 million for the comparable 2007 period. Excluding
the costs related to the non-traditional revenue events held during the third
quarter of 2007 that were moved to the second quarter during the 2008 year,
station operating expense would have declined by approximately 3.0%. The
following table provides a summary of the station operating expense variance for
the comparable three-month periods (in thousands):
Station operating expense variance:
Decrease
(increase) in
station operating %
expense Change
Technical expense $ 90 9.2 %
Programming expense 46 1.1 %
Promotion expense 139 25.8 %
Interactive expense (90 ) 39.2 %
Sales expense 477 8.6 %
Administrative expense 124 3.4 %
Barter expense 109 11.8 %
Station operating expense variance $ 895 5.5 %
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Technical expense - Savings in technical expense was due primarily to savings
in salaries and decreased consulting charges in 2008 compared to 2007. The
savings were partially offset by higher utility expenses during the 2008
quarter, primarily in our New York markets.
Programming expense - Programming expenses decreased during the third quarter
of 2008 due primarily to salary savings in our Evansville, Indiana market, as we
began broadcasting a syndicated program for the morning drive on one our radio
stations.
Promotion expense - Promotion expenses decreased 25.8% compared to the same
quarter in 2007, primarily due to lower levels of promotional spending for
television time, billboards, contests, and promotional products.
Interactive expense - We incurred more Interactive expenses during the third
quarter of 2008 compared to the same period in 2007, as we initiated the rollout
of our Interactive initiative during the second half of 2007. The increase is
primarily related to increased salary and commission expense, due to more
Interactive employees and higher Interactive revenue.
Sales expense - The decrease in sales expense is due primarily to the costs
associated with our non-traditional revenue events that fell within the second
quarter of 2008, while the comparable 2007 events were held in the third
quarter. Excluding the impact of the timing of non-traditional events, sales
expense would have declined by approximately 1.0%. Savings in salaries and
commissions in the 2008 quarter were due to lower revenue levels than in the
comparable 2007 quarter.
Barter expense - Barter expense decreased due to the timing of when we
utilized traded goods and services.
Depreciation and Amortization
Depreciation and amortization expense was approximately $1.1 million during
the third quarter of 2008, compared to approximately $1.0 million for the third
quarter of 2007. The
increase is due primarily to depreciation on the newly-remodeled broadcast
facility in our Evansville, Indiana market, offset partially by reduced
depreciation in our Albany, New York and Grand Rapids, Michigan markets, as many
assets acquired during their purchase are now fully depreciated.
Corporate Expense
Corporate general and administrative expense increased 9.9% to approximately
$1.6 million in the third quarter of 2008, from approximately $1.5 million in
the same quarter of 2007. The increase was due primarily to higher salary and
bonus expense and higher professional fees in the 2008 quarter, offset by
savings in deferred compensation expense due to losses in the investment results
of the Deferred Compensation Plan. The Corporate bonus variance was due
primarily to reductions in the bonus accrual in the third quarter of 2007 based
upon the Company's operating results compared to its established goals.
Activist Defense Costs
In the third quarter of 2007, we incurred legal and other costs of
approximately $0.6 million related to the settlement of a stockholder activist
lawsuit.
Impairment of Indefinite-Lived Intangible Assets
Based on deteriorating global economic conditions and volatility in the
equity markets, we performed an analysis for potential impairment of our
indefinite-lived intangibles and goodwill during the third quarter of 2008.
Based primarily upon declining radio station transaction multiples, decreases in
our common stock price, and changes in the cost of capital, we determined that
the fair value of goodwill and FCC licenses for certain markets were less than
the carrying values recorded in our financial statements. Due to the timing and
complexity of fair value calculations, we have not completed the impairment
analysis. However, based on preliminary valuations, during the third quarter of
2008 we recognized pre-tax impairment charges of $66.6 million for FCC licenses
and approximately $0.9 million for goodwill. We will complete our analysis in
the fourth quarter, but do not expect significant changes to our preliminary
valuations.
Interest Expense
Interest expense decreased to approximately $2.6 million in 2008, from
approximately $4.3 million in 2007. The $1.7 million reduction was due primarily
to decreased average interest rates during the third quarter of 2008 compared to
the same period in 2007. A reduction in average outstanding borrowings under our
credit agreement also contributed to the decrease in interest expense, as we
repaid outstanding debt under the agreement with proceeds from the sale of
several radio properties during the first quarter of 2008, as well as with cash
provided by operations. Our average debt level in the third quarter of 2008 was
approximately $190.8 million, compared to approximately $212.0 million in the
third quarter of 2007.
Realized and Unrealized Losses and Gains on Derivatives
In order to mitigate the impact of potential interest rate fluctuations,
during the fourth quarter of 2006, we swapped the interest rates on both the
Term A Loan and Term B Loan portions of our credit agreement, from floating to
fixed. The Term A Loan pricing is fixed at approximately 4.83% for five years
and the Term B Loan pricing is fixed at approximately 4.72% for five years, in
both cases plus the Applicable Margin. Since hedge accounting was not applied to
these interest rate swap agreements, revaluation gains and losses associated
with changes in the fair value measurement of the swaps are recorded within
realized and unrealized (loss) gain on derivatives in the Condensed Consolidated
Statements of Operations. We recorded approximately $0.7 million of unrealized
loss related to the change in the fair value of the swaps during the quarter
ended September 30, 2008. Additionally, we recorded approximately $0.8 million
of realized loss during the quarter related to the unfavorable swap fixed rates
compared to market rates during the quarter. During the third quarter of 2007,
we recorded approximately $4.0 million of unrealized loss related to the change
in the fair value of the swaps during the quarter, as well as a realized gain of
approximately $0.3 million due to the favorable swap fixed rates compared to
market rates during the period.
Impairment of Notes Receivable
During the third quarter, we recorded an other-than-temporary impairment loss
of approximately $1.0 million on an investment in notes receivable due to
changing market conditions potentially affecting the collectibility of the
investment.
Income Taxes
The following table shows the components of income tax (benefit) expense on
continuing operations for the third quarters of 2008 and 2007.
2008 2007
Federal statutory rate (34.0 %) (34.0 )%
State income taxes, net of federal benefit (3.3 %) (10.0 )%
Valuation allowance adjustment 8.9 % 0.0 %
Miscellaneous tax expense (0.8 )% 17.2 %
Legislative changes 0.0 % 16.2 %
Effective tax rate (29.2 %) (10.6 )%
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Miscellaneous tax expense for the 2008 and 2007 periods includes permanent items, the expiration of net operating loss carryforwards and corresponding adjustments to the related valuation allowances, and return-to-provision adjustments related to the filing of the Company's income tax returns during the third quarter of each year. In the third quarter of 2008, we recorded approximately $5.8 million of valuation allowance related to the realizability of tax assets for federal and state net operating loss carryforwards. In the third quarter of 2007, miscellaneous tax expense included a return-to-provision adjustment of approximately $133,000 related to the true-up of state net operating losses. Additionally, during the third quarter of 2007, we recorded deferred state income tax expense due to legislative changes in the State of Michigan that resulted in increased state deferred tax liabilities.
Discontinued Operations
We applied the provisions of SFAS 144 to the disposal of our four Watertown,
New York radio stations in the first quarter of 2008, which requires that in a
period in which a component of an entity has been disposed of or is classified
as held for sale, the income statement of a business enterprise for current and
prior periods shall report the results of operations of the component, including
any gain or loss recognized, in discontinued operations. The following table
summarizes the effect of the reclassification on the quarters ended
September 30, 2008 and September 30, 2007 (in thousands):
2008 2007
Net broadcast revenue $ - $ 621
Station operating expense (14 ) 433
Depreciation and amortization expense - 22
Allocated interest expense - 37
Loss on sale and other expense - 1
(Loss) gain before income taxes (14 ) 128
Income tax expense (13 ) (66 )
Net (loss) gain $ (27 ) $ 62
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Same Station Results
Our revenues are produced exclusively by our radio stations and their related
internet websites. While acquisitions and dispositions have affected the
comparability of our 2008 operating results to those of 2007, we believe
meaningful quarter-to-quarter net broadcast revenue comparisons can be made for
results of operations for those stations which we have been operating for five
full quarters, exclusive of stations disposed of during those quarters. We
believe this presentation is important because it presents a more direct view of
the effectiveness of our stations' operations. Nevertheless, this measure should
not be considered in isolation or as a substitute for broadcast net revenue,
operating (loss) income, net (loss) income, net cash provided by operating
activities or any other measure for determining our operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. The following comparable results between 2008 and 2007 are listed in
the table below (in thousands).
Same station net revenue decreased 1.0% in the third quarter of 2008 compared
to the same period in 2007, due primarily to the scheduling of certain
non-traditional revenue events during the second quarter of 2008 that had
previously been held in the third quarter of 2007.
Quarter 3
(62 stations in 13 markets)
2008 2007
Net Net %
Revenue Revenue Change
Net broadcast revenue $ 25,328 $ 25,729
Less:
Non-same station results (1) - 90
Barter effect 825 900
Same station net broadcast revenue $ 24,503 $ 24,739 (1.0 )%
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(1) Non-same station results represent the net cash revenues of stations that were not owned or operated for the entire five-quarter period ended September 30, 2008.
Comparison of nine months ended September 30, 2008 to nine months ended
September 30, 2007
Results from continuing operations for the nine months ended September 30,
2008 compared to the nine months ended September 30, 2007 were negatively
impacted by lower levels of national revenue for the 2008 period. These declines
were partially offset by increased political advertising revenue.
Net Broadcast Revenues
Net broadcast revenues of approximately $72.6 million for the first nine
months of 2008 were below net revenues for the comparable 2007 period by
approximately $0.3 million, or 0.5%. The following table provides a summary of
the net broadcast revenue variance for the comparable nine-month periods (in
thousands):
Net broadcast revenue variance:
(Decrease)
increase in net
broadcast %
revenue Change
Local revenue $ (26 ) 0.0 %
. . .
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