UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| R | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
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o | For the fiscal year ended December 31, 2012 |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
For the transition period fromto
Commission file number 001-14691
WESTWOOD ONE,DIAL GLOBAL, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 95-3980449 |
Delaware
(State or other jurisdiction of
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| incorporation or organization) | | 95-3980449
(I.R.S. Employer
Identification No.) |
1166 Avenue of the Americas
220 West 42nd Street
New York, NY 10036
(212)-641-2000
967-2888
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of each class | | Name of each exchange on which registered |
| None | | |
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Common stock, par value $0.01 per share | | NASDAQ Stock Market LLCNone |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso¨ Noþx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yeso¨ Noþx
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 (“Exchange Act”) 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. Yesþx Noo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesox Noo¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þx
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filero | | Accelerated filero | | Non-accelerated filero | | Smaller reporting companyþx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Noþx
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $6,532,000$17,939,000 based on the last reported sales price of the registrant’s common stock on June 30, 201029, 2012 and assuming solely for the purpose of this calculation that all directors and officers of the registrant are “affiliates.” The determination of affiliate status is not necessarily a conclusive determination for other purposes.
AsThe number of shares outstanding as of March 31, 2011 22,554,991 shares22, 2013 (excluding treasury shares) ofwas Class A common stock, par value $0.01$.01 per share, were outstanding.share: 22,794,323; Class B common stock, par value $.01 per share: 34,237,638; and Series A Preferred Stock, par value $.01per share: 9,691.374.
DIAL GLOBAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
All other schedules have been omitted because they are not applicable, the required information is immaterial, or the required information is included in the consolidated financial statements or notes thereto.
PART I
(In thousands, except share and per share amounts)
Item 1.Business
In this report, “Westwood One,”“Dial Global," “Company,” “registrant,” “we,” “us” and “our” refer to Dial Global, Inc. (formerly known as Westwood One, Inc. ("Westwood")). All share and dollar amounts are in thousands, except per share amounts and where otherwise noted. In this report, “Verge” refers to Verge Media Companies, Inc. (together with its subsidiaries). On December 12, 2011, Westwood changed its name to Dial Global, Inc.
Our Board of Directors consists of nine directors, including Chairman Neal Schore, CEO Spencer Brown, two employees of each of our major stockholders, Oaktree Capital Management, L.P. ("Oaktree") and The Gores Group, LLC ("Gores"), and three directors (Peter Murphy, Jules Haimovitz and Mel Ming) who are deemed “independent” pursuant to NASDAQ rules and regulations. Our directors have distinguished careers in the media and entertainment industry and/or in finance. Funds managed by Oaktree (through its ownership of Triton Media Group, LLC ("Triton")) and Gores (directly or indirectly) own approximately 44% and 31%, respectively, of our outstanding common stock as of December 31, 2012. In connection with the recapitalization described below, our Board of Directors will be re-constituted on the effective date thereof and reduced from nine to seven directors. Also as announced on March 19, 2013, effective April 5, 2013, Paul Caine will become our CEO. It is also anticipated that when the Board is re-constituted, Mr. Caine will replace Mr. Brown on the Board.
On December 6, 2012, we voluntarily delisted our common stock from the NASDAQ Global Market. Our common stock currently trades on the Over the Counter Bulletin Board Pink Sheets.
Recapitalization
Following waivers in November and December of 2012, on January 15, 2013, we entered into a Third Limited Waiver to Credit Agreement (the “January First Lien Waiver”) with the administrative agent and certain lenders under the First Lien Credit Facility and a Fourth Amendment and Limited Waiver to Second Lien Credit Agreement (the “January Second Lien Waiver” and together with the January First Lien Waiver, the “January Waivers”) with the administrative agent and certain lenders under the New Second Lien Term Loan Facility, pursuant to which such lenders agreed, among other things, to amend certain provisions of the Credit Facilities and extend the waiver periods with respect to certain events of noncompliance under the Credit Facilities to February 28, 2013. In addition, pursuant to the January Second Lien Waiver, and subject to the terms and conditions set forth therein, certain of the lenders party thereto agreed to provide us with supplemental borrowing capacity of up to $5,000 under a new Second Lien Term Loan Facility (the “Supplemental Facility”), which was to mature on February 28, 2013. Also on January 15, 2013, in connection with the January Waivers, we entered into a Third Amendment to Intercreditor Agreement implementing the provisions of the January Waivers and the Supplemental Facility.
On February 28, 2013, we entered into a Fourth Limited Waiver to Credit Agreement and Restructuring Support Agreement (the “February First Lien Waiver”) with the administrative agent and certain lenders under the First Lien Credit Facility and a Fifth Amendment and Limited Waiver to Second Lien Credit Agreement and Restructuring Support Agreement (the “February Second Lien Waiver” and together with the February First Lien Waiver, the “February Waivers”) with the administrative agent and certain lenders under the Second Lien Term Loan Facility pursuant to which the lenders party thereto agreed to, among other things, amend certain provisions of the Credit Facilities and extend their respective waiver periods with respect to certain events of noncompliance under the Credit Facilities to April 16, 2013 or such earlier date on which the February Waivers expire pursuant to their terms. In addition, pursuant to the February Second Lien Waiver the lenders party thereto agreed to extend the maturity date of the Supplemental Facility to April 16, 2013 or such earlier date on which the obligations under the Supplemental Facility are automatically accelerated, including upon the occurrence of an event of default. Also on February 28, 2013, in connection with the February Waivers, we entered into a Fourth Amendment to Intercreditor Agreement, implementing the provisions of the February Waivers and the Supplemental Facility.
On February 28, 2013, we also signed agreements with our lenders and certain of our stockholders agreeing to recapitalize our existing credit facilities, other obligations and equity interests.
As part of the recapitalization, we have entered into, among other agreements, (1) an Amended and Restated Credit Agreement (the “A&R First Lien Credit Agreement”) dated as of February 28, 2013, by and among the Company, General Electric Capital Corporation, as administrative agent and collateral agent, and the lenders party thereto, (2) an Amended and Restated Second Lien Credit Agreement (the “A&R Second Lien Credit Agreement”) dated as of February 28, 2013, by and among the Company, Cortland
Capital Market Services LLC, as administrative agent and collateral agent, and the lenders party thereto (the “Second Lien Lenders”), and (3) a Priority Second Lien Credit Agreement (the “Priority Second Lien Credit Agreement”; together with the A&R First Lien Credit Agreement and the A&R Second Lien Credit Agreement, the “New Credit Agreements”) dated as of February 28, 2013, by and among the Company, Cortland Capital Market Services LLC, as administrative agent and collateral agent, and the lender party thereto (the “Priority Second Lien Lender”). Each of the New Credit Agreements is expected to become effective on or around April 16, 2013. However, the effectiveness of each of the New Credit Agreements is subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), and there can be no assurances that we will be able to satisfy or obtain waiver of such conditions precedent.
Upon the effectiveness of such agreements, the recapitalization provides for, among other things, (1) a $15,000 paydown of our existing First Lien Term Loan Facility and Revolving Credit Facility, (2) the restructuring of approximately $93,000 in second lien obligations which includes (A) the continuation of a $30,000 term loan (to be issued in two tranches) that matures five years after the expected closing of the recapitalization, (B) the exchange of approximately $63,000 in remaining obligations under the existing Second Lien Term Loan Facility for a new series of our preferred stock, pursuant to which the holders of preferred stock will be granted certain corporate governance rights (including certain “negative controls” and the right to designate 3 of 7 members of our Board of Directors), and (C) the issuance to the Second Lien Lenders of penny warrants to purchase 12.0% of our common stock in connection with the exchange of a portion of the existing second lien obligations for preferred stock (which warrants will be exercisable at various dates after the recapitalization if we do not retire the $30,000 second lien term loan and the preferred stock held by such Second Lien Lenders prior to certain specified dates), and (3) the issuance to the Priority Second Lien Lender of penny warrants to purchase 7.5% of our common stock exercisable immediately following the consummation of the recapitalization in consideration for such lender's agreement to provide $31,500 through a new term loan facility. In addition, the holders of our PIK Notes and our existing Series A Preferred Stock are expected to exchange their PIK Notes and existing Series A Preferred Stock for our Common Stock pursuant to various subscription and exchange agreements, and Triton and Gores are expected to purchase, directly or indirectly, $16,500 of additional shares of our equity securities, in each case, on terms to be determined. As part of the recapitalization, it is anticipated that the Company will create a management incentive plan for approximately 10-15% of its then outstanding equity.
As indicated above, if the recapitalization closes on April 16, 2013, our Board will be reduced from nine to seven directors. Because our Amended and Restated Certificate of Incorporation (which will be filed and become effective upon the closing of the recapitalization) does not require that we have independent directors and because we are no longer listed on NASDAQ (which required that our Audit Committee be comprised solely of independent directors), our Board may not have any independent directors after the closing of the recapitalization.
Radio Business
We are oneorganized as a single business segment, which is our Radio business. We are an independent, full-service network radio company that distributes, produces, and/or syndicates programming and services to more than 8,400 radio stations nationwide including representing/selling audio content of third-party producers. We produce and/or distribute over 200 news, sports, music, talk and entertainment radio programs, services and digital applications, as well as audio content from live events, turn-key music formats (the "24/7 Radio Formats"), prep services, jingles and imaging. We have no operations outside the United States, but sell to customers outside of the nation’s largest radio networks,United States. A more complete description of our programs and one of the largest domestic outsourced providers of traffic reporting services distributing content to approximately 5,000is described under “Operations” below.
In exchange for our programs and services, and through our advertising sales representation, we primarily receive commercial air time from radio stations and 182 television stations, which include stations in over 80 ofaggregate the top 100 Metropolitan Statistical Area (“MSA”) markets in the U.S., andair time to over 450 digital outlets (e.g.websites and mobile phones) nationally. We produce and distribute, sports, talk, music, special events, traffic, news, weather and other programming content and reach over 190 million people weekly. We exchange our content with radio and television stations for commercial airtime, which we then sell to local, regional and national advertisers.advertisers; to a lesser extent, we receive cash. By aggregating and packaging commercial airtime across radio and television stations nationwide, we offer our advertising clients/customers a cost effective way to reach a broad audience, as well asand to target their audience on a demographic and geographic basis.
We are headquartered in New York City, with broadcast facilities (from which we create, produce and distribute our programming and services) in New York, Washington, D.C., the greater Los Angeles metropolitan area, Dallas (TM Studios) and Denver (primary location for our 24/7 Radio Formats). We have regional sales offices throughout the country, including in the foregoing locations and Atlanta, Chicago, Detroit, Miami, Nashville, San Francisco and Seattle.
Our Clients/Customers
We provide our services to three distinct client/customer groups:
Radio Stations. We offer stations programming and services suitable for every market size at a reasonable cost. Stations can preserve their cash because we offer our programming and services on a barter basis, meaning that stations provide us with commercial airtime in return for our programming/services.
Advertisers/Agencies. We offer advertisers (and the advertising agencies that represent them) sales networks with nationwide market coverage and broad demographic targeting given our broad range of programming and services. With over 8,400 radio stations as our customers, covering all top 100 markets and reaching over 225 million listeners, we help ensure advertisers that their messages are heard nationwide by the listeners they are seeking.
Content Producers. We offer content producers a full-service partnership, unique in the radio industry given our national reach, sales force and back office team. When we “represent” a content producer on a national level, our ad sales team reaches out to advertisers, our research department provides audience metrics and relevant demographic information and our trafficking department provides back office support so producers can focus on developing their content. Our sales teams are managed by industry veterans.
Long-Standing Relationships
As part of providing our customers with compelling content, we manage key programs and partnerships, some of which date back several decades. We have partnered (either directly or through our relationship with CBS) with the National Football League (NFL) as its network radio primetime partner since 1988 and with the National Collegiate Athletic Association (NCAA) to be the exclusive radio provider of certain NCAA Championship games, including “March Madness” and the Men's NCAA Basketball Championship Tournament, since 1981. In 2013 we will celebrate our 58th year broadcasting the Masters Tournament and 2012 was our 13th broadcast of the Olympic Games since 1988. We have been the exclusive radio network distributor of CBS News since 1994 and of NBC since 1987. In Entertainment and Talk, we have partnered with the National Academy of Recording Arts & Sciences and the GRAMMYS since 1998.
Strategy
Our long-term operating strategy is focused on expanding the products and services that we provide to our client/customer base. We believe there is a growing need across the industry for a provider of affordable quality programming, as well as a proven sales network. As the radio industry continues to consolidate, there is an existing opportunity to provide greater and more diverse services to our customers. We are focused on expanding our industry presence and servicing our customers and will continue to identify opportunities to expand our business through organic means and potential mergers and acquisitions.
We believe we are a unique company that brings together a diverse portfolio of programming, complemented by a range of additional services, and supported by sales networks with exceptional market coverage and powerful targeting capabilities. We believe we are among the leaders in identifying and utilizing industry-leading technologies, such as our distribution platforms, STORQ and EZ Local, that promote efficiency for radio stations and improve ease of use. Our business is driven in part by our heightened focus on customer service, which has allowed us to develop and maintain long-standing relationships with radio stations, advertisers, programming partners and independent content providers. Our commitment to serving our clients/customers and providing a high level of accountability is the core of our business model, and will continue to be so as we look for opportunities to expand our programming offerings and the services we provide.
Operations
Programs
Dial Global maintains leadership positions in a range of programming categories, supported by a diverse portfolio of iconic brand partners that reach over 200 million listeners. This portfolio includes, but is not limited to the following:
Sports: NFL, NCAA Football and Basketball, the Masters, the Olympic Games and Motor Racing Network (NASCAR and ISC);
News: CBS, NBC, CNBC and AP Radio;
Music, Events and Entertainment: GRAMMYS, Academy of Country Music Awards, John Tesh and The Lia Show;
Talk: Charles Osgood, Dennis Miller, Ed Schultz, Stephanie Miller and Clark Howard; and
24/7 Radio Formats: Our radio programmers and consultants provide a broad menu of 14 music formats (e.g., country, AC, contemporary, rock) to 1,550 radio stations which include programming 24 hours a day, 7 days a week. We call this a “turn-key” service because a radio station obtains a complete, ready-to-use service, including music, personalities, promotions and imaging, which a station may customize based on its needs and preferences. The service is adaptable and a station can use as much or as little as it desires to complement its local programmingorenhance its overnight and weekend programming.
In addition to our programming (we provide over 200 programs and services), our content and services provided through our TM Studios include prep services, music libraries, radio and TV station imaging packages, production music, jingles and our digital properties, a brief summary of which follows.
Services
Programming Services. We provide radio stations with a wide variety of products and services to assist them in their business and the creation of programming. Examples include our DJ prep services, covering a broad spectrum of music and entertainment reporting, jingles and imaging to be incorporated into stations' websites, and digital content. Our prep services can be targeted by genre and can include everything from music, entertainment, hard news, film bites, gossip, comic clips and special event coverage. Our sports prep product includes topical sports stories and headlines.
Digital. Our digital properties consist of 17 owned and operated websites including Charles Osgood (www.osgoodfile.com), Dennis Miller (www.dennismillerradio.com) and Dial Global Sports (www.dialglobalsports.com). In 2013, we broadcasted our NCAA March Madness play-by-play coverage online at www.dialglobalsports.com. Our top programs have mobile applications and our network of personalities has over 1.5 million people signed up for our social media accounts on Twitter, Facebook and Google+. We also represent (i.e. perform ad sales) Triton Digital (including Slacker Radio), Jango, 8tracks, Digitally Imported and many other audio streamers.
Radio Voodoo. Our Interactive Voice Response (IVR) phone system helps radio stations answer the phones and facilitates call-ins, contesting, text messaging and polling. The system can be customized to be format and demo specific and assists stations in providing information their listeners are interested in hearing.
Based on Arbitron's Fall 2012 ratings book, Dial Global reaches more than 225 million weekly consumers. (Source: Arbitron Fall 2012 Nationwide, Persons 12+ Weekly Cume Audience). The Arbitron data and report quoted herein is copyrighted by Arbitron and is subject to all limitations and qualifications disclosed in such report.
Our goal is to maximize the yield of our available commercial airtime to optimize revenue and profitability.
We derive substantially all of our revenue from the sale of 60 seconds,second and 30 seconds, 15 seconds and 10 secondssecond commercial airtime to advertisers. Our advertisers who target national audiences generally find that a cost effective way to reach their target consumers is to purchase longer 30 or 60 second advertisements, which are principally broadcast in our news, talk, sports, music and entertainment relatedentertainment-related programming and content. Our advertisers who target local/regional audiences generally find that an effective method is to purchase shorter duration advertisements (15 seconds and 10 seconds), which are principally broadcast in our traffic and information related content. A particular advantage for our advertisers who purchase airtime in our traffic content is that their commercials are generally embedded in the actual traffic report. A growing number of advertisers purchase both local/regional and national airtime.
There are a variety of factors that influence our revenue on a periodic basis, including but not limited to: (1) economic conditions and the relative strength or weakness in the United States economy; (2) advertiser spending patterns and the timing of the broadcasting of our programming, principally the seasonal nature of sports programming and the perceived quality and cost-effectiveness of our programming by advertisers and affiliates;programming; (3) advertiser demand on a local/regional or national basis for radio related advertising products; (4) increases or decreases in our portfolio of program offerings and the
audiences of our programs, including changes in the demographic composition of our audience base; (5) increases or decreases in the size of our advertising sales force; and (6)(5) competitive and alternative programs and advertising mediums.
Our commercial airtime is perishable and, accordingly, our revenue is significantly impacted by the commercial airtime available at the time we enter into an arrangement with an advertiser. Commercial airtime is sold and managed on an order-by-order basis; therefore, our ability to specifically isolate the relative historical aggregate impact of price and volume is not practical. We closely monitor advertiser commitments for the current calendar year, with particular emphasis placed on the annual upfront process, where advertisers make significant advance commitments to purchase advertising in the following year. We take the following factors, among others, into account when pricing commercial airtime: (1) the dollar value, length and breadth of the order; (2) the desired reach and audience demographic; (3) the quantity of commercial airtime available for the desired demographic requested by the advertiser for sale at the time their order is negotiated; and (4) the proximity of the date of the order placement to the desired broadcast date of the commercial airtime.
Business segments: Network Radio and Metro Traffic
We are organized into two business segments: Network Radio and Metro Traffic. Beginning with the first quarter of 2010, we changed how we evaluate segment performance and now use segment revenue and segment operating (loss) income before depreciation and amortization (“OIBDA”) as the primary measure of profit and loss for our operating segments. We have reflected this change in all periods presented in this report. We believe the presentation of OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by our management and enhances their ability to understand our operating performance.
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In Network Radio, our business strategy is focused on delivering the best sports, talk, music and entertainment programming, as well as key services, to affiliate and advertising customers. The goal of this strategy is to generate revenue by providing our customers with content and solutions that help them reach and attract their desired customers in the marketplace. To that end, the Company recently renewed or launched key programs and partnerships, including our multi-year partnership with the National Football League (NFL) to continue as its Network Radio Primetime partner, including the NFL playoffs and Super Bowl and our long-standing partnership with the NCAA to be the exclusive Network Radio provider for the NCAA Men’s Basketball Championship Tournament. We launched two new Talk radio programs: Robert Wuhl (sports) and Douglas Urbanski (traditional), a new Sports prep service and VH1 Classic Rock Nights in partnership with MTV.Competition
Our Network Radio content covers several categories and formats, including national news, sports, music, entertainment, and talk radio. In national news and sports, we distribute nationally branded programs such as CBS Radio News, CNN Radio News, NBC Radio News, and major high-profile sporting events, including the NFL, NCAA football and basketball games and the Winter Olympic Games in 2010. Our Network business features shows that we produce with popular personalities including Dennis Miller, Dr. Oz, Charles Osgood and Billy Bush. We also broadcast signature Award shows in the music industry including the Grammy Awards and the Academy of Country Music (ACM) Awards, with whom we recently renewed our partnerships. Our music and entertainment programming includes concert broadcasts, and countdown shows, including Country Music Countdown and CMT Radio Live in partnership with MTV. Our Network Radio business nationally syndicates this proprietary and licensed content to radio stations, enabling them to meet their programming needs on a cost-effective basis. We generate revenue from the sale of 30 and 60 second commercial airtime, often embedded in our programming that we bundle and sell to advertisers who want to reach a national audience across numerous radio stations.
Our Metro Traffic business provides our local radio and television station affiliates with a cost-effective alternative to gathering and delivering their own traffic and local information reports in their marketplaces. We produce and distribute traffic and other local information reports, such as news, sports and weather, to approximately 2,250 radio stations and 182 television stations. Our Metro Traffic business generates revenue from the sale of commercial advertising inventory to advertisers with 10 and 15 second radio spots embedded within our information reports, and 30 second spots in television. Through the sale of this inventory, we offer advertisers a more efficient, broad-reaching alternative to purchasing advertising directly from individual radio and television stations.
One of our key strategies for Metro Traffic is to generate new revenue by adding new affiliates to receive our traffic, sports and news products, thereby increasing the available inventory to sell to advertisers. Recently, we added stations from Hearst Broadcasting, ESPN Radio, Salem, Carter Broadcasting, Next Media, Emmis, Univision, Citadel, and Cox. These agreements collectively represent significant inventory and audience in key markets that we believe will produce significant revenue over time. How profitable these agreements are will depend on how much the increased revenue generated by them exceeds the higher affiliate compensation expenses we will incur as a part thereof.
Competition
In the markets in which we operate, we compete for advertising revenue with other radio networks and other forms of communications media, including network and cable television, digital, print,out-of-home, direct response, print and point-of-sale (i.e., POP Radio).point-of-sale.
Network Radio
As the radio industry has consolidated, companies owning large groups of stations have begun to create competing radio networks, which have resulted in increased competition for local, regional, national and network radio advertising expenditures. In our Network business, we compete withOur primary competitors are Clear Channel’sChannel's Premiere Radio Networks division Citadel Media (formerly ABC Radio Networks), which recently announced it will be purchased byand Cumulus Media, and Dial Global (a subsidiaryMedia. To a lesser degree, we also compete against smaller regional peers in certain of Triton Media), each of whom are examples of “radio networks”.our markets. Unlike our primary competitors, we do not own radio stations and are an independent radio network and arethat is not affiliated with or controlled by a major media company. This operating model affords us distinct advantages, including the ability for us to provide our primary competitors with programming content and services. We market our programs to radio stations (referred to as affiliates), including to affiliates of other radio networks,(affiliates) that we believe will have the largest and most desirable listening audience for each of our programs. Given the breadth of our programming, we routinely have different programs airing in the same time frame on multiple stations in the same geographic market. This facilitates our havingAs a result we have a diversified group of radio stations that carry our programming formats (news, sports, music, entertainment and talk) from which national advertisers and radio stations may choose. Since we produce and distribute many of the programs that we syndicate, we are able to respond more effectively and efficiently to the preferences and needs of our advertisers and radio stations.station clients.
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At the local radio station level, higher production and operating costs have led to increased demand for quality programming from outside sources. In addition, asAs the number and type of radio program formats has grown, local stations are competing for more ways to differentiate themselves and attract local audiences. In this competitive environment, we are able to provide our affiliates with quality programming that is cost effective.effective and various services, including prep services, jingles and imaging, and digital content. We do not compete with local stations directly for revenue as our advertising inventory is sold on a network basis and is usually connected to other programming.
In addition, we compete for advertising revenue with other forms of communications media, including network and cable television, digital, print and point-of-sale (i.e., POP Radio).
We believe that the quality, diversity and breadth of our programming and services, our independence and the strength of our affiliate relations and advertising sales forces, enable us to compete effectively with other forms of media.
Metro Traffic
There are several multi-market operations providing local radio and television programming servicesCBS Agreement
Our Master Agreement with CBS Radio documents a long-term distribution arrangement in various markets. We believe we are larger than the next largest provider of traffic and local information services (Clear Channel Communications). Our traffic data and information is generally considered to provide high quality, accurate information to our approximately 2,250 radio and 182 television affiliates, and our over 450 digital affiliates. We derive the substantial majoritywhich CBS Radio will broadcast certain of our Metro Traffic revenue from the sale of commercial advertising inventory embedded within the traffic reports we deliver to radio and television stations (referred to as affiliates). Our advertising network of affiliates enables advertisers to purchase advertising on a local, multi-market or regional basis. Recently, there has been an increase in the volume of shorter-duration commercial inventory availablethrough March 31, 2017 in exchange for certain programming and/or cash compensation. This agreement is particularly important to us given our competitors have guaranteed and varied distribution channels. As an independent radio network we provide programming to all major radio station groups, however, our extended affiliation agreements with most of CBS Radio's owned and operated radio stations provide us with guaranteed distribution to a significant portion of audience that we sell to advertisers as well as an increase in the supplytop radio markets which helps us compete with our competition, some of local traffic information available in some markets. This is partially the resultwhom own hundreds of stations. As part of the consolidation of the radio industry, which has created opportunities for large radio groups, such as Clear Channel Communications, CBS Radio, and some other station owners, to gather traffic information on their own. Also, the US Department of Transportation and other regional and local departments of transportation have increased their direct provision of real-time traffic and traveler informationrecapitalization described in Note 17 — Subsequent Event to the public free of charge. As a result, certain radioConsolidated Financial Statements below, on March 8, 2013, we and television affiliates have elected to produce their own traffic reports using free, publicly available traffic information, and sell the advertising inventory embedded in these traffic reports on their own to local businesses.
Significant Events
More information on the matters described below can be found in Item 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.
Credit Agreement Amendments
On April 12, 2011, weCBS entered into an amendment to certain terms of our debt agreements with our lenders because our projections indicated that we would likely not attain sufficient Adjusted EBITDA (as defined in our lender agreementsMaster Agreement, News Programming Agreement, Technical Services Agreement and also set forth below) to comply with our then existing debt leverage covenants in certain fiscal quartersAffiliation Agreement. As part of 2011. As a result of negotiations with our lenders, we entered into a waiver and fourthsuch amendment, to the Securities Purchase Agreement which resulted in our previously existing maximum senior leverage ratios (expressed as the principal amount of Senior Notes over our Adjusted EBITDA (as defined in our lender agreements and also set forth below) measured on a trailing, four-quarter basis) of 11.25, 11.0 and 10.0 times for the first three quarters of 2011 being replaced by a covenant waiver for the first quarter and minimum last twelve months (“LTM”) EBITDA thresholds of $4,000 and $7,000, respectively, for the second and third quarters of 2011. Debt leverage covenants for the last quarter of 2011 and the first two quarters in 2012 (the Senior Notes mature on July 15, 2012) remain unchanged. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to reflect a change to minimum LTM EBITDA thresholds and maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the Senior Credit
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Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 in the Securities Purchase Agreement (applicable to the Senior Notes) are $3,400 and $5,950, respectively, in the Credit Agreement (governing the Senior Credit Facility). In connection with this amendment, Gores agreed to fully subordinate the Senior Notes it holds (approximately $10,222 which is listed under “due to Gores”) to the Senior Notes held by the non-Gores holders, including in connection with any future pay down of Senior Notes from the proceeds of any asset sale, a 5% leverage fee will be imposed effective October 1, 2011 and we agreed to report the status of any mergers and acquisition discussions/activitygive back commercial inventory on certain stations to CBS in return for a bi-weekly basis. Notwithstanding the foregoing, if at any time, we provide satisfactory documentationcorresponding reduction to our lenders thatstation compensation, negotiated the reduction of certain fees, eliminated certain fee escalators payable to CBS and eliminated and/or modified certain rights to adjust station compensation for changes in audience. Additionally, we agreed to provide certain CBS stations with a right of first refusal to certain of our debt leverage ratio for any LTM period complies withprogramming. This amendment is expected to become effective on or around April 16, 2013, subject to the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50%satisfaction or waiver of the outstanding amount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee would be eliminated on a prospective basis. The foregoing levels represent the same covenant levelscertain conditions precedent set forth in the A&R First Lien Credit Agreement, the A&R Second Amendment toLien Credit Agreement, the Securities PurchasePriority Second Lien Credit Agreement entered into on March 30, 2010, exceptand the other recapitalization transaction documents. There can be
no assurances that the debt covenant level for June 30, 2011 was 5.50 in the Second Amendment. As part of the waiver and fourth amendment, we agreed we would need to comply with a 5.00 covenant level on June 30, 2011, on an LTM basis, for the 5% leverage fee to be eliminated. The 5% leverage feerecapitalization will be equal to 5% of the Senior Notes outstanding for the period beginning October 1, 2011, and shall accrue on a daily basis from such date until the fee amount is paid in full. The fee shall be payableconsummated on the earlier of maturity (July 15, 2012)terms described herein, or the date on which the Senior Notes are paid. Accruedat all, and unpaid leverage fee amounts shall be added to the principal amount of the Senior Notes at the end of each calendar quarter (as is the caseif such recapitalization were not consummated, this amendment with PIK interest on the Senior Notes which accretes to the principal amount on a quarterly basis).CBS would not become effective.
Prior to the aforementioned amendment, in 2010, we entered into two amendments to our debt agreements with our lenders (on March 30, 2010 and August 17, 2010, respectively). In both instances, our underperformance against our financial projections caused us to reduce our forecasted results. While our projections indicated that we would attain sufficient Adjusted EBITDA to comply with the debt leverage covenants then in place, management did not believe there was sufficient cushion in our projections of Adjusted EBITDA to predict with any certainty that we would satisfy such covenants given the unpredictability in the economy and our business. Additionally, given our constrained liquidity on June 30, 2010 and our revised projections in place at such time, management believed it was prudent to renegotiate amendments to our debt agreements to enhance our available liquidity in addition to modifying our debt leverage covenants. These negotiations resulted in the August 17, 2010 amendment in which Gores agreed to purchase an additional $15,000 of common stock. As a result thereof, 769,231 shares were issued to Gores on September 7, 2010 for approximately $5,000 and Gores satisfied a $10,000 Gores equity commitment by purchasing 1,186,240 shares of common stock at a per share price of $8.43, calculated in accordance with the trailing 30-day weighted average of our common stock’s closing price as set forth in our purchase agreement with Gores. As a result of the third amendment to the Securities Purchase Agreement entered into on August 17, 2010, our debt leverage covenants were modified to 11.25 times for the three quarters beginning on September 30, 2010, then stepping down to 11.0, 10.0, and 9.0 times in the last three quarters of 2011 and 8.0 and 7.5 times in the first two quarters of 2012. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the Senior Credit Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the levels of 11.25 in the Securities Purchase Agreement (applicable to the Senior Notes) are 12.95 in the Credit Agreement (governing the Senior Credit Facility). We accrued additional fees of $2,433 related to amending our credit agreements in the year ended December 31, 2010 recorded as interest expense.
On March 31, 2010, June 4, 2010 and November 30, 2010, we repaid $3,500, $12,000 and $532, respectively, of the Senior Notes in accordance with the agreements related to our debt covenants.
Adjusted EBITDA has the same definition in both of our borrowing agreements and means Consolidated Net Income adjusted for the following: (1) minus any net gain or plus any loss arising from the sale or other disposition of capital assets; (2) plus any provision for taxes based on income or profits; (3) plus consolidated net interest expense; (4) plus depreciation, amortization and other non-cash losses, charges or expenses (including impairment of intangible assets and goodwill); (5) minus any “extraordinary,” “unusual,” “special” or “non-recurring” earnings or gains or plus any “extraordinary,” “unusual,” “special” or “non-recurring” losses, charges or expenses; (6) plus restructuring expenses or charges; (7) plus non-cash compensation recorded from grants of stock appreciation or
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similar rights, stock options, restricted stock or other rights; (8) plus any Permitted Glendon/Affiliate Payments (as described below); (9) plus any Transaction Costs (as described below); (10) minus any deferred credit (or amortization of a deferred credit) arising from the acquisition of any Person; and (11) minus any other non-cash items increasing such Consolidated Net Income (including, without limitation, any write-up of assets); in each case to the extent taken into account in the determination of such Consolidated Net Income, and determined without duplication and on a consolidated basis in accordance with GAAP. For purposes thereof, “Permitted Glendon/Affiliate Payments” means payments made at our discretion to Gores and its affiliates including Glendon Partners for consulting services provided to Westwood One and “Transaction Costs” refers to the fees, costs and expenses incurred by us in connection with the Refinancing. Reference is made in this report to the refinancing of substantially all of our outstanding long-term indebtedness and recapitalization of our equity that closed on April 23, 2009 which is referred to in this report as the “Refinancing”.
Adjusted EBITDA, as we calculate it, may not be comparable to similarly titled measures employed by other companies. While Adjusted EBITDA does not necessarily represent funds available for discretionary use, and is not necessarily a measure of our ability to fund our cash needs, we use Adjusted EBITDA as defined in our lender agreements as a liquidity measure, which is different from operating cash flow, the most directly comparable financial measure calculated and presented in accordance with GAAP. We have provided under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” the requisite reconciliation of operating cash flow to Adjusted EBITDA.
Government Regulation
Radio broadcasting and station ownership are regulated by the Federal Communications Commission (the “FCC”). As a producer and distributor of radio programs and information services, but not an owner and operator of radio stations, we are generally not subject to regulation by the FCC. The Traffic and Information Division utilizes FCC regulated two-way radio frequencies pursuant to licenses issued by the FCC.
Employees
Employees
On December 31, 2010,2012, we had approximately 1,500515 employees, including approximately 48590 part-time employees. In addition, we maintain continuing relationships with numerous independent writers, program hosts, technical personnel and producers. Approximately 51060 of our employees are covered by collective bargaining agreements. We believe relations with our employees, unions and independent contractors are satisfactory.good.
Significant
Westwood One Merger
On October 21, 2011(the "Merger Date"), we announced the consummation of the transactions (the "Merger") contemplated by the Agreement and Plan of Merger, dated as of July 30, 2011(as amended, the "Merger Agreement"), by and among Westwood, Radio Network Holdings, LLC, a Delaware corporation (since renamed Verge Media Companies LLC, "Merger Sub"), and Verge. Verge merged with and into Merger Sub, with Merger Sub continuing as the surviving company.
Our Master
Pursuant to the Merger Agreement and in connection with CBS Radio documentsthe Merger, each issued and outstanding share of previously existing Westwood common stock (22,667,591shares) was reclassified and automatically converted into one share of Class A common stock without any further action on the part of the holders of Westwood common stock. In connection with the Merger, each outstanding share of common stock of Verge was automatically converted into and exchanged for the right to receive approximately 6.838 shares of Class B common stock. Westwood issued 34,237,638 shares of Class B common stock to Verge stockholders, representing approximately 59% of the issued and outstanding shares of common stock of Westwood on a long-term distribution arrangementfully diluted basis. In connection with the Merger, Westwood also issued 9,691.374 shares of the Series A Preferred Stock (the “Series A Preferred Stock") to Verge stockholders, in accordance with the Merger Agreement. The consideration exchanged for the Merger totaled $102,379, which CBS Radio will broadcast certainis comprised of our commercial inventory for our Network Radiothe market value as of the Merger Date of Westwood's Class A common stock of $81,830, the market value of Series A Preferred Stock of $9,691 (calculated by multiplying the number of such preferred shares by the liquidation preference of $1,000 per share), the fair value of the assumed Westwood stock options and Metro TrafficRSUs of $1,178 and information businesses through March 31, 2017the purchase accounting consideration exchanged in exchange for certain programming and/or cash compensation.Verge's purchase of the 24/7 Formats business ("24/7 Formats") of $9,680, which includes the payment to Westwood of $4,730 and the gain from the 24/7 Formats purchase of $4,950. The 2008 arrangement with CBS Radio is particularly important to us as in recent years the radio broadcasting industry has experienced a significant amount of consolidation that provides key radio groups with guaranteed and varied distribution channels. As a result, certain major radio station groups, including Clear Channel Communications, Cumulus Media (which recently announced it willpreliminary purchase Citadel Media) and CBS Radio,accounting allocations have emerged as powerful forcesbeen recorded in the industry. While we provide programmingaccompanying consolidated financial statements as of, and for the period subsequent to all major radio station groups, our extended affiliationthe Merger Date. The valuation of the net assets acquired and allocation of the consideration transferred will be finalized within a year of the Merger Date.
For a more detailed description of the agreements including the credit facilities entered into in connection with mostthe Merger, see Note 3 — Acquisition of CBS Radio’s ownedWestwood One, Inc.to the Consolidated Financial Statements contained herein.
The Merger is accounted for as a reverse acquisition of Westwood by Verge under the acquisition method of accounting in conformity with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805 Business Combinations ("ASC 805"). Under such guidance, the transaction has been recorded as the acquisition of Westwood by the Company. The historical accounting of the Company is that of Verge and operatedthe acquisition purchase price of Westwood has been recorded based on the fair value of Westwood on the date of acquisition. The purchase price has been allocated to the assets and liabilities of Westwood based on the fair value of such assets and liabilities on the Merger Date with any residual value recorded in goodwill.
The consolidated statements of operations and comprehensive loss and cash flows in this report include the results of Westwood from October 22, 2011 to December 31, 2011 and the full year results for 2012. The consolidated balance sheet as of December 31, 2011 includes the Westwood preliminary purchase accounting balances acquired in the Merger.
Digital Services Business Spin-Off
The Digital Services business provided streaming, measurement, advertising management and monetization and audience engagement solutions, which covered database, audience and web management systems, to thousands of radio stations provide usworldwide.
As described in more detail under Note 15 — Discontinued Operations to the Consolidated Financial Statements, on July 29, 2011, the then Board of Directors approved a spin-off of the Digital Services business to a related entity owned by our sole shareholder at that time. For all periods presented in this report, the results of the Digital Services business are presented as a discontinued operation and will continue to be presented as discontinued operations in all future filings in accordance with a significant portion of audience that we sell to advertisersgenerally accepted accounting principles in numerous top markets.the United States.
Available Information
We are a Delaware corporation, havingcorporation. (Westwood was re-incorporated in Delaware on June 21, 1985.) Our current and periodic reports filed electronically with the Securities and Exchange Commission (“SEC”), including amendments to those reports, may be obtained through our internetInternet website atwww.westwoodone.comwww.dialglobal.com; directly from us in print at no charge and upon request to Westwood One,Dial Global, Inc., 1166 Avenue of the Americas, 10th Floor,220 West 42nd Street, New York NY, 10036, Attn: Secretary or from the SEC’sSEC's website atwww.sec.gov free of charge as soon as reasonably practicable after we file these reports with the SEC. Additionally, any reports or information that we file with the SEC may be read and copied at the SEC’sSEC's Public Reference Room at 100 F Street, Washington, DC. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
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Cautionary Statement regarding Forward-Looking Statements
This annual report on Form 10-K, including Item 1A—Risk1A-Risk Factors and Item 7—Management’s7-Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Condition, contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make or others make on our behalf. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements are not based on historical fact but rather are based on management’smanagement's views and assumptions concerning future events and results at the time the statements are made. No assurances can be given that management’smanagement's expectations will come to pass. There may be additional risks, uncertainties and factors that we do not currently view as material or that are not necessarily known. Any forward-looking statements included in this document are only made as of the date of this document and we do not have any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances.
Item 1A. Risk Factors
An investment in our common stock is speculative and involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this Annual Report on Form 10-K. The risks described below could have a material adverse effect on our business, financial condition and results of operations. The risk factors below should be read in conjunction with other information contained in this report as our business, financial condition or results of operations could be adversely affected if any of these risks actually occur.
Risks Related to Our Business and Industry
While
There is substantial doubt about our year-over-year annual operating performance increasedability to continue as a going concern.
Our audited consolidated financial statements for the first time sincefiscal year end 2005,ended December 31, 2012 were prepared on a going concern basis in accordance with U.S. GAAP. The going concern basis of presentation assumes that we continue to incur operating losses and there can be no assurance that our performance will continue in operation and be able to improve. If it does not continuerealize our assets and we were to continue to incur operating losses, we could lack sufficient funds to continue to operatedischarge our businessliabilities and commitments in the ordinary course.
Our annualnormal course of business. As described in more detail below, our operating revenue in 2012, in particular in the fourth quarter, was significantly below our financial projections for such period, which had a significant adverse effect on our results from operations and resulted in a net loss of $146,692for the year ended December 31, 2010 decreased $75,542 to $22,039 from2012, including a goodwill impairment of $92,194. We also encountered significant liquidity issues and without the comparable period in 2009. The decrease was $25,041 absent 2009 goodwillamendments and intangible asset impairment charges of $50,501. While such is an improvement, it remains a significant dropwaivers from our operating incomelenders, which allowed us to pay the interest on our Second Lien Credit Agreement in kind and the deferral of $63,307certain vendor payables, we would not have had sufficient liquidity to operate our business. As a result, we entered into several amendments and limited waivers to our existing Credit Agreements to avoid breaching certain covenants
and other obligations under such agreements and made certain interest payments in 2007. Wekind, instead of in cash. If our recapitalization does not close in mid-April as anticipated, absent additional waivers and amendments, we will default under our Credit Facilities, which defaults if left uncured, will allow our lenders to declare all our outstanding indebtedness to be due and payable and pursue all available remedies available to them under our Credit Agreements and at law. Further, even if our recapitalization does close as expected, we must generate sufficient cash flow from operations to support our daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. If our results do not meet our financial projections, we cannot provide any assurance as to whetherensure that we will be able to continue to increasesatisfy our operating performance, which has innew (post-recapitalization) covenants over the past been negatively affected by lower commercial clearance, a decline in our sales force and reductions in national audience levels across the industry and locally at our affiliated stations, and more recently by higher programming fees and station compensation costs. In 2008 and 2009, our operating income was also affected by the weakness in the United States economy and advertising market. In 2010, the overall economic recovery, especially in the advertising marketplace, was slower than we projected and that radio industry analysts had forecast. During the economic downturn, advertisers and the agencies that represent them increased pressure on advertising rates, and in some cases, requested steep percentage discounts on ad buys, demanded increased levels of inventory re-negotiated booked orders and released advertising funds as late as possible in the cycle. Although there has been an improvement in the economy, advertisers’ demands and advertising budgetsnext twelve months or have not improved to pre-recession levels. If a double-dip recession were to occur or if the economic climate does not improve sufficiently for us to generate advertising revenuesufficient liquidity to meet our projections,payment obligations to our lenders and other third parties. As a result of the foregoing, there is substantial doubt about our ability to continue as a going concern.
While we have entered into amendments and temporary limited waivers with the lenders under our Credit Facilities with respect to certain historical instances of non-compliance and certain expected instances of non-compliance through April 16, 2013, we currently anticipate that we will breach certain provisions of our Credit Facilities in the future, including certain of our financial position could worsenratio covenants for the quarters ending June 30, 2013 and beyond, if we do not satisfy or obtain waiver of the conditions precedent to the point whereeffectiveness of the New Credit Agreements (as hereinafter defined) and other transaction documents. In the event of such breaches, we would lack sufficient liquidity to continue to operatedefault under our business in the ordinary course.
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If our operating results do not achieve our financial projections, we may require additional funding or a further amendment and/or waiver of our debt leverage covenants,existing Credit Facilities, which if not obtained, would have a material and adverse effect on our business continuity and our financial condition.condition if our lenders exercised their available remedies under the underlying debt instruments and the law.
We are
As discussed above and elsewhere in this report, our operating in an uncertain economic environment, where the pace of an advertising recovery is unclear and we are facing increased cost pressures as described above. As further described under “Existing Indebtedness” below, in March 2011results significantly underperformed against our financial results projections indicated thatin 2012, particularly in the fourth quarter. On November 15, 2012, December 14, 2012, January 15, 2013 and February 28, 2013, we would likely not attain sufficient Adjusted EBITDAentered into amendments and limited waivers with the lenders under our Credit Facilities, which, among other things, had the effect of waiving for a limited period of time certain historical non-compliance and certain expected instances of non-compliance with certain covenants thereunder. Such included the obligation to comply with our then existing debt leverage and interest coverage covenants as of September 30, 2012 and December 31, 2012, the last date on which such covenants were measured in 2012, our obligation to comply with our debt leverage and interest coverage covenants as of March 31, 2013, and in the case of the Second Lien Credit Agreement, the obligation to make the $2,824 interest payment due on November 9, 2012 in cash was amended to be payable in kind. In the absence of such amendments and limited waivers, we would have breached these and certain fiscal quartersother covenants and obligations. Our obligation under the Second Lien Credit Agreement to make an interest payment of 2011. As$2,981 on February 11, 2013 was also amended to be payable in kind. Such non-compliance was a result of several factors, including our 2012 results from operations. Such results were adversely impacted by late cancellations by advertisers that were greater than previous years and closer to air date than in previous periods; competitive factors, such as a greater diversity of digital ad platforms (into which ad budgets have flowed) and increased competition from our major competitors; and advertisers' response to controversial statements by a certain nationally syndicated talk radio personality in March 2012.
Based on April 12, 2011our current financial projections, we currently anticipate that we will breach certain of our financial ratios (including our debt leverage and interest coverage covenants) for the quarter ended March 31, 2013 and that we may have insufficient liquidity to make all required interest and amortization payments under our Credit Facilities during future periods. The latter will largely depend on whether we are able to “reverse course” and contrary to 2012, meet our financial projections for 2013.
On February 28, 2013, we entered into the waiverA&R First Lien Credit Agreement and fourth amendmentthe A&R Second Lien Credit Agreement which amend and restate our existing Credit Facilities and provide permanent waivers of certain of the non-compliances mentioned above with respect to the Securities Purchase Agreement (see Item 1 Business — Significant Events —First Lien Credit Agreement Amendments) which resulted in our previously existing maximum senior leverage ratiosand Second Lien Credit Agreement. In addition, we also entered into the Priority Second Lien Credit Agreement and certain other transaction documents. However, the effectiveness of 11.25, 11.0the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and 10.0 times forother transaction documents are subject to the first three quarters of 2011 being replaced by a covenant waiver for the first quarter of 2011 and minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011. If our operating results fall short of our minimum LTM EBITDA thresholds, we will need a further amendment and/satisfaction or waiver of our debt leverage covenantsthe respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), on Tuesday, April 16, 2013.
For further detail regarding the February 28, 2013 transactions, including the New Credit Facilities entered into in connection therewith, please refer to Note 17 — Subsequent Event to the Consolidated Financial Statements.
There can be no assurance that we will be able to satisfy or potentially additional funds.obtain waiver of the conditions precedent to the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents. As a result, it is possible that such agreements will not become effective, the temporary waivers of the non-compliances mentioned above with respect to the First Lien Credit Agreement and Second Lien Credit Agreement will be terminated, such non-compliances will become events of default under the Credit Facilities at such time and we will not be in compliance with the terms of the Credit Facilities in future periods, which would result in an event of default under the Credit
Facilities. If financing is limited or unavailablesuch an event of default occurs, there can be no assurance that the lenders under the Credit Facilities will grant us a waiver on terms acceptable to us, or ifat all.
In the event of any such event of defaults under our Credit Facilities which remain uncured, our lenders could declare all outstanding indebtedness to be due and payable and pursue their remedies under the underlying debt instruments and the law. In the event of such acceleration or exercise of remedies, there can be no assurance that we are forcedwill be able to fundrefinance the accelerated debt on acceptable terms, or at all. In addition, as is common for commercial contracts in our operations at a higher cost, these conditions could require us to curtail our business activities or increase our cost of financing, both of which could reduce our profitability or increase our losses. If we were to require additional financing or a further amendment or waiverindustry, certain of our debt leverage covenants, whichmaterial programming agreements could not then be obtained, it would haveterminated by counterparties in the event of our insolvency or of certain defaults under our Credit Facilities. As a result, if an event of default under the Credit Facilities occurs and results in an acceleration of the Credit Facilities, a material adverse effect on us and our financial condition and onresults of operations would likely result or we may be forced to (1) attempt to restructure our abilityindebtedness, (2) cease our operations or (3) seek protection under applicable state or federal laws, including but not limited to, meet our obligations.bankruptcy laws.
We have a significantsignificantly increased the amount of our indebtedness and have limited liquidity, which could adversely affect our operations, flexibility in running our business and our ability to service our debt if our future operating performance does not meetimprove.
On February 28, 2013, we entered into the A&R First Lien Credit Agreement and the A&R Second Lien Credit Agreement which amend and restate our financial projections.
existing Credit Facilities and provide permanent waivers of certain of the non-compliances mentioned above with respect to the First Lien Credit Agreement and Second Lien Credit Agreement. We also entered into the Priority Second Lien Credit Agreement and certain other transaction documents. As described in Note 17 — Subsequent Event to the Consolidated Financial Statements, the effectiveness of December 31, 2010,the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and other transaction documents are subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), on or before Tuesday, April 16, 2013. As described in more detail in the next risk factor, notwithstanding the paydown or cancellation of $78,000 of existing first lien and second lien obligations as part of such recapitalization, should such close, we had $111,629 in aggregate principalwill continue to have a substantial amount of Senior Notes outstanding (of which approximately $10,161 is PIK (paid-in-kind interest)), which bears interest atfirst lien and second lien obligations, including $31,500 of additional new second lien obligations.
At the time of the Merger, we entered into a rate of 15.0%,$155,000 First Lien Credit Agreement; an $85,000 Second Lien Credit Agreement, and a Senior Credit Facility consisting of a $20,000 term loan and a $20,000$25,000 revolving credit facility under which $15,000 was nearly fully drawn (not including $1,219as of December 31, 2012 (including $20,000 of borrowed funds and $4,976 in letters of credit used as security on various leased properties)properties and issued thereunder) (collectively our "Credit Facilities"). Such debt matures on July 15, 2012 (and accordingly will become short-term, not long-term, debtWe also issued $30,000 in aggregate principal amount of PIK Notes (which had accrued PIK interest in the third quarteramount of 2011). Loans under our Senior Credit Facility bear interest at LIBOR plus 4.5% (with a LIBOR floor$5,774 as of 2.5%December 31, 2012) or a base rate plus 4.5% (with a base rate floor equal to the greater of 3.75% or the one-month LIBOR rate). As described above in Item 1 — Business — Significant Events — Credit Agreement Amendments, on April 12, 2011,of December 31, 2012, we entered intohad a waivertotal of $285,975 of indebtedness ($151,125 under the First Lien and fourth amendment with our lenders to replace our debt leverage covenants of 11.25, 11.0 and 10.0 times for$87,824 under the first three quarters of 2011 with a covenant waiver for the first quarter of 2011 and minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 which amendment includes a 5% debt leverage fee becoming payable for debt outstanding on or after October 1, 2011. Notwithstanding the foregoing, if at any time, we provide satisfactory documentation to our lenders that our debt leverage ratio for any LTM period complies with the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50%Second Lien), net of the outstanding amountunamortized original issue discount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee that would otherwise be payable at the end of the calendar quarter after such events occurred would be eliminated on a prospective basis. The April 2011 amendment is in addition to the August 2010 amendment whereby Gores agreed to provide us with $20,000 in additional liquidity, including a guarantee of an additional $5,000 for our revolving credit facility which resulted in Wells Fargo agreeing to increase the amount thereof from $15,000 to $20,000 which provided us with necessary additional liquidity for working capital purposes.$8,748. Our ability to service our debt for the next twelve months will dependin accordance with its current terms is uncertain and depends on our future financial performance and ability to satisfy the waivers and conditions precedent to the effectiveness of the recapitalization and the New Credit Facilities as described in an uncertainNote 17 — Subsequent Event to the Consolidated Financial Statements below. Our Credit Facilities include, and unpredictable economic environment as well as on competitive pressures. Despite having previously successfully negotiated amendmentswill continue to include upon the effectiveness of the New Credit Facilities mentioned herein, in addition to our credit documents, if we were to significantly underperform against the minimum LTM EBITDA thresholds listed above we might be unable to further amend our debt agreements on termsfinancial covenants, substantial non-financial covenants, including one that are acceptable to us or our lenders. Further, our Senior Notes and Senior Credit Facility restrictrestricts our ability to incur additional indebtedness beyond certain minimumminimal baskets. If our operating results decline or we docontinue not to meet our minimum LTM EBITDA thresholds,earnings objectives or decline further and we are unable to obtain a waiver to increase ourraise new sources of liquidity (whether through additional indebtedness and/or successfully raise funds through an issuance of equity,equity), we wouldwill lack sufficient liquidity to operate our business in the ordinary course or service our debt, which would have a material adverse effect on our business, financial condition and results of operations. If we were then unable to meet our debt service and repayment obligations under the Senior Notes or the Seniorour Credit Facility,Facilities, we would be in default under the terms of the agreements governing our debt,Credit Facilities, which if uncured, would allow our creditors at that timelenders to declare all outstanding indebtedness to be due and payable and would materially impair our financial condition and liquidity.
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Our Senior Credit Facility and Senior Notes contain various covenants which, if not complied with, could accelerate repayment under such indebtedness, thereby materially and adversely affectingEven after the recapitalization of our financial condition and results of operations.
Our Senior Credit Facility and Senior Notes require us to comply with certain financial and operational covenants. These covenants (as amended on April 12, 2011) include, without limitation:
| • | | a debt leverage covenant waiver for the first quarter of 2011; |
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| • | | a minimum LTM EBITDA threshold (measured on a trailing, four-quarter basis) of $4,000 and $7,000 (in the Securities Purchase Agreement) for the second and third quarters of 2011, respectively; |
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| • | | a maximum senior leverage ratio (expressed as the principal amount of Senior Notes over our Adjusted EBITDA (as defined in our lender agreements) measured on a trailing, four-quarter basis) of 9.0 to 1.0 ratio on December 31, 2011, a 8.0 to 1.0 ratio on March 31, 2012, and a 7.5 to 1.0 ratio on June 30, 2012; and |
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| • | | restrictions on our ability to incur debt, incur liens, make investments, make capital expenditures, consummate acquisitions, pay dividends, sell assets and enter into mergers and similar transactions. |
We waived and/or amended our debt leverage covenants on October 14, 2009, March 30, 2010, August 17, 2010 and most recently on April 12, 2011. As a result of these amendments, our debt leverage covenants have been waived, significantly eased and/or modified to minimum LTM EBITDA thresholds. We believeexisting indebtedness, we will generatehave substantial indebtedness and may not have sufficient Adjusted EBITDAincome or liquidity to comply with our amended debt leverage covenants. However, failure to comply with anysupport such level of our covenants would result in a default under our Senior Credit Facility and Senior Notes that, if we were unable to obtain a waiver from the lenders or holders thereof,indebtedness, which could accelerate repayment under the Senior Credit Facility and Senior Notes and thereby have a material adverse impact on our business.
Our Senior Credit Facility and Senior Notes mature on July 15, 2012; if we are unable to refinance or otherwise repay such indebtedness there would be a material and adverse effect on our business continuity and liquidity.
Upon the effectiveness of the New Credit Facilities entered into in connection with the February 28, 2013 transactions mentioned herein, there will be (1) a $15,000 paydown of our financial condition.
Asexisting First Lien Term Loan Facility $5,000 was paid on February 28, 2013 and Revolving Credit Facility (leaving a principal balance of approximately $137,800 of outstanding term loans and approximately $18,200 of outstanding revolving loans), (2) a restructuring of approximately $93,000 in second lien obligations which includes (A) the maturity datecontinuation of a $30,000 term loan (issued in two tranches) that matures five years after the expected closing of the recapitalization and (B) the exchange of approximately $63,000 in remaining obligations under the existing Second Lien Term
Loan Facility for a new series of our Seniorpreferred stock (leaving a principal balance in second lien obligations of approximately $30,000), and (3) the issuance of $31,500 of new term loans under the Priority Second Lien Credit Agreement. Notwithstanding the paydown or cancellation of $78,000 of existing first lien and second lien obligations, we will continue to have a substantial amount of first lien and second lien obligations (approximately $200,733), including $31,500 of additional new second lien obligations and additional second lien obligations accruing from time to time when interest under the A&R Second Lien Credit Agreement is required to be capitalized and added to the principal balance when the conditions to pay cash interest are not satisfied. Interest is payable in cash on loans under the A&R Revolving Credit Facility and Senior Notes approaches, we are evaluating,A&R First Lien Term Loan Facility at a rate equal to Eurodollar Base Rate (as defined below) or the base rate, plus an applicable margin, generally as selected by us. Presently, the all-in rate for Eurodollar rate loans is 8% (Libor floor of 1.5% plus applicable margin of 6.5%) and for base rate loans is 8.75% (prime rate of 3.25% plus applicable margin of 5.5%). The two tranches of the second lien indebtedness under the A&R Second Lien Credit Agreement will bear interest at 6% per annum (Tranche A) and, for the first year after closing, 22.45% per annum (Tranche B), respectively, and will be capitalized and added to the principal balance of the loans unless certain conditions are satisfied to pay such interest in cash. The new term loans under the Priority Second Lien Credit Agreement will bear interest at 12% per annum payable quarterly in arrears in cash. If the economic downturn and competitive factors mentioned herein continue to evaluate,have a negative impact on our optionsbusiness and our operating results do not meet our projections upon which our financial covenants were set under the New Credit Facilities, our income may not be sufficient to refinance or repay such indebtedness. Optionsservice our outstanding indebtedness, which would have a material adverse effect on our business, financial condition and results of operations and may include potential mergerslead to the inability to satisfy our financial covenants under the New Credit Facilities (including the consolidated total leverage ratio, the consolidated first lien leverage ratio and acquisitions activity and/or refinancing alternatives in the debt and capital markets, either of which could include a partial or complete paydown of our Senior Notes. In addition to assessing the potential opportunities noted above, we will discuss refinancing options with our Senior Lenders.
consolidated fixed charge coverage ratio covenants). If we do not have the capital necessarywere unable to repaymeet our senior indebtedness when it matures, it will be necessary for us to take significant actions, such as revising required financial covenant levels and/or delaying our strategic plans, reducing or delaying planned capital expenditures, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We may be unable to effect any of these remedial steps on a satisfactory basis, or at all. If we are unable to refinance or otherwise repayservice and repayment obligations under our senior debt upon the maturity of our indebtedness,New Credit Facilities, we would be in default under the terms of the agreements governing our New Credit Facilities, which if uncured or not waived, would resultallow our lenders to declare all outstanding indebtedness to be due and payable and would materially impair our financial condition and liquidity.
We have a history of losses from continuing operations, which we believe was most recently exacerbated by the economic downturn and competitive factors, and there can be no assurance that our performance will improve. If we were to incur further operating losses, we could lack sufficient funds to continue to operate our business in material adverse consequences for the Company.ordinary course.
Our operating results have been significantly affected by the economic downturn that commenced in 2008. Since the economic downturn in 2008, advertisers and the agencies that represent them have exerted downward pressure on advertising rates and in certain instances, requested steep percentage discounts on ad buys and increased levels of inventory, re-negotiated booked orders or released advertising funds much later in the cycle. In 2012, our operating loss was $(124,253), excluding the goodwill impairment of $92,194, our operating loss was $(32,059), an increased loss of $25,509 compared to our 2011 operating loss of $(6,550), or an increased loss of $117,703, including the goodwill impairment. We believe our 2012 results were adversely impacted by late cancellations in ad buys (which we believe was a by-product of the election and renewed economic uncertainty), competitive factors, such as a greater diversity of digital ad platforms (into which ad budgets have flowed) and increased competition from our major competitors, and advertisers' response to controversial statements by a certain nationally syndicated talk radio personality in March 2012. The advertising marketplace has been difficult to predict. Advertisers' demands and advertising budgets have not improved to pre-recession levels as many businesses address their own internal challenges, and seek to maintain maximum budget flexibility, which has negatively impacted our operating performance. If, among other things, the advertising marketplace does not become more stable and predictable, we continue to face increased competition or we are unable to restore the value of our news/talk programming inventory, including by bringing back advertisers into such programming, then our financial position could worsen, including to the point where, in the absence of satisfying or obtaining waiver of the conditions precedent to the effectiveness of the New Credit Facilities or obtaining further amendments to our Credit Facilities or our New Credit Facilities, to the extent effective, we could lack sufficient liquidity to continue to operate our business in the ordinary course.
The obligations and cost of our indebtedness isare substantial, which further affects our liquidity and could limit our ability to implement our business plan.
Interest payments
We presently have a $155,000 First Lien Credit Agreement which currently bears interest at a variable rate currently set at 8.0% per annum; an $85,000 Second Lien Credit Agreement which currently bears interest at a variable rate, currently set at 13.0% per annum, $30,000 in aggregate principal amount of PIK Notes outstanding which bear interest at 15.0% per annum and a $25,000 revolving credit facility that currently bears interest at a variable rate, currently at 8.0% per annum. As of December 31, 2012, we had a total of $285,975 of indebtedness (net of original issue discount and not including total outstanding letters of credit of $4,976). At current interest rates, the average annual interest expense on our current debt over the next four years is approximately $35,100 per year (compared to approximately $34,900 in interest expense in 2012 for our long-term debt). Further, the interest on our debt which didis variable such that at December 31, 2012, if interest rates increased or decreased by 100 basis points, annualized interest expense would increase or decrease by approximately $1,385, based on our exposure to interest rate changes on debt that is not include PIK,covered
by caps. As required by the terms of the First Lien Credit Agreement, we are required to pay down $3,875, $7,750, $11,625, and $15,500 of our first lien debt during 2010 were $11,468. PIK interest which accrues2012, 2013, 2014 and is added2015, respectively, with the balance scheduled to be paid at maturity.
As described further in Note 17 — Subsequent Event to the Consolidated Financial Statements, upon the satisfaction or waiver of the conditions precedent to the effectiveness of the New Credit Facilities, beginning March 31, 2013, the A&R First Lien Term Loan Facility shall have scheduled annual repayments of the original principal amount payable, with annual repayment amounts (payable in quarterly installments) of $7,750, $11,625, $15,500 and $14,531 in the aggregate for 2013, 2014, 2015 and 2016 (through September 30, 2016), respectively, and with the balance scheduled to be paid at maturity. The original principal amount of each of the A&R Second Lien Term Loan Facility and the Second Lien Priority Term Loan Facility shall be payable at their respective maturity dates. Interest shall be payable on loans under the A&R Revolving Credit Facility and A&R First Lien Term Loan Facility at a rate equal to Eurodollar Base Rate or the base rate, plus an applicable margin, as selected by us. Interest is payable on the A&R Second Lien Term Loan Facility and the Second Lien Priority Term Loan Facility at fixed rates as described above.
Additionally, beginning in 2013 (within 5 business days of the delivery of our debt on a quarterly basis2012 annual financial statements) under the A&R First Lien Credit Agreement (assuming the recapitalization closes), we will be approximately $19,050 at maturity on July 15, 2012. As a resultrequired to pay down an amount equal to (x) 75% of the waiver and fourth amendment to our credit agreements, there is also a 5% debt leverage fee that is equal to 5% of the Senior Notes outstandingExcess Cash Flow (as defined in such agreement) for the period beginning October 1, 2011,preceding fiscal year less (y) any voluntary (optional) prepayments of term loans during such fiscal year or voluntary prepayments of revolving loans and shall accrue on a daily basis until the fee amount is paid in full. Like PIK, the accrued and unpaid leverage fee amounts shall be addedswing loans during such fiscal year to the principal amount of the Senior Notes at the end of each calendar quarter which means the debt leverage fee would be $4,907 as of July 15, 2012 assuming no prior repayment.extent that such loans were permanently and concurrently reduced thereby. If the economy does not meaningfully improve or improve on a more significantlyconsistent basis and advertisers continue to maintain reduced budgets and/or if our financial results continue to come under pressure as a result or for any other reason, or the variable interest rates on our debt increase, we may be required to delay the implementation or reduce the scope of our business plan and our ability to develop or enhance our services or programs willwould, in such event, likely be adversely impacted. Without additional revenue, and capital, we willmay be unable to take advantage of business opportunities, such as acquisition opportunities or securingsecure rights to name-brand or popular programming (or develop new services), or respond to competitive pressures. If any of the foregoing should occur, this could have a material and adverse effect on our business.business, our financial condition and our results of operations.
9
CBS Radio provides us with a significant portion of our commercial inventory and audience that we sell to advertisers. A material reduction in the audience delivered by CBS Radio stations or a material loss of commercial inventory from CBS Radio would have an adverse effect on our advertising sales and financial results.
While we provide programming to all major radio station groups, we have affiliation agreements with most of CBS Radio’sRadio's owned and operated radio stations which, in the aggregate, provide us with a significant portion of the audience and commercial inventory that we sell to advertisers, much of which is in the more desirable top 10 radio markets. Although the compensation we pay to CBS Radio under our March 2008 arrangement is adjustable based on the audience levels and commercial clearance it delivers (i.e.(i.e.,the percentage of commercial inventory broadcast by CBS Radio stations), any significant loss of audience or inventory delivered by CBS Radio stations, including, by way of example only, as a result of a decline in station audience, commercial clearance levels or station sales that resulted in lower audience levels, would have a material adverse impact on our advertising sales and revenue. Since implementing the new arrangement in early 2008, CBS Radio has delivered improved audience levels and broadcast more advertising inventory than it had under our previous arrangement. However, thereThere can be no assurance that CBS Radio will maintain audience and clearance levels and these higher levels. As part of the cost reduction actions we undertook in early 2010 to reducelevels mean our station compensation expense, we and CBS Radio mutually agreed to enter into an arrangement, effective on February 15, 2010, to give back inventory delivered by CBS Radio which resulted in a commensurate reduction in the cash compensation we pay to them. In order to offset our return of inventorypayable to CBS Radio has been significantly increased. As discussed in Note 17 — Subsequent Event to the Consolidated Financial Statements, we entered into an amendment with CBS to modify certain terms of our Master Agreement and to help deliver consistent RADAR audience levels over time, we added incremental inventory from non-CBS stations. We also added Metro Traffic inventory from CBS Radio through various stand-alone agreements. We actively manage our inventory, including by purchasing additional inventory for cash.ancillary agreements thereto. While our arrangement with CBS Radio is scheduled to terminate incontinue through 2017, there can be no assurance that such arrangement will not be breached by either party.party prior to 2017 or that CBS will not seek to amend or modify the terms of such arrangement in a way not desired by us. If our agreement with CBS Radio were terminated as a result of such breach, our results of operations could be materially impacted.
Our ability to grow
We have recently enacted several executive management changes at the CEO-level and there can be no assurance such changes will be effective and help us meet our Metro Traffic businessfinancial projections.
On March 19, 2013, we announced that our Board had chosen a new CEO, Paul Caine, effective April 5, 2013 and that our then existing CEO, Spencer Brown, and President Ken Williams were resigning. This followed the resignation of David Landau, then co-CEO with Messrs. Brown and Williams, in February 2013. Each of Messrs. Brown, Williams and Landau helped found and build the Company over the course of approximately 10 years. While the Board believes a new CEO with significant sales, marketing and branding experience will help increase revenue, mayparticularly in new planned areas such as sponsorships and digital advertising, there can be adversely affected by the increased proliferation of free of charge traffic content to consumers.
Our Metro Traffic business produces and distributes traffic and other local information reports to approximately 2,250 radio and 182 television affiliates and we derive the substantial majority of the revenue attributed to this business from the sale of commercial advertising inventory embedded within these reports. In recent years, the US Department of Transportation and other regional and local departments of transportation have significantly increased their direct provision of real-time traffic and traveler information to the public free of charge. The ability to obtain this information free of charge may result in our radio and television affiliates electing not to utilize the traffic and local information reports produced by our Metro Traffic business, which in turn could adversely affect our revenue from the sale of advertising inventory embedded in such reports.
Our ability to improve our operating results largely depends on the audiences we deliver to our advertisers.
Our revenue is derived from advertisers who purchase commercial time based on the audience reached by those commercials. Advertisers determine the audience(s) they want to reach according to certain criteria, including the size of the audience, their demographics (e.g., gender, age), the market and daypart in which their commercials are broadcast and the format of the station on which the commercials are broadcast. The new electronic audience measurement technology known as The Portable People Meter™, or PPM™, introduced in 2007 impacted audience levels for most programming across the radio industry in the first few years of its introduction (2008-2010). However, in the most recent book, RADAR 108, that reported ratings for our RADAR inventory (which comprises approximately half of our total inventory) the first 33 markets (including 19 of the top 20 markets) were fully incorporated into the ratings books and all 48 markets have been incorporated (at some level) into the RADAR books which leads us to believe the impact of PPM has been largely absorbed by the marketplace. However, we may continue tono assurance Mr. Caine will be impacted by PPM as 15 markets have yet to be fully incorporated into the ratings books. Audience levels also can change for several reasons other than PPM, including changes in the radio stations included in a RADAR network, such stations’ clearance rates for our inventory, general radio listening trends and additional changes in how audience is measured. In 2010, we were able to offset the impact of audience declines by purchasing additional inventory at cost effective prices, however, if the general economy and advertising market were to recover significantly, inventory could become more expensive. Additionally, additional inventory may need to be purchased in advance of our having definitive data on audience levels, such that if we do not accurately predict how much additional inventory will be required to offset declines in audience,help us increase revenues meaningfully, either quickly or cannot purchase comparable inventory to our current inventory at efficient prices, our future operating profits could be materially and adversely affected.over time.
10
Our business is subject to increased competition from new entrants into our business, consolidated companies and new technologies/platforms, each of which has the potential to adversely affect our business.
Our business segments operateoperates in a highly competitive environment. Our radio and television programming competes for audiences and advertising revenue directly with radio and television stations and other syndicated programming. We also compete for advertising dollars with other media such as television, satellite radio, Internet radio, newspapers, magazines, cable television, outdoor advertising, direct mail and, increasingly, other digital media. While the overall radio audience has remained stable, these new media platforms have gained an increased share of advertising dollars and their introduction could lead to decreasing revenue for traditional media. Further, as we expend resources to expand our programming and services inAdditionally, new digital distribution channels, our operating results could be negatively impacted until we begin to gain traction in these emerging businesses. New or existing competitors may have resources significantly greater than our own. In particular, the consolidation of the radio industry has created opportunities for large radio groups, such as Cumulus Media, Clear Channel Communications and CBS Radio and Citadel Broadcasting Corporation to gather information and produce radio and television programming on their own. AlthoughIf other content companies were to merge with companies with a distribution network, the demand for our programming could decrease if those content providers elect to broadcast more of their programming on their owned and operated radio stations instead of on stations affiliated with external radio networks, such as our network, as has been the case with Cumulus Media since its merger. While we believe that the Merger provided us with a broader, more robust and more diverse range of programming and services, we do not own and operate radio market share has improved year-over-year according tostations, while each of the October 2010 Miller Kaplan report, there can be no assurance that we will be able to maintain or increase our market share, our audience ratings or our advertising revenue given this competition.aforementioned competitors do, which provides them with a built-in distribution network for their programs and products. To the extent the audience for our programs were to decline, advertisers’declines or this trend in consolidation continues, advertisers' willingness to purchase our advertising could be reduced. Additionally, audience ratings and performance-based revenue arrangements are subject to change based on the competitive environment and any adverse change in a particular geographic area could have a material and adverse effect on our ability to attract not only advertisers in that region, but national advertisers as well.
In recent years, digital media platforms and the offerings thereon have increased significantly and consumers are playing an increasingly large role in dictating the content received through such mediums. We face increasing pressure to adapt our existing programming as well as to expand the programming and services we offer to address these new and evolving digital distribution channels. Advertising buyers have the option to filter their messages through various digital platforms and as a result, many are adjusting their advertising budgets downward with respect to traditional advertising mediums such as radio and television or utilizing providers who offer “one-stop shopping” access to both traditional and alternative distribution channels. If we are unable to offer our broadcasters and advertisers an attractive full suite of traditional and new media outlets and address the industry shift to new digital mediums, our operating results may be negatively impacted.
Our failure to obtain or retain the rights in popular programming could adversely affect our operating results.
The operating results from our radio programming and television business depends in part on our continued ability to secure and retain the rights to popular programming and then to sell such programming at a profit. We obtain a significant portion of our programming from third parties. For example, some of our most widely heard broadcasts, including certain NFL and NCAA games, are made available based upon programming rights of varying duration that we have negotiated with third parties. Competition for popular programming that is licensed from third parties is intense, and due to increased costs of such programming or potential capital constraints, we may be outbid by our competitors for the rights to new, popular programming or to renew popular programming currently licensed by us. Even when we are able to secure popular programming, the fee thereoffor such programming (particularly sports programs and high-profile talent), is often significantly increased as a result of the competitive bidding process, which requires that we sell the advertising in this programming at a sufficiently higher volume and rate to offset the increased fees. Ourfees, which in this economic environment is not always possible. In addition, if we are unable to comply with our obligations under our programming agreements, our counterparties could terminate such agreements. While the Merger diversified our business and provided us with a wider array of programming and services, our failure to obtain or retain rights to popular content (or the temporary lossincluding as a result of such content asour failure to comply with our programming agreements, would be the case for our NFL programming in the event of an NFL lock-out) couldmaterially and adversely affect our operating results.
11
We recognized impairment charges in the third and fourth quarters of 2012 and may recognize additional such charges in the future, which could adversely affect our results of operations and financial condition.
We evaluate our goodwill for impairment at least annually, and more often when changes in circumstances indicate an impairment may have occurred. We recognize an impairment charge if the carrying value of our goodwill exceeds its estimated fair value. In assessing fair value, we rely primarily on a discounted cash flow model and other generally accepted valuation methodologies. In our assessment, we consider qualitative factors including, but not limited to, general economic conditions, our outlook for business activity, our recent and forecasted financial performance and the price of our common stock. These analyses necessarily rely on the judgments and estimates of management, which involve inherent uncertainties. The estimated fair value of our goodwill may be adversely affected by a number of factors, including changes in market conditions, the effects of a general economic slowdown, operational performance, fluctuations in the price of our common stock and other unanticipated events and circumstances. In such event, the assumptions used to calculate the fair value of goodwill could be negatively affected and could result in an impairment of our goodwill. When we are required to recognize an impairment charge, it is recorded as an operating expense in the period in which the carrying value exceeds the fair value.
As of September 30, 2012, we performed an evaluation of our goodwill and intangible assets and recorded an estimated goodwill impairment charge of $67,218 as of September 30, 2012. Upon completion of the full interim review we recorded an additional goodwill impairment of $24,976 in the fourth quarter of 2012, resulting in a final goodwill impairment charge of $92,194for the year ended December 31, 2012. We also performed the annual review for impairment of goodwill in December of 2012 and based upon such review no further impairment of goodwill was recorded. While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our goodwill, it is possible a material change could occur in the future. We will continue to conduct impairment analyses of our goodwill on a regular basis, and we would be required to take
additional impairment charges in the future if any recoverability assessments thereof reflect estimated fair values which are less than our recorded values, and such charges could be significant. Further impairment charges with respect to our goodwill could have a material adverse effect on our results of operations and financial condition.
If we are not able to integrate future merger and acquisition ("M&A&A") activity successfully, our operating results could be harmed.
We evaluate mergers and acquisitions (“M&A”)&A opportunities, including acquisitions and dispositions, on an ongoing basis and intend to pursue opportunities in our industry and related industries that can assist us in achieving our growth strategy. The success of our future strategy will depend on our ability to identify, negotiate, complete and integrate M&A opportunities and, if necessary, to obtain satisfactory debt or equity financing to fund such opportunities. M&A is inherently risky, and any M&A transactions we do complete may not be successful.
Even if we are able to consummate the M&A transactions we pursue, such transactions may involve certain risks, including, but not limited to, the following:
| • | | difficulties in integrating and managing the operations, technologies and products of the companies we merge with and/or acquire; |
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| • | | diversion of our management’sdiversion of our management's attention from normal daily operations of our business; |
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| • | | our inability to maintain the key business relationships and reputations in connection with such M&A; |
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| • | | uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions; |
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| • | | our dependence on unfamiliar affiliates and partners of the companies we merge with and/or acquire; |
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| • | | insufficient revenue to offset our increased expenses associated with the M&A transactions we consummate or inability to realize the synergies we identify; |
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| • | | our responsibility for the liabilities of the businesses we merge with and/or acquire; and |
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| • | | potential loss of key employees in connection with such M&A. |
responsibility for the liabilities of the businesses we sell, merge with and/or acquire;
insufficient revenue to offset increased expenses associated with the M&A transactions we consummate or inability to realize the synergies we identify;
inability to maintain the key business relationships and reputations in connection with such M&A;
potential loss of key employees in connection with any M&A we undertake;
difficulty in integrating and managing the operations, technologies and products of the companies we merge with and/or acquire;
uncertainty of entry into markets in which we have limited or no prior experience or in which competitors have stronger market positions; and
dependence on unfamiliar affiliates and partners of the companies we merge with and/or acquire.
Certain future M&A transactions would require the consent of our lenders under the Credit Facilities (and the New Credit Facilities if the recapitalization closes).
Our success is dependent upon audience acceptance of our content particularly our radio programs, which is difficult to predict.
Revenue from our radio and television businessesbusiness is dependent on our continued ability to anticipate and adapt to changes in consumer tastes and behavior on a timely basis. Because consumer preferences are consistently evolving, the commercial success of a radio program is difficult to predict. It depends on the quality and acceptance of other competing programs, the availability of alternative forms of entertainment, general economic conditions and other tangible and intangible factors, all of which are difficult to predict. An audience’saudience's acceptance of programming is demonstrated by rating points which are a key factor in determining the advertising rates that we receive. Low ratings can lead to a reduction in pricing and advertising revenue. Consequently, low public acceptance of our content particularly our radio programs, could have an adverse effect on our results of operations.
We may be required to recognize further impairment charges.
On an annual basis and upon the occurrence of certain events, we are required to perform impairment tests on our identified intangible assets with indefinite lives, including goodwill, and long-lived assets which testing could impact the value of our business. We have a history of recognizing impairment charges related to our goodwill and intangible assets. In connection with our Refinancing and our requisite adoption of the acquisition method of accounting, we recorded new values of certain assets such that as of April 24, 2009, our revalued goodwill was $86,414 (an increase of $52,426) and intangible assets were $116,910 (an increase of $114,481). In September 2009, we believe a triggering event occurred as a result of forecasted results for 2009 and therefore we conducted a goodwill impairment analysis that resulted in an impairment charge in our Metro Traffic segment of $50,501.
12
Risks Related to Our Common Stock
We presently trade on the OTC Pink Sheets and our Class A Common Stock is thinly traded.
Our common stock may not maintain an active tradingcurrently trades in the Pink Sheets. There can be no assurance that it will continue to do so as we are dependent on one or more market which could affect the liquidity andmakers making a market price of our common stock.
On November 20, 2009, we listedin our common stock, on the NASDAQ Global Market. However,and even if they continue to do so, there can be no assurance that an active trading market will be maintained. Broker-dealers may decline to trade in the Pink Sheets because (1) the market for such securities is often limited, (2) such securities are generally more volatile, and (3) the risk to investors is generally greater. In addition, we filed a Form 15 deregistering our Class A common stock in January 2013 and after this report, we will not be filing periodic reports with the SEC. This will result in less information about us being available to stockholders and investors immediately following the effective date of the deregistration. Consequently, selling our Class A common stock could be difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and securities analyst and media coverage of us may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our Class A common stock as well as lower trading volume. We cannot provide any assurance that, even if our Class A common stock continues to be listed or quoted on the NASDAQ Global Market will be maintained, thatPink Sheets or another market or system, the market for our common stock price will increase or that ourClass A common stock will continuebe as liquid.
This lack of liquidity could adversely affect our stock price, and could also make it more difficult for us to traderaise capital in the future, which in turn could have an adverse effect on the exchange for any specific period of time. If we are unable to maintain our listing on the NASDAQ Global Market, we may be subject to a loss of confidence by customers and investors and the market price of our shares may be affected.business.
Sales of additional shares of common stock by Triton, Gores or our other lenderssignificant equity holders could adversely affect the stock price.price, particularly given the thin daily trading volume in our Class A common stock.
Triton and Gores beneficially owns 17,212,977 shares, orown approximately 76.4%60% and 30%, respectively, of our common stock which reflects theon a combined basis (i.e., Class B common stock it purchased in September 2010 and February 2011.Class A common stock, respectively). There can be no assurance that at some future time Triton, Gores, or our other lenders (who collectively own 20.5% of our common stock),significant equity holders, will not, subject to the applicable volume, manner of sale, holding period and limitations of Rule 144requirements under the Securities Act, sell additional shares of our common stock, which could adversely affect our share price.price, particularly because so much of our Class A common stock is closely held which means we have a low public float and the daily trading volume is light. The perception that these sales might occur could also cause the market price of our common stock to decline. Such sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
As part of the recapitalization, we will issue additional shares of our common stock and new preferred stock with voting power and warrants for our common stock that will cause significant and meaningful dilution of our existing equity securities.
As part of the recapitalization that is expected to become effective on or around April 16, 2013 upon the satisfaction or waiver of certain conditions precedent, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), (i) certain of the lenders under our existing Second Lien Credit Agreement are expected to exchange approximately $63,000 of the outstanding obligations under the Second Lien Credit Agreement for a new 15% Series A Preferred Stock, par value $0.01 per share, that has certain corporate governance rights (including certain voting rights, certain “negative controls” and the right to designate 3 of 7 members of our Board of Directors) and penny warrants to purchase 12% of our Common Stock, (ii) the lender under the Priority Second Lien Credit Agreement will be issued penny warrants to purchase 7.5% of our outstanding Common Stock for nominal consideration. (iii) the holders of our PIK Notes and our existing Series A Preferred Stock are expected to exchange their PIK Notes and existing Series A Preferred Stock for our Common Stock pursuant to various subscription and exchange agreements on terms to be determined, and (iv) Triton and Gores are expected to purchase, directly or indirectly, $16,500 of additional shares of our equity securities on terms to be decided. Additionally, it is currently contemplated that a management incentive plan for approximately 10-15% of the then outstanding equity will be enacted after the recapitalization closes (assuming it closes). The issuance of such shares of our Common Stock, any exercise of such warrants for our Common Stock and the enactment of such an incentive plan will significantly dilute the existing shares of our Common Stock, potentially to a small fraction of the Common Stock held by them today, which issuance of stock could adversely affect our stock price. The issuance of our new 15% Series A Preferred Stock will further dilute the voting power of the holders of our other classes of voting stock (e.g., our common stock). Such issuances could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate, which in turn could have an adverse effect on our business.
Any further issuance of shares of preferred or common stock by us could further dilute the voting power of the common stockholders and adversely affect the value of our common stock or delay or prevent a change of control of our company.
Our Board of Directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 200,000 shares of preferred stock, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. Additionally, Triton and Gores have voting control over corporate actions as described in more detail below and can collectively decide to issue and purchase additional shares of common stock, including to the extent necessary to provide additional funding to us in connection with a negotiated amendment with our lenders, which would dilute the value of existing common stock and could further dilute their voting rights as well if such contribution/investment was made in voting stock. The further issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock.
To the extent we choose to issue preferred stock, any such issuance may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares. In connection with the Merger, we issued 9,691.374 shares of Series A Preferred Stock leaving 190,308.626 shares of preferred stock available for future issuance.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock (as was the case with the Series A Preferred Stock) could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.
Triton and Gores are able to exert, and after the recapitalization our Second Lien lenders also will be able to exert, significant influence over us and our significant corporate decisions and may act in a manner that advances itsadvance their best interest and not necessarily those of other stockholders.
As a result of itstheir collective beneficial ownership of 17,212,977 shares, or approximately 76.4%,90% of our common stock, Triton and Gores hashave voting control over our corporate actions. Gores currently owns 76% of the Class A common stock (which accounts for 30% of our common stock on a combined basis), which votes as a separate class on certain actions; and Triton currently owns 100% of the Class B common stock (which accounts for 60% of our common stock on a combined basis), which also votes as a separate class on certain actions.Upon the effectiveness of the recapitalization, (i) the holders of the loans under the A&R Second Lien Credit Agreement will hold new 15% Series A Preferred Stock with voting rights and certain other corporate governance rights and (ii) the holders of the loans under the A&R Second Lien Credit Agreement and Priority Second Lien Credit Agreement will hold warrants to purchase 12% and 7% of our common stock, respectively. For so long as Triton and Gores continuescontinue to beneficially own shares of common stock representing more than 50% of the voting power of our common stock itand our second lien lenders hold our new 15% Series A Preferred Stock, they will be able to elect all of the members of our Board of Directors and determine the outcome of all matters submitted to a vote of our stockholders, including matters involving mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional shares of common stock or other equity securities and the payment of dividends on common stock.stock (subject to the covenants and limitations set forth in our Credit Facilities and New Credit Facilities, after the recapitalization). As discussed above, in connection with the recapitalization, our Board will be reduced from nine to seven directors and may not have any independent directors after the closing of the recapitalization.
Each of Triton, Gores and our second lien lenders may act in a manner that advances itstheir best interests and not necessarily those of other stockholders by, among other things:
| • | | delaying, deferring or preventing a change in control; |
|
| • | | impeding a merger, consolidation, takeover or other business combination; |
|
| • | | discouraging a potential acquirer from making a tender offer or otherwise attempting obtain control; or |
|
| • | | causing us to enter into transactions or agreements that are not in the best interests of all of our stockholders. |
impeding a merger, consolidation, takeover or other business combination;
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control; or
causing us to enter into transactions or agreements that are not in the best interests of all of our stockholders.
Provisions in our restated certificate of incorporation and by-laws, both before and after the recapitalization, and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Provisions of our restated certificate of incorporation and by-laws, both of which are being amended and restated in connection with the recapitalization, and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that youstockholders could receive a premium for yourtheir common stock in an acquisition. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. This provision of the Delaware General Corporation Law could delay or prevent a change of control of our company, which could adversely affect the price of our common stock.
13
We do not anticipate paying dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes. Any payment of future cash dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board of Directors deems relevant. In addition, our Senior Credit FacilityFacilities and New Credit Facilities, after the Senior Notesrecapitalization, restrict the payment of dividends.
Any issuance of shares of preferred stock by us could delay or prevent a change of control of our company, dilute the voting power of the common stockholders and adversely affect the value of our common stock.17
Our Board has the authority to cause us to issue, without any further vote or action by the stockholders, up to 10,000 shares of preferred stock, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. To the extent we choose to issue preferred stock, any such issuance may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares.
The issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of our other classes of voting stock either by diluting the voting power of our other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of our other classes of voting stock.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.
The foregoing risk factors that appear above may affect future performance. The accuracy of the forward-looking statements included in the risk factors above are illustrative, but are by no means all-inclusive or exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table sets forth, as of December 31, 2010, the Company’s
Our major facilities, all of which are leased.leased, as of December 31, 2012 are as follows:
| | | | | | |
| | | | Approximate | |
| Location | | Use | | Approx. Floor Space Sq. Ft. | |
| New York, NY - 220 W. 42nd St. | | Corporate Headquarters | | 51,300 | 39,000 |
|
| New York, NY - 524 W. 57th St. | | Broadcasting Center | | | 11,000 |
|
Silver Spring, MDDallas, TX | | Broadcasting Center | | 30,000 | 21,000 |
|
Culver City,Greater Los Angeles, CA | | Broadcasting Center | | 54,200 | 32,000
|
| Centennial, CO | | Broadcasting Center | | 25,800 |
|
| Washington, DC | | Broadcasting Center | | 4,100 |
|
We believe that our facilities are adequate for our current level of operations.
14
Item 3. Legal Proceedings
On September 12, 2006, Mark Randall, derivatively on behalf of Westwood One, Inc., filed suit in the Supreme Court of the State of New York, County of New York, against us and certain of our current and former directors and certain former executive officers. The complaint alleges breach of fiduciary duties and unjust enrichment in connection with the granting of certain options to our former directors and executives. Plaintiff seeks judgment against the individual defendants in favor of us for an unstated amount of damages, disgorgement of the options which are the subject of the suit (and any proceeds from the exercise of those options and subsequent sale of the underlying stock) and equitable relief. Subsequently, on December 15, 2006, Plaintiff filed an amended complaint which asserts claims against certain of our former directors and executives who were not named in the initial complaint filed in September 2006 and dismisses claims against other former directors and executives named in the initial complaint. On March 2, 2007, we filed a motion to dismiss the suit. On April 23, 2007, Plaintiff filed its response to our motion to dismiss. On May 14, 2007, we filed our reply in furtherance of our motion to dismiss Plaintiff’s amended complaint. On August 3, 2007, the Court granted such motion to dismiss and denied Plaintiff’s request for leave to replead and file a further amended complaint. On September 20, 2007, Plaintiff appealed the Court’s dismissal of its complaint and moved for “renewal” under CPLR 2221(e). Oral argument on Plaintiff’s motion for renewal occurred on October 31, 2007. On April 22, 2008, Plaintiff withdrew its motion for renewal, without prejudice to renew.
None
Item 4. [Removed and Reserved]Mine Safety Disclosures
None
PART II
(InDollars in thousands, except per share amounts)
Item 5. Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
On February 28, 2011,22, 2013, there were approximately 196180 holders of record of our common stock, several of which represent “street accounts”"street accounts" of securities brokers. We estimate that the total number of beneficial holders of our common stock exceeds 4,200is approximately 3,200.
The following table sets forth the range of high and low sales prices for the common stock for the calendar quarters indicated.
| | | | | | | | | |
| 2010 | | High | | | Low | |
| First Quarter | | $ | 14.82 | | | $ | 3.63 | |
| Second Quarter | | | 17.99 | | | | 7.06 | |
| Third Quarter | | | 9.92 | | | | 5.81 | |
| Fourth Quarter | | | 11.60 | | | | 7.90 | |
| | | | | | | | | | |
| 2009(1) | | High | | Low | | |
| | 2012 | | High |
| Low |
|
| First Quarter | | $ | 0.12 | | $ | 0.02 | | $ | 4.10 |
| $ | 2.25 |
|
| Second Quarter | | 0.12 | | 0.05 | | 3.69 |
| 1.95 |
|
| Third Quarter (through August 4, 2009) | | 0.06 | | 0.04 | | |
Third Quarter (from August 5, 2009 through September 30, 2009)(2) | | 11.00 | | 3.25 | | |
| Third Quarter | | 3.70 |
| 2.15 |
|
| Fourth Quarter | | 6.50 | | 3.21 | | 3.00 |
| 0.18 |
|
| | | |
| 2011 | | High |
| Low |
|
| First Quarter | | $ | 9.99 |
| $ | 6.07 |
|
| Second Quarter | | 7.19 |
| 4.27 |
|
| Third Quarter | | 7.00 |
| 2.65 |
|
| Fourth Quarter | | 5.29 |
| 2.11 |
|
| | |
|
|
(1) | | Through March 16, 2009, our common stock traded on the New York Stock Exchange (“NYSE”) under the symbol “WON”. On November 20, 2009, we listed our common stock on the NASDAQ Global Market under the symbol “WWON”. In the intervening period, our common stock was traded on the Over the Counter Bulletin Board under the ticker “WWOZ.” |
|
(2) | | Reflects the 200 for 1 reverse stock split that occurred on August 3, 2009 and was reflected in stock prices on August 5, 2009. |
15
The amounts in the table for the periods ending on or prior to August 4, 2009 do not reflect the 200 for 1 reverse stock split of our outstanding common stock and the conversion of all outstanding shares of Series A-1 Preferred Stock and Series B Preferred Stock into common stock that occurred on August 3, 2009. The closing price for18
On December 6, 2012, we delisted our common stock from the NASDAQ Global Market (listed under the symbol "DIAL" from October 24, 2011) and currently trade under the same symbol on March 31,the Over the Counter Pink Sheets. Prior to October 24, 2011, our common stock was $7.25.listed on the NASDAQ Global Market under the symbol “WWON”. Our periodic reporting obligations were suspended on January 15, 2013, the date we filed a Form 15 to deregister our Class A common stock.
The payment of cash dividends is prohibited by the terms of our Senior Notes and SeniorNew Credit Facility,Facilities, and accordingly, we do not plan on paying dividends for the foreseeable future.
Equity Compensation Plan Information (1)
The following table contains information as of December 31, 20102012 regarding our equity compensation plans.
| | | | | | | | | | | | | |
| | | | | | | | | | | Number of securities | |
| | | | | | | | | | | remaining available for | |
| | | | | | | | | future issuance under | |
| | | Number of securities to | | | Weighted average | | | equity compensation | |
| | | be issued upon exercies | | | exercise price of | | | plus excluding | |
| | | of outstanding options, | | | outstanding options, | | | securities reflected in | |
| Plan Category | | warrants and rights | | | warrants and rights | | | Column (a) | |
| | | (a) | | | (b) | | | | |
| | | | | | | | | | | | | |
| Equity compensation plans approved by security holders (1) | | | | | | | | | | | | |
| Options (2) | | | 1,631,300 | | | $ | 26.00 | | | | (3 | ) |
| Restricted Stock Units | | | 115,100 | | | | N/A | | | | (3 | ) |
| Restricted Stock | | | — | | | | N/A | | | | (3 | ) |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total | | | 1,746,400 | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plus excluding securities reflected in Column (a) |
| | | (a) | | (b) | | |
| Equity compensation plans approved by security holders (1) | | | | | | |
| Options (2) | | 8,083,845 |
| | $3.81 | | (4) |
| Restricted Stock Units (3) | | — |
| | N/A | | — |
| Restricted Stock | | — |
| | N/A | | — |
| Equity compensation plans not approved by security holders | | — |
| | — | | — |
| Total | | 8,083,845 |
| | | | |
| | |
| (1) | | We amended and restatedOn December 19, 2011, the 2005 Equity CompensationBoard of Directors approved the Dial Global, Inc. 2011 Stock Option Plan (“the 2005 Plan”) because we had a limited number of shares available for issuance thereunder (such plan, as amended and restated, the “2010(the “2011 Plan”). The 20102011 Plan became effective upon its adoptionwas approved by stockholders holding a majority of our outstanding voting shares by written consent. On December 20, 2012, we filed a post-effective amendment to the Board on February 12, 2010. Our stockholders approved2011 Plan that terminated the 2010 Plan on July 30, 2010 at our 2010 annual meetingS-8 registration statement pertaining to such plan and removed from registration all of stockholders.the securities registered thereby that remained unissued as of that date. |
| |
| (2) | | Options included herein were granted or are available for grant as part of our 2011 Plan, the 1999 Stock Incentive Plan (“the 1999(the "1999 Plan”), the 2005 Equity Compensation Plan (the "2005 Plan”) and/or the 2010 Plan. TheEquity Compensation CommitteePlan (which is an amended and restated version of the Board oversees option grants2005 Plan)(the "2010 Plan"). On December 19, 2012, we filed a post-effective amendment to executive officersthe 2010 Plan that terminated the S-8 registration statement pertaining to such plan and other employees. removed from registration all of the securities registered thereby that remained unissued as of that date. |
| |
| (3) | The 2010 Plan provides for the granting of options, restricted stock, restricted stock units (“RSUs”) and other equity compensation. InUnder the 2010 our Compensation Committee determined that our independent non-employee directors should receive annual awardsPlan, options, RSUs and restricted stock are deducted from this authorized total, with grants of RSUs, valued in an amountrestricted stock and related dividend equivalents being deducted at the rate of $35, which awards will vest over 2 years, beginning on the first anniversary of the grant date. The awards vest automatically upon a change in control (as defined in the 2010 Plan) and are otherwise be governed by the terms of the 2010 Plan.three shares for every one share granted. Recipients of RSUs are entitled to receive dividend equivalents on the RSUs (subject to vesting) when and if we pay a cash dividend on our common stock. RSUs are payable in shares of our common stock. For a more complete description of the provisions ofstock and can only be granted under the 2010 Plan, refer to our proxy statement filed with the SEC on June 11, 2010, which includes the complete text of the 2010 Plan and a summary thereof. The 1989 Stock Incentive Plan expired in March 1999 and the 1999 Plan expired in March 2009. |
|
(3) | | Under the 2010 Plan, a maximum of 2,650,000 shares of common stock (of which 697,834 remained available for issuancePlan. No RSUs are outstanding as of December 31, 2010) are authorized2012. |
| |
| (4) | Under the 2011 Plan and the 2010 Plan, respectively, a maximum of 7,731,225 and 352,620 shares of Class A common stock remain available for issuance upon the exercise of equity compensation awards. Options, RSUspreviously issued and restrictedoutstanding stock are deducted from this authorized total, with grantsoptions as of RSUs, restricted stock and related dividend equivalents being deducted at the rate of three shares for every one share granted.December 31, 2012, respectively. |
16
The performance graph below compares the performance of our common stock to the Dow Jones US Total Market Index and the Dow Jones US Media Index for the last five calendar years. The graph assumes that $100 was invested in our common stock and each index on December 31, 2005.
The following tables set forth the closing price of our common stock at the end of each of the last five years.
| | | | | | | | | | | | | | | | | | | | | |
| CUMULATIVE TOTAL RETURN | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | |
| | | | | | | | | | | | | | | | | | | | | |
Westwood One, Inc. | | | 44.90 | | | | 12.70 | | | | 0.35 | | | | 0.14 | | | | 0.29 | |
Dow Jones US Total Market Index | | | 115.57 | | | | 122.51 | | | | 76.98 | | | | 99.15 | | | | 115.66 | |
Dow Jones US Media Industry Index | | | 126.45 | | | | 110.51 | | | | 65.05 | | | | 94.55 | | | | 118.34 | |
Westwood One Closing Stock Price (1) | | | 7.06 | | | | 1.99 | | | | 0.06 | | | | 4.50 | | | | 9.13 | |
| | |
(1) | | Stock prices prior to August 3, 2009 do not reflect the 200 for 1 reverse stock split that occurred on August 3, 2009 which was reflected in stock prices on and after August 5, 2009. |
17
Item 6. Selected Financial Data
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor Company(1) | | | | Predecessor Company(1) | |
| | | Year Ended | | | For the Period | | | | For the Period | | | | |
| | | December 31, | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended December 31, | |
| (In thousands) | | 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | 2008 | | | 2007 | | | 2006 | |
Consolidated Statements of Operations: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 362,546 | | | $ | 228,860 | | | | $ | 111,474 | | | $ | 404,416 | | | $ | 451,384 | | | $ | 512,085 | |
| | | | | | | | | | | | | | | | | | | | |
| Operating costs | | | 342,258 | | | | 210,805 | | | | | 111,309 | | | | 357,927 | | | | 350,440 | | | | 395,196 | |
| Depreciation and amortization | | | 18,243 | | | | 21,474 | | | | | 2,584 | | | | 11,052 | | | | 19,840 | | | | 20,756 | |
| Corporate general and administrative expenses | | | 13,369 | | | | 10,398 | | | | | 4,519 | | | | 16,007 | | | | 13,171 | | | | 14,618 | |
| Goodwill and intangible asset impairment | | | — | | | | 50,501 | | | | | — | | | | 430,126 | | | | — | | | | 515,916 | |
| Restructuring charges | | | 2,899 | | | | 3,976 | | | | | 3,976 | | | | 14,100 | | | | — | | | | — | |
| Special charges | | | 7,816 | | | | 5,554 | | | | | 12,819 | | | | 13,245 | | | | 4,626 | | | | 1,579 | |
| | | | | | | | | | | | | | | | | | | | |
| Operating (loss) income | | | (22,039 | ) | | | (73,848 | ) | | | | (23,733 | ) | | | (438,041 | ) | | | 63,307 | | | | (435,980 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 23,251 | | | | 14,781 | | | | | 3,222 | | | | 16,651 | | | | 23,626 | | | | 25,590 | |
| Other expense (income) | | | 1,688 | | | | (4 | ) | | | | (359 | ) | | | (12,369 | ) | | | (411 | ) | | | (926 | ) |
| Income tax (benefit) expense | | | (15,721 | ) | | | (25,025 | ) | | | | (7,635 | ) | | | (14,760 | ) | | | 15,724 | | | | 8,809 | |
| | | | | | | | | | | | | | | | | | | | |
| Net (loss) income | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) | | $ | 24,368 | | | $ | (469,453 | ) |
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Successor Company | | | | | | | | Predecessor Company | |
| | | As of December 31, | | | | | | | | As of December 31, | |
| | | 2010 | | | 2009(1) | | | | | | | | 2008 | | | 2007 | | | 2006 | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | 117,916 | | | $ | 125,741 | | | | | | | | $ | 119,468 | | | $ | 138,154 | | | $ | 149,222 | |
Working capital (deficit)(2) | | | 30,595 | | | | 40,132 | | | | | | | | | (208,034 | ) | | | 47,294 | | | | 29,313 | |
| Total assets | | | 288,274 | | | | 307,318 | | | | | | | | | 205,088 | | | | 669,757 | | | | 696,701 | |
Long-term debt(2) | | | 136,407 | | | | 122,262 | | | | | | | | | — | | | | 345,244 | | | | 366,860 | |
| Due to Gores | | | 10,222 | | | | 11,165 | | | | | | | | | — | | | | — | | | | — | |
| Total stockholders’ (deficit) equity | | | (5,992 | ) | | | 17,984 | | | | | | | | | (203,145 | ) | | | 227,631 | | | | 202,931 | |
N/A
| | |
(1)Item 7. | | As a resultManagement's Discussion and Analysis of the Refinancing, we adopted the acquisition methodFinancial Condition and Results of accounting effective April 23, 2009. Accordingly, we have revalued our assets and liabilities using our best estimate of current fair value. Our consolidated financial statements which present periods prior to the closing of the Refinancing reflect the historical accounting basis in our assets and liabilities and are labeled Predecessor Company, while the periods subsequent to the Refinancing are labeled Successor Company and reflect the push down basis of accounting for the fair values which were allocated to our segments based on the business enterprise value of each segment. Deferred tax liabilities have been recorded as a part of acquisition accounting to reflect the future taxable income to be recognized relating to the cancellation of indebtedness income as well as the deferred tax liability related to the acquisition accounting. |
|
(2) | | On November 30, 2008, we failed to make the interest payment on our outstanding indebtedness which constituted an event of default under the credit agreements that pertain to the long-term debt outstanding at that time. Accordingly, $249,053 of debt previously considered long-term was then re-classified as short-term debt, which decreased our long-term debt and decreased our working capital from $41,019 to ($208,034) in 2008.Operations |
18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(InDollar amounts in thousands, except for per share amounts)
The following should be read in conjunction with
OVERVIEW
We are organized as a single business segment, which is our Radio business. We are an independent, full-service network radio company that distributes, produces, and/or syndicates programming and services to more than 8,400 radio stations nationwide. We produce and/or distribute over 200 news, sports, music, talk and entertainment radio programs, services and digital applications, as well as audio content from live events, turn-key music formats (the 24/7 Radio Formats), prep services, jingles and imaging. In addition, we are the consolidated financial statements and related notes. Please seelargest sales representative for independent third party providers of audio content. We have no operations outside the section entitled “Cautionary Statement regarding Forward-Looking Statements” in Item 1- Business and Item 1A — Risk Factors.United States, but sell to customers outside of the United States.
OVERVIEW
Revenue
For the year ended December 31, 2010, revenue was $362,546, an increase of $22,212 or 6.5% and reflects higher revenue in both segmentsWe derive substantially all of our business.
In 2010,revenue from the sale of 30 and 60 second commercial airtime to advertisers. Our advertisers that target national audiences generally find that a cost effective way to reach their target consumers is to purchase 30 or 60 second advertisements, which are principally broadcast in our Network24/7 Radio revenue grew by 7.1%, outpacing the overall network market which grew by 2.5% according to the December 2010 Miller Kaplan report. We believe our increased revenue resulted from our focus on delivering the bestFormats, news, talk, sports, talk, and music and entertainment related programming and other keycontent. In addition in exchange for services to our affiliate and advertising customers. Additionally, our advertising revenue increased in the areas of sports, music and news programming. These increases were partially offset by a decline in advertising revenuewe receive airtime from our talk radio programs and the cancellation of certain talk programs.stations.
In 2010, Metro Traffic Radio revenue grew by 9.2%, which outpaced the growth of combined local/national radio growth of 6.0% that was reported by the Radio Advertising Bureau. In Metro Traffic Radio, we believe such resulted from strength in key advertising categories, such as financial services, retail, automotive, and restaurants, as well as from new inventory we have obtained as a result of our new affiliate agreements. This increase was partially offset by decreases in the travel and entertainment and home services sectors and a decline in Metro Television advertising revenue.
Net Loss
Our net loss for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 were $31,257, $63,600 and $18,961, respectively. Net loss per share attributable to common shareholders for basic and diluted shares for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 were $(1.50), $(11.75) and $(43.64), respectively.
Operating Cash Flow
Net cash provided by operating activities was $8,136 for the twelve months ended December 31, 2010, an increase of $33,055 compared to the twelve months ended December 31, 2009. The increase was principally attributable to a 2010 federal tax refund of $12,940 in 2010, a lower net decrease in our deferred taxes of $14,453, a lower net loss of $51,304 (primarily from the absence of the 2009 impairment charge of $50,501) and an increase in the change in working capital of $11,557, partially offset by lower other non-cash adjustments of $6,698.
Adjusted EBITDA
Our Adjusted EBITDA was $12,138 for the year ended December 31, 2010, an increase of $1,765 compared to $10,373 for the year ended December 31, 2009. The increase in Adjusted EBITDA is the result of an increase in Network Radio OBIDA of $3,118, partially offset by a decrease in Metro Traffic OIBDA of $686 and an increase in corporate expense (less equity-based compensation and special charges classified as corporate, general and administrative) of $667. A description of OIBDA appears above (Item 1 — Business — Business Segments: Network Radio and Metro Traffic).
Adjusted EBITDA for Network Radio increased $3,118 as a result of increased revenues of $13,139, partially offset by increased operating costs of $10,021.
Adjusted EBITDA for Metro Traffic decreased $686 as a result of increased operating costs of $9,759, partially offset by an increase in revenue of $9,073.
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RESULTS OF OPERATION
Presentation of Results
Our consolidated financial statements and transactional records prior to the closing of the Refinancing reflect the historical accounting basis in our assets and liabilities and are labeled Predecessor Company, while such records subsequent to the Refinancing are labeled Successor Company and reflect the push down basis of accounting for the new fair values in our financial statements. This is presented in our consolidated financial statements by a vertical black line division which appears between the sections entitled Predecessor Company and Successor Company on the statements and relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Refinancing are not comparable. For management purposes we continue to measure our performance against comparable prior periods.
We are organized into two business segments: Network Radioproduce and Metro Traffic. Our Network Radio segment produces and distributesdistribute regularly scheduled and special syndicatedsporting events and sports features, news programs, including exclusive live concerts,events, music and interview shows, national music countdowns, lifestyle short features news broadcasts,and talk programs, sporting eventsprograms.
Our revenue is influenced by a variety of factors, including but not limited to: (1) economic conditions and sports features. Our Metro Traffic business produces and distributes traffic and other local information reports (such as news, sports and weather) to approximately 2,250 radio and 182 television stations. We evaluate segment performance based on segment revenue and OIBDA. Administrative functions such as finance, human resources and information systems are centralized. However, where applicable, portionsthe relative strength or weakness in the United States economy; (2) advertiser spending patterns, the timing of the administrative function costs are allocated between the operating segments. The operating segments do not share programming or report distribution. Operating costs are reported discretely within each segment. Our assets are reported discretely within each operating segment.
The principal componentsbroadcasting of our operating expenses are programming, productionprincipally the seasonal nature of sports programming and distribution costs (including affiliate compensationthe perceived quality and broadcast rights fees), selling expensescost-effectiveness of our programming by advertisers and affiliates; (3) advertiser demand on a local/regional or national basis for radio related advertising products; (4) increases or decreases in our portfolio of program offerings and the audiences of our programs, including commissions, promotional expenseschanges in the demographic composition of our audience base; and bad debt expenses, depreciation(5) competitive and amortization,alternative programs and corporate generaladvertising mediums.
Commercial airtime is sold and administrative expenses. Corporate generalmanaged on an order-by-order basis. We take the following factors, among others, into account when pricing commercial airtime: (1) length and administrative expenses are primarily comprised of costs associated with corporate accounting, legal and administrative personnel costs, other administrative expenses, including those associated with corporate governance matters, and until its termination on March 3, 2008, the Management Agreement. Special charges include expenses associated with our debt agreements and amendments, the estimated cost accrued for settlementbreadth of the lawsuit filedorder; (2) the desired reach and audience demographic; (3) the quantity of commercial airtime available for the desired demographic requested by Triangle, corporate development, professional services rendered by various members of Goresthe advertiser for sale at the time their order is negotiated; and Glendon, Gores’ equity investments,(4) the Refinancing, the stock offering undertaken by us in late 2009 that we have no immediate plans to further pursue, the renegotiationproximity of the CBS agreements, write-downdate of the order placement to the desired broadcast date of the commercial airtime.
Our revenue consists of gross billings, net of the fees that advertising agencies receive from the advertisements broadcast on our airtime (generally 15% is industry-standard), fees to the producers of and stations that own the programming during which the advertisements are broadcast, and certain costs associatedother less significant fees. Revenue from radio advertising is recognized when the advertising has aired. Revenue generated from charging fees to radio stations and networks for music libraries, audio production elements, and jingle production services are recognized upon delivery or on a straight-line basis over the term of the contract, depending on the terms of the respective contracts. Our revenue reflects a degree of seasonality, with the TrafficLand arrangement, employment claim settlementsfirst and regionalization costs.fourth quarters historically exhibiting higher revenue as a result of our professional football and college basketball programming.
In those instances where we function as the principal in the transaction, the revenue and associated operating costs are presented on a gross basis in the Consolidated Statement of Operations.basis. In those instances where we function as an agent or sales representative, our effective commission is presented within revenue with no corresponding operating expenses.revenue. Although no individual relationship is significant, the relative mix of such arrangements is significant when evaluating our operating margin and/or increases and decreases in operating expenses.
We have identified certain immaterial errors
The principal components of our cost of revenue are programming, production and distribution costs (including affiliate compensation and broadcast rights fees), as well as compensation costs directly related to our revenue.
Our significant other operating expenses are rental of premises for office facilities and studios, promotional expenses, research, and accounting and legal fees. Depreciation and amortization is shown as a separate line item in our financial statements, whichstatements.
Our compensation costs consist of compensation expenses associated with our personnel who are not associated with the cost of revenue, including our corporate staff and all stock-based compensation related to stock option awards and RSUs. Stock-based compensation is recognized using a straight-line basis over the requisite service period for the entire award.
Transaction costs include one-time expenses associated with the merger with Westwood One, Inc. (the "Merger") on October 21, 2011 (see below for additional details). Restructuring charges include the costs related to the restructuring program we corrected in subsequent interim periods. Such items have been reported and disclosed announced
in the financial statements for the periods ended December 31, 2010, 2009 and 2008, as applicable. We do not believe these adjustments are material to our current period consolidated financial statements or to any prior period’s consolidated financial statements and accordingly we have not restated any prior period financial statements. In an ongoing effort to improve our control environment, we have made further enhancements to our financial reporting personnel in 2010 and intend to continue to evaluate our internal controls and make further improvements as necessary.
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Goodwill and Intangible Asset Impairment
As part of our annual impairment tests of goodwill and indefinite lived intangible assets, at December 31, 2010, we performed a Step 1 analysis by comparing our calculated fair value based on our forecast to our current carrying value. The results indicated a potential impairment in our Metro Traffic segment and we performed a Step 2 analysis to compare the implied fair value of goodwill to the carrying value of its goodwill. As a result of the Step 2 analysis, we determined that there was no impairment to goodwill as of December 31, 2010. On April 1, 2011 we filed a notice of late filing on Form 12b-25 with the SEC, which estimated an impairment charge between $15,000 and $25,000 as of December 31, 2010. Subsequent to such filing we finalized our conclusion on the appropriate discount rate to be incorporated into our impairment model and concluded that we did not have an impairment as of December 31, 2010.
Restructuring
In the secondfourth quarter of 2010, we restructured certain areas of the Network Radio and Metro Traffic segments (the “2010 Program”2011 ("2011 Program"). The 2010 Program included charges related to that includes the consolidation of certain operations that reduced our workforce levels, during 2010,the termination of certain contracts and additional actionsthe assumption of Westwood's restructuring program liabilities related to closed facilities from its former Metro Traffic business. In the second quarter of 2012, we announced plans to reduce our workforce as an extensionand other related costs (the "2012 Program").
RESULTS OF OPERATIONS
Presentation of Results
On October 21, 2011 ("Merger Date"), we announced the consummation of the Metro Traffic re-engineering. In connectionMerger contemplated by the Merger Agreement, by and among Westwood, Radio Network Holdings, LLC, a Delaware corporation (since renamed Verge Media Companies LLC), and Verge. The Merger is accounted for as a reverse acquisition of Westwood by Verge under the acquisition method of accounting in conformity with ASC 805. Under this guidance, the 2010 Program, wetransaction has been recorded $1,198as the acquisition of costs Westwood by the Company. The purchase accounting allocations have been recorded in the consolidated financial statements appearing in this report as of, and for the period subsequent to, the Merger Date (see Note 3 — Acquisition of Westwood One, Inc. to the Consolidated Financial Statements for a summary of changes for the year ended December 31, 2010. All2012). As a result of the Merger, Westwood's results are included in the consolidated results for the year ended December 31, 2012, but are not included in the consolidated results for the period from January 1, 2011 to October 21, 2011, in accordance with generally accepted accounting principles in the United States.
For the year ended December 31, 2012, we recorded $2,477 of costs, primarily related to the 2010 Program were incurred by the end of 2010.
In the third quarter of 2008, we announced a plan to restructure our Metro Traffic business (commonly referred to by us as the “Metro Traffic re-engineering”) and to implement other cost reductions. The Metro Traffic re-engineering entailed reducing the number of our Metro Traffic operational hubs from 60 to 13 regional centers and produced meaningful reductions in labor expense, aviation expense, station compensation, program commissions and rent. Since the commencement of the Metro Traffic re-engineering, we recorded $23,753 including severance of $10,454, contract terminationsemployees of $6,751$2,019 and closed facilities consolidation costsexpenses of $6,548. All costs$439 for the 2012 Program. The liability of $694 as of December 31, 2012 related to the Metro Traffic re-engineering were incurred by2012 Program is expected to be paid within the end of 2010. Future expense relatednext year. We anticipate no additional future charges to the Metro Traffic re-engineering will be adjustments for changes, if any, resulting from revisions2012 Program other than true-ups to closed facilities lease charges.
The 2011 Program was initiated in the fourth quarter of 2011 to restructure certain areas of our estimated sublease cash flows from facilities we closedbusiness in connection with the Metro Traffic re-engineeringacquisition of Westwood. The 2011 Program includes charges related to the consolidation of certain facilities and operations that reduced our workforce levels during 2011 and 2012. As of December 31, 2012, payments for the 2011 Program are expected to be $1,835 within the next year, with an additional $1,094 to be paid in subsequent years until 2018. We also recognized charges in 2012 for a content agreement which we ceased to utilize after March 31, 2012 and costs of temporary office space related to the cease-use date (i.e.,consolidation of our New York offices. We anticipate no additional future charges for the day2011 Program other than true-ups to closed facilities lease charges.
We normally perform the required impairment testing of goodwill on an annual basis in December of each year. However, as a result of several factors, which had a significant impact on our 2012 fourth quarter bookings and sales, we exitedperformed an interim analysis of our goodwill carrying value as required by ASC 350, Intangibles-Goodwill and Other, as of September 30, 2012.
We completed step one of the facilities).
The savings generatedimpairment analysis and concluded that as of September 30, 2012 our fair value was below our carrying value. Step two of the impairment test was initiated but due to the time consuming nature of the analysis and the complexity of determining the fair value of our tangible and intangible assets was not completed by the restructuring programsfiling deadline of our Form 10-Q for the three-month and nine-month periods ended September 30, 2012. However, not withstanding this, we recorded an estimated goodwill impairment charge of $67,218for the nine months ended September 30, 2012. Upon completion of the full interim review, we recorded an additional goodwill impairment of $24,976 in the fourth quarter of 2012, resulting in a final goodwill impairment charge of $92,194for the year ended December 31, 2012. The increase in the amount of goodwill impairment from our initial estimate of $67,218 to $92,194 was primarily based on an increase in the valuation of our definite lived intangibles assets, which has the effect of reducing the value of our goodwill. We also performed the annual review for impairment of goodwill and intangible assets in December of 2012 and based upon those reviews no further impairment of goodwill or intangible assets was recorded. See Note 7 — Goodwill to the Consolidated Financial Statements for additional details on goodwill and goodwill impairment. Our goodwill impairment determined as of September 30, 2012 for the year ended December 31, 2012, was allocated between tax deductible and nondeductible goodwill. The tax deductible goodwill impairment resulted in a benefit of $8,252 from the reduction of deferred tax liabilities related to the cumulative book and tax basis difference, and the nondeductible goodwill is permanently nondeductible for tax purposes, which was offset by an increase in our valuation allowance.
On July 29, 2011, the then Board of Directors of Verge (pre-Merger) approved a spin-off of the Digital Services business to Triton Media LLC ("Triton"). For all periods presented in this report, the results of the Digital Services business are presented as a discontinued operation and will continue to be presented as discontinued operations in all future filings in accordance with generally accepted accounting principles in the United States.
We evaluate our performance based on revenue and operating income (as described below). Westwood's former operations and financial information were integrated into the Company and as a result of this integration, we no longer have financial information to clearly determine the impact of Westwood's former operations to revenue, cost of revenue or operating expenses.
Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011
Revenue, Cost of Revenue and Gross Profit
Revenue, cost of revenue and gross profit for the years ended December 31, 2012 and 2011, respectively, are as follows:
|
| | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| | 2012 | | 2011 | | Change | | Percent |
| Revenue | $ | 239,019 |
| | $ | 131,325 |
| | $ | 107,694 |
| | 82.0 | % |
| Cost of revenue | 171,703 |
| | 75,920 |
| | 95,783 |
| | 126.2 | % |
| Gross profit | $ | 67,316 |
| | $ | 55,405 |
| | $ | 11,911 |
| | 21.5 | % |
| Gross margin | 28.2 | % | | 42.2 | % | | | | |
For the year ended December 31, 2012, revenue increased $107,694 to $239,019 compared with $131,325for the year ended December 31, 2011. The increase is primarily the result of an increase in advertising revenue from the acquisition of Westwood.
For the year ended December 31, 2012, cost of revenue increased $95,783 to $171,703 compared with $75,920for the year ended December 31, 2011. The increase in cost of revenue for the year ended December 31, 2012 was driven by the increase in revenue and from increases in expenses for station compensation of $30,987, broadcast rights of $28,636, revenue share of $12,949, news content of $13,267, employee compensation of $6,897, and costs associated with talent, contractors and production of $2,543. These increases are primarily a result of the acquisition of Westwood. These increases are net of cost reductions resulting from the 2011 and 2012 Programs and synergies resulting from the Merger.
For the year ended December 31, 2012, gross profit increased $11,911, or 21.5%, to $67,316 compared with $55,405for the year ended December 31, 2011.
Our gross margin declined from 42.2%for the year ended December 31, 2011, to 28.2%for the year ended December 31, 2012 primarily as a result of the Westwood acquisition. Prior to the acquisition of Westwood, our mix of business was almost equally split between being an agent and a principal. After the acquisition, our mix of business shifted towards being more of a principal as a result of Westwood's business. In those instances where we function as the principal, the revenue and associated operating costs are presented on a gross basis which results in a lower gross margin. In those instances where we function as an agent, our effective commission is presented within net revenue which results in a higher gross margin.
Compensation Costs
Compensation costs increased $12,115 to $28,511for the year ended December 31, 2012 compared to $16,396 for the same period in 2011, primarily due to the additional employees assumed as part of our acquisition of Westwood and increased stock-based compensation expense of $5,317for the year ended December 31, 2012 compared to the same period in 2011. These increases were partially offset by specific strategic investments, including: strengtheningcost reductions as a result of the 2011 and 2012 Programs to reduce our sales force in the Network Radio and Metro Traffic segments, new programming, digital and systems infrastructure, television inventory outlays and incremental costs related to our TrafficLand License Agreement (as described in more detail below in “Investments”), and expenses under the Company’s distribution arrangement with CBS Radio, which partly resulted from increased clearance levels by CBS Radio.
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Twelve Months Ended workforce expense. The total number of employees as of December 31, 2010 Compared with the Periods April 24, 2009 to 2012 is approximately 515, which is 85 employees lower than December 31, 2009 and January 1, 2009 to April 23, 20092011.
Revenue
Revenue presented byOther Operating Costs
Other operating segment costs for the twelve monthsyear ended December 31, 2010 and 2012 increased $14,114 to $34,160 from $20,046for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 is as follows:
| | | | | | | | | | | | | | | | | | |
| | | Revenue | |
| | | | | | | | | | | | Predecessor | | | | |
| | | | | | | | | | | | Company | | | | |
| | | Successor Company | | | | For the Period | | | Twelve | |
| | | Twelve Months Ended | | | For the Period April 24 | | | | January 1 to | | | Month | |
| | | December 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | Change | |
| Network Radio | | $ | 196,986 | | | $ | 119,852 | | | | $ | 63,995 | | | $ | 13,139 | |
| Metro Traffic | | | 165,560 | | | | 109,008 | | | | | 47,479 | | | | 9,073 | |
| | | | | | | | | | | | | | |
| Total (1) | | $ | 362,546 | | | $ | 228,860 | | | | $ | 111,474 | | | $ | 22,212 | |
| | | | | | | | | | | | | | |
| | |
|
|
(1) | | As described above, we currently aggregate revenue based on the operating segment. A number of advertisers purchase both local/regional and national commercial airtime in both segments. Our objective is to optimize total revenue from those advertisers. |
For the twelve monthsyear ended December 31, 2010, revenue increased $22,212, or 6.5%, to $362,546 compared with the results for the twelve months ended December 31, 2009.2011. The increase is the result of higher revenue in both segmentsprofessional fees primarily related to integration and recapitalization activities (primarily accounting, legal, technology and management) of $8,400, research fees of $3,348, facility costs (including rent, repairs, and communications) of $2,398, travel-related costs of $2,122, increased advertising-promotional costs of $477, and greater bad debt expense of $1,038, all primarily resulting from our business.
For the twelve months ended December 31, 2010, Network Radio revenue was $196,986, an increaseacquisition of 7.1%, or $13,139 compared with the twelve months ended December 31, 2009. The increase resulted from increased advertising revenue in programming for sports of $12,716, music of $2,404 and news of $1,812.Westwood. These increases were partially offset by decreasesthe absence in advertising revenue from2012 of the $1,540 license fee previously due as part of our talk radio programsmanagement of $2,374the 24/7 Formats business that we purchased in July 2011 and from the cancellation of certain talk programs of $1,665.
Metro Traffic revenue for the twelve months ended December 31, 2010 increased $9,073, or 5.8%, to $165,560 compared with the twelve months ended December 31, 2009. The increase in Metro Traffic revenue was principally related to an increase in the Metro Traffic radio advertising revenue of $10,968, primarily due to increases in the sectors of financial services of $7,195, quick service restaurants of $3,057, retail of $2,563 and automotive of $2,313, partially offset by decreases in the sectors of travel and entertainment of $2,611, home improvement services of $1,577 and telecommunication services of $1,386. Such increase was offset by a decrease in Metro Television advertising revenuecertain other taxes and fees of $1,835, or 4.9%.$939 in 2012.
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Depreciation and Amortization
Operating costs
Depreciation and amortization increased $8,316 to $23,435for the twelve monthsyear ended December 31, 2010 and2012 from $15,119 for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | Operating Costs | |
| | | | | | | | | | | | Predecessor | | | | |
| | | | | | | | | | | | Company | | | | |
| | | Successor Company | | | | For the Period | | | Twelve | |
| | | Twelve Months Ended | | | For the Period April 24 | | | | January 1 to | | | Month | |
| | | December 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | Change | |
| Programming and operating | | $ | 123,569 | | | $ | 79,277 | | | | $ | 40,854 | | | $ | (3,438 | ) |
| Station compensation | | | 95,533 | | | | 55,402 | | | | | 29,951 | | | | (10,180 | ) |
| Payroll and payroll related | | | 84,859 | | | | 51,703 | | | | | 26,576 | | | | (6,580 | ) |
| Other operating expenses | | | 38,297 | | | | 24,423 | | | | | 13,928 | | | | 54 | |
| | | | | | | | | | | | | | |
| | | $ | 342,258 | | | $ | 210,805 | | | | $ | 111,309 | | | $ | (20,144 | ) |
| | | | | | | | | | | | | | |
Operating costs increased $20,144, or 6.3%,to $342,258 for the twelve months ended December 31, 2010 compared to the same period in 2009.
Programming and operating costs increased $3,438 for the twelve months ended December 31, 2010 compared to the same period in 2009, primarily due to increases in program commissions of $7,586 and broadcast rights of $3,751, partially offset by decreases in aviation expense of $3,290, news service fees of $2,025, talent fees of $1,584 and other production expenses of $999.
Station compensation costs, which represent costs associated with acquiring radio and television station inventory to support revenue, increased $10,180 for the twelve months ended December 31, 2010 compared to the same period in 2009, primarily as a result of increased inventory purchases from television and local radio stations in the amount of $8,819 and other station compensation costs of $1,361.
Payroll and payroll related costs increased $6,580 for the twelve months ended December 31, 2010 compared to the same period in 2009. The increases were primarily a result of sales commissions of $3,503 and other compensation of $2,902, reflecting additional sales force hires in 2010 and variable compensation tied to revenue, which were partially offset by the cost savings in payroll resulting from our 2009 re-engineering and cost reduction programs.
Other operating expenses decreased $54 for the twelve months ended December 31, 2010 compared to the same period in 2009, primarily from lower facility expenses of $1,134 and professional fees of $580, partially offset by an increase in travel and promotion expenses of $1,400.
Depreciation and Amortization
Depreciation and amortization decreased $5,815, or 24.2%, to $18,243 in the twelve months ended December 31, 2010 from the comparable period of 2009. The decrease is primarily attributable to the amortization expense in 2009 from insertion orders of $8,400 and amortization of other intangibles prior to the Refinancing of $231 (which has no counterpart in the 2010 results) and slightly lower depreciation of property and equipment of $705. These decreases were partially offset by increases in amortization of $3,290 recorded as a result of the Refinancing and our application of “push down” acquisition accounting and the amortization of intangibles of $459 related to the acquisition of Sigalert.
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Corporate General and Administrative Expenses
Corporate, general and administrative expenses decreased $1,548 or 10.4%, to $13,369 for the twelve months ended December 31, 2010 compared to the twelve months ended December 31, 2009. The decrease is principally due to decreases in equity-based compensation expense of $1,860 and the absence of $1,652 of asset write-offs that occurred in the fourth quarter of 2009, partially offset by increases in payroll and related expenses of $1,519 professional services fees of $613.
Restructuring Charges
During the twelve months ended December 31, 2010, we recorded $2,899 for restructuring charges. For the twelve months ended December 31, 2010, restructuring charges included Metro Traffic re-engineering costs for real estate expenses of $1,514 (including $1,162 from revisions to estimated cash flows from our closed facilities, including estimates for subleases), severance of $1,288 (including $1,198 for the 2010 Program) and $97 for contract terminations.
In connection with the Metro Traffic re-engineering and other cost reductions, which included the consolidation of leased offices, staff reductions and the elimination of underperforming programming, that commenced in the last half of 2008, we recorded $3,976 in restructuring charges for the period from April 24, 2009 to December 31, 2009 and $3,976 for the period from January 1, 2009 to April 23, 2009.
Special Charges
We incurred special charges aggregating $7,816 in the twelve months ended December 31, 2010. Special charges in 2010 included fees of $2,414 related to our debt agreements, including the cost to twice amend our Securities Purchase Agreement and Credit Agreement; $1,500 for the estimated cost of settlement of the lawsuit filed by Triangle (see Note 18 Commitments and Contingencies for additional information);professional fees of $1,339 related to the evaluation of potential business development activities, including acquisitions and dispositions; Gores and Glendon fees of $1,009; and employment claim settlements of $493 related to employee terminations that occurred prior to 2008. There were no similar charges for the foregoing cost in the twelve months ended December 31, 2009. Special charges in 2010 also included: fees of $547 primarily related to regionalization costs (a decrease of $92 compared to the twelve months of 2009); asset write-downs of $321 associated with the TrafficLand arrangement (a decrease of $1,531 compared to the twelve months of 2009); and fees of $193 related to the finalization of the income tax treatment of the Refinancing, a decrease of $13,702 when compared to the fees incurred in connection with the Refinancing for the twelve months of 2009. Such Refinancing fees included transaction fees and expenses related to the negotiation of definitive documentation and fees of various legal and financial advisors and other professionals involved in the Refinancing.
Goodwill and Intangible Asset Impairment
During the third quarter of 2009, we incurred a goodwill impairment charge in our Metro Traffic segment of $50,401 as a result of a continued decline in our operating performance.
Operating Loss
The operating loss for the twelve months ended December 31, 2010 decreased by $75,542 to $22,039 from the same period in 2009. This decrease is primarily attributable to a decrease in goodwill and intangible asset impairment of $50,501, lower restructuring and special charges of $15,610, lower depreciation and amortization of $5,815, an increase in Network Radio OIBDA of $3,118 and lower corporate expense of $1,184, partially offset by a decrease in Metro Traffic OIBDA of $686.
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OIBDA
Beginning with the first quarter of 2010, we changed how we evaluate segment performance and now use segment revenue and segment operating (loss) income before depreciation and amortization (“OIBDA”) as the primary measure of profit and loss for our operating segments in accordance with FASB guidance for segment reporting. We have reflected this change in all periods presented in this report. We believe the presentation of OIBDA is relevant and useful for investors because it allows investors to view the performance of each of our operating segments in a manner similar to the primary method used by our management and enhances their ability to understand our operating performance.
OIBDA for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | OIBDA | |
| | | | | | | | | | | | Predecessor | | | | |
| | | | | | | | | | | | Company | | | | |
| | | Successor Company | | | | For the Period | | | Twelve | |
| | | Twelve Months Ended | | | For the Period April 24 | | | | January 1 to | | | Month | |
| | | December 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | Change | |
| Network Radio — OIBDA | | $ | 12,147 | | | $ | 9,602 | | | | $ | (573 | ) | | $ | 3,118 | |
| Metro Traffic — OIBDA | | | 4,205 | | | | 5,504 | | | | | (613 | ) | | | (686 | ) |
| Corporate expenses | | | (9,433 | ) | | | (7,449 | ) | | | | (3,168 | ) | | | 1,184 | |
| Goodwill and intangible asset impairment | | | — | | | | (50,501 | ) | | | | — | | | | 50,501 | |
| Restructuring and special charges | | | (10,715 | ) | | | (9,530 | ) | | | | (16,795 | ) | | | 15,610 | |
| | | | | | | | | | | | | | |
| OIBDA | | | (3,796 | ) | | | (52,374 | ) | | | | (21,149 | ) | | | 69,727 | |
| Depreciation and amortization | | | 18,243 | | | | 21,474 | | | | | 2,584 | | | | (5,815 | ) |
| | | | | | | | | | | | | | |
| Operating loss | | $ | (22,039 | ) | | $ | (73,848 | ) | | | $ | (23,733 | ) | | $ | 75,542 | |
| | | | | | | | | | | | | | |
OIBDA was a loss of $3,796 for the twelve months ended December 31, 2010 a decrease of $69,727 from a loss for the same period in 2009. This decrease in OIBDA loss is primarily attributable to a decrease in goodwill and intangible asset impairment of $50,501, lower restructuring and special charges of $15,610, an increase in Network Radio OIBDA of $3,118 and a decrease in corporate expense of $1,184, partially offset by a decrease in Metro Traffic OIBDA of $686.
Network Radio
OIBDA in our Network Radio segment increased by $3,118 to $12,147 in 2010 compared to the same period in 2009. The increase in OIBDA was due to an increase in revenue of $13,139 and a decrease in programming and operating expenses for content agreements of $1,635, talent expense of $1,584 and producer expenses of $692; and a decrease in station compensation expense of $390. These increases in OIBDA were partially offset by increases in costs for the programming and operating expenses for program commissions and broadcast rights of $10,977 (for sports and music programs and broadcasts), payroll and payroll-related costs of $1,791 and other operating expenses of $1,554.
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Metro Traffic
OIBDA in our Metro Traffic segment decreased $686 to $4,205 in 2010 compared to the same period in 2009. The decrease was primarily due increased station compensation costs of $10,570 (resulting from cash buys for television and local radio inventory of $8,819 and other station compensation of $1,751) and payroll and payroll-related expenses of $4,789. The decrease was partially offset by an increase in revenue of $9,073 and by decreases in programming and operating costs of $3,862 (primarily aviation costs of $3,290) and other operating costs of $1,738 (primarily facility costs of $1,590).
Interest Expense
Interest expense increased $5,248, or 29.1%, to $23,251 in the twelve months ended December 31, 2010 from the comparable period of 2009.2011. The increase is primarily attributable to the increase in costsamortization of intangible assets of $6,294 related to the amendments to the Securities Purchase Agreementsacquisition of $2,648, aWestwood and higher ratedepreciation expense of interest on a slightly lower average level of long-term debt outstanding of $1,759,$2,432, also primarily as a result of the Refinancing,Westwood acquisition. These increases were partially offset by the absence for the year ended December 31, 2012 of amortization of certain non-compete and increased interesttrade name intangible assets of $410.
Goodwill Impairment
For the year ended December 31, 2012, we recorded a charge of $92,194 for the impairment of goodwill as described in Presentation of Results above.
Restructuring and Other Charges
For the year ended December 31, 2012, we recorded $6,341 for restructuring charges related to the Culver City financing2011 Program, $2,477 related to the 2012 Program, and other charges of $679.$4,451. The restructuring charges for the 2011 Program recorded in 2012 include costs associated with the reduction in our workforce levels of $3,419, contract termination costs of $536, and costs of $2,386 related to closed Westwood facilities. The restructuring charges for the 2012 Program include costs associated with the reduction in our workforce levels of $2,019, closed facilities expenses of $439, and contract termination costs of $19. The other charges included charges of $3,525 in connection with a content agreement which we ceased to utilize after March 31, 2012 and charges of $926 for costs of temporary office space related to the consolidation of the Westwood and Dial Global New York offices.
Other Expense
Other expense inFor the twelve monthsyear ended December 31, 2010 was $1,688 which primarily represents the fair market value adjustment2011, we recorded $3,131 for restructuring charges related to the February 2011 Gores equity commitmentProgram, including costs associated with the reduction in our workforce levels of $1,538, a$2,372, contract termination costs of $459, and costs of $300 related to closed Westwood facilities.
Transaction Costs
For the year ended December 31, 2011, transaction costs for the Merger were $7,263, which were principally fees for professional services.
Operating Loss
The operating loss onfor the disposalyear ended December 31, 2012 is $124,253, an increased loss of long-lived assets$117,703, compared to operating income of $258$6,550 for the comparable period of 2011. The increase in operating loss is the result of increases from the goodwill impairment of $92,194, restructuring and other charges of $10,138, compensation costs of $12,115, other operating costs of $14,114, depreciation and amortization of $8,316, partially offset by an increase in gross profits of $11,911 as more fully described above and the gain on saleabsence of marketable securitiesthe 2011 transaction costs of $7,263.
Interest Expense, Net
Interest expense, net for the year ended December 31, 2012, is $36,715, compared to $29,625for the year ended December 31, 2011, an increase of $7,090, primarily from higher interest expense due to higher average levels of debt during the year (average outstanding debt was higher in the fourth quarteryear ended December 31, 2012 by approximately $67,400) as a result of $98.the Merger and an increase of amortization of original issue discount and deferred financing costs of $1,346.
Preferred Stock Dividend
For the years ended December 31, 2012 and 2011, we recognized expense of $920 and $171, respectively, for accrued Series A Preferred Stock dividends. The Februaryincreased expense of $749 is the result of the Series A Preferred Stock being outstanding for the full year 2012 and only 71 days in 2011.
Gain from the 24/7 Formats Purchase
For the year ended December 31, 2011 Gores equity commitment constituted an embedded derivative and is valued, Verge exercised its option to purchase the 24/7 Formats business from Westwood which resulted in accordance with derivative accounting (see Note 8 — Debt for additional detail).a gain of $4,950.
Provision for
Investment Impairment Charge
For the year ended December 31, 2011, we incurred investment impairment charges of $561 related to our Ex-Band investment.
Benefit from Income Taxes
Income tax benefit from continuing operations for the twelve monthsyear ended December 31, 2012 is $15,196, compared to an income tax benefit from continuing operations of $22,741for the year ended December 31, 2011. The 2012 income tax benefit from continuing operations is primarily the result of benefits of $43,912 from losses from continuing operations before taxes of $161,888, partially offset by the valuation allowance of $28,716. The tax benefit includes $8,252 related to the reduction of our deferred tax liability as a result of the impairment of goodwill, as described in Presentation of Results above. The income tax benefit for continuing operations of $22,741for the year ended December 31, 2011 was primarily the result of purchase price adjustments and the release of our December 31, 2010 valuation allowance.
Loss from Discontinued Operations, Net of Taxes
Our loss from discontinued operations of our Digital Services business, net of taxes was $1,626for the year ended December 31, 2011. The Digital Services business was spun-off on July 29, 2011.
Net Loss
Our net loss for the year ended December 31, 2012 increased $135,850 to $146,692 from a net loss of $10,842for the year ended December 31, 2011. Our net loss per share for basic and diluted shares for the year ended December 31, 2012 and 2011 was $2.57 and $0.28, respectively. Weighted average shares increased in 2012 primarily as a result of the shares issued for the Merger.
Cash Flow, Liquidity, and Debt as of and for the periods from April 24, 2009 to Year Ended December 31, 20092012
Cash Flows
Our cash flows from operating, investing and January 1, 2009 to April 23, 2009 were $15,721, $25,025 and $7,635, respectively. financing activities are as follows:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2012 | | 2011 | | Change |
| Net cash (used in) provided by operating activities | $ | (5,592 | ) | | $ | 1,950 |
| | $ | (7,542 | ) |
| Net cash used in investing activities | (2,882 | ) | | (11,848 | ) | | 8,966 |
|
| Net cash provided by financing activities | 11,292 |
| | 1,577 |
| | 9,715 |
|
| Net increase (decrease) in cash and cash equivalents | 2,818 |
| | (8,321 | ) | | $ | 11,139 |
|
| Cash and cash equivalents, beginning of period | 5,627 |
| | 13,948 |
| | |
| Cash and cash equivalents, end of period | $ | 8,445 |
| | $ | 5,627 |
| | |
Our effective tax rate net cash used in operating activities for the twelve monthsyear ended December 31, 2010 and 2012 is $5,592 as compared to cash provided by operating activities of $1,950for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 were 33.5%, 28.2% and 28.7%, respectively. Our effective tax rate for 2009 was affected by the goodwill impairment charges, which for were substantially non-deductible for tax purposes. The 2009 effective rates were also lower due to certain special charges and restructuring charges. An additional tax benefit of $590 was recorded in the twelve monthsyear ended December 31, 2010 related2011. The decrease in net cash provided by operating activities of $7,542 is due, primarily, to an increase in our federal income tax refund arising from a change in the determination of the deductibility of certain costs for the twelve months ended December 31, 2009. These additional income tax benefits are primarily related to deductions taken in U.S. federal filings for which it is more likely than not that those deductions would be sustained on their technical merits.
Net Loss
Our net loss, for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 were $31,257, $63,600 and $18,961, respectively. Net loss per share attributable to common shareholders for basic and diluted shares for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 were $(1.50), $(11.75) and $(43.64), respectively. Net loss per share amounts reflected the effect of the 200-for-1 reverse stock split of our common stock that occurred on August 3, 2009. Average share amounts for the April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 periods were significantly lower than the year ended December 31, 2010 as a result of the conversions of shares of preferred stock into common stockoffset in July and August 2009.
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The Periods April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009
Compared With Twelve Months Ended December 31, 2008
Revenue
Revenue for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and the twelve months ending December 31, 2008 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | Revenue | |
| | | Successor Company | | | | Predecessor Company | | | | |
| | | For the Period | | | | For the Period | | | | | | | Twelve | |
| | | April 24 to | | | | January 1 to | | | Twelve Months Ended | | | Month | |
| | | December 31, 2009 | | | | April 23, 2009 | | | December 31, 2008 | | | Change | |
| Network Radio | | $ | 119,852 | | | | $ | 63,995 | | | $ | 209,532 | | | $ | (25,685 | ) |
| Metro Traffic | | | 109,008 | | | | | 47,479 | | | | 194,884 | | | | (38,397 | ) |
| | | | | | | | | | | | | | |
| Total (1) | | $ | 228,860 | | | | $ | 111,474 | | | $ | 404,416 | | | $ | (64,082 | ) |
| | | | | | | | | | | | | | |
| | |
(1) | | As described above, we currently aggregate revenue data based on the operating segment. A number of advertisers purchase both local/regional and national or Network Radio commercial airtime in both segments. Our objective is to optimize total revenue from those advertisers. |
Revenue for twelve months ended December 31, 2009 decreased $64,082, or 15.8%, from $404,416 for the twelve months ended December 31, 2008. The decrease in 2009 was principally attributable to the ongoing economic downturn and, in particular, the general decline in advertising spending, which started to contract in the second half of 2008 and continued in 2009. Revenue for all periods was adversely affected by increased competition and lower audience levels.
For the twelve months ended December 31, 2009, Network Radio revenue decreased $25,685, compared to $209,532 for the twelve months ended December 31, 2008, a 12.3% decline. The declines in 2009 were primarily the result of the cancellation of certain programs of $8,619, absence of the summer Olympics of $1,286 declines in audience, lower revenue from our RADAR network inventory and the general decline in advertising spending which began to contract in 2008 and continued throughout much of 2009 that affected our programming for news $10,407, sports of $3,211 and music of $2,536.
For the twelve months ended December 31, 2009, Metro Traffic revenue decreased $38,397, a decline of 19.7%, from $194,884 for the twelve months ended December 31, 2008. The 2009 decrease is principally related to a weak local advertising marketplace spanning various sectors and categories including retail of $6,657, automotive of $5,942, quick serve restaurants of $3,427, communications and advertising of $5,171, financial services of $3,738 and travel and entertainment of $1,997, which placed an overall downward pressure on advertising sales and rates.
27
Expenses
Operating costs
Operating costs for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and the twelve months ending December 31, 2008 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | Operating Costs | |
| | | Successor Company | | | | Predecessor Company | | | | |
| | | For the Period | | | | For the Period | | | | | | | Twelve | |
| | | April 24 to | | | | January 1 to | | | Twelve Months Ended | | | Month | |
| | | December 31, 2009 | | | | April 23, 2009 | | | December 31, 2008 | | | Change | |
| Programming and operating | | $ | 79,277 | | | | $ | 40,854 | | | $ | 139,886 | | | $ | 19,755 | |
| Station compensation | | | 55,402 | | | | | 29,951 | | | | 82,015 | | | | (3,338 | ) |
| Payroll and payroll related | | | 51,703 | | | | | 26,576 | | | | 98,645 | | | | 20,366 | |
| Other operating expenses | | | 24,423 | | | | | 13,928 | | | | 37,381 | | | | (970 | ) |
| | | | | | | | | | | | | | |
| | | $ | 210,805 | | | | $ | 111,309 | | | $ | 357,927 | | | $ | 35,813 | |
| | | | | | | | | | | | | | |
For the twelve months ended December 31, 2009, operating costs decreased $35,813, or 10.0%, from $357,927 for the twelve months ended December 31, 2008. The decrease reflects the benefit of the Metro Traffic re-engineering and cost reduction programs, which began in the last half of 2008 and continued through 2009, and which were partially offsetlarge part by increases in TV inventory purchases of $4,848certain non-cash costs that are included in station compensation costs.
Forour net loss (including the twelve months ended December 31, 2009, programming and operating costs decreased by $19,755 compared to $139,886 for the twelve months ended December 31, 2008, primarily due to lower aviation expense $5,851, talent feesnon-cash goodwill impairment charge of $4,037 and reduced revenue sharing expense from broadcast rights of $3,929 and program commissions of $6,245 as a result$92,194). The impact of our lower revenue.
For the twelve months ended December 31, 2009, station compensation expense increased by $3,338 compared to $82,015 for the twelve months ended December 31, 2008, primarily due to increasesnet loss on change in TV inventory purchases of $4,848, partially offset by decreasescash used in certain affiliate costs of $1,510, primarily from the renegotiation and cancellation of certain affiliate arrangements.
For the twelve months ended December 31, 2009, payroll and payroll related costs decreased $20,366 or 20.6% compared to $98,645 for the twelve months ended December 31, 2008, as a result of the salary reductions and decreased headcount of approximately 8%.
For the twelve months ended December 31, 2009, other operating expenses increased $970 compared to $37,381 for the twelve months ended December 31, 2008, reflecting a 2009 asset write-off of $1,652 and increased accounting and audit fees of $609, partially offset by the benefit of the Metro Traffic re-engineering program, primarily related to facilities of $1,501.
Depreciation and Amortization
Depreciation and amortization for the twelve months ended December 31, 2009 increased $13,006, or 118%, compared to $11,052 for the twelve months ended December 31, 2008. The increase is primarily attributable to the increase in amortization expense of $14,736 from the fair value of amortizable intangibles that were recorded as a result of the Refinancing and our application of push down acquisition accounting and by increased depreciation and amortization from our additional investments in systems and infrastructure of $440. Thisactivities was partially offset by a decrease in warrant amortization expense of $1,618 as a result of the cancellation on March 3, 2008 of all outstanding warrants previously granted to CBS Radio and lower amortization from predecessor period intangible assets of $552.
28
Corporate General and Administrative Expenses
Corporate, general and administrative expenses decreased $1,090 working capital for the twelve monthsyear ended December 31, 20092012 as compared to $16,007 the year ended December 31, 2011 and the absence in 2012 of the gain on 24/7 Formats purchase for the twelve monthsyear ended December 31, 2008.2011. The decrease is due to reduced legal fees for normal operations of $949 and reduced consulting fees of $767, partially offset by increases in accounting and auditing fees of $609.
Goodwill and Intangible Asset Impairment
In September 2009, a triggering event occurred as a result of updated forecasted results for 2009 and 2010, and therefore, we conducted impairment tests. The results indicated impairment in our Metro Traffic segment. As a result of the analysis, we recorded an impairment charge of $50,401 to Metro Traffic goodwill and $100 to Metro Traffic’s trademarks.
Restructuring Charges
In connection with the Metro Traffic re-engineering and other cost reductions, which included the consolidation of leased offices, staff reductions and the elimination of underperforming programming that commenced in the last half of 2008. Restructuring charges decreased $6,148 for the twelve months ended December 31, 2009 as compared to $14,100 for the twelve months ended December 31, 2008 as a result of decreased contract terminations of $6,354 and decreased severance costs of $3,166, partially offset by increased facilities costs of $3,372. The charges for the twelve months ended December 31, 2008 included severance of $6,765, contract terminations of $6,504 and the consolidation of leased offices of $831.
Special Charges
Special charges for the period from April 24, 2009 to December 31, 2009 included: Refinancing costs of $1,196, including transaction fees and expenses related to negotiation of the definitive documentation, fees of various legal and financial advisors for the constituents involved in the Refinancing (e.g.,Westwood One, Gores, Glendon Partners, the banks, noteholders and the lenders of the Senior Credit Facility); asset write-down associated with the TrafficLand arrangement of $1,852; professional fees and other costs related to the S-1 stock offering that we currently have no immediate plans to further pursue of $1,698; and costs related to the regionalization program, Culver City financing costs and costs associated with the acquisition of Jaytu (d/b/a Sigalert) totaling $808.
Special charges for the period from January 1, 2009 to April 23, 2009 included: Refinancing costs of $12,699, including transaction fees and expenses related to negotiation of the definitive documentation, fees of various legal and financial advisors for the constituents involved in the Refinancing (e.g.,Westwood One, Gores, Glendon Partners, the banks, noteholders and the lenders of the Senior Credit Facility); and costs related to the regionalization program of $120.
Special charges for the period from April 24, 2009 to December 31, 2009 and for the period from January 1, 2009 to April 23, 2009 had no corresponding charges in the comparable twelve month period in 2008.
Special charges for 2008 consisted of associated legal and professional fees of $6,624 incurred in connection with the new CBS arrangement, contract termination costs of $5,000, and re-engineering expenses of $1,621.
Operating Loss
The operating loss for the twelve months ended December 31, 2009 decreased by $340,460 from $438,041 for the same period in 2008. This decreaseworking capital is primarily due to the higher goodwill impairment charges in 2008 of $430,126 versus the goodwill impairment charge of $50,401 in 2009, partially offset by the decline in OIBDA in the Metro Traffic of $25,806 and Network Radio of $9,019 and higher depreciation and amortization of $13,006 as noted above.
29
OIBDA
OIBDA for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and the twelve months ending December 31, 2008 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | OIBDA | |
| | | Successor Company | | | | Predecessor Company | | | | |
| | | For the Period | | | | For the Period | | | | | | | Twelve | |
| | | April 24 to | | | | January 1 to | | | Twelve Months Ended | | | Month | |
| | | December 31, 2009 | | | | April 23, 2009 | | | December 31, 2008 | | | Change | |
| Network Radio — OIBDA | | $ | 9,602 | | | | $ | (573 | ) | | $ | 18,048 | | | $ | (9,019 | ) |
| Metro Traffic — OIBDA | | | 5,504 | | | | | (613 | ) | | | 30,697 | | | | (25,806 | ) |
| Corporate expenses | | | (7,449 | ) | | | | (3,168 | ) | | | (18,263 | ) | | | 7,646 | |
| Goodwill and intangible asset impairment | | | (50,501 | ) | | | | — | | | | (430,126 | ) | | | 379,625 | |
| Restructuring and special charges | | | (9,530 | ) | | | | (16,795 | ) | | | (27,345 | ) | | | 1,020 | |
| | | | | | | | | | | | | | |
| OIBDA | | | (52,374 | ) | | | | (21,149 | ) | | | (426,989 | ) | | | 353,466 | |
| Depreciation and amortization | | | 21,474 | | | | | 2,584 | | | | 11,052 | | | | 13,006 | |
| | | | | | | | | | | | | | |
| Operating loss | | $ | (73,848 | ) | | | $ | (23,733 | ) | | $ | (438,041 | ) | | $ | 340,460 | |
| | | | | | | | | | | | | | |
OIBDA loss for the twelve months ended December 31, 2009 decreased $353,466 from the twelve months ended December 31, 2008 due primarily to the higher goodwill impairment charges in 2008 of $430,126 versus the goodwill impairment charge of $50,401 in the third quarter of 2009. The decline in OIBDA between 2009 and 2008, absent the goodwill impairment charge, is primarily related to a weak advertising marketplace spanning various sectors and categories including automotive, retail and telecommunications, which placed an overall downward pressure on advertising sales and rates. The decline in revenue was partially offset by the realignment of our cost base, net of restructuring charges, which actions were taken as part of our Metro Traffic re-engineering and other reduction initiatives.
Network Radio
OIBDA in our Network Radio segment decreased by $9,019 for the twelve months ended December 31, 2009 compared to the twelve months ended December 31, 2008 of $18,048. The decrease was due to lower revenue of $25,685 and higher accounting and audit fees of $1,452. These expense increases were partially offset by decreases in salary and related costs of $3,458, program commissions of $6,245, talent costs of $4,037, broadcast rights of $3,929 and CBS fees of $2,583. We allocate certain operating costs to each segment. During 2009, we refined our allocation of accounting and auditing fees to the Network Radio segment, which resulted in an increase of expense for the Network Radio segment in 2009 of $1,452 compared to 2008. Our total accounting and audit fees increased by $609 during 2009.
Metro Traffic
OIBDA in our Metro Traffic segment decreased by $25,806 for the twelve months ended December 31, 2009 compared to the twelve months ended December 31, 2008 of $30,697, primarily due to lower revenue of $38,397 and higher program and operating costs, primarily television inventory purchases, of $9,299. These increases were partially offset by reductions in the following areas: salaries and related expenses of $13,223, aviation expense of $5,818, station compensation of $1,913 and rent of $1,455, as well as, a general decrease in other operating expenses due to cost saving measures. We allocate certain operating costs to each segment. During 2009, we refined our allocation of accounting and auditing fees to the Metro Traffic segment, which resulted in an increase of expense for the Metro Traffic segment in 2009 of $1,394 compared to 2008. Our total accounting and audit fees increased by $609 during 2009.
30
Interest Expense
Interest expense increased $1,353, or 8%, for the twelve months ended December 31, 2009 from $16,651 in the comparable period of 2008. The increase reflects higher average interest rates on the Senior Notes and Senior Credit Facility, partially offset by the lower average debt levels during 2009 as a result of our Refinancing that closed on April 23, 2009. As a result of our Refinancing, the interest payments on our debt on an annualized basis (i.e., from April 23, 2009 to April 23, 2010 and subsequent annual periods thereafter) increased from approximately $12,000 to $19,000, $6,000 of which will be PIK (such interest accrues on a quarterly basis and is added to the principal amount of our debt). The increase was partially offset by a one-time reversal of interest expense in 2009 from the settlement of an amount owed to a former employee of $754.
Other (Income) Expense
Other income decreased $12,005 for the twelve months ended December 31, 2009 to compared to $12,369 in 2008 principally due to a 2008 gain on the sale of securities of $12,420.
Provision for Income Taxes
Income tax benefits for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and for the twelve months ended December 31, 2008 were $25,025, $7,635 and $14,760, respectively. Income tax benefit for the twelve months ended December 31, 2009 increased $17,900, or 121%, from $14,760 for the twelve months ended December 31, 2008, primarily due to the operating loss and higher deductible expenses in 2009. Our effective 2009 income tax rates was impacted by the 2009 goodwill impairment charge, which for the most part was substantially non-deductible for tax purposes. The effective 2008 income tax rate was impacted by the 2008 goodwill impairment charge, which was substantially non-deductible for tax purposes.
Our effective tax rate for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and the twelve months ended December 31, 2008 were 28.2%, 28.7% and 3.3%, respectively. The change in the effective tax rate is the result of large non-deductible expenses in 2008 for goodwill impairments, compared to a smaller impairment in 2009 and other items.
Net Loss
Our net losses for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and for the twelve months ended December 31, 2008 were $63,600, $18,961 and $427,563. The decrease for the twelve months ended December 31, 2009 of $345,002 from a net loss of $427,563 in the comparable period of 2008, was primarily attributable to the decrease in charges for goodwill and intangible impairment of $379,625. Net losses per share attributable to common shareholders for basic and diluted shares was $(11.75), $(43.64) and $(878.73), respectively. Average share amounts for the April 24, 2009 to December 31, 2009 period were significantly higher than the January 1, 2009 to April 23, 2009 period and the twelve months ended December 31, 2008 as a result of the conversions of shares of preferred stock into common stock in July and August 2009. Net loss per share amounts reflected the effect of the 200-for-1 reverse stock split of our common stock that occurred on August 3, 2009.
31
Liquidity, Cash Flow and Debt
Cash flows for the twelve months ended December 31, 2010 and for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 are as follows:
| | | | | | | | | | | | | | | | | | |
| | | Cash Flow | |
| | | | | | | | | | | | Predecessor | | | | |
| | | | | | | | | | | | Company | | | | |
| | | Successor Company | | | | For the Period | | | Twelve | |
| | | Twelve Months Ended | | | For the Period April 24 | | | | January 1 to | | | Month | |
| | | December 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | Change | |
| Net cash provided by (used in) operating activities | | $ | 8,136 | | | $ | (24,142 | ) | | | $ | (777 | ) | | $ | 33,055 | |
| Net cash used in investing activities | | | (7,957 | ) | | | (6,434 | ) | | | | (1,384 | ) | | | (139 | ) |
| Net cash (used in) provided by financing activities | | | (2,065 | ) | | | 31,395 | | | | | (271 | ) | | | (33,189 | ) |
| | | | | | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (1,886 | ) | | | 819 | | | | | (2,432 | ) | | $ | (273 | ) |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 4,824 | | | | 4,005 | | | | | 6,437 | | | | | |
| | | | | | | | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 2,938 | | | $ | 4,824 | | | | $ | 4,005 | | | | | |
| | | | | | | | | | | | | | | |
Net cash provided by operating activities was $8,136 for the twelve months ended December 31, 2010 an increase of $33,055 compared to the twelve months ended December 31, 2009. The increase was principally attributable to an increase in the change in accounts payable, accrued liabilities and amounts payable to related parties of $21,536, a lower net decrease in our deferred taxes of $14,453, a 2010 federal tax refund of $12,940 in 2010, a lower net loss of $51,304 (primarily from the absence of the 2009 impairment charge of $50,501), a decrease in the change in prepaid and other assets of $4,154 and an increase in the change in deferred revenue of $1,769. These items wereaccounts receivable, partially offset by an increase in the change in accounts receivable of $15,694, lowerprepaid expenses and other non-cash adjustments of $6,698current assets, and a decrease in the change in taxes payable of $208.
While our business at times does not require significant cash outlays for capital expenditures, capital expenditures accrued expenses and other current liabilities for the twelve monthsyear ended December 31, 2010 increased $2,275 to $8,843,2012 compared to the twelve monthsyear ended December 31, 2011.
Our net cash used in investing activities was $2,882for the year ended December 31, 2009,2012 as compared to $11,848for the year ended December 31, 2011. The decrease in cash used in investing activities for the year ended December 31, 2012 compared to the same period in 2011 is primarily due to the absence in 2012 of the impact of the transfer to the Digital Services business ($5,877) and the acquisition of Westwood and purchase of the 24/7 Formats ($1,618). In addition the decrease in cash used in investing activities for the year ended December 31, 2012as a resultcompared to the year ended December 31, 2011 reflects less cash
expended on acquisition of payments relatedproperty and equipment of $919for the year ended December 31, 2012 as compared to investment in internal use software we installed. In the fourth quarter of 2010, we receivedyear ended December 31, 2011, and the proceeds from the salematurity of marketable securities of $886.
Cash used in financing activities was $2,065 a restricted investment for the twelve monthsyear ended December 31, 2010, a decrease2012.
Our net cash provided by financing activities is $11,292for the year ended December 31, 2012 as compared to cash provided by financing activities of $33,189$1,577for the year ended December 31, 2011. The increase in net cash provided by financing activities is primarily due to net borrowings under the Revolving Credit Facility of $15,400for the year ended December 31, 2012 compared to net borrowings of $4,600for the year ended December 31, 2011 and lower repayment of long-term debt for the year ended December 31, 2012 compared to the twelve monthsyear ended December 31, 2009. As part2011, which included the effect of the Securities Purchase Agreement amendments, we paid down our Senior Notes by $16,032 during 2010. We borrowed $10,000 under our revolving credit facility during 2010, received $5,000 in proceeds fromrefinancing of debt due to the issuance of common stock to Gores and paid $1,033 under our capital leases. During the period from April 24, 2009 to December 31, 2009, we received $20,000 in proceeds from a term loan, $25,000 from the issuance of preferred stock to Gores and $6,998 from the Culver City building financing, all of which were partially offset by a repayment of the old senior debt of $25,000, repayment of the revolving credit facility of $11,000 and payments of $603 under our capital leases. During the period from January 1, 2009 to April 23, 2009, we paid $271 under our capital leases.Merger.
Liquidity and Capital Resources
We continuallyroutinely project anticipated cash requirements, which may include requirements for potential M&A activity,acquisitions, capital expenditures and principal and interest payments on our outstanding indebtedness, dividends and working capital requirements. To date, our funding requirements have been financed through cash flows from operations, borrowings on our Revolving Credit Facility, the issuance of equity to Goreslong-term debt and the issuance of long-term debt.
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equity. At December 31, 2010,2012, our principal sources of liquidity were our cash and cash equivalents of $2,938$8,445 and borrowing availability of $3,781$24 under our revolving credit facility,Revolving Credit Facility, which equaled $6,719represented $8,469 in total liquidity. Cash flow from operations is also a principal sourceAs of funds. We have experienced significant operating losses since 2005 as a resultMarch 22, 2013, our cash and cash equivalents were $15,314 and additional borrowing availability under our Revolving Credit Facility was $24 (taking into account the $20,000 borrowed under our Revolving Credit Facility and $4,976 for letters of increased competitioncredit), which represents $15,338 in total liquidity. This stated amount of total liquidity does not take into account our localrecapitalization or the amounts owed to various vendors and regional markets, reductions in national audience levels, and reductions in our local and regional sales force, and more recently, as a result of higher programming fees and station compensation costs. As described in more detail below,partners as a result of our waiver and fourth amendment to our debt agreements entered into on April 12, 2011 and based on our 2011 projections, which we believe use reasonable assumptions regarding the current economic environment, we estimate that cash flows from operations will be sufficient to fund our cash requirements, including scheduled interest and required principal payments on our outstanding indebtedness and projected working capital needs, and provide us sufficient Adjusted EBITDA to comply with our amended debt covenants for at least the next 12 months.
Our Senior Credit Facility and Senior Notes mature on July 15, 2012. If we are unable to meet our debt service and repayment obligations under the Senior Notes delaying and/or the Senior Credit Facility, we would be in default undermodifying the terms of the agreements governingpayment to such parties. Absent a recapitalization or further amendments and/or waivers , we would default under our debt, which if uncured,Credit Facilities and would allow our creditors at that time to declare all outstanding indebtedness to be due and payable and materially impair our financial condition and liquidity. If financing is limited or unavailable to us upon the maturity of the Senior Credit Facility and Senior Notes, the Company maylikely not have the financial means to be able to repay theour debt if our lenders elected to exercise their right to accelerate such debt, which would have a material adverse effect on our business continuity, our financial condition and our results of operations.
Existing Indebtedness
Our existing debt totaling $146,629 consists of: $111,629 under the Senior Notes maturing July 15, 2012 (which includes $10,222 due to Gores) and the Senior Credit Facility, consisting of a $20,000 unsecured, non-amortizing term loan and $15,000 outstanding under our revolving credit facility Accordingly as of March 31, 2011. The term loanJune 30, 2012, we classified the Credit Facilities and revolving credit facility (i.e.,related deferred financing costs as current liabilities and current assets, respectively in the “Senior Credit Facility”) mature on Julyconsolidated balance sheets. On November 15, 2012, December 14, 2012, January 15, 2013 and are guaranteed by subsidiaries of the Company and Gores. The Senior Notes bear interest at 15.0% per annum, payable 10% in cash and 5% PIK interest. The PIK interest accretes and is added to principal quarterly, but is not payable until maturity. As of December 31, 2010, the accrued PIK interest was $10,161. As a result of the waiver and fourth amendments to the debt agreementsFebruary 28, 2013, we entered into on April 12, 2011,amendments and limited waivers for a 5% leverage feelimited period of time of non-compliance and certain expected non-compliance of certain covenants thereunder as described in more detail below. Absent satisfying or obtaining a waiver of the conditions precedent to the effectiveness of the New Credit Facilities or further amendments or waivers to our existing Credit Facilities to modify the requirements of the financial ratio covenants contained therein, the current limited waiver in the First Lien Credit Agreement and Second Lien Credit Agreement will be imposed effective October 1, 2011 , subjectterminated and would become events of default. In such event, we anticipate that we will not be able to comply with such covenants at the potential elimination of such as described below. The 5% leverage fee will be equal to 5% of the Senior Notes outstanding for the period beginning October 1, 2011, and shall accrue on a daily basis from such date until the fee amount is paid in full. The fee shall be payable on the earlier of maturity (July 15, 2012) or thenext date on which they will be measured, and beyond.
Cash flow from operations is expected to be a principal source of funds. However, absent the Senior Notes are paid. Accrued and unpaid leverage fee amounts shall be addedrecapitalization discussed in Note 17 — Subsequent Event to the Consolidated Financial Statements below, cash flows from operations and cash presently on hand would likely not be sufficient to fund our future cash requirements, including scheduled interest and scheduled principal payments on our outstanding indebtedness and projected working capital needs. This is due in large part (1) to the significantly lower sales we generated for the fourth quarter, which significantly lowered the cash receipts we customarily collect in the first quarter, and (2) to an increasing amount of obligations owed to various vendors and trade partners from delaying the Senior Notes atpayments owed to such persons and entities. Even after the end of each calendar quarter (as is the case with PIKrecapitalization, should such close, we will owe significant payments to such vendors and partners and have significant cash interest on the Senior Notes which accretes to the principal amount). The Senior Notes may be prepaid at any time, in whole or in part, without premium or penalty. Payment of the Senior Notes is mandatory upon, among other things, certain asset sales and the occurrence of a “change of control” (as such term is defined in the Securities Purchase Agreement governing the Senior Notes). The Senior Notes are guaranteed by the subsidiaries of the Company and are secured by a first priority lien on substantially all of the Company’s assets. Effective as of the date of the waiver and fourth amendments to the credit agreements, the Senior Notes held by Gores were fully subordinated to the Senior Notes held by non-Gores holders, including in connection with any future pay down of Senior Notes from the proceeds of any asset sale. Notwithstanding the foregoing, if at any time, the Company provides satisfactory documentation to its lenders that its debt leverage ratio for any LTM period complies with the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50% of the outstanding amount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee would be eliminated on a prospective basis. The foregoing levels represent the same covenant levels set forth in the Second Amendment to the Securities Purchase Agreement entered into on March 30, 2010, except that the debt covenant level for June 30, 2011 was 5.50 in the Second Amendment. As part of the waiver and fourth amendment, the Company agreed it would need to comply with a 5.00 covenant level on June 30, 2011, on an LTM basis, for the 5% leverage fee to be eliminated.
Loansrepayment obligations under our existingNew Credit Agreement (which govern the Senior Credit Facility) bear interest at our option at either LIBOR plus 4.5% per annum (with a LIBOR floor of 2.5%) or a base rate plus 4.5% per annum (with a base rate floor of the greater of 3.75% and the one-month LIBOR rate).
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Both the Securities Purchase Agreement (governing the Senior Notes) and Credit Agreement (governing the Senior Credit Facility) contain restrictive covenants that, among other things, limit our ability to incur debt, incur liens, make investments, make capital expenditures, consummate acquisitions, pay dividends, sell assets and enter into mergers and similar transactions beyond specified baskets and identified carve-outs. Additionally, we may not exceed the maximum senior leverage ratio (the principal amount outstanding under the Senior Notes over our Adjusted EBITDA) referred to in this report as our debt leverage covenant. The Securities Purchase Agreement contains customary representations and warranties and affirmative covenants. The Credit Agreement contains substantially identical restrictive covenants (including a maximum senior leverage ratio calculated in the same manner as with the Securities Purchase Agreement), affirmative covenants and representations and warranties like those found in the Securities Purchase Agreement, modified, in the case of certain covenants, for a cushion on basket amounts and covenant levels from those contained in the Securities Purchase Agreement.
Since the time of our Refinancing, weFacilities. We have entered into, four amendmentsand continue to negotiate to enter into, payment plans with certain third parties for certain obligations owed, which will affect our cash flow going forward. Accordingly, management presently anticipates that we will be dependent, for the near future, on additional debt agreements withor equity capital from third parties to fund our lenders (on October 14, 2009, March 30, 2010, August 17, 2010operating expenses. There can be no assurance that such capital, even after the recapitalization, will be sufficient for the next twelve months.
Existing Indebtedness
As of December 31, 2012, our existing debt totaled $285,975 and most recently, April 12, 2011)consisted of $144,399, under the First Lien Term Loan Facility, net of original issue discount ($6,726), $85,802 under the Second Lien Term Loan Facility, net of original issue discount ($2,022), $35,774 under PIK Notes and $20,000 under the First Lien Revolving Credit Facility (not including $4,976 of letters of credit issued under the First Lien Revolving Credit Facility). In each case, our underperformance against our financial projections caused usBased on current rates, the annual rates of interest currently applicable to reduce our forecasted results. With the exceptionCredit Facilities are: 8.0% on the First Lien Term Loan Facility, 8.00% on the Revolving Credit Facility and 13.0% on the Second Lien Term Loan Facility. The Credit Facilities are included in the current portion of our revised projectionslong-term debt in the consolidated balance sheets.
The PIK Notes were $35,774 as of December 31, 2012 and are unsecured and accrue interest at the timerate of our October 2009 amendment15.0% per annum, which compounds quarterly for the first five years and atwill compound annually thereafter. The PIK Notes mature on the time of our April 2011 amendment (where we requested and received a waiver of our debt leverage covenants to be measured on December 31, 2009 and March 31, 2011, respectively, on a trailing four-quarter basis), our projections have indicated that we would attain sufficient Adjusted EBITDA to comply with the debt leverage covenants then in place. Notwithstanding this, in bothsix-year three-month anniversary of the 2010 amendments, management did not believe there was sufficient cushion in our projections of Adjusted EBITDA to predict with any certainty that we would satisfy such covenants given the unpredictability in the economy and our business. Additionally, given our constrained liquidity on June 30, 2010 and our revised projections in place at such time, management believed it was prudent to renegotiate amendments to our debt agreements to enhance our available liquidity in addition to modifying our debt leverage covenants. These negotiations resulted in the August 17, 2010 amendment in which Gores agreed to purchase an additional $15,000 of common stock. As a result thereof, 769,231 shares were issued to Gores on September 7, 2010 for approximately $5,000 and 1,186,240 shares were issued to Gores on February 28, 2011 for approximately $10,000. Because the $10,000 investment by Gores was to be made based on a trailing 30-day weighted average of our common stock’s closing share price for the 30 consecutive days ending on the tenth day immediately preceding the date of the stock purchase, and additionally included a collar (e.g., a $4.00 per share minimum and a $9.00 per share maximum price), the Gores $10,000 equity commitment was deemed to contain embedded features having the characteristics of a derivative to be settled in our common stock. Accordingly, pursuant to authoritative guidance, we determined the fair value of this derivative by applying the Black-Scholes model using the Monte Carlo simulation to estimate the price of our common stock on the derivative’s expirationissue date and estimated the expected volatilityare subordinated in right of the derivative by using the aforementioned trailing 30-day weighted average. On August 17, 2010, we recorded an asset of $442 relatedpayment to the aforementioned $10,000 Gores equity commitment. On December 31, 2010, the fair market value of such Gores equity commitment was a liability of $1,096 resulting in other expense of $1,538 forCredit Facilities.
During the year ended December 31, 2010. The derivative expired on February 28, 2011,2012, we borrowed $15,400, net of repayments, under the date Gores satisfied the $10,000 Gores equity commitment by purchasing 1,186,240 shares of common stock at a per share price of $8.43, calculated in accordance with the trailing 30-day weighted average of our common stock’s closing price as described above. We accrued additional fees of $2,433 related to amending our credit agreements in the year ended December 31, 2010 recorded as interest expense.
As a result of the most recent amendments to our principal debt agreement, the waiver and fourth amendment to the Securities Purchase Agreement entered into on April 12, 2011, our previously existing maximum senior leverage ratios (expressed as the principal amount of Senior Notes over our Adjusted EBITDA (as defined in our lender agreements) measured on a trailing, four-quarter basis) of 11.25, 11.0 and 10.0 times for the first three quarters of 2011 were replaced by a covenant waiver for the first quarter of 2011 and minimum LTM EBITDA thresholds of $4,000 and $7,000 respectively, for the second and third quarters of 2011. Debt leverage covenants for the last quarter of 2011 and the first two quarters in 2012 (the Senior Notes mature on July 15, 2012) remain unchanged. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to reflect a change to minimum LTM EBITDA thresholds and maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the SeniorRevolving Credit Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 in the Securities Purchase Agreement (applicable to the Senior Notes) are $3,400 and $5,950, respectively, in the Credit Agreement (governing the Senior Credit Facility). The Senior Notes held by Gores were also subordinated to the Senior Notes held by non-Gores holders, effective October 1, 2011, a 5% leverage fee will be imposed and we agreed to report the status of any M&A discussions/activity on a bi-weekly basis. As noted above, if at any time, we provide satisfactory documentation to our lenders that our debt leverage ratio for any LTM period complies with the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50%repaid $3,875 of the outstanding amount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee would be eliminated on a prospective basis.
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On March 31, 2010, June 4, 2010 and November 30, 2010, we repaid $3,500, $12,000 and $532, respectively, of the Senior Notes in accordance with the agreements related to our debt covenants.
Adjusted EBITDA for the nine months ended September 30, 2010 was $11,269.First Lien Term Loan Facility. Under the terms of our Senior Notes, in order tothe First Lien Term Loan Facility, we have satisfied our 11.25 to 1.00 covenant for the twelve month period ended December 31, 2010, we had to realize Adjusted EBITDA (loss) for the three months ended December 31, 2010 of no more than $(1,346). For the three months ended December 31, 2010 our Adjusted EBITDA was $869, which was $2,215 in excess of the required Adjusted EBITDA. As a point of reference, our Adjusted EBITDA for the three months ended December 31, 2009 was $6,089.
We have obtained from our lenders a debt covenant waiver for the first quarter of 2011 and accordingly, there is no minimum LTM EBITDA threshold or debt covenant level that we must satisfy for this period.
In order to satisfy our minimum LTM EBITDA threshold of $4,000 for the twelve month period ending June 30, 2011, we must realize a minimum Adjusted EBITDA loss of $(1,359) for the six months ended June 30, 2011. This compares to our Adjusted EBITDA for the six months ended June 30, 2010 of $6,779. Adjusted EBITDA for the six months ended December 31, 2010 was $5,359.
In order to satisfy our minimum LTM EBITDA threshold of $7,000 for the twelve month period ending September 30, 2011, we must realize a minimum Adjusted EBITDA of $6,131 for the nine months ended September 30, 2011. This compares to our Adjusted EBITDA for the nine months ended September 30, 2010 of $11,269. Adjusted EBITDA for the three months ended December 31, 2010 was $869.
In order to satisfy our 9.00 to 1.00 covenant for the twelve month period ending December 31, 2011, we must realize a minimum Adjusted EBITDA of $13,035 forscheduled repayments totaling $7,750 within the twelve months ended December 31, 2011. This compares2013. On February 28, 2013, we made a payment of $5,000 for First Lien Term Loan Facility, in excess of the required $7,750 noted above as part of the transactions entered into on such date.
As part of the amendments and limited waivers to our Adjusted EBITDACredit Agreements entered into on November 15, 2012, December 14, 2012, January 15, 2013, and February 28, 2013 the non-compliance and expected non-compliance with certain covenants thereunder were waived for a limited period of time, including the twelve months ended obligation to comply with our debt leverage and interest coverage covenants as of December 31, 20102012, as of $12,138.March 31, 2013. As part of the amendments to the Second Lien Credit Agreement, our obligations to make the $2,824 interest payment due on November 9, 2012 in cash and the $2,981 interest payment due on February 11, 2013 in cash were amended to be payable in kind. In the absence of these amendments and limited waivers, we would have breached these covenants and obligations.
On February 28, 2013, we entered into the A&R First Lien Credit Agreement and A&R Second Lien Credit Agreement which amend and restate the existing Credit Facilities. In addition, we also entered into the Priority Second Lien Credit Agreement and certain other transaction documents. However, the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and other transaction documents, and the permanent waiver of the non-compliance of certain covenants and obligations in the First Lien Credit Agreement and Second Lien Credit Agreement mentioned above, are subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013).
For further detail regarding the February 28, 2013 transactions, including the New Credit Facilities entered into in connection therewith, please refer to Note 17 — Subsequent Event to the Consolidated Financial Statements.
There can be no assurance that we will be able to satisfy or obtain a waiver of the conditions precedent to the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents. As a result, it is possible that such agreements will not become effective, the temporary waivers of the non-compliance with certain covenants mentioned above with respect to the First Lien Credit Agreement and Second Lien Credit Agreement will be terminated and such non-compliance with such covenants will become events of default under the Credit Facilities at such time. If such an event of default were to occur, there can be no assurance that the lenders under the Credit Facilities will grant us a waiver on terms acceptable to us, or at all.
In the event of any such events of default under our Credit Facilities which remain uncured and unwaived, our lenders could declare all outstanding indebtedness to be due and payable and pursue their remedies under the underlying debt instruments and the law. In the event of such acceleration or exercise of remedies, there can be no assurance that we will be able to refinance the accelerated debt on acceptable terms, or at all. As a result, if an event of default under the Credit Facilities occurs and results in an acceleration of the Credit Facilities, a material adverse effect on us and our results of operations would likely result or we may be forced to (1) attempt to restructure our indebtedness, (2) cease our operations or (3) seek protection under applicable state or federal laws, including but not limited to, bankruptcy laws. If one or more of foregoing events were to occur, this would raise substantial doubt about the Company's ability to continue as a going concern.
For further detail regarding our long-term debt instruments, please refer to Note 4 — Debt to the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Accounts Receivable and Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we become aware of a specific customer's inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debt based on historical experience of bad debts, adjusted for relative improvements or deteriorations in the aging of the accounts and changes in current economic
conditions if necessary. Expected credit losses are recorded as an allowance for doubtful accounts. Receivables are written off when management believes they are uncollectible. The allowance for doubtful accounts is approximately $798 and $238as of December 31, 2012 and 2011, respectively.
Goodwill and Intangible Assets
Our minimum LTM EBITDA thresholds (forbusiness is largely homogeneous and, as a result, we operate as one reporting unit. Goodwill represents the second and third quarter of 2011) and our maximum senior leverage ratios for the last quarter of 2011 and first two quarters of 2012 (each referred to herein as our “debt leverage covenant”), defined as the principal amount of Senior Notes over our Adjusted EBITDA (defined below), are measured on a trailing, four-quarter basis. The covenants are the same under our Securities Purchase Agreement, governing the Senior Notes, and our Senior Credit Facility, governing the Senior Credit Facility, except that they have different maximum levels. We have presented the more restrictiveexcess portion of the two levels below.
| | | | | | | | | | | | | |
| | | Maximum Senior Leverage | | | Principal Amount of Senior Notes | | | Required Last Twelve Months | |
| | | Ratio Covenant / Minimum | | | Estimated Outstanding (Includes | | | (LTM) Minimum Adjusted | |
| Quarter Ending | | LTM EBITDA Thresholds | | | PIK) * | | | EBITDA | |
| 12/31/2010 | | | 11.25 to 1.0 | | | | 111,629 | | | | 9,923 | |
| 3/31/2011 | | Waived | | | | 113,024 | | | Waived | |
| 6/30/2011 | | | 4,000 | ** | | | 114,437 | | | | 4,000 | |
| 9/30/2011 | | | 7,000 | ** | | | 115,868 | | | | 7,000 | |
| 12/31/2011 | | | 9.00 to 1.0 | | | | 117,316 | | | | 13,035 | |
| 3/31/2012 | | | 8.00 to 1.0 | | | | 118,801 | | | | 14,850 | |
| 6/30/2012 | | | 7.50 to 1.0 | | | | 120,322 | | | | 16,043 | |
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* | | The above table reflects PIK of 5% through September 30, 2011 and PIK a debt leverage fee equal to 5% that becomes payable beginning October 1, 2011 (assuming no paydown of more than 50% of the principal amount of the non-Gores Senior Notes and compliance with certain covenants as described above) in connection with the waiver and fourth amendment to the debt agreements. |
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** | | The April 12, 2011 waiver and fourth amendment set forth minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 to replace Maximum Senior Leverage Ratio Covenant / Minimum LTM EBITDA Thresholds |
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Adjusted EBITDA has the same definition in both of our borrowing agreements and means Consolidated Net Income adjusted for the following: (1) minus any net gainpurchase price that could not be attributed to specific tangible or plus any loss arising from the sale or other disposition of capital assets; (2) plus any provision for taxes based on income or profits; (3) plus consolidated net interest expense; (4) plus depreciation, amortization and other non-cash losses, charges or expenses (including impairment ofidentified intangible assets and goodwill); (5) minus any “extraordinary,” “unusual,” “special” or “non-recurring” earnings or gains or plus any “extraordinary,” “unusual,” “special” or “non-recurring” losses, charges or expenses; (6) plus restructuring expenses or charges; (7) plus non-cash compensation recorded from grants of stock appreciation or similar rights, stock options, restricted stock or other rights; (8) plus any Permitted Glendon/Affiliate Payments (as described below); (9) plus any Transaction Costs (as described below); (10) minus any deferred credit (or amortization of a deferred credit) arising from the acquisition of any Person; and (11) minus any other non-cash items increasing such Consolidated Net Income (including, without limitation, any write-up of assets); in each case to the extent taken into account in the determination of such Consolidated Net Income, and determined without duplication and on a consolidated basis in accordance with GAAP.
“Permitted Glendon/Affiliate Payments” means payments made at our discretion to Gores and its affiliates including Glendon Partners for consulting services provided to Westwood One and “Transaction Costs” refers to the fees, costs and expenses incurred by us in connection with purchase accounting and all of the Refinancing.goodwill is associated with one reporting unit. Acquired intangibles are recorded at fair value as of the acquisition date. Goodwill is not amortized, but tested for impairment at least annually or when changes in circumstances indicate an impairment event may have occurred. Impairment is determined by comparing the estimated fair value of the reporting unit to its carrying amount, including goodwill. We perform our annual impairment testing in our fiscal fourth quarter.
Adjusted EBITDA,
Intangible assets subject to amortization consist of advertiser and producer relationships, affiliate service agreements, trade names, customer relationships, technology and beneficial lease interest. The intangible asset values assigned are determined based upon the expected discounted aggregate cash flows to be derived over the life of the assets. As of December 31, 2012, the remaining weighted average amortization period for acquired intangible assets was 9.5 years.
We amortize the value assigned to intangibles as we calculate it,follows:
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| | |
| Advertiser and producer relationships | | 15 years |
| Affiliate service agreements | | 10 years |
| Trade names | | 4 to 5 years |
| Customer relationships | | 4 years |
| Technology | | 8 years |
| Beneficial lease interest | | 7 years |
Intangible assets that have definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be comparablerecoverable. If any indications were present, we would test for recoverability by comparing the carrying amount of the asset to similarly titled measures employed by other companies. While Adjusted EBITDA doesthe net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not necessarily represent funds available for discretionary use, andexceed the carrying amount (i.e., the asset is not necessarilyrecoverable), we would perform the next step, which is to determine the fair value of the asset, and record an impairment, if any. We re-evaluate the useful life determinations for these intangible assets each year to determine whether events and circumstances warrant a measurerevision in their remaining useful lives. Based on the results of our ability to fund our cash needs, we use Adjusted EBITDA as definedreviews, no intangible asset impairment loss is recognized in our lender agreements as a liquidity measure, which is different from operating cash flow, the most directly comparable financial measure calculated and presented in accordance with GAAP. We have provided below the requisite reconciliationresults of operating cash flow to Adjusted EBITDA.
Adjusted EBITDA operations for the years ended December 31, 2010, 20092012 and 2008 is as follows:2011.
| | | | | | | | | | | | | |
| | | Twelve Months Ended December 31, | |
| Adjusted EBITDA | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 8,136 | | | $ | (24,919 | ) | | $ | 2,038 | |
| Interest expense | | | 23,251 | | | | 18,003 | | | | 16,651 | |
| Income taxes benefit | | | (15,721 | ) | | | (32,660 | ) | | | (14,760 | ) |
| Deferred taxes | | | 17,458 | | | | 31,911 | | | | 13,907 | |
| Federal tax refund | | | (12,940 | ) | | | — | | | | — | |
Special charges and other(1) | | | 8,413 | | | | 20,025 | | | | 16,517 | |
| Restructuring | | | 2,899 | | | | 7,952 | | | | 14,100 | |
| Paid-in-kind interest | | | (5,734 | ) | | | (4,427 | ) | | | — | |
| Change in assets and liabilities | | | (14,333 | ) | | | (2,778 | ) | | | (6,376 | ) |
| Other non-operating income | | | 1,688 | | | | (363 | ) | | | (998 | ) |
| Change in fair value of derivative liability | | | (1,538 | ) | | | — | | | | — | |
Sigalert earn-out(2) | | | 1,063 | | | | — | | | | — | |
| Traffic land write-down | | | (321 | ) | | | (1,852 | ) | | | — | |
| Amortization of deferred financing costs | | | (23 | ) | | | (331 | ) | | | (1,674 | ) |
| Losses (gains) on sales of securities | | | 98 | | | | 2 | | | | (1 | ) |
| Loss on disposal of property and equipment | | | (258 | ) | | | (190 | ) | | | (206 | ) |
| | | | | | | | | | |
| Adjusted EBITDA | | $ | 12,138 | | | $ | 10,373 | | | $ | 39,198 | |
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| | |
(1) | | Special charges and other includes expense of $918, $1,652 and $3,272 are classified as general and administrative expense on the Statement of Operations for the years ended December 31, 2010, 2009 and 2008, respectively. |
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(2) | | Sigalert earn-out refers to additional earn-outs to members of Jaytu under the acquisition agreements in connection with the delivery and acceptance of certain traffic products in accordance with specifications mutually agreed upon by the parties. |
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Revenue Recognition
We did not pay dividendsRevenues primarily comprise of network radio advertising. Radio advertising revenues are recognized, net of agency fees and producer fees, when the advertising has aired. Revenue generated from charging fees to our stockholders during 2010, 2009radio stations and networks for music libraries, audio production elements, and jingle production services are recognized upon delivery, or 2008. In May 2007, our Board elected to discontinueon a straight-line basis over the paymentterm of a dividendthe contract, depending on our common stock. The payment of dividends on our common stock is prohibited by the terms of our Senior Notes and Senior Credit Facility. There are no plans to declare dividends on our common stock for the foreseeable future. Additionally, our Senior Credit Facility and Senior Notes contain covenants that restrict our ability to repurchase shares of our common stock.respective contracts.
Goodwill
The estimates and assumptions used in our impairment analysis vary between our reporting units depending on the facts and circumstances specific to each unit. We believe that the estimates and assumptions we made are reasonable, but they are susceptible to change from period to period. Actual results of operations, cash flows and other factors will likely differ from the estimates used in our valuation, and it is possible that differences and changes could be material. A deterioration in profitability, adverse market conditions and a slower or weaker economic recovery than currently estimated by management could have a significant impact on the estimated fair value of our reporting units and could result in an impairment charge in the future.
On April 1, 2011 we filed a notice of late filing on Form 12b-25 with the SEC, which estimated an impairment charge between $15,000 and $25,000 as of December 31, 2010. Subsequent to such filing we finalized our conclusion on the appropriate discount rate to be incorporated into our impairment model and concluded that we did not have an impairment as of December 31, 2010.
We have performed a sensitivity analysis to detail the impact that changes in assumptions may have on the outcome of the impairment test. Our sensitivity analysis provides a range of potential impairment for each reporting unit, where the starting point of the range is our selected discount rate for the 2010 annual impairment test and increases the discount rate in increments of 1.0% until the rate of 15.5,%, which was the discount rate used in our 2009 annual impairment test.
The following table reflects our sensitivity analysis.
| | | | | | | | | | | | | |
| | | Network Radio | | | Metro Traffic | | | Total | |
| | | | | | | | | | | | | |
| Discount rate | | | | | | | | | | | | |
| 10.0% | | $ | — | | | $ | — | | | $ | — | |
| 11.0% | | | — | | | | — | | | | — | |
| 12.0% | | | — | | | | 1,292 | | | | 1,292 | |
| 13.0% | | | — | | | | 8,193 | | | | 8,193 | |
| 14.0% | | | 1,932 | | | | 13,821 | | | | 15,753 | |
| 15.5% | | | 8,211 | | | | 20,466 | | | | 28,677 | |
Pro Forma Information 2009 and 2008
The following unaudited pro forma condensed financial information has been prepared to give effect to the Refinancing, as if the Refinancing had been completed on the first day of the earliest period presented. As a result of the Refinancing, a change in control occurred, which required us to account for the change of control with a revaluation of our balance sheet to a fair-value basis from a historical cost basis.
The actual results reported in periods following the Refinancing may differ significantly from those reflected in these pro forma financial statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare these pro forma financial statements and actual amounts. In addition, no adjustments have been made for non-recurring items related to the Refinancing. As a result, this pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the Refinancing been completed on the first day of the earliest period presented. These pro forma financial statements are based upon historical financial statements and do not purport to project the future financial condition and results of operations after giving affect to the Refinancing.
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The pro forma adjustments described below have been developed based on assumptions and adjustments, including assumptions relating to the purchase price and the allocation thereof to the assets acquired and liabilities assumed based on preliminary estimates of fair value.
The following unaudited pro forma condensed financial information for the twelve months ended December 31, 2009 and 2008 should be read in conjunction with, and is qualified by reference to, our consolidated income statements for the period from April 24, 2009 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008.
| | | | | | | | | | | | | | | | | |
| | | Pro Forma For the Twelve Months Ended December 31, 2009 | |
| | | For the Period | | | For the Period | | | | | | | |
| | | April 24 to | | | January 1 to | | | Pro Forma | | | | |
| | | December 31, 2009 | | | April 23, 2009 | | | Adjustments | | | Pro Forma | |
| Revenue | | $ | 228,860 | | | $ | 111,474 | | | $ | — | | | $ | 340,334 | |
| | | | | | | | | | | | | |
| |
| Operating costs | | | 210,805 | | | | 111,309 | | | | — | | | | 322,114 | |
| Depreciation and amortization | | | 21,474 | | | | 2,584 | | | | (4,909) | (A) | | | 19,149 | |
| Corporate general and administrative expenses | | | 10,398 | | | | 4,519 | | | | — | | | | 14,917 | |
| Goodwill impairment | | | 50,501 | | | | — | | | | — | | | | 50,501 | |
| Restructuring charges | | | 3,976 | | | | 3,976 | | | | — | | | | 7,952 | |
| Special charges | | | 5,554 | | | | 12,819 | | | | — | | | | 18,373 | |
| | | | | | | | | | | | | |
| Total Expenses | | | 302,708 | | | | 135,207 | | | | (4,909 | ) | | | 433,006 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Operating (loss) income | | | (73,848 | ) | | | (23,733 | ) | | | 4,909 | | | | (92,672 | ) |
| Interest expense | | | 14,781 | | | | 3,222 | | | | 2,401 | (B) | | | 20,404 | |
| Other expense (income) | | | (4 | ) | | | (359 | ) | | | — | | | | (363 | ) |
| | | | | | | | | | | | | |
| |
| Loss before income tax | | | (88,625 | ) | | | (26,596 | ) | | | 2,508 | | | | (112,713 | ) |
| Income tax benefit | | | (25,025 | ) | | | (7,635 | ) | | | 711 | (C) | | | (31,949 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net loss | | $ | (63,600 | ) | | $ | (18,961 | ) | | $ | 1,797 | | | $ | (80,764 | ) |
| | | | | | | | | | | | | |
38
| | | | | | | | | | | | | |
| | | Pro Forma For the Twelve Months Ended December 31, 2008 | |
| | | | | | | Pro Forma | | | | |
| | | Historical | | | Adjustments | | | Pro Forma | |
| Revenue | | $ | 404,416 | | | $ | — | | | $ | 404,416 | |
| | | | | | | | | | |
| |
| Operating costs | | | 357,927 | | | | — | | | | 357,927 | |
| Depreciation and amortization | | | 11,052 | | | | 17,399 | (A) | | | 28,451 | |
| Corporate general and administrative expenses | | | 16,007 | | | | — | | | | 16,007 | |
| Goodwill impairment | | | 430,126 | | | | — | | | | 430,126 | |
| Restructuring charges | | | 14,100 | | | | — | | | | 14,100 | |
| Special charges | | | 13,245 | | | | — | | | | 13,245 | |
| | | | | | | | | | |
| Total Expenses | | | 842,457 | | | | 17,399 | | | | 859,856 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating loss | | | (438,041 | ) | | | (17,399 | ) | | | (455,440 | ) |
| Interest expense | | | 16,651 | | | | 1,717 | (B) | | | 18,368 | |
| Other expense (income) | | | (12,369 | ) | | | — | | | | (12,369 | ) |
| | | | | | | | | | |
| |
| Loss before income tax | | | (442,323 | ) | | | (19,116 | ) | | | (461,439 | ) |
| Income tax benefit | | | (14,760 | ) | | | (5,706) | (C) | | | (20,466 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Net loss | | $ | (427,563 | ) | | $ | (13,410 | ) | | $ | (440,973 | ) |
| | | | | | | | | | |
Notes to the Unaudited Pro Forma Adjustments
The Unaudited Pro Forma Statements of Operations for the years ended December 31, 2008 and 2009 reflect the Refinancing and the resultant acquisition accounting and gives effect to these events as if each had occurred on January 1, 2008:
Note A- In accordance with authoritative guidance, which is applicable to the Refinancing and the change of control, we have revalued our goodwill and intangibles using our best estimate of current fair value. The value assigned to goodwill and indefinite lived intangible assets is not amortized to expense and the majority is not expected to be tax deductible. Our client contracts are typically exclusive agreements with our partners and/or talent to provide programming and content over a specified period of time. The values assigned to definite lived assets are amortized over their estimated useful life.
Also, in accordance with authoritative guidance, we have identified property and equipment which we valued using our best estimate of current fair value. Accordingly, an asset for property and equipment of $6,750 has been recorded to reflect the estimated fair value of the property and equipment and such amount is being depreciated to expense over the remaining lives of the assets.
Similarly, in accordance with authoritative guidance, we have identified leases and client contracts which we valued below market. Accordingly, a liability of $3,460 has been recorded to reflect the estimated fair value of the leases and client contracts and such amount is being taken to income over the remaining life of the contract.
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The following table summarizes the pro forma charges for amortization and depreciation expense for the twelve months ended December 31, 2009 and 2008.
| | | | | | | | | | | | | | | | | |
| | | Pro Forma Changes for Long Lived Assets | |
| | | For the Twelve Months ended December 31, 2009 | |
| | | | | | | Opening | | | | | | | Ending | |
| Intangibles | | Estimated life | | | Balance | | | Amortization | | | Balance | |
| Trademarks | | Indefinite | | $ | 20,800 | | | $ | — | | | $ | 20,800 | |
| Affiliate relationships | | 10 years | | | 64,890 | | | | 7,210 | | | | 57,680 | |
| Software and technology | | 5 years | | | 4,480 | | | | 1,120 | | | | 3,360 | |
| Client contracts | | 5 years | | | 6,946 | | | | 1,984 | | | | 4,962 | |
| Leases | | 7 years | | | 840 | | | | 140 | | | | 700 | |
| Insertion orders | | 9 months | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Subtotal—Intangible Assets | | | | | | | 97,956 | | | | 10,454 | | | | 87,502 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Property and equipment | | Various lives | | | 6,220 | | | | 366 | | | | 5,854 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Subtotal— Assets | | | | | | | 104,176 | | | | 10,820 | | | | 93,356 | |
| Client Contracts | | 1.5 years | | | (470 | ) | | | (470 | ) | | | — | |
| Leases | | 7 years | | | (1,757 | ) | | | (293 | ) | | | (1,464 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Subtotal—Liabilities | | | | | | | (2,227 | ) | | | (763 | ) | | | (1,464 | ) |
| | | | | | | | | | | | | | |
| |
| Net Total | | | | | | | | | | | 10,057 | | | | | |
| Amortization expense | | | | | | | | | | | 14,966 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | $ | (4,909 | ) | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Pro Forma Changes for Long Lived Assets | |
| | | For the Twelve Months ended December 31, 2008 | |
| | | | | | | Opening | | | | | | | Ending | |
| Intangibles | | Estimated life | | | Balance | | | Amortization | | | Balance | |
| Trademarks | | Indefinite | | $ | 20,800 | | | $ | — | | | $ | 20,800 | |
| Affiliate relationships | | 10 years | | | 72,100 | | | | 7,210 | | | | 64,890 | |
| Software and technology | | 5 years | | | 5,600 | | | | 1,120 | | | | 4,480 | |
| Client contracts | | 5 years | | | 8,930 | | | | 1,984 | | | | 6,946 | |
| Leases | | 7 years | | | 980 | | | | 140 | | | | 840 | |
| Insertion orders | | 9 months | | | 8,400 | | | | 8,400 | | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Subtotal—Intangible Assets | | | | | | | 116,810 | | | | 18,854 | | | | 97,956 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Property and equipment | | Various lives | | | 6,750 | | | | 530 | | | | 6,220 | |
| | | | | | | | | | | | | | |
| Subtotal— Assets | | | | | | | 123,560 | | | | 19,384 | | | | 104,176 | |
| Client contracts | | 1.5 years | | | (1,410 | ) | | | (940 | ) | | | (470 | ) |
| Leases | | 7 years | | | (2,050 | ) | | | (293 | ) | | | (1,757 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Subtotal—Liabilities | | | | | | | (3,460 | ) | | | (1,233 | ) | | | (2,227 | ) |
| | | | | | | | | | | | | | |
| |
| Net Total | | | | | | | | | | | 18,151 | | | | | |
| Amortization expense | | | | | | | | | | | 752 | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 17,399 | | | | | |
| | | | | | | | | | | | | | | | |
Amortization of the new intangibles for Affiliate Relationships, Client Contracts and Insertion Orders and the property and equipment was reflected in these tables.
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Note B— For the time periods shown, the Senior Notes bore interest at 15% per annum, payable 10% in cash and 5% in-kind (PIK interest). Interest expense was adjusted to reflect the new debt of $117,500 and new interest rate of 15% on such indebtedness. The PIK interest is added to the principal quarterly but will not be payable until maturity. The debt has been recorded for the pro forma financial statements at face value, which is our best estimate of fair value.
| | | | | | | | | |
| | | Pro Forma Changes Interest | |
| | | For the Twelve Months Ended December 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Interest expense on new debt | | $ | 20,329 | | | $ | 17,958 | |
| | | | | | | | | |
| Interest expense on indebtedness prior to refinancing | | | 17,928 | | | | 16,241 | |
| | | | | | | |
| | | | | | | | | |
| Incremental interest expense adjustment | | $ | 2,401 | | | $ | 1,717 | |
| | | | | | | |
Note C —Taxes were calculated on the new pro forma (loss) amount using the effective rate for each applicable period.
| | | | | | | | | |
| | | Pro Forma Changes - Taxes | |
| | | December 31, 2009 | | | December 31, 2008 | |
| | | | | | | | | |
| Pretax loss | | $ | (26,596 | ) | | $ | (442,323 | ) |
| Tax benefit | | | 7,635 | | | | 14,760 | |
| | | | | | | | | |
| Effective rate | | | 28.7 | % | | | 3.3 | % |
| Non-deductible portion of goodwill impairment | | | 0.0 | % | | | 31.8 | % |
| | | | | | | |
| Normalized effective tax rate | | | 28.7 | % | | | 35.1 | % |
| | | | | | | |
| | | | | | | | | |
| Proforma pretax loss | | | (112,713 | ) | | | (461,439 | ) |
| Adjustment for goodwill impairment | | | — | | | | 403,194 | |
| | | | | | | |
| | | | | | | | | |
| Adjusted proporma pretax loss | | | (112,713 | ) | | | (58,245 | ) |
| | | | | | | |
| | | | | | | | | |
| Proforma tax benefit | | $ | (32,357 | ) | | $ | (20,466 | ) |
| | | | | | | |
Investments
Jaytu (d/b/a Sigalert)
On December 31, 2009, we purchased Jaytu for $2,500, which consisted of a cash payment of $1,250 and 232,277 shares of our common stock valued at $5.38 per share (or approximately $1,250). For accounting purposes, the 232,277 shares of our common stock were recorded at a fair value of $1,045 (based on a per share price of $4.50). Under the purchase agreement, members of Jaytu could earn up to an additional $1,500 in cash upon the delivery and acceptance of certain traffic products in accordance with certain specifications mutually agreed upon by the parties, including commercial acceptance and/or first usage of the products by our television affiliates. As of December 31, 2010, $1,063 of the potential additional payments of $1,500 had been earned and $250 had been paid to the members of Jaytu. The remaining $437 of these potential payments could still be earned by members of Jaytu in the future if the previously agreed specifications are met. The assets purchased are software and technology assets included in intangible assets. The operations and assets of Jaytu (d/b/a Sigalert) are included in the Metro Traffic segment.
41
TrafficLand
On December 22, 2008, Metro Traffic Networks Communications, Inc. and TrafficLand entered into a License and Services Agreement (the “TrafficLand License Agreement”) which provides us with a three-year license to market and distribute TrafficLand services and products. Concurrent with the execution of the License Agreement, Westwood One, Inc. (parent of Metro Traffic Networks Communications, Inc.), TLAC, Inc. (a wholly-owned subsidiary of Westwood One) and TrafficLand entered into an option agreement granting us the right to acquire 100% of the stock of TrafficLand pursuant to the terms of a Merger Agreement which the parties had previously negotiated and placed into escrow. We ultimately chose not to exercise the option to purchase TrafficLand, and accordingly the Option Agreement and Merger Agreement were terminated. As a result, the License Agreement will continue until December 31, 2011. In early 2011, we paid $300 to maintain our exclusive license to market and distribute TrafficLand services and products through December 31, 2011.
GTN
On March 29, 2006, our cost method investment in The Australia Traffic Network Pty Limited was converted to 1,540 shares of common stock of Global Traffic Network, Inc. (“GTN”) in connection with the initial public offering of GTN on that date. The investment in GTN was sold during 2008 and we received proceeds of approximately $12,741 and realized a gain of $12,420. Such gain is included as a component of other (income) expense in the Consolidated Statement of Operations.
POP Radio
On October 28, 2005, we became a limited partner of POP Radio, LP (“POP Radio”) pursuant to the terms of a subscription agreement dated as of the same date. As part of the transaction, effective January 1, 2006, we became the exclusive sales representative of the majority of advertising on the POP Radio network for five years, until December 31, 2010, unless earlier terminated by the express terms of the sales representative agreement. This agreement was extended to December 31, 2011 on December 31, 2010. We hold a 20% limited partnership interest in POP Radio. No additional capital contributions are required by any of the limited partners. This investment is being accounted for under the equity method. The initial investment balance wasde minimis, and our equity in earnings of POP Radio through December 31, 2010 wasde minimis. Pursuant to the terms of a 2006 recapitalization of POP Radio, if and when one of the other partners elects to exercise warrants it received in connection with the transaction, our limited partnership interest in POP Radio will decrease from 20% to 6%. As of December 31, 2010, these warrants were outstanding.
Contractual Obligations and Commitments
The following table lists our future contractual obligations and commitments as of December 31, 2010:
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments due by Period | |
| Contractual obligations(1) | | Total | | | <1 year | | | 1 - 3 years | | | 3 - 5 years | | | >5 years | |
Debt(2) | | $ | 193,060 | | | $ | 12,781 | | | $ | 180,279 | | | $ | — | | | $ | — | |
| Broadcast and news rights | | | 641,191 | | | | 115,665 | | | | 182,097 | | | | 149,640 | | | | 193,789 | |
| Operating leases | | | 54,894 | | | | 7,699 | | | | 14,861 | | | | 12,734 | | | | 19,600 | |
Building financing(3) | | | 9,396 | | | | 906 | | | | 1,909 | | | | 2,045 | | | | 4,536 | |
| Capital lease obligations | | | 640 | | | | 640 | | | | — | | | | — | | | | — | |
| Other long-term obligations | | | 20,308 | | | | 12,346 | | | | 7,629 | | | | 333 | | | | — | |
| | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 919,489 | | | $ | 150,037 | | | $ | 386,775 | | | $ | 164,752 | | | $ | 217,925 | |
| | | | | | | | | | | | | | | | |
| | |
(1) | | The above table excludes uncertain tax positions reserves of $6,505 and deferred tax liabilities of $36,174 as the future cash flows are uncertain as of December 31, 2010. |
|
(2) | | Includes the estimated net interest and amendment fee payments on fixed and variable rate debt and payments of accumulated PIK. Estimated interest payments on floating rate instruments are computed using our interest rate as of December 31, 2010, and borrowings outstanding are assumed to remain at current levels. |
|
(3) | | Includes payments related to the financing of our Culver City properties. |
42
We have long-term non-cancelable operating lease commitments for office space and equipment and capital leases for satellite transponders.
Included in broadcast and news rights enumerated in the table above, are various contractual agreements to pay for broadcast rights and news service rights, including $409,223 of payments due under the CBS arrangement ($76,278 within 1 year; $120,766 1-3 years; $128,140 3-5 years; and, $84,039 beyond 5 years). As discussed in more detail below, on October 2, 2007, we entered into a long-term distribution arrangement with CBS Radio which closed on March 3, 2008. Included in other long-term obligations enumerated in the table above, are various contractual agreements to pay for talent and market ratings research.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments including those related to allowances for doubtful accounts, useful lives of property, plant and equipment and intangible assets, impairment of goodwill and indefinite lived intangible assets and other contingencies. We base our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity.
Revenue Recognition— Revenue is recognized when earned, which occurs at the time commercial advertisements are broadcast. Payments received in advance are deferred until earned and such amounts are included as a component of deferred revenue in the accompanying Balance Sheet.
We consider matters such as credit and inventory risks, among others, in assessing arrangements with our programming and distribution partners. In those circumstancesinstances where we function as the principal in the transaction, the revenue and associated operating costs are presented on a gross basis in the consolidated statement of operations.basis. In those circumstancesinstances where we function as an agent or sales representative, our effective commission is presented withinas a direct offset to revenue with no corresponding operating expenses.
Barter transactions represent the exchange of commercial announcements
Income Taxes
We account for programming rights, merchandise or services. These transactions are recorded at the fair market value of the commercial announcements relinquished, or the fair value of the merchandise and services received. A wide range of factors could materially affect the fair market value of commercial airtime sold in future periods (See the section entitled “Cautionary Statement regarding Forward-Looking Statements” in Item 1 — Business and Item 1A — Risk Factors), which would require us to increase or decrease the amount of assets and liabilities and related revenue and expenses recorded from prospective barter transactions. Revenue is recognized on barter transactions when the advertisements are broadcast. Expenses are recorded when the merchandise or service is utilized. Barter revenue of $15,359, $9,357, $5,357 and $13,152 has been recognized for the year ended December 31, 2010, the period from April 24, 2009 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008, respectively, and barter expenses of $15,623, $8,750, $5,541 and $12,740 have been recognized for the year ended December 31, 2010, the period from April 24, 2009 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008, respectively.
Program Rights— Program rights are stated at the lower of cost, less accumulated amortization, or net realizable value. Program rights and the related liabilities are recorded when the license period begins and the program is available for use, and are charged to expense when the event is broadcast.
Valuation of Goodwill and Intangible Assets— Goodwill represents the excess of cost over fair value of net assets of businesses acquired. In accordance with the authoritative guidance, the value assigned to goodwill and indefinite lived intangible assets is not amortized to expense, but rather the estimated fair value of the reporting unit is compared to its carrying amount on at least an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit goodwill and intangible assets is less than their carrying value. On an annual basis and upon the occurrence of certain events, we are required to perform impairment tests on our identified intangible assets with indefinite lives, including goodwill, which testing could impact the value of our business.
43
Prior to 2008, we operated as a single reportable operating segment: the sale of commercial time. As part of our re-engineering initiative commenced in the fourth quarter of 2008, we installed separate management for the Network Radio and Metro Traffic divisions providing discrete financial information and management oversight. Accordingly, we have determined that each division is an operating segment. A reporting unit is the operating segment or a business which is one level below the operating segment. Our reporting units are consistent with our operating segments and impairment has been tested at this level.
On an annual basis and upon the occurrence of certain interim triggering events, we are required to perform impairment tests on our identified intangible assets with indefinite lives, including goodwill, which testing could impact the value of our business. The carrying value of our goodwill at December 31, 2010 is $38,945. In December 2010, as a result of our annual goodwill impairment test, we determined that our goodwill was not impaired. In 2009, we determined that our goodwill was impaired and recorded impairment charges totaling $50,401.
Intangible assets subject to amortization primarily consist of affiliation agreements that were acquired in prior years. Such affiliate contacts, when aggregated, create a nationwide audience that is sold to national advertisers. The intangible asset values assigned to the affiliate agreements for each acquisition were determined based upon the expected discounted aggregate cash flows to be derived over the life of the affiliate relationship. The method of amortizing the intangible asset values reflects, based upon our historical experience, an accelerated rate of attrition in the affiliate base over the expected life of the affiliate relationships. Accordingly, we amortize the value assigned to affiliate agreements on an accelerated basis (period ranging from 4 to 20 years with a weighted-average amortization period of approximately 8 years) consistent with the pattern of cash flows which are expected to be derived. We review the recoverability of our finite-lived intangible assets whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed by comparison to associated undiscounted cash flows. During 2009, an impairment of intangible assets of $100 was recorded for the reduction in the value of the Metro Traffic trademarks.
Allowance for doubtful accounts— We maintain an allowance for doubtful accounts for estimated losses which may result from the inability of our customers to make required payments. We base our allowance on the likelihood of recoverability of accounts receivable by aging category, based on past experience and taking into account current collection trends that are expected to continue. If economic or specific industry trends worsen beyond our estimates, it would be necessary to increase our allowance for doubtful accounts. Alternatively, if trends improve beyond our estimates, we would be required to decrease our allowance for doubtful accounts. Our estimates are reviewed periodically, and adjustments are reflected through bad debt expense in the period they become known. Changes in our bad debt experience can materially affect our results of operations. Our allowance for bad debts requires us to consider anticipated collection trends and requires a high degree of judgment. In addition, as fully described herein, our results in any reporting period could be impacted by relatively few but significant bad debts.
Estimated useful lives of property, plant and equipment— We estimate the useful lives of property, plant and equipment in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives, which are disclosed in Note 1- Basis of Presentation of the consolidated financial statements, are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization expense in future periods. Alternately, these types of technological changes could result in the recognition of an impairment charge to reflect the write-down in value of the asset.
Income Taxes— We useincome taxes using the asset and liability method, ofwhich establishes financial accounting and reporting standards for the effects of income taxes required bythat result from an enterprise's activities. In assessing the authoritative guidance. Underrealizability of deferred tax assets, management considers whether it is more likely than not that either some portion or the authoritative guidance,entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income taxes reflectduring the tax impact ofperiods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity in making this assessment. Based on this evidence, in 2012, we increased our valuation allowance of $28,716. The valuation allowance and the goodwill impairment were the primary reasons for the variance between the amountstatutory rate and our effective tax rate in 2012. In 2011, we recognized a
non-cash benefit of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.
44
We classified interest expense and penalties$8,639 related to unrecognizeda reduction of our deferred tax benefits as incomevaluation allowance on our net deferred tax expenseassets at December 31, 2011.
The guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 740-10 (that were included in accordance with the authoritative guidance which clarifies the accountingpre-Codification FASB Interpretation No. 48, Accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and Uncertainty of Income Taxes) prescribes a recognition threshold and measurement attribute for the financial statement recognition, and measurement of a tax position taken, or expected to be taken, in a tax return.return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. A tax benefit from an uncertain tax position taken, or expected to be taken, may be recognized only if it is “more likely than not” that the position is sustainable upon tax authority examination, based on its technical merits. The evaluationtax benefit of a qualifying position under this guidance would equal the largest amount of tax positionbenefit that is greater than 50% likely of being realized upon settlement, with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established in accordance with this interpretationthe financial statements to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position.
Stock-Based Compensation
Under the fair value recognition provisions of ASC 718, Compensation-Stock Compensation, cost is measured at the grant date, based on the fair value of the award and is amortized on a two-step process. The first stepstraight-line basis over the requisite service periods of the awards, which is recognition, ingenerally the vesting periods. Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the enterprise determinesstock awards will be outstanding before they are exercised, the expected volatility of our stock and the number of stock-based awards that are expected to be forfeited. In order to determine the estimated period of time that we expect employees to hold their share-based options, we have used data on the historical exercise pattern of employees. We use the historical volatility of our common stock in order to estimate future share price trends. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. The risk free interest rate that we use in the option valuation model is based on U.S. treasury zero-coupon bonds with a remaining term similar to the expected term of the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. If the actual forfeiture rate differs significantly from our estimates, our stock-based compensation expense and our results of operations could be materially impacted.
Recent Accounting Pronouncements
The adoption of the following accounting standards and updates during 2012 did not result in a significant impact to the consolidated financial statements:
In July 2012, the FASB issued guidance which allows companies to use a qualitative approach to test indefinite-lived intangible assets for impairment. The guidance permits a company to first assess qualitative factors to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.
We determined, based upon the weight of available evidence, that it is more likely than not that our deferred tax asset will be realized. We have experienced a long history of taxable income which allowed us to carryback net operating losses through 2009. Also, we have taxable temporary differences that can be used as a source of income in the future. As such, no valuation allowance was recorded during the years ended December 31, 2010 or 2009. We will continue to assess the need for a valuation allowance at each future reporting period.
Recent Accounting Pronouncements Affecting Future Results
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It also requiresindefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the presentation of purchases, sales, issuances and settlements within Level 3 ofcase, it is necessary to perform the fair value hierarchy on a gross basis rather than a net basis.currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. Our disclosures about fair value measurements are presented in Note 9 — Fair Value Measurements. These new disclosure requirements areauthoritative guidance is effective for the period ending September 30, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effectiveannual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We early adopted this standard in the third quarter of 2012 and it did not have an impact on our financial statements. We do not have any indefinite-lived intangible assets as of December 31, 2012.
In June 2011, the FASB issued guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' (deficit) equity. The amendments in this standard require that all non-owner changes in stockholders' (deficit) equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. All amendments are effective for interim and annual periods beginning after December 15, 2010. Our adoption2011 and are to be applied retrospectively. We adopted this standard in the first quarter of 2012 and it did not have an impact on our financial statements.
In May 2011, the newFASB issued guidance to clarify and revise the requirements for measuring fair value and for disclosing information about fair value measurements. We adopted this standard in the first quarter of 2012 and it did not have a material impact on our consolidated financial position or results of operations.statements.
In December 2010,2011, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosureguidance requiring companies to disclose information about offsetting assets and liabilities and related arrangements to enable users of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force) (“ASU 2010-29”). ASU 2010-29 changes the disclosures of supplementary pro forma information for business combinations. The new standard clarifies that if a public entity completes a business combination and presents comparativeits financial statements to understand the entity should disclose revenueeffect of those arrangements on its financial position. This guidance requires retrospective application for all prior periods presented and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under ASC Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective for business combinations with acquisition dates on or after the beginning of the first annual reporting periodperiods for fiscal years beginning on or after December 15, 2010, with early adoption permitted. OurJanuary 1, 2013, and interim periods within those annual fiscal years. We do not expect adoption of the newthis guidance did notto have a materialan impact on our consolidated financial position or results of operations.operations and financial condition.
Contractual Obligations and Commitments
Our future contractual obligations and commitments as of December 31, 2012 are as follows;
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
Contractual Obligations (1) | | Total | | <1 Year | | 1 to 3 Years | | 3 to 5 Years | | >5 Years |
Debt (including accrued interest) (2) | | $ | 436,802 |
| | $ | 33,276 |
| | $ | 75,748 |
| | $ | 255,694 |
| | $ | 72,084 |
|
| Broadcast and news rights | | 357,455 |
| | 60,872 |
| | 122,010 |
| | 87,823 |
| | 86,750 |
|
Operating leases (3) | | 34,500 |
| | 5,826 |
| | 9,470 |
| | 9,066 |
| | 10,138 |
|
Building financing (4) | | 7,579 |
| | 971 |
| | 2,075 |
| | 2,187 |
| | 2,346 |
|
Other commitments (5) | | 66,265 |
| | 24,097 |
| | 32,636 |
| | 9,532 |
| | — |
|
| | | $ | 902,601 |
| | $ | 125,042 |
| | $ | 241,939 |
| | $ | 364,302 |
| | $ | 171,318 |
|
| |
| (1) | The above table excludes uncertain tax positions reserves of $3,244 and deferred tax liabilities of $1,202as the future cash flows are uncertain as of December 31, 2012. |
| |
| (2) | Includes scheduled repayments of long-term debt and interest payments on fixed and variable rate debt and payments of accumulated PIK interest. Estimated interest payments on floating rate instruments are computed using our interest rate as of December 31, 2012 and borrowings outstanding are assumed to follow the debt repayment schedule. We have classified all long-term debt as currently payable in our balance sheet as of December 31, 2012. The payments reflected in this table are the originally scheduled payments pursuant to our current credit facilities as of December 31, 2012. |
| |
| (3) | Operating leases are net of sublease income. |
| |
| (4) | Payments related to the lease agreement for our Culver City properties. |
| |
| (5) | Includes other contractual services for talent, research, and employment agreements. |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We have exposure to changing interest rates under the Senior Credit Facility. During 2010, we were party to one derivative financial instrument. Gores’ investment in our common stock was to be made based on a trailing 30-day weighted average of our common stock’s closing share price forFacilities. We manage interest rate risk through the 30 consecutive days ending on the tenth day immediately preceding the date of the stock purchase, and additionally included a collar (e.g., a $4.00 per share minimum and a $9.00 per share maximum price), therefore it was deemed to contain embedded features having the characteristicsuse of a derivativecombination of fixed and floating rate debt. From time to be settled in our common stock. Accordingly, pursuant to authoritative guidance,time, we determined the fair valuemake use of this derivative by applying the Black-Scholes model using the Monte Carlo simulation to estimate the price of our common stock on the derivative’s expiration date and estimated the expected volatility of the derivative by using the aforementioned trailing 30-day weighted average. On August 17, 2010, we recorded an asset of $442 related to this instrument. On December 31, 2010, the fair market value of the instrument was a liability of $1,096 resulting in other expense of $1,538 for the year ended December 31, 2010. The derivative expired on February 28, 2011, the date Gores satisfied the $10,000 Gores equity commitment by purchasing 1,186,240 shares of common stock at a per share price of $8.43, calculated in accordance with the trailing 30-day weighted average of our common stock’s closing price as described above and $1,096 will be recorded as other income in the first quarter of 2011. No cash was exchanged for the derivative instrument at any time. We were not party to any other derivative financial instruments during 2010.to adjust our fixed and floating rate ratio. In January 2012, we entered into interest rate cap contracts to manage the risks associated with our variable rate debt as required by our Credit Agreements. These interest rate cap contracts cap the Libor interest rate at 3.0% on a notional amount of $122,500 of the outstanding debt and are not designated as hedges and expire on March 31, 2015.
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At December 31, 2012, if interest rates increased by 100 basis points subject to the impact of interest rate floor or the "required minimum interest rate", annualized interest expense would increase by approximately $1,385, based on our exposure to interest rate changes on variable rate debt that is not covered by the interest rate cap contracts we entered into in January 2012. At December 31, 2012, if interest rates decreased by 100 basis points subject to the impact of interest rate floor or the "required minimum interest rate", annualized interest expense would most likely be unchanged as the interest rate floors would prevent a significant decrease in our borrowing rates. These analyses do not consider the effects of the change in the level of overall economic activity that could exist in an environment of adversely changing interest rates. In the event of an adverse change in interest rates and to the extent that we have amounts outstanding under our variable interest rate credit facilities, management would likely take further actions that would seek to mitigate our exposure to interest rate risk.
We monitor our positions with, and the credit quality of, the financial institutions that are counterparties to our financial instruments, and do not anticipate non-performance by the counterparties.
Our receivables
We have three customers that accounted for approximately 31% and 16% of accounts receivable at December 31, 2012 and December 31, 2011, respectively. As of December 31, 2012, we do not believe that these accounts receivable or our other accounts
receivable represent a significant concentration of credit risk dueas we have not experienced significant losses related to the wide variety of customersour receivable balances and markets in which we operate.do not expect significant future uncollectible amounts related to our accounts receivable.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and the related notes and schedules were prepared by and are the responsibility of management. The financial statements and related notes were prepared in conformity with generally accepted accounting principles and include amounts based upon management’smanagement's best estimates and judgments. All financial information in this annual report is consistent with the consolidated financial statements.
We maintain internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management’smanagement's authorization and properly recorded, and that accounting records may be relied upon for the preparation of consolidated financial statements and other financial information. The design, monitoring, and revision of internal accounting control systems involve, among other things, management’smanagement's judgment with respect to the relative cost and expected benefits of specific control measures.
Our consolidated financial statements have been audited by PricewaterhouseCoopersErnst & Young LLP, an independent registered public accounting firm, who have expressed their opinion with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of directors who are independent under NASDAQ rules and regulations, meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting controls and financial reporting matters. The Audit Committee, pursuant to its charter, is also responsible for retaining our independent accountants. The independent accountants have full and free access to the Audit Committee with and without management’smanagement's presence. MembersAll members of the Audit Committee meet the stringent independence standards and at least one member hashave financial expertise. From March 16, 2009, when we were delisted from the NYSE, to November 20, 2009, when our common stock was listed on the NASDAQ Global Market under the ticker symbol “WWON”, we were not subject to the listing requirements of any national securities exchange or national securities association. Effective November 20, 2009, the Company became subject to NASDAQ rules and regulations except where it relies on the “controlled company” exemption to the board of directors and committee composition. The “controlled company” exception does not modify the independence requirements for the Audit Committee, and we comply with the requirements of the Sarbanes-Oxley Act of 2002 and the NASDAQ rules which require that our audit committee be composed of at least three independent directors. The Board used the NASDAQ standard of “independence” in determining the independence of Messrs. Ming, Nunez and Wuensch.
The consolidated financial statements and the related notes and schedules are indexed on page F-1 of this report, and attached hereto as pages F-1 through F-48 and by this reference incorporated herein.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our President and Chief FinancialExecutive Officer and our Senior Vice President, Finance and Principal AccountingChief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 20102012 (the “Evaluation”). Based upon the Evaluation, our President and Chief FinancialExecutive Officer and Senior Vice President, Finance and Principal Accountingour Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) are effective as of December 31, 20102012 in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’sSEC's rules and forms andforms. They also concluded that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our internal control over financial reporting is a process designed by, or under the supervision of, our President and Chief FinancialExecutive Officer and our Senior Vice President, Finance and Principal AccountingChief Financial Officer and effected by our boardBoard of directors,Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework .Control-Integrated Framework. Management, under the supervision and with the participation of our President and Chief FinancialExecutive Officer and our Senior Vice President, Finance and Principal AccountingChief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 20102012 and concluded that it is effective as of such date.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.30
Changes in Internal Control over Financial Reporting
We are completing the process of implementing a new financial and reporting system as part of a plan to integrate and upgrade our operational and financial systems and processes as a result of our Merger with Westwood. We expect this new system to strengthen our internal financial controls by automating manual processes and standardizing business processes across our organization. The implementation of our new general ledger system was completed in the first quarter of 2012. We continued to develop and enhance the operational and financial systems during the fourth quarter of 2012. We have followed a system implementation life cycle process that required significant pre-implementation planning, design, and testing. We have conducted post-implementation monitoring and process modifications to ensure the effectiveness of our internal control over financial reporting, and have not experienced any significant difficulties to date in connection with the implementation or operations of the new financial system. As we continue to implement the new system, we will experience certain changes to our processes and procedures, which in turn will result in changes in internal controls over financial reporting. There waswere no changeother changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal quartermaterially affect, or that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.reporting during the period covered by this annual report.
Item 9B. Other Information
None.
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PART III
Item 10. Directors and Executive Officers and Corporate Governance Directors
All dollar amounts in
The information that is responsive to the information required with respect to this Item 10 are presented in whole dollars, unless otherwise noted.
Our directors are listed below. Our Boardshall be provided by means of Directors (referred to in this Part III as “the Board”) is divided into three classes (Class I, II, and III), each class serving for three-year terms, which terms are staggered and expire as indicated below. Each director’s class, the committees on which he serves, his age as of April 30, 2011 and the year he became a director is indicated below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Committee Assignments | |
| Name | | | | | | Director | | | | | Term | | | Audit | | | Compensation | |
| (I = Independent) | | Age | | | Since | | | Class | | Expires | | | Committee | | | Committee | |
| Gregory Bestick | | | 59 | | | | 2010 | | | I | | | 2013 | | | | | | | | | |
| Andrew P. Bronstein | | | 52 | | | | 2009 | | | I | | | 2013 | | | | | | | | | |
| Jonathan I. Gimbel | | | 31 | | | | 2009 | | | II | | | 2012 | | | | | | | | | |
| Scott M. Honour | | | 44 | | | | 2008 | | | II | | | 2012 | | | | | | | | | |
| H. Melvin Ming (I) | | | 66 | | | | 2006 | | | III | | | 2011 | | | | ** | | | | * | |
| Michael F. Nold | | | 40 | | | | 2009 | | | I | | | 2013 | | | | | | | | ** | |
| Emanuel Nunez (I) | | | 52 | | | | 2008 | | | III | | | 2011 | | | | * | | | | * | |
| Joseph P. Page | | | 57 | | | | 2009 | | | III | | | 2011 | | | | | | | | | |
| Mark Stone | | | 47 | | | | 2008 | | | I | | | 2013 | | | | | | | | * | |
| Ronald W. Wuensch (I) | | | 69 | | | | 2009 | | | II | | | 2012 | | | | * | | | | | |
| | |
* | | Member |
|
** | | Chair |
|
(I) | | - Independent |
The principal occupations and professional backgrounds of the ten directors are as follows:
Mr. Bestick— has been a director of the Company since October 1, 2010. Mr. Bestick is currently the Chief Operating Officer of the Paradigm Talent Agency. In 2003, Mr. Bestick founded Ogden Park Ventures, a technology investment and consulting firm that has worked in Europe, Asia and the U.S. with the toy maker Mattel, Inc. and various private equity firms. Mr. Bestick previously served as CEO of Broderbund Software, an early innovator in children’s educational software (2001-2003), as President of The Learning Company, a market-leading consumer software company (1999-2001), and as CEO of Creative Wonders, a joint venture between video game maker Electronic Arts and the Walt Disney Corporation (1995-1999). Mr. Bestick is also Chairman of eLanguage, LLC, a worldwide publisher of language learning software, and a member of the Board of Directors of the Help Kenya Project, a not-for-profit educational foundation.
Mr. Bronstein— has been a director of the Company since April 23, 2009. Mr. Bronstein is a Managing Director of Gores Operations Group, the operations affiliate of The Gores Group, LLC (“Gores”), which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the manager of Gores Radio Holdings, LLC. Mr. Bronstein is responsible for portfolio company financial oversight and controls and financial due diligence activities for Gores. In addition to serving as a Director of the Company, Mr. Bronstein is a Director of Diagnostic Health Corp. and a member of the Operations Committee of Alliance Enterprises Corporation, all Gores portfolio companies. Before joining Gores Operations Group in 2008, Mr. Bronstein was President of APB Consulting LLC, a consulting firm that solved complex financial and accounting issues and led acquisition due diligence for public and private companies. From 1992 to 2006, Mr. Bronstein was Corporate Controller and Principal Accounting Officer (and Vice President commencing in 1994) of SunGard Data Systems Inc., a Fortune 500 software and services company. Before 1992, Mr. Bronstein worked for Coopers & Lybrand, a predecessor of PricewaterhouseCoopers, as a senior manager and director of its technology practice in Philadelphia, PA. Mr. Bronstein graduated with distinction from Northeastern University with a B.S. in Accounting and a concentration in Finance. He is a Certified Public Accountant.
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Mr. Gimbel— has been a director of the Company since April 23, 2009. Mr. Gimbel is currently a Principal at Gores, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the manager of Gores Radio Holdings, LLC. Mr. Gimbel is responsible for the negotiation and execution of certain Gores acquisitions, divestitures and financing activities in addition to originating new investment opportunities. Prior to joining Gores in 2003, Mr. Gimbel was an analyst at Credit Suisse First Boston, where he focused primarily on mergers and acquisitions and leveraged finance transactions in the Media and Telecommunications group. Mr. Gimbel graduated with honors from the University of Texas with a Bachelor of Business Administration in Finance and Accounting and holds an M.B.A. from the Harvard Business School.
Mr. Honour— has been a director of the Company since June 19, 2008. Mr. Honour joined Gores in 2002 and is currently Senior Managing Director of Gores, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the manager of Gores Radio Holdings, LLC. Mr. Honour is responsible for originating and structuring transactions and pursuing strategic initiatives at Gores. From 2001 to 2002, Mr. Honour served as a Managing Director at UBS Warburg, where he was responsible for relationships with technology-focused financial sponsors, including Gores, and created the firm’s Transaction Development Group, which brought transaction ideas to financial sponsors, including Gores. Prior to joining UBS Warburg, Mr. Honour was an investment banker at Donaldson, Lufkin & Jenrette. Mr. Honour earned his B.S. in Business Administration and B.A. in Economics, cum laude, from Pepperdine University, and his M.B.A. from the Wharton School of the University of Pennsylvania with an emphasis in finance and marketing. Mr. Honour is also a director of various Gores portfolio companies.
Mr. Ming— has been a director of the Company since July 7, 2006. Since October 2002, Mr. Ming has been the Chief Operating Officer of Sesame Workshop, the producers of Sesame Street and other children’s educational media. Mr. Ming joined Sesame Workshop in 1999 as the Chief Financial Officer. Prior to joining Sesame Workshop, Mr. Ming was the Chief Financial Officer of the Museum of Television and Radio in New York from 1997 to 1999; Chief Operating Officer at WQED in Pittsburgh from 1994-1996; and Chief Financial Officer and Chief Administrative Officer at Thirteen/WNET New York from 1984 to 1994. Mr. Ming is a Certified Public Accountant and graduated from Temple University in Philadelphia, PA.
Mr. Nold— has been a director of the Company since April 23, 2009. Mr. Nold is currently a Managing Director of Glendon Partners, the operations affiliate of Gores, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the manager of Gores Radio Holdings, LLC. Mr. Nold is responsible for oversight of select Gores portfolio companies and operational due diligence efforts. Before joining Glendon Partners in 2008, from 2004 to 2008, Mr. Nold was an executive at Hewlett-Packard. Mr. Nold served as VP of Strategy & Corporate Development at Hewlett-Packard, where he focused on the global Services and Technology Solutions divisions, and also co-led Hewlett-Packard’s Corporate Strategy group, responsible for prioritizing and driving key transformational initiatives across Hewlett-Packard. Previously, Mr. Nold held leadership positions, in strategy and marketing, at United Technologies and Avanex Corporation from 2001 to 2004. Prior to that, Mr. Nold served as a management consultant with Bain & Company. Mr. Nold earned a B.S.E. in Industrial & Operations Engineering from the University of Michigan and an M.B.A. in Finance and Marketing from The Wharton School.
Mr. Nunez— has been a director of the Company since June 19, 2008. Mr. Nunez is currently an agent in the Motion Picture department of Creative Artists Agency (CAA), an entertainment and sports agency based in Los Angeles with offices in New York, London, Nashville, and Beijing. Mr. Nunez is involved in the representation of actors, directors, production companies and film financiers, focusing on exploring financial opportunities for the agency’s clients in emerging global markets. Mr. Nunez also participates in transactions ranging from traditional talent employment and production arrangements, to the territorial sales of motion picture distribution rights worldwide, as well as the structuring of many international co-productions. Mr. Nunez joined CAA in 1991. He was previously at ICM, and prioramendment to this was an attorney for an entertainment law firm in Los Angeles. Since 2003, Mr. Nunez has served as a commissioner for the Latin Media & Entertainment Commission, an organization that advises the Mayor of New York City on business development and retention strategies for the Latin media and entertainment industry. Since 2007, he has served on our Board and also serves on our Audit Committee and Compensation Committee. Born in Cuba, Mr. Nunez resides in Los Angeles.
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Mr. Page— has been a director of the Company since December 9, 2009. Mr. Page is Chief Operating Officer of Gores, where he also serves as a member of the Gores’ investment committee and oversees Gores’ financial and administrative functions. Prior to joining Gores in 2004, Mr. Page was senior Principal and Chief Operating Officer for Shelter Capital Partners, a southern California-based private investment fund, from 2000 to 2004. Prior to that, he held various senior executive positions with several private and public companies controlled by MacAndrews & Forbes (“M&F”). While at M&F, he was Vice Chairman of Panavision, CFO of The Coleman Company and CFO of New World Communications. Prior to M&F, Mr. Page was a Partner at Price Waterhouse. Mr. Page earned a B.S. in Accounting and an M.B.A. from Loyola Marymount University of Los Angeles.
Mr. Stone— has been a director of the Company since June 19, 2008 and served as Vice-Chairman of the Board from his election until August 30, 2010 at which time he was elected to the position of Chairman of the Board. Mr. Stone is currently President, Gores Operations Group, and Senior Managing Director of Gores, which is the investment manager of Gores Capital Partners L.P., Gores Capital Partners II, L.P. and their related investment entities, and the manager of Gores Radio Holdings, LLC. Mr. Stone has responsibility for Gores’ worldwide operations group, oversight of all Gores portfolio companies and operational due diligence efforts. Mr. Stone joined Gores in 2005 from Sentient Jet, a provider of private jet membership, where he served as Chief Executive Officer from 2002 to 2004. Prior to Sentient Jet, Mr. Stone served as Chief Executive Officer of Narus, a global telecommunication software company, as Chief Executive Officer of Sentex Systems, an international security and access control manufacturing company. Mr. Stone holds an M.B.A. in Finance from The Wharton School and a B.S. in Finance from the University of Maine. Mr. Stone is also a director of various Gores portfolio companies.
Mr. Wuensch— has been a director of the Company since July 6, 2009. In 1992, Mr. Wuensch founded Wuensch Consulting, which specializes in providing private consulting services to boards of directors and chief executive officers regarding specific issues on economic value and business design. From 1988 to 1992, Mr. Wuensch served as Group Executive for a $50 billion financial services holding company and prior thereto was Senior Vice President for a multi-bank holding company, President of a bank holding company, and a consulting partner with Arthur Young and with KPMG. In addition, Mr. Wuensch has extensive experience as a board member of several public and private companies. From 2008 to 2010, he served as an Executive Professor at the University of Houston’s Bauer College of Business, Wolff Center for Entrepreneurship. Mr. Wuensch is a graduate of Baylor University and a Certified Public Accountant licensed in Texas.
Qualifications of Directors
Gores Designees. Of the 10 directors that serve on our Board, six were designated by Gores, another, Mr. Nunez, was nominated by Gores to serve as an independent director and Mr. Bestick was nominated by Gores to serve as a director. The Gores directors include two directors, Messrs. Honour and Gimbel, who focus primarily on M&A opportunities, and four directors, Messrs. Bronstein, Nold, Page and Stone, who focus primarily on operational matters (e.g.,efficiencies in the businesses, growth opportunities, new projects, accounting/financial matters). Gores selected the following individuals to serve as directors in consideration of the following qualifications and skills. Gores had the right to designate three directors to the Board beginning in June 2008 when it purchased $75 million of our preferred stock. Gores took control of the Company in connection with the Refinancing which closed on April 23, 2009.
| • | | Mr. Bronstein’s extensive experience in dealing with complex financial and accounting matters, including as a consultant and corporate controller and principal accounting officer of a Fortune 500 software and services company, provides the Board with a critical resource on various operational and financial matters. Until our listing on NASDAQ which required that all members of the Audit Committee be independent, Mr. Bronstein served on our Audit Committee, which during 2009 dealt with several new accounting issues in connection with the Refinancing.
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| • | | Mr. Gimbel, who works on exploring and negotiating M&A opportunities, has worked as a key member of the Gores M&A team, including with Mr. Honour, for approximately eight years. Mr. Gimbel’s tenure as an M&A analyst in the Media and Telecommunications Group of a major investment bank brings an added dimension of M&A experience to the Board.
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| • | | Mr. Honour is responsible for structuring and pursuing strategic alternatives on behalf of Gores and was designated to the Board to identify potential M&A transactions on our behalf. Mr. Honour has been an investment banker for 20 years and has spent his professional career identifying, negotiating and closing M&A and financial transactions.
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| • | | Mr. Nold has extensive operational experience, with a particular focus on strategy and related transformational initiatives. Mr. Nold was designated to the Board for his ability to conduct extensive diligence on a company’s operations and pinpoint areas for improvement, on a timely and cost-effective basis. Beyond supporting our overall operational improvement, in 2008 and 2009, Mr. Nold was deeply engaged in transforming the capabilities and performance of the Network business.
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| • | | Mr. Page brings to the Board significant financial, managerial and operational knowledge. In addition to having held several CFO and COO positions and being a Partner at Price Waterhouse, Mr. Page currently oversees operational and financial functions for all of Gores and has extensive media and financial experience.
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| • | | Mr. Stone, who leads Gores’ Operations group and is responsible for its worldwide operations group, was designated by Gores to serve on our Board primarily as a result of his extensive operational expertise. Mr. Stone’s educational background in math and computer science and his experience as Chief Executive Officer for three companies makes him a crucial adviser to both our management and the Board when key decisions, such as operational improvements, revenue growth initiatives or potential M&A activity are being considered and made by the Board.
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Non-Gores Directors. Of the remaining four directors, Messrs. Bestick and Nunez were nominated by Gores; Mr. Wuensch was nominated by our lenders (pursuant to our Investor Rights Agreement with our lenders); and Mr. Ming is an independent director who has served on the Board since 2006.
| • | | Mr. Bestick has a long history of working in the media industry, particularly related to technology and software. Mr. Bestick was appointed to the Board to assist us as we broaden our media platform, including in the digital space. As a chief executive of numerous companies, Mr. Bestick brings leadership and initiative to the Board. We are also able to leverage Mr. Bestick’s media contacts and relationships.
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| • | | Mr. Ming was nominated by the then Nominating and Governance Committee in 2006 and became a director of the Company in July 2006 during a period when we were seeking additional financial expertise (the Chair of our Audit Committee resigned in April 2006). Mr. Ming’s extensive roles as CFO, COO or CAO in different organizations were ideal complements to the Board. Mr. Ming has served on the Audit and Compensation Committees for nearly five years.
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| • | | Mr. Nunez was nominated by Gores because of his contacts and experience in the entertainment industry, an industry in which he has operated for over 24 years, both as an attorney and as a talent agent. His experience in helping to structure employment and production arrangements was a key consideration in his nomination and election to our Board, particularly as we continue to explore and develop new programming.
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| • | | Mr. Wuensch was nominated by our lenders principally for his corporate governance experience and his service to various companies, including during times of financial transition and/or restructuring. Mr. Wuensch has been an executive, director and consultant (the latter for the last 19 years) to numerous companies over the last 40 years.
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Diversity of the Board
As disclosed in more detail below under the section entitled “Committees of the Board,” effective April 23, 2009, we do not have a Nominating and Governance Committee and of the eleven directors on the Board (there is currently one vacancy), six are employed by Gores or its affiliate, Glendon Partners, and one is a designee of our lenders. The Board does not have a formal written policy regarding diversity but both it and Gores, when reviewing candidates, consider the diversity as well as breadth and wealth of a director’s professional experience and how such might compliment the experience currently represented on the Board. In particular, we place a significant emphasis on identifying directors who have operational, financial and strategic/M&A experience. Other factors considered in evaluating a director’s qualifications include educational/technical skills (MBA/CPA); exposure with turnaround situations; leadership roles (CEO, CFO, COO, CAO, CTO) and relationships in the media and entertainment industry. All directors must have a high ethical character and solid professional reputation; possess sound business judgment and be willing to be engaged in the business of the Board. Nominations may be made by any of our directors or stockholders as described below under “Director Nomination Procedures.”
Executive Officers
The following is a list of our executive officers. Only the Chief (Principal) Executive Officer, Chief (Principal) Financial Officer (in our case, Mr. Sherwood is both the President and CFO) and the three most highly compensated of our executive officers (excluding the CEO and CFO) using the methodology of the SEC for determining “total compensation” are considered “named executive officers” (also referred to in this report as “NEOs”). The Compensation Discussion and Analysis that appears below relates only to the NEOs for fiscal year 2010.
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Executive Officer | | Position |
Roderick M. Sherwood III | | President and Chief Financial Officer |
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Edward Mammone | | Principal Accounting Officer |
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Steven Kalin | | Chief Operating Officer and President, Metro Networks division |
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David Hillman | | Chief Administrative Officer; Executive Vice President, Business Affairs and General Counsel |
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Steve Chessare | | SVP, Sales, Network |
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Fred Bennett | | President and General Manager, Metro Television |
The professional backgrounds of our executive officers for fiscal year 2010 who are not also directors follow:
Roderick M. Sherwood, III(age 57)was appointed our Executive Vice President, Chief Financial Officer, and Principal Accounting Officer effective September 17, 2008, and our President effective October 20, 2008. Mr. Sherwood served as Chief Financial Officer, Operations of The Gores Group, LLC from November 2005 to September 5, 2008, where he was responsible for leading the financial oversight of all Gores portfolio companies. From October 2002 to September 2005, Mr. Sherwood served as Senior Vice President and Chief Financial Officer of Gateway, Inc., where he was primarily responsible for overseeing financial performance and operational improvements and exercising corporate financial control, planning, and analysis. During his tenure at Gateway, he also oversaw Gateway’s acquisition of eMachines. From August 2000 to September 2002, Mr. Sherwood served as Executive Vice President and Chief Financial Officer of Opsware, Inc. (formerly Loudcloud, Inc.), an enterprise software company. Prior to Opsware, Mr. Sherwood also served in a number of operational and financial positions at Hughes Electronics Corporation, including General Manager of Spaceway (broadband services), Executive Vice President of DIRECTV International and Chief Financial Officer of Hughes Telecommunications & Space Company. He also served in a number of positions during 14 years at Chrysler Corporation, including Assistant Treasurer and Director of Corporate Financial Analysis. Mr. Sherwood currently serves as a director of Dot Hill Systems Corporation, including as Chair of its Audit Committee.
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Edward Mammone(age 42) was appointed our Principal Accounting Officer in October 2009. From January 1997 to September 2009, Mr. Mammone held numerous financial positions at Revlon Inc., culminating in his being named Chief Accounting Officer in December 2006, a position he held until his departure in September 2009. Prior to Revlon, Mr. Mammone was a Manager in the Audit Practice of Grant Thornton LLP from October 1993 to December 1996. Mr. Mammone holds a B.S. from St. Francis University (with a dual major in Accounting and Business Management). Mr. Mammone is Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
Steven R. Kalin(age 47)was appointed our Chief Operating Officer effective July 7, 2008 and President of the Metro Networks division on October 20, 2008. Mr. Kalin has 20 years of media experience, encompassing both traditional and digital platforms and strategic, business development and operational roles. From 2002 to 2007, Mr. Kalin served as Executive Vice President and Chief Operating Officer of Rodale, Inc., a global publisher of health and wellness information. From September 2000 to January 2002, Mr. Kalin was Chief Operating Officer and then Chief Executive Officer of Astata, a business to business wireless software company. From September 1998 to June 2000, Mr. Kalin served as Chief Financial Officer and Chief Operating Officer of Medscape, a leading online website for physicians. From October 1995 to August 1998, Mr. Kalin was Vice President of Business Development for ESPN Internet Ventures and with ESPN Enterprises. At the start of his career, Mr. Kalin was a consultant with McKinsey & Company in the firm’s media practice. Mr. Kalin holds a B.A. from Brown University and an M.B.A. from Harvard Business School.
David Hillman(age 42) serves as our Chief Administrative Officer; Executive Vice President, Business Affairs and General Counsel. Mr. Hillman joined us in June 2000 as Vice President, Labor Relations and Associate General Counsel, which positions he held through September 2004, and thereafter became Senior Vice President, General Counsel in October 2004. He became an Executive Vice President in February 2006 and Chief Administrative Officer on July 10, 2007. Mr. Hillman has a B.A. from Dartmouth College and a J.D. from Fordham University School of Law.
Steve Chessare(age 53) serves as our Senior Vice President, Sales. From November 1998 until June 2008, Mr. Chessare held the position of General Sales Manager of WLTW-FM in New York City. From November 1989 until November 1998, he held various positions within CBS Radio culminating in the role of Vice President/General Manager of CBS Radio Sales, the national sales division of CBS Radio. Mr. Chessare is a graduate of Fairfield University in Fairfield, Connecticut with a B.S. in Business Management degree.
Fred Bennett(age 46) was appointed as our President and General Manager, Metro Television on November 17, 2010. Since 2006, Mr. Bennett has held numerous sales positions at the Company, including VP of Mid-Atlantic Ad Sales (2006-2007), EVP, Affiliate Sales (2008-2009) and EVP, Affiliate Sales and Business Operations (2009 to 2010). He was VP, Affiliate Sales from 1999 to 2001 and General Manager and SVP, Affiliate Sales from 2001 to 2004. In between 2004 and 2006, Mr. Bennett served as General Sales Manager of WABC Radio (2005-2006) and Market Manager of Pamal Broadcasting (2004-2005). Mr. Bennett is a graduate of Brookdale College with a degree in Communications & Broadcasting.
There is no family relationship between any of our directors and executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and more than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of forms received by us, or written representations from our directors and executive officers, we believe that during 2010 our executive officers, directors and more than ten percent beneficial owners complied with all SEC filing requirements applicable to them.
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Code of Ethics
We have a written policy entitled “Code of Ethics” that is applicable to all of our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, or any person performing similar functions, which was amended and restated on April 23, 2009. We no longer have a Supplemental Code of Ethics for our Chief Executive Officer and Chief Financial Officer. The Code of Ethics is available on our website (www.westwoodone.com) and is available in print at no cost to any stockholder upon request by contacting us at (212) 641-2000 or sending a letter to 1166 Avenue of the Americas, 10th Floor, New York, NY 10036, Attn: Secretary.
Director Nomination Procedures
On April 23, 2009, the Board adopted and approved the Amended and Restated By-Laws (the “Amended and Restated By-Laws”). Section 2.16 of the Amended and Restated By-Laws added advance notice provisions relating to stockholder proposals to nominate directors for election at stockholder meetings. The following summary of is qualified in its entirety by reference to the copy of the Amended and Restated By-Laws attached as Exhibit 3.1 to our CurrentAnnual Report on 8-KForm 10-K filed with the SEC on April 27, 2009.Securities and Exchange Commission within 120 days after the end of the registrant's most recently completed fiscal year.
Nominations of persons for election
Item 11. Executive Compensation
The information that is responsive to the Board may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, (1) by or at the direction of the Board (or any duly authorized committee thereof) or (2) by any of our stockholders (A) who is a stockholder of record on the date of the giving of the notice provided for in Section 2.16 of the Amended and Restated By-Laws and on the record date for the determination of stockholders entitled to vote at such meeting and (B) who complies with the notice procedures set forth in Section 2.16 of the Amended and Restated By-Laws.
For a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to our Secretary.
To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at our principal executive offices as follows: (1) in the case of an Annual Meeting, not less than ninety (90) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (2) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any existing time period) for the giving of a stockholder’s notice as described above.
To be in proper written form, a stockholder’s notice to the Secretary must set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director: (1) the name, age, business address and residence address of the person, (2) the principal occupation and employment of the person, (3) the class, series and number of all shares of our stock which are owned beneficially or of record by the person and (4) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act; and (b) as to the stockholder giving the notice: (1) the name and record address of such stockholder, (2) (A) the class, series and number of all shares of our stock which are owned by such stockholder, (B) the name of each nominee holder of shares owned beneficially but not of record by such stockholder and the number of shares of stock held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest has been entered into by or on behalf of such stockholder or any of its affiliates or associates with respect to our stock and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock) has been made by or on behalf of such stockholder or any of its affiliates or associates, the effect or intent of which is to mitigate loss to, or to manage risk or benefit of stock price changes for, such stockholder or any of its affiliates or associates or to increase or decrease the voting power or pecuniary or economic interest of such stockholder or any of its affiliates or associates with respect to our stock, (3) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (4) a representation that such stockholder is a holder of record of our stock entitled to vote at such meeting and that such stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons named in its notice and (5) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to the Exchange Act. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
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Nominations to the Board are typically reviewed by directors Stone and Honour, in consultation with Mr. Sherwood. Nominees are then interviewed by several Board members before their presentation to the Board and/or our stockholders.
Committees of the Board
The Board has an Audit Committee and Compensation Committee. Effective April 23, 2009, the Board adopted amended and restated written charters for each of the Audit Committee and Compensation Committee. The full text of each committee charter is available on our website at www.westwoodone.com and is available in print free of charge to any stockholder upon request. Under their respective charters, each of these committees is authorized and assured of appropriate funding to retain and consult with external advisors, consultants and counsel. Effective April 23, 2009, we no longer have a Nominating and Governance Committee. From March 16, 2009, when we were delisted from the NYSE, to November 20, 2009, when we were listed on the NASDAQ Stock Market, we were not subject to the listing requirements of any national securities exchange or national securities association. Effective November 20, 2009, we became subject to NASDAQ rules and regulations except where it relies on the “controlled company” exemption to the board of directors and committee composition requirements under the rules of the NASDAQ Global Market. As a result of the exemption, we are not required to have a Nominating and Governance Committee, or have our Board comprised of a majority of “independent” directors and have the flexibility to include non-independent directors on our Compensation Committee. The “controlled company” exception does not modify the independence requirements for the Audit Committee, and we comply with the requirements of the Sarbanes-Oxley Act of 2002 (“SOX”) and the NASDAQ Global Market rules which require that our Audit Committee be composed of at least three independent directors. In making a determination of a director’s “independence,” the Board used the NASDAQ standard of “independence” in determining that each of Messrs. Ming, Nunez and Wuensch is independent.
The Audit Committee
The current members of the Audit Committee are Messrs. Ming, Nunez and Wuensch. Pursuant to SOX and the NASDAQ standards described above, the Board has determined that Messrs. Ming, Nunez and Wuensch meet the requirements of independence proscribed thereunder. In addition, the Board has determined that each of Messrs. Ming and Wuensch is an “audit committee financial expert” pursuant to SOX. For further information concerning each of Mr. Ming’s and Mr. Wuensch’s qualifications as an “audit committee financial expert,” see their biographies which appear above in this report under the heading entitled “Directors.”
The Audit Committee is responsible for, among other things, the appointment, compensation, retention and oversight of our independent registered public accounting firm; reviewing with the independent registered public accounting firm the scope of the audit plan and audit fees; and reviewing our financial statements and related disclosures. The Audit Committee meets separately with our senior management, our General Counsel, our internal auditor and our independent registered public accounting firm on a regular basis. There were 14 meetings of the Audit Committee in 2010.
The Compensation Committee
The current members of the Compensation Committee are Messrs. Ming, Nold, Nunez and Stone. The Compensation Committee has formed a subcommittee, consisting solely of the two independent directors, Mr. Ming and Mr. Nunez, for the purpose of making equity grants to our key employees, including our NEOs.
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The Compensation Committee has the following responsibilities pursuant to its charter (a copy of which is available on our website at www.westwoodone.com), which was amended on April 23, 2009:
Develop (with input from the CEO/President) and recommend to the Board for approval compensation toItem 11 shall be provided to officers holding the title of Executive Vice President and above (“senior executive officers”);
Review and approve corporate goals and objectives relative to the compensation of senior executive officers;
Review the results of and procedures for the evaluation of the performance of other executive officers by the CEO/President;
At the direction of the Board, establish compensation for our non-employee directors;
Recommend to the Board for approval all qualified and non-qualified employee incentive compensation and equity ownership plan and all other material employee benefit plans;
Act on behalf of the Board in overseeing the administration of all qualified and non-qualified employee incentive compensation, equity ownership and other benefit plans, in a manner consistent with the terms of any such plans;
Approve investment policies for our qualified and nonqualified pension plans (and, as appropriate, compensation deferral arrangements) and review actuarial information concerning such plans;
In consultation with management, oversee regulatory compliance with respect to compensation matters, including overseeing our policies on structuring compensation programs to preserve tax deductibility, unless otherwise determined by the Committee;
Prepare an annual report on executive compensation for inclusion in our annual proxy statement in accordance with applicable laws and regulations; and
Perform any other duties or responsibilities consistent with the Committee’s Charter and our certificate of incorporation, by-laws and applicable laws, regulations and rules as the Board may deem necessary, advisable or appropriate for the Committee to perform.
In carrying out its responsibilities, the Compensation Committee is authorized to engage outside advisors to consult with the Committee as it deems appropriate. There were four meetings of the Compensation Committee in 2010.
The Board may from time to time, establish or maintain additional committees as necessary or appropriate.
Board Oversight of Enterprise Risk
The Board relies on the following enterprise-wide process to assess and manage the various risks facing the business and to ensure that such risks are monitored and addressed and do not compromise our ability to meet our business plan and strategic objectives. On an annual basis, our President and CFO, Principal Accounting Officer and certain business heads meet to assess internal and external factors that could present a risk to our business plan. Once such assessment has been made, such officers produce a risk assessment report and review the risks with the Audit Committee. While the Audit Committee, which has been delegated the responsibility of reviewing our annual risk assessment by the Board, takes the lead risk oversight role and oversees risk management which includes monitoring and controlling our financial risks as well as financial accounting and reporting risks, our management is responsible for the day-to-day risk management process. As part of this risk assessment process, the Principal Accounting Officer works closely with members of the Audit Committee to ensure such risks are communicated in sufficient detail and to set forth a follow up process for managing and remediating any risk. Once this process has been completed, the Audit Committee and members of our finance department provide an update to the Board on the risk assessment process. To the extent any identified risks deal with compensation, our Compensation Committee also becomes involved in assessing and managing such risks.
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Board Structure
The Board is comprised of 11 directors (there is currently one vacancy) and consistent with its control of the Company, Gores influences who serves on the Board. Since the time of the Refinancing in April 2009, we ceased to have a Nominating and Governance Committee given Gores’ controlling interest. Since the time of our being listing on NASDAQ in October 2009, the Audit Committee has consisted of three independent directors, Messrs Ming, Nunez and Wuensch.
From 1976 until his retirement on August 30, 2010, Mr. Pattiz, who founded the Company, served as Chairman of the Board. Mr. Pattiz’s long-standing ties to us and his stature in the radio industry are highly beneficial to our employees and stockholders. Accordingly, upon his retirement, Mr. Pattiz became Chairman Emeritus and still provides consulting services to us, including as a member of the Office of the Chairman which includes Messrs. Pattiz, Sherwood and Stone. Mr. Stone, Vice-Chairman of Gores, currently serves as the Chairman of the Board. While there are no prohibitions in our governing documents or policies regarding the CEO/President acting as Chairman of the Board, except for a brief period of time early in our corporate history when Mr. Pattiz served as Board Chairman and President, the roles of CEO and Board Chairman have remained separate. The Board and management believe the separation allows each party to continue its focus on its principal role, that is, overseeing the day-to-day management of the Company in the case of the President and presiding over meetings of the Board and stockholders, in the case of the Chairman. Mr. Sherwood’s is physically located in the corporate headquarters in New York and Mr. Stone is physically located in Los Angeles, California, near our Culver City offices.
In connection with the Refinancing, certain directors resigned from the Board, including the Board’s lead independent director. Given that Gores and our lenders collectively own approximately 97% of our equity, the Board does not believe a new lead independent director is necessary at this time.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The following narrative describes how we determine compensation for our named executive officers (referred to as NEOs or executives below), including the elements of their compensation and how the levels of their compensation were determined and by whom. When references are made to “key employees,” we are referring to a broader group of senior managers, such as department heads, who may be eligible for a particular compensation element. The information provided below is for fiscal year 2010 unless otherwise indicated. All dollar amounts are presented in whole dollars, unless otherwise noted.
Overview
Our Compensation Committee (referred to in this narrative as the “Committee” or as the “Compensation Committee”) is primarily responsible for determining the compensation of our NEOs on an annual basis, which is comprised of three primary components, two of which are “discretionary” (annual bonus, if any, and the annual equity compensation award, if any). For 2010, the Committee’s decision making process was based on its discussions with management and its and our general awareness of compensation trends in the industry. The Committee also sought and received legal advice from its outside legal counsel as needed, including with respect to the development and adoption of our 2010 Equity Compensation Plan (adopted by the Board on February 12, 2010 and approved by our stockholders on July 30, 2010).
The Committee seeks to provide appropriate and reasonable levels of compensation to its NEOs keeping in mind our mission of remaining competitive with pay opportunities of comparable companies in the media industry, while accounting for individual performance and our overall performance. We provide minimal perquisites, consisting mainly of reimbursements for parking and car allowances and do not provide any other types of perquisites, including supplemental pension plans or other deferred compensation arrangements.
As a result of the Refinancing, Gores and our lenders (as a group) own approximately 76.4% and 20.5%, respectively, of our common stock and under the “controlled company” exemption of the NASDAQ Global Market rules, we are not required to have a Compensation Committee comprised of a majority of “independent” directors. As of the date of this report, the Committee includes two Gores designees and two independent directors. The Committee has formed a subcommittee, consisting solely of the two independent directors, for the purpose of making equity grants to our key employees, including our NEOs. The Committee made an award of stock options to a group of our employees, including NEOs, on February 12, 2010, and in the case of Mr. Sherwood, an additional grant of equity compensation in October 2010. As of the date of this report, the Committee has not awarded to any NEO any bonus in 2011 for service in 2010.
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With the exception of the employment agreement with Mr. Kalin, the stated terms of the employment agreements with the NEOs have expired. The stated term of Mr. Kalin’s employment agreement is scheduled to expire on July 7, 2011. All of the employment agreements remain in effect following the expiration of the stated term, however they may be terminated by either party at any time following a notice period and provide the NEOs with limited, if any, severance benefits in the event of a termination of their employment.
Objectives
The objective of our executive compensation policy (which affects NEOs) has been to attract, retain and motivate executives. The Committee believes that equity compensation awards serve as important contributors to the attraction, retention and motivation of our executives and more closely aligns the interest of executives and management to long-term success and growth and best promote the interests of our stockholders. The Committee has established the following objectives when determining the compensation for NEOs:
| • | | Pay for Performance. Corporate goals and objectives, both for an individual and for the Company as a whole, and the progress made in achievement thereof, should be a key consideration in any pay decisions;
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| • | | Be Competitive. Total compensation opportunities for NEOs generally should be competitive with comparable companies in the industry, in order to attract and retain needed managerial talent;
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| • | | Align Interests of Executives with Long-term Success and Stockholder Interests. Elements of compensation should be structured to give substantial weight to our future performance, which better aligns the interests of our stockholders and executives; and
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| • | | Attract and Retain Key Employees. Since mid-2008, we have undertaken to top-grade our employees, including our senior executives, and both we and the Committee have placed a premium on attracting and retaining key employees and talent. Accordingly, higher levels of cash and equity compensation have been granted to new executives to induce them to join the Company.
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Process and Roles of Parties
As a part of the Refinancing, Gores holds approximately 76.4%, and our lenders hold approximately 20.5%, of our equity. In 2010 (for services rendered in 2009) and in 2011 (for services rendered in 2010), the President and the Chief Administrative Officer and General Counsel met to discuss individuals’ performances and discuss the possibility of granting discretionary bonuses. After conferring with the President and considering our overall performance, the Committee determined not to award to any of the NEOs any discretionary cash bonus in 2010 for performance in 2009 or in 2011 for performance in 2010. Neither the President nor the Chief Administrative Officer and General Counsel makes recommendations, reviews or otherwise participates in the process of determining his own discretionary compensation. The Committee is primarily focused on elements of discretionary compensation; it also becomes involved in determining base salaries for our President, the NEOs, and the respective heads of each of our divisions.
In 2010, the Committee considered and adopted a new equity compensation plan and awarded stock options to employees, including the NEOs. In making these stock option awards, our management relied heavily on Gores’ expertise with respect to the size and pool of grantees for such awards, and outside counsel and the Committee provided additional guidance related thereto. The Committee received significant input from management regarding the specific awards to be made to employees. For awards made to NEOs, the President worked closely with the then Vice-Chairman of the Board (Mr. Stone, now Chairman of the Board), Chair of the Committee, Gores and remaining members of the Committee to determine the appropriate award levels and in the case of the President’s equity award, the Committee and Gores made such determination.
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Timing Of Discretionary Compensation Awards
Historically, we have awarded annual discretionary compensation (i.e., annual bonus and equity compensation) to NEOs after the performance of the immediately preceding fiscal year, including year-end earnings, has been publicly reported and is known by Board members, including the Committee. The Committee has, in certain limited circumstances, made equity compensation awards at other times, for example, in connection with a new employee’s date of hire or in connection with a significant promotion. Given our financial performance over the last several years, we have not awarded discretionary bonuses to NEOs since 2008. Contractually-required bonuses, such as signing and/or retention bonuses have been made. We awarded stock options to our employees, including NEOs, on February 12, 2010, and made a supplemental award of equity to Mr. Sherwood on October 4, 2010.
Elements of Compensation
For 2010, there were two main components of compensation for the NEOs: (1) base salary and (2) equity compensation. We generally establish a NEO’s base salary in the individual’s employment agreement, based generally on competitive pay levels, our internal pay structure and appropriate fixed pay to compensate sufficiently the NEOs for performing his/her duties and responsibilities. However, for the most part with limited exceptions, all other payments (e.g., signing bonus, retention bonus, annual discretionary bonus, equity compensation awards) are wholly-discretionary and/or contingent on the NEO remaining with the Company. Equity compensation awards are intended to generate favorable long-term performance with a view toward providing a potential for upside should our performance improve over the long-term, thereby creating a common goal of both NEOs and our stockholders. Although we have not paid annual discretionary bonuses since 2008 due to our overall financial performance, the Committee continues to believe that discretionary annual bonuses should be considered to reward a NEO’s outstanding individual performance and to motivate and retain NEOs. Accordingly, the Committee intends to continue to consider the payment of annual bonuses in the future. In setting different elements of compensation, the Committee does not engage in a formal benchmarking process, however we and the Committee are generally aware of compensation trends in the industry.
How does the Committee determine the allocation between the elements of compensation?
Base Salary
In determining base salary, the Committee considers an individual’s performance, experience and responsibilities, as well as the base salary levels of similarly-situated employees at comparable companies in the media industry. A base salary is meant to create a secure base of cash compensation, which is competitive in the industry. We rely to a large extent on the President’s evaluation and recommendation based on his assessment of the NEO’s performance.
Salaries generally are reviewed at the time a NEO enters into a new or amended employment agreement, which typically occurs upon the assumption of a new position and/or new responsibilities or the termination of the agreement. Any increase in salary is based on a review of the factors set forth above. In most instances, we have moved away from guaranteeing automatic salary increases in multi-year employment agreements in favor of reviewing on an annual basis whether salary increases should occur company-wide.
Effective April 6, 2009, we instituted a company-wide salary reduction, ranging from 5-15% based on an employee’s salary level. As part of such plan, all of the then NEOs received a 15% reduction in salary, which reduction continues as of the date of this report. All of the then NEOs participated in the furlough undertaken in late 2009, described below.
Discretionary Annual Compensation Bonus
NEOs are eligible to receive discretionary annual bonuses and their employment agreements provide a target amount for which they are eligible. The target is set based on the NEO’s position and responsibilities and our overall pay positioning objectives. While the target bonus amounts differ from agreement to agreement, all such bonuses are in the sole and absolute discretion of the Board or the Committee or their designee. Historically, management would make a recommendation regarding discretionary bonuses and equity compensation for key employees to the Committee which the Committee and management would discuss. After reviewing its decisions with the full Board and taking into account the views expressed by members of the Board, the Committee would make its final determination. As previously stated, the Committee has not awarded discretionary bonuses in the last three years given our overall financial performance. When making bonuses, the Committee’s policy is to take into account a NEO’s base salary and views cash compensation as a whole when making its determinations regarding bonuses.
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While the Committee does not have a written policy regarding bonuses payable upon attaining certain financial metrics, bonuses for all members of management will continue to be reviewed on the basis of our overall performance and to the extent applicable, on their individual performance and the performance of departments and/or divisions over which they exercise substantial control.
Equity Compensation
We consider equity compensation to be a key part of a NEO’s compensation. In 2010, given that the vast majority of equity compensation held our employees, including NEOs, was significantly underwater and hadde minimisvalue, we amended and restated the 2005 Equity Compensation Plan (such plan, the “2005 Plan” and as a result of such amendment and restated, renamed the 2010 Equity Compensation Plan or the “2010 Plan”) to increase the number of shares available for issuance to 2,650,000 shares. This amount reflected an allocation of approximately 10% of our equity (on a fully-diluted basis taking into account the stock options to be awarded) for equity awards as the Committee, based on advice from Gores, believed the amount of the equity compensation awards should be meaningful. Approximately 2,000,000 shares were awarded on February 12, 2010 and approved by stockholders on July 30, 2010. Taking into account additional grants, cancellations and forfeitures, as of March 31, 2011, approximately 723,668 of the 2,650,000 shares remained available for issuance under the 2010 Plan. The Committee does not have immediate plans to issue additional broad-based equity compensation awards.
With respect to the awards made in 2010, the aggregate number of options awarded, and the individual awards for NEOs, were determined by our President and Chair of the Committee (with the exception of the award for the President). In February 2010, the Vice-Chairman of the Board (then Mr. Stone), Chair of the Committee and remaining Committee members determined the equity compensation award for Mr. Sherwood. In October 2010, the decision to award additional equity compensation to Mr. Sherwood was made by the Chairman of the Board (Mr. Stone), Chair of the Committee and remaining Committee members.
In determining awards to NEOs, the Committee reviews both the value of equity compensation, individual responsibilities and performance, and other equity awards granted to our executive officers. The following awards were made under the 2010 Plan to the NEOs on February 12, 2010, subject to stockholder approval (obtained on July 30, 2010) and Mr. Sherwood received a supplemental grant as indicated below:
Roderick M. Sherwood, III— received a stock option to purchase 400,000 shares of common stock on February 12, 2010 and on October 4, 2010, a stock option to purchase 100,000 shares of common stock and 100,000 RSUs;
Steven Kalin— received a stock option to purchase 200,000 shares of common stock;
David Hillman— received a stock option to purchase 150,000 shares of common stock; and
Steve Chessare— received a stock option to purchase 40,000 shares of common stock.
The independent sub-committee of the Committee awarded such supplement equity compensation to Mr. Sherwood in recognition of his significant contributions to the Company as both President and CFO, including overseeing and managing numerous strategic partnerships and negotiating amendments to our credit agreements in 2010. Additionally, Mr. Sherwood became primarily responsible for oversight of our Network business after the departure of the President and COO of the Network division in September 2010. The sub-committee awarded Mr. Sherwood an equal mix of stock options and RSUs to provide both guaranteed compensation and incentive to maximize value for our stockholders. The three-year vesting schedule of the equity compensation provides for retention and long-term value creation.
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Terms of Vesting
Under the 2005 Plan and 2010 Plan, unvested awards generally are forfeited upon an employee’s termination, including by death or disability. However, under the 2005 Plan, if termination occurs within a 24-month period after a change in control (as such term is defined in the 2005 Plan), the award generally will become fully vested. Once granted, an individual is entitled to the benefitsmeans of an award of equity compensation upon vesting, provided, such individual remains employed by us at the time of vesting. In the case of certain NEOs and key employees, an award (or portion of an award) may vest when termination is without cause or for good reason.
All equity compensation issued under the 2005 Plan and the 2010 Plan (including those awards madeamendment to this Annual Report on February 12, 2010) have three-year vesting terms, with the exception of awards made in January 2006 which vested over four years. Stock options issued under the 1999 Plan have five-year vesting terms, with the exception of awards made in March 2008 which vested over three years. Options that remain outstanding under the 1999 Plan and 2005 Plan will vest upon a participant’s termination within a 24-month period after a change in control (as such term is defined in the 2005 Plan, not taking into an account the amended definition under the 2010 Plan) has occurred. In the case of all but one of the NEOs, this is also true of the awards made on February 12, 2010.
Definition of Change in Control
Under the 2010 Plan, adopted on February 12, 2010: a “change in control” generally is: (i) the acquisition by any person, other than Gores, of a majority of our equity interests entitled to vote for members of the Board or equivalent governing body; (ii) a change in the individuals constituting a majority of the Board, or (iii) the consummation of any other transaction involving a significant issuance of our securities, a change in the Board composition or other material event that the Board determines to be a change in control.
Under the 2005 Plan, a “change in control” generally is: (i) the acquisition by any person of 35% or more of our outstanding common stock; (ii) a change in the individuals constituting a majority of the Board; (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of our assets or the acquisition of assets or stock of another corporation resulting in a change of ownership of more than 50% of the voting securities entitled to vote generally in the election of directors, (iv) a stockholder approved complete liquidation or dissolution of the Company; or (v) the consummation of any other transaction involving a significant issuance of our securities, a change in the Board composition or other material event that the Board determines to be a change in control.
For the definitions used in NEOs’ employment agreements, please refer to the summaries under the heading “Employment Agreements” which appears below.
Payments Upon Termination
We have entered into employment agreements with each of the NEOs in order to promote stability and continuity of management. With the exception of the employment agreement with Mr. Kalin, the stated terms of the employment agreements with the NEOs have expired. The stated term of Mr. Kalin’s employment agreement is scheduled to expire on July 7, 2011. The employment agreements remain in effect following the expiration of the stated terms, however they may be may be terminated by either party at any time following a notice period. Under certain employment agreements, NEOs are entitled to cash payments upon various termination scenarios, including upon a change in control, death or disability, termination by the executive for good reason, or termination by us without cause. These payments are more particularly described under the table entitled “Potential Payments upon Termination or Change in Control”; the summaries of employment agreements that follow under the heading entitled “Employment Agreements”; and the narrative that follows regarding such payments. We do not have any arrangements with our NEOs, written or otherwise, for 280G “gross-up” or similar type payments.
What other factors does the Committee consider when making its decisions regarding compensation to NEOs?
Section 162(m) of the Code, limits the annual tax deduction a company may take on compensation it pays to the NEOs (other than the CFO in certain instances) to covered pay of $1 million per executive in any given year.
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The Committee’s general policy is to structure compensation programs that allow us to fully deduct the compensation under Section 162(m) requirements. However, the Committee seeks to maintain our flexibility to meet our incentive and retention objectives, even if we may not deduct all of the compensation.
Beginning in 2005, with the adoption of the 2005 Plan by the Board, the Committee has the option to grant RSUs and restricted stock to NEOs. The Committee has retained the right to grant such equity awards because although the amount of RSUs and restricted stock that qualify for a deduction under Section 162(m) may be limited, equity-based awards have the potential to be a significant component of compensation that promotes our long-term performance and management retention, and strengthens the mutuality of interests between the awardees and stockholders. Stock options granted by us are generally intended to qualify for a deduction under Section 162(m).
The Committee also considers the accounting cost and the dilutive effect of equity compensation awards when granting such awards and the impact of Section 409A of the Code relating to deferred compensation. To the extent permitted by the Committee, a participant may elect to defer the payment of RSUs in a manner that is intended to comply with Section 409A of the Code.
With respect to accounting considerations, the Committee examines the accounting cost associated with equity compensation in light of requirements under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (formerly, FASB Statement 123R) (“FASB ASC 718”).
What role does the Committee play in establishing compensation for directors?
The Committee reviews and evaluates compensation for our non-employee directors on an annual basis, in consultation with its outside legal counsel prior to making a recommendation to the Board. The elements of director compensation and more particulars regarding the elements are described in this report under the table appearing below the heading “Director Compensation.”
Compensation Committee Report
The Committee has reviewed and discussed with management the Compensation Discussion and Analysis which appears above. Based on its review and discussions with management, the Committee recommended to the Board that it approve the inclusion of the Compensation Discussion and Analysis in this reportForm 10-K filed with the SEC.
Submitted by the members of the Compensation Committee:
Michael Nold, Chair
H. Melvin Ming
Emanuel Nunez
Mark Stone
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SUMMARY COMPENSATION TABLE
The following tableSecurities and accompanying footnotes set forth the compensation earned, held by, or paid to, each of our named executive officers for the years ended December 31, 2008, December 31, 2009 and December 31, 2010, respectively. In 2009, we instituted cost-reduction measures which included a 15% salary reduction effective April 6, 2009 for three of the four NEOs (Mr. Chessare was not a NEO when the salary reduction was enacted) and a 10% salary reduction, along with five unpaid furlough days, for the period from October 19, 2009 to December 28, 2009. The effect of these cost reductions on NEOs’ salaries, to the extent applicable, are reflected in the table below.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | Change in | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Value | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | and | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Nonqualified | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Non-Equity | | | Deferred | | | All Other | | | | |
| | | | | | | | | | | | | | | Stock | | | Option | | | Incentive Plan | | | Compensation | | | Compen- | | | | |
| Name and | | | | | | Salary | | | Bonus | | | Awards | | | Awards | | | Compensation | | | Earnings | | | sation | | | Total | |
| Principal Position | | Year | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d)(1) | | | (e) (2) | | | (f) (2) | | | (g) | | | (h) | | | (i)(3) | | | (j) | |
CURRENT NEOS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Roderick M. Sherwood, III | | | 2010 | | | $ | 504,115 | | | | — | | | $ | 802,000 | | | $ | 2,380,620 | | | | — | | | | N/A | | | | — | | | $ | 3,686,735 | |
| President (as of 10/20/08) | | | 2009 | | | $ | 520,892 | | | | — | | | | — | | | | — | | | | — | | | | N/A | | | | — | | | $ | 520,892 | |
| and CFO (as of 9/20/08) (4) | | | 2008 | | | $ | 168,462 | | | $ | 15,000 | | | | — | | | $ | 152,700 | | | | — | | | | N/A | | | $ | 115,000 | | | $ | 451,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Steven Kalin | | | 2010 | | | $ | 423,365 | | | | — | | | | — | | | $ | 894,394 | | | | — | | | | N/A | | | | — | | | $ | 1,317,759 | |
| President, Metro Networks division (as of 10/20/08) and COO (as of 7/7/08) (5) | | | 2009 | | | $ | 431,135 | | | | — | | | | — | | | | — | | | | — | | | | N/A | | | | — | | | $ | 431,135 | |
| | | 2008 | | | $ | 225,962 | | | | — | | | | — | | | $ | 266,050 | | | | — | | | | N/A | | | | — | | | $ | 492,012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| David Hillman, | | | 2010 | | | $ | 389,485 | | | | — | | | | — | | | $ | 670,795 | | | | — | | | | N/A | | | | — | | | $ | 1,060,280 | |
| CAO, EVP, Business Affairs and GC (6) | | | 2009 | | | $ | 388,021 | | | | — | | | | — | | | | — | | | | — | | | | N/A | | | | — | | | $ | 388,021 | |
| | | | 2008 | | | $ | 425,000 | | | $ | 33,334 | | | | — | | | $ | 145,950 | | | | — | | | | N/A | | | | — | | | $ | 604,284 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Steve Chessare | | | 2010 | | | $ | 380,000 | | | | — | | | | — | | | $ | 178,879 | | | | — | | | | N/A | | | | — | | | $ | 558,879 | |
| SVP, Sales, Network (7) | | | 2009 | | | $ | 380,000 | | | | — | | | | — | | | | — | | | | — | | | | N/A | | | | — | | | $ | 380,000 | |
| | | | 2008 | | | $ | 190,000 | | | $ | 140,000 | | | | — | | | $ | 56,000 | | | | — | | | | N/A | | | | — | | | $ | 330,000 | |
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(1) | | The Committee did not award bonuses for service in 2008, 2009 and 2010. |
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(2) | | The amounts reported in columns (e) and (f) represent the grant date fair value all stock and option awards granted in fiscal 2010, calculated in accordance with FASB ASC 718, without regard to the estimated forfeiture related to service-based vesting conditions. For a more detailed discussion of the assumptions used by us in estimating fair value, refer to Note 11 -Equity-Based Compensation of the Notes to the Consolidated Financial Statements that appear in this report. The vesting terms of the stock awards and option awards reported in the table above are described below. These amounts reflect our accounting expense for these awards and do not correspond to the actual amounts, if any, that will be recognized by the named executive officers. |
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(3) | | We do not provide perquisites to our employees, including the named executive officers. Prior to April 3, 2009, we made a matching contribution of 25% of all employees’ contributions to their 401(k) Plan in an amount not to exceed 6% of an employee’s salary. Such matches were in Company stock, until January 1, 2007, when we began making such matches in cash. Employees vest in the “Company match” based on years of service with the Company as follows: 20% for one year of service; 40% for two years of service; 60% for three years of service; 80% for four years of service and 100% for five years of service. On March 24, 2009, we announced we would cease making matching contributions to employees’ contributions to their 401(k) Plans, effective April 3, 2009. The values of the Company matching contributions in 2008 and 2009 were: $0, $433, $2,714 and $548, with respect to Messrs. Sherwood, Kalin, Hillman and Chessare, respectively, in 2008 and $1,151, $865, $1,558 and $658, with respect to Messrs. Sherwood, Kalin, Hillman and Chessare, respectively, in 2009 (until such matches were terminated on April 3, 2009). |
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(4) | | Roderick M. Sherwood, III received a $15,000 signing bonus at the time he entered into his employment agreement in 2008. Mr. Sherwood earned base salary at an annual rate of $600,000 from September 20, 2008 through December 31, 2010, which amount was reduced in connection with the cost-reduction measures described above. Prior to his employment with us, Mr. Sherwood also received $115,000 from Gores in connection with consulting work rendered to us in July-September 2008 in connection with the Metro reengineering plan and other cost initiatives, which amount is included as part of “all other compensation” and not in “salary.” |
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(5) | | Steven Kalin earned base salary at an annual rate of: (i) $450,000 from July 7, 2008 through October 19, 2008 for services rendered as COO and (ii) $500,000 from October 20, 2008 to December 31, 2010 for services rendered as President, Metro Networks division, which amount was reduced in connection with the cost-reduction measures described above. |
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(6) | | David Hillman earned base salary at an annual rate of: (i) $425,000 for calendar year 2008 and (ii) $450,000 from January 1, 2009 to December 31, 2010, which amount was reduced in connection with the cost-reduction measures described above. He also received a $100,000 retention bonus at the time he entered into the first amendment to his employment agreement effective January 1, 2006, of which $33,333.36 was earned in 2008. |
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(7) | | Mr. Chessare was hired on June 30, 2008 and since such time has earned a base salary at an annual rate of $380,000. The bonus for his services rendered in calendar year 2008 was required under the terms of his employment agreement with us. Mr. Chessare’s salary was not reduced in connection with the cost-reduction measures described above given that he assumed an expanded advertising sales role in October 2008. |
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GRANTS OF PLAN-BASED AWARDS IN 2010 (1)
The following table provides information for awards of stock options (and in the case of Mr. Sherwood, awards of RSUs as well) made to each of our named executive officers during the year ended December 31, 2010.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock | | | All Other | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Awards: | | | Option | | | | | | | |
| | | | | | | | | | | Estimated Future Payouts | | | Estimated Future Payouts | | | Number | | | Awards: | | | Exercise | | | Grant Date | |
| | | | | | | | | | | Under Non-Equity Incentive | | | Under Equity Incentive Plan | | | of | | | Number of | | | or Base | | | Fair Value | |
| | | | | | | | | | | Plan Awards | | | Awards | | | Shares | | | Securities | | | Price of | | | of Stock and | |
| | | | | | | Appro | | | Thres | | | | | | | Max- | | | Thres | | | | | | | Max- | | | of Stock | | | Underlying | | | Option | | | Option | |
| | | Grant | | | val | | | -hold | | | Target | | | imum | | | -hold | | | Target | | | imum | | | or Units | | | Options | | | Awards | | | Awards | |
| Name | | Date | | | Date | | | ($) | | | ($) | | | ($) | | | (#) | | | (#) | | | (#) | | | (#) | | | (#) | | | ($/Sh) | | | ($) | |
| (a) | | (b) | | | (b) (6) | | | (c) | | | (d) (4) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | | (k) | | | (l) (5) | |
| Sherwood (2)(3) | | | 2/12/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 400,000 | | | $ | 6.00 | | | $ | 1,788,787 | |
| | | | 10/4/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 100,000 | | | | | | | | | | | $ | 802,000 | |
| | | | 10/4/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 100,000 | | | $ | 8.02 | | | $ | 591,833 | |
| Kalin (2) | | | 2/12/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 200,000 | | | $ | 6.00 | | | $ | 894,394 | |
| Hillman (2) | | | 2/12/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 150,000 | | | $ | 6.00 | | | $ | 670,795 | |
| Chessare (2) | | | 2/12/10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 40,000 | | | $ | 6.00 | | | $ | 178,879 | |
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(1) | | All awards disclosed in the table above vest over three years. Awards with an exercise price noted in column (k) are stock options. |
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(2) | | On February 12, 2010, we made an annual award of stock options to our key employees, including Messrs. Sherwood, Kalin, Hillman and Chessare. Such option awards were scheduled to vest over a three-year period and awarded pursuant to the terms of the 2010 Plan. |
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(3) | | As described elsewhere in this report, Mr. Sherwood received an option to purchase 100,000 shares of Common Stock and 100,000 RSUs on October 4, 2010 (such equity compensation to vest over a three-year period and awarded pursuant to the terms of the 2010 Plan). |
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(4) | | While no amount has been disclosed above (in accordance with SEC rules), there are target discretionary bonus amounts set forth in certain individual’s employment agreements which are described above in the Compensation Discussion and Analysis under the heading “Discretionary Annual Compensation Bonus.” |
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(5) | | The value of the awards disclosed in column (l) represents the total value ascribed to all stock and option awards granted in 2010. The estimated fair value of stock options is measured on the date of grant using the Black-Scholes option pricing model. For a more detailed discussion of the assumptions used by us in estimating fair value, refer to Note 11 (Equity-Based Compensation) of the Notes to the Consolidated Financial Statements that appear in this report. The vesting terms of the stock awards and option awards are reported below. |
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(6) | | All awards of equity compensation were approved on the same date as the grant date. |
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Vesting
All awards of stock options listed in the “Summary Compensation Table” were granted under the 2010 Plan, the 2005 Plan or the 1999 Plan and vest in equal installments over a three-year period, commencing on the first anniversary of the date of grant. Upon a participant’s termination, all vested stock options remain exercisable as follows, but in no event later than ten years after the grant date: (i) three years in the event of the participant’s retirement; (ii) one year in the event of the participant’s death (in which case the participant’s estate or legal representative may exercise such stock option) or (iii) three months for any other termination (other than for cause) unless negotiated otherwise in an executive’s employment agreement. Under the terms of the 2005 Plan, a participant forfeits any unvested stock options on the date of his termination.
When terms such as participant, termination, retirement, cause and change in control are used for purposes of referring to equity compensation, such have the meaning set forth in the 2005 Plan, except for such grants of equity compensation made in 2010, which have the meaning set forth in the 2010 Plan. A “participant” means a recipient of awards under an equity compensation plan (for purposes of this report, the employee).
Change in Control Provisions
With respect to all equity compensation awards made under the 2005 Plan (or those issued in March 2008 and thereafter under the 1999 Plan incorporating 2005 Plan terms relating to a change in control), if an employee is terminated without cause during the 24-month period following a change in control, all unvested stock options, restricted stock and RSUs (as described above) shall immediately vest provided an employee is still a participant on that date. As described in the Compensation Discussion and Analysis above, this provision was changed in February 2010 for the 2010 Plan but this does not impact any of the awards disclosed in the tables above.
Termination without Cause
Certain equity awards may be subject to modified vesting provisions based on the terms of employment agreements negotiated by and between us and certain NEOs, specifically Messrs. Sherwood and Kalin, which terms are described in more detail under the summaries of their respective employment agreements which appear below.
Dividends; Transfer Restrictions; Voting Rights
RSUs and restricted stock accrue dividend equivalents when dividends are paid, if any, on the common stock beginning on the date of grant. Such dividend equivalents are credited to a book entry account, and are deemed to be reinvested in common shares on the date the cash dividend is paid. Dividend equivalents are payable, in shares of common stock, only upon the vesting of the related restricted shares. Until the stock vests, shares of restricted stock and RSUs may not be sold, pledged, or otherwise transferred; however, once a grant of such is made, the holder is entitled to receive dividends thereon (as described above). In the case of restricted stock only (i.e., not RSUs), a holder is entitled to vote the shares once he has been awarded such shares. A holder may not vote shares associated with RSUs until the shares underlying such award have been distributed (which occurs upon vesting, unless the RSUs have been deferred as described below).
Right to Defer; Mandatory Deferral in 2005
A participant may elect to defer receipt of his RSUs in which case shares and any dividend equivalents thereon are not distributed until the date of deferment. A decision to defer must be made a minimum of twelve (12) months prior to the initial vesting date and a participant may choose to defer his award until the last vesting date applicable to such award or his date of termination. In 2005, the deferral of equity compensation awards until a participant’s termination was mandatory, however, none of the directors who shares were deferred remain on the Board. Only grants made to Mr. Pattiz on May 19, 2005 and in December 2005 were deferred until his termination. With the exception of deferred awards to Mr. Pattiz, all previously-deferred awards have been distributed as such directors have resigned from the Company. Mr. Pattiz’s shares remain deferred because he provides consulting services to us and according has not been “terminated” as such term is defined in the 2005 Plan.
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OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END
The following table sets forth, on an award-by-award basis, the number of shares covered by exercisable and unexercisable stock options and unvested restricted stock and RSUs outstanding to each of our NEOs as of December 31, 2010. The following share numbers and prices reflect a 200 for 1 reverse stock split that occurred on August 3, 2009.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Stock Awards(2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive | | | Incentive | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Plan | | | Plan | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Awards: | | | Awards: | |
| | | Option Awards(1) | | | | | | | | | | | Number | | | Payout | |
| | | | | | | | | | | Equity | | | | | | | | | | | Number | | | Market | | | of | | | Value of | |
| | | | | | | | | | | Incentive | | | | | | | | | | | of | | | Value of | | | Unearned | | | Unearned | |
| | | | | | | Number of | | | Plan Awards: | | | | | | | | | | | Shares | | | Shares or | | | Shares, | | | Shares, | |
| | | Number of | | | Securities | | | Number of | | | | | | | | | | | or Units | | | Units of | | | Units or | | | Units or | |
| | | Securities | | | Underlying | | | Securities | | | | | | | | | | | of Stock | | | Stock | | | Other | | | Other | |
| | | Underlying | | | Unexercised | | | Underlying | | | | | | | | | | | That | | | That | | | Rights | | | Rights | |
| | | Unexercised | | | Options | | | Unexercised | | | Option | | | | | | | Have | | | Have | | | That Have | | | That Have | |
| | | Options | | | (#) | | | Unearned | | | Exercise | | | Option | | | Not | | | Not | | | Not | | | Not | |
| | | (#) | | | Un- | | | Options | | | Price | | | Expiration | | | Vested | | | Vested | | | Vested | | | Vested | |
| Name | | Exercisable | | | exercisable | | | (#) | | | ($) | | | Date | | | (#) | | | ($) | | | (#) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h)(3) | | | (i) | | | (j) | |
| |
NEOs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sherwood | | | 2,000 | | | | 1,000 | | | | — | | | $ | 98.00 | | | | 09/17/18 | | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | 250 | | | | 500 | | | | — | | | | 36.00 | | | | 10/20/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 400,000 | | | | — | | | | 6.00 | | | | 2/12/20 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 100,000 | | | | — | | | | 8.02 | | | | 10/4/20 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | 100,000 | | | $ | 913,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kalin | | | 1416 | | | | 709 | | | | — | | | $ | 250.00 | | | | 7/7/18 | | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | 500 | | | | 250 | | | | — | | | | 36.00 | | | | 10/20/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 200,000 | | | | — | | | | 6.00 | | | | 2/12/20 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Hillman | | | 45 | | | | — | | | | — | | | $ | 4,292.00 | | | | 09/20/11 | | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | 60 | | | | — | | | | — | | | | 7,038.00 | | | | 09/25/12 | | | | — | | | | — | | | | — | | | | — | |
| | | | 60 | | | | — | | | | — | | | | 6,038.00 | | | | 09/30/13 | | | | — | | | | — | | | | — | | | | — | |
| | | | 150 | | | | — | | | | — | | | | 4,100.00 | | | | 10/05/14 | | | | — | | | | — | | | | — | | | | — | |
| | | | 125 | | | | — | | | | — | | | | 4,194.00 | | | | 03/14/15 | | | | — | | | | — | | | | — | | | | — | |
| | | | 169 | | | | — | | | | — | | | | 2,854.00 | | | | 02/10/16 | | | | — | | | | — | | | | — | | | | — | |
| | | | 200 | | | | — | | | | — | | | | 1,234.00 | | | | 03/13/17 | | | | — | | | | — | | | | — | | | | — | |
| | | | 875 | | | | — | | | | — | | | | 398.00 | | | | 03/14/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 150,000 | | | | — | | | | 6.00 | | | | 2/12/20 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Chessare | | | 333 | | | | 167 | | | | — | | | | 248.00 | | | | 6/30/18 | | | | — | | | | — | | | | — | | | | — | |
| | | | — | | | | 40,000 | | | | — | | | | 6.00 | | | | 2/12/20 | | | | — | | | | — | | | | — | | | | — | |
| | |
(1) | | The stock options listed in the table above vest as follows: |
| • | | All stock options listed in the above table granted prior to January 1, 2005 (i.e., with an expiration date on or before December 31, 2014) were granted pursuant to the terms of the 1999 Plan and are subject to five-year vesting terms in equal installments, commencing on the first anniversary of the date of grant.
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|
| • | | All stock options listed in the table above with an expiration date on or after May 19, 2015 but granted prior to March 14, 2008 were granted pursuant to the terms of the 2005 Plan. Such options vest in equal installments over four years commencing on the first anniversary of the date of grant except for stock options listed in the table above with an expiration date on or after March 13, 2017, all of which have a three-year (not four-year) vesting term. |
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| • | | All stock options listed in the table above with an expiration date on or after March 14, 2018 but granted prior to February 12, 2010 were granted pursuant to the terms of the 1999 Plan (as described elsewhere in this report) and vest in equal installments over three years commencing on the first anniversary of the date of grant. |
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| • | | All stock options listed in the table above with an expiration date on or after February 12, 2010 were granted pursuant to the terms of the 2010 Plan (as described elsewhere in this report) and vest in equal installments over three years commencing on the first anniversary of the date of grant. |
| | |
(2) | | All stock awards listed in the above table were granted pursuant to the terms of the 2005 Plan and are subject to four-year vesting terms commencing on the first anniversary of the date of grant, except for: (i) stock awards issued in 2007 and later, all of which have a three-year vesting term; (ii) Mr. Hillman’s award of 75 shares of restricted stock awarded in July 2007 which had a two-year vesting term (such award was adjusted to reflect the 200 for 1 reverse stock split that occurred on August 3, 2009) and (iii) Mr. Sherwood’s award of 100,000 shares of RSUs awarded in October 2010 which has a three-year vesting term. As discussed elsewhere in this report, restricted stock granted on February 10, 2006 had an initial vesting date of January 10, 2007 (11 months after the grant date), with subsequent vesting dates tied to the anniversary of the vesting date. The numbers disclosed in column (g) above include all dividend equivalents that have accrued on such shares. |
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(3) | | The value of the awards disclosed in column (h) above is based on a per share closing stock price on NASDAQ for the common stock of $9.13 on December 31, 2010 (the last business day of 2010). |
OPTIONS EXERCISED AND STOCK VESTED
During the year ended December 31, 2010, none of our named executive officers exercised any stock options. Shares of restricted stock and RSUs previously awarded to them were acquired as follows:
| | | | | | | | | | | | | | | | | |
| | | Options Awards | | | Stock Awards | |
| | | | | | | Value Realized on | | | Number of Shares | | | Value Realized on | |
| | | Number of Shares | | | Exercise | | | Acquired on Vesting | | | Vesting (1) | |
| Name | | (#) | | | ($) | | | (#) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | |
| | | | | | | | | | | | | | | | | |
NEOS: | | | | | | | | | | | | | | | | |
| Sherwood | | | — | | | | — | | | | — | | | | — | |
| Kalin | | | — | | | | — | | | | — | | | | — | |
| Hillman | | | — | | | | — | | | | 54 | | | $ | 364 | |
| Chessare | | | — | | | | — | | | | — | | | | — | |
| | |
(1) | | Value realized on vesting represents the number of shares acquired on vesting multiplied by the market value of the shares of common stock on the vesting date. |
PENSION BENEFITS
None of our named executive officers are covered by a pension plan or similar benefit plan that provides for payment or other benefits at, following, or in connection with retirement.
NONQUALIFIED DEFERRED COMPENSATION
None of our named executive officers are covered by a deferred contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified. Accordingly, this table which would otherwise provide nonqualified deferred contribution information for our named executive officers during the year ended December 31, 2010 has been omitted.
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Employment Agreements
General
We have written employment agreements with each of the NEOs, the material terms of which are set forth below. These summaries do not purport to be exhaustive; in particular, financial terms (e.g.,salary, bonus) for years prior to 2010 are not included in the summaries below. You should refer to the actual agreements for a more detailed description of the terms. As indicated below, all of the employment agreements contain non-competition and non-solicitation provisions which extend after the termination of such agreements for the period indicated below.
More detailed terms and provisions of equity compensation held by the following NEOs can be located in the table entitled “Outstanding Equity Awards At 2010 Fiscal Year-End” which appears above.
Defined Terms: Cause, Good Reason, Change in Control
When terms such as “cause,” “good reason” or “cause event” (for Messrs. Sherwood and Kalin only), or “change in control” are used, for a complete description of such terms, please refer to such NEO’s employment agreement. Generally speaking, with limited exceptions, NEOs are terminable for cause (referred to as a cause event in the case of Messrs. Sherwood and Kalin) if they have: (1) failed, refused or habitually has neglected to perform their duties, breached a statutory or common law duty or otherwise materially breached their employment agreement or committed a material violation of our internal policies or procedures; (2) been convicted of a felony or a crime involving moral turpitude or engaged in conduct injurious to our reputation; (3) become unable by reason of physical disability or other incapacity to perform their duties for 90 continuous days orExchange Commission within 120 non-continuous days in a 12-month period (or 180 non-continuous days in a 12-month period with respect to Mr. Sherwood); (4) breached a non-solicitation, non-compete or confidentiality provision; (5) committed an act of fraud, material misrepresentation, dishonesty related to his employment, or stolen or embezzled assets of the Company; or (6) engaged in a conflict of interest or self-dealing. Each of Messrs. Sherwood’s and Kalin’s employment agreement has a “good reason” termination, which is described below. When reference is made to a “change in control,” the 2005 Plan meaning is used, except in the case of Messrs. Sherwood and Kalin, where clause (i) of the 2005 Plan “change in control” definition instead means: “the acquisition by any person of 50% or more of the outstanding common stock, other than an acquisition by the Company or any Person that controls, is controlled by or is under common control within the Company or other than a ‘non-qualifying business combination” (as defined in the 2005 Plan).
Mr. Sherwood, Chief Financial Officer (effective September 17, 2008) and President (effective October 20, 2008)
Terminable by either party upon 30 days’ written notice.
Annual salary of $600,000, with potential annual increases of up to 5% in the sole and absolute discretion of the Committee. This salary does not reflect the 15% salary reduction described above which became effective on April 6, 2009 and continues to date.
Discretionary annual bonus in the sole and absolute discretion of the Board or the Committee or their designee.
Discretionary annual equity awards.
Agreement terminates automatically in the event of death; terminable by us immediately upon notice of a cause event or upon ten days’ prior written notice in the event of disability; terminable by Mr. Sherwood upon prior written notice (given within 30 days after the event giving rise to the good reason if we fail to cure within 30 days after notice) to us for good reason.
For purposes of Mr. Sherwood’s employment agreement, “good reason” is: (1) a material diminution in his authority or responsibilities; or (2) a material diminution in his base salary.
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If terminated by us for any reason other than for a cause event, or by Mr. Sherwood for good reason, Mr. Sherwood will receive (in addition to Sherwood Accrued Amounts (see next bullet point) payment of his premiums by the Company for continued coverage under COBRA for twelve (12) months after his termination, or such earlier time until he ceases to be eligible for COBRA or becomes eligible for coverage under the health insurance plan of a subsequent employer.
If terminated for any reason, Mr. Sherwood is entitled to the following: (i) his base salary prorated to the date of termination; (ii) reimbursement for any unreimbursed expenses properly incurred through date of termination; and (iii) any entitlement under employee benefit plans and programs (collectively, “Sherwood Accrued Amounts”). If Mr. Sherwood is terminated for a cause event, all equity awards will be forfeited except for exercised stock options.
If terminated upon or within 24 months following a Change in Control, all of Mr. Sherwood’s outstanding equity awards will become fully vested and immediately exercisable and shall remain exercisable in accordance with the applicable equity plan and award agreement.
| • | | Non-compete: If Mr. Sherwood is terminated, then for the Restricted Period, Mr. Sherwood may not engage in any Restricted Activity, compete with us or our affiliates or solicit our employees or customers of ours or our affiliates. For Mr. Sherwood, the “Restricted Period” is a period equal to 90 days after his termination for any reason.
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Generally speaking, in the case of Messrs. Sherwood, Kalin, Hillman and Chessare, a “Restricted Activity” consists of: (i) providing services to a traffic, news, sports, weather or other information report gathering or broadcast service or to a radio network or syndicator, or any direct or indirect competitor of ours or our affiliates; (ii) soliciting client advertisers of ours or our affiliates and dealing with accounts with respect thereto; (iii) soliciting such client advertisers to enter into any contract or arrangement with any person or organization to provide traffic, news, weather, sports or other information report gathering or broadcast services or national or regional radio network or syndicated programming; or (iv) forming or providing operational assistance to any business or a division of any business engaged in the foregoing activities.
Mr. Kalin, COO (effective July 7, 2008) and President, Metro Networks division (effective October 20, 2008)
Term expires on July 7, 2011. The employment agreement will remain in effect following the expirationend of the term and will thereafter be terminable by either party upon 30 days’ written notice.
registrant's most recently completed fiscal year.Annual salary of $500,000 (not including the 15% salary reduction).
Discretionary annual bonus of up to $450,000, in the sole and absolute discretion of the Board or the Committee or their designee.
Discretionary annual equity awards.
Agreement terminates automatically in the event of death; terminable by us immediately upon notice of a cause event or upon ten days’ prior written notice in the event of disability; terminable by Mr. Kalin upon prior written notice (given within 30 days after the event giving rise to the good reason) to us for good reason.
For purposes of Mr. Kalin’s employment agreement, “good reason” is: (1) a material diminution in his authority or responsibilities; or (2) a material diminution in his base salary or title.
If terminated by us in connection with a change in control prior to the expiration of the term, Mr. Kalin will receive (in addition to Kalin Accrued Amounts (see next bullet point)) his base salary for the duration of the term, payable in equal periodic installments.
If terminated for any reason (with the exception of clause (ii) in the event Mr. Kalin is terminated for a cause event), Mr. Kalin is entitled to the following: (i) his base salary prorated to the date of termination; (ii) any annual discretionary bonus earned but upaid for any completed calendar year immediately preceding the date of termination; (iii) reimbursement for any unreimbursed expenses properly incurred through date of termination; and (iv) any entitlement under employee benefit plans and programs (collectively, “Kalin Accrued Amounts”). If Mr. Kalin is terminated for a cause event, all equity awards will be forfeited except for exercised stock options.
If terminated by us for any reason other than for a cause event prior to the expiration of the term or by Mr. Kalin for good reason, Mr. Kalin will receive one times his base salary.
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If terminated upon or within 24 months following a Change in Control, all of Mr. Kalin’s outstanding equity awards will become fully vested and immediately exercisable and shall remain exercisable in accordance with the applicable equity plan and award agreement.
| • | | Non-compete: If Mr. Kalin is terminated, then for the Restricted Period, Mr. Kalin may not engage in any Restricted Activity, compete with us or our affiliates or solicit our employees or customers of ours or our affiliates. For Mr. Kalin, the “Restricted Period” is a period equal to: (i) the period for which he receives severance after his date of termination if he is terminated for a reason other than for a cause event or he terminates his employment for good reason, but in any event not less than 90 days after his termination; or (ii) a period equal to the remainder of the term of his employment agreement, but in any event not less than 90 days after his termination, if Mr. Kalin is terminated for a cause event (i.e.,cause), by Mr. Kalin without good reason or by death or disability.
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Mr. Hillman, Chief Administrative Officer; EVP, Business Affairs and General Counsel
Terminable by either party upon 90 days’ written notice.
Annual salary of $450,000. This salary does not reflect the 15% salary reduction described above which became effective on April 6, 2009 and continues to date.
Discretionary annual bonus in the sole and absolute discretion of the Board or the Committee or their designee.
Discretionary annual equity awards.
Terminable automatically upon Mr. Hillman’s death or loss of legal capacity.
In the event of termination without cause, Mr. Hillman will receive any earned but unpaid discretionary bonus.
If Mr. Hillman is terminated for cause or upon death or loss of legal capacity, Mr. Hillman shall be entitled to his base salary through the date of termination and any entitlement under our benefit plans and programs.
| • | | Non-compete: If Mr. Hillman is terminated, he may not engage in any Restricted Activity, compete with us or our affiliates or solicit our employees or customers of ours or our affiliates for a period of one year following termination of employment.
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Mr. Chessare, SVP, Sales, Network
Terminable by either party upon 60 days’ written notice.
Annual salary of $380,000 (did not participate in the 15% salary reduction given change in role).
Discretionary annual bonus in the sole and absolute discretion of the Board or the Committee or their designee.
Discretionary annual equity awards.
Terminable automatically upon Mr. Chessare’s death or loss of legal capacity.
In the event of termination without cause, Mr. Chessare will receive any earned but unpaid discretionary bonus.
If Mr. Chessare is terminated for any reason, Mr. Chessare shall be entitled to his base salary through the date of termination and any entitlement under our benefit plans and programs.
| • | | Non-compete: If Mr. Chessare is terminated, he may not engage in any Restricted Activity, compete with us or our affiliates or solicit our employees or customers of ours or our affiliates for a period of at 180 days after his termination for any reason.
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Potential Payments upon Termination or Change in Control
We have employment agreements with Messrs. Sherwood and Kalin that require us to make payments upon a change in control as described below. We have included a table setting forth the amounts of various payments for convenience. The table should be reviewed with the narrative that follows for a more complete description of such amounts.
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Potential Payments upon Termination or Change in Control Pursuant to Employment Agreements
(assuming a termination occurred on December 31, 2010)
| | | | | | |
Name | | Termination Scenario | | Amount Payable (A) | | Equity Compensation (1) |
|
Sherwood | | For Cause; Not Good Reason;
Death/Disability
Without Cause; For Good Reason
Change in Control (2) | | Accrued (but unpaid)
salary/benefits (3)
$16,322 (4)
$16,322 (4) | |
—
$0
$2,276,000 (all outstanding
equity awards vest upon
termination) |
| | | | | | |
Kalin | | For Cause; Not Good Reason;
Death/Disability
Without Cause; For Good Reason
Change in Control and termination
Without Cause or For Good Reason (2) | | Accrued (but unpaid)
salary/benefits (3)
$500,000
$500,000 | |
—
$0
$626,000 (all outstanding
equity awards vest upon
termination) |
| | | | | | |
| | Change in Control and termination For
Cause, Not Good Reason, Death or
Disability (2) | | $257,534 | | $626,000 (all outstanding
equity awards vest upon
termination) |
| | | | | | |
Hillman | | For Cause; Not Good Reason;
Death/Disability
Without Cause | | Accrued (but unpaid)
salary/benefits
Accrued (but unpaid)
salary/benefits | |
—
— |
| | | | | | |
| | Change in Control (2) | | — | | $469,500 (all outstanding
equity awards vest upon
termination) |
| | | | | | |
Chessare | | For Cause; Not Good Reason;
Death/Disability
Without Cause | | Accrued (but unpaid)
salary/benefits
Accrued (but unpaid)
salary/benefits | |
—
— |
| | | | | | |
| | Change in Control (2) | | — | | $0 (outstanding equity awards
issued in 2008 vest upon
termination) |
| | |
(A) | | All amounts are based on salary rates set forth in the employment agreements and do not give effect to salary reductions enacted in 2009 that continue to date as described in this report. |
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(1) | | The values ascribed to equity compensation awards and listed in the table above as well as in the paragraphs below relating to payments to NEOs upon different termination events are the actual value to the executive if such had been paid on the last business day of 2010, which is different than the theoretical value at grant for equity awards. Stock options only have value to an executive if the stock price of our common stock increases after the date the stock options are granted, and such value is measured by the increase in the stock price (which is the value shown in the table above). This is different from the values listed in the compensation tables above (i.e., Summary Compensation Table, Outstanding Equity Awards at 2010 Fiscal Year-End, Options Exercised and Stock Vested) which represent the grant date fair value, computed in accordance with FASB ASC 718.
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| | |
(2) | | As described elsewhere in this report, pursuant to the terms of the 2005 Plan, the equity compensation of any employee (including NEOs) terminated within 24 months of a change in control will vest immediately upon his/her termination and in the case of Messrs. Sherwood, Kalin and Hillman, such is also true for equity compensation awarded under the 2010 Plan. In the case of Messrs. Sherwood, Kalin and Hillman, amounts (other than those listed for equity compensation as described above) are payable only upon if a NEO is terminated in connection with a change in control. Messrs. Sherwood and Hillman own RSUs and restricted stock, respectively, which have value as reflected above based on a per share closing stock price on NASDAQ of $9.13 on December 31, 2010 (the last business day of 2010). |
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(3) | | Such includes in the case of Mr. Sherwood and Mr. Kalin only, any annual discretionary bonus earned for any completed calendar year of employment but not yet paid at the time of termination except with respect to a termination due to a cause event. |
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(4) | | Includes the cost associated with 12 months of COBRA coverage. |
Payments upon Change in Control
Change in Control — Mr. Sherwood
If, in connection with a change in control (as defined in the 2005 Plan), Mr. Sherwood had been terminated without Cause or for Good Reason on December 31, 2010, we would have paid $16,322 to cover 12 months of COBRA. In addition, if, in connection with a change in control (as defined in the 2005 Plan), Mr. Sherwood had been terminated for any reason on December 31, 2010, any unvested portion of the equity compensation awarded to Mr. Sherwood prior thereto (i.e., stock options to purchase 501,250 shares in the aggregate at varying exercise prices and 100,000 RSUs) would have vested immediately upon the effective date of termination.
Change in Control — Mr. Kalin
If, in connection with a change in control (as defined in the 2005 Plan), Mr. Kalin had been terminated on December 31, 2010, Mr. Kalin would have received $257,534 (his base salary for the remainder of the stated term of his employment agreement), or $500,000 (his base salary for one year) if such termination would have been without Cause or for Good Reason, in each case payable in accordance with our normal payroll practices, and any unvested portion of the equity compensation awarded to Mr. Kalin prior thereto (i.e., stock options to purchase 200,959 shares in the aggregate at varying exercise prices) would have vested immediately upon the effective date of termination.
Change in Control — All NEOs
If a change in control occurred and any of Messrs. Sherwood, Kalin, Hillman and Chessare was terminated in connection therewith within a twenty-four month period, each individual’s outstanding unvested options, restricted stock and RSUs granted under the 2005 Plan (or the 1999 Plan if such grants were made in or after March 2008 in accordance with certain terms of the 2005 Plan) would immediately vest. This is also the case for Messrs. Sherwood, Kalin and Hillman with respect to their outstanding unvested options, restricted stock and/or RSUs (only Mr. Sherwood has RSUs and only Mr. Hillman has restricted stock) granted under the 2010 Plan. Assuming such change in control and termination occurred on December 31, 2010 (the last business day of the year), the value of the equity compensation payable to each of Messrs. Sherwood, Kalin, Hillman and Chessare would be: $2,276,000, $626,000, $469,500 and $0, respectively. All such values are based on a per share closing stock price on NASDAQ for the common stock of $9.13 on December 31, 2010 (the last business day of 2010).
Payments upon Disability or Death
As part of our employment agreements with our NEOs, the following terms are in effect in the event of such officer’s disability or death. In the event of death or disability, the NEOs would be entitled to the following payments:
| • | | Messrs. Sherwood, Kalin, Hillman and Chessare. In the event of their death or disability, each of Messrs. Sherwood, Kalin, Hillman and Chessare (or their estates in the case of death) are entitled to any accrued and unpaid salary and any then entitlement under employee benefit plans and stock options, subject to reduction for any disability payments made under our policies.
|
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Payments upon Termination Without Cause or For Good Reason
If any NEO were terminated without cause or terminated for good reason on December 31, 2010, as applicable on December 31, 2010, the following amounts would be payable by us:
| • | | Mr. Sherwood: $16,322 associated with 12 months of COBRA coverage. Mr. Sherwood would be entitled to receive Company payment of his premiums for continued coverage under COBRA for 12 months after his termination. Assuming a termination without cause occurred on December 31, 2010 (the last business day of the year), the value of the equity compensation payable to Mr. Sherwood would be $2,276,000.
|
| • | | Mr. Kalin: $500,000 (his base salary for one year) payable in accordance with our normal payroll practices. Assuming a termination without cause occurred on December 31, 2010 (the last business day of the year), the value of the equity compensation payable to Mr. Kalin would be $626,000.
|
| • | | Mr. Hillman: Assuming a termination without cause occurred on December 31, 2010 (the last business day of the year), the value of the equity compensation payable to Mr. Hillman would be $469,500.
|
DIRECTOR COMPENSATION
The following table sets forth the compensation for our directors who served during the year ended December 31, 2010.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Change in | | | | | | | |
| | | | | | | | | | | | | | | | | | | Pension | | | | | | | |
| | | Fees | | | | | | | | | | | Non-Equity | | | Value and | | | | | | | |
| | | Earned or | | | | | | | | | | | Incentive | | | Nonqualified | | | | | | | |
| | | Paid in | | | Stock | | | Option | | | Plan | | | Deferred | | | All Other | | | | |
| | | Cash | | | Awards | | | Awards | | | Compensation | | | Compensation | | | Compensation | | | Total | |
| Name | | ($) | | | ($) | | | ($) | | | ($) | | | Earnings | | | ($) | | | ($) | |
| (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | |
Current directors: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bestick | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Bronstein (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Gimbel (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Honour (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Ming | | $ | 79,000 | | | $ | 35,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 114,000 | |
| Nold (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Nunez | | $ | 59,000 | | | $ | 35,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 94,000 | |
| Page (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Stone (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Wuensch | | $ | 57,000 | | | $ | 35,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 92,000 | |
Former director: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pattiz (2) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | |
(1) | | As reflected above, as employees of Gores Radio Holdings, LLC (or its affiliate Glendon Partners), Messrs. Bronstein, Gimbel, Honour, Nold, Page and Stone did not in 2010 and presently do not receive cash or equity compensation for their services as directors. |
|
(2) | | When he was an employee of the Company, Mr. Pattiz did not receive compensation in addition to that specified in his employment agreement for his services as a director. Mr. Pattiz resigned from the Board on August 31, 2010. |
The table below sets forth information regarding the amount of outstanding stock options granted to the listed directors and held as of December 31, 2010. With the exception of Mr. Pattiz, no director holds vested, unexercised stock options.
| | | | | | | | | |
| Name | | Stock Awards | | | Stock Options | |
| Pattiz | | | — | | | | 113,425 | (1) |
| | |
(1) | | Included in such amount is a stock option to purchase 113,000 shares of our common stock at an exercise price of $6.00/share issued on February 12, 2010 that vests in equal installments over three years and was granted under the 2010 Plan. Mr. Pattiz also holds a stock option to purchase 425 shares of our common stock at an exercise price of $326.00/share issued on January 8, 2008 that vests in equal installments over three years and was granted under the 2005 Plan. The share number and exercise price of the 2008 stock option give effect to a 200 for 1 reverse stock split that occurred on August 3, 2009. |
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General.The Committee reviews and evaluates compensation for our non-employee directors on an annual basis and the Board prior to making a recommendation to the Board. The Board then considers the recommendation of the Committee and generally approves such recommendation at the Board meeting held directly after our annual meeting of stockholders.
Fees. In 2010, we moved to a retainer fee structure to compensate our directors. Effective January 1, 2010, directors were compensated: (x) $35,000 a year for their services as directors in addition to (y) $1,500 per in-person Board or committee meeting attended and (z) $1,000 per telephonic Board or committee meeting attended. Audit Committee members received a $10,000 annual retainer and the Chair of the Audit Committee received an additional $15,000 for services rendered. Compensation Committee members received a $5,000 annual retainer and the Chair of the Compensation Committee received an additional $10,000 for services rendered.
Equity Compensation:
Annual Grant. Effective January 1, 2010, for each year of service, directors who are not officers of the Company receive annual awards of RSUs valued in an amount of $35,000, which we believe will customarily be awarded on the date of our annual meeting of stockholders. In 2010, each of the independent directors (Messrs, Ming, Nunez and Wuensch) received 5,000 RSUs (based on a closing share price of $7.00/share on July 30, 2010, the date of our 2010 annual meeting of stockholders when such RSUs were awarded). The terms of the awards are governed by the terms of the 2010 Plan and vest as described below.
Dividends; Vesting. Recipients of RSUs are entitled to receive dividend equivalents on the RSUs (subject to vesting) when and if we pay a cash dividend on our common stock. RSUs awarded to outside directors will vest over a two-year period in equal one-half increments on the first and second anniversary of the date of the grant, subject to the director’s continued service with us. Directors’ RSUs will vest automatically, in full, upon a change in control or upon their retirement, as defined in the 2010 Plan. As described above, each RSU counts as three shares under the terms of the 2010 Plan.
Waivers of Compensation
During the time in 2010 when he served as a director, Mr. Pattiz did not receive any additional remuneration for serving as a director. Directors who are/were employed by Gores and/or its affiliates (e.g., Glendon Partners), more specifically Messrs. Bronstein, Gimbel, Honour, Nold, Page and Stone, similarly did not receive cash compensation.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of four directors, two are independent outside directors, Messrs. Ming and Nunez and two are Gores’ designees, Messrs. Nold and Stone. In 2010, until his resignation on August 31, 2010, our founder and Chairman, Mr. Pattiz, also served on the Compensation Committee. With the exception of Mr. Pattiz, who until his resignation served as Chairman of the Board, and of Mr. Stone, who was elected Chairman of the Board once Mr. Pattiz resigned, none of the members of the Committee served as an officer or employee of the Company or any of its subsidiaries during the fiscal year ended December 31, 2010. There were no material transactions between the Company and any of the members of the Committee during the fiscal year ended December 31, 2010, except that we and Mr. Pattiz negotiated and then entered into on August 27, 2010, a consulting agreement for the services of Mr. Pattiz. None of our executive officers serves as a member of the Board or the Committee, or committee performing an equivalent function, of any other entity that has one or more of its executive officers serving as a member of the Board or Committee.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
Information regarding securities available for issuance under our equity compensation plansThe information that is set forth inresponsive to the information required with respect to this Item 5 (Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities) of this report under the heading “Equity Compensation Plan Information.”
Beneficial Ownership of 5% Holders
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under Rule 13d-3, certain shares may12 shall be deemed to be beneficially ownedprovided by more than one person (such as where persons share voting power or investment power). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercisemeans of an option)amendment to this Annual Report on Form 10-K filed with the Securities and Exchange Commission within 60120 days after the end of the date as of which the information is provided. In computing the percentage of ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date. The percentage of common stock beneficially owned by a person assumes that the person has exercised all options the person holds that are exercisable within 60 days (through May 30, 2011), and that no other persons exercised any of their options. Except as otherwise indicated, the business address for each of the following persons is 1166 Avenue of the Americas, 10th Floor, New York, New York 10036. Except as otherwise indicated in the footnotes to the table or in cases where community property laws apply, we believe that each person identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the person. Percentage of beneficial ownership is based on 22,554,991 shares of common stock outstanding as of as of March 31, 2011 and reflects a 200 for 1 reverse stock split that occurred on August 3, 2009.registrant's most recently completed fiscal year.
| | | | | | | | | |
| | | Aggregate Number of Shares | |
| | | Beneficially Owned (1) | |
| 5% Holders | | Common Stock | |
| Name of Beneficial Owner | | Number | | | Percent | |
| Gores Radio Holdings, LLC (2) | | | 17,212,977 | | | | 76.4 | % |
| | |
(1) | | Tabular information listed above is based on information contained in the most recent Schedule 13D/13G filings and other filings made by such person with the SEC as well as other information made available to us. |
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(2) | | Gores Radio Holdings, LLC is managed by The Gores Group, LLC. Gores Capital Partners II, L.P. and Gores Co-Invest Partnership II, L.P. (collectively, the “Gores Funds”) are members of Gores Radio Holdings, LLC. Each of the members of Gores Radio Holdings, LLC has the right to receive dividends from, or proceeds from, the sale of investments by Gores Radio Holdings, LLC, including the shares of common stock, in accordance with their membership interests in Gores Radio Holdings, LLC. Gores Capital Advisors II, LLC (“Gores Advisors”) is the general partner of the Gores Funds. Alec E. Gores is the manager of The Gores Group, LLC. Each of the members of Gores Advisors (including The Gores Group, LLC and its members) has the right to receive dividends from, or proceeds from, the sale of investments by the Gores Entities, including the shares of common stock, in accordance with their membership interests in Gores Advisors. Under applicable law, certain of these individuals and their respective spouses may be deemed to be beneficial owners having indirect ownership of the securities owned of record by Gores Radio Holdings, LLC by virtue of such status. Each of the foregoing entities and the partners, managers and members thereof disclaim ownership of all shares reported herein in excess of their pecuniary interests, if any. |
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| | | | | | | | | |
| | | Aggregate Number of Shares | |
| | | Beneficially Owned (1) | |
| Named Executive Officers and Directors | | Common Stock | |
| Name of Beneficial Owner | | Number | | | Percent (1) | |
NAMED EXECUTIVE OFFICERS: | | | | | | | | |
| Roderick Sherwood (2)(3) | | | 142,083 | | | | * | |
| Steven Kalin (3) | | | 69,834 | | | | * | |
| David Hillman (3) | | | 51,636 | | | | * | |
| Steve Chessare (3) | | | 13,666 | | | | * | |
| | | | | | | | | |
DIRECTORS AND NOMINEES: | | | | | | | | |
| Gregory Bestick | | | — | | | | * | |
| Andrew P. Bronstein (2) | | | — | | | | * | |
| Jonathan I. Gimbel (2) | | | — | | | | * | |
| Scott Honour (2) | | | — | | | | * | |
| H. Melvin Ming (4) | | | 1,004 | | | | * | |
| Michael F. Nold (2) | | | — | | | | * | |
| Emanuel Nunez (4) | | | 1,367 | | | | * | |
| Joseph P. Page (2) | | | — | | | | * | |
| Mark Stone (2) | | | — | | | | * | |
| Ronald W. Wuensch | | | — | | | | * | |
| All Current Directors and Executive Officers as a Group (16 persons) | | | 303,062 | | | | 1.4 | % |
| | |
* | | Represents less than 1% of our outstanding shares of common stock. |
|
(1) | | The numbers presented above do not include unvested and/or deferred RSUs which have no voting rights until shares are distributed in accordance with their terms. All dividend equivalents on vested RSUs and shares of restricted stock (both vested and unvested) are included in the numbers reported above. As described elsewhere in this report, a holder of restricted stock only (i.e., not RSUs) is entitled to vote the restricted shares once it has been awarded such shares. Accordingly, all restricted shares that have been awarded, whether or not vested, are reported in this table of beneficial ownership, even though a holder will not receive such shares until vesting. This is not the case with RSUs or stock options that are not deemed beneficially owned until 60 days prior to vesting. |
|
(2) | | Each of Messrs. Bronstein, Gimbel, Honour, Nold, Page, Sherwood and Stone disclaims beneficial ownership of securities of the Company owned by Gores Radio Holdings, LLC, except to the extent of any pecuniary interest therein. |
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(3) | | In the case of Mr. Sherwood includes 6,250 shares of common stock and 135,833 vested and unexercised options granted under the 1999 Plan and 2010 Plan. In the case of Mr. Kalin includes 1,250 shares of common stock and 68,584 vested and unexercised options granted under the 1999 Plan and 2010 Plan. In the case of Mr. Hillman, includes 242 shares of common stock, 51,392 vested and unexercised options granted under the 1999 Plan, 2005 Plan and 2010 Plan and 2 shares of common stock held in the Company 401(k) account. In the case of Mr. Chessare includes 13,666 vested and unexercised options granted under the 1999 Plan and 2010 Plan. |
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(4) | | Represents vested RSUs granted under the 2005 Plan. Does not include deferred RSUs which have no voting rights until shares are distributed in accordance with their terms. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
Except for the transactions with Gores, Glendon Partners and Norm Pattiz (who was a related person in 2010) described below, we are not aware of any transaction entered into in 2010, or any transaction currently proposed, in which a related person has, or will have, a direct or indirect material interest.
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Gores
Gores Guarantees
We are a party to a Senior Credit Facility with Wells Fargo Foothill, LLC (now Wells Fargo Capital Finance, LLC, “Wells Fargo”) as the arranger, administrative agent and initial lender, under which we have access to a $20.0 million revolving credit facility (which includes a $2.0 million letter of credit sub-facility) on a senior unsecured basis and a $20.0 million unsecured non-amortizing term loan. As of March 31, 2011, we had borrowed $15.0 million under the revolving credit facility. Loans under the Senior Credit Facility will mature on July 15, 2012. Gores has guaranteed all indebtedness under the Senior Credit Facility. As part of the March 2010 amendmentsThe information that is responsive to the Securities Purchase Agreement and Senior Credit Facility, Gores guaranteed upinformation required with respect to a $10.0 million pay downthis Item 13 shall be provided by means of the Senior Notes if the tax refund we anticipated receiving in 2010 was not receivedan amendment to this Annual Report on or prior to August 16, 2010. Such tax refund was received prior to such date, the $10.0 million pay down did occur and accordingly such Gores guarantee was terminated. In 2010, Gores also guaranteed payments due to the NFL in an amount of up to $10.0 million for the license and broadcast rights to certain NFL games and NFL-related programming. Such guarantee was terminated at the conclusion of such agreement. There is no Gores guarantee provided for in our NFL agreement for the 2011-2012 season.
In 2010, we received an invoice from and reimbursed Gores for approximately $250,000 for fees incurred by them in connection with two irrevocable standby letters of credit which equal $20.0 million in the aggregate in connection with Gores’ guarantee of the $20.0 million revolving credit facility.
Purchase Agreement
As part of the August 2010 amendments to the Securities Purchase Agreement and Senior Credit Facility, Gores agreed to purchase $15.0 million of our common stock in two tranches at such prices set forth in the amendments. The first purchase of 769,231 shares of common stock for an aggregate purchase price of approximately $5.0 million was made on September 7, 2010. The second purchase of 1,186,240 shares of common stock for an aggregate purchase price of approximately $10.0 million was made on February 28, 2011.
Glendon Partners, Inc.
For consulting services rendered in calendar year 2010 by Glendon Partners (“Glendon”), an operating group associated with Gores, our principal stockholder, we paid Glendon $1.0 million. These fees consist of payment for services rendered by various members of Glendon, including directors Andrew Bronstein and Michael Nold, who in connection with the Refinancing provided professional services to us in the areas of operational improvement, tax, finance, accounting, legal and insurance/risk management. Glendon consists of experienced professionals who provide consulting services to Gores’ portfolio companies, including to us. The fee for such services was based on Glendon’s hourly billing rates. Payments made to Glendon for consulting services are permitted under our debt agreements with the holders of the Senior Notes and Wells Fargo provided such payments do not exceed $1.0 million in a calendar year for services provided in such year.
Norman J. Pattiz
On August 27, 2010, Courtside LLC entered into a one-year consulting agreement with us for the services of Norman Pattiz, our Chairman Emeritus. Mr. Pattiz founded the Company and served as the Chairman of the Board and a director from our founding in 1974 until his resignation on August 31, 2010. Under the terms of the one-year consulting agreement, Courtside provides Mr. Pattiz’s consulting services to us for an annual fee of $340,000 (payable in monthly installments). The term of the agreement may be renewed for an additional year upon the mutual agreement of the parties. The consulting agreement is terminable by either party upon thirty (30) days’ notice. As part of the agreement, we continue to provide to Mr. Pattiz, his office accommodations and an assistant in our Culver City office, reimbursement for reasonable and customary business expenses and the direct payment of the cost of continued group health benefits pursuant to COBRA. If either: (1) the consulting agreement terminates on August 31, 2011 and we decide not to renew the consulting agreement or (2) if we decide to terminate the consulting agreement prior to August 31, 2011, the consulting agreement will terminate, however, in such event, we will continue to engage Mr. Pattiz as a consultant through February 28, 2013, or such earlier time as Mr. Pattiz voluntarily terminates his services (such period is referred to as the Continued Engagement Period). During the Continued Engagement Period, we need not pay compensation or benefits to Mr. Pattiz, however, any outstanding stock options previously issued to Mr. Pattiz will continue to vest, subject to the terms of the stock option agreements and our equity compensation plans (i.e.,1999 Plan, 2005 Plan, 2010 Plan, as applicable).
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Company Review, Approval or Ratification of Related Party Transactions
While we do not have a comprehensive written policy outlining such, it is our practice to review all transactions with our related parties (referred to herein as “related party transactions”) as they arise. Related parties are identified by the finance, accounts payable and legal departments, who, among other things, review questionnaires submitted to our directors and officers on an annual basis, monitor Schedule 13Ds and 13GsForm 10-K filed with the SEC, review employee certifications regarding code of ethicsSecurities and business conduct which are updated annually, and review on a quarterly basis, related party listings generated byExchange Commission within 120 days after the legal and finance departments, which listing includes affiliates of Gores that Gores provides to us. Any related party transaction is reviewed by either the Officeend of the General Counsel or Chief Financial Officer, who examines, among other things, the approximate dollar value of the transaction and the material facts surrounding the related party’s interest in, or relationship to, the related party transaction. With respect to related party transactions that involve an independent director, such parties also consider whether such transaction affects the “independence” of such director pursuant to applicable rules and regulations. Customarily, the Chief Financial Officer must approve any related party transaction, however, if after consultation, the General Counsel and Chief Financial Officer determine a related party transaction is significant, the transaction is then referred to the Board for its review and approval. We do not anticipate that consulting services provided in the ordinary course by Glendon will be reviewed by the Board on a prospective basis; however, the debt agreements described above which permit payments to Glendon were part of the Refinancing documents approved by both the Independent Committee of the Board, comprised only of non-Gores directors, and the entire Board.registrant's most recently completed fiscal year.
Item 14. Principal Accountant Fees and Services
Fees to Independent Registered Public Accounting Firm
The following table presents fees billed for fiscal years 2010information that is responsive to the information required with respect to this Item 14 shall be provided by means of an amendment to this Annual Report on Form 10-K filed with the Securities and 2009 for professional services rendered by PricewaterhouseCoopers LLP forExchange Commission within 120 days after the audit of our financial statements for fiscal years 2010 and 2009 as well as fees billed for audit-related services, tax services and all other services rendered by PricewaterhouseCoopers LLP for 2010 and 2009.
| | | | | | | | | |
| (in thousands) | | 2010 | | | 2009 | |
| (1) Audit Fees | | $ | 1,425 | | | $ | 2,292 | (1) |
| (2) Audit-Related Fees | | | 232 | (2) | | | — | |
| (3) Tax Fees | | | 75 | (3) | | | 20 | |
| (4) All Other Fees | | | 10 | (4) | | | — | |
| | |
(1) | | Such includes $557 of fees related to professional services rendered by PWC in connection with the Registration Statement on Form S-1 filed by us with the SEC in 2009. |
|
(2) | | Audit related fees for 2010 related to reviews of control surrounding accounting information systems. |
|
(3) | | Tax fees for 2010 related to tax compliance services. |
|
(4) | | All other fees for 2010 related to Pricewaterhouse Coopers LLP reference material. |
All audit-related services were approved by the Audit Committee, which concluded that the provision of such services by PricewaterhouseCoopers LLP did not impair that firm’s independence in the conductend of the audit.registrant's most recently completed fiscal year.
Audit Committee Pre-Approval Policies and Procedures
All services provided to us by PricewaterhouseCoopers LLP in 2010 were pre-approved by the Audit Committee. Under our pre-approval policies and procedures, the Chair of the Audit Committee is authorized to pre-approve the engagement of PricewaterhouseCoopers LLP to provide certain specified audit and non-audit services, and the engagement of any accounting firm to provide certain specified audit services.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report on Form 10-K
| 1, 2. |
| 1,2. | Financial statements and schedules to be filed hereunder are indexed on page F-1 hereof. |
| | | | |
Exhibit | | |
Number | | |
| Exhibits (A) | | Description (B) |
| 2.1 | | | | Agreement and Plan of Merger, dated as of July 30, 2011, by and among Westwood One, Inc., Radio Network Holdings, LLC and Verge Media Companies, Inc. (1) |
| 3.1 | | | Amended and Restated Certificate of Incorporation changing the name of the Company to Dial Global, Inc., as filed with the Delaware Secretary of State of the State of Delaware. (14)on December 12, 2011 (2) |
| 3.2 | | Amended and Restated Bylaws of Westwood One, Inc. adopted on April 23, 2009 and currently in effect. (3) |
| 3.2.1 | | First Amendment to the Amended and Restated Bylaws of Westwood One, Inc. effective as of October 21, 2011 (4) |
| 3.1.1 | 4.1 | | Certificate of Amendment to the Restated CertificateDesignation, Powers, Preferences and Rights of IncorporationSeries A Preferred Stock of Westwood One, Inc. (since renamed Dial Global, Inc.), as filed with the Secretary of the State of Delaware on August 3, 2009. (41)October 21, 2011 (4) |
| 10.1 | | | | |
| 3.1.2 | | | Certificate of Elimination, filed with the Secretary of State of the State of Delaware on November 18, 2009. (42) |
| | | | |
| 3.2 | | | Amended and Restated Bylaws of Registrant adopted on April 23, 2009 and currently in effect. (40) |
| | | | |
| 4.1 | | | Securities PurchaseFirst Lien Credit Agreement, dated as of April 23, 2009, byOctober 21, 2011, with General Electric Capital Corporation, as administrative agent and among Westwood One, Inc.collateral agent, ING Capital LLC, as syndication agent, and the other parties thereto. (40)lenders party thereto from time to time. (4) |
| 10.1.1 | | | | |
| 4.1.1 | | | Waiver and First Amendment dated as of October 14, 2009, to Securities Purchasethe First Lien Credit Agreement, dated as of April 23, 2009, by and between Registrant andNovember 7, 2011, with the noteholders partieslenders party thereto. (43)(5) |
| | | | |
| 4.1.2 | 10.1.2 | | Second Amendment datedand Limited Waiver to Credit Agreement, entered into as of March 30, 2010,November 15, 2012 with the lenders party thereto. (21) |
| 10.1.3 | | Second Limited Waiver to Securities PurchaseCredit Agreement, datedentered into as of April 23, 2009, by and betweenDecember 14, 2012, with the Company and the noteholders partieslenders party thereto. (48)(22) |
| | | | |
| 4.1.3 | 10.1.4 | | Third Amendment, datedLimited Waiver to Credit Agreement, entered into as of August 17, 2010, to Securities Purchase Agreement, dated as of April 23, 2009,January 15, 2013, by and between the Companyamong Dial Global, Inc. and the noteholders partieslenders party thereto. (50)(23) |
| 10.2 | | | | |
| 4.1.4 | | | WaiverGuaranty and Fourth Amendment, dated as of April 12, 2011, to Securities Purchase Agreement, dated as of April 23, 2009, by and between the Company and the noteholders parties thereto. + |
| | | | |
| 4.2 | | | Note Purchase Agreement, dated as of December 3, 2002, between Registrant and the noteholders parties thereto. (15) |
| | | | |
| 4.2.1 | | | First Amendment, dated as of February 28, 2008, to Note Purchase Agreement, dated as of December 3, 2002, by and between Registrant and the noteholders parties thereto. (34) |
| | | | |
| 4.3 | | | Certificate of Designations for the 7.50% Series A-1 Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on April 23, 2009. (40) |
| | | | |
| 4.4 | | | Certificate of Designations for the 8.0% Series B Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on April 23, 2009. (40) |
| | | | |
| 4.5 | | | Shared Security Agreement, dated as of February 28, 2008, byOctober 21, 2011, in favor of General Electric Capital Corporation as administrative agent and among Registrant, the Subsidiary Guarantors parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and The Bank of New York, as Collateral Trustee (34)collateral agent (4) |
| 10.3 | | | | Second Lien Credit Agreement, dated as of October 21, 2011, with Cortland Capital Market Services LLC, as administrative agent and collateral agent, and Macquarie Capital (USA), Inc., as syndication agent, and the lenders party thereto from time to time (4) |
| 4.5.1 | 10.3.1 | | First Amendment to the Second Lien Credit Agreement, dated as of November 7, 2011, with the lenders party thereto. (5) |
| 10.3.2 | | Second Amendment and Limited Waiver to Second Lien Credit Agreement, entered into as of November 15, 2012, with the lenders party thereto (21) |
| 10.3.3 | | Third Amendment and Limited Waiver to Second Lien Credit Agreement, entered into as of December 14, 2012, with the lenders party thereto. (22) |
| 10.3.4 | | Fourth Amendment and Limited Waiver to Second Lien Credit Agreement, entered into as of January 15, 2013, by and among Dial Global, Inc. and the lenders party thereto. (23) |
| 10.4 | | Second Lien Guaranty and Security Agreement, dated as of April 23, 2009,October 21, 2011, in favor of Cortland Capital Market Services LLC, as administrative agent and collateral agent (4) |
| 10.5 | | Registration Rights Agreement, dated as of October 21, 2011, by and among Westwood One, Inc., each of the subsidiaries of Westwood One, Inc. and The Bank of New York Mellon, as collateral trustee. (40) |
| | | | |
| 10.1 | | | Credit Agreement, dated as of April 23, 2009, by and among Westwood One, Inc., Wells Fargo Foothill,Gores Radio Holdings, LLC and the lenders signatory thereto. (40)Triton Media Group, LLC (4) |
| | | | |
| 10.1.1 | | | Waiver and First Amendment, dated as of October 14, 2009, to Credit Agreement, dated as of April 23, 2009, by and between Registrant, the lenders party thereto and Wells Fargo Foothill, LLC, as administrative agent for the lenders. (43) |
| | | | |
| 10.1.2 | | | Second Amendment, effective as of March 30, 2010, to Credit Agreement, dated as of April 23, 2009, by and between the Company, the lenders party thereto and Wells Fargo Capital Finance, LLC, as administrative agent for the lenders. (48) |
| | | | |
| 10.1.3 | | | Third Amendment, effective as of August 17, 2010, to Credit Agreement, dated as of April 23, 2009, by and between the Company, the lenders party thereto and Wells Fargo Capital Finance, LLC, as administrative agent for the lenders. (50) |
80
| | | | |
Exhibit | | |
Number | | |
(A) | | Description |
| | | | |
| 10.1.4 | | | Waiver and Fourth Amendment, effective as of April 12, 2011, to Credit Agreement, dated as of April 23, 2009, by and between the Company, the lenders party thereto and Wells Fargo Capital Finance, LLC, as administrative agent for the lenders. + |
| | | | |
| 10.2 | | | Agreement of Purchase and Sale, dated as of December 3, 2009, between the Company and NLC-Lindblade, LLC (52) |
| | | | |
| 10.3 | | | Form of Indemnification Agreement between Registrant and its directors and executive officers. (1) |
| | | | |
| 10.4 | | | Credit Agreement, dated March 3, 2004, between Registrant, the Subsidiary Guarantors parties thereto, the Lenders parties thereto and JPMorgan Chase Bank as Administrative Agent. (16) |
| | | | |
| 10.4.1 | | | Amendment No. 1, dated as of October 31, 2006, to the Credit Agreement, dated as of March 3, 2004, between Registrant, the Subsidiary Guarantors parties thereto, the Lenders parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (23) |
| | | | |
| 10.4.2 | | | Amendment No. 2, dated as of January 11, 2008, to the Credit Agreement, dated as of March 3, 2004, between Registrant, the Subsidiary Guarantors parties thereto, the Lenders parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (26) |
| | | | |
| 10.4.3 | | | Amendment No. 3, dated as of February 25, 2008, to the Credit Agreement, dated as of March 3, 2004, between Registrant, the Subsidiary Guarantors parties thereto, the Lenders parties thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (13) |
| | | | |
| 10.5 | | | Purchase Agreement, dated as of August 24, 1987, between Registrant and National Broadcasting Company, Inc. (2) |
| | | | |
| 10.6 | | | Agreement and Plan of Merger among Registrant, Copter Acquisition Corp. and Metro Networks, Inc. dated June 1, 1999 (9) |
| | | | |
| 10.7 | | | Amendment No. 1 to the Agreement and Plan Merger, dated as of August 20, 1999, by and among Registrant, Copter Acquisition Corp. and Metro Networks, Inc. (10) |
| | | | |
| 10.8 | | | Employment Agreement, effective June 30, 2008, between Registrant and Steve Chessare *+ |
| | | | |
| 10.9 | | | Employment Agreement, effective October 16, 2004, between Registrant and David Hillman, as amended by Amendment No. 1 to Employment Agreement, effective January 1, 2006. (28)* |
| | | | |
| 10.9.1 | | | Amendment No. 2 to the Employment Agreement, effective July 10, 2007, between Registrant and David Hillman. (29)* |
| | | | |
| 10.10 | | | Registrant Amended 1999 Stock Incentive Plan. (22)* |
| | | | |
| 10.11 | | | Amendment to Registrant Amended 1999 Stock Incentive Plan, effective May 25, 2005 (19)* |
| | | | |
| 10.12 | | | Registrant 1989 Stock Incentive Plan. (3)* |
| | | | |
| 10.13 | | | Amendments to Registrant’s Amended 1989 Stock Incentive Plan. (4) (5)* |
| | | | |
| 10.14 | | | Leases, dated August 9, 1999, between Lefrak SBN LP and Westwood One Radio Networks, Inc. and between Infinity and Westwood One Radio Networks, Inc. relating to New York, New York offices. (11) |
| | | | |
| 10.15 | | | Form of Stock Option Agreement under Registrant’s Amended 1999 Stock Incentive Plan. (17)*
|
| | | | |
| 10.17 | | | Registrant 2005 Equity Compensation Plan (19)* |
| | | | |
| 10.18 | | | Form Amended and Restated Restricted Stock Unit Agreement under Registrant 2005 Equity Compensation Plan for outside directors (20)* |
| | | | |
| 10.19 | | | Form Stock Option Agreement under Registrant 2005 Equity Compensation Plan for directors. (21)* |
| | | | |
| 10.20 | | | Form Stock Option Agreement under Registrant 2005 Equity Compensation Plan for non-director participants. (21)* |
| | | | |
| 10.21 | | | Form Restricted Stock Unit Agreement under Registrant 2005 Equity Compensation Plan for non-director participants. (20)* |
| | | | |
| 10.22 | | | Form Restricted Stock Agreement under Registrant 2005 Equity Compensation Plan for non-director participants. (20)* |
| | | | |
| 10.24 | | | Master Agreement, dated as of October 2, 2007, by and between Registrant and CBS Radio Inc. (31) |
| | | | |
| 10.28 | | | Letter Agreement, dated February 25, 2008, by and between Registrant and Norman J. Pattiz (32)* |
| | | | |
| 10.29 | | | Purchase Agreement, dated February 25, 2008, between Registrant and Gores Radio Holdings, LLC. (32) |
| | | | |
| 10.30 | | | Registration Rights Agreement, dated March 3, 2008, between Registrant and Gores Radio Holdings, LLC. (33) |
| | | | |
| 10.30.1 | | | Amendment No. 1 to Registration Rights Agreement, dated as of April 23, 2009, between Westwood One, Inc. and Gores Radio Holdings, LLC. (40) |
| | | | |
| 10.30.2 | | | Investor Rights Agreement, dated as of April 23, 2009,October 21, 2011, by and among Westwood One, Inc., Gores Radio Holdings, LLC and the other investors signatory thereto and the parties executing a Joinder Agreement in accordance with the terms thereto. (40)thereto (4) |
81
| 10.7 | | | | |
Exhibit | | |
Number | | |
(A) | | Description |
| | | | |
| 10.31 | | | Intercreditor and Collateral TrustLetter Agreement, dated as of February 28, 2008,October 21, 2011, by and among Registrant, the Subsidiary Guarantors parties thereto, JPMorgan Chase Bank, N.A.Westwood One, Inc., as Administrative Agent, the financial institutions that hold the NotesRadio Network Holdings, LLC, and The Bank of New York, as Collateral Trustee (34)Verge Media Companies, Inc. (4) |
| 10.8 | | | | |
| 10.32 | | | Shared SecurityIndemnity and Contribution Agreement, dated as of February 28, 2008,October 21, 2011, by and among Registrant, the Subsidiary Guarantors parties thereto, JPMorgan Chase Bank, N.A.Westwood One, Inc., as Administrative Agent,Gores Radio Holdings, LLC, Verge Media Companies, Inc. and The Bank of New York, as Collateral Trustee (34)Triton Media Group, LLC (4) |
| 10.8.1 | | | | |
| 10.33 | | | Shared Deed of Trust, Assignment of Rents, SecurityAmendment No. 1 to the Indemnity and Contribution Agreement, and Fixture Filing, dated as of February 28, 2008,October 21, 2011, by and among Westwood One, Inc., Gores Radio Holdings, LLC, Verge Media Companies, Inc. and Triton Media Group, LLC (4) |
|
| | |
| Exhibits (A) | | Description (B) |
| 10.9 | | Form of Indemnification Agreement between Registrant to First American Title Insurance Company, as Trustee,and its directors and executive officers. (17) |
| 10.10 | | Westwood One, Inc. 2005 Equity Compensation Plan (6)* |
| 10.11 | | Form Stock Option Agreement under Westwood One, Inc. 2005 Equity Compensation Plan for non-director participants. (7)* |
| 10.12 | | Form Stock Option Agreement under Westwood One, Inc. 2005 Equity Compensation Plan for directors. (7)* |
| 10.13 | | Form Amended and Restated Restricted Stock Unit Agreement under Westwood One, Inc. 2005 Equity Compensation Plan for outside directors (8)* |
| 10.14 | | Form Restricted Stock Unit Agreement under Westwood One, Inc. 2005 Equity Compensation Plan for non-director participants. (8)* |
| 10.15 | | Form Restricted Stock Agreement under Westwood One, Inc. 2005 Equity Compensation Plan for non-director participants. (8)* |
| 10.16 | | 2010 Equity Compensation Plan. (9) * |
| 10.17 | | Form Stock Option Agreement under Westwood One, Inc.'s 2010 Equity Compensation Plan for employees. (9)* |
| 10.18 | | Form Restricted Stock Unit Agreement under Westwood One, Inc.'s 2010 Equity Compensation Plan for non-employee directors. (9)* |
| 10.19 | | Registrant 2011 Stock Option Plan (10)* |
| 10.20 | | Form of Stock Option Agreement for the benefit of The Bank of New York, as Beneficiary (34)Registrant 2011 Stock Option Plan. (11)* |
| 10.21 | | Employment Agreement, dated as of December 20, 2011, by and between Registrant and Spencer L. Brown. (11)* |
| 10.22 | | Employment Agreement, dated as of December 20, 2011, by and between Registrant and David M. Landau. (11)* |
| 10.3410.23 | | Employment Agreement, dated as of December 20, 2011, by and between Registrant and Kenneth C. Williams. (11)* |
| 10.24 | | Digital Reseller Agreement, dated as of July 29, 2011, by and between the Triton Media Group, LLC and Dial Communications Global Media, LLC, an indirect subsidiary of the Company (redacted version) (16) |
| 10.25 | | Master Agreement, dated as of October 2, 2007, by and between Westwood One, Inc. and CBS Radio Inc. (12) |
| 10.26 | | Mutual General Release and Covenant Not to Sue, dated as of March 3, 2008, by and between RegistrantWestwood One, Inc. and CBS Radio Inc. (33)(13) |
| | | | |
| 10.35 | 10.27 | | Amended and Restated News Programming Agreement, dated as of March 3, 2008, by and between RegistrantWestwood One, Inc. and CBS Radio Inc. (33)(13) |
| | | | |
| 10.36 | 10.28 | | Amended and Restated Technical Services Agreement, dated as of March 3, 2008, by and between RegistrantWestwood One, Inc. and CBS Radio Inc. (33)(13) |
| | | | |
| 10.37 | 10.29 | | Amended and Restated Trademark License Agreement, dated as of March 3, 2008, by and between RegistrantWestwood One, Inc. and CBS Radio Inc. (33)(13) |
| | | | |
| 10.38 | 10.30 | | Registration Rights Agreement, dated as of March 3, 2008, by and between RegistrantWestwood One, Inc. and CBS Radio Inc. (33)(13) |
| | | | |
| 10.39 | | | Lease for 524 W. 57th Street, dated as of March 3, 2008, by and between Registrant and CBS Broadcasting Inc. (33) |
| | | | |
| 10.40 | 10.31 | | Form Westwood One Affiliation Agreement, dated February 29, 2008, between Westwood One, Inc. on its behalf and on behalf of its affiliate, Westwood One Radio Networks, Inc. and CBS Radio Inc., on its behalf and on behalf of certain CBS Radio stations (33)(13) |
| 10.32 | | | | |
| 10.41 | | | Form Metro Affiliation Agreement,Lease for 524 W. 57th Street, dated as of February 29,March 3, 2008, by and between Metro Networks Communications, Limited Partnership,Westwood One, Inc. and CBS RadioBroadcasting Inc., on its behalf and on behalf of certain CBS Radio stations (33) (13) |
| | | | |
| 10.42 | | | Employment Agreement, dated as of July 7, 2008, between Registrant and Steven Kalin. (6)* |
| | | | |
| 10.42.1 | | | Amendment No. 1 to Employment Agreement, dated as of December 22, 2008, by and between the Registrant and Steven Kalin, amending terms in a manner intended to address Section 409A of the Internal Revenue Code of 1986, as amended (47)* |
| | | | |
| 10.43 | | | Employment Agreement, effective as of September 17, 2008, by and between Registrant and Roderick M. Sherwood, III. (36)* |
| | | | |
| 10.44 | | | Employment Agreement, effective as of October 20, 2008, by and between Registrant and Gary Schonfeld (37)* |
| | | | |
| 10.45 | | | Employment Agreement, effective as of April 14, 2008, by and between Registrant and Jonathan Marshall. (47)* |
| | | | |
| 10.46 | | | License and Services Agreement, dated as of December 22, 2008, by and between Metro Networks Communications, Inc. and TrafficLand, Inc. (39) |
| | | | |
| 10.49 | 10.33 | | Agreement of Sublease made as of November 2, 2009, by and between Marsh & McLennan Companies, Inc. and Westwood One Radio Networks, Inc. (42)(14) |
| 10.34 | | Sublease dated as of November 1, 2004, as amended to date, by and between Live Nation Worldwide, Inc., f/k/a SFX Entertainment, Inc. and Excelsior Radio Networks, LLC, as successor by conversion to Excelsior Radio Networks, Inc. (a subsidiary of Registrant) (17) |
| 10.35 | | Agreement of Purchase and Sale, dated as of December 3, 2009, between Westwood One, Inc. and NLC-Lindblade, LLC (15) |
| 10.50 | | | Form of Amendment to Employment Agreement for senior executives, amending terms in a manner intended to address Section 409A of the Internal Revenue Code of 1986, as amended (47)* |
| | | | |
| 10.52 | 10.36 | | Single Tenant Triple Net Lease, dated as of December 17, 2009, between the Company and NLC-Lindblade, LLC (52) |
| | | | |
| 10.53 | | | Amendment to Employment Agreement, dated October 27, 2003, between Registrant and Norman J. Pattiz. (16)* |
| | | | |
| 10.53.1 | | | Amendment No. 2 to Employment Agreement, dated November 28, 2005, between Registrant and Norman J. Pattiz (7)* |
| | | | |
| 10.53.2 | | | Amendment No. 3, effective January 8, 2008, to the employment agreement by and between Registrant and Norman Pattiz (30)* |
| | | | |
| 10.53.3 | | | Amendment No. 4, effective December 31, 2008, to the employment agreement by and between Westwood One, Inc. and Norman Pattiz, datedNLC-Lindblade, LLC (15) |
| 10.37 | | Employment Agreement, effective as of April 29, 1998, as amended. (44)* |
| | | | |
| 10.53.4 | | | Amendment No. 5, effective June 11, 2009, to the employment agreement by and between Westwood One, Inc. and Norman Pattiz, dated as of April 29, 1998, as amended. (44)* |
| | | | |
| 10.53.5 | | | Agreement for Termination of Employment Agreement, made and entered into as of August 27, 201016, 2012, by and between the Company and Norman J. Pattiz. (51)Hiram Lazar. (18)* |
82
| 10.38 | | Employment Agreement, effective as of April 16, 2012, by and between the Company and Eileen Decker. (18)* |
| 10.39 | | Employment Agreement, effective as of April 16, 2012, by and between the Company and Kirk Stirland. (18)* |
|
Exhibit | | |
Number | | |
| Exhibits (A) | | Description (B) |
| 10.40 | | | | |
| 10.54 | | | ConsultingEmployment Agreement, madeeffective as of August 27, 2010,April 16, 2012, by and between Courtside, LLC for the personal services of Norman J. Pattiz,Company and the Company. (51)Edward A. Mammone. (18)* |
| | | | |
| 10.55 | | | Master Mutual Release, dated as of April 23, 2009, by and among Westwood One, Inc. and the other parties to the Securities Purchase Agreement. (40) |
| | | | |
| 10.56 | | | Purchase Agreement, dated as of April 23, 2009, by and among Westwood One, Inc. and Gores Radio Holdings, LLC. (40) |
| | | | |
| 10.57 | | | Purchase Agreement, dated as of August 17, 2010, by and among Westwood One, Inc. and Gores Radio Holdings, LLC. (50) |
| | | | |
| 10.58 | | | 2010 Equity Compensation Plan. (49) |
| | | | |
| 10.59 | 10.41 | | Form of Stock Option Agreement underfor Employees for the Company’s 2010 Equity Compensation Plan for employees. (49)Company's 2011 Stock Option Plan. (18)* |
| 10.42 | | Employment Agreement, effective as of May 15, 2012, by and between the Company and Charles Steinhauer. (19)* |
| 10.43 | | Employment Agreement, effective as of June 13, 2012, by and between the Company and Jean Clifton. (20)* |
| 10.60 | | | Form Restricted Stock Unit Agreement under the Company’s 2010 Equity Compensation Plan for non-employee directors. (49) |
| | | | |
| 14.1 | | | Westwood One, Inc. Code of Ethics. (46)(24) |
| | | | |
| 21 | | | List of Subsidiaries. + |
| | | | |
| 23.1 | | | Consent of Independent Registered Public Accounting Firm. + |
| | | | |
| 23.2 | | | Consent of Independent Registered Public Accounting Firm. + |
| | | | |
| 31.1 | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. + |
| | | | |
| 31.2 | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. + |
| | | | |
| 32.1 | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. ** |
| | | | |
| 32.2 | | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
_____________________
| | |
| * | | Indicates a management contract or compensatory plan |
| Furnished herewith. |
|
| (A) | | We agree to furnish supplementally a copy of any omitted schedule to the SEC upon request. |
| |
| (B) | Westwood One, Inc. changed its name to Dial Global, Inc. on December 12, 2011. |
| |
| (1) | | Filed as part of Registrant’s September 25, 1986 proxy statement and incorporated herein by reference. |
|
(2) | | Filed an exhibit to Registrant’s current report on Form 8-K dated September 4, 1987 and incorporated herein by reference. |
|
(3) | | Filed as part of Registrant’s March 27, 1992 proxy statement and incorporated herein by reference. |
|
(4) | | Filed as an exhibit to Registrant’s July 20, 1994 proxy statement and incorporated herein by reference. |
|
(5) | | Filed as an exhibit to Registrant’s April 29, 1996 proxy statement and incorporated herein by reference. |
|
(6) | | Filed as an exhibit to Registrant’sRegistrant's current report on Form 8-K dated July 7, 200830, 2011 and incorporated herein by reference. |
| |
(7) | (2) | Filed as an exhibit to Registrant’sRegistrant's current report on Form 8-K dated December 6, 2011 and incorporated herein by reference. |
| |
| (3) | Filed as an exhibit to Registrant's current report on Form 8-K dated April 23, 2009 and incorporated herein by reference. |
| |
| (4) | Filed as an exhibit to Registrant's current report on Form 8-K dated October 21, 2011 and incorporated herein by reference. |
| |
| (5) | Filed as an exhibit to Registrant's current report on Form 8-K dated November 28, 20054, 2011 and incorporated herein by reference. |
| |
(8) | (6) | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. |
|
(9) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated June 4, 1999 and incorporated herein by reference. |
|
(10) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated October 1, 1999 and incorporated herein by reference. |
|
(11) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference. |
|
(12) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference. |
|
(13) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated February 25, 2008 (filed on February 29, 2008) and incorporated herein by reference. |
|
(14) | | Filed as an exhibit to Registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference. |
|
(15) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated December 4, 2002 and incorporated herein by reference. |
|
(16) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference. |
83
| | |
(17) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated October 12, 2004 and incorporated herein by reference. |
|
(18) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference. |
|
(19) | | Filed as an exhibit to Company’sRegistrant's current report on Form 8-K, dated May 25, 2005 and incorporated herein by reference. |
| |
(20) | | Filed as an exhibit to Company’s current report of Form 8-K dated March 17, 2006 and incorporated herein by reference. |
|
(21) | (7) | Filed as an exhibit to Registrant’s current report on Form 8-K dated December 5, 2005 and incorporated herein by reference. |
| |
(22) | (8) | Filed as an exhibit to Registrant’s April 30, 1999 proxy statement and incorporated herein by reference. |
|
(23) | | Filed as an exhibit to Registrant’sRegistrant's current report on Form 8-K dated November 6,March 17, 2006 and incorporated herein by reference. |
| |
(24) | (9) | Filed as an exhibit to Registrant’s current report on Form 8-K dated June 30, 2006 and incorporated herein by reference. |
|
(25) | | Filed as an exhibit to Registrant’sRegistrant's quarterly report on Form 10-Q for the quarter ended March 31, 20062010 and incorporated herein by reference. |
| |
(26) | (10) | Filed as an exhibit to Registrant’sthe Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934, filed with the SEC on December 21, 2011 and incorporated herein by reference. |
| |
| (11) | Filed as an exhibit to Registrant's current report on Form 8-K dated January 11, 2008December 19, 2011 and incorporated herein by reference. |
| |
(27) | (12) | Filed as an exhibit to Registrant’s current report on Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by reference. |
|
(28) | | Filed as an exhibit to Registrant’s annual report on Form 10-K/A for the year ended December 31, 2006 and incorporated herein by reference. |
|
(29) | | Filed as an exhibit to Company’s current report on Form 8-K dated July 10, 2007 and incorporated herein by reference. |
|
(30) | | Filed as an exhibit to Company’s current report on Form 8-K dated January 8, 2008 and incorporated herein by reference. |
|
(31) | | Filed as an exhibit to Company’sRegistrant's current report on Form 8-K dated October 2, 2007 and incorporated herein by reference. |
| |
(32) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated February 25, 2008 (filed on February 27, 2008) and incorporated herein by reference. |
|
(33) | (13) | Filed as an exhibit to Registrant’s current report on Form 8-K dated March 3, 2008 and incorporated herein by reference. |
| |
(34) | (14) | Filed as an exhibit to Registrant’sRegistrant's current report on Form 8-K dated February 28, 2008 (filed on March 5, 2008) and incorporated herein by reference. |
|
(35) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference. |
|
(36) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated September 18, 2008 and incorporated herein by reference. |
|
(37) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated October 24, 2008 and incorporated herein by reference. |
|
(38) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated October 30, 2008 and incorporated herein by reference. |
|
(39) | | Filed as an exhibit to Registrant’s current report on Form 8-K dated December 22, 2008 and incorporated herein by reference. |
|
(40) | | Filed as an exhibit to Company’s current report on Form 8-K dated April 27,November 17, 2009 and incorporated herein by reference. |
| |
(41) | | Filed as an exhibit to Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2009 and incorporated herein by reference. |
|
(42) | | Filed as an exhibit to Company’s current report on Form 8-K dated November 20, 2009 and incorporated herein by reference. |
|
(43) | | Filed as an exhibit to Amendment No. 3 of the Company’s registration statement on Form S-1 and incorporated herein by reference. |
|
(44) | | Filed as an exhibit to Company’s current report on Form 8-K dated June 18, 2009 and incorporated herein by reference. |
|
(45) | | Filed as an exhibit to Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference. |
84
| | |
(46) | | Filed as an exhibit to Company’s current report on Form 8-K dated April 27, 2009 and incorporated herein by reference. |
|
(47) | | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. |
|
(48) | | Filed as an exhibit to Company’s current report on Form 8-K dated March 31, 2010 and incorporated herein by reference. |
|
(49) | | Filed as an exhibit to Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference. |
|
(50) | | Filed as an exhibit to Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference. |
|
(51) | | Filed as an exhibit to Company’s current report on Form 8-K dated August 27, 2010 and incorporated herein by reference. |
|
(52) | (15) | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference. |
85
| |
| (16) | Filed as an exhibit to Registrant's quarterly report on Form 10-Q for the quarter ended September 30, 2011 and incorporated herein by reference. |
| |
| (17) | Filed as an exhibit to Registrant’s annual report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference. |
| |
| (18) | Filed as an exhibit to Registrant's current report on Form 8-K dated April 16, 2012 and incorporated herein by reference. |
| |
| (19) | Filed as an exhibit to Registrant's Current Report on Form 8-K dated May 15, 2012 and incorporated herein by reference. |
| |
| (20) | Filed as an exhibit to Registrant's Current Report on Form 8-K dated June 13, 2012 and incorporated herein by reference. |
| |
| (21) | Filed as an exhibit to Registrant's Current Report on Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference. |
| |
| (22) | Filed as an exhibit to Registrant's Current Report on Form 8-K dated December 14, 2012 and incorporated herein by reference. |
| |
| (23) | Filed as an exhibit to Registrant's Current Report on Form 8-K dated January 15, 2013 and incorporated herein by reference. |
| |
| (24) | Filed as an exhibit to Registrant's Current Report on Form 10-K for the year ended December 30, 2011 and incorporated herein by reference. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | | | | |
| DIAL GLOBAL, INC. |
| (Registrant) |
| | | | | |
| Date: | WESTWOOD ONE, INC.
| |
Date: April 15, 2011 1, 2013 | By: | /S/ RODERICK M. SHERWOOD III SPENCER L. BROWN | By: | /S/ JEAN B. CLIFTON |
| | | Roderick M. Sherwood III | Spencer L. Brown | | Jean B. Clifton |
| | | President and | Chief Executive Officer | | Chief Financial Officer | |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
| Signature | | Title | | Date |
| | | | |
/S/RODERICK M. SHERWOOD IIIRoderick M. Sherwood III | | President and Chief Financial Officer
(Principal Executive Officer) | | April 15, 2011 |
| | | | |
| NEAL A. SCHORE | | Chairman of the Board of Directors | | April 15, 20111, 2013 |
Neal A. Schore
| | | | |
| | | | | |
/S/ GREGORY SPENCER L. BESTICKGregory L. Bestick | | Chief Executive Officer; Director | | April 15, 20111, 2013 |
| Spencer L. Brown | | | | |
| | | | | |
/S/ ANDREW P. BRONSTEINAndrew P. Bronstein | | Director | | April 15, 20111, 2013 |
| B. James Ford | | | | |
| | | | | |
/S/ JONATHAN I. GIMBEL Jonathan I. Gimbel | | Director | | April 15, 20111, 2013 |
Jonathan I. Gimbel | | | | |
| | | | | |
/S/ SCOTT M. HONOURScott M. Honour | | Director | | April 15, 20111, 2013 |
Jules Haimovitz | | | | |
| | | | | |
/S/ HH. MELVIN MING H. Melvin Ming | | Director | | April 15, 20111, 2013 |
H. Melvin Ming | | | | |
| | | | | |
/S/ MICHAEL F. NOLDMichael F. Nold | | Director | | April 15, 20111, 2013 |
| Peter E. Murphy | | | | |
| | | | | |
/S/ EMANUEL NUNEZEmanuel Nunez | | Director | | April 15, 20111, 2013 |
Andrew Salter
| | | | |
| | | | | |
/S/ JOSEPH P. PAGEJoseph P. Page | | Director | | April 15, 20111, 2013 |
Mark R. Stone | | | | |
/S/ RONALD W. WUENSCHRonald W. Wuensch | | Director | | April 15, 2011 |
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as of the date of this report.
86
FORM 10-K
ITEM 15(a) (1) AND (2)
DIAL GLOBAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
|
| | |
| | | |
| | | Page | |
1. Consolidated Financial Statements | | | | |
| | | | | |
| | | F-2 | |
| | | | |
| | | F-4 | |
| | | | |
| | | F-5 | |
| | | | |
| | | F-6 | |
| | | | |
| | | F-7 | |
| | | | |
| | | F-8 | |
| | | | | |
2. Financial Statement Schedule: | | | | |
| | | | | |
| | II -1 | |
| | | | |
All other schedules have been omitted because they are not applicable, the required information is immaterial, or the required information is included in the consolidated financial statements or notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and
The Board of Directors and Stockholders of Westwood One, Inc.:
In our opinion,Dial Global, Inc.
We have audited the accompanying consolidated balance sheets of Dial Global, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations ofand comprehensive loss, cash flows and ofchanges in stockholders’ (deficit) equity present fairly, in all material respects,for the financial position of Westwood One, Inc. and its subsidiaries (Successor Company) at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the year ended December 31, 2010 and the period from April 24, 2009 through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,years then ended. Our audits also included the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.Index at Item 15(a). These financial statements and financial statementthe schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and on the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/S/ PricewaterhouseCoopers LLP
New York, New York
April 15, 2011
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Westwood One, Inc.:
In our opinion, the accompanying consolidatedfinancial statements of operations, of cash flows and of stockholders’ (deficit) equityreferred to above present fairly, in all material respects, the consolidated financial position of Dial Global, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring operating losses and has a working capital deficiency. In addition, absent the waivers from the Company's lenders, the Company would not be in compliance with certain covenants of its loan agreements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The most recent year consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
New York, New York
April 1, 2013
DIAL GLOBAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
| | | | | | | |
| | As of December 31, |
| | 2012 | | 2011 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 8,445 |
| | $ | 5,627 |
|
| Accounts receivable, net of allowance for doubtful accounts | 74,180 |
| | 96,211 |
|
| Prepaid expenses and other assets | 11,396 |
| | 6,130 |
|
| Deferred financing costs | 9,058 |
| | — |
|
| Total current assets | 103,079 |
| | 107,968 |
|
| Property and equipment, net | 27,384 |
| | 28,478 |
|
| Goodwill | 73,844 |
| | 167,120 |
|
| Intangible assets, net | 131,957 |
| | 145,915 |
|
| Deferred financing costs | — |
| | 11,557 |
|
| Other assets | 4,348 |
| | 6,636 |
|
| TOTAL ASSETS | $ | 340,612 |
| | $ | 467,674 |
|
| | | | |
| LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY | | | |
| Current liabilities: | | | |
| Producer and accounts payable | $ | 33,570 |
| | $ | 30,476 |
|
| Amounts payable to related parties | 3,439 |
| | 4,343 |
|
| Accrued expenses and other liabilities | 44,436 |
| | 42,124 |
|
| Current maturity of long-term debt | 250,201 |
| | 3,875 |
|
| Total current liabilities | 331,646 |
| | 80,818 |
|
| Long-term debt | — |
| | 229,467 |
|
| Long-term debt payable to related parties | 35,774 |
| | 30,875 |
|
| Deferred tax liability | 1,202 |
| | 17,619 |
|
| Other liabilities | 22,377 |
| | 20,107 |
|
| TOTAL LIABILITIES | 390,999 |
| | 378,886 |
|
| | | | |
| Commitments and contingencies |
| | |
| | | | |
| Series A Preferred Stock, $1,000 liquidation preference; 200,000 shares authorized; 9,691.374 shares issued and outstanding, and accumulated dividends; $1,091 and $171, respectively | 10,782 |
| | 9,862 |
|
| | | | |
| STOCKHOLDERS’ (DEFICIT) EQUITY | | | |
| Class A common stock, $0.01 par value; 5,000,000,000 shares authorized; 22,794,323 and 22,744,322 shares issued and outstanding, respectively | 228 |
| | 227 |
|
| Class B common stock, $0.01 par value; 35,000,000 shares authorized; 34,237,638 shares issued and outstanding | 342 |
| | 342 |
|
| Additional paid-in capital | 141,381 |
| | 134,785 |
|
| Accumulated deficit | (203,120 | ) | | (56,428 | ) |
| TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | (61,169 | ) | | 78,926 |
|
| TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 340,612 |
| | $ | 467,674 |
|
See accompanying notes to consolidated financial statements
DIAL GLOBAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Revenue | | $ | 239,019 |
| | $ | 131,325 |
|
| Costs of revenue (excluding depreciation and amortization) | | 171,703 |
| | 75,920 |
|
| Gross profit | | 67,316 |
| | 55,405 |
|
| Compensation costs | | 28,511 |
| | 16,396 |
|
| Other operating costs | | 34,160 |
| | 20,046 |
|
| Depreciation and amortization | | 23,435 |
| | 15,119 |
|
| Goodwill impairment | | 92,194 |
| | — |
|
| Restructuring and other charges | | 13,269 |
| | 3,131 |
|
| Transaction costs | | — |
| | 7,263 |
|
| Total operating costs | | 191,569 |
| | 61,955 |
|
| | | | | |
| Operating loss | | (124,253 | ) | | (6,550 | ) |
| | | | | |
| Interest expense, net | | (36,715 | ) | | (29,625 | ) |
| Preferred Stock dividend | | (920 | ) | | (171 | ) |
| Gain from the 24/7 Formats purchase | | — |
| | 4,950 |
|
| Investment impairment charge | | — |
| | (561 | ) |
| | | | | |
| Loss from continuing operations before income tax | | (161,888 | ) | | (31,957 | ) |
| Income tax benefit from continuing operations | | (15,196 | ) | | (22,741 | ) |
| | | | | |
| Loss from continuing operations | | (146,692 | ) | | (9,216 | ) |
| Loss from discontinued operations, net of income tax provision | | — |
| | (1,626 | ) |
| Net loss | | $ | (146,692 | ) | | $ | (10,842 | ) |
| Comprehensive loss | | $ | (146,692 | ) | | $ | (10,842 | ) |
| | | | | |
| Loss per share Common Stock (Class A and Class B) | | | | |
| Loss from continuing operations | | $ | (2.57 | ) | | $ | (0.24 | ) |
| Loss from discontinued operations | | — |
| | (0.04 | ) |
| Net loss | | $ | (2.57 | ) | | $ | (0.28 | ) |
| | | | | |
| Weighted-average shares outstanding: | | | | |
| Common Stock (Class A and Class B) | | | | |
| Basic and diluted | | 57,010,567 |
| | 38,717,960 |
|
See accompanying notes to consolidated financial statements
DIAL GLOBAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
|
| | | | | | | |
| | Years Ended December 31, |
| | 2012 |
| 2011 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net loss | $ | (146,692 | ) | | $ | (10,842 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activity, net of acquisitions: |
| | |
| Depreciation and amortization | 23,435 |
| | 18,986 |
|
| Goodwill impairment | 92,194 |
| | — |
|
| Paid-in-kind interest expense | 7,723 |
| | 13,055 |
|
| Deferred taxes | (15,272 | ) | | (22,626 | ) |
| Amortization of original issue discount and deferred financing costs | 5,009 |
| | 3,663 |
|
| Stock-based compensation | 6,597 |
| | 1,280 |
|
| Preferred Stock dividend | 920 |
| | 171 |
|
| Bad debt expense | 1,255 |
| | 401 |
|
| Deferred rent expense | 668 |
| | 165 |
|
| Revaluation of interest rate cap contracts | 223 |
| | — |
|
| Gain from 24/7 Formats purchase | — |
| | (4,950 | ) |
| Loss on investment | — |
| | 561 |
|
| Changes in assets and liabilities, net of acquisitions: | | | |
| Accounts receivable | 20,776 |
| | (7,551 | ) |
| Prepaid expenses and other current assets | (3,889 | ) | | 1,371 |
|
| Other assets | (1,223 | ) | | 961 |
|
| Accounts payable | 3,094 |
| | 3,561 |
|
| Accrued expenses and other current liabilities | 1,217 |
| | 4,481 |
|
| Other liabilities | (1,627 | ) | | (737 | ) |
| Total adjustments | 141,100 |
| | 12,792 |
|
| Net cash (used in) provided by operating activities | (5,592 | ) | | 1,950 |
|
| | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| | | | |
| Acquisition of property and equipment | (3,367 | ) | | (4,286 | ) |
| Loan to related party | (850 | ) | | — |
|
| Loan repaid by related party | 850 |
| | — |
|
| Proceeds from maturity of restricted investment | 538 |
| | — |
|
| Acquisition of Westwood and purchase of 24/7 Formats, net of cash acquired | — |
| | (1,618 | ) |
| Cash transferred to Digital Services business | — |
| | (5,877 | ) |
| Acquisitions of business, net of cash acquired | (53 | ) | | (67 | ) |
| Net cash used in investing activities | (2,882 | ) | | (11,848 | ) |
| See accompanying notes to consolidated financial statements |
DIAL GLOBAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
|
| | | | | | | |
| | Years Ended December 31, |
| | 2012 | | 2011 |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Borrowings under Revolving Credit Facility | 30,100 |
| | 9,600 |
|
| Repayment under Revolving Credit Facility | (14,700 | ) | | (5,000 | ) |
| Purchase of interest rate cap contracts | (233 | ) | | — |
|
| Repayment of long-term debt | (3,875 | ) | | (8,513 | ) |
| Repayment of long-term debt in Merger | — |
| | (161,463 | ) |
| Repayment of paid in kind interest expense | — |
| | (47,949 | ) |
| Borrowings under First Lien Term Loan | — |
| | 145,800 |
|
| Borrowings under Second Lien Term Loan | — |
| | 82,450 |
|
| Deferred financing costs | — |
| | (12,045 | ) |
| Payment of contingent liability on acquisition | — |
| | (895 | ) |
| Borrowings from bank line of credit | — |
| | 900 |
|
| Repayments of bank line of credit | — |
| | (900 | ) |
| Cost of issuance of common stock | — |
| | (365 | ) |
| Principal payment of capital lease obligation | — |
| | (43 | ) |
| Net cash provided by financing activities | 11,292 |
| | 1,577 |
|
| | | | |
| Net increase (decrease) in cash and cash equivalents | 2,818 |
| | (8,321 | ) |
| Cash and cash equivalents at beginning of period | 5,627 |
| | 13,948 |
|
| Cash and cash equivalents at end of period | $ | 8,445 |
| | $ | 5,627 |
|
| | | | |
| Supplemental Disclosures | | | |
| Cash Paid during the period for: | | | |
| Cash paid during the period for interest | $ | 21,298 |
| | $ | 55,696 |
|
| Cash paid during the period for taxes | 212 |
| | 117 |
|
| | | | |
| Non-cash investing and financing activities | | | |
| Spin-off dividend | — |
| | (111,859 | ) |
| Assumption of Westwood debt | — |
| | 45,146 |
|
| Conversion of PIK notes | — |
| | 30,000 |
|
| Common stock issued related to acquisitions | — |
| | 81,830 |
|
| Issuance of Series A Preferred Stock | — |
| | 9,691 |
|
| Fair value of assumed stock options | — |
| | 1,178 |
|
See accompanying notes to consolidated financial statements
DIAL GLOBAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands, except share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | (Accumu- lated Deficit) | | Total Stockholders’ (Deficit) Equity |
| | Class A | | Class B | | | |
| | Shares | | Amount | | Shares | | Amount | | | |
| Balance at January 1, 2011 | — |
| | $ | — |
| | 34,237,638 |
| | $ | 342 |
| | $ | 162.948 |
| | $ | (45.586 | ) | | $ | 117,704 |
|
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (10,842 | ) | | (10,842 | ) |
| Acquisition of Westwood One, Inc. | 22,667,591 |
| | 227 |
| | — |
| | — |
| | 82,416 |
| | — |
| | 82,643 |
|
Distribution of Digital Services business to Triton Digital | — |
| | — |
| | — |
| | — |
| | (111,859 | ) | | — |
| | (111,859 | ) |
| Vesting of restricted stock units | 76,731 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 1,280 |
| | — |
| | 1,280 |
|
| Balance at December 31, 2011 | 22,744,322 |
| | 227 |
| | 34,237,638 |
| | 342 |
| | 134,785 |
| | (56,428 | ) | | 78,926 |
|
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (146,692 | ) | | (146,692 | ) |
| Vesting of restricted stock units | 50,001 |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
| Stock-based compensation | — |
| | — |
| | — |
| | — |
| | 6,597 |
| | — |
| | 6,597 |
|
| Balance at December 31, 2012 | 22,794,323 |
| | $ | 228 |
| | 34,237,638 |
| | $ | 342 |
| | $ | 141,381 |
| | $ | (203,120 | ) | | $ | (61,169 | ) |
See accompanying notes to consolidated financial statements
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Note 1 — Description of Business and Basis of Presentation
Description of Business
In this report, “Dial Global,” “Company,” “registrant,” “we,” “us,” and “our” refer to Dial Global, Inc. (together with our subsidiaries) (formerly known as Westwood One, Inc. ("Westwood")). On October 21, 2011 (the "Merger Date"), we announced the consummation of the transactions (the "Merger") contemplated by the Agreement and Plan of Merger, dated as of July 30, 2011 (as amended, the "Merger Agreement"), by and among Westwood, Radio Network Holdings, LLC, a Delaware corporation (since renamed Verge Media Companies LLC, "Merger Sub"), and Verge Media Companies, Inc. ("Verge"). Verge merged with and into Merger Sub, with Merger Sub continuing as the surviving company. For a more detailed description of the credit facilities entered into in connection with the Merger, please refer to Note 4 — Debt.
Pursuant to the Merger Agreement and in connection with the Merger, each issued and outstanding share of previously existing Westwood common stock (22,667,591 shares) was reclassified and automatically converted into one share of Class A common stock without any further action on the part of the holders of Westwood common stock. In connection with the Merger, each outstanding share of common stock of Verge was automatically converted into and exchanged for the right to receive approximately 6.838 shares of Class B common stock. Westwood issued 34,237,638 shares of Class B common stock to Verge stockholders, representing approximately 59% of the issued and outstanding shares of common stock of Westwood on a fully diluted basis. No fractional shares of Class B common stock were issued in connection with the Merger and holders of fractional shares of Class B common stock received a whole share of Class B common stock. In connection with the Merger, Westwood also issued 9,691.374 shares of our Series A Preferred Stock (the “Series A Preferred Stock") to Verge stockholders, as calculated in accordance with the Merger Agreement.
The Merger is accounted for as a reverse acquisition of Westwood by Verge under the acquisition method of accounting in conformity with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805 Business Combinations ("ASC 805"). Under such guidance, the transaction has been recorded as the acquisition of Westwood by the Company. The historical accounting of the Company is that of Verge and the acquisition purchase price of Westwood has been recorded based on the fair value of Westwood on the Merger Date. Verge's prior period common stock balances have been adjusted to reflect the conversion of the Verge shares to Class B common stock at a ratio of approximately 6.838 to 1, with the difference in par value being adjusted in additional paid in capital. See Note 3 — Acquisition of Westwood One, Inc. for information regarding our acquisition of Westwood, including details of the $102,379 consideration exchanged for the Merger.
As described in more detail under Note 15 — Discontinued Operations, on July 29, 2011, Verge's Board of Directors approved a spin-off of the Digital Services business to a related entity owned by its sole stockholder at that time. For all periods presented in this report, the results of the Digital Services business are presented as a discontinued operation and will continue to be presented as discontinued operations in all future filings in accordance with generally accepted accounting principles in the United States.
The consolidated statements of operations and comprehensive loss and consolidated statements of cash flows include Westwood's operations from October 22, 2011 onward. The consolidated balance sheets as of December 31, 2012 and 2011 include the Westwood One, Inc. and its subsidiaries (Predecessor Company) forpurchase accounting balances acquired in the period from January 1, 2009 to April 23, 2009 and Merger.
The consolidated statements of cash flows include the results of the discontinued operations of the Digital Services business for the year ended December 31, 2008,2011, as is allowed by the authoritative guidance in ASC 230 Statement of Cash Flows.
We are organized as a single reporting segment, the Radio business. We are an independent, full-service network radio company that distributes, produces, and/or syndicates programming and services to more than 8,400 radio stations nationwide including representing/selling audio content of third-party producers. We produce and/or distribute over 200 news, sports, music, talk and entertainment radio programs, services, and digital applications, as well as audio content from live events, turn-key music formats, prep services, jingles and imaging. We have no operations outside the United States, but sell to customers outside the United States.
Certain reclassifications to our previously issued financial information have been made to the financial information that is presented in this report to conform to the current period presentation. See Note 2 — Summary of Significant Accounting Policies for additional details.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Going Concern Uncertainty
The financial statements contained herein have been prepared assuming the Company continues as a going concern. As described in more detail under Note 4 — Debt, on November 15, 2012, December 14, 2012, January 15, 2013 and February 28, 2013, we entered into amendments and limited waivers with certain lenders under our $155,000 First Lien Credit Agreement, $85,000 Second Lien Credit Agreement, and $25,000 revolving credit facility (collectively, our “Credit Facilities”). These amendments and waivers , among other things, had the effect of waiving non-compliance and expected non-compliance with certain covenants thereunder through April 16, 2013 (unless such amendments and limited waivers are earlier terminated), including the obligation to comply with our debt leverage and interest coverage covenants as of September 30, 2012, December 31, 2012, and March 31, 2013. In the case of the Second Lien Credit Agreement the obligation to make the $2,824 interest payment due on November 9, 2012 in cash and our obligation to make the $2,981 interest payment due on February 11, 2013 in cash were amended to be payable in kind. In the absence of such amendments and limited waivers, we would have breached these covenants and obligations.
Based on our current financial projections, absent additional debt or equity capital from third parties or the ability to satisfy the conditions precedent or have such conditions precedent waived in each of the A&R First Lien Credit Agreement, A&R Second Lien Credit Agreement and the Priority Second Lien Credit Agreement, we anticipate that we will breach our debt leverage and interest coverage covenants for the quarters ended March 31, 2013 and beyond. Such expected non-compliance is a result of several factors. We believe our 2012 results were adversely impacted by, among other things, late cancellations in ad buys (which we believe was a by-product of the election and renewed economic uncertainty), competitive factors, such as a greater diversity of digital ad platforms (into which ad budgets have flowed) and increased competition from our major competitors, and advertisers' response to controversial statements by a certain nationally syndicated talk radio personality in March 2012.
On February 28, 2013, we entered into the A&R First Lien Credit Agreement and A&R Second Lien Credit Agreement which amend and restate the existing Credit Facilities. In addition, we also entered into the Priority Second Lien Credit Agreement and certain other transaction documents. However, the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and other transaction documents, and the permanent waiver of the non-compliance of certain covenants and obligations in the First Lien Credit Agreement and Second Lien Credit Agreement mentioned above, are subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013).
For further detail regarding the February 28, 2013 transactions, including the New Credit Facilities entered into in connection therewith, please refer to Note 17 — Subsequent Event to the Consolidated Financial Statements.
There can be no assurance that we will be able to satisfy or obtain a waiver of the conditions precedent to the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents. As a result, it is possible that such agreements will not be effective, the temporary waivers of the non-compliance with certain covenants mentioned above with respect to the First Lien Credit Agreement and Second Lien Credit Agreement will be terminated and such non-compliance with certain covenants will become events of default under the Credit Facilities at such time. If such an event of default were to occur, there can be no assurance that the lenders under the Credit Facilities will grant us a waiver on terms acceptable to us, or at all.
In the event of any such events of default under our Credit Facilities which remain uncured and unwaived, our lenders could declare all outstanding indebtedness to be due and payable and pursue their remedies under the underlying debt instruments and the law. In the event of such acceleration or exercise of remedies, there can be no assurance that we will be able to refinance the accelerated debt on acceptable terms, or at all. As a result, if an event of default under the Credit Facilities occurs and results in an acceleration of the Credit Facilities, a material adverse effect on us and our results of operations would likely result or we may be forced to (1) attempt to restructure our indebtedness, (2) cease our operations or (3) seek protection under applicable state or federal laws, including but not limited to, bankruptcy laws. If one or more of foregoing events were to occur, this would raise substantial doubt about the Company's ability to continue as a going concern.
Despite the additional funding from the anticipated recapitalization arrangement, which is subject to certain conditions to be closed after April 16, 2013, our ultimate continued existence is dependent upon our ability to generate sufficient cash flow from operations to support our daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Goodwill Impairment
We normally perform the required impairment testing of goodwill and intangible assets on an annual basis in December of each year. As a result of several factors, which had a significant impact on our bookings and sales, we performed an interim analysis of our goodwill carrying value as required by ASC 350, Intangibles-Goodwill and Other ("ASC 350"). We believe our 2012 results were adversely impacted by, among other things, late cancellations in ad buys, competitive factors, such as a greater diversity of digital ad platforms (into which ad budgets have flowed) and increased competition from our major competitors, and advertisers' response to controversial statements by a certain nationally syndicated talk radio personality in March 2012.
We completed step one of the impairment analysis and concluded that as of September 30, 2012 our fair value was below our carrying value. Step two of the impairment test was initiated but due to the time consuming nature of the analysis and the complexity of determining the fair value of our tangible and intangible assets was not completed by the filing deadline of our Form 10-Q for the three-month and nine-month periods ended September 30, 2012. However, we recorded an estimated goodwill impairment charge of $67,218 when we filed our financial statements for the three and nine months ended September 30, 2012. Upon completion of the full interim review, we recorded an additional goodwill impairment of $24,976 in the fourth quarter of 2012, resulting in a final goodwill impairment charge of $92,194for the year ended December 31, 2012. The increase in the amount of goodwill impairment from our initial estimate of $67,218 to $92,194 was primarily based on an increase in the valuation of our definite lived intangibles assets, which has the effect of reducing the value of our goodwill. We also performed our annual review for impairment of goodwill in December of 2012 and based upon those reviews no further impairment of goodwill was recorded. See Note 7 — Goodwill and Note 12 — Income Taxes for additional details on goodwill and goodwill impairment and the deferred taxes related to goodwill and goodwill impairment.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and on the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/S/ PricewaterhouseCoopers LLP
New York, New York
March 31, 2010
F-3
WESTWOOD ONE, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 2,938 | | | $ | 4,824 | |
| Accounts receivable, net of allowance for doubtful accounts of $1,424 (2010) and $2,723 (2009) | | | 96,557 | | | | 87,568 | |
| Federal income tax receivable | | | — | | | | 12,355 | |
| Prepaid and other assets | | | 18,421 | | | | 20,994 | |
| | | | | | | |
| Total current assets | | | 117,916 | | | | 125,741 | |
| | | | | | | | | |
| Property and equipment, net | | | 37,047 | | | | 36,265 | |
| Intangible assets, net | | | 92,487 | | | | 103,400 | |
| Goodwill | | | 38,945 | | | | 38,917 | |
| Other assets | | | 1,879 | | | | 2,995 | |
| | | | | | | |
TOTAL ASSETS | | $ | 288,274 | | | $ | 307,318 | |
| | | | | | | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 45,907 | | | $ | 40,164 | |
| Amounts payable to related parties | | | 859 | | | | 129 | |
| Deferred revenue | | | 6,736 | | | | 3,682 | |
| Accrued expenses and other liabilities | | | 33,819 | | | | 28,134 | |
| Current maturity of long-term debt | | | — | | | | 13,500 | |
| | | | | | | |
| Total current liabilities | | | 87,321 | | | | 85,609 | |
| | | | | | | | | |
| Long-term debt | | | 136,407 | | | | 122,262 | |
| Deferred tax liability | | | 36,174 | | | | 50,932 | |
| Due to Gores | | | 10,222 | | | | 11,165 | |
| Other liabilities | | | 24,142 | | | | 19,366 | |
| | | | | | | |
TOTAL LIABILITIES | | | 294,266 | | | | 289,334 | |
| | | | | | | |
| | | | | | | | | |
| Commitments and Contingencies (Note 18) | | | | | | | | |
| | | | | | | | | |
STOCKHOLDERS’ (DEFICIT) EQUITY | | | | | | | | |
| Common stock, $.01 par value: authorized: 5,000,000 shares issued and outstanding: 21,314 (2010) and 20,544 (2009) | | | 213 | | | | 205 | |
| Class B stock, $.01 par value: authorized: 3,000 shares; issued and outstanding: 0 | | | — | | | | — | |
| Additional paid-in capital | | | 88,652 | | | | 81,268 | |
| Net unrealized gain | | | — | | | | 111 | |
| Accumulated deficit | | | (94,857 | ) | | | (63,600 | ) |
| | | | | | | |
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | | | (5,992 | ) | | | 17,984 | |
| | | | | | | |
| | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | $ | 288,274 | | | $ | 307,318 | |
| | | | | | | |
See accompanying notes to consolidated financial statements
F-4
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | Year Ended December | | | 24 to December 31, | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Revenue | | $ | 362,546 | | | $ | 228,860 | | | | $ | 111,474 | | | $ | 404,416 | |
| | | | | | | | | | | | | | |
| Operating costs | | | 342,258 | | | | 210,805 | | | | | 111,309 | | | | 357,927 | |
| Depreciation and amortization | | | 18,243 | | | | 21,474 | | | | | 2,584 | | | | 11,052 | |
| Corporate, general and administrative expenses | | | 13,369 | | | | 10,398 | | | | | 4,519 | | | | 16,007 | |
| Goodwill and intangible asset impairment | | | — | | | | 50,501 | | | | | — | | | | 430,126 | |
| Restructuring charges | | | 2,899 | | | | 3,976 | | | | | 3,976 | | | | 14,100 | |
| Special charges | | | 7,816 | | | | 5,554 | | | | | 12,819 | | | | 13,245 | |
| | | | | | | | | | | | | | |
| Total expenses | | | 384,585 | | | | 302,708 | | | | | 135,207 | | | | 842,457 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Operating loss | | | (22,039 | ) | | | (73,848 | ) | | | | (23,733 | ) | | | (438,041 | ) |
| | | | | | | | | | | | | | | | | | |
| Interest expense | | | 23,251 | | | | 14,781 | | | | | 3,222 | | | | 16,651 | |
| Other expense (income) | | | 1,688 | | | | (4 | ) | | | | (359 | ) | | | (12,369 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Loss before income tax | | | (46,978 | ) | | | (88,625 | ) | | | | (26,596 | ) | | | (442,323 | ) |
| Income tax benefit | | | (15,721 | ) | | | (25,025 | ) | | | | (7,635 | ) | | | (14,760 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net loss attributable to common stockholders | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Loss per share: | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | | | | |
| Basic | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| Diluted | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| | | | | | | | | | | | | | | | | | |
| Class B stock | | | | | | | | | | | | | | | | | |
| Basic | | | | | | $ | — | | | | $ | — | | | $ | — | |
| Diluted | | | | | | $ | — | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | | | | |
| Basic | | | 20,833 | | | | 12,351 | | | | | 505 | | | | 490 | |
| Diluted | | | 20,833 | | | | 12,351 | | | | | 505 | | | | 490 | |
| | | | | | | | | | | | | | | | | | |
| Class B stock | | | | | | | | | | | | | | | | | |
| Basic | | | | | | | — | | | | | 1 | | | | 1 | |
| Diluted | | | | | | | — | | | | | 1 | | | | 1 | |
See accompanying notes to consolidated financial statements
F-5
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | For the Year Ended | | | 24 to December 31, | | | | January 1 to | | | For the Year Ended | |
| | | December 31, 2010 | | | 2009 | | | | April 23, 2009 | | | December 31, 2008 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 18,243 | | | | 21,474 | | | | | 2,584 | | | | 11,052 | |
| Goodwill and intangible asset impairment | | | — | | | | 50,501 | | | | | — | | | | 430,126 | |
| Deferred taxes | | | (17,458 | ) | | | (25,038 | ) | | | | (6,873 | ) | | | (13,907 | ) |
| Paid-in-kind interest | | | 5,734 | | | | 4,427 | | | | | — | | | | — | |
| Non-cash equity-based compensation | | | 3,559 | | | | 3,310 | | | | | 2,110 | | | | 5,443 | |
| Change in fair value of derivative liability | | | 1,538 | | | | — | | | | | — | | | | — | |
| Traffic land write-down | | | 321 | | | | 1,852 | | | | | — | | | | — | |
| Loss on disposal of property and equipment | | | 258 | | | | — | | | | | 188 | | | | 1,257 | |
| Gain on sale of marketable securities | | | (98 | ) | | | — | | | | | — | | | | (12,420 | ) |
| Amortization of deferred financing costs | | | 23 | | | | — | | | | | 331 | | | | 1,674 | |
| | | | | | | | | | | | | | | | | | |
| Changes in assets and liabilities, net of effect of business combination: | | | | | | | | | | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (8,989 | ) | | | (3,608 | ) | | | | 10,313 | | | | 13,998 | |
| Decrease (increase) in prepaid and other assets | | | 2,947 | | | | (4,394 | ) | | | | 3,187 | | | | (2,515 | ) |
| Decrease in Federal income tax receivable | | | 12,940 | | | | — | | | | | — | | | | — | |
| Increase (decrease) in deferred revenue | | | 3,054 | | | | 749 | | | | | 536 | | | | (3,418 | ) |
| Increase (decrease) in income taxes payable | | | — | | | | 180 | | | | | 28 | | | | (7,246 | ) |
| Increase (decrease) in accounts payable, accrued expenses and other liabilities | | | 16,591 | | | | (4,142 | ) | | | | 2,861 | | | | 13,736 | |
| Increase (decrease) in amounts payable to related parties | | | 730 | | | | (5,853 | ) | | | | 2,919 | | | | (8,179 | ) |
| | | | | | | | | | | | | | |
| Net change in other assets and liabilities | | | 27,273 | | | | (17,068 | ) | | | | 19,844 | | | | 6,376 | |
| | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | 8,136 | | | | (24,142 | ) | | | | (777 | ) | | | 2,038 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | | |
| Capital expenditures | | | (8,843 | ) | | | (5,184 | ) | | | | (1,384 | ) | | | (7,313 | ) |
| Proceeds from sale of marketable securities | | | 886 | | | | — | | | | | — | | | | 12,741 | |
| Acquisition of business | | | — | | | | (1,250 | ) | | | | — | | | | — | |
| | | | | | | | | | | | | | |
| Net cash (used in) investing activities | | | (7,957 | ) | | | (6,434 | ) | | | | (1,384 | ) | | | 5,428 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | | |
| Proceeds from Revolving Credit Facility | | | 10,000 | | | | 16,000 | | | | | — | | | | — | |
| Repayment of Revolving Credit Facility | | | — | | | | (11,000 | ) | | | | — | | | | — | |
| Repayments of Senior Notes | | | (16,032 | ) | | | — | | | | | — | | | | — | |
| Issuance of common stock | | | 5,000 | | | | — | | | | | — | | | | 22,760 | |
| Payments of capital lease obligations | | | (1,033 | ) | | | (603 | ) | | | | (271 | ) | | | (737 | ) |
| Debt repayments | | | — | | | | (25,000 | ) | | | | — | | | | (104,000 | ) |
| Issuance of Series B Convertible Preferred Stock | | | — | | | | 25,000 | | | | | — | | | | — | |
| Proceeds from term loan | | | — | | | | 20,000 | | | | | — | | | | — | |
| Proceeds from building financing | | | — | | | | 6,998 | | | | | — | | | | — | |
| Issuance of Series A Convertible Preferred Stock and warrants | | | — | | | | — | | | | | — | | | | 74,168 | |
| Termination of interest swap agreements | | | — | | | | — | | | | | — | | | | 2,150 | |
| Deferred financing costs | | | — | | | | — | | | | | — | | | | (1,557 | ) |
| | | | | | | | | | | | | | |
| Net cash (used in) provided by financing activities | | | (2,065 | ) | | | 31,395 | | | | | (271 | ) | | | (7,216 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents | | | (1,886 | ) | | | 819 | | | | | (2,432 | ) | | | 250 | |
| Cash and cash equivalents, beginning of period | | | 4,824 | | | | 4,005 | | | | | 6,437 | | | | 6,187 | |
| | | | | | | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 2,938 | | | $ | 4,824 | | | | $ | 4,005 | | | $ | 6,437 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Supplemental Schedule of Cash Flow Information: | | | | | | | | | | | | | | | | | |
| Cash paid during the period for: | | | | | | | | | | | | | | | | | |
| Interest | | | 15,064 | | | | 12,960 | | | | | — | | | | 10,146 | |
| Other income taxes (refunded) paid, net | | | (15,503 | ) | | | — | | | | | — | | | | 10,179 | |
| Non-cash financing activities | | | | | | | | | | | | | | | | | |
| Fair value of derivative liability | | | 442 | | | | — | | | | | — | | | | — | |
| Cancellation of long-term debt | | | — | | | | — | | | | | 252,060 | | | | — | |
| Issuance of new long-term debt | | | — | | | | 117,500 | | | | | — | | | | — | |
| Preferred stock — conversion to common stock | | | — | | | | (81,551 | ) | | | | — | | | | — | |
| Issuance of common stock for asset acquisition | | | — | | | | 1,045 | | | | | — | | | | — | |
| Class B — conversion to common stock | | | — | | | | (3 | ) | | | | — | | | | — | |
See accompanying notes to consolidated financial statements
F-6
WESTWOOD ONE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor Company | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | Total Stock- | | | Compre- | |
| | | | | | | | | | | | | | | | | | | Additional | | | | | | | Gain (Loss) on | | | (Deficit) | | | Hensive | |
| | | Common Stock | | | Class B Stock | | | Paid-in | | | (Accumulated | | | Available for | | | (Deficit) | | | Income | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit) | | | Sale Securities | | | Equity | | | (Loss) | |
Balance as of January 1, 2008 | | | 87,105 | | | | 872 | | | | 292 | | | | 3 | | | | 290,786 | | | | (69,985 | ) | | | 5,955 | | | | 227,631 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (427,563 | ) | | | — | | | | (427,563 | ) | | $ | (427,563 | ) |
| Comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,688 | ) | | | (5,688 | ) | | | (5,688 | ) |
| Equity based compensation | | | — | | | | — | | | | — | | | | — | | | | 5,443 | | | | — | | | | — | | | | 5,443 | | | | — | |
| Loss on issuance of common stock under equity-based compensation plans | | | 110 | | | | 1 | | | | — | | | | — | | | | (1,727 | ) | | | — | | | | — | | | | (1,726 | ) | | | — | |
| Issuance of common stock | | | 14,038 | | | | 140 | | | | — | | | | — | | | | 22,471 | | | | — | | | | — | | | | 22,611 | | | | — | |
| Issuance of warrants | | | — | | | | — | | | | — | | | | — | | | | 440 | | | | — | | | | — | | | | 440 | | | | — | |
| Tax related to cancellations of vested equity grants | | | — | | | | — | | | | — | | | | — | | | | (4,722 | ) | | | — | | | | — | | | | (4,722 | ) | | | — | |
| Cancellation of warrants | | | — | | | | — | | | | — | | | | — | | | | (19,571 | ) | | | — | | | | — | | | | (19,571 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2008 | | | 101,253 | | | | 1,013 | | | | 292 | | | | 3 | | | | 293,120 | | | | (497,548 | ) | | | 267 | | | | (203,145 | ) | | $ | (433,251 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18,961 | ) | | | — | | | | (18,961 | ) | | $ | (18,961 | ) |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 219 | | | | 219 | | | | 219 | |
| Equity based compensation | | | — | | | | — | | | | — | | | | — | | | | 2,110 | | | | — | | | | — | | | | 2,110 | | | | — | |
| Loss on issuance of common stock under equity-based compensation plans | | | 777 | | | | 7 | | | | — | | | | — | | | | (939 | ) | | | — | | | | — | | | | (932 | ) | | | — | |
| Preferred stock accretion | | | — | | | | — | | | | — | | | | — | | | | (6,157 | ) | | | — | | | | — | | | | (6,157 | ) | | | — | |
| Tax related to cancellations of vested equity grants | | | — | | | | — | | | | — | | | | — | | | | (890 | ) | | | — | | | | — | | | | (890 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of April 23, 2009 | | | 102,030 | | | $ | 1,020 | | | | 292 | | | $ | 3 | | | $ | 287,244 | | | $ | (516,509 | ) | | $ | 486 | | | $ | (227,756 | ) | | $ | (18,742 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
| Successor Company |
| |
Revalued Capital | | | 510 | | | $ | 5 | | | | 292 | | | $ | 3 | | | $ | 2,256 | | | $ | — | | | $ | — | | | $ | 2,264 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (63,600 | ) | | | — | | | | (63,600 | ) | | $ | (63,600 | ) |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 111 | | | | 111 | | | | 111 | |
| Equity based compensation | | | — | | | | — | | | | — | | | | — | | | | 3,310 | | | | — | | | | — | | | | 3,310 | | | | — | |
| Issuance common stock for acquisition | | | 232 | | | | 2 | | | | — | | | | — | | | | 1,043 | | | | — | | | | — | | | | 1,045 | | | | — | |
| Loss on issuance of common stock under equity-based compensation plans | | | 2 | | | | — | | | | — | | | | — | | | | (219 | ) | | | — | | | | — | | | | (219 | ) | | | — | |
| Class B conversion | | | 1 | | | | — | | | | (292 | ) | | | (3 | ) | | | — | | | | — | | | | — | | | | (3 | ) | | | — | |
| Preferred stock conversion | | | 19,799 | | | | 198 | | | | — | | | | — | | | | 81,353 | | | | — | | | | — | | | | 81,551 | | | | — | |
| Preferred stock accretion | | | — | | | | — | | | | — | | | | — | | | | (4,661 | ) | | | — | | | | — | | | | (4,661 | ) | | | — | |
| Tax related to cancellations of vested equity grants | | | — | | | | — | | | | — | | | | — | | | | (1,814 | ) | | | — | | | | — | | | | (1,814 | ) | | | — | |
| Beneficial conversion feature | | | — | | | | — | | | | — | | | | — | | | | 76,887 | | | | — | | | | — | | | | 76,887 | | | | — | |
| Beneficial conversion feature accretion | | | — | | | | — | | | | — | | | | — | | | | (76,887 | ) | | | — | | | | — | | | | (76,887 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2009 | | | 20,544 | | | $ | 205 | | | | — | | | $ | — | | | $ | 81,268 | | | $ | (63,600 | ) | | $ | 111 | | | $ | 17,984 | | | $ | (63,489 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (31,257 | ) | | | — | | | | (31,257 | ) | | $ | (31,257 | ) |
| Comprehensive loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (111 | ) | | | (111 | ) | | | (111 | ) |
| Equity based compensation | | | — | | | | — | | | | — | | | | — | | | | 3,559 | | | | — | | | | — | | | | 3,559 | | | | — | |
| Issuance of common stock to Gores | | | 770 | | | | 8 | | | | — | | | | — | | | | 4,992 | | | | — | | | | — | | | | 5,000 | | | | — | |
| Gores $10,000 equity commitment (see Note 8) | | | — | | | | — | | | | — | | | | — | | | | 442 | | | | — | | | | — | | | | 442 | | | | — | |
| Loss on issuance of common stock under equity-based compensation plans | | | — | | | | — | | | | — | | | | — | | | | (459 | ) | | | — | | | | — | | | | (459 | ) | | | — | |
| Tax related to cancellations of vested equity grants | | | — | | | | — | | | | — | | | | — | | | | (1,150 | ) | | | — | | | | — | | | | (1,150 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2010 | | | 21,314 | | | $ | 213 | | | | — | | | $ | — | | | $ | 88,652 | | | $ | (94,857 | ) | | $ | — | | | $ | (5,992 | ) | | $ | (94,857 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements
F-7
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 1 — Basis of Presentation
Nature of Business
In this report, “Westwood One,” “Company,” “registrant,” “we,” “us” and “our” refer to Westwood One, Inc. We are a provider of programming, information services and content to the radio, television and digital sectors. We are one of the largest domestic outsource providers of traffic reporting services and one of the nation’s largest radio networks, producing and distributing national news, sports, music, talk and entertainment programs, features and live events, in addition to local news, sports, weather, video news and other information programming. We deliver our content to approximately 5,000 radio and 182 television stations in the U.S. We exchange our content with radio and television stations for commercial airtime, which we then sell to local, regional and national advertisers.
From 1994 to 2008, Westwood One was managed by CBS Radio, Inc. (“CBS Radio”, previously known as Infinity Broadcasting Corporation (“Infinity”), a wholly-owned subsidiary of CBS Corporation, pursuant to a management agreement between us and CBS Radio (then Infinity) which was scheduled to expire on March 31, 2009 (the “Management Agreement”)). On October 2, 2007, we entered into a new arrangement with CBS Radio that was approved by stockholders on February 12, 2008 and closed on March 3, 2008. On such date, the Management Agreement terminated. See Note 3 — Related Party Transactions for additional information with respect to the new arrangement.
At December 31, 2010, our principal sources of liquidity were our cash and cash equivalents of $2,938 and $3,781 available to us under our revolving credit facility as described in Note 8 - Debt, which total $6,719 as of the date hereof.
On April 12, 2011, we entered into an amendment to our debt agreements with our lenders because our projections indicated that we would likely not attain sufficient Adjusted EBITDA (as defined in our lender agreements) to comply with our then existing debt leverage covenants in certain fiscal quarters of 2011. As a result of negotiations with our lenders, we entered into a waiver and fourth amendment to the Securities Purchase Agreement which resulted in our previously existing maximum senior leverage ratios (expressed as the principal amount of Senior Notes over our Adjusted EBITDA (as defined in our lender agreements and also set forth below) measured on a trailing, four-quarter basis) of 11.25, 11.0 and 10.0 times for the first three quarters of 2011 being replaced by a covenant waiver for the first quarter and minimum last twelve months (“LTM”) EBITDA thresholds of $4,000 and $7,000, respectively, for the second and third quarters of 2011. Debt leverage covenants for the last quarter of 2011 and the first two quarters in 2012 (the Senior Notes mature on July 15, 2012) remain unchanged. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to reflect a change to minimum LTM EBITDA thresholds and maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the Senior Credit Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 in the Securities Purchase Agreement (applicable to the Senior Notes) are $3,400 and $5,950, respectively, in the Credit Agreement (governing the Senior Credit Facility). In connection with this amendment, Gores agreed to fully subordinate the Senior Notes it holds (approximately $10,222 which is listed under “due to Gores”) to the Senior Notes held by the non-Gores holders, including in connection with any future pay down of Senior Notes from the proceeds of any asset sale, a 5% leverage fee will be imposed effective October 1, 2011 and we agreed to report the status of any merger and acquisition discussions/activity on a bi-weekly basis. Notwithstanding the foregoing, if at any time, we provide satisfactory documentation to our lenders that our debt leverage ratio for any LTM period complies with the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50% of the outstanding amount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee would be eliminated on a prospective basis. The foregoing levels represent the same covenant levels set forth in the Second Amendment to the Securities Purchase Agreement entered into on March 30, 2010, except that the debt covenant level for June 30, 2011 was 5.50 in the Second Amendment. As part of the waiver and fourth amendment, we agreed we would need to comply with a 5.00 covenant level on June 30, 2011, on an LTM basis, for the 5% leverage fee to be eliminated. The 5% leverage fee will be equal to 5% of the Senior Notes outstanding for the period beginning October 1, 2011, and shall accrue on a daily basis from such date until the fee amount is paid in full. The fee shall be payable on the earlier of maturity (July 15, 2012) or the date on which the Senior Notes are paid. Accrued and unpaid leverage fee amounts shall be added to the principal amount of the Senior Notes at the end of each calendar quarter (as is the case with PIK interest on the Senior Notes which accretes to the principal amount on a quarterly basis).
F-8
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
If our operating results continue to decline or we do not meet our minimum Adjusted EBITDA thresholds, and we are unable to obtain a waiver to increase our indebtedness and/or successfully raise funds through an issuance of equity, we would lack sufficient liquidity to operate our business in the ordinary course, which would have a material adverse effect on our business, financial condition and results of operations. If we were then unable to meet our debt service and repayment obligations under the Senior Notes or the Senior Credit Facility, we would be in default under the terms of the agreements governing our debt, which if uncured, would allow our creditors at that time to declare all outstanding indebtedness to be due and payable and materially effect our financial condition and liquidity.
Our Senior Credit Facility and Senior Notes mature on July 15, 2012 and if we are unable to refinance or otherwise repay such indebtedness there would be a material and adverse effect on our business continuity and our financial condition.
In addition, cash flow from operations is a principal source of funds. We have experienced significant operating losses since 2005 as a result of increased competition in our local and regional markets, reductions in national audience levels, and reductions in our local and regional sales force and more recently which has in the past been negatively affected by lower commercial clearance, a decline in our sales force and reductions in national audience levels across the industry and locally at our affiliated stations, and more recently by higher programming fees and station compensation costs. Also, in 2010 and 2009 our operating income has been affected by the economic downturn in the United States and reduction in the overall advertising market. As described in more detail above, as a result of our waiver and fourth amendment to our debt agreements entered into on April 12, 2011 and based on our 2011 projections, which we believe use reasonable assumptions regarding the current economic environment, we estimate that cash flows from operations will be sufficient to fund our cash requirements, including scheduled interest and required principal payments on our outstanding indebtedness, projected working capital needs, and provide us sufficient Adjusted EBITDA (as defined in our lender agreements) to comply with our amended debt covenants for at least the next 12 months.
If our operating income continues to decline, we cannot provide assurances that there will be sufficient liquidity available to us to invest in our business or Adjusted EBITDA to comply with our amended debt covenants.
Refinancing
On April 23, 2009, we completed a refinancing of substantially all of our outstanding long-term indebtedness (approximately $241,000 in principal amount) and a recapitalization of our equity (the “Refinancing”). As part of the Refinancing we entered into a Purchase Agreement (the “Purchase Agreement”) with Gores Radio Holdings, LLC (currently our ultimate parent) (together with certain related entities “Gores”). In exchange for the then outstanding shares of Series A Preferred Stock held by Gores, we issued 75 shares of 7.50% Series A-1 Convertible Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred Stock”). In addition Gores purchased 25 shares of 8.0% Series B Convertible Preferred Stock (the “Series B Preferred Stock” and together with the Series A-1 Preferred Stock, the “Preferred Stock”), for an aggregate purchase price of $25,000.
Additionally and simultaneously, we entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with: (1) holders of our then outstanding senior notes (“Old Notes”) both series of which were issued under the Note Purchase Agreement, dated as of December 3, 2002 and (2) lenders under the Credit Agreement, dated as of March 3, 2004 (the “Old Credit Agreement”). Gores purchased at a discount approximately $22,600 in principal amount of our then existing debt held by debt holders who did not wish to participate in the Senior Notes, which upon completion of the Refinancing was exchanged for $10,797 of the Senior Notes. We also entered into a senior credit facility pursuant to which we have a $15,000 revolving credit facility on a senior unsecured basis and a $20,000 unsecured non-amortizing term loan (collectively, the “Senior Credit Facility”), which obligations are subordinated to the Senior Notes. Gores also agreed to guarantee our Senior Credit Facility and payments due to the NFL for the license and broadcast rights to certain NFL games and NFL-related programming through the 2010-11 season. Gores holds $10,222 (including paid in kind interest (“PIK”)) of the Senior Notes shown in the line item Due to Gores on our balance sheet. Pursuant to the Securities Purchase Agreement, in consideration for releasing all of their respective claims under the Old Notes and the Old Credit Agreement, the participating debt holders collectively received in exchange for their outstanding debt: (1) $117,500 of new senior secured notes maturing July 15, 2012 (the “Senior Notes”); (2) 34,962 shares of Series B Preferred Stock, and (3) a one-time cash payment of $25,000.
F-9
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
At the time of the Refinancing, Gores acquired approximately 75.1% of our then outstanding equity (in preferred and common stock) and our then existing lenders acquired approximately 22.7% of our then outstanding equity (in preferred and common stock). We have considered the ownership held by Gores and our existing debt holders as a collaborative group in accordance with the authoritative guidance. As a result, we have followed the acquisition method of accounting, as required by the authoritative guidance, and have applied the Securities and Exchange Commission (“SEC”) rules and guidance regarding “push down” accounting treatment. Accordingly, our consolidated financial statements and transactional records prior to the closing of the Refinancing reflect the historical accounting basis in our assets and liabilities and are labeled Predecessor Company, while such records subsequent to the Refinancing are labeled Successor Company and reflect the push down basis of accounting for the new fair values in our financial statements. This is presented in our consolidated financial statements by a vertical black line division which appears between the columns entitled Predecessor Company and Successor Company on the statements and relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Refinancing are not comparable.
Based on the complex structure of the Refinancing, a valuation was performed to determine the acquisition price using the Income Approach employing a Discounted Cash Flow (“DCF”) methodology. The DCF method explicitly recognizes that the value of a business enterprise is equal to the present value of the cash flows that are expected to be available for distribution to the equity and/or debt holders of a company. In the valuation of a business enterprise, indications of value are developed by discounting future net cash flows available for distribution to their present worth at a rate that reflects both the current return requirements of the market and the risk inherent in the specific investment.
We used a multi-year DCF model to derive a Total Invested Capital value which was adjusted for cash, non-operating assets and any negative net working capital to calculate a Business Enterprise Value which was then used to value our equity. In connection with the Income Approach portion of this exercise, we made the following assumptions: (1) the discount rate was based on an average of a range of scenarios with rates between 15% and 16%; (2) management’s estimates of future performance of our operations; and (3) a terminal growth rate of 2%. The discount rate and market growth rate reflect the risks associated with the general economic pressure impacting both the economy in general and more specifically and substantially the advertising industry. All costs and professional fees incurred as part of the Refinancing costs totaling $13,895 have been expensed as special charges in 2009 ($12,699 on and prior to April 23, 2009 for the Predecessor Company and $1,196 on and after April 24, 2009 for the Successor Company).
The allocation of the Business Enterprise Value for all accounts at April 24, 2009 was as follows:
| | | | | |
| Current assets | | $ | 104,641 | |
| Goodwill | | | 86,414 | |
| Intangibles | | | 116,910 | |
| Property and equipment | | | 36,270 | |
| Other assets | | | 21,913 | |
| Current liabilities | | | 81,160 | |
| Deferred income taxes | | | 77,879 | |
| Due to Gores | | | 10,797 | |
| Other liabilities | | | 10,458 | |
| Long-term debt | | | 106,703 | |
| | | | |
| Total Business Enterprise Value | | $ | 79,151 | |
| | | | |
On March 31, 2010, we recorded an adjustment to increase goodwill related to a correction of our current liabilities as of April 24, 2009. This under accrual of liabilities of $428 was related to the purchase in cash of television advertising airtime that occurred in the Predecessor Company prior to April 24, 2009.
We recorded an adjustment to goodwill in December 2009 related to a correction of our liabilities for uncertain tax provisions for $3,165 as of April 23, 2009. In the 23-day period ended April 23, 2009, we recorded a charge to special charges for insurance expense of $261 which should have been capitalized and expensed through April 30, 2010. The appropriate adjustments, including a reduction to our opening balance of goodwill of $261 at April 24, 2009, were recorded in the period from April 24, 2009 to December 31, 2009.
F-10
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
On July 9, 2009, Gores converted 3.5 shares of Series A-1 Convertible Preferred Stock into 103,513 shares of common stock (without taking into account the 200 for 1 reverse stock split that occurred on August 3, 2009 as described in more detail below). Pursuant to the terms of our Certificate of Incorporation, the 292 outstanding shares of our Class B common stock were automatically converted into 292 shares of common stock (without taking into account the 200 for 1 reverse stock split that occurred on August 3, 2009 as described in more detail below) because as a result of such conversion by Gores the voting power of the Class B common stock, as a group, fell below ten percent (10%) of the aggregate voting power of issued and outstanding shares of common stock and Class B common stock.
On August 3, 2009, we held a special meeting of our stockholders to consider and vote upon, among other proposals, amending our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 300,000 to 5,000,000 and to amend the Certificate of Incorporation to effect a 200 for 1 reverse stock split of our outstanding common stock (the “Charter Amendments”). On August 3, 2009, the stockholders approved the Charter Amendments, which resulted in the automatic conversion of all shares of preferred stock into common stock and the cancellation of warrants to purchase 50 shares of common stock issued to Gores as part of their investment in our Series A Preferred Stock. There are no longer any issued and outstanding warrants to purchase our common stock or any shares of our capital stock that have any preference over the common stock with respect to voting, liquidation, dividends or otherwise. Under the Charter Amendments, each of the newly authorized shares of common stock has the same rights and privileges as previously authorized common stock. Adoption of the Charter Amendments did not affect the rights of the holders of our currently outstanding common stock nor did it change the par value of the common stock.
The following unaudited pro forma financial summary for the years ended December 31, 2009 and 2008 gives effect to the Refinancing and the resultant acquisition accounting. The pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the Refinancing been completed on the applicable dates of the pro forma financial information.
| | | | | | | | | |
| | | Unaudited Pro Forma | |
| | | Year ended December 31, | |
| | | 2009 | | | 2008 | |
| Revenue | | $ | 340,334 | | | $ | 404,416 | |
| Net loss | | | (78,177 | ) | | | (466,010 | ) |
Financial Statement Presentation
The preparation of our financial statements in conformity with the authoritative guidance of the Financial Accounting Standards Board (“FASB”) for generally accepted accounting principles in the United States (“GAAP”)America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses as well as the disclosuredisclosures of contingent assets and liabilities. Management continually evaluates itsliabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates by their nature are based on judgments and available information. Actual results could differ from those estimates. The most significant assumptions and estimates and judgments includinginvolved in preparing the financial statements include those related to allowances for doubtful accounts, useful lives of property plant and equipment, goodwillthe useful lives of intangible assets, allowance for doubtful accounts, fair values assigned to intangibles, interest rate caps, and intangible assetsstock-based awards, and the valuation of such, barter inventory, fair valuegoodwill.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of stock options granted, forfeiture ratethree months or less at the date of equityacquisition are classified as cash and cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based compensation grants, income taxes and valuation allowances on such anda combination of factors. In circumstances where we become aware of a specific customer's inability to meet our financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other contingencies. Management bases its estimates and judgmentscustomers, we recognize reserves for bad debt based on historical experience and other factors that are believed to be reasonableof bad debts, adjusted for relative improvements or deteriorations in the circumstances. Actual results may differ from those estimates under different assumptions or conditions.
Principlesaging of Consolidation
The consolidated financial statements include the accounts and changes in current economic conditions if necessary. Expected credit losses are recorded as an allowance for doubtful accounts. Receivables are written off when management believes they are uncollectible. The allowance for doubtful accounts is $798 and $238as of all majorityDecember 31, 2012 and wholly-owned subsidiaries. All significant intercompany accounts, transactions and balances have been eliminated in consolidation.2011, respectively.
Segment Information
We manage and report our business in two operating segments: Network Radio and Metro Traffic. Beginning with the first quarter of 2010, we changed how we evaluate segment performance and now use segment revenue and segment operating (loss) income before depreciation and amortization (“OIBDA”) as the primary measure of profit and loss for our operating segments. Administrative functions such as finance, human resources and information systems are centralized. However, where applicable, portions of the administrative function costs are allocated between the operating segments. The operating segments do not share programming content.
F-11
WESTWOOD ONE,DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Property and Equipment
Revenue Recognition
Property and equipment are recorded at cost. We provide for depreciation and amortization using the straight-line method over the assets’ estimated useful lives. We do not depreciate land. Estimated useful lives are as follows:
|
| | |
| Radio, network and communications equipment | | 3 to 10 years |
| Office computers, equipment and software | | 3 to 7 years |
| Leasehold improvements and building | | Shorter of useful life or lease term and 35 years, respectively |
We capitalize external direct costs of materials and services consumed in developing and obtaining internal use computer software, and the payroll and payroll-related costs for employees who are directly associated with, and who devote time to, developing the internal use computer software. Our management’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. We expect to continue to invest in internally-developed software.
The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in the consolidated statements of operations and comprehensive loss. Repairs and maintenance costs that do not extend the useful lives of the assets are expensed as incurred.
Goodwill and Intangible Assets
Our business is largely homogeneous and, as a result, we operate as one reporting unit. Goodwill represents the excess portion of the purchase price that could not be attributed to specific tangible or identified intangible assets recorded in connection with purchase accounting and all of the goodwill is associated with one reporting unit. Acquired intangibles are recorded at fair value as of the acquisition date. Goodwill is not amortized, but tested for impairment at least annually or when changes in circumstances indicate an impairment event may have occurred. Impairment is determined by comparing the estimated fair value of the reporting unit to its carrying amount, including goodwill. We perform our annual impairment testing in our fiscal fourth quarter.
Intangible assets subject to amortization have consisted of advertiser and producer relationships, affiliate service agreements, trade names, customer relationships, technology and beneficial lease interest. The intangible asset values assigned are determined based upon the expected discounted aggregate cash flows to be derived over the life of the assets. As of December 31, 2012, the remaining weighted average remaining amortization period for acquired intangible assets is 9.5 years.
We amortize the value assigned to intangibles at December 31, 2012 as follows:
|
| | |
| Advertiser and producer relationships | | 15 Years |
| Affiliate service agreements | | 10 Years |
| Trade names | | 4 Years |
| Customer relationships | | 4 Years |
| Technology | | 8 Years |
| Beneficial lease interest | | 7 Years |
Intangible assets that have definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators are present, we would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), we would perform the next step, which is to determine the fair value of the asset, and record an impairment, if any. We re-evaluate the value and useful life determinations for these intangible assets each year to determine whether events and circumstances warrant a revision in their value and remaining useful lives. We have determined that there was no impairment of definite-lived intangible assets for the years ended December 31, 2012 and 2011.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Deferred Financing Costs
Deferred financing costs are amortized under the interest method over the term of the debt. Amortization expense was $2,499 and $3,171for the years ended December 31, 2012 and 2011, respectively, and are included in interest expense, net in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2011, deferred financing costs of $1,759 were expensed in the fourth quarter in connection with to Verge's early repayment of its long-term debt at the Merger Date. As of December 31, 2012 and 2011, deferred financing costs of $9,058 and $11,557, respectively, were included in the consolidated balance sheets.
Deferred Rent
We recognize rent expense on leases containing scheduled rent increases by amortizing the aggregate minimum lease payments on a straight-line basis over the lease term.
Revenue isRecognition
Revenues are primarily comprised of network radio advertising. Radio advertising revenues are recognized, net of agency fees and producer fees, when earned, which occurs at the time commercial advertisementsadvertising has aired. Revenue generated from charging fees to radio stations and networks for music libraries, audio production elements, and jingle production services are broadcast. Payments received in advance are deferred until earned and such amounts are included asrecognized upon delivery, or on a componentstraight-line basis over the term of deferred revenue in the accompanying Consolidated Balance Sheet.contract, depending on the terms of the respective contracts.
We consider matters such as credit and inventory risks, among others, in assessing arrangements with our programming and distribution partners.
In those circumstancesinstances where we function as the principal in the transaction, the revenue and associated operating costs are presented on a gross basis in the Consolidated Statement of Operations.basis. In those circumstancesinstances where we function as an agent or sales representative, our effective commission is presented withinas a direct offset to revenue rather than as an expense with no corresponding operating expenses.
Barter transactions represent
Stock-Based Compensation
Under the exchangefair value recognition provisions of commercial announcements for programming rights, merchandise or services. These transactions are recordedASC 718, Compensation-Stock Compensation, cost is measured at the fair market value of the commercial announcements relinquished, orgrant date, based on the fair value of the merchandiseaward and services received. A wide range of factors could materially affectis amortized on a straight-line basis over the fair market value of commercial airtime sold in futurerequisite service periods which would require us to increase or decrease the amount of assets and liabilities and related revenue and expenses recorded from prospective barter transactions.
Revenue is recognized on barter transactions when the advertisements are broadcast. Expenses are recorded when the merchandise or service is utilized. Barter revenue of $15,359, $9,357, $5,357 and $13,152 has been recognized for the year ended December 31, 2010, the period from April 24, 2009 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008, respectively, and barter expenses of $15,623, $8,750, $5,541 and $12,740 have been recognized for the year ended December 31, 2010, the period from April 24, 2009 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008, respectively.
Equity-Based Compensation
We have equity-based compensation plans, which provide for the grant of stock options, restricted stock and restricted stock units. We recognize the cost of the equity-based awards following accepted authoritative guidance and use the estimated fair value of the awards, onwhich is generally the date of grant over their requisite service period. We used the Black-Scholes-Merton option-pricing model to determinevesting periods. Determining the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term over which the stock options awards.
Depreciation
Depreciation is computed usingawards will be outstanding before they are exercised, the straight line method over the estimated useful lives of the assets, as follows:
| | |
Buildings | | 30 years |
Leasehold improvements | | Shorter of economic useful life or lease term |
Recording, broadcasting and studio equipment | | 3 — 10 years |
Furniture, computers, equipment and other | | 3 — 10 years |
Cash Equivalents
We consider all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of these instruments.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses which may result from the inabilityexpected volatility of our customers to make required payments. We base our allowance onstock and the likelihoodnumber of recoverability of accounts receivable by aging category, based on past experience and taking into account current collection trendsstock-based awards that are expected to continue.be forfeited. In order to determine the estimated period of time that we expect employees to hold their share-based options, we have used data on the historical exercise pattern of employees. We use the historical volatility of our common stock in order to estimate future share price trends. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. The risk free interest rate that we use in the option valuation model is based on U.S. treasury zero-coupon bonds with a remaining term similar to the expected term of the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. If economic or specific industry trends worsen beyondthe actual forfeiture rate differs significantly from our estimates, we would be required to increase our allowance for doubtful accounts. Alternatively, if trends improve beyond our estimates, we would be required to decrease our allowance for doubtful accounts. Our estimates are reviewed periodically,stock-based compensation expense and adjustments are reflected through bad debt expense in the period they become known. Changes in our bad debt experience can materially affect our results of operations. Our allowance operations could be materially impacted.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs totaled $341 and $425for bad debts requiresthe years ended December 31, 2012 and 2011, respectively.
Concentration of Credit Risk
Financial instruments, which potentially subject us to consider anticipated collection trendsconcentrations of credit risk, consist primarily of accounts receivable.
Our revenue is generated primarily from companies located in the United States. We perform periodic credit evaluations of our customers’ financial condition and, requires a high degreein certain instances, require payment in advance. Accounts receivable are due principally from large U.S. companies under stated contract terms. We provide for estimated credit losses, as required.
WESTWOOD ONE, INC.Contents
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Program Rights
Program rights are stated at the lowerOur percentage of cost, less accumulated amortization,revenues generated by individual advertising agencies (each with multiple customers) that account for ten percent or net realizable value. Program rightsmore of our revenue and the related liabilitiesaccounts receivable balances are recorded when the license period begins and the program is availableas follows.
|
| | | | | | | | | | | | |
| | | Percent of Revenue | | Percent of Total Accounts Receivable |
| | | Years Ended December 31, | | As of the December 31, |
| | | 2012 | | 2011 | | 2012 | | 2011 |
| Agency A | | 11 | % | | 19 | % | | 8 | % | | 9 | % |
| Agency B | | 12 | % | | 9 | % | | 13 | % | | 5 | % |
| Agency C | | 11 | % | | 5 | % | | 10 | % | | 2 | % |
Income Taxes
We account for use, and are charged to expense when the event is broadcast.
Goodwill
Goodwill represents the excess purchase price of an acquisition over the fair values of the net tangible assets and identifiable intangible assets acquired. We test the carrying value of goodwill for impairment at a “reporting unit” level,income taxes using a two-step approach, at least annually as of December 31 of each year, or more frequently whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the first step, the fair value of each reporting unit is determined. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired. In this case, the second step is to allocate the fair value of the reporting unit to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the actual carrying value of goodwill. If the implied fair value is less than the carrying value, we would be required to recognize an impairment loss for that excess.
We have separate management for the Network Radio and Metro Traffic segments providing discrete financial information and management oversight. Accordingly, we have determined that each division is an operating segment. A reporting unit is the operating segment or a business which is one level below the operating segment. Our reporting units are consistent with our operating segments and impairment has been tested at this level.
In order to estimate the fair values of assets and liabilities a company may use various methods including discounted cash flows, excess earnings, profit split and income methods. Utilization of any of these methods requires that a company make important assumptions and judgments about future operating results, cash flows, discount rates, and the probability of various scenarios, as well as the proportional contribution of various assets to results and other judgmental allocations. We determined that using the discounted cash flow model in its entirety to be the best evaluation of the fair value of our two reporting units.
For the period of April 24 to December 31, 2009 and the year 2008, we determined our goodwill was impaired by $50,401 and $430,126, respectively. See Note 5 — Goodwill for additional information regarding the determination of goodwill impairment.
Intangible Assets
Intangible assets subject to amortization primarily consist of affiliation agreements that were acquired in prior years. Such affiliate contracts, when aggregated, create a nationwide audience that is sold to national advertisers. Upon acquisition, identifiable intangible assets are recorded at fair value. The method of amortizing the intangible asset values reflects, based upon our historical experience, an accelerated rate of attrition in the affiliate base over the expected life of the affiliate relationships. Accordingly, we amortized the value assigned to affiliate agreements on an accelerated basis (periods ranging from 4 to 20 years with a weighted-average amortization period of approximately 8 years) consistent with the pattern of cash flows which are expected to be derived.
F-13
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Impairment of Long-Lived Assets
We evaluate long-lived assets, including identifiable intangible assets with finite lives, whenever a triggering event occurs or changes in circumstances indicate that the carrying amounts of the lowest level of asset grouping for which identifiable cash flows are independent of other assets may not be recoverable. The initial test for impairment compares the asset carrying amounts with the sum of undiscounted cash flows, the individual assets are impaired proportionately limited to their respective estimated fair values. To determine whether an indefinite lived intangible impairment exists, the carrying value of the asset is compared with its fair value. An impairment loss would be recognized to the extent that the respective carrying value exceeds its fair value. Fair value estimates are based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including discounted value of estimated future cash flows, market multiples or appraised valuations.
Income Taxes
We use the asset and liability method, ofwhich establishes financial accounting and reporting standards for the effects of income taxes.taxes that result from an enterprise's activities. Deferred income taxes reflectare recognized for the tax impact of temporary differences between our financial statement and our tax basis of the amount of assets and liabilitiesliabilities. We calculate the deferred income taxes using the enacted tax rate expected to apply to the taxable income for each year in which the deferred tax liability or asset is expected to be settled or realized. In 2012, we recognized for financial reporting purposesa valuation allowance of $28,716. The valuation allowance and the amountsgoodwill impairment were the primary reasons for the variance between the statutory rate and our effective tax rate in 2012. In 2011, we recognized for tax purposes. We classified interest expense and penaltiesa non-cash benefit of $8,639 related to unrecognized tax benefits as income tax expense. With respect toa reduction of our deferred tax assets, we assess the need for a valuation allowance on our net deferred tax assets at each reporting period.December 31, 2011.
The
We adopted the applicable sections of FASB ASC 740-10 that were included in the pre-Codification FASB Interpretation No. 48, Accounting for Uncertainty of Income Taxes as of December 31, 2009. This authoritative guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is recognition, in which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the liability to recognize in the financial statements.
Earnings per Share
Basic earnings,Interest Rate Cap Agreements
From time to time we enter into interest rate cap agreements to manage the risks associated with our variable rate debt. These interest rate caps are not designated as hedges. Accordingly, interest rate cap agreements are recorded at fair value, and included in assets or loss, per shareliabilities, as appropriate. Changes in fair value at each balance sheet date, and upon maturity, are included in interest expense, net in the consolidated statement of operations and comprehensive loss. We were not a party to any interest rate cap agreement as of December 31, 2011. In January 2012, we entered into interest rate cap agreements to manage the risks associated with our variable rate debt as required by our Credit Agreements. These caps fix the interest rate at 3.0% on a notional amount of $122,500 of the outstanding debt, are not designated as hedges and expire on March 31, 2015.
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 — No observable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based on the weighted average numberlowest level of shares of common stock outstanding during each year. Diluted earnings per share are based on the weighted average number of shares of common stock and dilutive securities outstanding during each year. See Note 2 — Earnings Per Share.
Financial Instruments
We may use derivative financial instruments (fixed-to-floating interest rate swap agreements) for the purpose of hedging specific exposures and hold all derivatives for purposes other than trading. All derivative financial instruments held reduce the risk of the underlying hedged item and are designated at inception as hedges with respectinput that is significant to the underlying hedged item. Hedges of fair value exposure are entered into in order to hedge the fair value measurements. Our assessment of the significance of a recognized asset, liability or a firm commitment. Derivative contracts are entered into with major creditworthy institutionsparticular input to minimize the risk of credit loss and are structured to be 100% effective. In 2007, we had designated the interest rate swap agreements as a fair value hedge. In December 2008, we terminated the remaining interest rate swap agreements, resulting in cash proceeds of $2,150, which has been classified as a financing cash inflow in our Statement of Cash Flows. The resulting gain of $2,150 from the termination of the derivative contracts was amortized in the Predecessor Company through April 23, 2009.
As part of the amendments to the debt agreements dated August 17, 2010, Gores committed to purchase $10,000 of our common stock on or prior to February 28, 2011. This commitment contained embedded features that have the characteristics of a derivative that is settled in our common stock. Accordingly, pursuant to authoritative guidance, we determined the fair value measurements requires judgment, and may affect the valuation of the derivative by applyingassets and liabilities being measured, and their placement within the Black-Scholes model using the Monte Carlo simulation to estimate the pricefair value hierarchy.
F-14
DIAL GLOBAL, INC.
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
We did not hold derivative financial instruments at any time during the periods ending April 23, 2009 and December 31, 2009.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of theThe fair value hierarchy and disclosure of the reasons for such transfers. It also requires an entity to maximize the presentationuse of purchases, sales, issuances and settlements within Level 3 of the fair value hierarchy on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures aboutobservable inputs, and valuation techniques should be provided for both recurring and non-recurring fair value measurements. Our disclosures about fair value measurements are presented in Note 9 — Fair Value Measurements. These new disclosure requirements are effective forminimize the period ending September 30, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. Our adoption of the new guidance did not have a material impact on our consolidated financial position or results of operations.
In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force) (“ASU 2010-29”). ASU 2010-29 changes the disclosures of supplementary pro forma information for business combinations. The new standard clarifies that if a public entity completes a business combination and presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under ASC Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective for business combinations with acquisition dates on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. Our adoption of the new guidance did not have a material impact on our consolidated financial position or results of operations.
Reclassifications and Revisions
For the year ended December 31, 2009, we understated our income tax receivable asset due to an error in how the deductibility of certain costs for the twelve months ended December 31, 2009 was determined. This resulted in an additional income tax benefit of $650 recorded in the three months ended March 31, 2010 and the twelve months ended December 31, 2010, that should have been recorded in the successor period ended December 31, 2009. We overstated accounts receivable at December 31, 2009 by $250 in connection with our failure to record a billing adjustment as a result of a renegotiated customer contract and understated accrued expenses for certain general and administrative costs incurred by $278 at December 31, 2009. We also understated accrued liabilities at December 31, 2009 by $375 in connection with our failure to record an employment claim settlement related to an employee termination that occurred prior to 2008, but which was probable and estimable as of December 31, 2009. For the year ended December 31, 2009, we understated our deferred revenue liability for audience deficiency units in error by $919 in connection with recording Metro Traffic Revenue, which was overstated in that period. The Company reduced revenue by $919 during 2010 to correct the deferred revenue liability balance as of December 31, 2010. We have determined that the impact of these adjustments recorded in the first quarter of fiscal 2010 were immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.
We also understated accrued liabilities at December 31, 2009 by $218 in connection with our payroll, but which was probable and estimable as of December 31, 2008. We have determined that the impact of this adjustment recorded in the third quarter of fiscal 2010 was immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.
Finally, we understated our program and operating liabilities by $428 in the predecessor period ended April 23, 2009 and have adjusted our opening balance sheet and goodwill accordingly. We have determined that the impact of this adjustment recorded in the first quarter of 2010 was immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.
F-15
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
For the nine months ended September 30, 2009 and the years ended December 31, 2008 and 2007, we understated liabilities in error related to uncertain income tax exposures arising in the respective periods. These additional income tax exposures related primarily to deductions taken in state filings for which it is more likely than not that those deductions would not be sustained on their technical merits. The amounts of additional tax expense that should have been recorded were $82 in the successor period (April 24 to December 31, 2009), $68 in the predecessor period (January 1 to April 23, 2009), $1,442 in 2008 and $410 in 2007. In addition in 2007, $1,245 should have been recorded to retained deficit upon adoption of the authoritative guidance on uncertain tax positions. Such charges totaling $3,247 were recorded in the fourth quarter of 2009 as an increase to income tax expense of $82, and an adjustment to the opening goodwill of $3,165 in the Successor Company at April 24, 2009. We have determined that the impact of these adjustments recorded in the fourth quarter of 2009 were immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.
On August 3, 2009 at a special meeting of our stockholders, we effected a 200 for 1 reverse stock split of our common stock. This reverse stock split has been reflected in share data and earnings per share data contained herein for all periods presented, unless otherwise indicated. The par value of the common stock was not affected by the reverse stock split and remains at $0.01 per share.
Certain reclassifications to our previously reported financial information have been made to the financial information that appears in this report to conform to the current period presentation.
Note 2 — Earnings Per Share
Prior to the Refinancing, we had outstanding two classes of common stock (common stock and Class B stock) and a class of preferred stock (7.5% Series A Convertible Preferred Stock, referred to herein as the “Series A Preferred Stock”). Both the Class B stock and the Series A Preferred Stock were convertible into common stock. To the extent declared by our Board of Directors (the “Board”), the common stock was entitled to cash dividends of at least ten percent higher than those declared and paid on our Class B stock, and the Series A Preferred Stock was also entitled to receive such dividends on an as-converted basis if and when declared by the Board.
As part of the Refinancing, we issued Series A-1 Preferred Stock and Series B Preferred Stock. To the extent declared by our Board, the Series A-1 Preferred Stock and Series B Preferred Stock were also entitled to receive such dividends on an as-converted basis. The Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock are considered “participating securities” requiring use of the “two-class” method for the computation of basic net incomeunobservable inputs, when measuring fair value.
Loss Per Share
Basic earnings (loss) per share. Losses were not allocated to the Series A Preferred Stock, Series A-1 Preferred Stock or Series B Preferred Stock in the computation of basic earnings per share (“EPS”) as the Series A Preferred Stock, Series A-1 Preferred Stock and the Series B Preferred Stock were not obligated to share in losses. Diluted earnings per share are computed using the “if-converted” method.
Basic EPS excludes the effect of common stock equivalents and is computed using the “two-class” computation method, which divides the sum of distributed earnings to common and Class B stockholders and undistributed earnings allocatedby dividing income available to common stockholders and preferred stockholders on a pro rata basis, after Series A Preferred Stock dividends,(the numerator) by the weighted averageweighted-average number of common shares of common stock outstanding (the denominator) during the period. Shares issued during the period are weighted for the portion of the period that they are outstanding. Diluted earnings per share reflect the potential dilution that could result if securities or other contracts to issue common stock wereare exercised or converted into common stock. Diluted earnings per share assumes the exercise ofCommon stock options using the treasury stock method and the conversion of Class B stock, Series A Preferred Stock, Series A-1 Preferred Stock and Series B Preferred Stock using the “if-converted” method.
F-16
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Common equivalent sharesequivalents are excluded in periods in which they are anti-dilutive. Options, restrictedanti-dilutive and for the years ended December 31, 2012 and 2011, the effect of common stock restricted stock units (“RSUs”)equivalents of 21,394 and 67,824, warrants (see Note 11 — Equity-Based Compensation) and Series A Preferred Stock wererespectively, are excluded from the Predecessor Company calculationscalculation of diluted earningsloss per share because the conversion price, combined exercise price, unamortized fair valueeffect is anti-dilutive. Basic and excess tax benefits were greater thandilutive shares outstanding include the average market price of ourClass A common stock for the periods presented. Options, restricted stock, RSUs, warrants, Series A-1 Preferred Stock and SeriesClass B Preferred Stock were excluded from the Successor Company calculations of diluted earnings per share because the conversion price, combined exercise price, unamortized fair value and excess tax benefits were greater than the average market price of our common stock for the periods presented. EPS calculations for all periods reflect the effects of the 200 for 1 reverse stock split.
The conversion of preferred stock that occurred on August 3, 2009 increased the number of shares of common stock issued and outstanding from 206,263 to 4,062,466 on a pre-split basis, which was reduced to 20,312 sharescombined after the 200adjustment for 1 reverse stock split. While such technically resulted in substantial dilution to our common stockholders, the ownership interest of each of our common stockholders did not change substantially after the conversion of the Preferred Stock intoVerge common stock asinto the Preferred Stock that was issued on April 23, 2009 when our Refinancing closed from the time of its issuance participated on an as-converted basis with respect to voting, dividends and other economic rights as theClass B common stock. Effective August 3, 2009, when the Charter Amendments were approved, the warrants issued to Gores on June 19, 2008 were cancelled.
Instock in connection with the RefinancingMerger.
Comprehensive Loss
For the years ended December 31, 2012 and 2011, our comprehensive loss is equal to our net loss for each of the periods presented.
Contingencies
We accrue for contingent liabilities when it is probable a liability has been incurred and the issuanceamount of the preferred shares,liability can be reasonably estimated and accrue for legal costs as they are incurred.
Restricted Investment
Our sole restricted investment consisted of a certificate of deposit that is collateral for a lease deposit in connection with a New York office lease and is reported in other assets in the consolidated balance sheet. This investment was categorized as a held-to-maturity security (see Note 9 — Fair Value Measurements). As of December 31, 2011, the balance in this restricted investment was $538. The certificate of deposit matured in May 2012 and the proceeds are included in investing activities in the consolidated statement of cash flows.
Reclassifications
Certain amounts in previously issued 2011 financial statements have been reclassified to conform to the 2012 presentation. These reclassifications had no effect on previously reported net income. Due to the impact of the integration process from the Merger, we had determinedreconsidered the classification of the following items in the consolidated statement of operations and comprehensive loss for an increase in costs of revenue of $1,224 and decreases in compensation costs of $589 and other operating costs of $635. We also reclassified $304 from accounts payable to accrued expenses and other liabilities as of December 31, 2011 to conform to the classifications in our 2012 consolidated balance sheet.
Recent Accounting Pronouncements
The adoption of the following accounting standards and updates during 2012 did not result in a significant impact to the consolidated financial statements:
In July 2012, the FASB issued guidance which allows companies to use a qualitative approach to test indefinite-lived intangible assets for impairment. The guidance permits a company to first assess qualitative factors to determine whether it is more likely than not that the preferred shares contained a beneficial conversion feature (“BCF”) that was partially contingent. The BCF was measured as the spread between the effective conversion price and the market price of common stock on the commitment date and then multiplying this spread by the number of conversion shares, as adjusted for the contingent shares. A portion of the BCF had been recognized at issuance and was being amortized using the effective yield method over the period until conversion. The total BCF, which was limited to the carryingfair value of the preferred stock, was $76,887, priorindefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to conversionperform the currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. The authoritative guidance is effective for annual and upon conversion resulted in, among other effects, a deemed dividend that was includedinterim impairment tests performed for fiscal years beginning after September 15, 2012. We early adopted this standard in the earnings per share calculation.third quarter of 2012 and it did not have an impact on our financial statements. We do not have any indefinite-lived intangible assets as of December 31, 2012.
F-17
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
In June 2011, the FASB issued guidance which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of changes in stockholders' (deficit) equity. The amendments in this standard require that all non-owner changes in stockholders' (deficit) equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued additional guidance which indefinitely defers the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. All amendments are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. We adopted this standard in the first quarter of 2012 and it did not have an impact on our financial statements.
| | | | | | | | | | | | | | | | | | |
| | | Earnings Per Share | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | Year Ended | | | 24 to December 31, | | | | January 1 to | | | Year Ended December | |
| | | December 31, 2010 | | | 2009 | | | | April 23, 2009 | | | 31, 2008 | |
Net loss | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) |
| Less: Accumulated Preferred Stock dividends | | | — | | | | (81,548 | ) | | | | (3,076 | ) | | | (3,081 | ) |
| | | | | | | | | | | | | | |
Undistributed losses | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Earnings — Common stock | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | | | |
| Undistributed (losses) allocated to Common stockholders | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
Total (losses) — Common stock, basic | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | | | | | | |
| Undistributed (losses) allocated to Common stockholders | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
Total (losses) — Common stock, diluted | | $ | (31,257 | ) | | $ | (145,148 | ) | | | $ | (22,037 | ) | | $ | (430,644 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Weighted average Common shares outstanding, basic | | | 20,833 | | | | 12,351 | | | | | 505 | | | | 490 | |
Weighted average Common shares outstanding, diluted | | | 20,833 | | | | 12,351 | | | | | 505 | | | | 490 | |
| | | | | | | | | | | | | | | | | | |
Loss per Common share, basic | | | | | | | | | | | | | | | | | |
| Undistributed (losses) — basic | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| | | | | | | | | | | | | | |
Total | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Loss per Common share, diluted | | | | | | | | | | | | | | | | | |
| Undistributed (losses) — diluted | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| | | | | | | | | | | | | | |
Total | | $ | (1.50 | ) | | $ | (11.75 | ) | | | $ | (43.64 | ) | | $ | (878.73 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Loss per share — Class B Stock | | | | | | | | | | | | | | | | | |
Total loss — Class B Stock, basic | | | | | | $ | — | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total loss — Class B Stock, diluted | | | | | | $ | — | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Weighted average Class B shares outstanding: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Basic | | | | | | | — | | | | | 1 | | | | 1 | |
| Diluted | | | | | | | — | | | | | 1 | | | | 1 | |
| | | | | | | | | | | | | | | | | | |
Earnings per Class B share, basic | | | | | | $ | — | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Earnings per Class B share, diluted | | | | | | $ | — | | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
F-18
In May 2011, the FASB issued guidance to clarify and revise the requirements for measuring fair value and for disclosing information about fair value measurements. We adopted this standard in the first quarter of 2012 and it did not have an impact on our financial statements.
In December 2011, the FASB issued guidance requiring companies to disclose information about offsetting assets and liabilities and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance requires retrospective application for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. We do not expect adoption of this guidance to have an impact on our consolidated results of operations and financial condition.
Note 3 — Acquisition of Westwood One, Inc.
The Merger was the only business combination we entered into in 2011. No business combinations were entered into in 2012. Transaction costs associated with the Merger are included in transaction costs in total operating expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2011.
Pursuant to the Merger Agreement and in connection with the Merger, each issued and outstanding share of previously existing Westwood common stock (22,667,591 shares) was reclassified and automatically converted into one share of Class A common stock without any further action on the part of the holders of Westwood common stock. In connection with the Merger, each outstanding share of common stock of Verge was automatically converted into and exchanged for the right to receive approximately 6.838 shares of Class B common stock. Westwood issued 34,237,638 shares of Class B common stock to Verge stockholders, representing approximately 59% of the issued and outstanding shares of common stock of Westwood on a fully diluted basis. In connection with the Merger, Westwood also issued 9,691.374 shares of Series A Preferred Stock (the “Series A Preferred Stock") to Verge stockholders, in accordance with the Merger Agreement. The consideration exchanged for the Merger totaled $102,379, which is comprised of the market value as of the Merger Date of Westwood's Class A common stock of $81,830, the market value of Series A Preferred Stock of $9,691 (calculated by multiplying the number of such preferred shares by the liquidation preference of $1,000 per share), the fair value of the assumed Westwood stock options and RSUs of $1,178 and the purchase accounting consideration exchanged in Verge's purchase of the 24/7 Formats business ("24/7 Formats") of $9,680 (see chart below).
In addition, Westwood, Gores Radio Holdings, LLC ("Gores"), Verge and Triton Media Group LLC ("Triton") entered into the Indemnity and Contribution Agreement, dated as of July 30, 2011 and amended on October 21, 2011, whereby under certain circumstances and subject to certain limitations, Triton agreed to indemnify Westwood if Westwood suffers any losses arising from or directly related to the Digital Services business, and Gores agreed to indemnify Triton if Westwood suffers any losses arising from or directly related to Westwood's sale of its Metro Traffic Business.
The goodwill recorded represents the future economic benefits expected to arise that could not be identified and separately recognized. The goodwill is not deductible for tax purposes.
As part of the Merger, the pre-Merger debt of Westwood and Verge was paid and we, as borrower and guarantor, entered into new credit facilities (described in Note 4 — Debt) that included term loans, revolving credit facilities and paid-in-kind ("PIK") notes.
On July 29, 2011, just prior to the announcement of the Merger, Excelsior Radio Networks, LLC ("Excelsior") exercised an option it held to purchase the 24/7 Formats that it had previously managed and operated pursuant to a Management Agreement with
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Note 3 — Related Party Transactions
Gores Radio Holdings
We haveWestwood. Excelsior paid $4,730 for the 24/7 Formats. This pre-existing relationship is subject to ASC 805 and to the extent such amount is representative of a related partyfavorable or unfavorable settlement of a pre-existing relationship, with Gores, our ultimate parent company. In connection with our Refinancing, Gores createdwe would recognize a holding company which owns approximately 76.4% of our equity, after giving effect to Gores’ purchase of 769 shares of common stock for $5,000 on September 7, 2010 and purchase of 1,186 shares of common stock for $10,000 on February 28, 2011, (see Note 21 — Subsequent Event). Gores also holds $10,222 (including PIK interest) of our Senior Notes because it purchased debt from certain of our former debt holders who did not wish to participate in the issuancegain or loss as of the Senior Notes on April 23, 2009 in connection with our Refinancing. Such debt is classified as Due to Gores on our balance sheet.
We recorded feesdate of the Merger. As such, we recognized a gain of $4,950 related to consultancy and advisory services rendered by, and incurred on behalf of, Gores and Glendon Partners, an operating group affiliated with Gores, as follows:the 24/7 Formats purchase.
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | | | | | For the Period | | | | |
| | | Year Ended December | | | For the Period April 24 | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| | | | | | | | | | | | | | | | | | |
Gores and Glendon fees(1) | | $ | 994 | | | $ | 810 | | | | $ | 984 | | | $ | 250 | |
| Reimbursement of legal fees | | | 15 | | | | 386 | | | | | 1,533 | | | | — | |
Reimbursement of letter-of- credit fees(2) | | | 251 | | | | — | | | | | — | | | | — | |
| Interest on loan | | | 1,575 | | | | 1,225 | | | | | — | | | | — | |
| | | | | | | | | | | | | | |
| | | $ | 2,835 | | | $ | 2,421 | | | | $ | 2,517 | | | $ | 250 | |
| | | | | | | | | | | | | | |
| | |
(1) | | These fees consist of payments for professional services rendered by various members of Gores and Glendon to us in the areas of operational improvement, tax, finance, accounting, legal and insurance/risk management. |
|
(2) | | Reimbursement of a standby letter-of-credit fee incurred and paid by Gores in connection with its guarantee of the revolving credit facility with Wells Fargo, included in interest expense. |
POP Radio
We also have a related party relationship, including a sales representation agreement, with our investee, POP Radio, L.P. (“POP Radio”). We recorded fees as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | | | | | For the Period | | | | |
| | | Year Ended December | | | For the Period April 24 | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Program commission expense | | $ | 1,641 | | | $ | 913 | | | | $ | 416 | | | $ | 2,050 | |
| | | | | | | | | | | | | | |
CBS Radio
On March 3, 2008, we closed the new Master Agreement with CBS Radio, which documents a long-term distribution arrangement through March 31, 2017. As part of the new arrangement, CBS Radio agreed to broadcast certain of our local/regional and national commercial inventory through March 31, 2017 in exchange for certain programming and/or cash compensation. Additionally, the News Programming Agreement, the Technical Services Agreement and the Trademark License Agreement were amended and restated and extended through March 31, 2017. The previous Management Agreement and Representation Agreement were cancelled on March 3, 2008 and $16,300 of compensation previously paid to CBS Radio under those agreements was added to the maximum potential compensation CBS Radio affiliate stations could earn pursuant to their affiliations with us. In addition, all warrants previously granted to CBS Radio were cancelled on March 3, 2008.
F-19
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Expenses incurred for the Representation Agreement and programming and affiliate arrangements are included as a component of operating costs in the accompanying Consolidated Statement of Operations. Expenses incurred for the Management Agreement (excluding warrant amortization) and amortization of the warrants granted to CBS Radio under the Management Agreement are included as a component of corporate general and administrative expenses and depreciation and amortization, respectively, in the accompanying Consolidated Statement of Operations. The expense incurred upon closing of the Master Agreement is included as a component of special charges in the accompanying Consolidated Statement of Operations. The description and amounts regarding related party transactions set forth in these consolidated financial statements and related notes, also reflect transactions between us and Viacom. Viacom is an affiliate of CBS Radio, as National Amusements, Inc. beneficially owns a majority of the voting power of all classes of common stock of each of CBS Corporation and Viacom. As a result of the Charter Amendments approved on August 3, 2009, CBS Radio, which previously owned approximately 15.8%Merger, our operating results include the operations of our common stock, now owns less than 1%the Westwood business from the closing date of our common stock. As a result of this changethe Merger to December 31, 2011. The Westwood business contributed $36,735 and $4,277 in ownershiprevenue and operating loss for the fact that CBS Radio ceased to manage us in March 2008, we no longer consider CBS Radio to be a related party effectiveyear ended December 31, 2011, respectively.
|
| | | | |
| Westwood closing price per share on October 21, 2011 | | $ | 3.61 |
|
| Fair value of 22,667,591 shares of common stock of Westwood | | 81,830 |
|
| Fair value of Series A Preferred Stock issued | | 9,691 |
|
| Fair value of prior service for assumed stock options and RSUs | | 1,178 |
|
| Fair value of 24/7 Formats acquisition (including $4,950 gain from the 24/7 Formats purchase) | | 9,680 |
|
| | | $ | 102,379 |
|
The purchase price for Westwood was allocated as of August 3, 2009 and are no longer recording payments to CBS as related party expenses or amounts due to related parties effective August 3, 2009.follows:
We incurred the following expenses as a result of transactions with CBS Radio or its affiliates |
| | | |
| Cash and cash equivalents | $ | 3,112 |
|
| Accounts receivable | 39,500 |
|
| Prepaid and other assets | 5,541 |
|
| Property and equipment | 25,348 |
|
| Other assets | 5,780 |
|
| Long-term debt | (45,146 | ) |
| Accounts payable | (5,820 | ) |
| Accrued and other current liabilities | (27,233 | ) |
| Other liabilities | (22,060 | ) |
| Deferred tax liability | (32,660 | ) |
| Intangible assets | 71,008 |
|
| Goodwill | 85,009 |
|
| Total Purchase Price | $ | 102,379 |
|
Included in the following periods for which CBS Radio was a related party:
| | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | For the Period | | | | For the Period | | | | |
| | | April 24 to | | | | January 1 to | | | Year Ended December | |
| | | September 30, 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Programming and affiliate arrangements | | $ | 13,877 | | | | $ | 20,884 | | | $ | 57,609 | |
| News agreement | | | 3,623 | | | | | 4,107 | | | | — | |
| Representation agreement | | | — | | | | | — | | | | 15,440 | |
| Management agreement (excluding warrant amortization) | | | — | | | | | — | | | | 610 | |
| Warrant amortization | | | — | | | | | — | | | | 1,618 | |
| Payment upon closing of Master Agreement | | | — | | | | | — | | | | 5,000 | |
| | | | | | | | | | | |
| | | $ | 17,500 | | | | $ | 24,991 | | | $ | 80,277 | |
| | | | | | | | | | | |
Summary of related party expense by expense category:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | | | | | For the Period | | | | |
| | | Year Ended December | | | For the Period April 24 | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | to December 31, 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Operating costs | | $ | 1,641 | | | $ | 18,413 | | | | $ | 25,407 | | | $ | 75,099 | |
| Depreciation and amortization | | | — | | | | — | | | | | — | | | | 1,618 | |
| Corporate, general and administrative | | | — | | | | — | | | | | — | | | | 610 | |
| Special charges | | | 1,009 | | | | 1,196 | | | | | 2,517 | | | | 5,250 | |
| Interest expense | | | 1,826 | | | | 1,225 | | | | | — | | | | — | |
| | | | | | | | | | | | | | |
| | | $ | 4,476 | | | $ | 20,834 | | | | $ | 27,924 | | | $ | 82,577 | |
| | | | | | | | | | | | | | |
F-20
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Note 4 — Property and Equipment
Propertyproperty and equipment is recorded at cost and is summarized as follows:
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| | | | | | | | | |
| Land, buildings and improvements | | $ | 11,572 | | | $ | 10,830 | |
| Recording, broadcasting and studio equipment | | | 24,862 | | | | 20,581 | |
| Furniture, computers, equipment and other | | | 15,738 | | | | 11,592 | |
| | | | | | | |
| | | | 52,172 | | | | 43,003 | |
| Less: Accumulated depreciation and amortization | | | 15,125 | | | | 6,738 | |
| | | | | | | |
| Property and equipment, net | | $ | 37,047 | | | $ | 36,265 | |
| | | | | | | |
Depreciation expense is summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | Year Ended December | | | 24 to December 31, | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Depreciation expense | | $ | 8,387 | | | $ | 6,738 | | | | $ | 2,354 | | | $ | 8,652 | |
On December 17, 2009, we entered into an agreementother liabilities categories above are land, building and debt related to sella sale leaseback of our Culver City properties and lease back the properties over a ten-year term (with two five-year renewal options). Upon closing at December 31, 2009, we received proceeds of $6,998, incurred costs for commissions, fees and closing costs of $1,252 and placed $673 in escrow for a portion of the repairs to be conducted on the properties. We used $3,500 of these proceeds to pay down our Senior Notes on March 31, 2010, in accordance with the terms of the Waiver and First Amendment to the Securities Purchase Agreement entered into on October 14, 2009 by us and the noteholders party thereto. This transactionthat did not qualify as a sale for accounting purposes as certain third party guarantees included in the agreement are considered continuing involvement under accounting guidance. We currently expect the existence of our continuing involvement to remain for the entiretysales recognition treatment. The remaining term of the lease period. Under the terms of the building financing, the Company made rental payments in the firstis approximately seven years with two five year of approximately $875, plus operating expense reimbursement, including a 2% management fee. Thereafter, base rental paymentsrenewal options. We are subject to an annual increase equal to 3.5% in years 2 through 5responsible for required repairs, replacements and the greater of 3.5% or the increase in the consumer price index in years 6 through 10. As part of the closing, weimprovements for our Culver City properties and issued a letter of credit for $219$219 (the equivalent of three months base rent) in lieu of a security depositdeposit. The building is depreciated over its estimated remaining economic life of 35 years and the debt principal is reduced by the monthly rental payments using the effective interest method whereby a portion of the lease payment is recorded to interest expense and the remaining to reduce the principal. The purchase accounting allocations have been recorded in the accompanying consolidated financial statements as of, and for the period subsequent, to the Merger Date. During the quarter ended March 31, 2012, we recorded adjustments to decrease goodwill by $951 associated with: (1) an increase in (x) property and equipment of $2,410, (y) other liabilities of $2,684, and (z) deferred tax liabilities of $108 related to our Culver City properties; and (2) an increase in intangible assets of $1,831, and a decrease in deferred tax liabilities of $714 related to the fair value of the affiliate service agreements and insertion orders (in intangible assets) as of the Merger Date. During the quarter ended September 30, 2012, we recorded an adjustment to decrease goodwill by $184, other liabilities by $152, deferred tax liabilities by $104 and prepaid and other assets by $72 as a result of a true-up of tax rates and operating loss carryforwards. The valuation of the net assets acquired and allocation of the consideration transferred has been finalized as of December 31, 2012.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The following unaudited pro forma financial summary gives effect to the Merger and the resultant acquisition accounting treatment and assumes the Merger had occurred as of January 1, 2011. The adjustments include amortization expense associated with acquired identifiable intangible assets, interest expense associated with bank borrowings to fund the acquisitions and elimination of transactions costs incurred in fiscal year 2011 that are directly related to the Merger and do not have a continuing impact on operating results. The pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the Merger been completed on the dates set forth in the pro forma financial information.
|
| | | |
| | Unaudited Pro Forma |
| | Year Ended December 31, 2011 |
| Revenue | | $275,463 |
| Operating loss | | (12,448 | ) |
| Loss from continuing operations | | (30,885 | ) |
| Net loss per basic and diluted share | | $(0.54) |
Note 4 — Debt
As described in Note 1 — Description of Business and Basis of Presentation above, as part of the Merger that closed on October 21, 2011, Verge's then outstanding debt and Westwood's then outstanding debt was repaid and on the Merger Date, we and our subsidiaries, as borrower and subsidiary guarantors, respectively, entered into Credit Facilities and PIK Notes that are described below.
Credit Facilities
The First Lien Credit Agreement provides for (1) a term loan in an aggregate principal amount of $155,000 (the “First Lien Term Loan Facility”), (2) a $25,000 revolving credit facility, $5,000 of which is available for letters of credit (the “Revolving Credit Facility” and, together with the First Lien Term Loan Facility, the “First Lien Credit Facilities”) and (3) an uncommitted incremental facility in the amount of up to $25,000, of which $10,000 may be used to increase the amount of the Revolving Credit Facility. The Second Lien Credit Agreement provides for a term loan in an aggregate principal amount of $85,000 (the “Second Lien Term Loan Facility” and, together with the First Lien Term Loan Facility, the “Term Loan Facilities”; the Term Loan Facilities collectively with the Revolving Credit Facility, the “Credit Facilities”). Concurrently with the consummation of the Merger, the full amount of the Term Loan Facilities was drawn, $9,600 in the Revolving Credit Facility was drawn, and approximately $2,020 of letters of credit were either rolled into the First Lien Credit Facilities or issued in order to backstop existing letters of credit under the lease. Pursuantprior credit agreements of Westwood and Excelsior. Westwood's and Excelsior's prior credit agreements were repaid as of the consummation of the Merger.
As of December 31, 2012, the outstanding balance of our Revolving Credit Facility was $20,000 and total outstanding letters of credit were $4,976, providing $24 of availability under the Revolving Credit Facility. As of December 31, 2011, the outstanding balance of our Revolving Credit Facility was $4,600 and total outstanding letters of credit were $2,020, providing $18,380 of availability under the Revolving Credit Facility.
Each of the Revolving Credit Facility and First Lien Term Loan Facility has an original maturity of five years. The Second Lien Term Loan Facility has an original maturity of five years and nine months. The principal amount of the First Lien Term Loan Facility has scheduled quarterly installments equal to2.5% (per annum) of the original principal amount of the First Lien Term Loan Facility payable beginning March 31, 2012 and increases by an additional 2.5% per year for the first four and three-quarter years, with the balance scheduled to be paid at maturity. The entire amount of the Second Lien Term Loan Facility is payable at maturity.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The difference between the December 31, 2012 carrying value of the aggregate of the First Lien Term Loan Facility and Second Lien Term Loan Facility of $230,201 and original principal amount of $240,000 reflects (1) the unamortized portion of the original issue discount of $8,748 recognized upon issuance of the underlying Credit Facilities, which is being amortized through the maturity date of November 15, 2015 and (2) the repayment of $3,875 of the First Lien Term Loan Facility for the year ended December 31, 2012, offset in part by the $2,824 of interest on the Second Lien Term Loan Facility which per the amendments and waivers was paid in kind and therefore added to the principal balance. First Lien Term Loan Facility repayments are; $7,750, $11,625, $15,500 and $116,250 for 2013, 2014, 2015 and 2016, respectively, and the Second Lien Term Loan Facility repayment is $87,824 in 2017, according to the current Credit Facility. On February 28, 2013, in connection with the recapitalization we made a payment of $5,000 for the First Lien Term Loan Facility, in excess of the required $7,750 for 2013 as noted above.
On November 15, 2012, December 14, 2012, January 15, 2013 and February 28, 2013, we entered into amendments and limited waivers with certain lenders under our $155,000 First Lien Credit Agreement, $85,000 Second Lien Credit Agreement, and $25,000 revolving credit facility (collectively, our “Credit Facilities”). These amendments and waivers, among other things, have the effect of waiving non-compliance and expected non-compliance with certain covenants thereunder through April 16, 2013 (unless such amendments and limited waivers are earlier terminated), including the obligation to comply with our debt leverage and interest coverage covenants as of September 30, 2012, December 31, 2012, and March 31, 2013. In the case of the Second Lien Credit Agreement our obligation to make the $2,824 interest payment due on November 9, 2012 in cash and our obligation to make the $2,981 interest payment due on February 11, 2013 in cash were amended to be payable in kind. In the absence of such amendments and limited waivers, we would have breached these covenants and obligations. We classified these Credit Facilities and the related original issue discount to current liabilities and the deferred financing costs to current assets as of December 31, 2012, as a result of the amendments and limited waivers expiring within one year.
On February 28, 2013, we entered into the A&R First Lien Credit Agreement and A&R Second Lien Credit Agreement which amended and restated the existing Credit Facilities. In addition, we also entered into the Priority Second Lien Credit Agreement and certain other transaction documents. However, the effectiveness of the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and other transaction documents, and the permanent waiver of the non-compliance of certain covenants and obligations in the First Lien Credit Agreement and Second Lien Credit Agreement mentioned above, are subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), and there can be no assurance that we will be able to satisfy or obtain waiver of such conditions.
For further detail regarding the February 28, 2013 transactions, including the New Credit Facilities entered into in connection therewith, please refer to Note 17 — Subsequent Event to the Consolidated Financial Statements.
PIK Notes
In connection with the Merger, we also issued $30,000 in aggregate principal amount of PIK Senior Subordinated Unsecured PIK Notes ("PIK Notes”) to Gores, certain entities affiliated with Oaktree Capital Management, L.P. ("Oaktree") and certain entities affiliated with Black Canyon Capital LLC ("Black Canyon"). The PIK Notes are unsecured and accrue interest at the rate of 15.0% per annum, which compounds quarterly for the first five years and will compound annually thereafter, mature on the six-year three-month anniversary of the issue date and are subordinated in right of payment to the Credit Facilities. As described in more detail in Note 17 — Subsequent Event, these PIK Notes will be converted into equity of the Company upon the closing of the recapitalization.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The components of our debt are as follows:
|
| | | | | | | |
| | December 31, 2012 | | December 31, 2011 |
First Lien Term Loan Facility (1) | $ | 151,125 |
| | $ | 3,875 |
|
| Less: original issue discount | (6,726 | ) | | — |
|
Second Lien Term Loan Facility (2) | 87,824 |
| | — |
|
| Less: original issue discount | (2,022 | ) | | — |
|
Revolving Credit Facility (3) | 20,000 |
| | — |
|
| Total current portion long-term debt | 250,201 |
| | 3,875 |
|
First Lien Term Loan Facility (1) | — |
| | 151,125 |
|
| Less: original issue discount | — |
| | (8,793 | ) |
Second Lien Term Loan Facility (2) | — |
| | 85,000 |
|
| Less: original issue discount | — |
| | (2,465 | ) |
| PIK Notes | 35,774 |
| | 30,875 |
|
Revolving Credit Facility (3) | — |
| | 4,600 |
|
| Total non-current portion long-term debt | $ | 35,774 |
| | $ | 260,342 |
|
| Total long-term debt | $ | 285,975 |
| | $ | 264,217 |
|
| |
| (1) | The effective interest rate on the First Lien Term Loan Facility as of December 31, 2012 and 2011 was 8.00%. |
| |
| (2) | The effective interest rate on the Second Lien Term Loan Facility as of December 31, 2012 and 2011 was 13.00%. |
| |
| (3) | The effective interest rate on the Revolving Credit Facility as of December 31, 2012 and 2011 was 8.00% and 8.75%, respectively. |
The amortization of the original issue discount and deferred financing costs included in interest expense, net in the consolidated statements of operations and comprehensive loss are as follows:
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Deferred financing amortization | | $ | 2,499 |
| | $ | 3,171 |
|
| Original issue discount amortization | | 2,510 |
| | 492 |
|
| Total | | $ | 5,009 |
| | $ | 3,663 |
|
At December 31, 2012, our principal sources of liquidity were our cash and cash equivalents of $8,445 and borrowing availability of $24 under our Revolving Credit Facility, which equals $8,469 in total liquidity. As of December 31, 2012, we have classified the Credit Facilities and related deferred financing costs as current liabilities and current assets, respectively, in the consolidated balance sheets.
Interest Rate Cap Contracts
From time to time, we enter into interest rate cap contracts to manage interest rate risk. Such contracts cap the borrowing rates on floating debt to provide a hedge against the risk of rising rates. We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposure that may adversely impact expected future cash flows and by evaluating hedging opportunities.
By using derivative financial instruments to hedge exposure to changes in interest rates, we expose ourself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the lease,interest rate cap contract. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with limited exceptions, we will remain responsible for required repairs, replacementsinterest rate cap contracts is managed by establishing and improvements tomonitoring parameters that limit the Culver City properties.types and degree of market risk that may be undertaken.
In 2001,January 2012, we entered into interest rate cap contracts to manage the risks associated with our variable rate debt as required by our Credit Agreements. These contracts cap the interest rate at 3.0% on a capital lease for satellite transponders totaling $6,723. The allocationnotional amount of $122,500 of the Business Enterprise Valueoutstanding debt,
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
are not designated as hedges and expire on March 31, 2015. The initial one-time payment for the capital lease at April 24, 2009these interest rate cap contracts was $7,355. Accumulated amortization$233. Expense related to the capital lease was $6,775 and $5,787 asinterest rate cap contracts of$223 is included in interest expense for the year ended December 31, 20102012, and 2009, respectively.
Note 5 — Goodwill
Goodwill representswas determined by the excess of cost over fair value of net assets of businesses acquired. In accordance with authoritative guidance,change in the value assigned to goodwill and indefinite lived intangible assets is not amortized to expense, but rather the estimated fair value of the reporting unitinterest rate cap contracts as of December 31, 2012. The fair value of the interest rate cap contracts at December 31, 2012 is compared$10 and is included in other assets.
Note 5 — Related Party Transactions
Management Agreement
From 2006 to 2011, Excelsior managed and operated eight 24/7 Formats pursuant to a Management Agreement with Westwood. Under the agreement, Excelsior had the option to purchase the 24/7 Formats and on July 29, 2011, it exercised its carryingoption and paid $4,730 for the purchase of the 24/7 Formats. For the year ended December 31, 2011, we recorded expenses of $1,540 for fees paid to Westwood for the 24/7 Formats and included these fees in other operating costs in the consolidated statements of operations and comprehensive loss.
Transition Services
On July 29, 2011, Excelsior entered into a transition services agreement with Triton Digital, Inc. (“Triton Digital”) to provide it with access to and use of certain premises leased by us and related services for a monthly fee of $22 plus related facilities expenses. This agreement is effective until such time as the support and use of the various facilities is terminated. The termination date for various services may occur at various times but no later than April 2014. Any termination earlier than the stated termination date must be mutually agreed upon by the parties. Fees related to the transition services for the years ended December 31, 2012 and 2011 are $264 and $110, respectively, and are included as credits in other operating costs in the consolidated statements of operations and comprehensive loss.
Digital Reseller Agreement
On July 29, 2011, Verge entered into a Digital Reseller Agreement with Triton Digital, pursuant to which it agreed to provide, at its sole expense and on an exclusive basis (subject to certain exceptions), for four years, services to Triton Digital customarily rendered by network radio sales representatives in the United States in exchange for a commission. By mutual agreement of the parties, the Digital Reseller Agreement terminated on December 31, 2012. Revenue related to the agreement for the years ended December 31, 2012 and 2011 is $3,002 and $1,780, respectively.
PIK Notes and Senior Notes
As of December 31, 2012 and December 31, 2011, the total amount of PIK Notes classified as long-term debt payable to related parties in the consolidated balance sheets, is $35,774 and $30,875, respectively, of which $33,465 and $28,883, respectively, are held by our major stockholders: Gores and certain entities affiliated with Triton. Interest expense for the related party PIK Notes was $4,582 and $819for the years ended December 31, 2012 and 2011, respectively, and is included in interest expense in the consolidated statements of operations and comprehensive loss. See Note 4 — Debt for additional details on these PIK Notes.
Prior to the Merger, senior notes, classified as long-term debt payable to related parties in the consolidated balance sheets, were held by Verge's major stockholders, Oaktree and Black Canyon, the latter of which was a related party until the Merger Date, and certain members of management. Interest expense related to the senior notes of $15,577 was accrued for the year ended December 31, 2011 and is included in interest expense in the consolidated statements of operations and comprehensive loss. These senior notes were repaid upon the Merger.
Other Related Party Transactions
For the years ended December 31, 2012 and 2011, we recognized approximately $2,689 and $5,000 in revenue, respectively, and $1,224 and $2,000 in operating income, respectively, from radio stations in which Oaktree has (directly or indirectly) a financial interest.
We entered into a joint venture in December 2011 with a media partner, which was terminated in December 2012. We made an initial capital contribution of $1 and held a 50% voting interest in the joint venture and agreed to lend to the joint venture up to
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
$2,000 over the course of three years for working capital purposes. For the year ended December 31, 2012, we loaned $850 to the joint venture. We were repaid $925, comprising loan principal repayment of the $850 loan and accrued interest income related to the loan of $75, which we recorded in interest expense, net in the consolidated statements of operations and comprehensive loss. Loans to related parties earned interest at least an annual basisrate of ten percent. No equity income was recorded for the year ended December 31, 2012 for this investment.
A summary of related party revenue, other operating costs and interest expense are as follows:
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Revenue | | $ | 5,691 |
| | $ | 6,780 |
|
| Other operating costs | | 1,201 |
| | 4,642 |
|
| Interest expense, net | | 4,507 |
| | 16,396 |
|
Note 6 — Property and Equipment
The components of our property and equipment are as follows:
|
| | | | | | | |
| | December 31, 2012 | | December 31, 2011 |
| Radio and communications equipment | $ | 19,757 |
| | $ | 17,575 |
|
| Leasehold improvements, building and land | 16,429 |
| | 13,580 |
|
| Office computers, equipment and software | 15,363 |
| | 13,842 |
|
| Property and equipment | 51,549 |
| | 44,997 |
|
| Accumulated depreciation | (24,165 | ) | | (16,519 | ) |
| Property and equipment, net | $ | 27,384 |
| | $ | 28,478 |
|
Depreciation expense associated with property and equipment is $7,646 and $5,214, for the years ended December 31, 2012 and 2011, respectively. This included depreciation on capitalized lease assets of $19for the year ended December 31, 2011.
Note 7 — Goodwill
In September 2011, the FASB issued Accounting Standards Update 2011-08 that simplified how entities test for goodwill impairment. This authoritative guidance permits entities to first assess qualitative factors to determine if therewhether it is a potential impairment. Ifmore likely than not that the fair value of thea reporting unit is less than its carrying value,amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. We adopted this guidance for our annual goodwill impairment test that was conducted as of December 31, 2011. Goodwill is not amortized, but tested for impairment at least annually or when changes in circumstances indicate an impairment lossevent may have occurred. In performing the 2011 goodwill impairment test, we assessed the relevant qualitative factors and concluded that it is recordedmore likely than not that the fair value of our reporting unit is greater than its carrying amount. After reaching this conclusion, no further testing was performed. The qualitative factors we considered included, but were not limited to, general economic conditions, our outlook for business activity, our recent and forecasted financial performance and the extentprice of our common stock.
The recording of goodwill from acquisitions is guided by the principles of ASC 805 that defines goodwill as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
We normally perform the required impairment testing of goodwill on an annual basis in December of each year. The annual impairment evaluation for goodwill involves significant estimates made by management. The discounted cash flow analysis requires various judgmental assumptions about sales, operating margins, growth rates and discount rates. Assumptions about sales, operating margins and growth rates are based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data as of such measurement date. Changes in estimates could have a material effect on the carrying amount of
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
goodwill in future periods. As a result of several factors which had a significant impact on our 2012 bookings and sales, we performed an interim analysis as of September 30, 2012 of our goodwill carrying value as required by ASC 350. We believe our 2012 results were adversely impacted by, among other things, late cancellations in ad buys, competitive factors, such as a greater diversity of digital ad platforms (into which ad budgets have flowed) and increased competition from our major competitors, and advertisers' response to controversial statements by a certain nationally syndicated talk radio personality in March 2012.
In accordance with ASC 350, a two-step process is used to test goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value to its carrying value including goodwill. Goodwill is considered impaired if the carrying value exceeds the estimated fair value. Upon indication of impairment a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unitunit's goodwill with its carrying value.
To estimate our fair value for step one, we utilized a combination of income and market approaches to estimate the fair value of the reporting unit. The income approach involves discounting future estimated cash flows. The discount rate is the value-weighted average of the reporting unit's estimated cost of equity and debt ("cost of capital") derived using, both known and estimated customary market metrics. We perform sensitivity tests with respect to growth rates and discount rates used in the income approach. In applying the market approach, valuation multiples are derived from historical and projected operating data of selected guideline companies, evaluated and adjusted, if necessary, based on our strengths and weaknesses relative to the selected guideline companies, and then applied to the appropriate historical and/or projected operating data to arrive at an indication of fair value. We evaluated the income and market approach each time a goodwill impairment assessment was performed and gave consideration to the relative reliability of each approach at that time. We weighted the results of this impairment review giving a greater weight to the income approach because it provided a better indication of value given the operating differences between the Company and the guideline companies included in the market approach.
Although we generally perform our annual impairment test as of December 31each year, as noted above we performed an interim impairment test as of September 30, 2012. We completed step one of the impairment analysis and concluded that as of September 30, 2012 our fair value was below our carrying value. Step two of the impairment test was initiated but due to the time consuming nature of the analysis and the complexity of determining the fair value of our tangible and intangible assets, is less than their carrying value. On an annual basis and uponit was not completed prior to the occurrence of certain events, we are required to perform impairment tests on our identified intangible assets with indefinite lives, including goodwill, and long-lived assets which testing could impact the valuefiling of our business.
F-21
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Prior toSeptember 30, 2012 Form 10-Q, therefore, we recorded an estimated goodwill impairment charge of $67,218 as of September 30, 2012. Upon completion of the fourth quarter 2008,full interim review we operated as a single reportable operating segment: the salerecorded an additional goodwill impairment of commercial time. As part of our re-engineering initiative implemented$24,976 in the fourth quarter of 2008, we installed separate management 2012, resulting in a final goodwill impairment charge of $92,194for the Network Radio and Metro Traffic segments providing discrete financial information and management oversight. Accordingly, we have determined that each division is an operating segment. A reporting unit is the operating segment or a business which is one level below the operating segment. Our reporting units are consistent with our operating segments and impairment has been tested at this level.
As a result of the Refinancing, we have followed the acquisition method of accounting, as described by the authoritative guidance. Accordingly, we have revalued our assets and liabilities using our best estimate of current fair value which was calculated using the income approach and were based on our then most current forecast. The assumptions underlying our forecasted values were derived from our then best estimates including the industry’s general forecast of the advertising market which assumed an improvement in the economy and in advertising market conditions in the later half of 2009. The majority of goodwill is not expected to be tax deductible.year ended December 31, 2012. The increase in the amount of goodwill impairment from our initial estimate of $67,218 to $92,194 was primarily based on an increase in the valuation of our definite lived intangibles assets, which has the effect of reducing the value of our goodwill. We also performed our annual review for impairment of goodwill in December of 2012 and based upon those reviews no further impairment of goodwill was primarily attributablerecorded.
In September 2005, Verge purchased the assets of Backtrax Radio Network (“Backtrax”). Backtrax was eligible to deferred taxes associated with the fair value of our intangible assets (see Note 6 — Intangible Assets) and deferred taxes arising from the cancellation of our prior indebtedness. Our consolidated financial statements prior to the closing of the Refinancing reflect the historical accounting basis in our assets and liabilities and are labeled Predecessor Company, while the periods subsequent to the Refinancing are labeled Successor Company and reflect the push down basis of accounting for the fair values which were allocated to our segments based on the Business Enterprise Value of each.
Based on the complex structure of the Refinancing, a valuation was performed to determine the acquisition price using the Income Approach employing a Discounted Cash Flow (DCF) methodology. The DCF method explicitly recognizes that the value of a business enterprise isreceive an annual earn-out equal to the present value26.5% of the cash flows that are expected to be available for distribution to the equity and/or debt holders of a company. In the valuation of a business enterprise, indications of value are developed by discounting future net cash flows available for distribution to their present worth at a rate that reflects both the current return requirements of the market and the risk inherentprofits, as defined in the specific investment.
As partasset purchase agreement, for a period of our annual impairment testseven years, which ended September 30, 2012. We recorded earn-out payments of goodwill$53 and indefinite lived intangible assets at $67 during the years ended December 31, 2010, we performed a Step 1 analysis by comparing our calculated fair value based on our forecast to our current carrying value of each of the reporting units. The results indicated a potential impairment for Network Radio2012 and we performed a Step 2 analysis to compare the implied fair value of goodwill with the carrying value of goodwill. As a result of the Step 2 analysis we determined that goodwill was not impaired as of December 31, 2010. In connection with the Income Approach portion of the 2010 exercise, we made the following assumptions: (1) the discount rate used was 10%; (2) management’s estimates of future performance of our operations; and (3) a terminal growth rate of 3%.
In 2009, the Metro Traffic television upfronts (where advertisers purchase commercial airtime for the upcoming television season several months before the season begins)2011, which in prior years concluded in the second quarter, were extended through Augustrespectively. No additional payments related to complete the upfront advertising sales. During this period, advertisers were slow to commit to buying commercial airtime for the third quarter of 2009. We believed that the conclusion of the Metro Traffic television upfronts would help bring more clarity to both purchasers and sellers of advertising; however, once such upfronts concluded in August, it became increasingly evident from our quarterly bookings, backlog and pipeline data that the downturn in the economy was continuing and affecting advertising budgets and orders. The decrease in advertising budgets and orders is evidenced by our revenue decreasing to $78,474 in the third quarter of 2009 from $96,299 in the third quarter of 2008, which represents a decrease of approximately 18.5%. These conditions, namely the weak third quarter of 2009 and the likely continuation of the current economic conditions into the fourth quarter of 2009 and the immediate future, caused us to reduce our forecasted results for the remainder of 2009 and 2010. We believe these new forecasted results constituted a triggering event and therefore we conducted a goodwill impairment analysis. The new forecast would more likely than not reduce the fair value of one or more of our reporting units below its carrying value. Accordingly, we performed a Step 1 analysis in accordance with the authoritative guidance by comparing our recalculated fair value based on our new forecast to our current carrying value. The results indicated impairment in our Metro Traffic segment and we performed a Step 2 analysis to compare the implied fair value of goodwill for Metro Traffic with the carrying value of its goodwill. As a result of the Step 2 analysis we recorded a non-cash charge of $50,401. The remaining value of our goodwill at Backtrax are required after December 31, 2009 was $38,917. The majority of the goodwill impairment charge is not deductible for income tax purposes.
F-22
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)2012.
In 2009, we used a multi-year DCF model to derive a Total Invested Capital value which was adjusted for cash, non-operating assets and any negative net working capital to calculate a Business Enterprise Value which was then used to value our equity. In connection with the Income Approach portion of this exercise, we made the following assumptions: (1) the discount rate was based on an average of a range of scenarios with rates between 15% and 16%; (2) management’s estimates of future performance of our operations; and (3) a terminal growth rate of 2%. The discount rate and market growth rate reflect the risks associated with the general economic pressure impacting both the economy in general and more specifically and substantially the advertising industry.
In 2008, we determined that our goodwill was impaired and recorded impairment charges totaling $430,126 ($206,053 in the second quarter and $224,073 in the fourth quarter). The remaining value of our goodwill at December 31, 2008 was $33,988.
In the fourth quarter 2008, in conjunction with the change to two reporting units, we determined that solely using the income approach was the best evaluation of the fair value of our two reporting units. In prior periods, we evaluated the fair value of our reporting unit based on a weighted average of the income approach (75% weight) and the quoted market price of our stock (25% weight). In using the income approach to test goodwill for impairment as of December 31, 2008, we made the following assumptions: (1) the discount rate was 14%; (2) market growth rates were based upon management’s estimates of future performance and (3) terminal growth rates were in the 2% to 3% range. The discount rate reflects the volatility of our operating performance and our common stock. The market growth rates and operating performance estimates reflect the current general economic pressures impacting both the national and a number of local economies, and specifically, national and local advertising revenues in the markets in which our affiliates operate.
Earlier in 2008, as a result of a continued decline in our operating performance and stock price, caused in part by reduced valuation multiples in the radio industry, we determined a triggering event had occurred and as a result performed an interim test to determine if our goodwill was impaired at June 30, 2008. The interim test resulted in an impairment of goodwill and accordingly, we recorded a non-cash charge of $206,053. The goodwill impairment charge is substantially non-deductible for tax purposes. In connection with the income approach portion of the goodwill impairment test as of June 30, 2008, we used the following assumptions: (1) the discount rate was 12%; (2) market growth rates that were based upon management’s estimates of future performance of our operations and (3) terminal growth rates were in the 2% to 3% range. The discount rate reflects the volatility of our operating performance and our common stock. The market growth rates and operating performance estimates used reflected the general economic pressures impacting both the national and a number of local economies, and specifically, national and local advertising revenues in the markets in which our affiliates operate as of June 30, 2008.
Determining the fair value of our reporting units requires our management to make a number of judgments about assumptions and estimates that are highly subjective and that are based on unobservable inputs. The actual results may differ from these assumptions and estimates; and it is possible that such differences could have a material impact on our financial statements.
As noted above, we are required to test our goodwill on an annual basis or whenever events or changes in circumstances indicate that these assets might be impaired. As a result, if the current economic trends continue and the credit and capital markets continue to be disrupted, it is possible that we may record further impairments in the future.
F-23
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | |
| | | Total | | | Metro Traffic | | | Network Radio | |
Predecessor Company | | | | | | | | | | | | |
| Balance at January 1, 2008 | | $ | 464,114 | | | $ | 327,495 | | | $ | 136,619 | |
| Goodwill impairment | | | (430,126 | ) | | | (303,703 | ) | | | (126,423 | ) |
| | | | | | | | | | |
| Balance at December 31, 2008 | | | 33,988 | | | | 23,792 | | | | 10,196 | |
| | | | | | | | | | |
| |
| Balance at April 23, 2009 | | $ | 33,988 | | | $ | 23,792 | | | $ | 10,196 | |
| | | | | | | | | | |
| | |
| | | | | | | | | | | | | |
Successor Company | | | | | | | | | | | | |
| Balance at April 24, 2009 | | $ | 86,414 | | | $ | 61,354 | | | $ | 25,060 | |
| | | | | | | | | | | | | |
Adjustments to opening balance(1) | | | 2,904 | | | | 2,052 | | | | 852 | |
| Goodwill impairment | | | (50,401 | ) | | | (50,401 | ) | | | — | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 38,917 | | | | 13,005 | | | | 25,912 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
Adjustments to opening balance(2) | | | 28 | | | | 144 | | | | (116 | ) |
| | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 38,945 | | | $ | 13,149 | | | $ | 25,796 | |
| | | | | | | | | | |
| | |
(1) | | We recorded an adjustment to goodwill in December 2009 related to our liability for uncertain tax positions $3,165 as of April 23, 2009. In the 23-day period ended April 23, 2009, we recorded a charge to special charges for insurance expense of $261 which should have been capitalized and expensed through April 30, 2010. The appropriate adjustments, including an adjustment to our opening balance of goodwill at April 24, 2009, were recorded in the period from April 24, 2009 to December 31, 2009. |
|
(2) | | On March 31, 2010, we recorded a prior period adjustment of $28 to increase goodwill related to a correction of our current liabilities as of April 24, 2009. |
|
| | | |
| Balance January 1 2011 | $ | 80,909 |
|
| Westwood acquisition | 86,144 |
|
| Backtrax additional consideration | 67 |
|
| Balance at December 31, 2011 | 167,120 |
|
| Goodwill impairment | (92,194 | ) |
| Westwood acquisition purchase accounting adjustments | (1,135 | ) |
| Backtrax additional consideration | 53 |
|
| Balance at December 31, 2012 | $ | 73,844 |
|
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Gross amounts of goodwill, accumulated impairment losses and carrying amount of goodwill as of December 31, 2010 are2012 is as follows:
| | | | | | | | | | | | | |
| | | Total | | | Metro Traffic | | | Network Radio | |
| Goodwill | | $ | 89,346 | | | $ | 63,550 | | | $ | 25,796 | |
| Accumulated impairment losses from April 24, 2009 to December 31, 2010 | | | (50,401 | ) | | | (50,401 | ) | | | — | |
| | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 38,945 | | | $ | 13,149 | | | $ | 25,796 | |
| | | | | | | | | | |
NOTE 6 |
| | | |
| Goodwill at cost | $ | 166,038 |
|
| Accumulated impairment losses | (92,194 | ) |
| Balance at December 31, 2012 | $ | 73,844 |
|
Note 8 — Intangible Assets
As a result of the conditions described in Note 5 — Goodwill above, namely the weak third quarter of 2009 and the likely continuation of the economic conditions into the fourth quarter of 2009 and early 2010, in the third quarter of 2009, we reduced our forecasted results for the remainder of 2009 and 2010. We believed these new forecasted results constituted a triggering event and therefore we conducted an impairment analysis of our indefinite and definite lived intangible assets. A fair value appraisal, using the discounted cash flow method, was conducted on our trademarks and an impairment of $100 was recorded for the reduction in the value of the Metro Traffic trademarks.
We purchased Jaytu (d/b/a Sigalert), whose assets are primarily included in software and technology, in the fourth quarter of 2009. The fair value of the additional intangible asset was $2,295 (see Note 7 — Acquisitions and Investments) and is included in software and technology.
F-24
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
In the third quarter of 2009, we failed to attain our forecast which constituted a trigger event under authoritative guidance. Based on a comparison of carrying values to undiscounted cash flows for our definite lived assets, we concluded there was no impairment on our definitive lived intangible assets.
Our annual impairment test of indefinite lived intangible assets at December 31, 2010 and 2009, indicated that there was no impairment when we compared the estimated fair value of these assets to our current carrying value.
In the fourth quarter of 2010, we failed to attain our forecast which constituted a trigger event under authoritative guidance. Based on a comparison of carrying values to undiscounted cash flows for our definite lived assets, we concluded there was no impairment on our definitive lived intangible assets.
Intangible assets by asset type and estimated life as of December 31, 2010 and 2009 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, 2010 | | | As of December 31, 2009 | |
| | | | | Gross | | | | | | | Net | | | Gross | | | | | | | Net | |
| | | Estimated | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying | |
| | | Life | | Value | | | Amortization | | | Value | | | Value | | | Amortization | | | Value | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Trademarks | | Indefinite | | $ | 20,800 | | | $ | — | | | $ | 20,800 | | | $ | 20,800 | | | $ | — | | | $ | 20,800 | |
| Affiliate relationships | | 10 years | | | 72,100 | | | | (12,163 | ) | | | 59,937 | | | | 72,100 | | | | (4,953 | ) | | | 67,147 | |
| Software and technology | | 5 years | | | 7,896 | | | | (2,473 | ) | | | 5,423 | | | | 7,896 | | | | (890 | ) | | | 7,006 | |
| Client contracts | | 5 years | | | 8,930 | | | | (3,343 | ) | | | 5,587 | | | | 8,930 | | | | (1,363 | ) | | | 7,567 | |
| Leases | | 7 years | | | 980 | | | | (240 | ) | | | 740 | | | | 980 | | | | (100 | ) | | | 880 | |
| Insertion orders | | 9 months | | | — | | | | — | | | | — | | | | 8,400 | | | | (8,400 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | $ | 110,706 | | | $ | (18,219 | ) | | $ | 92,487 | | | $ | 119,106 | | | $ | (15,706 | ) | | $ | 103,400 | |
| | | | | | | | | | | | | | | | | | | | | |
F-25
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2012 | | December 31, 2011 |
| | Weighted-
Average
Remaining
Amortization
Period (years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| Advertiser and producer relationships | 10.1 | | $ | 103,901 |
| | $ | (33,580 | ) | | $ | 70,321 |
| | $ | 103,901 |
| | $ | (26,653 | ) | | $ | 77,248 |
|
| Affiliate service agreements | 8.8 | | 69,091 |
| | (8,245 | ) | | 60,846 |
| | 65,745 |
| | (1,271 | ) | | 64,474 |
|
| Trade names | 1.5 | | 150 |
| | (93 | ) | | 57 |
| | 1,780 |
| | (1,415 | ) | | 365 |
|
| Customer relationships | 1.5 | | 400 |
| | (250 | ) | | 150 |
| | 400 |
| | (150 | ) | | 250 |
|
| Technology | 5.5 | | 410 |
| | (128 | ) | | 282 |
| | 410 |
| | (77 | ) | | 333 |
|
| Beneficial lease interests | 1.7 | | 1,200 |
| | (899 | ) | | 301 |
| | 1,200 |
| | (724 | ) | | 476 |
|
| Insertion orders | 0 | | — |
| | — |
| | — |
| | 3,432 |
| | (663 | ) | | 2,769 |
|
| | | | $ | 175,152 |
| | $ | (43,195 | ) | | $ | 131,957 |
| | $ | 176,868 |
| | $ | (30,953 | ) | | $ | 145,915 |
|
The changes in the carrying amount of intangible assets are as follows:
|
| | | |
| Balance at January 1, 2011 | $ | 86,643 |
|
| Additions - Westwood acquisition | 69,177 |
|
| Amortization | (9,905 | ) |
| Balance at December 31, 2011 | 145,915 |
|
| Amortization | (15,789 | ) |
| Westwood acquisition purchase accounting adjustment | 1,831 |
|
| Balance at December 31, 2012 | $ | 131,957 |
|
Amortization expense for the years ended December 31, 20102012 and 2009 are as follows:2011 is $15,789 and $9,905, respectively.
| | | | | | | | | | | | | |
| Predecessor Company |
| | | Total | | | Metro Traffic | | | Network Radio | |
| Balance at January 1, 2009 | | $ | 2,660 | | | $ | — | | | $ | 2,660 | |
| Amortization | | | (231 | ) | | | — | | | | (231 | ) |
| | | | | | | | | | |
| Balance at April 23, 2009 | | $ | 2,429 | | | $ | — | | | $ | 2,429 | |
| | | | | | | | | | |
| | |
| | |
| Successor Company |
| Balance at April 24, 2009 | | $ | 116,910 | | | $ | 83,280 | | | $ | 33,630 | |
| | | | | | | | | | | | | |
| Additions | | | 2,296 | | | | 2,296 | | | | — | |
| Amortization | | | (15,706 | ) | | | (11,661 | ) | | | (4,045 | ) |
| Trademark impairment | | | (100 | ) | | | (100 | ) | | | — | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 103,400 | | | | 73,815 | | | | 29,585 | |
| | | | | | | | | | | | | |
| Amortization | | | (10,913 | ) | | | (7,590 | ) | | | (3,323 | ) |
| | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 92,487 | | | $ | 66,225 | | | $ | 26,262 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Gross carrying value | | $ | 110,806 | | | $ | 78,876 | | | $ | 31,930 | |
| Accumulated amortization | | | (18,219 | ) | | | (12,551 | ) | | | (5,668 | ) |
| Accumulated impairment losses | | | (100 | ) | | | (100 | ) | | | — | |
| | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 92,487 | | | $ | 66,225 | | | $ | 26,262 | |
| | | | | | | | | | |
Amortization expense related to intangible assets is summarized as follows:DIAL GLOBAL, INC.
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | Year Ended December | | | 24 to December 31, | | | | January 1 to | | | Year Ended December | |
| | | 31, 2010 | | | 2009 | | | | April 23, 2009 | | | 31, 2008 | |
| Amortization expense | | $ | 10,913 | | | $ | 15,706 | | | | $ | 230 | | | $ | 2,400 | |
We estimate aggregate amortization expense for intangibles for fiscal year 2011, 2012, 2013, 2014 and 2015 will be approximately $10,900, $10,900, $10,500, $8,000 and $7,400, respectively.
F-26
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Note 7 — Acquisitions and Investments
On December 31, 2009, we closed the acquisition of Jaytu (d/b/a Sigalert), for which the purchase price allocation was primarily to software and technology assets. The purchase price was $2,500, which consisted of a cash payment of $1,250 and the issuance of 232,277 shares of our common stock valued at $5.38 per share (or approximately $1,250). For accounting purposes, the 232,277 shares of our common stock were recorded at a fair value of $1,045 (based on a per share price of $4.50). Under the purchase agreement, members of Jaytu could earn up to an additional $1,500 in cash upon the delivery and acceptance of certain traffic products in accordance with certain specifications mutually agreed upon by the parties, including commercial acceptance and/or first usage of the products by our television affiliates. As of December 31, 2010, $1,063 of the potential additional payments of $1,500 had been earned and $250 had been paid to the members of Jaytu. The remaining $437 of these potential payments could still be earned by members of Jaytu in the future if the previously agreed specifications are met. The operations and assets of Jaytu (d/b/a Sigalert) are included in the Metro Traffic segment.
On December 22, 2008, we entered into a License and Services Agreement with TrafficLand which provides us with a three-year license to market and distribute TrafficLand services and products. Concurrent with the execution of the License Agreement, we entered into an option agreement with TrafficLand granting us the right to acquire 100% of the stock of TrafficLand pursuant to the terms of a merger agreement which the parties negotiated and placed in escrow. We did not exercise our right under the option agreement and therefore the License Agreement will continue until December 31, 2011. In early 2011, we paid $300 to maintain our exclusive license to market and distribute TrafficLand services and products through December 31, 2011.
On March 29, 2006, our cost method investment in The Australia Traffic Network Pty Limited was converted to 1,540 shares of common stock of Global Traffic Network, Inc. (“GTN”) in connection with the initial public offering of GTN on that date. The investment in GTN was sold during the quarter ended September 30, 2008 and we received proceeds of approximately $12,741 and realized a gain of $12,420. Such gain is included as a component of otherAmortization expense (income) in the Consolidated Statement of Operations.
On October 28, 2005, we became a limited partner of POP Radio pursuant to the terms of a subscription agreement dated as of the same date. As part of the transaction, effective January 1, 2006, we became the exclusive sales representative of the majority of advertising on the POP Radio network for five years, until December 31, 2010, unless earlier terminated by the express terms of the sales representative agreement. This agreement was extended to December 31, 2011 on December 31, 2010. We hold a 20% limited partnership interest in POP Radio. No additional capital contributions are required by any of the limited partners. This investment is being accounted for under the equity method. The initial investment balance wasde minimis, and our equity in earnings of POP Radio through December 31, 2010 wasde minimis. Pursuant to the terms of a 2006 recapitalization, if and when one of the other partners elects to exercise warrants it received in connection with the transaction, our limited partnership interest in POP Radio will decrease from 20% to 6%. As of December 31, 2010, these warrants were outstanding.
Note 8 — Debt:
Our current financial condition has caused us to obtain waivers to the agreements governing our indebtedness and to institute certain cost saving measures. If our financial condition does not improve, we may need to take additional actions designed to respond to or improve our financial condition and we cannot assure you that any such actions would be successful in improving our financial position. As a result of our current financial position we have taken certain actions designed to respond to and improve our current financial position.
On April 23, 2009, we closed the Refinancing and entered into our Securities Purchase Agreement and a Senior Credit Facility. At the time of the Refinancing, the Senior Credit Facility included a $20,000 unsecured non-amortizing term loan and a $15,000 revolving credit facility that included a $2,000 letter of credit sub-facility, on a senior unsecured basis. Our existing debt of $146,629 consists of: $111,629 under the Senior Notes maturing July 15, 2012 (which includes $10,222 due to Gores) and the Senior Credit Facility, consisting of a $20,000 unsecured, non-amortizing term loan and a$20,000 revolving credit facility (of which $15,000 was outstanding on December 31, 2010). The term loan and revolving credit facility (i.e., the “Senior Credit Facility”) mature on July 15, 2012 and are guaranteed by subsidiaries of the Company and Gores. At the time of the Refinancing, the Senior Notes bore interest at 15.0% per annum, payable 10% in cash and 5% PIK interest. The PIK interest accretes and is added to principal quarterly, but is not payable until maturity. As of December 31, 2010 and 2009, the accrued PIK interest was $10,161 and $4,427, respectively. Loans under our existing Credit Agreement (which govern the Senior Credit Facility) bear interest at our option at either LIBOR plus 4.5% per annum (with a LIBOR floor of 2.5%) or a base rate plus 4.5% per annum (with a base rate floor of the greater of 3.75% and the one-month LIBOR rate).
F-27
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Since the time of our Refinancing, we have entered into three amendments to our debt agreements with our lenders (on October 14, 2009, March 30, 2010 and August 17, 2010, respectively). In each case, our underperformance against our financial projections caused us to reduce our forecasted results. With the exception of our revised projections at the time of our October 2009 amendment (where we requested and received a waiver of our covenant to be measured on December 31, 2009, on a trailing four-quarter basis), our projections have indicated that we would attain sufficient Adjusted EBITDA to comply with the debt leverage covenants then in place. Notwithstanding this, in both of the 2010 amendments, management did not believe there was sufficient cushion in our projections of Adjusted EBITDA to predict with any certainty that we would satisfy such covenants given the unpredictability in the economy and our business. Additionally, given our constrained liquidity on June 30, 2010 and our revised projections in place at such time, management believed it was prudent to renegotiate amendments to our debt agreements to enhance our available liquidity in addition to modifying our debt leverage covenants. These negotiations resulted in the August 17, 2010 amendment in which Gores agreed to purchase an additional $15,000 of common stock. As a result thereof, 769 shares were issued to Gores on September 7, 2010 for approximately $5,000 and 1,186 shares were issued to Gores on February 28, 2011, the date Gores satisfied the $10,000 Gores equity commitment by purchasing the shares at a per share price of $8.43, calculated in accordance with the trailing 30-day weighted average of our common stock’s closing price pursuant to the purchase agreement, dated August 17, 2010, between Gores and us. Because the $10,000 investment by Gores was to be made based on a trailing 30-day weighted average of our common stock’s closing share price for the 30 consecutive days ending on the tenth day immediately preceding the date of the stock purchase, and additionally included a collar (e.g., a $4.00 per share minimum and a $9.00 per share maximum price), the Gores $10,000 equity commitment was deemed to contain embedded features having the characteristics of a derivative to be settled in our common stock. Accordingly, pursuant to authoritative guidance, we determined the fair value of this derivative by applying the Black-Scholes model using the Monte Carlo simulation to estimate the price of our common stock on the derivative’s expiration date and estimated the expected volatility of the derivative by using the aforementioned trailing 30-day weighted average closing price of our common stock. On August 17, 2010, we recorded an asset of $442 related to the aforementioned $10,000 Gores equity commitment. On December 31, 2010, the fair market value of such Gores equity commitment was a liability of $1,096 resulting in other expense of $1,538 for the year ended December 31, 2010. The derivative expired on February 28, 2011, the date Gores satisfied the $10,000 Gores equity commitment (See Note 21 — Subsequent Events).
As a result of the third amendment to the Securities Purchase Agreement entered into on August 17, 2010, our debt leverage covenants were modified to 11.25 times for the three quarters beginning on September 30, 2010, then stepping down to 11.0, 10.0, and 9.0 times in the last three quarters of 2011 and 8.0 and 7.5 times in the first two quarters of 2012. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the Senior Credit Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the levels of 11.25 in the Securities Purchase Agreement (applicable to the Senior Notes) are 12.95 in the Credit Agreement (governing the Senior Credit Facility). We accrued additional fees of $2,433 related to amending our credit agreements in the year ended December 31, 2010 recorded as interest expense. Also in connection with Gores’ agreement to increase its guarantee by $5,000 on our revolving credit facility, Wells Fargo agreed to increase the amount thereof from $15,000 to $20,000 which provided us with necessary additional liquidity for working capital purposes.
On March 31, 2010, June 4, 2010 and November 30, 2010, we repaid $3,500, $12,000 and $532, respectively, of the Senior Notes in accordance with the amendments to our agreements related to our debt covenants.
As of December 31, 2008, prior to the closing of the Refinancing, our debt consisted of an unsecured, five-year $120,000 term loan and a five-year $75,000 revolving credit facility (collectively, the “Old Facility”). Interest on the Old Facility was variable and payable at a maximum of the prime rate plus an applicable margin of up to 0.75% or LIBOR plus an applicable margin of up to 1.75%, at our option. The Old Facility contained covenants relating to dividends, liens, indebtedness, capital expenditures and restricted payments, as defined, interest coverage and leverage ratios. As a result of an amendment to our Old Facility in the first quarter of 2008, we provided security to our lenders (including holders of our Old Notes) on substantially all of our assets and amended our allowable total debt covenant to 4.0 times Annualized Consolidated Operating Cash Flow through the remaining term of the Old Facility.
F-28
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Prior to April 23, 2009, we also had $200,000 in Old Notes which we issued on December 3, 2002, which consisted of: 5.26% Senior Notes due November 30, 2012 (in an aggregate principal amount of $150,000) and 4.64% Senior Notes due November 30, 2009 (in an aggregate principal amount of $50,000). Interest on the Old Notes was payable semi-annually in May and November. The Old Notes contained covenants relating to leverage and interest coverage ratios that were identical to those contained in our Old Facility.
Long-term debt, including current maturities of long-term debt and due to Gores, for the years ended December 31, 2010 and 2009 are as follows:
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| Senior Notes | | | | | | | | |
Senior Secured Notes due July 15, 2012(1) | | $ | 101,407 | | | $ | 110,762 | |
Due to Gores(1) | | | 10,222 | | | | 11,165 | |
| Senior Credit Facility | | | | | | | | |
Term Loan(2) | | | 20,000 | | | | 20,000 | |
Revolving Credit Facility(2) | | | 15,000 | | | | 5,000 | |
| | | | | | | |
| | | $ | 146,629 | | | $ | 146,927 | |
| | | | | | | |
| | |
(1) | | The applicable interest rate on such debt is 15.0%, which includes 5.0% PIK interest which accrues and is added to principal on a quarterly basis. PIK interest of the Senior Notes is payable at maturity. |
|
(2) | | The applicable interest rate on such debt is 7.0% as of December 31, 2010 and 2009. The interest rate is variable and is payable at the maximum of (i) LIBOR plus 4.5% (with a LIBOR floor of 2.5%) or (ii) the base rate plus 4.5% (with a base rate floor equal to the greater of 3.75% or the one-month LIBOR rate), at our option. |
The aggregate maturities of long-term debt for the next five years and thereafter pursuantis as follows:
|
| | | | |
| Year Ending December 31: | | |
| 2013 | | $ | 14,200 |
|
| 2014 | | 14,082 |
|
| 2015 | | 13,887 |
|
| 2016 | | 13,887 |
|
| 2017 | | 13,887 |
|
| 2018 and thereafter | | 62,014 |
|
| Total amortization expense | | $ | 131,957 |
|
Note 9 — Fair Value Measurements
Our financial instruments consist primarily of cash and cash equivalents, restricted investment, accounts receivable, accounts payable, producer payables, accrued expenses, long-term debt, and interest rate cap contracts. The carrying values of our cash and cash equivalents, restricted investment, accounts receivable, producer and accounts payable, and accrued expenses and other liabilities approximate fair value due to the short maturity of these instruments.
The fair value of our long-term debt (Level 2) is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The fair value of our long-term debt (Level 2) is estimated using a discounted cash flow technique that incorporates a market interest yield curve (taking into consideration our credit rating where applicable) with adjustments for duration and risk profile. The fair value of our long-term debt payable to related parties (Level 2) is estimated based on the quoted market prices for the same or similar issues.
As of December 31, 2012, our First Lien Term Loan Facility and Second Lien Term Loan Facility (excluding the Revolving Credit Facility) had an aggregate principal amount of $238,949, which approximates fair value. As of December 31, 2011, our long-term debt (excluding the Revolving Credit Facility) had a carrying value of $228,742 and a fair value of $236,232.
We have determined the fair value of our long-term debt payable to related parties to be as follows:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2012 | | December 31, 2011 |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Long-term debt payable to related parties | | $ | 35,774 |
| | $ | 27,918 |
| | $ | 30,875 |
| | $ | 25,740 |
|
An increase of 1% in market interest rates would decrease the fair value of our total long-term debt payable to related parties by approximately $810. However, considerable judgment is required in interpreting market data to develop estimates of fair value. The fair value estimate presented herein is not necessarily indicative of the amount that we or the debt holders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
The fair value of interest rate cap contracts is based on forward-looking interest rate curves, as provided by the counterparty, adjusted for our credit risk. We are exposed to credit risks because a counterparty may fail to perform under the terms of the interest rate cap contracts. Our market risk is minimal and limited to our debt agreements including PIK interest ascosts.
The fair value of the liability for contingent consideration related to a business combination completed in effect at December 31,June 2010 are as follows (excludesis estimated using discounted forecasted revenue. Our credit and market value adjustments):
| | | | | |
| | | Long-Term Debt | |
| Years ended December 31, | | Maturities | |
| 2011 | | | — | |
| 2012 | | | 155,514 | |
| 2013 | | | — | |
| 2014 | | | — | |
| 2014 | | | — | |
| Thereafter | | | — | |
| | | | |
| | | $ | 155,514 | |
| | | | |
Both the Securities Purchase Agreement (governing the Senior Notes) and Credit Agreement (governing the new term loan and revolving credit facility which collectively comprise the Senior Credit Facility) contain restrictive covenants that, among other things, limit our ability to incur debt, incur liens, make investments, make capital expenditures, consummate acquisitions, pay dividends, sell assets and enter into mergers and similar transactions beyond specified baskets and identified carve-outs. Additionally, we may not exceed the maximum senior leverage ratio (the principal amount outstanding under the Senior Notes divided by our Adjusted EBITDA (as defined in our lender agreements)). The Securities Purchase Agreement contains customary representations and warranties and affirmative covenants. The Credit Agreement contains substantially identical restrictive covenants (including a maximum senior leverage ratio calculated in the same manner as with the Securities Purchase Agreement), affirmative covenants and representations and warranties like those found in the Securities Purchase Agreement, modified, in the case of certain covenants, for a cushion on basket amounts and covenant levels from those contained in the Securities Purchase Agreement. We currently believe, based on our 2011 projections that we will be in compliance with our amended debt covenantsrisks for the next 12 months. A wide rangecontingent consideration are minimal and limited to the current liability.
F-29
DIAL GLOBAL, INC.
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Note 9 — Fair Value Measurements
Fair Value of Financial Instruments
Our financial instruments include cash, cash equivalents, receivables, accounts payable and borrowings. At December 31, 2010 and 2009, the fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. At December 31, 2010 and 2009, the estimated fair value of the borrowings was based on estimated rates for long-term debt with similar debt ratings held by comparable companies. The carrying amount and estimated fair value for borrowings are as follows:
| | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| | | Carrying | | | Fair | | | Carrying | | | Fair | |
| | | Amount | | | Value | | | Amount | | | Value | |
| Borrowings (short and long term) | | $ | 131,629 | | | $ | 146,796 | | | $ | 141,927 | | | $ | 148,425 | |
| | | | | | | | | | | | | |
The authoritative guidance establishes a common definition of fair value to be applied under GAAP, which requires the use of fair value, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Fair Value Hierarchy
The authoritative guidance specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect our own assumptions of market participant valuation (unobservable inputs). In accordance with the authoritative guidance, these two types of inputs have created the following fair value hierarchy:
Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;
Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The authoritative guidance requires the use of observable market data if such data is available without undue cost and effort.
F-30
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Items Measured at Fair Value on a Recurring Basis
The following table sets forth our financial assets and liabilities that were accounted for, at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Level 1 | | | Level 2 | | | Level 3 | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Investments(1) | | $ | — | | | $ | — | | | $ | — | | | $ | 968 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liability(2) | | $ | — | | | $ | 1,096 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Included in other assets and valued at closing market price of the individual investment. |
|
(2) | | $10,000 Gores equity commitment which is included in accrued expenses and other liabilities was valued by applying the Black-Scholes model using the Monte Carlo simulation to estimate the price of our common stock on the derivative’s expiration date and to estimate the expected volatility of the derivative by using the aforementioned trailing 30-day weighted average of our common stock’s closing price. |
Items Measured at Fair Value on a Non-Recurring Basis
In addition to assets and liabilities recordedmeasured at fair value on a recurring basis we are also required to record assets and liabilities at fair valuesummarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2012 | | December 31, 2011 |
| Description | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Asset | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 8,445 |
| | $ | — |
| | $ | — |
| | $ | 5,627 |
| | $ | — |
| | $ | — |
|
| Interest rate caps (included in other assets) | | — |
| | 10 |
| | — |
| | — |
| | — |
| | — |
|
| Restricted investment (included in other assets) | | — |
| | — |
| | — |
| | 538 |
| | — |
| | — |
|
| Total assets | | $ | 8,445 |
| | $ | 10 |
| | $ | — |
| | $ | 6,165 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | |
| Liability for contingent consideration | | $ | — |
| | $ | — |
| | $ | 105 |
| | $ | — |
| | $ | — |
| | $ | 105 |
|
| Total liabilities | | $ | — |
| | $ | — |
| | $ | 105 |
| | $ | — |
| | $ | — |
| | $ | 105 |
|
Our liability for contingent payments on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges or similar adjustments made to the carrying value of the applicable assets. Assetsacquisition measured at fair value on a nonrecurringrecurring basis using significant unobservable inputs (Level 3) is as follows:
|
| | | | | | | | |
| Description | | December 31, 2012 | | December 31, 2011 |
| Balance at the beginning of the period | | $ | 105 |
| | $ | 1,000 |
|
| Payments made | | — |
| | (895 | ) |
| Balance at the end of the period | | $ | 105 |
| | $ | 105 |
|
Our nonfinancial assets that were measured at fair value on a non-recurring basis are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2009 | | | Level 1 | | | Level 2 | | | Level 3 | | | Total Losses | |
| Other long-term assets | | | | | | | | | | | | | | | | | | | | |
| Intangible assets | | $ | 103,400 | | | $ | — | | | $ | — | | | $ | 103,400 | | | $ | 100 | |
| Goodwill | | | 38,917 | | | | — | | | | — | | | | 38,917 | | | | 50,401 | |
| | | | | | | | | | | | | | | | |
| | | $ | 142,317 | | | $ | — | | | $ | — | | | $ | 142,317 | | | $ | 50,501 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | | Level 1 | | Level 2 | | Level 3 | | Total Losses | | |
| Other long-term assets | | |
| Intangible assets | | $ | 92,487 | | $ | — | | $ | — | | $ | 92,487 | | $ | — | | |
| Goodwill | | 38,945 | | — | | — | | 38,945 | | — | | |
| | | | | | | | | | | | | |
| | | $ | 131,432 | | $ | — | | $ | — | | $ | 131,432 | | $ | — | | | | | | | | | | | | |
| | | | | | | | | | | | | | Fair Value | | | | | | | | Impairment |
| | | | December 31, 2012 |
| | Level 1 | | Level 2 | | Level 3 | | Charge |
| Goodwill | | | $ | 73,844 |
| | — |
| | — |
| | $ | 73,844 |
| | $ | 92,194 |
|
| Intangible assets | | | 131,957 |
| | — |
| | — |
| | 131,957 |
| | — |
|
We recorded charges
Goodwill was measured for impairment as of $50,401 for Metro Traffic goodwill and $100 for Metro Traffic trademarks, upon concluding a triggering event had occurred and performed a DCF analysis and valuation at September 30, 2009 (see Note 5 — Goodwill2012 and Note 6 — Intangible Assets for additional detail).
Note 10 — Stockholders’ (Deficit) Equity — Common and Preferred Stock
On December 31, 2008, our authorized capital stock consisted of common stock, Class B stock and Series A Preferred Stock. At such time, our common stock is entitled to one vote per share while Class B stock was entitled to 50 votes per share. Class B stock was convertible to common stock on a share-for-share basis. Asfinalized as of December 31, 2010, we have only common stock outstanding.
On March 3, 2008 and March 24, 2008, we announced the closing of the sale and issuance of 7,143 shares (14,286 shares in the aggregate) of our common stock to Gores at a price of $1.75 per share for an aggregate purchase amount of $25,000.
F-31
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
On June 19, 2008, we completed a $75,000 private placement of the Series A Preferred Stock with an initial conversion price of $3.00 per share and four-year warrants to purchase an aggregate of 10,000 shares of our common stock in three approximately equal tranches with exercise prices of $5.00, $6.00 and $7.00 per share, respectively, to Gores.
On April 23, 2009, as part of the Refinancing, we entered into a Purchase Agreement with Gores pursuant to which Gores purchased 25 shares of Series B Preferred Stock for an aggregate purchase price of $25,000. In exchange for the then outstanding shares of Series A Preferred Stock held by Gores, we issued 75 shares of Series A-1 Preferred Stock. On such date, our participating debt holders exchanged their outstanding debt for: (1) $117,500 of Senior Notes, (2) 34,962 shares of Series B Preferred Stock and (3) a one-time cash payment of $25,000.
On July 9, 2009, Gores converted 3.5 shares of Series A-1 Preferred Stock into 103,513 shares of common stock (such number does not take into account the 200 for 1 reverse stock split). Also on July 9, 2009, pursuant to the terms of our Certificate of Incorporation, the 292 outstanding shares of our Class B stock were automatically converted into 292 shares of common stock (such number does not take into account the 200 for 1 reverse stock split) because2012, as a result of several factors which had a significant impact on our fourth quarter bookings and sales. See Note 7 — Goodwill for additional details on goodwill and goodwill impairment.
Note 10— Stock-Based Compensation
Prior to the aforementioned conversion by Gores, the voting poweracquisition of Westwood, we did not have a stock-based compensation plan. As part of the Class B stock, as a group, fell below ten percentMerger, we assumed all of the aggregate voting power of issuedoutstanding stock options and outstanding shares of commonrestricted stock and Class B stock.
On August 3, 2009 at a special meeting of stockholders, certain amendmentsunits ("RSUs") previously granted by Westwood to our Charter were approved by our stockholders. Such amendments consist of an increase in the number of authorized shares of our common stock from 300,000 to 5,000,000 and a two hundred to one (200 for 1) reverse stock split which was approved and effective on August 3, 2009. Accordingly, the reverse stock split is reflected retrospectively in EPS for all periods presented herein. As contemplated by the terms of our Refinancing, the 71.5 then outstanding shares of Series A-1 Preferred Stock and the 60.0 outstanding shares of Series B Preferred Stock converted into 3,856,184 shares of our common stock, in the aggregate, pursuant to the terms of the Certifications of Designation for the Series A-1 Preferred Stock and Series B Preferred Stock.
On September 7, 2010, Gores purchased 770 shares of common stock for $5,000. Subsequent to December 31, 2010, Gores satisfied the $10,000 Gores equity commitment by purchasing 1,186 shares of common stock at a per share price of $8.43, calculated in accordance with the trailing 30-day weighted average of our common stock’s closing price, pursuant to the purchase agreement, dated August 17, 2010, between Gores and us.
In accordance with the authoritative guidance, the Series A Preferred Stock is required to be classified as mezzanine equity because a change on control of the Company could occur without our approval. Accordingly, the redemption of the Series A Preferred Stock was not solely under our control. When the Series A Preferred Stock was outstanding, we determined that such redemption was probable and, accordingly, accreted up to the redemption value of the Series A Preferred Stock.
In accordance with the authoritative guidance, the Series A-1 Preferred Stock and Series B Preferred Stock was also required to be classified as mezzanine equity because the redemption of these instruments was outside of our control.
We have recorded the Preferred Stock at fair value as of the date of issuance and have subsequently accreted changes in the redemption value from the date of issuance to the earliest redemption date using the interest method.
In connection with the Refinancing and the issuance of the Preferred Stock, we had determined that the Preferred Stock contained a BCF that was partially contingent. The BCF is measured as the spread between the effective conversion price and the market price of common stock on the commitment date and then multiplying this spread by the number of conversion shares, as adjusted for the contingent shares. A portion of the BCF had been recognized at issuance and was being amortized using the effective yield method over the period until conversion. The total BCF, which was limited to the carrying value of the Preferred Stock, was $76,887, prior to conversion and upon conversion resulted in, among other effects, a deemed dividend that is included in the earnings per share calculation.
F-32
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
The changes in the carrying amount of Preferred Stock were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor Company | |
| | | Series A | | | Series A-1 | | | Series B | |
| | | Shares | | | Book Value | | | Shares | | | Book Value | | | Shares | | | Book Value | |
| Balance at January 1, 2008 | | | — | | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | |
| Issuance of Series A Preferred Stock | | | 75.0 | | | | 70,657 | | | | — | | | | — | | | | — | | | | — | |
| Preferred Stock accretion | | | — | | | | 3,081 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2009 | | | 75.0 | | | | 73,738 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock accretion | | | — | | | | 6,157 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Balance at April 23, 2009 | | | 75.0 | | | $ | 79,895 | | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
| |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor Company | |
| Balance at April 24, 2009 | | | 75.0 | | | $ | 79,895 | | | | — | | | $ | — | | | | — | | | $ | — | |
| April 24, 2009 transactions: | | | | | | | | | | | | | | | | | | | | | | | | |
| Exchange Series A-1 for Series A | | | (75.0 | ) | | | (79,895 | ) | | | 75.0 | | | | 43,070 | | | | — | | | | — | |
| Gores purchase of Series B | | | — | | | | — | | | | — | | | | — | | | | 25.0 | | | | 14,099 | |
| Refinancing issuance of Series B | | | — | | | | — | | | | — | | | | — | | | | 35.0 | | | | 19,718 | |
| Preferred Stock accretion | | | — | | | | — | | | | — | | | | 2,658 | | | | — | | | | 2,003 | |
| July 9, 2009 conversion to common shares | | | — | | | | — | | | | (3.5 | ) | | | (2,101 | ) | | | — | | | | — | |
| August 3, 2009 conversion to common shares | | | — | | | | — | | | | (71.5 | ) | | | (43,627 | ) | | | (60.0 | ) | | | (35,820 | ) |
| Beneficial Conversion Feature | | | — | | | | — | | | | — | | | | 43,070 | | | | — | | | | 33,817 | |
| Beneficial Conversion Feature accretion | | | — | | | | — | | | | — | | | | (43,070 | ) | | | — | | | | (33,817 | ) |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | — | | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
There were no shares of Preferred Stock outstanding during or as of the year ended December 31, 2010.
From December 15, 1998 until our trading suspension on November 24, 2008 and subsequent delisting on March 16, 2009, our common stock was traded on the New York Stock Exchange under the symbol “WON”. On November 20, 2009, we listed our common stock on the NASDAQ Global Market under the symbol “WWON”. In the intervening period, our common stock was traded on the Over the Counter Bulletin Board under the ticker “WWOZ.”
F-33
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Note 11 — Equity-Based Compensation
Equity Compensation Plans
We established stock incentive plans in 1989 (the “1989 Plan”) and 1999 (the “1999 Plan”) which allowed us to grant options to directors, officers and keyits employees to purchase our common stock at its market value on the date the options are granted. Under the 1989 Plan, 12,600 shares were reserved for grant through March 1999. The 1989 Plan expired in March 1999. On September 22, 1999, the stockholders ratified the 1999 Plan, which authorized us to grant up to 8,000 shares of common stock. Options granted under the 1999 Stock Incentive Plan generally became exercisable after one year in 20% to 33% increments per year and expired within ten years from the date of grant. On May 19, 2005, the Board modified the 1999 Plan by deleting the provisions of the 1999 Plan that provided for a mandatory annual grant of 10 stock options to outside directors. The 1999 Plan expired in March 2009.
On May 25, 2005, our stockholders approved(the "1999 Plan”), the 2005 Equity Compensation Plan (the “2005"2005 Plan”), and the 2010 Equity Compensation Plan (which is an amended and restated version of the 2005 Plan, the "2010 Plan").
On December 19, 2011, our Board of Directors approved the adoption of the 2011 Stock Option Plan (the "2011 Plan"). The purpose of the 2011 Plan is to furnish a material incentive to employees, officers, consultants and directors by making available to them the Board on May 19, 2005, that allowed us tobenefits of common stock ownership through stock options. Under the 2011 Plan, we may grant stock options restrictedthat constitute “incentive stock and RSUs to our directors, officers and key employees. When it was adopted, a maximumoptions” (“ISOs") within the meaning of 9,200 shares of common stock was authorized for the issuance of awards under the 2005 Plan.
Pursuant to Board resolution, from May 25, 2005 (the date of our 2005 annual meeting of stockholders) until April 23, 2009 (when the practice was discontinued by Board resolution), outside directors automatically received a grant of RSUs equal to $100 in value (based on the date of issuance, typically the dateSection 422A of the annual meetingsInternal Revenue Code of stockholders)1986, as amended, or stock options that do not constitute ISOs ("NSOs" and any newly appointed outside director would receive an initial grantwith ISOs, the “Options").
On December 20, 2012, we filed a post-effective amendment to the 2011 Plan that terminated the S-8 registration statement pertaining to such plan and removed from registration all of RSUs equal to $150the securities registered thereby that remained unissued as of that date. Options outstanding as of December 31, 2012 were 8,083,845 as noted in value on the date such director was appointed to our Board.
Effective February 12, 2010, the Board amendedstock option table below. Canceled and restated the 2005 Plan because we had a limited number ofexpired shares will not be available for issuance thereunder (such plan, as amended and restated, the “2010 Plan”). Approvalfuture grants.
Options and restricted stock granted under the 2010 Plan vest over periods ranging from 2 to 3 years, commencing on the anniversary date of each grant, and options expire within ten years from the date of grant. RSUs awarded to directors vest over a two-year period in equal one-half increments on the first and second anniversary of the date of the grant, subject to the director’s continued service with us. Directors’ RSUs will vest automatically, in full, upon a change in control or upon their retirement, as defined in the 2010 Plan. RSUs are payable in newly issued shares of our common stock. Recipients of restricted stock and RSUs are entitled to receive dividend equivalents (subject to vesting) when and if we pay a cash dividend on our common stock. Such dividend equivalents are payable, in newly issued shares of common stock, only upon the vesting of the related restricted shares.DIAL GLOBAL, INC.
Restricted stock has the same cash dividend and voting rights as other common stock and, once issued, is considered to be currently issued and outstanding (even when unvested). Restricted stock and RSUs have dividend equivalent rights equal to the cash dividend paid on common stock. RSUs do not have the voting rights of common stock, and the shares underlying the RSUs are not considered to be issued and outstanding until they vest. Each RSU or restricted stock counts as three shares under the terms of the 2010 Plan.
All equity-based compensation expense is included in corporate expense for segment reporting purposes.
The 200 for 1 reverse stock split has been reflected in share data, weighted average exercise prices and weighted average grant date prices contained herein for all periods presented.
F-34
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Unvested stock options of Westwood assumed on the Merger Date have vesting periods that extend over a period ending February 12, 2013. Certain of these options have accelerated vesting provisions under certain circumstances, including a change in control.
Outstanding RSUs of Westwood assumed on the Merger Date consisted of two grants totaling 66,732 shares, which were to vest over a two year period ending October 10, 2013. The RSUs had accelerated vesting provisions under certain circumstances, including a change in control. As a result these RSUs vested on November 18, 2011. See Restricted Stock Units below for additional details.
The 2011 Plan is administered by the Compensation Committee. A sub-committee of the Compensation Committee comprised of two independent directors is authorized to grant ISOs to officers and employees and NSOs to employees, officers, directors and consultants. The Compensation Committee is authorized to interpret the 2011 Plan, prescribe option agreements and make all other determinations that it deems necessary or desirable for the administration of the 2011 Plan. The sub-committee is comprised solely of independent directors in order to address tax and securities law considerations under Section 162(m) of the Internal Revenue Code of 1986, as amended, and Section 16(b) of the Securities Exchange Act of 1934, as amended, respectively.
Stock Options
Stock option activity for the year ended December 31, 2010, for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and for the year ended December 31, 2008 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | December 31, 2010 | | | December 31, 2009 | | | | April 23, 2009 | | | December 31, 2008 | |
| | | | | | | Weighted | | | | | | | Weighted | | | | | | | | Weighted | | | | | | | Weighted | |
| | | | | | | Average | | | | | | | Average | | | | | | | | Average | | | | | | | Average | |
| | | | | | | Exercise | | | | | | | Exercise | | | | | | | | Exercise | | | | | | | Exercise | |
| | | Shares | | | Price | | | Shares | | | Price | | | | Shares | | | Price | | | Shares | | | Price | |
| Outstanding beginning of period | | | 28.6 | | | $ | 1,345 | | | | 32.1 | | | $ | 1,463 | | | | | 35.0 | | | $ | 1,504 | | | | 19.4 | | | $ | 4,372 | |
| Granted | | | 2,098.0 | | | | 6 | | | | — | | | | — | | | | | 0.4 | | | | 12 | | | | 32.9 | | | | 272 | |
| Exercised | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | | — | |
| Cancelled, forfeited or expired | | | (495.3 | ) | | | 17 | | | | (3.5 | ) | | | 3,726 | | | | | (3.3 | ) | | | 1,860 | | | | (17.3 | ) | | | 2,352 | |
| Outstanding end of period | | | 1,631.3 | | | $ | 26 | | | | 28.6 | | | $ | 1,345 | | | | | 32.1 | | | $ | 1,463 | | | | 35.0 | | | $ | 1,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable at end of period | | | 85.7 | | | $ | 375 | | | | 13.6 | | | $ | 2,485 | | | | | 11.4 | | | $ | 3,810 | | | | 8.7 | | | $ | 4,856 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Aggregate estimated fair value of options vesting during the period | | $ | 1,461 | | | | | | | $ | 826 | | | | | | | | $ | 788 | | | | | | | $ | 2,360 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2010, vested and exercisable options had an aggregate intrinsic value of $209 and a weighted average remaining contractual term of 1.25 years. No options were exercised during the years ended December 31, 2010, 2009 and 2008. |
| | | | | | | | | | | | | |
| | Shares | | Weighted-Average Exercise Price | | Weighted-Average Contractual Term (Years) | | Aggregate Intrinsic Value |
| Grants assumed as part of the Merger | 1,065,393 |
| | $ | 21.93 |
| | | | |
| Granted | 5,566,225 |
| | $ | 3.27 |
| | | | |
| Exercised | — |
| | $ | — |
| | | | |
| Canceled, forfeited or expired | (116,424 | ) | | $ | 11.50 |
| | | | |
| Outstanding as of January 1, 2012 | 6,515,194 |
| | $ | 6.17 |
| | | | |
| Granted | 2,295,000 |
| | $ | 2.65 |
| | | | |
| Exercised | — |
| | $ | — |
| | | | |
| Canceled, forfeited or expired | (726,349 | ) | | $ | 21.35 |
| | | | |
| Outstanding as of December 31, 2012 | 8,083,845 |
| | $ | 3.81 |
| | | | |
| Options vested and exercisable as of December 31, 2012 | 2,250,794 |
| | $ | 5.73 |
| | 8.1 | | $ | — |
|
| Options vested and expected to vest as of December 31, 2012 | 8,006,042 |
| | $ | 3.07 |
| | 8.8 | | $ | — |
|
| Estimated fair value of options vesting during 2012 | $ | 5,610 |
| | | | | | |
The aggregate intrinsic value of options represents the total pre-tax intrinsic value (the difference between our closing stock price at the end of the period ($0.25 as of December 31, 2012) and the option’soption's exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options at that time.
As of December 31, 2010,2012, there was $5,617is $15,139 of unearned compensation cost related to stock options granted under all of our equitystock-based compensation plans andplans. That cost is expected to be recognized over a weighted-average period of 2.113.5 years. Additionally, as of
Options granted in the period from January 1, 2012 through December 31, 2010, we expect 1,409.12012 will vest in 25% increments per year commencing on the anniversary date of our unvested optionsthe grant, and expire within ten years from the date of grant. Options granted in the period from October 21, 2011 to vestDecember 31, 2011, vested as follows: one-fortieth (1/40) immediately and the remainder in equal one-fortieth (1/40) monthly installments beginning on December 31, 2011 and on each monthly anniversary thereafter through October 21, 2014 and then one-one hundred twentieth (1/120) monthly installments beginning November 21, 2014 through October 21, 2015. Options are expensed on a straight-line basis over the requisite service period for the entire award with a weighted average exercise pricethe amount of $29, a weighted average remaining termcompensation cost recognized at any date being at least equal to the portion of 9.12 years and an aggregate intrinsicthe grant-date value of $4,135.the award that is vested at that date.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The estimated fair value of options granted during each period was measuredassumed from Westwood on the dateMerger Date and of grantoptions granted in the period from the Merger Date to December 31, 2011 and the year ended December 31, 2012 were measured using the Black-ScholesBlack-Scholes-Merton option pricing model using the weighted average assumptions as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2008 | |
| Risk-free interest rate | | | 2.30 | % | | | — | | | | | 2.98 | % | | | 2.64 | % |
| Expected term (years) | | | 5.0 | | | | — | | | | | 5.0 | | | | 4.8 | |
| Expected volatility | | | 98.60 | % | | | — | | | | | 92.17 | % | | | 55.99 | % |
| Expected dividend yield | | | 0.00 | % | | | — | | | | | 0.00 | % | | | 0.00 | % |
| Weighted average fair value of options granted | | $ | 4.54 | | | $ | — | | | | $ | 8.40 | | | $ | 104.00 | |
No options were granted in the period April 24, 2009 to December 31, 2009, therefore no determination was made for fair value assumptions. |
| | | | | | | | | | | | | | | |
| | Periods Ended December 31, | | Assumed Options Fair Value |
| | 2012 | | 2011 | | Greater than $0 |
| | Equal to $0 |
| Risk-free interest rate | 1.57 | % | | 1.84 | % | | 0.02% to 1.860% | | .02% to 1.50% |
|
| Expected term (years) | 8.27 |
| | 10.00 |
| | 0.08 to 8.31 |
| | 0.26 to 6.72 |
|
| Expected volatility | 121.53 | % | | 109.50 | % | | 117.5% to 180.0% |
| | 94.1% to 176.0% |
|
| Expected dividend yield | — |
| | — |
| | — |
| | — |
|
| Exercise price | $ | 2.65 |
| | $ | 3.27 |
| | $6.00 to $8.02 |
| | $36.00 to $7,038.00 |
|
| Weighted-average fair value of options granted | $ | 2.44 |
| | $ | 3.00 |
| | $ | 1.48 |
| | $ | — |
|
| Number of shares | 2,295,000 |
| | 5,566,225 |
| | 1,053,000 |
| | 12,393 |
|
F-35
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
The risk-free interest rate for periods within the life of thean option is based on a blend of U.S. Treasury bond rates. The expected term assumption has been calculatedis based on historical data.length of time until the option expires at the valuation date, which cannot exceed ten years. The expected volatility assumption used by us is based on the historical volatility of our stock.the Westwood common stock and Dial Global Class A common stock using a period equal to the expected term. The dividend yield represents the expected dividends on our common stock for the expected term of the option.option and we do not expect to declare any dividends during that time.
Additional information related to options outstanding at December 31, 2010,2012, segregated by grant price range is summarized below:as follows:
| | | | | | | | | | | | | |
| | | | | | | | | | | Remaining | |
| | | | | | | Weighted | | | Weighted | |
| | | | | | | Average | | | Average | |
| | | Number of | | | Exercise | | | Contractual | |
| Options outstanding at exercise price of: | | Options | | | Price | | | Life (in years) | |
| $6 | | | 1,507.2 | | | $ | 6 | | | | 8.70 | |
| $8 - 12 | | | 100.5 | | | | 8 | | | | 9.80 | |
| $36 - $150 | | | 7.1 | | | | 71 | | | | 5.80 | |
| $248 - $438 | | | 10.2 | | | | 345 | | | | 6.60 | |
| $1,234 - $7,038 | | | 6.3 | | | | 4,564 | | | | 2.30 | |
| | | | | | | | | | | | |
| | | | 1,631.3 | | | $ | 26 | | | | 8.70 | |
| | | | | | | | | | | | |
|
| | | | | | | | | |
| Options outstanding at exercise price of: | | Number of Options | | Weighted Average Exercise Price | | Remaining Weighted Average Contractual Life (in years) |
| $2.47 | | 1,465,000 |
| | $ | 2.47 |
| | 9.2 |
| $2.88 | | 50,000 |
| | $ | 2.88 |
| | 9.4 |
| $3.07 | | 650,000 |
| | $ | 3.07 |
| | 9.5 |
| $3.27 | | 5,566,225 |
| | $ | 3.27 |
| | 9.0 |
| $6.00 | | 350,000 |
| | $ | 6.00 |
| | 7.1 |
| $250 to $6,038 | | 2,620 |
| | $ | 1,806.49 |
| | 4.0 |
| | | 8,083,845 |
| | $ | 3.81 |
| | 8.1 |
Restricted Stock Units
We have awarded RSUs to Board members and certain key executives, which vest over two, three and four years, respectively.
On April 23, 2009, the Board passed a resolution that discontinued the practice of automatic annual awards to directors before such was resumed in mid 2010. In 2010,December 20, 2011, our Compensation Committee determined that theour independent non-employee directors should receive annual awardsan award of RSUs valued in an amount of $35, which$65 for their initial year of service as directors. These awards will vest over 2 years,vested as follows: one-twelfth (1/12) immediately and the remainder in equal one-twelfth (1/12) monthly installments beginning on theDecember 21, 2011 and on each monthly anniversary of the grant date. The awards also will vest automatically upon a change in control (as defined in the 2010 Plan) and will otherwise be governed by the terms of the 2010 Plan. The cost of the RSUs, which is determined to be the fair market value of the shares at the date of grant, net of estimated forfeitures, is expensed ratably over the vesting period, or period to retirement eligibility (in the case of directors) if shorter.thereafter through October 21, 2012. As of December 31, 2010,2012, there is no unearned compensation cost related to RSUs. Under the 2010 Plan, options, RSUs and restricted stock (once granted) were deducted from the authorized plan total, with grants of RSUs, restricted stock and related dividend equivalents being deducted at the rate of three shares for each share granted. No additional RSUs were granted in 2012.
Outstanding RSUs of Westwood assumed on the date of the Merger consisted of two grants totaling 66,732 shares, with a fair value of $3.61 per share. All of these RSUs vested on November 18, 2011. For the year ended December 31, 2011, the compensation expense related to these RSUs was $820$16 and is expected to be recognized over a weighted-average periodincluded in compensation costs.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
RSUs activity is as follows:
|
| | | | | | |
| | Shares | | Weighted-Average Grant Date Fair Value |
| Grants Assumed as part of the Merger | 66,732 |
| | $ | 3.61 |
|
| Granted | 60,000 |
| | $ | 3.25 |
|
| Conversion to Class A common shares | (76,731 | ) | | $ | 3.56 |
|
| Canceled, forfeited or expired | — |
| | $ | — |
|
| Outstanding December 31, 2011 | 50,001 |
| | $ | 3.25 |
|
| Granted | — |
| | $ | — |
|
| Conversion to Class A common shares | (50,001 | ) | | $ | 3.25 |
|
| Canceled, forfeited or expired | — |
| | $ | — |
|
| Outstanding December 31, 2012 | — |
| | $ | — |
|
Stock-Based Compensation Expense
All stock-based compensation expense is included in compensation expense for financial reporting purposes and is recognized using a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense for stock options and RSUs by period is as follows:
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Stock options | | $ | 6,440 |
| | $ | 1,226 |
|
| RSUs | | 157 |
| | 54 |
|
| Total | | $ | 6,597 |
| | $ | 1,280 |
|
For the years ended December 31, 2012 and 2011, $78 and $145 are included in stock-based compensation expense for the modification of awards upon the termination of employees.
Note 11 — Restructuring and Other Charges
In the second quarter of 2012, we announced plans to reduce our workforce and related costs (the "2012 Program"). We recorded $2,477 of costs related to the 2012 Program for the year ended December 31, 2010, for the periods from April 24, 2009 to 2012, primarily severance of $2,019 and closed facility expense of $439. As of December 31, 2009 and January 1, 2009 to April 23, 2009 and for the year ended December 31, 2008 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | Predecessor Company | |
| | | December 31, 2010 | | | December 31, 2009 | | | April 23, 2009 | | | December 31, 2008 | |
| | | | | | | Weighted | | | | | | | Weighted | | | | | | | | Weighted | | | | | | | Weighted | |
| | | | | | | Average | | | | | | | Average | | | | | | | | Average | | | | | | | Average | |
| | | | | | | Grant Date | | | | | | | Grant Date | | | | | | | | Grant Date | | | | | | | Grant Date | |
| | | Shares | | | Fair Value | | | Shares | | | Fair Value | | | Shares | | | | Fair Value | | | Shares | | | Fair Value | |
| Outstanding beginning of period | | | 0.1 | | | $ | 1,314 | | | | 2.4 | | | $ | 306 | | | | 6.1 | | | | $ | 320 | | | | 1.2 | | | $ | 1,830 | |
| Granted | | | 115.0 | | | | 8 | | | | — | | | | — | | | | — | | | | | — | | | | 5.5 | | | | 138 | |
| Converted to common shares | | | — | | | | — | | | | (2.3 | ) | | | 186 | | | | (3.7 | ) | | | | 325 | | | | (0.6 | ) | | | 1,330 | |
| Cancelled, forfeited or expired | | | — | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding end of period | | | 115.1 | | | $ | 10 | | | | 0.1 | | | $ | 1,314 | | | | 2.4 | | | | $ | 306 | | | | 6.1 | | | $ | 320 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-36
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Restricted Stock
In the past, we have awarded shares of restricted stock to certain key employees. The awards vest over periods ranging from 2 to 4 years. The cost of these restricted stock awards, calculated as the fair market value of the shares on the date of grant, net of estimated forfeitures, is expensed ratably over the vesting period.
Restricted stock activity for the year ended December 31, 2010, for the periods from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and for the year ended December 31, 2008 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | December 31, 2010 | | | December 31, 2009 | | | | April 23, 2009 | | | December 31, 2008 | |
| | | | | | | Weighted | | | | | | | Weighted | | | | | | | | Weighted | | | | | | | Weighted | |
| | | | | | | Average | | | | | | | Average | | | | | | | | Average | | | | | | | Average | |
| | | | | | | Grant Date | | | | | | | Grant Date | | | | | | | | Grant Date | | | | | | | Grant Date | |
| | | Shares | | | Fair Value | | | Shares | | | Fair Value | | | | Shares | | | Fair Value | | | Shares | | | Fair Value | |
| Outstanding beginning of period | | | 0.8 | | | $ | 1,504 | | | | 0.9 | | | $ | 1,498 | | | | | 1.8 | | | $ | 1,510 | | | | 4.8 | | | $ | 1,724 | |
| Granted | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | 0.2 | | | | 126 | |
| Converted to common shares | | | (0.8 | ) | | | 1,504 | | | | (0.1 | ) | | | 1,360 | | | | | (0.9 | ) | | | 1,522 | | | | (1.8 | ) | | | 1,330 | |
| Cancelled, forfeited or expired | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | (1.4 | ) | | | 1,534 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding end of period | | | — | | | $ | — | | | | 0.8 | | | $ | 1,504 | | | | | 0.9 | | | $ | 1,498 | | | | 1.8 | | | $ | 1,510 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2010, there was $0 of unearned compensation cost related to restricted stock.
Expense — Equity-Based Compensation
Equity-based compensation expense is included in corporate, general and administrative expenses in the Statement of Operations and is summarized by award type as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2008 | |
| Stock option | | $ | 3,066 | | | $ | 1,597 | | | | $ | 816 | | | $ | 2,663 | |
| Restricted stock | | | 406 | | | | 1,386 | | | | | 610 | | | | 2,162 | |
| RSU | | | 87 | | | | 327 | | | | | 684 | | | | 618 | |
| | | | | | | | | | | | | | |
| | | $ | 3,559 | | | $ | 3,310 | | | | $ | 2,110 | | | $ | 5,443 | |
| | | | | | | | | | | | | | |
Note 12 — Other Expense (Income)
During the year ended December 31, 2010, we recognized an expense of $1,538 representing the fair market value adjustment2012, liabilities related to the $10,000 Gores equity commitment. Such commitment constitutes an embedded derivative2012 Program were $694 and was valuedwere included in our financial statements beginning in the third quarter in accordance with derivative accounting (see Note 8 — Debt for additional detail). Also during the year ended December 31, 2010, we sold marketable securities for total proceeds of approximately $886 and realized a gain of $98 and recognized a los on disposal of long-lived assets of $258, which were also included as components of otheraccrued expense (income) in the Consolidated Statement of Operations.
F-37
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
During the year ended December 31, 2008, we sold marketable securities for total proceeds of approximately $12,741 and realized a gain of $12,420, which was included as a component of other expense (income) in the Consolidated Statement of Operations.
Note 13 — Comprehensive (Loss) Income
Comprehensive (loss) income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive (loss) income represents net income or loss adjusted for net unrealized gains or losses on available for sale securities. Comprehensive (loss) income is as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2010 | |
| Net (loss) income | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) |
Unrealized (loss) gain on marketable securities, net effect of realized gains and income taxes(1) | | | (111 | ) | | | 111 | | | | | 219 | | | | (5,688 | ) |
| | | | | | | | | | | | | | |
| Comprehensive (loss) income | | $ | (31,368 | ) | | $ | (63,489 | ) | | | $ | (18,742 | ) | | $ | (433,251 | ) |
| | | | | | | | | | | | | | |
| | |
(1) | | During the year ended December 31, 2010, we sold marketable securities for total proceeds of approximately $886 and realized a gain of $98, which is included as a component of other expense (income) in the Consolidated Statement of Operations. During the year ended December 31, 2008, we sold marketable securities for total proceeds of approximately $12,741 and realized a gain of $12,420 included as a component of other expense (income) in the Consolidated Statement of Operations. |
Note 14 — Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities detailsand are summarized as follows:expected to be paid within one year. We anticipate no additional future charges to the 2012 Program other than true-ups to closed facilities lease charges and additional benefits and payroll taxes related to severance.
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| Payroll and payroll related expense | | $ | 7,968 | | | $ | 6,504 | |
| Station compensation expense | | | 6,698 | | | | 4,049 | |
| Programming and operating expense | | | 2,403 | | | | 2,172 | |
| Restructuring and special charges | | | 3,250 | | | | 4,602 | |
| Accrued interest and capital leases | | | 1,200 | | | | 1,219 | |
| Deferred rent | | | 1,174 | | | | 117 | |
| Professional fees | | | 1,138 | | | | 1,430 | |
| Derivative liability (See Note 9 - Fair Value Measurements) | | | 1,096 | | | | — | |
| Other operating expense | | | 8,892 | | | | 8,041 | |
| | | | | | | |
| | | $ | 33,819 | | | $ | 28,134 | |
| | | | | | | |
F-38
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
Note 15 — Restructuring Charges
In the thirdfourth quarter of 2008, we announced a plan to restructure our Metro Traffic segment (the “Metro Traffic re-engineering”) and to implement other cost reductions. The Metro Traffic re-engineering entailed reducing the number of our Metro Traffic operational hubs from 60 to 13 regional centers and produced meaningful reductions in labor expense, aviation expense, station compensation, program commissions and rent.
The Metro Traffic re-engineering initiative began in the second half of 2008 and continued in 2009. In the first half of 2009, we undertook additional reductions in our workforce and terminated certain contracts. In connection with the Metro Traffic re-engineering and other cost reduction initiatives, we recorded $518, $3,976, $3,976 and $14,100, of restructuring charges in the year ended December 31, 2010, the period from April 24 to December 31, 2009, the period from January 1, 2009 to April 23, 2009 and the year ended December 31, 2008, respectively. We also recorded $1,162 in expense as changes in estimates as a result of revisions to estimated cash flows from our closed facilities in the year ended December 31, 2010. The Metro Traffic re-engineering initiative has been completed. We do not expect to incur any further material costs in connection with this initiative (other than adjustments for changes, if any, resulting from revisions to estimated facilities sublease cash flows after the cease-use date (i.e.2011, the day we exited the facilities)) and we anticipate that the accrued expense balances will be paid over the next 8 years, ending in 2018.
In the second quarter of 2010, we announced plans to restructure certain areas of our business in connection with the Network Radio and Metro Traffic segmentsacquisition of Westwood (the “2010“2011 Program”). The 20102011 Program includedincludes charges related to the consolidation of certain operations that reduced our workforce levels, during 2010,closed certain facilities and additional actions to reduce our workforce as an extension of the Metro Traffic re-engineering.terminated certain contracts and continued through December 31, 2012. In connection with the 20102011 Program, we recorded $1,219$6,341 and $3,131 of costs for the yearyears ended December 31, 2010,2012 and 2011, respectively. All costsAs of December 31, 2012, liabilities related to the 20102011 Program were incurred by the end of 2010.
The restructuring charges identified in the Consolidated Statement of Operations are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor | |
| | | Balance | | | | | | | Changes in | | | Utilization | | | Balance | |
| | | January 1, 2009 | | | Additions | | | Estimates | | | Cash | | | Non-Cash | | | April 23, 2009 | |
Metro-Traffic | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance | | $ | 3,198 | | | $ | 1,658 | | | $ | — | | | $ | (958 | ) | | $ | — | | | $ | 3,898 | |
| Facilities Consolidation | | | 790 | | | | 2,318 | | | | — | | | | (102 | ) | | | | | | | 3,006 | |
| Contract Terminations | | | 3,796 | | | | — | | | | — | | | | (360 | ) | | | — | | | | 3,436 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | | 7,784 | | | | 3,976 | | | | — | | | | (1,420 | ) | | | — | | | | 10,340 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | |
| | | Balance | | | | | | | Changes in | | | Utilization | | | Balance | |
| | | April 24, 2009 | | | Additions | | | Estimates | | | Cash | | | Non-Cash | | | December 31, 2009 | |
Metro-Traffic | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance | | $ | 3,898 | | | $ | 1,941 | | | $ | — | | | $ | (4,302 | ) | | $ | — | | | $ | 1,537 | |
| Facilities Consolidation | | | 3,006 | | | | 1,885 | | | | — | | | | (854 | ) | | | (360 | ) | | | 3,677 | |
| Contract Terminations | | | 3,436 | | | | 150 | | | | — | | | | (1,836 | ) | | | — | | | | 1,750 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | | 10,340 | | | | 3,976 | | | | — | | | | (6,992 | ) | | | (360 | ) | | | 6,964 | |
| | | | | | | | | | | | | | | | | | | |
F-39
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | |
| | | Balance | | | | | | | Changes in | | | Utilization | | | Balance | |
| | | December 31, 2009 | | | Additions | | | Estimates | | | Cash | | | Non-Cash | | | December 31, 2010 | |
Metro-Traffic | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance | | $ | 1,537 | | | $ | 90 | | | $ | — | | | $ | (1,610 | ) | | $ | — | | | $ | 17 | |
| Facilities Consolidation | | | 3,677 | | | | 352 | | | | 1,162 | | | | (1,305 | ) | | | (223 | ) | | | 3,663 | |
| Contract Terminations | | | 1,750 | | | | 97 | | | | — | | | | (1,847 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total | | | 6,964 | | | | 539 | | | | 1,162 | | | | (4,762 | ) | | | (223 | ) | | | 3,680 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
2010 Program | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance | | | — | | | | 1,198 | | | | — | | | | (1,049 | ) | | | — | | | | 149 | |
| | | | | | | | | | | | | | | | | | | |
| Total | | | — | | | | 1,198 | | | | — | | | | (1,049 | ) | | | — | | | | 149 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Restructuring | | $ | 6,964 | | | $ | 1,737 | | | $ | 1,162 | | | $ | (5,811 | ) | | $ | (223 | ) | | $ | 3,829 | |
| | | | | | | | | | | | | | | | | | | |
As of December 31, 2010, liabilities related to restructuring charges of $1,393 and $2,436 are$1,835 were included in accrued expense and other liabilities and are expected to be paid within one year and $1,094 of non-current liabilities are included in other liabilities in the consolidated balance sheets. As of December 31, 2012, our cumulative-to-date expenses for the 2011 Program totaled $9,472 with $5,791 for severance, $2,686 for closed facilities, and $995 for contract terminations. We anticipate no additional future charges for the 2011 Program other than true-ups to closed facilities lease charges and additional benefits and payroll taxes related to severance.
Other charges include $3,525for the year ended December 31, 2012 for costs for a content agreement which we ceased to utilize after March 31, 2012 and $926for the year ended December 31, 2012 for costs of temporary office space related to the consolidation of our New York offices. The liabilities for the content agreement charge of $2,350 are included in current liabilities and are scheduled to be paid within the next year.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
The restructuring charges, respectively.
Note 16 — Special Charges
The specialand other charges identified onin the Consolidated Statement of Operationsconsolidated financial statements for the year ended December 31, 2011 are comprised of the following:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2008 | |
| Debt agreement costs | | $ | 2,414 | | | $ | — | | | | $ | — | | | $ | — | |
| Triangle litigation | | | 1,500 | | | | — | | | | | — | | | | — | |
| Corporate development costs | | | 1,339 | | | | — | | | | | — | | | | — | |
| Gores and Glendon fees | | | 1,009 | | | | — | | | | | — | | | | — | |
| Regionalization costs | | | 547 | | | | 519 | | | | | 120 | | | | — | |
| Employment claim settlements | | | 493 | | | | — | | | | | — | | | | — | |
| Traffic land write-down | | | 321 | | | | 1,852 | | | | | — | | | | — | |
| Fees related to the Refinancing | | | 193 | | | | 1,196 | | | | | 12,699 | | | | — | |
| Professional fees related to the offering | | | — | | | | 1,698 | | | | | — | | | | — | |
| Financing and acquisition costs | | | | | | | 289 | | | | | — | | | | — | |
| Professional and other fees related to the new CBS agreements, Gores investment and debt refinancing | | | — | | | | — | | | | | — | | | | 6,624 | |
| Closing payment related to CBS agreement | | | — | | | | — | | | | | — | | | | 5,000 | |
| Re-engineering expenses | | | — | | | | — | | | | | — | | | | 1,621 | |
| | | | | | | | | | | | | | |
| | | $ | 7,816 | | | $ | 5,554 | | | | $ | 12,819 | | | $ | 13,245 | |
| | | | | | | | | | | | | | |
F-40
|
| | | | | | | | | | | | | | | | | | | |
| | Westwood Acquisition | | Additions | | Cash Utilization | | Non-Cash Utilization | | Balance December 31, 2011 |
| Severance - 2011 Program | $ | 183 |
| | $ | 2,372 |
| | $ | (1,616 | ) | | $ | — |
| | $ | 939 |
|
| Closed facilities - 2011 Program | 2,405 |
| | 300 |
| | (176 | ) | | — |
| | 2,529 |
|
| Contract terminations - 2011 Program | — |
| | 459 |
| | (29 | ) | | — |
| | 430 |
|
| Total 2011 Program | $ | 2,588 |
| | $ | 3,131 |
| | $ | (1,821 | ) | | $ | — |
| | $ | 3,898 |
|
The restructuring and other charges identified in the consolidated financial statements for the year ended December 31, 2012 are comprised of the following:
|
| | | | | | | | | | | | | | | | | | | |
| | Balance | | | | Cash | | Non-Cash | | Balance |
| | December 31, 2011 | | Additions | | Utilization | | Utilization | | December 31, 2012 |
| Severance - 2011 Program | $ | 939 |
| | $ | 3,419 |
| | $ | (3,502 | ) | | $ | — |
| | $ | 856 |
|
| Closed facilities - 2011 Program | 2,529 |
| | 2,386 |
| | (2,842 | ) | | — |
| | 2,073 |
|
| Contract terminations - 2011 Program | 430 |
| | 536 |
| | (632 | ) | | (334 | ) | | — |
|
| Total 2011 Program | 3,898 |
| | 6,341 |
| | (6,976 | ) | | (334 | ) | | 2,929 |
|
| Severance - 2012 Program | — |
| | 2,019 |
| | (1,619 | ) | | — |
| | 400 |
|
| Closed facilities - 2012 Program | — |
| | 439 |
| | (145 | ) | | — |
| | 294 |
|
| Contract termination - 2012 Program | — |
| | 19 |
| | (19 | ) | | — |
| | — |
|
| Total 2012 Program | — |
| | 2,477 |
| | (1,783 | ) | | — |
| | 694 |
|
| Total restructuring charges | 3,898 |
| | 8,818 |
| | (8,759 | ) | | (334 | ) | | 3,623 |
|
| Content agreement charges | — |
| | 3,525 |
| | (1,175 | ) | | — |
| | 2,350 |
|
| Temporary lease charges | — |
| | 926 |
| | (926 | ) | | — |
| | — |
|
| Total other charges | — |
| | 4,451 |
| | (2,101 | ) | | — |
| | 2,350 |
|
| Total | $ | 3,898 |
| | $ | 13,269 |
| | $ | (10,860 | ) | | $ | (334 | ) | | $ | 5,973 |
|
Note 12 — Income Taxes
The income tax benefit from continuing operations consists of the following:
|
| | | | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Current tax provision: | | | | |
| Federal | | $ | — |
| | $ | — |
|
| State | | 76 |
| | 249 |
|
| Total current tax provision | | 76 |
| | 249 |
|
| | | | | |
| Deferred tax (benefit) provision: | | | | |
| Federal | | (13,711 | ) | | (19,358 | ) |
| State | | (1,561 | ) | | (3,632 | ) |
| Total deferred tax (benefit) provision | | (15,272 | ) | | (22,990 | ) |
| Total income tax (benefit) provision | | $ | (15,196 | ) | | $ | (22,741 | ) |
The income tax benefit from continuing operations of $15,196for the year ended December 31, 2012 is primarily the result of income tax benefits of $43,912 from the losses from continuing operations before taxes of $161,888, partially offset by a valuation
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
During 2010, we incurred costs for the following; debt agreement costs include professional fees incurred by us in connection with negotiations with our lenders to amend our Securities Purchase Agreement and Credit Agreement (see Note 8 — Debt); Triangle litigation (see Note 18 — Commitments and Contingencies for additional information) is the estimated cost accrued for settlementallowance of the lawsuit filed by Triangle; corporate development costs include professional fees$28,716. The tax benefit includes $8,252 related to the evaluationreduction of potential business development activity including acquisitions and dispositions; Gores and Glendon fees are related to professional services rendered by various members of Gores and Glendon to us in the areas of operational improvement,our deferred tax finance, accounting, legal and insurance/risk management; regionalization costs are expenses we have incurredliability as a result of reducing the numberimpairment of our Metro Traffic operational hubs from 60 to 13 regional centers, which primarily consisted of facility expenses; employment claim settlements are related to employee terminations that occurred prior to 2008; TrafficLand write-down reflects costs associated with the TrafficLand arrangement; and fees related to the Refinancing include tax consulting costs related to the finalization of thegoodwill. The income tax treatmentbenefit for continuing operations of the Refinancing in 2010 and transaction fees and expenses related to negotiation of definitive documentation, including the fees of various legal and financial advisors involved in the Refinancing and other professional fees in 2009.
During the periods January 1 to April 23, 2009 and April 24 to December 31, 2009, in addition to certain costs noted above, we incurred professional fees related to the offering includes fees$22,741 for various legal and financial advisors related to Registration Statement on Form S-1 filed by us with the SEC in 2009 that we have no immediate plans to further pursue and financing and acquisition costs are those related to the Culver City properties financing lease and acquisition of Jaytu (d/b/a Sigalert).
During 2008, we incurred costs relating to the negotiation of a new long-term arrangement with CBS Radio, legal and professional expenses attributable to negotiations regarding refinancing our debt, and consulting expenses associated with developing cost savings plans and the Metro Traffic reengineering. As of December 31, 2010, liabilities related to special charges of $1,857, $608 and $510 were included in accrued expense and other liabilities, amounts payable to related parties and other liabilities, respectively.
Note 17 — Income Taxes
The components of the provision for income taxes are as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2008 | |
| Current: | | | | | | | | | | | | | | | | | |
| Federal | | $ | (1,265 | ) | | $ | (8,828 | ) | | | $ | (2,693 | ) | | $ | (1,220 | ) |
| State | | | 8 | | | | (2,529 | ) | | | | (772 | ) | | | 367 | |
| | | | | | | | | | | | | | |
| | | | (1,257 | ) | | | (11,357 | ) | | | | (3,465 | ) | | | (853 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | | | | | | |
| Federal | | | (13,127 | ) | | | (9,567 | ) | | | | (2,919 | ) | | | (11,790 | ) |
| State | | | (1,337 | ) | | | (4,101 | ) | | | | (1,251 | ) | | | (2,117 | ) |
| | | | | | | | | | | | | | |
| | | | (14,464 | ) | | | (13,668 | ) | | | | (4,170 | ) | | | (13,907 | ) |
| | | | | | | | | | | | | | |
| Income tax benefit | | $ | (15,721 | ) | | $ | (25,025 | ) | | | $ | (7,635 | ) | | $ | (14,760 | ) |
| | | | | | | | | | | | | | |
For the nine months ended September 30, 2009 and the year ended December 31, 2008, we understated2011 was primarily the result of purchase price adjustments which will provide a future source of taxable income enabling us to utilize our net operating losses and the release of our December 31, 2010 valuation allowance.
Reconciliations of the difference between income taxes from continuing operations computed at the statutory federal rate, and provision for income taxes for the years ended December 31, 2012 and 2011, are as follows:
|
| | | | | | |
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| Statutory rate | | 35.0 | % | | 35.0 | % |
| Change in valuation allowance | | (17.7 | ) | | 27.0 |
|
| Goodwill impairment | | (7.8 | ) | | — |
|
| Return to provision true-up | | (0.9 | ) | | 3.1 |
|
| 24/7 Formats transaction | | — |
| | 5.4 |
|
| Refinancing of long-term debt | | — |
| | 2.0 |
|
| Transaction fees | | — |
| | (2.0 | ) |
| State taxes, net of federal benefits | | — |
| | 0.6 |
|
| Other | | 0.8 |
| | 0.1 |
|
| | | 9.4 | % | | 71.2 | % |
The primary components of temporary differences which give rise to deferred taxes and deferred liabilities in error related to uncertain incomeare as follows:
|
| | | | | | | | |
| | | December 31, 2012 | | December 31, 2011 |
| Deferred tax assets | | | | |
| Capital loss | | $ | 13,526 |
| | $ | 13,735 |
|
| Net operating losses | | 58,010 |
| | 54,123 |
|
| Accrued interest | | 3,329 |
| | 2,737 |
|
| Restructuring | | 2,477 |
| | 1,637 |
|
| Transaction fees | | 339 |
| | 79 |
|
| Stock-based compensation | | 3,452 |
| | 977 |
|
| Deferred rent | | 833 |
| | 380 |
|
| Allowance for bad debt | | 453 |
| | 725 |
|
| Investment impairment | | 449 |
| | 462 |
|
| Other | | 6,708 |
| | 343 |
|
| Total deferred tax assets | | 89,576 |
| | 75,198 |
|
| Deferred tax liabilities | | | | |
| Depreciation | | (4,366 | ) | | (4,602 | ) |
| Intangible assets | | (31,166 | ) | | (49,148 | ) |
| Deferred cancellation of indebtedness | | (12,230 | ) | | (23,502 | ) |
| Accrued expense and other | | (168 | ) | | (674 | ) |
| Total deferred tax liabilities | | (47,930 | ) | | (77,926 | ) |
| | | | | |
| Valuation allowance | | (41,646 | ) | | (12,930 | ) |
| Net deferred tax liability | | $ | — |
| | $ | (15,658 | ) |
| Net deferred tax asset — current | | 1,202 |
| | 1,961 |
|
| Net deferred tax (liability) — non-current | | $ | (1,202 | ) | | $ | (17,619 | ) |
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
In assessing the realizability of deferred tax exposures, arising in the respective periods. These additional income tax exposures related primarily to deductions taken in state filings for whichassets, management considers whether it is more likely than not that those deductions wouldeither some portion or the entire deferred tax asset will not be sustainedrealized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity in making this assessment. Based on their technical merits.this evidence, we have recorded a valuation allowance of approximately $28,716for the year ended December 31, 2012. The recording of the valuation allowance was the primary cause of the variance between the statutory rate and our effective tax rate.
At December 31, 2012, we had net operating loss carry-forwards ("NOLs") available to offset future taxable income of $145,769 for federal, and $99,976 for various state, tax returns. The NOLs expire in various amounts starting from 2018 to 2032.
Subsequent to December 31, 2012, on February 28, 2013 we entered into a number of additional tax expenseagreements that should have been recorded relatedmay significantly change our capital structure, which may result in an ownership change, as defined under Section 382 of the Internal Revenue Code ("IRC"). Consequently, the amount of NOLs available to this error was $82be used in future years may possibly be limited under IRC Section 382. When the recapitalization is completed on April 15, 2013, we will be better able to determine how much, if any, of the NOLs are available to be used in the 2009 successor period, $68future.
The authoritative guidance associated with the accounting for uncertainty in income taxes recognized in an enterprise's financial statements prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is recognition, in which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the liability to recognize in the 2009 predecessor period and $1,442 in 2008. Such charges were corrected in the fourth quarter of 2009 as an increase to incomefinancial statements.
Unrecognized tax expense and an adjustment to the opening goodwill in the Successor Company at April 24, 2009. We have determined that the impact of these adjustments recorded in the fourth quarter of fiscal 2009 were immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.
F-41
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
The reconciliation of the federal statutory income tax rate to our effective income tax ratebenefit activity is as follows:
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period | | | | For the Period | | | | |
| | | Year Ended | | | April 24, 2009 to | | | | January 1, 2009 | | | Year Ended | |
| | | December 31, 2010 | | | December 31, 2009 | | | | to April 23, 2009 | | | December 31, 2008 | |
| Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | | 35.0 | % | | | 35.0 | % |
| State taxes net of federal benefit | | | (1.4 | ) | | | 3.9 | | | | | 3.2 | | | | 0.3 | |
| Non-deductible portion of goodwill impairment | | | — | | | | (14.4 | ) | | | | — | | | | (31.8 | ) |
| Other | | | (0.1 | ) | | | 3.7 | | | | | (9.5 | ) | | | (0.2 | ) |
| | | | | | | | | | | | | | |
|
| Effective tax rate | | | 33.5 | % | | | 28.2 | % | | | | 28.7 | % | | | 3.3 | % |
| | | | | | | | | | | | | | |
|
| | | | |
| | | Unrecognized Tax Benefit |
| Assumption of Westwood unrecognized tax benefits upon acquisition | | $ | 2,858 |
|
| Additions for current period tax positions | | 31 |
|
| Balance at December 31, 2011 | | 2,889 |
|
| Additions for prior period tax positions | | 401 |
|
| Expiration of statute of limitations and audit settlements | | (46 | ) |
| Balance at December 31, 2012 | | $ | 3,244 |
|
As of December 31, 2012, the total amount of federal, state, and local unrecognized tax benefits was $3,244, which includes interest of $1,279. The amount of unrecognized benefit that we estimate will be reversed in the next year is $1,146. Substantially all our unrecognized tax benefits, if recognized, would affect the effective tax rate. We are currently under audit for our 2009 and 2008 effectiveU.S. federal income tax rates were impacted by the goodwill impairment charges taken in each period being substantially non-deductible for tax purposes.return.
Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities on our balance sheet and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| Deferred tax liabilities: | | | | | | | | |
| Goodwill, intangibles and other | | $ | 27,900 | | | $ | 26,198 | |
| Deferred cancellation of debt income | | | 26,211 | | | | 32,726 | |
| Property and equipment | | | 8,715 | | | | 7,038 | |
| Investment | | | — | | | | 387 | |
| Other | | | 2,766 | | | | 299 | |
| | | | | | | |
| Total deferred tax liabilities | | | 65,592 | | | | 66,648 | |
| | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Allowance for doubtful accounts | | | 1,035 | | | | 1,653 | |
| Deferred compensation | | | 668 | | | | 695 | |
| Equity based compensation | | | 5,470 | | | | 8,260 | |
| Accrued expenses and other | | | 13,351 | | | | 7,237 | |
| Federal and state net operating loss | | | 13,962 | | | | 1,832 | |
| | | | | | | |
| Total deferred tax assets | | | 34,486 | | | | 19,677 | |
| | | | | | | |
| Net deferred tax (liabilities) | | $ | (31,106 | ) | | $ | (46,971 | ) |
| | | | | | | |
| | | | | | | | | |
| Net deferred tax asset — current | | $ | 5,068 | | | $ | 3,961 | |
| | | | | | | |
| | | | | | | | | |
| Net deferred tax (liability) — long-term | | $ | (36,174 | ) | | $ | (50,932 | ) |
| | | | | | | |
We determined, based upon the weight of available evidence, that it is more likely than not that our deferred tax assetpositions will be realized. We have experienced a long historysustained upon examination, including resolution of taxable income which allowed us to carryback net operating losses through 2009. Also, we have taxable temporary differences that can be used as a sourceany related appeals or litigation processes, based on the technical merits of income in the future. As such,positions. Therefore, no valuation allowance was recorded duringreserve had been previously accrued until the year ended December 31, 2010 or 2009. We will continue to assess the need for a valuation allowance at each future reporting period.
F-42
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share amounts)
acquisition of Westwood. We classify interest expense and penalties related to unrecognized tax benefits as income tax expense. The accrued interest and penalties were $2,483 and $2,017 at December 31, 20102012 and 2009,2011 were $1,279 and $1,200, respectively. For the year-ended years ended December 31, 2010, 20092012 and 2008,2011, we recognized $466, ($493)$79 and $405 $31of interest and penalties, respectively. Unrecognized tax benefit activity is as follows:
| | | | | |
| | | Unrecognized | |
| | | Tax Benefit | |
Predecessor Company | | | | |
| Balance at January 1, 2008 | | $ | 6,470 | |
| Additions for current period tax positions | | | 439 | |
| Additions for prior years tax positions | | | 94 | |
| Settlements | | | (444 | ) |
| Reductions related to expiration of statue of limitations | | | (157 | ) |
| | | | |
| | | | | |
| Balance at December 31, 2008 | | | 6,402 | |
| Additions for current period tax positions | | | — | |
| Additions for prior years tax positions | | | — | |
| Settlements | | | — | |
| Reductions related to expiration of statue of limitations | | | — | |
| | | | |
| Balance at April 23, 2009 | | $ | 6,402 | |
| | | | |
| | | | | |
| | |
| | | | | |
Successor Company | | | | |
| Balance at April 24, 2009 | | $ | 6,402 | |
| Additions for current period tax positions | | | 1,751 | |
| Additions for prior years tax positions | | | 3,165 | |
| Settlements | | | (2,614 | ) |
| Reductions related to expiration of statue of limitations | | | (2,067 | ) |
| | | | |
| Balance at December 31, 2009 | | | 6,637 | |
| Additions for current period tax positions | | | 401 | |
| Additions for prior years tax positions | | | 69 | |
| Settlements | | | (101 | ) |
| Reductions related to expiration of statue of limitations | | | (501 | ) |
| | | | |
| Balance at December 31, 2010 | | $ | 6,505 | |
| | | | |
The amount
We are no longer subject to U.S. federal income examinations for years before 2004. During 2009, we settled our audit with the State of New York related primarily to filing positions through 2006. During 2010, we settled our audit with the State of Texas for the years 2005 through 2007 and our audit with State of Minnesota for the years 2005 through 2008 With few exceptions, we are no longer subject to state and local income tax examinations in other jurisdictions by tax authorities for years before 2004.DIAL GLOBAL, INC.
During 2009, we reported a federal net operating loss of approximately $36,972, for which we filed a federal carryback claim. Accordingly, we recorded an income tax receivable of $12,355 and subsequently received the federal refund of $12,940. At December 31, 2010, we have available for federal income tax purposes a net-operating loss carry-forward of approximately, $29,481, expiring in 2031 that can be used to offset future taxable income. We also have for state income tax purposes net operating loss carry-forwards of approximately $4,484, expiring at various times between 2013 and 2031 that can be used to offset future taxable income.
F-43
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Note 13 — Preferred Stock
In connection with the Merger and under terms of the Merger Agreement, the Company issued 9,691.374shares of Series A Preferred Stock to Verge stockholders. The holders of the Series A Preferred Stock do not have a contractual redemption right, however the holders thereof (Triton) control the Board of Directors. Therefore in accordance with generally accepted accounting principles, we have presented the Series A Preferred Stock in the mezzanine section of our consolidated balance sheets above stockholders' (deficit) equity.
Each holder of the Series A Preferred Stock is entitled to receive dividends when, as and if declared by our Board of Directors or a duly authorized committee thereof out of funds legally available therefore at an annual rate equal to (i) 9% per annum from and excluding the issue date through and including the second anniversary of the issue date, (ii) 12% per annum from the day immediately following the second anniversary of the issue date through and including the fourth anniversary of the issue date, and (iii) 15% per annum thereafter. Dividends are to be paid in cash and, to the extent not paid on March 15, June 15, September 15 or December 15 of any given year, shall accumulate and remain accumulated dividends until paid to the holders of the Series A Preferred Stock. No cash dividends shall in any instance be paid in the first year after the Series A Preferred Stock is issued, and the Company may further pay cash dividends to the New Common Stock and not on the Series A Preferred Stock during the first year notwithstanding the priority of the Series A Preferred Stock otherwise set forth in the Restated Charter. For the year ended December 31, 2012 and the period from October 22, 2011 to December 31, 2011, we accrued $920 and $171 in cumulative dividends payable related to the Series A Preferred Stock, respectively, and included those amounts in Series A Preferred Stock and accumulated dividends in the consolidated balance sheets.
As of the first anniversary of the issue date (i.e., October 21, 2012), we may redeem the Series A Preferred Stock for cash at our option at a redemption price equal to the liquidation preference of $1,000 per share, plus all dividends accumulated thereon and all accrued and unpaid dividends to the payment date. The Series A Preferred Stock does not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company. Upon the liquidation, bankruptcy, dissolution or winding up of the Company, the holders of the shares of the Series A Preferred Stock shall be entitled to an amount of cash equal to the liquidation preference of $1,000 per share, plus all dividends accumulated thereon and all accrued and unpaid dividends to the payment date. A change of control will be considered a liquidation, dissolution or winding up of the Company. The Series A Preferred Stock do not have any voting powers, either general or special, except that the affirmative vote or consent of the holders of a majority of the outstanding shares of the Series A Preferred Stock is required for any amendment of the Restated Charter if the amendment would specifically alter or change the powers, preferences or rights of the shares of the Series A Preferred Stock and affect them adversely. The Series A Preferred Stock ranks senior over the common stock with regard to dividends and distributions of assets upon liquidation, dissolution or winding up of the Company.
On February 28, 2013, we signed agreements with our lenders and certain of our stockholders agreeing to amend our existing Credit Facilities and recapitalize certain other obligations and equity interests. Under various subscription and exchange agreements between us and the holders of our PIK Notes and Series A Preferred Stock, such holders have agreed, subject to the satisfaction of certain specified conditions, to exchange their PIK Notes and Series A Preferred Stock for equity securities of the Company and have further agreed to make an additional equity infusion of $16,500. See Note 1817 — Subsequent Event for additional information.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Note 14 — Stockholders' (Deficit) Equity
On the Merger Date, pursuant to the Merger Agreement and in connection with the Merger, each issued and outstanding share of previously existing Westwood common stock (22,667,591 shares) was reclassified and automatically converted into one share of Class A common stock without any further action on the part of the holders of Westwood common stock. Also in connection with the Merger, each outstanding share of common stock of Verge was automatically converted into and exchanged for the right to receive approximately 6.838 shares of Class B common stock. We issued 34,237,638 shares of Class B common stock to Verge stockholders, representing approximately 59% of the issued and outstanding shares of its common stock on a fully diluted basis. No fractional shares of Class B common stock were issued in connection with the Merger and holders of fractional shares of Class B common stock received a whole share of Class B common stock. We have under our Amended and Restated Certificate of Incorporation as filed with the Delaware Secretary of State on December 12, 2011, authorized 5,000,000,000 shares of Class A common stock and authorized 35,000,000 shares of Class B common stock. Verge's prior period common stock balances have been adjusted to reflect the conversion of the Verge shares to Class B common stock at a ratio of approximately 6.838 to 1, with the difference in par value being adjusted in additional paid-in capital. Total stockholders' equity was unchanged. For the years ended December 31, 2012 and 2011, 50,001 and 76,731 shares, respectively, of Class A common stock were issued in connection with the vesting of RSUs.
Note 15 — Discontinued Operations
On July 29, 2011, the then Board of Directors of Verge (pre-Merger) approved a spin-off of the operations of Verge's Digital Services business to a related entity, Triton Digital that was owned by Triton. As part of the spin-off, Verge Media, Inc. (our wholly-owned subsidiary) indemnified Triton for damages resulting from claims (subject to limited carve-outs) arising from or directly related to our Radio network business, Verge Media, Inc. or any of our respective subsidiaries (other than digital companies), provided such claims are made on or before April 30, 2013. Verge spun-off the Digital Services business' net assets with a carrying value of $111,859 to Triton Digital for the year ended December 31, 2011.
The Digital Services business' results included in discontinued operations are as follows:
|
| | | | |
| | | Year Ended December 31, 2011 |
| Revenue | | $ | 23,543 |
|
| Cost of revenue | | 9,065 |
|
| Gross profit | | 14,478 |
|
| Operating costs | | 11,899 |
|
| Depreciation and amortization | | 3,867 |
|
| Income (loss) from operations | | (1,288 | ) |
| Interest income | | 26 |
|
| Income (loss) from discontinued operations, before provision for income taxes | | (1,262 | ) |
| Income tax provision for discontinued operations | | 364 |
|
| Income (loss) from discontinued operations | | $ | (1,626 | ) |
The Digital Services business' results of operations have been removed from our results of continuing operations for all periods presented. Verge was not required to amend or pay down its existing debt in connection with the spin-off of the Digital Services business and therefore we did not allocate interest expense to the discontinued operations accordingly. We did not allocate any corporate overhead to the discontinued operations. We have not had any significant continuing involvement in the Digital Services business since the spin-off. We had continuing activities and cash flows related to the Digital Services business through the Digital Reseller Agreement (see Note 5 — Related Party Transactions) which was entered into on July 29, 2011 and had an original four-year term. Under this agreement, Verge agreed to provide, at its sole expense and on an exclusive basis (subject to certain exceptions), for four years, services to Triton Digital customarily rendered by network radio sales representatives in the United States in exchange for a commission. The parties mutually agreed to terminate such agreement effective December 31, 2012.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and per share amounts)
Note 16 — Commitments and Contingencies
Operating Leases
We havelease office space, as well as telecommunications, office equipment, and satellite communications, under various non-cancelable, long-termoperating lease agreements, which expire at various dates through 2022. Certain lease agreements are non-cancellable, with aggregate minimum lease payment requirements, and contain certain escalation clauses.
We incurred aggregate rent expense under our operating leases for the years ended December 31, 2012 and 2011 of $6,304 and $5,399, respectively. We earned sublease income for the years ended December 31, 2012 and 2011 of $1,138 and $1,080, respectively.
Future minimum rental payments and future minimum rent to be received under non-cancellable operating leases for office spacethe next five years and equipment. In addition, wethereafter are as follows:
|
| | | | | | | | |
| Year | | Future Minimum Rent | | Future Minimum Sublease Income |
| 2013 | | $ | 7,137 |
| | $ | (1,311 | ) |
| 2014 | | 6,281 |
| | (1,311 | ) |
| 2015 | | 5,811 |
| | (1,311 | ) |
| 2016 | | 5,018 |
| | (218 | ) |
| 2017 | | 4,266 |
| | — |
|
| 2018 and thereafter | | 10,138 |
| | — |
|
| Total | | $ | 38,651 |
| | $ | (4,151 | ) |
Broadcast Rights and Other Services
We are committed under various contractual agreements to pay for broadcast rights that include news services and for other services that include talent, research, newsweather service, and weather services.executive contracts. The approximate aggregate future minimum obligations under such operating leases and contractual agreements for the next five years after December 31, 2010 and thereafter are set forth below:as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Leases | | | Broadcast | | | Other | |
| Year | | Total | | | Capital | | | Operating | | | Rights | | | Services | |
| 2011 | | $ | 136,350 | | | $ | 640 | | | $ | 7,699 | | | $ | 115,665 | | | $ | 12,346 | |
| 2012 | | | 111,300 | | | | — | | | | 7,518 | | | | 96,597 | | | | 7,185 | |
| 2013 | | | 93,287 | | | | — | | | | 7,343 | | | | 85,500 | | | | 444 | |
| 2014 | | | 80,131 | | | | — | | | | 6,598 | | | | 73,369 | | | | 164 | |
| 2015 | | | 82,576 | | | | — | | | | 6,136 | | | | 76,271 | | | | 169 | |
| Thereafter | | | 213,389 | | | | — | | | | 19,600 | | | | 193,789 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | $ | 717,033 | | | $ | 640 | | | $ | 54,894 | | | $ | 641,191 | | | $ | 20,308 | |
| | | | | | | | | | | | | | | | |
Rent expense charged to operations for the year ended December 31, 2010, the period from April 24, 2009 to December 31, 2009 and January 1, 2009 to April 23, 2009 and the year ended December 31, 2008 was $9,241, $6,288, $3,271, and $10,686, respectively. |
| | | | | | | | |
| Year | | Broadcast Rights | | Other Services |
| 2013 | | $ | 60,872 |
| | $ | 24,097 |
|
| 2014 | | 60,525 |
| | 19,654 |
|
| 2015 | | 61,485 |
| | 12,982 |
|
| 2016 | | 61,330 |
| | 9,532 |
|
| 2017 | | 26,493 |
| | — |
|
| 2018 and thereafter | | 86,750 |
| | — |
|
| Total | | $ | 357,455 |
| | $ | 66,265 |
|
Included in Broadcast Rightsbroadcast rights in the table above are commitments due to CBS Radio and its affiliates pursuantas of December 31, 2012. These amounts are subject to the agreements described in Note 3 — Related Party Transactions.audience and clearance adjustments based on actual performance by CBS' radio stations.
Legal Matters
We are subject, from time to time, to various claims, lawsuits, and other complaints arising in the ordinary course of business. We routinely monitor claims such as these, and record provisions for losses to the extent a claim becomes probable and the amount due is estimable. For matters that have reachedreach the threshold of probable and estimable, such as the Triangle litigation, we have establishedestablish reserves for thesesuch contingent liabilities.obligations.
Note 19 — Segment Information
We manage and report our business in two operating segments: Network Radio and Metro Traffic. Beginning with the first quarter
We report certain administrative activities under corporate expenses. We are domiciled in the United States with limited international operations comprising less than one percent of our revenue. No one customer represented more than 10% of our consolidated revenue.DIAL GLOBAL, INC.
F-44
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Note 17 — Subsequent Event (unaudited)
Revenue, OIBDA, depreciation
On January 15, 2013, we entered into a Third Limited Waiver to Credit Agreement (the “January First Lien Waiver”) with the administrative agent and amortizationcertain lenders under the First Lien Credit Facility and capital expendituresa Fourth Amendment and Limited Waiver to Second Lien Credit Agreement (the “January Second Lien Waiver” and together with the January First Lien Waiver, the “January Waivers”) with the administrative agent and certain lenders under the Second Lien Term Loan Facility, pursuant to which such lenders agreed, among other things, to amend certain provisions of the Credit Facilities and extend the waiver periods with respect to certain events of noncompliance under the Credit Facilities to February 28, 2013. In addition, pursuant to the January Second Lien Waiver, and subject to the terms and conditions set forth therein, certain of the lenders party thereto agreed to provide us with supplemental borrowing capacity of up to $5,000 under the Second Lien Term Loan Facility (the “Supplemental Facility”), which was to mature on February 28, 2013. Also on January 15, 2013, in connection with the January Waivers, we entered into a Third Amendment to Intercreditor Agreement implementing the provisions of the January Waivers and the Supplemental Facility.
On February 28, 2013, we entered into a Fourth Limited Waiver to Credit Agreement and Restructuring Support Agreement (the “February First Lien Waiver”) with the administrative agent and certain lenders under the First Lien Credit Facility and a Fifth Amendment and Limited Waiver to Second Lien Credit Agreement and Restructuring Support Agreement (the “February Second Lien Waiver” and together with the February First Lien Waiver, the “February Waivers”) with the administrative agent and certain lenders under the Second Lien Term Loan Facility pursuant to which the lenders party thereto agreed to, among other things, amend certain provisions of the Credit Facilities and extend their respective waiver periods with respect to certain events of noncompliance under the Credit Facilities to April 16, 2013 or such earlier date on which the February Waivers expire pursuant to their terms. In addition, pursuant to the February Second Lien Waiver the lenders party thereto agreed to extend the maturity date of the Supplemental Facility to April 16, 2013 or such earlier date on which the obligations under the Supplemental Facility are summarized belowautomatically accelerated, including upon the occurrence of an event of default. Also on February 28, 2013, in connection with the February Waivers, we entered into a Fourth Amendment to Intercreditor Agreement, implementing the provisions of the February Waivers and the Supplemental Facility.
On February 28, 2013, we also signed agreements with certain lenders and stockholders agreeing to recapitalize our existing credit facilities, other obligations and equity interests.
As part of the recapitalization, we entered into, among other agreements: (1) an Amended and Restated Credit Agreement (the “A&R First Lien Credit Agreement”) dated as of February 28, 2013, by segment:and among the Company, General Electric Capital Corporation, as administrative agent and collateral agent, and the lenders party thereto, (2) an Amended and Restated Second Lien Credit Agreement (the “A&R Second Lien Credit Agreement”) dated as of February 28, 2013, by and among the Company, Cortland Capital Market Services LLC, as administrative agent and collateral agent, and the lenders party thereto (the “Second Lien Lenders”), and (3) a Priority Second Lien Credit Agreement (the “Priority Second Lien Credit Agreement”; together with the A&R First Lien Credit Agreement and the A&R Second Lien Credit Agreement, the “New Credit Agreements”) dated as of February 28, 2013, by and among the Company, Cortland Capital Market Services LLC, as administrative agent and collateral agent, and the lender party thereto (the “Priority Second Lien Lender”). Each of the New Credit Agreements is expected to become effective on or around April 16, 2013. However, the effectiveness of each of the New Credit Agreements is subject to the satisfaction or waiver of the respective conditions precedent set forth therein, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013), and there can be no assurances that we will be able to satisfy or obtain waiver of such conditions precedent.
| | | | | | | | | | | | | | | | | | |
| | | Successor Company | | | | Predecessor Company | |
| | | | | | | For the Period April | | | | For the Period | | | | |
| | | Year Ended | | | 24 to December 31, | | | | January 1 to | | | Year Ended | |
| | | December 31, 2010 | | | 2009 | | | | April 23, 2009 | | | December 31, 2008 | |
Revenue | | | | | | | | | | | | | | | | | |
| Network Radio | | $ | 196,986 | | | $ | 119,852 | | | | $ | 63,995 | | | $ | 209,532 | |
| Metro Traffic | | | 165,560 | | | | 109,008 | | | | | 47,479 | | | | 194,884 | |
| | | | | | | | | | | | | | |
| | | $ | 362,546 | | | $ | 228,860 | | | | $ | 111,474 | | | $ | 404,416 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
OIBDA | | | | | | | | | | | | | | | | | |
Network Radio — OIBDA(1) | | $ | 12,147 | | | $ | 9,602 | | | | $ | (573 | ) | | $ | 18,048 | |
Metro Traffic — OIBDA(1) | | | 4,205 | | | | 5,504 | | | | | (613 | ) | | | 30,697 | |
| Corporate expenses | | | (9,433 | ) | | | (7,449 | ) | | | | (3,168 | ) | | | (18,263 | ) |
| Goodwill and intangible impairment | | | — | | | | (50,501 | ) | | | | — | | | | (430,126 | ) |
| Restructuring and special charges | | | (10,715 | ) | | | (9,530 | ) | | | | (16,795 | ) | | | (27,345 | ) |
| | | | | | | | | | | | | | |
OIBDA | | | (3,796 | ) | | | (52,374 | ) | | | | (21,149 | ) | | | (426,989 | ) |
| Depreciation and amortization | | | 18,243 | | | | 21,474 | | | | | 2,584 | | | | 11,052 | |
| | | | | | | | | | | | | | |
Operating loss | | | (22,039 | ) | | | (73,848 | ) | | | | (23,733 | ) | | | (438,041 | ) |
| Interest expense | | | 23,251 | | | | 14,781 | | | | | 3,222 | | | | 16,651 | |
| Other (income) expense | | | 1,688 | | | | (4 | ) | | | | (359 | ) | | | (12,369 | ) |
| | | | | | | | | | | | | | |
| Loss before income taxes | | | (46,978 | ) | | | (88,625 | ) | | | | (26,596 | ) | | | (442,323 | ) |
| Income tax benefit | | | (15,721 | ) | | | (25,025 | ) | | | | (7,635 | ) | | | (14,760 | ) |
| | | | | | | | | | | | | | |
Net Loss | | $ | (31,257 | ) | | $ | (63,600 | ) | | | $ | (18,961 | ) | | $ | (427,563 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | | | | | | | |
| Network Radio | | $ | 5,916 | | | $ | 6,110 | | | | $ | 1,096 | | | $ | 3,139 | |
| Metro Traffic | | | 12,300 | | | $ | 15,345 | | | | $ | 1,480 | | | $ | 6,120 | |
| Corporate | | | 27 | | | | 19 | | | | | 8 | | | | 1,793 | |
| | | | | | | | | | | | | | |
| | | $ | 18,243 | | | $ | 21,474 | | | | $ | 2,584 | | | $ | 11,052 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Capital expenditures: | | | | | | | | | | | | | | | | | |
| Network Radio | | $ | 4,694 | | | $ | 1,675 | | | | $ | 506 | | | $ | 5,634 | |
| Metro Traffic | | | 4,097 | | | | 3,509 | | | | | 878 | | | | 1,538 | |
| Corporate | | | 52 | | | | — | | | | | — | | | | 141 | |
| | | | | | | | | | | | | | |
| | | $ | 8,843 | | | $ | 5,184 | | | | $ | 1,384 | | | $ | 7,313 | |
| | | | | | | | | | | | | | |
| | |
(1) | | OIBDA includes allocations of certain corporate overhead expenses such as accounting and legal costs, bank charges, insurance, information technology, etc. |
Upon the effectiveness of such agreements, the recapitalization provides for, among other things, (1) a $15,000 paydown of our existing First Lien Term Loan Facility and Revolving Credit Facility, (2) the restructuring of approximately $93,000 in second lien obligations which includes (A) the continuation of a $30,000 term loan that matures five years after the expected closing of the recapitalization, (B) the exchange of approximately $63,000 in remaining obligations under the existing Second Lien Term Loan Facility for a new series of our preferred stock, pursuant to which the holders of preferred stock will be granted certain corporate governance rights, and (C) the issuance to the Second Lien Lenders for penny warrants to purchase 12.0% of our common stock in connection with the exchange of a portion of the existing second lien obligations for preferred stock, which warrants will be exercisable at various dates after the recapitalization if we do not retire the $30,000 second lien term loan and the preferred stock held by such Second Lien Lenders prior to certain specified dates, and (3) the issuance to the Priority Second Lien Lender penny warrants to purchase 7.5% of our common stock exercisable immediately following the consummation of the recapitalization in consideration for such lender's agreement to extend $31,500 through a new term loan facility.Identifiable assets by segment at December 31, 2010 and 2009 are summarized below:
| | | | | | | | | |
| | | December 31, 2010 | | | December 31, 2009 | |
| Network Radio | | $ | 132,227 | | | $ | 131,632 | |
| Metro Traffic | | | 142,490 | | | | 147,387 | |
| Corporate | | | 13,557 | | | | 28,299 | |
| | | | | | | |
| | | $ | 288,274 | | | $ | 307,318 | |
| | | | | | | |
F-45
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
General Terms of the New Credit Agreements
Note 20 — Quarterly Results
Upon the effectiveness of Operations (unaudited)such agreement, the A&R First Lien Credit Agreement provides for (1) a continuation of the existing first lien term loan in an aggregate principal amount of approximately $137,800 (the “A&R First Lien Term Loan Facility”), (2) an approximately $23,200 revolving credit facility, $6,000 of which is available for letters of credit (the “A&R Revolving Credit Facility” and, together with the A&R First Lien Term Loan Facility, the “A&R First Lien Credit Facilities”) and (3) an uncommitted incremental facility. The A&R Second Lien Credit Agreement provides for a continuation of the existing second lien term loan in an aggregate principal amount of $30,000, of which $15,000 are Tranche A loans (the “A&R Second Lien Tranche A Loan Facility”) and $15,000 are Tranche B loans (the “A&R Second Lien Tranche B Loan Facility”, together with the A&R Second Lien Tranche A Loan Facility, the “A&R Second Lien Term Loan Facility”). Upon the effectiveness of such agreement, the Priority Second Lien Credit Agreement provides for a term loan in an aggregate principal amount of $31,500 (the “Priority Second Lien Term Loan Facility” and, together with the A&R First Lien Term Loan Facility and the A&R Second Lien Term Loan Facility, the “New Term Loan Facilities”; the New Term Loan Facilities collectively with the A&R Revolving Credit Facility, the “New Credit Facilities”).
Maturity and Amortization
Each of the A&R First Lien Credit Facilities has an original maturity date of October 21, 2016. The unauditedA&R Second Lien Term Loan Facility has an original maturity date of five years from the effective date of the A&R Second Lien Credit Agreement (anticipated to be April 16, 2018). The Priority Second Lien Term Loan Facility has an original maturity date of July 21, 2017. Beginning March 31, 2013, the A&R First Lien Term Loan Facility shall have scheduled annual repayments of the original principal amount (payable in quarterly resultsinstallments) of operations$7,750, $11,625, $15,500 and $14,531 in the aggregate for 2013, 2014, 2015 and 2016 (through September 30, 2016), respectively, and with the balance scheduled to be paid at maturity. The original principal amount of each of the A&R Second Lien Term Loan Facility and the Second Lien Priority Term Loan Facility is payable at their respective maturity dates. For purposes hereof, the effective date of the New Credit Facilities is anticipated to be April 16, 2013 subject to satisfaction of the conditions precedent set forth therein.
Interest
Interest is payable on loans under the A&R Revolving Credit Facility and A&R First Lien Term Loan Facility at a rate equal to a Eurodollar rate determined by reference to the London Interbank Offer Rate (the “Eurodollar Base Rate”) or the base rate, plus an applicable margin, as selected by us. The applicable margin is 5.5% for base rate loans under the A&R Revolving Credit Facility and A&R First Lien Term Loan Facility and 6.5% for Eurodollar Base Rate loans under the A&R Revolving Credit Facility and A&R First Lien Term Loan Facility. The base rate is subject to a floor that is 1.00% above the Eurodollar Base Rate. The Eurodollar Base Rate is subject to a 1.50% floor and, with respect to it, interests periods of up to 1,2,3,6 or (if available to all applicable lenders) 9 or 12 months may be selected. Loans accruing interest at the base rate are payable in arrears on a quarterly basis and loans accruing interest at the Eurodollar Base Rate are payable in arrears on the last day of the interest period applicable to such loan, as selected by us.
Interest is payable on the loans under the A&R Second Lien Tranche A Facility at a rate per annum equal to 6.0% per annum and on the loans under the A&R Second Lien Tranche B Facility at rate of: 22.45% per annum for the years ended December 31, 2010period from the effective date up to the first anniversary of the effective date, 22.17% per annum for the period from the first anniversary up to the second anniversary of the effective date, 21.16% per annum for the period from the second anniversary up to the third anniversary of the effective date and 20.43% per annum from the periods April 24, 2009third anniversary until paid in full. Interest accrued on the A&R Second Lien Term Loan Facility is payable quarterly in kind unless (x) the consolidated leverage ratio as of the end of the last fiscal quarter was less than or equal to December 31, 20092.25:1.00, (y) the aggregate amount of such cash does not exceed a certain ”Available Amount” set forth in the A&R First Lien Credit Agreement, and January 1, 2009(z) such amount is permitted to April 23, 2009be paid under the other credit agreements and intercreditor agreement, and if such conditions are as follows:satisfied, then such interest is payable in cash.
| | | | | | | | | | | | | | | | | | | | | |
| Successor Company | |
| | | 2010 | |
| | | First | | | Second | | | Third | | | Fourth | | | For the | |
| | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Year | |
| | | | | | | | | | | | | | | | | | | | | |
| Net revenue | | $ | 92,842 | | | $ | 83,444 | | | $ | 87,952 | | | $ | 98,308 | | | $ | 362,546 | |
| Operating loss | | | (6,580 | ) | | | (2,963 | ) | | | (3,113 | ) | | | (9,383 | ) | | | (22,039 | ) |
| Net loss | | | (6,723 | ) | | | (5,418 | ) | | | (7,239 | ) | | | (11,877 | ) | | | (31,257 | ) |
| Net loss per common share: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.33 | ) | | $ | (0.26 | ) | | $ | (0.35 | ) | | $ | (0.56 | ) | | $ | (1.50 | ) |
| Diluted | | $ | (0.33 | ) | | $ | (0.26 | ) | | $ | (0.35 | ) | | $ | (0.56 | ) | | $ | (1.50 | ) |
| | | | | | | | | | | | | | | | | |
| | | For the period | | | 2009 | | | 2009 | | | For the period | |
| | | April 24, 2009 to | | | Third | | | Fourth | | | April 24, 2009 to | |
| | | June 30, 2009 | | | Quarter | | | Quarter | | | December 31, 2009 | |
| | | | | | | | | | | | | | | | | |
| Net revenue | | $ | 58,044 | | | $ | 78,474 | | | $ | 92,342 | | | $ | 228,860 | |
| Operating loss | | $ | (4,146 | ) | | $ | (60,135 | ) | | $ | (9,567 | ) | | $ | (73,848 | ) |
| Net loss | | $ | (6,184 | ) | | $ | (53,549 | ) | | $ | (3,867 | ) | | $ | (63,600 | ) |
| Net loss per share: | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | | |
| Common Stock | | $ | (18.85 | ) | | $ | (10.03 | ) | | $ | (0.19 | ) | | $ | (11.75 | ) |
| Class B Stock | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Diluted | | | | | | | | | | | | | | | | |
| Common Stock | | $ | (18.85 | ) | | $ | (10.03 | ) | | $ | (0.19 | ) | | $ | (11.75 | ) |
| Class B Stock | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | |
| | | | | | | | | | | | | |
| Predecessor Company | |
| | | 2009 | | | For the period | | | For the period | |
| | | First | | | April 1, 2009 to | | | January 1, 2009 to | |
| | | Quarter | | | April 23, 2009 | | | April 23, 2009 | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 85,867 | | | $ | 25,607 | | | $ | 111,474 | |
| Operating loss | | $ | (19,604 | ) | | $ | (4,129 | ) | | $ | (23,733 | ) |
| Net loss | | $ | (15,186 | ) | | $ | (3,775 | ) | | $ | (18,961 | ) |
| Net loss per share: | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | |
| Common Stock | | $ | (33.95 | ) | | $ | (10.67 | ) | | $ | (43.64 | ) |
| Class B Stock | | $ | — | | | $ | — | | | $ | — | |
| Diluted | | | | | | | | | | | | |
| Common Stock | | $ | (33.95 | ) | | $ | (10.67 | ) | | $ | (43.64 | ) |
| Class B Stock | | $ | — | | | $ | — | | | $ | — | |
F-46
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Unused Line Fee
For
An unused line fee is payable quarterly in the year ended December 31, 2009, we understatedamount of 0.50% of the sum of the average daily unused portion of the A&R Revolving Credit Facility during any quarter.
Covenants, Representations and Warranties, and Events of Default
Each of the New Credit Agreements contain a number of customary affirmative covenants. The A&R First Lien Credit Agreement and Priority Second Lien Credit Agreement also contain a number of customary negative covenants that, among other things, will limit or restrict our income tax receivable asset due to an errorability (including that of our subsidiaries) to: incur additional indebtedness (including guarantee obligations); incur liens; engage in howmergers, consolidations, liquidations and dissolutions, sell assets, pay dividends, distributions and make other payments in respect of capital stock, make acquisitions, investments, loans and advances, pay and modify the deductibilityterms of certain costsindebtedness, engage in certain transactions with affiliates, change their lines of business, and change their accounting fiscal year. The affirmative covenants in each of the New Credit Agreements are substantially similar and the negative covenants in the Priority Second Lien Credit Agreement are substantially similar to the A&R First Lien Credit Agreement, with customary cushions and setbacks.
In addition, under the A&R First Lien Credit Agreement and the Priority Second Lien Credit Agreement, we will be required to maintain a specified minimum consolidated fixed charge coverage ratio, not to exceed a specified maximum consolidated leverage ratio and not to exceed a specified capital expenditures amount. Under the A&R First Lien Credit Agreement, we will also be required not to exceed a maximum consolidated senior leverage ratio. The A&R Second Lien Credit Agreement does not contain such financial covenants.
Each of the Credit Agreements also contain customary representations and warranties and events of default, which are set forth in more detail in each of the New Credit Agreements.
Guaranty and Security Agreements
In connection with the amendment and restatement of the existing Credit Facilities, we and certain of our subsidiaries (the “Subsidiary Guarantors”) entered into (1) an Amendment to Guaranty and Security Agreement and General Reaffirmation and Modification Agreement (the “First Lien Reaffirmation Agreement”) dated as of February 28, 2013 in favor of General Electric Capital Corporation, as administrative agent and collateral agent, and (2) an Amendment to Second Lien Guaranty and Security Agreement and General Reaffirmation and Modification Agreement (the “Second Lien Reaffirmation Agreement” and together with the First Lien Reaffirmation Agreement”, the “Reaffirmation Agreements”) dated as of February 28, 2013 in favor of Cortland Capital Market Services LLC, as administrative agent and collateral agent, pursuant to which we and the Subsidiary Guarantors (i.e., our subsidiaries) reaffirmed their respective guarantees of amounts borrowed under the A&R Fist Lien Credit Agreement and A&R Second Lien Credit Agreement and previous grants of security to the respective agents for the twelve months ended December 31, 2009 was determined. This resulted in an additional income tax benefit of $590, recorded in the three months ended March 31, 2010 and the twelve months ended December 31, 2010, that should have been recorded in the successor period ended December 31, 2009. We overstated accounts receivable at December 31, 2009 by $250respective lenders. Additionally, in connection with our failure to record a billing adjustment as a result of a renegotiated customer contractthe Priority Second Lien Credit Agreement, we and understated accrued expenses forthe Subsidiary Guarantors entered into that certain generalPriority Second Lien Guaranty and administrative costs incurred by $278 at December 31, 2009. We understated accrued liabilities at December 31, 2009 by $375 in connection with our failure to record an employment claim settlement related to an employee termination that occurred prior to 2008, but which was probable and estimableSecurity Agreement (the “Priority Second Lien GSA”) dated as of December 31, 2009. We understated our programFebruary 28, 2013 in favor of Cortland Capital Market Services LLC, as administrative agent and operating liabilities by $428 incollateral agent. The terms of the predecessor period ended April 23, 2009Priority Second Lien GSA, the guaranty therein, and adjusted our opening balance sheetthe second priority security interest granted thereby, are substantially similar to the terms of the guaranty and goodwill accordingly. We determinedsecurity agreements previously entered into and reaffirmed pursuant to the Reaffirmation Agreements, each of which are subject to the terms of an amended and restated intercreditor agreement between General Electric Capital Corporation and Cortland Capital Market Services LLC.
Each of the A&R Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the Priority Second Lien GSA contain representations and warranties that the impactparties made to and solely for the benefit of these adjustments recorded in the first quarterparties thereto.
Under various subscription and exchange agreements between us and the holders of fiscal 2010 were immaterial to our results of operations in all applicable prior interimPIK Notes and annual periods. In additionSeries A Preferred Stock, such holders have agreed, subject to the foregoing, we understated accrued liabilities at December 31, 2009 by $218 in connection withsatisfaction of certain specified conditions, to exchange their PIK Notes and Series A Preferred Stock for our payroll, but which was probableequity securities and estimable ashave further agreed to make an additional equity infusion of December 31, 2009. We determined that the impact$16,500 on terms to be determined.
For the nine months ended September 30, 2009, we understated liabilities in error related to uncertain income tax exposures, arising in the respective periods. These additional income tax exposures related primarily to deductions taken in state filings for which it is more likely than not that those deductions would not be sustained on their technical merits. The amounts of additional tax expense that should have been recorded related to this error was $82 in the 2009 successor period and $68 in the 2009 predecessor period. Such charges totaling $3,247 were corrected in the fourth quarter of 2009 as an increase to income tax expense of $82, and an adjustment to the opening goodwill of $3,165 in the Successor Company at April 24, 2009. We have determined that the impact of these adjustments recorded in the fourth quarter of fiscal 2009 were immaterial to our results of operations in all applicable prior interim and annual periods. As a result, we have not restated any prior period amounts.DIAL GLOBAL, INC.
In the 23-day period ended April 23, 2009, we determined that we had incorrectly recorded a credit to interest expense, which should have been recorded in the three month period ended March 31, 2009, for the settlement of an amount owed to a former employee. We determined that this error was not significant to any prior period results and accordingly reduced the 23-day period’s interest expense by $754. Also in the period ended April 23, 2009, we determined that we incorrectly calculated the accretion of our preferred shares to redemption value which should have been recorded in the three-month period ended March 31, 2009. We determined that this error was not significant to any prior results and did not affect our net (loss) income. However, it did reduce the 23-day period’s net loss attributable to common stockholders by $1,262. Also in the 23-day period ended April 23, 2009, we recorded a charge to special charges for insurance expense of $261 (see Note 5 — Goodwill for additional information).
For the period April 24, 2009 to June 30, 2009, we failed to record the added depreciation expense for the increase in fixed assets values associated with our purchase accounting. The amount of depreciation expense that should have been recorded in the period ended June 30, 2009 was $401. This amount was recorded in the three months ended September 30, 2009. Additionally, for the period ended June 30, 2009, we failed to accrue severance costs of $145 for employees terminated in June 2009. Such charge was recorded in the three months ended September 30, 2009.
We do not believe these adjustments are material to our Consolidated Financial Statements in any quarter or year of any prior period’s Consolidated Financial Statements. As a result, we have not restated any prior period amounts.
F-47
WESTWOOD ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —- (Continued)
(In thousands, except share and per share amounts)
Though the recapitalization is expected to become effective on or around April 16, 2013, subject to the satisfaction or waiver of certain conditions precedent set forth in the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents, there can be no assurances that the recapitalization will be consummated on the terms described herein, or at all.
Note 21 — Subsequent Events
SubsequentNew Equity Documents
As a part of the recapitalization transactions, certain of the lenders (the "Second Lien Lenders") under our existing Second Lien Credit Agreement entered into the Exchange and Contribution Agreement, dated as of February 28, 2013, among us and the Second Lien Lenders, pursuant to December 31, 2010, Gores satisfiedwhich we agreed, subject to the $10,000 Gores equity commitment by purchasing 1,186satisfaction of certain specified conditions, to issue to the Second Lien Lenders shares of common stock at aour 15% Series A Preferred Stock, par value $0.01 per share price("New Series A Preferred Stock"), and penny warrants to purchase 12% of $8.43, calculatedour Common Stock (the "Preferred Warrants"), in exchange for $63,000 of the outstanding obligations under the Second Lien Credit Agreement. The Preferred Warrants will be exercisable at various dates after the effectiveness of the recapitalization transactions if we have not redeemed, repurchased, repaid or otherwise retired amounts outstanding under the A&R Second Lien Credit Agreement and the New Series A Preferred Stock prior to such dates. In addition, upon the effectiveness of the recapitalization, the holders of the New Series A Preferred Stock, will be granted certain corporate governance rights, including certain voting rights and the right to designate members of our Board of Directors, in accordance with the trailing 30-day weighted averageour Second Amended and Restated Certificate of Incorporation (the "A&R Certificate of Incorporation") and a stockholders agreement to be entered into by us and certain holders of our capital stock upon the closing of the transactions contemplated by the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents.
In addition, we agreed to issue the lender under the Priority Second Lien Credit Agreement penny warrants to purchase 7.5% of our outstanding common stock’s closing price,stock, which warrant will be exercisable immediately following the consummation of the recapitalization.
On February 28, 2013, we also entered into the Exchange and Contribution Agreement, among the Company and holders (the “PIK Note Holders”) of the Senior Subordinated Unsecured PIK Notes, dated October 21, 2011 (as amended, modified or supplemented, the “PIK Notes”), pursuant to which we agreed, subject to the satisfaction of certain specified conditions, to issue to the PIK Note Holders equity securities in exchange for the contribution by the PIK Note Holders to us of all of their right, title and interest in and to such PIK Note Holders' existing interest in the Company's PIK Notes, including all accrued and unpaid interest thereon (the “PIK Exchange and Contribution Agreement”). We also entered into a Series B Preferred Stock Subscription Agreement on February 28, 2013 (the "Subscription Agreement") by and among the Company, Gores, OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., and OCM Principal Opportunities Fund IV, L.P. (collectively, the "Purchasers"), whereby the Purchasers have agreed, subject to the satisfaction of certain specified conditions, to purchase agreement, dated August 17, 2010, between Goresequity securities of the Company for an aggregate purchase price of $16,500 on terms to be determined.
Upon the effectiveness of the recapitalization, we expect to file the A&R Certificate of Incorporation which, among other things, will provide that the outstanding shares of our existing Class A common stock, par value $0.01 per share and us. Gores percentage ownershipClass B common stock, par value $0.01 per share, will be reclassified into one series of Common Stock and our existing Series A Preferred Stock, par value $0.01 per share, will automatically be reclassified and converted into newly issued equity securities of the Company that is junior in preference or priority to the New Series A Preferred Stock.
The recapitalization is expected to become effective on or around April 16, 2013, subject to the satisfaction or waiver of certain conditions precedent set forth in the A&R First Lien Credit Agreement, the A&R Second Lien Credit Agreement, the Priority Second Lien Credit Agreement and the other transaction documents, including the absence of a material adverse effect since January 15, 2013 (other than those based on facts previously disclosed to the lenders prior to February 28, 2013). There can be no assurances that the recapitalization will be consummated on the terms described herein, or at all.
As noted above, we filed a Form 15 deregistering our Class A common stock in January 2013 and after this purchase is approximately 76.4% (see Note 3 — Related Parties, Note 8 — Debtreport, we will not be filing periodic reports with the SEC. This deregistration will be effective regardless of whether the recapitalization closes.
DIAL GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except share and Note 10 — Stockholders’ (Deficit) Equity — Common and Preferred Stock).per share amounts)
CBS Amendment
On April 12, 2011,March 8, 2013, we and CBS entered into an amendment to certain terms of our debt agreements with our lenders because our projections indicated that we would likely not attain sufficient Adjusted EBITDA (as defined in our lender agreements) to comply with our then existing debt leverage covenants in certain fiscal quartersMaster Agreement, News Programming Agreement, Technical Services Agreement and Affiliation Agreement. As part of 2011. As a result of negotiations with our lenders, we entered into a waiver and fourthsuch amendment, to the Securities Purchase Agreement which resulted in our previously existing maximum senior leverage ratios (expressed as the principal amount of Senior Notes over our Adjusted EBITDA (as defined in our lender agreements) measured on a trailing, four-quarter basis) of 11.25, 11.0 and 10.0 times for the first three quarters of 2011 being replaced by a covenant waiver for the first quarter of 2011and minimum LTM EBITDA thresholds of $4,000 and $7,000, for the second and third quarters of 2011. Debt leverage covenants for the last quarter of 2011 and the first two quarters in 2012 (the Senior Notes mature on July 15, 2012) remain unchanged. The quarterly debt leverage covenants that appear in the Credit Agreement (governing the Senior Credit Facility) were also amended to reflect a change to minimum LTM EBITDA thresholds and maintain the additional 15% cushion that exists between the debt leverage covenants applicable to the Senior Credit Facility and the corresponding covenants applicable to the Senior Notes. By way of example, the minimum LTM EBITDA thresholds of $4,000 and $7,000 for the second and third quarters of 2011 in the Securities Purchase Agreement (applicable to the Senior Notes) are $3,400 and $5,950, respectively, in the Credit Agreement (governing the Senior Credit Facility). In connection with this amendment, Gores agreed to fully subordinate the Senior Notes it holds (approximately $10,222 which is listed under “due to Gores”) to the Senior Notes held by the non-Gores holders, including in connection with any future pay down of Senior Notes from the proceeds of any asset sale), a 5% leverage fee will be imposed effective October 1, 2011 and we agreed to reportgive back commercial inventory on certain stations to CBS in return for a corresponding reduction to our station compensation, negotiated the statusreduction of any M&A discussions/activitycertain fees, eliminated certain fee escalators payable to CBS and eliminated and/or modified certain rights to adjust station compensation for changes in audience. Additionally, we agreed to provide certain CBS stations with a right of first refusal to certain of our programming and negotiated a repayment plan for certain outstanding amounts due to CBS. This amendment is expected to become effective on a bi-weekly basis. Notwithstandingor around April 16, 2013, subject to the foregoing, if at any time, the Company provides satisfactory documentation to its lenders that its debt leverage ratio for any LTM period complies with the following debt covenant levels for the five quarters beginning on June 30, 2011: 5.00, 5.00, 4.50, 3.50 and 3.50, and provided more than 50%satisfaction or waiver of the outstanding amount of non-Gores Senior Notes (i.e., Senior Notes held by the non-Gores holders) shall have been repaid as of such date, then the 5% leverage fee would be eliminated on a prospective basis. The foregoing levels represent the same covenant levelscertain conditions precedent set forth in the A&R First Lien Credit Agreement, the A&R Second Amendment toLien Credit Agreement, the Securities PurchasePriority Second Lien Credit Agreement entered into on March 30, 2010, exceptand the other recapitalization transaction documents. There can be no assurances that the debt covenant level for June 30, 2011 was 5.50 in the Second Amendment. As part of the waiver and fourth amendment, the Company agreed it would need to comply with a 5.00 covenant level on June 30, 2011, on an LTM basis, for the 5% leverage fee to be eliminated. The 5% leverage feerecapitalization will be equal to 5% of the Senior Notes outstanding for the period beginning October 1, 2011, and shall accrue on a daily basis from such date until the fee amount is paid in full. The fee shall be payableconsummated on the earlierterms described herein, or at all, and if such recapitalization were not consummated, this amendment with CBS would not become effective.
Management Changes
On March 19, 2013, we announced that our Board had chosen a new CEO, Paul Caine, effective April 5, 2013 and that our then existing CEO, Spencer Brown, and President Ken Williams were resigning. This followed the resignation of maturity (July 15, 2012) or the date on which the Senior Notes are paid. Interest shall accrue on such fee beginning October 1, 2011 until such amount is paidDavid Landau, then co-CEO with Messrs. Brown and Williams, in full. Accrued and unpaid leverage fee amounts shall be added to the principal amount of the Senior Notes at the end of each calendar quarter (as is the case with PIK interest on the Senior Notes which accretes to the principal amount on a quarterly basis).February 2013.
F-48
Schedule II — Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
| | | | | | | | | | | | | | | | | |
| | | Balance at | | | Additions | | | Deductions | | | Balance at | |
| | | Beginning of | | | Charged to Costs | | | Write-offs and | | | End of | |
| | | Period | | | and Expenses | | | Other Adjustments | | | Period | |
Successor Company | | | | | | | | | | | | | | | | |
| 2010 | | $ | 2,723 | | | $ | 745 | | | $ | (2,044 | ) | | $ | 1,424 | |
| | | | | | | | | | | | | | | | | |
| 4/24/2009 to 12/31/2009 | | $ | 0 | | | $ | 2,425 | | | $ | 298 | | | $ | 2,723 | |
| | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | | | | |
Predecessor Company | | | | | | | | | | | | | | | | |
| 1/1/2009 to 4/23/2009 | | $ | 3,632 | | | $ | 574 | | | $ | (6 | ) | | $ | 4,200 | |
| | | | | | | | | | | | | | | | | |
| 2008 | | $ | 3,602 | | | $ | 439 | | | $ | (409 | ) | | $ | 3,632 | |
II
|
| | | | | | | | | | | | | | |
| Years Ended December 31, | | Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Deductions Write-offs and Other Adjustments | | Balance at End of Period |
| 2012 | | $ | 238 |
| | 1,255 |
| | (695 | ) | | $ | 798 |
|
| 2011 | | $ | 175 |
| | 401 |
| | (338 | ) | | $ | 238 |
|
Income Tax Valuation Accounts
|
| | | | | | | | | | | | |
| Years Ended December 31, | | Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Deductions Write-offs and Other Adjustments | | Balance at End of Period |
| 2012 | | 12,930 |
| | 28,716 |
| | — |
| | 41,646 |
|
| 2011 | | 2,614 |
| | 8,639 |
| | 1,677 |
| | 12,930 |
|
