R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2009
OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
	For the transition period from                    to

Delaware	52-1166660
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Class	Outstanding at March 26, 2010
Class A Common Stock, $.001 par value	2,980,641
Class B Common Stock, $.001 par value	2,861,843
Class C Common Stock, $.001 par value	3,121,048
Class D Common Stock, $.001 par value	45,531,353

 

			Page
PART I
Item 1.	Business			1
Item 1A.	Risk Factors			11
Item 1B.	Unresolved Staff Comments			16
Item 2.	Properties			16
Item 3.	Legal Proceedings			16
Item 4.	Submission of Matters to a Vote of Security Holders			17
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18
Item 6.	Selected Financial Data			21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk			41
Item 8.	Financial Statements and Supplementary Data			41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			41
Item 9A.	Controls and Procedures			41
Item 9B.	Other Information			41
PART III
Item 10.	Directors and Executive Officers of the Registrant			42
Item 11.	Executive  Compensation			42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			42
Item 13.	Certain Relationships and Related Transactions			42
Item 14.	Principal Accounting Fees and Services			42
PART IV
Item 15.	Exhibits and Financial Statement Schedules			42
SIGNATURES				44

	•	we obtained total radio industry revenue levels from the Radio Advertising Bureau (the “RAB”);
	•	we obtained audience share and ranking information from Arbitron Inc. (“Arbitron”); and
	•	we derived historical market statistics and market revenue share percentages from data published by Miller, Kaplan, Arase & Co., LLP (“Miller Kaplan”), a public accounting firm that specializes in serving the broadcasting industry and BIA Financial Network, Inc. (“BIA”), a media and telecommunications advisory services firm.

•

the effects the global financial and economic downturn, credit and equity market volatility and continued fluctuations in the U.S. economy may continue to have on our business and financial condition and the business and financial condition of our advertisers;

•

continued fluctuations in the economy could negatively impact our ability to meet our cash needs and our ability to maintain compliance with our debt covenants;

•

fluctuations in the demand for advertising across our various media given the current economic environment;

•

our relationship with a significant customer has changed and we no longer have a guaranteed level of revenue from that customer;

•

risks associated with the implementation and execution of our business diversification strategy;

•

increased competition in our markets and in the radio broadcasting and media industries;

•

changes in media audience ratings and measurement technologies and methodologies;

•

regulation by the FCC relative to maintaining our broadcasting licenses, enacting media ownership rules and enforcing of indecency rules;

•

changes in our key personnel and on-air talent;

•

increases in the costs of our programming, including on-air talent and content acquisitions costs;

•

financial losses that may be incurred due to impairment charges against our broadcasting licenses, goodwill and other intangible assets, particularly in light of the current economic environment;

•

increased competition from new media and technologies;

•

the impact of our acquisitions, dispositions and similar transactions;

•

our high degree of leverage and potential inability to refinance our debt given current market conditions; and

•

other factors mentioned in our filings with the Securities and Exchange Commission including the factors discussed in detail in Item 1A, “Risk Factors,” contained in this report.

 

 

		Radio One												Market Data
										Entire Audience Four Book Average (Ending Fall 2009) Audience Share(a)
																		Ranking by Size of African- American Population Persons 12+(c)
																						Estimated Fall 2009 Metro
														Estimated 2008 Annual Radio Revenue(b)								Population Persons 12+(c)
		Number of Stations																								African- American%
Market		FM				AM																Total
														($ millions)								(millions)
Atlanta (1)			4				-				12.4				398.5				3				4.4				31.1	%
Washington, DC (1)			3				2				11.5				365.1				4				4.3				26.5	%
Philadelphia (1)			3				-				9.0				301.4				5				4.4				20.2	%
Detroit (1)			2				1				6.2				225.3				6				3.8				21.9	%
Houston (1)			3				-				15.8				383.8				8				4.8				16.9	%
Dallas (1)			2				-				6.1				416.3				9				5.2				14.3	%
Baltimore(2)			2				2				16.6				147.6				11				2.3				28.5	%
St. Louis(2)			2				-				8.7				139.7				14				2.3				18.2	%
Charlotte(3)			2				-				5.4				114.5				15				2.0				20.9	%
Cleveland(4)			2				2				14.1				108.4				18				1.8				19.1	%
Richmond(3)			4				1				21.8				60.9				20				.9				29.5	%
Raleigh-Durham(3)			4				-				18.2				84.8				19				1.3				21.6	%
Boston (5)			-				1				-				310.5				21				4.0				6.6	%
Cincinnati(4)			2				1				9.7				123.1				28				1.8				12.3	%
Columbus(3)			3				-				14.2				102.9				29				1.5				14.4	%
Indianapolis(3)(6)			3				1				18.4				93.6				31				1.4				14.8	%
Total			41				11

 

(1)   (2)   (3)   (4)   (5)   (6)

The four book average and rank is measured using the Portable People MeterTM (“PPMTM”) methodology.   The four book average is measured using a two book diary and a two book (six months) PPMTM average.  The four book rank is based on the two book PPMTM average.   The four book average and rank is measured using the four book diary average.   The four book average is measured using a three book diary and a one book (three months) PPMTM average.  The four book rank is based on the three book diary average.   We do not subscribe to Arbitron for our Boston market.    WDNI-CD (formerly WDNI-LP), the low power television station that we acquired in Indianapolis in June 2000, is not included in this table.

(a)	Audience share data are for the 12+ demographic and derived from the Arbitron Survey four book averages ending with the Fall 2009 Arbitron Survey.
(b)	2008 estimated annual radio revenues are from BIA Financials Investing in Radio Market Report, 2008 Yearbook. The BIA Financials Investing in Radio Market Report, 2009 Yearbook which would include the 2009 estimated annual radio revenues was not available at the date this Form 10-K was filed.
(c)	Population estimates are from the Arbitron Radio Market Report, Fall 2009.

Rank			Market		African-American Population (Persons 12+)				African-Americans as a Percentage of the Overall Population (Persons 12+)
					(In thousands)
	1		New York, NY			2,701				17.2	%
	2		Chicago, IL			1,380				17.6
	3		Atlanta, GA			1,372				31.1
	4		Washington, DC			1,135				26.5
	5		Philadelphia, PA			879				20.2
	6		Detroit, MI			840				21.9
	7		Los Angeles, CA			816				7.4
	8		Houston-Galveston, TX			816				16.9
	9		Dallas-Ft. Worth, TX			733				14.3
	10		Miami-Ft. Lauderdale-Hollywood, FL			708				19.8
	11		Baltimore, MD			645				28.5
	12		Memphis, TN			468				43.8
	13		San Francisco, CA			437				7.1
	14		St. Louis, MO			421				18.2
	15		Charlotte-Gastonia-Rock Hill, NC			420				20.9
	16		Norfolk-Virginia Beach-Newport News, VA			420				31.6
	17		New Orleans, LA			347				34.7
	18		Cleveland, OH			336				19.1
	19		Raleigh-Durham, NC			287				21.6
	20		Richmond, VA			278				29.5
	21		Boston, MA			264				6.6
	22		Tampa-St. Petersburg-Clearwater, FL			258				10.8
	23		Birmingham, AL			252				28.3
	24		Greensboro-Winston-Salem-High Point, NC			247				20.7
	25		Jacksonville, FL			244				21.4
	26		Orlando, FL			239				15.7
	27		Nassau-Suffolk (Long Island), NY			224				9.2
	28		Cincinnati, OH			220				12.3
	29		Columbus, OH			210				14.4
	30		Milwaukee-Racine, WI			208				14.3
	31		Indianapolis, IN			206				14.8
	32		Kansas City, KS			200				12.4
	33		Nashville, TN			198				15.8
	34		Baton Rouge, LA			190				33.5
	35		Seattle-Tacoma, WA			185				5.5
	36		Middlesex-Somerset-Union, NJ			185				13.3
	37		Jackson, MS			182				46.1
	38		Minneapolis-St. Paul, MN			181				6.7
	39		Columbia, SC			171				32.4
	40		Riverside-San Bernardino, CA			169				9.2
	41		West Palm Beach-Boca Raton, FL			165				14.8
	42		Pittsburgh, PA			165				8.3
	43		Las Vegas, NV			158				10.3
	44		Phoenix, AZ			153				4.6
	45		Charleston, SC			152				27.4
	46		Greenville-Spartanburg, SC			148				16.9
	47		Augusta, GA			148				34.2
	48		Sacramento, CA			140				7.6
	49		Louisville, KY			135				14.1
	50		San Diego, CA			131				5.1

•

market research, targeted programming and marketing;

•

ownership and syndication of programming content;

•

radio station clustering, programming segmentation and sales bundling;

•

Strategic and coordinated sales, marketing and special event efforts;

•

strong management and performance-based incentives; and

•

significant community involvement.

In order to create advertising loyalty, we strive to be the recognized expert in marketing to the African-American consumer in the markets in which we operate. We believe that we have achieved this recognition by focusing on serving the African-American consumer and by creating innovative advertising campaigns and promotional tie-ins with our advertising clients and sponsoring numerous entertainment events each year. In these events, advertisers buy sponsorships, signage, booth space and/or broadcast promotions to sell a variety of goods and services to African-American consumers. As we expand our presence in our existing markets and into new markets, we may increase the number of events and the number of markets in which we host events based upon our evaluation of the financial viability and economic benefits of the events.

The Company accounts for its investment in TV One under the equity method of accounting in accordance with Accounting Standards Codification (“ASC”) 323, “Investments – Equity Method and Joint Ventures.”  The Company has recorded its investment at cost and has adjusted the carrying amount of the investment to recognize the change in Radio One’s claim on the net assets of TV One resulting from income or losses of TV One, as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. The Company will review the realizability of the investment if conditions are present or events occur to suggest that an impairment of the investment may exist. The Company has determined that, although TV One is a variable interest entity (as defined by ASC 810, “Consolidation”) the Company is not the primary beneficiary of TV One. (See Note 6 — Investment in Affiliated Company.)

  (d)  Cash and Cash Equivalents

Cash and cash equivalents consist of cash, repurchase agreements and money market funds at various commercial banks. All cash equivalents have original maturities of 90 days or less. For cash and cash equivalents, cost approximates fair value.

  (e)  Trade Accounts Receivable

Trade accounts receivable is recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s estimate of the amount of probable losses in the Company’s existing accounts receivable. The Company determines the allowance based on the aging of the receivables, the impact of economic conditions on the advertisers’ ability to pay and other factors. Inactive delinquent accounts that are past due beyond a certain amount of days are written off and often pursued by other collection efforts. Bankruptcy accounts are immediately written off upon receipt of the bankruptcy notice from the courts. In bankruptcy instances, we file a proof of claim with the courts in order to receive any later distribution of funds that may be forthcoming. 

 

(f)	Goodwill and Radio Broadcasting Licenses

In connection with past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired. In accordance with ASC 350, “Intangibles - Goodwill and Other,” goodwill and radio broadcasting licenses are not amortized, but are tested annually for impairment at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on October 1 of each year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Impairment exists when the asset carrying values exceed their res pective fair values, and the excess is then recorded to operations as an impairment charge. With the assistance of a third-party valuation firm, we test for license impairment at the unit of accounting level using the income approach, which involves, but is not limited to judgmental estimates and assumptions about projected revenue growth, future operating margins discount rates and terminal values. In testing for goodwill impairment, we follow a two-step approach, also using the income approach that first estimates the fair value of the reporting unit. If the carrying value of the reporting unit exceeds its fair value, we then determine the implied goodwill after allocating the reporting unit’s fair value of assets and liabilities in accordance with ASC 805-10, “Business Combinations.” Any excess of carrying value of the reporting unit’s goodwill balance over its respective implied goodwill is written off as a charge to op erations. We then perform a reasonableness test by comparing the average implied multiple arrived at based on our cash flow projections and estimated fair values to multiples for actual recently completed sale transactions and by comparing our estimated fair values to the market capitalization of the Company

 

 

F-6

---

 

 

The recent economic downturn caused further deterioration to the 2009 outlook for radio and online advertising, and resulted in significant revenue and profitability declines beyond levels assumed in our 2008 annual impairment testing. As a result, we lowered many of our internal projections and we performed interim impairment assessments for our radio broadcasting licenses and goodwill in February and August 2009, as well as for CCI in August 2009, the results of which were to record approximately $49.0 million in impairment charges against radio broadcasting licenses in 11 of our 16 markets during the first quarter of 2009. In the third quarter of 2009, Reach Media lowered its 2009 projections as a result of amending its sales representation agreement with Citadel Broadcasting Corporation (“Citadel”), whereby, in ex change for prepayment, Citadel paid Reach Media $2.0 million less in guaranteed revenue for the fourth quarter of 2009. Consequently, interim impairment testing was also performed on Reach Media in August of 2009, as a result of which the Company concluded no impairment had occurred. As part of our annual 2009 testing, we recorded additional impairment charges of approximately $16.1 million against radio broadcasting licenses in seven of our 16 markets, and we impaired goodwill of $628,000 in another one of our markets for the entire amount during the fourth quarter of 2009. For the three years ended December 31, 2009, 2008 and 2007, the Company recorded broadcasting license and goodwill impairment charges of approximately $65.6 million, $420.2 million and $211.1 million, respectively. (See Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.)

  (g)  Impairment of Long-Lived Assets, Excluding Goodwill and Radio Broadcasting Licenses

The Company accounts for the impairment of long-lived intangible assets, excluding goodwill and radio broadcasting licenses, in accordance with ASC 350, “Intangibles - Goodwill and Other.” Long-lived intangible assets, excluding goodwill and radio broadcasting licenses, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration in operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted future cash flows. The discount rate used in any estimate of discounted cash flows would be the rate of return for a similar investment of like risk. Given the recent weak economy and the adverse impact on radio and online advertising, the Company performed impairment testing on certain advertising related long-lived assets for Reach Media and CCI in August 2009, and concluded that no impairment to the carrying value of the advertising related intangibles had oc curred. No additional impairment indicators arose during the fourth quarter of 2009 for any of our reporting units; hence, additional testing of advertising related intangibles was not warranted. Given the radio broadcasting license impairment in two of our reporting units during 2009, we performed impairment testing on other intangibles in those reporting units, and recorded $297,000 in impairment charges during the fourth quarter against the carrying value of those intangible assets. For the years ended December 31, 2009 and 2008, $297,000 and approximately $3.2 million were recorded, respectively, for impairment of intangible assets other than goodwill and FCC licenses. There were no impairment charges recorded for these assets in 2007.

  (h)  Financial Instruments

Financial instruments as of December 31, 2009 and 2008 consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, note payable, long-term debt and subscriptions receivable. The carrying amounts approximated fair value for each of these financial instruments as of December 31, 2009 and 2008, except for the Company’s outstanding senior subordinated notes. The 87/8% Senior Subordinated Notes due July 2011 had a carrying value of $101.5 million and a fair value of approximately $78.2 million as of December 31, 2009, and a carrying value of $104.0 million and a fair value of approximately $52.0 million as of December 31, 2008. The 63/8% Senior Subordinated Notes due February 2013 had a carrying value of $200.0 million and a fair value of approximately $142.0 million as of December 31, 2009,  and a carrying value of $200.0 million and a fair value of approximately $60.0 million as of December 31, 2008. The fair values were determined based on the current trading values of these instruments.

 

  (i)  Derivative Financial Instruments

The Company recognizes all derivatives at fair value, whether designated in hedging relationships or not, in the balance sheet as either an asset or liability. The accounting for changes in the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and the resulting designation. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair value thr ough the statement of operations.  Any fees associated with these derivatives are amortized over their term. (See Note 8 – Derivative Instruments and Hedging Activities.)

  (j)  Revenue Recognition

The Company recognizes revenue for broadcast advertising when a commercial is broadcast and is reported, net of agency and outside sales representative commissions, in accordance with ASC 605, “Revenue Recognition.”  Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency or outside sales representative, and the agency or outside sales representative remits the gross billing, less their commission, to the Company. Agency and outside sales representative commissions were approximately $28.4 million, $34.6 million and $37.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.

CCI, which the Company acquired in April 2008, currently generates the majority of the Company’s internet revenue, and derives such revenue principally from advertising services, including advertising aimed at diversity recruiting. Advertising services include the sale of banner and sponsorship advertisements.  Advertising revenue is recognized either as impressions (the number of times advertisements appear in viewed pages) are delivered, when “click through” purchases or leads are reported, or ratably over the contract period, where applicable. CCI has a diversity recruiting relationship with Monster, Inc. (“Monster”).  Monster posts job listings and advertising on CCI’s websites and CCI earns revenue for displaying the images on its websites.  

  (k)  Barter Transactions

The Company provides broadcast advertising time in exchange for programming content and certain services. In accordance with ASC 605, “Revenue Recognition,” the terms of these exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time in exchange for cash. The Company includes the value of such exchanges in both broadcasting net revenue and station operating expenses. The valuation of barter time is based upon the fair value of the network advertising time provided for the programming content and services received. For the years ended December 31, 2009, 2008 and 2007, barter transaction revenues were approximately $3.2 million, $2.6 million and $2.3 million, respectively. Additionally, barter transaction costs were reflected in programming and technical expenses and selling, general and administrative expenses of approximately $3.0 million, $2.5 million and $2.1 million, and $166,000, $166,000 and $166,000, for the years ended December 31, 2009, 2008 and 2007, respectively.

 

  (l)  Network Affiliation Agreements

The Company has network affiliation agreements classified as Other Intangible Assets. These agreements are amortized over their useful lives. Losses on contract terminations are determined based on the specifics of each contract in accordance with ASC 920-350, “Entertainment Broadcasters.” (See Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.)

 

(m)	Advertising and Promotions

The Company expenses advertising and promotional costs as incurred. Total advertising and promotional expenses, including expenses related to discontinued operations, were approximately $4.9 million, $6.4 million and $14.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.  Total advertising and promotional expenses for continuing operations, for the years ended December 31, 2009, 2008 and 2007, were approximately $4.8 million, $6.2 million and $9.6 million, respectively.

 

 

F-7

---

 

 

  (n)  Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” Under ASC 740, deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. The Company has provided a valuation allowance on its net deferred tax assets where it is more likely than not such assets will not be realized. This has occurred for all entities except for Reach Media. Deferred income tax expense or benefits are based upon the changes in the asset or liability from period to period.

  (o)  Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation.” Under the provisions of ASC 718, stock-based compensation cost is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes (“BSM”) valuation option-pricing model and is recognized as expense ratably over the requisite service period.  The BSM incorporates various highly subjective assumptions including expected stock price volatility, for which historical data is heavily relied upon, expected life of options granted, forfeiture rates and interest rates. (See Note 11 – Stockholders’ Equity.)

The Company is currently in a cumulative loss tax position; hence, tax benefits resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes were not recognized in financing cash flows during the years ended December 31, 2009, 2008 and 2007.

  (p)  Comprehensive Loss

The Company’s comprehensive loss consists of net loss and other items recorded directly to the equity accounts. The objective is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events during the period, other than transactions with owners. The Company’s comprehensive loss consists of gains and losses on derivative instruments that qualify for cash flow hedge treatment.

 

The following table sets forth the components of comprehensive loss:

		For the Years Ended December 31,
		2009				2008				2007
		(In thousands)
Consolidated net loss		$	(48,558	)		$	(298,947	)		$	(387,590	)
Other comprehensive income (loss) (net of tax of $0, $0 and $242, respectively):
Derivative and hedging activities			895				(3,625	)			(323	)
Comprehensive loss			(47,663	)			(302,572	)			(387,913	)
Comprehensive income attributable to noncontrolling interest			4,329				3,997				3,910
Comprehensive loss attributable to common stockholders		$	(51,992	)		$	(306,569	)		$	(391,823	)

  (q)  Segment Reporting and Major Customers

In accordance with ASC 820, “Segment Reporting,” and given its diversification strategy, the Company has determined it has two reportable segments:  (i) Radio Broadcasting; and (ii) Internet. These two segments operate in the United States and are consistently aligned with the Company’s management of its businesses and its financial reporting structure.

The Radio Broadcasting segment consists of all broadcast and Reach Media results of operations. The Internet segment includes the results of our online business, including the operations of CCI since its date of acquisition. Intercompany revenue earned and expenses charged between segments are recorded at fair value and eliminated in consolidation.      

We derived a significant portion of our net revenue for 2009, 2008 and 2007 from a single customer, Radio Networks, a media representation firm which is owned by Citadel.  During those years, Reach Media derived a substantial majority of its net revenue from a sales representation agreement (the “Sales Representation Agreement”) with Radio Networks.  The Sales Representation Agreement called for Radio Networks to act as Reach Media’s sales representative primarily for advertising airing on 105 affiliate radio stations broadcasting the Tom Joyner Morning Show, and to also serve as its sales representative for internet and events sales.  The Sales Representation Agreement provided for Radio Networks to retain a portion of Reach Media’s advertising revenues only after satisfying certain re venue guarantee obligations to Reach Media. Further, but to a lesser extent, in accordance with ASC 605, “Revenue Recognition,” revenue for Company owned radio stations is also generated from Radio Networks for barter agreements whereby the Company provides advertising time in exchange for programming content (the “RN Barter Revenue”).  As a result of our 53.5% ownership of Reach Media, we consolidate net revenue derived by Reach Media from the Sales Representation Agreement into our financial statements.  For the years ended December 31, 2009, 2008 and 2007, net revenue attributable to the Sales Representation Agreement and the RN Barter Revenue accounted for 11.9%, 10.6% and 10.8%, respectively, of our total consolidated net revenues.

 The Sales Representation Agreement commenced January 2003 and in connection with entering into the Sales Representation Agreement, Radio Networks obtained an ownership interest in Reach Media.  In June 2007, Radio Networks, a subsidiary of Citadel, assumed the Sales Representation Agreement as a result of Citadel’s purchase of ABC Radio Networks from The Walt Disney Company. The agreement expired December 31, 2009; however, during the quarter ended September 30, 2009, Reach Media and Citadel reached an agreement whereby the revenue guarantee obligations to Reach Media for each of the months of November and December 2009 was reduced by $1.0 million in exchange for prepayment of the reduced revenue guarantee obligation for those months.  Payment of the reduced revenue guarantee obligation was received by Reach Medi a.  A new Sales Representation Agreement was executed in November 2009 to replace the old agreement, whereby, effective January 1, 2010, Citadel will sell advertising inventory outside the Tom Joyner Morning Show. As an inducement for Reach Media to enter into the new Sales Representation Agreement, Citadel returned its noncontrolling ownership interest in Reach Media back to Reach Media.  This ownership interest was part of the original agreement signed in 2003. As a result of classifying these shares as treasury stock, this transaction effectively increased Radio One’s common stock interest in Reach Media to 53.5%. In exchange for the returned ownership interest, Reach Media issued a $1.0 million promissory note payable to Radio Networks due in December 2011.

  

  (r)  Net Loss Per Share

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

 The Company’s potentially dilutive securities include stock options and unvested restricted stock. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a net loss, as the inclusion of the potentially dilutive common shares would have an anti-dilutive effect.

  (s)  Discontinued Operations

For those businesses where management has committed to a plan to divest or discontinue operations, each business is valued at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. The fair values are estimated using accepted valuation techniques such as a discounted cash flow model, valuations performed by third parties, earnings multiples, or indicative bids, when available. A number of significant estimates and assumptions are involved in the application of these techniques, including the forecasting of markets and market share, revenues, costs and expenses, and multiple other factors. Management considers historical experience and all available information at the time the estimates are made. However, the fair values that are ultimately realized upon the sale of the businesses to be divested may differ from the estimated fair values reflected in the consolidated financial statements.

Businesses to be divested or operationally cease are classified in the consolidated financial statements as discontinued operations. For businesses classified as discontinued operations, the balance sheet amounts and statement of operations results are reclassified from their historical presentation to assets and liabilities of discontinued operations on the consolidated balance sheet and to discontinued operations in the consolidated statement of operations for all periods presented. The gains or losses associated with these divested or ceased businesses are recorded in income or loss from discontinued operations on the consolidated statement of operations. The consolidated statement of cash flows is also reclassified for discontinued operations for all periods presented. For businesses reclassified as discontinued, other than the co llection of outstanding accounts receivable, management does not expect any continuing involvement with these businesses, and these businesses are expected to be disposed of within one year.

 

F-8

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  (t) Fair Value Measurements

We report our financial and non-financial assets and liabilities measured at fair value on a recurring basis under the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Effective January 1, 2009, we adopted the provisions of ASC 820 for all non-financial instruments accounted for at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on our financial condition or results of operations.

 

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

 

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets and liabilities that can be accessed at the measurement date.

	Level 2: Observable inputs other than those included in Level 1, (i.e. quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.)
	Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

 

      As of December 31, 2009 and 2008, the fair values of our financial liabilities measured at fair value on a recurring basis are categorized as follows:

  

	Total				Level 1				Level 2				Level 3
	(In thousands)
As of December 31, 2009
Liabilities subject to fair value measurement:
Interest rate swaps (a)		$	2,086			$	—			$	2,086		$	—
Employment agreement award (b)			4,657				—				—			4,657
Total		$	6,743			$	—			$	2,086		$	4,657
As of December 31, 2008
Liabilities subject to fair value measurement:
Interest rate swaps (a)		$	2,981			$	—			$	2,981		$	—
Employment agreement award (b)			4,326				—				—			4,326
Total		$	7,307			$	—			$	2,981		$	4,326
(a)  Based on London Interbank Offered Rate (“LIBOR”).
(b)  Pursuant to an employment agreement (the “Employment Agreement”) executed in April 2008, the Chief Executive Officer (“CEO”) will be eligible to receive an award amount equal to 8% of any proceeds from distributions or other liquidity events in excess of the return of the Company’s aggregate investment in TV One. The Company reviews the factors underlying this award at the end of each quarter. The Company’s obligation to pay the award will be triggered only after the Company’s recovery of the aggregate amount of its capital contribution in TV One and only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to the Company&# 8217;s membership interest in TV One. The CEO was fully vested in the award upon execution of the Employment Agreement, and the award lapses upon expiration of the Employment Agreement in April 2011, or earlier if the CEO voluntarily leaves the Company or is terminated for cause. A third party valuation firm assisted the Company in calculating the fair valuation of the award. (See Note 8 – Derivative Instruments and Hedging Activities.)

 

      The following table presents the changes in Level 3 liabilities measured at fair value on a recurring basis for the year ended December 31, 2009.

 

		Employment Agreement Award
		(In thousands)
Balance at December 31, 2008		$	4,326
Unrealized losses included in earnings			331
Changes in accumulated other comprehensive loss			—
Purchases, issuances, and settlements			—
Balance at December 31, 2009		$	4,657
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at the reporting date		$	331

 

Losses included in earnings were recorded in the consolidated statement of operations as corporate selling, general and administrative expenses for the year ended December 31, 2009.

 

Certain assets and liabilities are measured at fair value on a non-recurring basis.  These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances.  Included in this category are goodwill, radio broadcasting licenses and other intangible assets, net, that are written down to fair value when they are determined to be impaired.

      As of December 31, 2009, each major category of assets and liabilities measured at fair value on a non-recurring basis during the period is categorized as follows:

  

		Total				Level 1			Level 2			Level 3			Total Gains (Losses)
		(In millions)
As of December 31, 2009
Non-recurring assets subject to fair value measurement:
Goodwill		$	137.5			$	—		$	—		$	137.5		$	(0.6	)
Radio broadcasting licenses			698.6				—			—			698.6			(65.0	)
Other intangible assets, net			35.1				—			—			35.1			(0.3	)
Total		$	871.2			$	—		$	—		$	871.2		$	(65.9	)

 

As of December 31, 2008, the total recorded carrying values of goodwill and radio broadcasting licenses were approximately $137.1 million and $763.7 million, respectively. Pursuant to ASC 350, “Intangibles – Goodwill and Other,” and in connection with its interim impairment testing performed in February 2009, the Company determined carrying values for radio broadcasting licenses in 11 of its 16 markets were impaired, and recorded an impairment charge of approximately $49.0 million for the quarter ended March 31, 2009, thus reducing the total license carrying values to approximately $714.7 million as of March 31, 2009. During the second quarter of 2009, no impairment indicators were identified; hence, no interim impairment testing was warranted. For the third qu arter of 2009, the Company performed interim impairment testing in August 2009 and concluded that impairment to the carrying values of radio broadcasting licenses and goodwill had not occurred. During the fourth quarter of 2009, the Company determined carrying values for radio broadcasting licenses and goodwill in eight of its 16 markets were impaired, and recorded an impairment charge of approximately $16.1 million for the quarter ended December 31, 2009, thus reducing the total license carrying values to approximately $698.6 million and reducing the carrying value of goodwill to approximately $137.5 million as of December 31, 2009. A description of the Level 3 inputs and the information used to develop the inputs is discussed in Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets.

 

As of December 31, 2008, the total recorded carrying value of other intangible assets excluding goodwill and radio broadcasting licenses was approximately $44.1 million. Pursuant to ASC 360, “Property, Plant, and Equipment,” due to the challenging economic climate and its negative impact on radio and online advertising, we performed interim impairment testing in the third quarter of 2009 on certain advertising related intangible assets, and concluded no impairment had occurred.  During the fourth quarter of 2009, we performed impairment testing on other intangible assets in reporting units where impairment had occurred, and recorded an impairment charge of $297,000.

 

F-9

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 (u) Software and Web Development Costs

 

        The Company capitalizes direct internal and external costs incurred to develop internal-use computer software during the application development stage pursuant to ASC 350-40, “Intangibles – Goodwill and Other.” Internal-use software is amortized under the straight-line method using an estimated life of three years. All web development costs incurred in connection with operating our websites are accounted for under the provisions of ASC 350-40, unless a plan exists or is being developed to market the software externally. The Company has no plans to market software externally.

 

v)	Impact of Recently Issued Accounting Pronouncements

 In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amends the guidance on variable interest entities (“VIE”) in ASC 810, “Consolidation,” and is effective for fiscal years beginning after November 15, 2009. It requires reporting entities to evaluate former qualified special purpose entities for consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. Additional year-end and interim disclosures are required under this update. The adoption of this guidance on January 1, 2010 will not have a material effect on the Company's consolidated financial statements.

In June 2009, the FASB issued ASC 105, “Generally Accepted Accounting Principles,” which establishes the ASC as the source of authoritative non-SEC U.S. generally accepted accounting principles (“GAAP”) for non-governmental entities. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 did not have a material impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued ASC 855, “Subsequent Events,” which addresses accounting and disclosure requirements related to subsequent events. It requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued. In February 2010, the FASB issued ASU 2010-09, which amends ASC 855 to remove all requirements for SEC filers to disclose the date through which subsequent events are considered. The amendment became effective upon issuance. The Company has provided the required disclosures regarding subsequent events in Note 20 – Subsequent Events.

The provisions under ASC 825, “Financial Instruments,” requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements became effective for the Company during the quarter ended June 30, 2009. The additional disclosures required under ASC 825 are included in Note 1 – Organization and Summary of Significant Accounting Policies.

Effective January 1, 2009, the provisions under ASC 350, “Intangibles – Goodwill and Other,” related to the determination of the useful life of intangible assets and requiring additional disclosures related to renewing or extending the terms of recognized intangible assets became effective for the Company. The adoption of these provisions did not have a material effect on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted an accounting standard update from the Emerging Issues Task Force (“EITF”) consensus regarding the accounting for contingent consideration agreements of an equity method investment and the requirement for the investor to recognize its share of any impairment charges recorded by the investee.  This update to ASC 323, “Investments – Equity Method and Joint Ventures,” requires the investor to record share issuances by the investee as if it has sold a portion of its investment with any resulting gain or loss being reflected in earnings. The adoption of this update did not have any impact on the Company’s consolidated financial statements.

  In March 2008, the FASB issued an update to ASC 815, “Derivatives and Hedging,” related to disclosures about derivative instruments and hedging activities. It requires disclosure of the fair value of derivative instruments and their gains and losses in a tabular format.  It also provides for more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk related.  Finally, it requires cross referencing within footnotes to enable financial statement users to locate important information about derivative instruments. Effective January 1, 2009, the Company adopted the updated provisions of ASC 815. The Company’s adoption of the updates had no impact on its financial co ndition or results of operations.  (See Note 8 – Derivative Instruments and Hedging Activities.)

In February 2008, the FASB delayed the effective date for applying the fair value provisions of ASC 820, “Fair Value Measurements and Disclosures,” to non-financial assets and non-financial liabilities, except those that are recognized or disclosed on a recurring basis, to fiscal years beginning after November 15, 2008.  Effective January 1, 2009, we adopted the provisions of ASC 820 for all non-financial instruments accounted for at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on our financial condition or results of operations.

In December 2007, the FASB issued ASC 805-10, “Business Combinations,” which requires the acquirer of a business to recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value.  ASC 805-10 also requires transaction costs related to the business combination to be expensed as incurred. In April 2009, the FASB issued ASC 805-20, “Business Combinations,” which amends and clarifies ASC 805-10 to address application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. AS C 805-10 and ASC 805-20 are effective for business combinations for which the acquisition date is on or after the January 1, 2009. Effective January 1, 2009, the Company adopted ASC 805-10 and ASC 805-20, which has had no effect on the Company’s consolidated financial statements. The Company expects ASC 805-10 and ASC 805-20 to have an impact on its accounting for future business combinations, but the effect is dependent upon the acquisitions that are made in the future.

      

In December 2007, the FASB issued updated guidance on ASC 810, “Consolidation,” which changed the accounting and reporting requirements for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  The requirements became effective for the Company on January 1, 2009 and changed the accounting and reporting for minority interests, which is now characterized as noncontrolling interests and classified as a component of equity. The updated guidance required retroactive adoption of the presentation and disclosure requirements for exist ing minority interests, with all other requirements applied prospectively. Reflected in the December 31, 2008 Form 10-K/A, minority interests characterized as liabilities in the consolidated balance sheet was approximately $2.0 million. This amount has been recharacterized as noncontrolling interest and classified as a component of stockholders’ equity.

 

In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 110 that modified SAB No. 107 regarding the use of a “simplified” method in developing an estimate of expected term of “plain vanilla” share options in accordance with provisions related to stock compensation under ASC 718, “Compensation – Stock Compensation.” Under SAB No. 107, the use of the “simplified” method was not allowed beyond December 31, 2007. SAB No. 110 allows, however, the use of the “simplified” method beyond December 31, 2007 under certain circumstances. We currently use the “simplified” method under SAB No. 107, and we expect to continue to use the “simplifie d” method in future periods if the facts and circumstances permit.

In February 2007, the FASB issued provisions under ASC 825, “Financial Instruments,” which permit companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. Effective January 1, 2008, the Company adopted the provisions under ASC 825, which provides entities the option to measure many financial instruments and certain other items at fair value. Entities that choose the fair value option will recognize unrealized gains and losses on items for which the fair value option was elected in earnings at each subsequent reporting date. The Company has chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accorda nce with generally accepted accounting principles.

 

F-10

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(w) Liquidity

 The Company continually projects its anticipated cash needs, which include, but are not limited to, its operating needs, capital requirements, the TV One funding commitment and principal and interest payments on its indebtedness. Management’s most recent revenue, operating income and cash flow projections considered the recent gradual improvement in both the economy and advertising environment, and the projections compare more favorably to prior periods during which the economic downturn persisted. For instance, based on analysts’ projected recovery estimates for the advertising environment and specifically the radio industry, which is supported by our order pacings at the time of filing of this form 10-K, we have projected revenue growth of mid-single digits for fiscal year 2010. As of the filing of this Form 10-K, management believes the Company can meet its liquidity needs through December 31, 2010 with cash and cash equivalents on hand, projected cash flows from operations and, to the extent necessary, through additional borrowing available under the credit agreement that the Company entered into a with a syndicate of banks in June 2005 (the “Credit Agreement”). The additional borrowing available under the Credit Agreement was approximately $5.0 million at December 31, 2009. Based on these projections, management also believes it is probable that the Company will be in compliance with its debt covenants through December 31, 2010. It should be noted that certain covenants become considerably more restrictive in 2010, in that the interest coverage ratio has changed from no less than 1.75 to 1.00 to no less than 2.00 to 1.00 for the period January 1, 2010 to December 31, 2010, and the total leverage ratio will step down from no greater than 7.25 to 1.00 to no greater than 6.50 to 1.00 effective July 1, 2010 to September 30, 2011. Management projects it will likely need to pay down borrowings under the Credit Agreement to maintain compliance with the leverage ratio required in 2010.

Management’s projections are highly dependent on the continuation of the recently improving economic and advertising environments, and any adverse fluctuations, or other unforeseen circumstances, may negatively impact the Company’s operations beyond those assumed. Management considered the risks that the current economic conditions may have on its liquidity projections, as well as the Company’s ability to meet its debt covenant requirements. If economic conditions deteriorate unexpectedly or do not continue to rebound, or if other adverse factors outside the Company’s control arise, our operations could be negatively impacted, which could reduce, negate or even prevent the Company from maintaining compliance with its debt covenants. If it appears that we could not meet our liquidity needs or that noncompliance with debt covenants is likely to result, the Company would implement several remedial measures, which could include further operating cost and capital expenditure reductions and deferrals, seeking its share of distributions from TV One and further de-leveraging actions, which may include repurchases of discounted senior subordinated notes and other debt repayments, subject to our available liquidity to make such repurchases. It should be noted that the TV One distributions require the consent of third parties and there is no assurance that such third party consents would be granted. These third parties did approve TV One distributions for fourth quarter 2009 and first quarter 2010.

If the above measures are not successful in maintaining compliance with our debt covenants, the Company would attempt to negotiate for relief through an amendment or refinancing with its lenders or waivers of covenant noncompliance, which could result in higher interest costs, additional fees and reduced borrowing limits. There is no assurance that the Company would be successful in reaching any definitive agreement to obtain relief from its debt covenant requirements in these circumstances. Failure to comply with its debt covenants and a corresponding failure to negotiate a favorable amendment or waivers with the Company’s lenders could result in the acceleration of the maturity of all the Company’s outstanding debt, which would have a material adverse effect on the Company’s business and financial position. The Com pany is currently assessing its financial options regarding the potential amendment to, refinancing and restructuring of its debt.

 

The Company is currently assessing several options regarding the potential refinancing and restructuring of its debt, as well as other strategic initiatives that may be undertaken in the future. These options include entering into one or more amendments, refinancing transactions, retiring or purchasing our outstanding debt through cash purchases, prepayments and/or exchanges for newly issued debt or equity securities or obligations in open market purchases, privately negotiated transactions or otherwise. Such refinancings, repurchases, prepayments or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Accordingly, there is no assurance that the Company will successfully enter into any definitive agreements for such options, or that any of the strategic initiatives being assessed will occur in the future. See Note 20 – Subsequent Events for discussion on amendment to the Credit Agreement that we entered into subsequent to December 31, 2009.

 

2.  ACQUISITIONS:

In June 2008, the Company purchased the assets of WPRS-FM, a radio station located in the Washington, DC metropolitan area for $38.0 million in cash.  Since April 2007 and until closing, the station had been operated under a local marketing agreement (“LMA”), and the results of its operations had been included in the Company’s consolidated financial statements since the inception of the LMA.  The station was consolidated with the Company’s existing Washington, DC operations in April 2007. The Company’s final purchase price allocation consisted of approximately $33.9 million to radio broadcasting license, approximately $1.3 million to definitive-lived intangibles (acquired favorable income leases), $965,000 to goodwill and approximately $1.8 million to fixed assets on the Company’s consolidated balance sheet as of December 31, 2008.

 

In April 2008, the Company acquired CCI for $38.0 million in cash. CCI is an online social networking company operating branded websites including BlackPlanet, MiGente, and AsianAvenue. The Company’s purchase price allocation consists of approximately $10.2 million to current assets, $4.6 million to fixed assets, $20.4 million to goodwill, $9.9 million to definitive-lived intangibles (brand names, advertiser relationships and lists, favorable subleases, trademarks, trade names, etc.), and $5.0 million to current liabilities on the Company’s consolidated balance sheet as of December 31, 2008.

In July 2007, the Company purchased the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area for approximately $2.6 million financed by the seller. Since August 2001 and up until closing, the station had been operated under a LMA, and the results of its operations had been included in the Company’s consolidated financial statements since the LMA. The station was consolidated with the Company’s existing Cincinnati operations in 2001. In accordance with ASC 350, “Intangibles -Goodwill and Other,” for the years ended 2009, 2008 and 2007, we recorded an impairment charge for  radio broadcasting licenses and goodwill, and intellectual property for all stations in the Cincinnati market by approximately $3.3 million, $27. 9 million and $3.8 million, respectively. (See Note 5 — Goodwill, Radio Broadcasting Licenses and Other Intangible Assets and Note 12 — Related Party Transactions.)

In February 2005, the Company acquired approximately 51% of the common stock of Reach Media for approximately $55.8 million in a combination of approximately $30.4 million of cash and 1,809,648 shares of the Company’s Class D Common Stock valued at approximately $25.4 million. The purchase price allocation consisted of approximately $36.5 million to definite-lived intangibles ($19.5 million to a talent agreement, $9.2 million to intellectual property and $7.8 million to affiliate agreements), $13.7 million to deferred tax liability, $32.5 million to goodwill, and $1.3 million to other net assets. Reach Media commenced operations in 2003 and was formed by Tom Joyner, Chairman, and David Kantor, Chief Executive Officer, to operate the Tom Joyner Morning Show and related b usinesses. Reach Media primarily derives its revenue from the sale of advertising inventory in connection with its syndication agreements. Mr. Joyner is a leading nationally syndicated radio personality. The Tom Joyner Morning Show is currently broadcast on 105 affiliate stations across the United States and is a top-rated morning show in many of the markets in which it is broadcast. Reach Media also operates the Tom Joyner Family Reunion and various other special event-related activities. Additionally, Reach Media operates www.BlackAmericaWeb.com, an African-American targeted internet destination, and provides programming content which is aired on TV One. In November 2009, Citadel agreed to return its noncontrolling ownership interest in Reach Media back to the Reach Media as an inducement to execute a new sales representation agreement replacing the old sales agreement that expired December 31, 2009. This transaction effectively increased Radio One’s common stock interest in Reach Media to 53.5%.

 

F-11

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3.  DISPOSITION OF ASSETS AND DISCONTINUED OPERATIONS:

In December 2009, the Company ceased publication of Giant Magazine. The remaining assets and liabilities of this publication have been classified as discontinued operations as of December 31, 2009 and 2008, and the publications’ results of operations for the years ended December 31, 2009, 2008 and 2007, have been classified as discontinued operations in the accompanying consolidated financial statements.

Between December 2006 and May 2008, the Company sold the assets of 20 radio stations in seven markets for approximately $287.9 million in cash. The remaining assets and liabilities of these stations have been classified as discontinued operations as of December 31, 2009 and 2008, and the stations’ results of operations for the years ended December 31, 2009, 2008 and 2007, have been classified as discontinued operations in the accompanying consolidated financial statements. For the period beginning December 1, 2006 and ending December 31, 2008, the Company used approximately $262.0 million of the proceeds from these asset sales to pay down debt.

  

Los Angeles Station:  In May 2008, the Company sold the assets of its radio station KRBV-FM, located in the Los Angeles metropolitan area, to Bonneville International Corporation (“Bonneville”) for approximately $137.5 million in cash. Bonneville began operating the station under an LMA on April 8, 2008.

Miami Station:  In April 2008, the Company sold the assets of its radio station WMCU-AM, located in the Miami metropolitan area, to Salem Communications Holding Corporation (“Salem”) for approximately $12.3 million in cash. Salem began operating the station under an LMA effective October 18, 2007.

Augusta Stations:  In December 2007, the Company sold the assets of its five radio stations in the Augusta metropolitan area to Perry Broadcasting Company for approximately $3.1 million in cash.

Louisville Station:  In November 2007, the Company sold the assets of its radio station WLRX-FM in the Louisville metropolitan area to WAY FM Media Group, Inc. for approximately $1.0 million in cash.

Dayton and Louisville Stations:  In September 2007, the Company sold the assets of its five radio stations in the Dayton metropolitan area and five of its six radio stations in the Louisville metropolitan area to Main Line Broadcasting, LLC for approximately $76.0 million in cash. 

Minneapolis Station:  In August 2007, the Company sold the assets of its radio station KTTB-FM in the Minneapolis metropolitan area to Northern Lights Broadcasting, LLC for approximately $28.0 million in cash.

Boston Station:  In December 2006, the Company sold the assets of its radio station WILD-FM in the Boston metropolitan area to Entercom Boston, LLC (“Entercom”) for approximately $30.0 million in cash. Entercom began operating the station under an LMA effective August 18, 2006. 

The following table summarizes the operating results for Giant Magazine and all of the stations sold and classified as discontinued operations for all periods presented:

		For the Years Ended December 31,
		2009				2008				2007
						(As Adjusted – See Note 1)
		(In thousands)
Net revenue		$	1,766			$	5,336			$	32,763
O Operating expenses			3,306				8,999				36,499
Depreciation and amortization			87				183				1,598
Impairment of intangible assets			-				5,077				208,948
Other income			-				145				117
Loss on investment			448				49				56
Gain on sale of assets			260				1,497				2,183
Loss before income taxes			(1,815	)			(7,330	)			(212,038	)
Provision for (benefit from) income taxes			-				84				(74,997	)
Loss from discontinued operations, net of tax		$	(1,815	)		$	(7,414	)		$	(137,041	)

The assets and liabilities of Giant Magazine and the stations sold or to be sold are classified as discontinued operations in the accompanying consolidated balance sheets consisted of the following:

		As of December 31,
		2009				2008
						(As Adjusted – See Note 1)
		(In thousands)
Currents assets:
Accounts receivable, net of allowance for doubtful accounts		$	424			$	832
Prepaid expenses and other current assets			—				256
Total current assets			424				1,088
Property and equipment, net			14				117
Intangible assets, net			60				110
Other assets			—				—
Total assets		$	498			$	1,315
Current liabilities:
Accounts payable		$	91			$	368
Accrued compensation and related benefits			70				137
Other current liabilities			2,788				2,686
Total current liabilities			2,949				3,191
Other long-term liabilities			—				—
Total liabilities		$	2,949			$	3,191

 

 

F-12

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4.  PROPERTY AND EQUIPMENT:

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the related estimated useful lives. Property and equipment consists of the following:

		As of December 31,							Estimated
		2009				2008			Useful Lives
						(As Adjusted – See Note 1)
		(In thousands)
Land and improvements		$	3,765			$	3,753		—
Buildings and improvements			1,535				1,525		31 years
Transmitters and towers			34,724				33,619		7-15 years
Equipment			45,628				44,294		3-7 years
Furniture and Fixtures			7,383				7,271		7 years
Software and Web Development			11,597				9,320		3 years
Leasehold improvements			18,712				18,174		Lease Term
Construction-in-progress			1,398				2,258		—
			124,742				120,214
Less: Accumulated depreciation and amortization			(84,157	)			(71,668	)
Property and equipment, net		$	40,585			$	48,546

Depreciation and amortization expense for the years ended December 31, 2009, 2008 and 2007 was approximately $21.0 million, $19.0 million and $14.7 million, respectively.

Repairs and maintenance costs are expensed as incurred.

5.  GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS:

Impairment Testing

In the past, we have made acquisitions whereby a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. In accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our radio broadcasting licenses and goodwill. Instead, we perform a test for impairment annually or on an interim basis when events or changes in circumstances or other conditions suggest impairment may have occurred. Other intangible assets continue to be amortized on a straight-line basis over their useful lives. We perform our annual impairment test as of October 1 of each year.

2009 Interim Impairment Testing

Since our annual testing in October 2008, the lingering economic downturn and limited credit environment has weakened advertising demand in general, and has led to declining radio and online advertising, reduced growth expectations, deteriorating profits and cash flows, debt downgrades and fewer sales transactions with lower multiples. As a result, we made considerable reductions to our internal 2009 projections in early 2009. Given the adverse impact on terminal values, we deemed the weak economic, credit and advertisement environments and the lowering of our internal projections as triggering events that warranted interim impairment testing in 2009. We performed such testing as of February 28, 2009 for all of our radio markets and as of August 31, 2009 for two of our radio markets, Reach Media and CCI. The Reach Media interim testin g was also driven by the amendment effective September 2009 to its sales representation agreement with Citadel, whereby the guaranteed revenue that Citadel paid Reach Media in the fourth quarter of 2009 was reduced by $2.0 million, (the final quarter of the term of the sales agreement). (See Note 1 – Organization and Summary of Significant Accounting Policies.) The outcome of our February 2009 interim testing was to record impairment charges of approximately $49.0 million against radio broadcasting licenses in 11 of our 16 markets during the first quarter of 2009. The results of our August 2009 interim testing indicated carrying values for the two radio markets tested, Reach Media and CCI had not been impaired.

 
 

2009 Annual Impairment Testing

The results of our annual impairment testing in October 2009 were to record additional impairment charges of approximately $16.1 million against radio broadcasting licenses in seven of our 16 radio markets and to impair the remaining goodwill of $628,000 in another one of our markets for that same amount. Similar to our August 2009 interim impairment testing, our October 2009 annual impairment testing indicated the carrying values for Reach Media and CCI had not been impaired. For the years ended December 31, 2009, 2008 and 2007, we recorded impairment charges against radio broadcasting licenses and goodwill of approximately $65.6 million, $420.2 million and $211.1 million, respectively.

Valuation of Broadcasting Licenses

 

We utilize the services of a third-party valuation firm to provide independent analysis when evaluating the fair value of our radio broadcasting licenses and reporting units. Fair value is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Effective January 1, 2002, we began using the income approach to test for impairment of radio broadcasting licenses. A projection period of 10 years is used, as we believe that is the time horizon in which operators and investors generally expect to recover their investments. When evaluating our radio broadcasting licenses for impairment, the testing is done at the unit of accounting level as determined by ASC 350, “Inta ngibles - Goodwill and Other.” In our case, each unit of accounting is a clustering of radio stations into one of our 16 geographical markets.  Broadcasting license fair values are based on the estimated after-tax discounted future cash flows of the applicable unit of accounting assuming an initial hypothetical start-up operation which possesses FCC licenses as the only asset. Over time, it is assumed the operation acquires other tangible assets such as advertising and programming contracts, employment agreements and going concern value, and matures into an average performing operation in a specific radio market. The income approach model incorporates several variables, including, but not limited to: (i) radio market revenue estimates and growth projections; (ii) estimated market share and revenue for the hypothetical participant; (iii) likely media competition within the market; (iv) estimated start-up costs and losses incurred in the early years; (v) estimated profit margins and cash flows based on market size and station type; (vi) anticipated capital expenditures; (vii) probable future terminal values; (viii) an effective tax rate assumption; and (ix) a discount rate based on the weighted-average cost of capital for the radio broadcast industry. In calculating the discount rate, we considered: (i) the cost of equity, which includes estimates of the risk-free return, the long-term market return, small stock risk premiums and industry beta; (ii) the cost of debt, which includes estimates for corporate borrowing rates and tax rates; and (iii) estimated average percentages of equity and debt in capital structures.

Our February and August 2009 interim impairment testing was reflective of the recent economic downturn and tightened credit markets, in that it incorporated more conservative assumptions compared to the annual testing in October 2008. Specifically, we updated our projections to reflect a weaker, more deteriorated radio marketplace with reduced potential for growth. We increased the Year 1 (2009) radio marketplace decline from (8.0)% to a range of (13.1)% to (17.7)% in our 2009 interim testing, compared to the 2008 annual testing. The 2009 interim testing assumed a slight recovery in Year 2 (2010), with growth rates ranging from 0.3% to 0.5%. Given the somewhat improving economy and the more positive outlook for the radio marketplace, the 2009 annual testing assumes a Year 1 (2010) recovery of 1.0% and we also lowered the long-term mar ket growth rate for a certain market from 1.5% to 1.0%. Year 2010 includes assumptions of what could be significant cyclical content for political advertising typically seen in the even numbered years.

Although the industry has responded to declining revenues with significant cost-cutting initiatives, profitability levels have been adversely impacted, as fixed costs represent a large component of a radio station’s operating costs. Depending on the given market, we lowered the minimum profit margins in our 2009 interim and annual testing by as much as 230 basis points, compared to our 2008 annual testing.  Since our annual assessment in October 2008, we have not made any changes to the methodology for valuing broadcasting licenses.

 

F-13

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Below are some of the key assumptions used in the income approach model for estimating broadcasting licenses fair values for all annual and interim impairments assessments performed since August 2008.

Radio Broadcasting Licenses		August 31, 2008				October 1, 2008				February 28,  2009				August 31, 2009 (a)				October 1, 2009
		(In millions)
Pre-tax impairment charge		$	337.9			$	51.2			$	49.0			$	–			$	16.1
Discount Rate			10.0	%			10.5	%			10.5	%			–				10.5	%
Year 1 Market Revenue Growth or Decline Rate or Range			(2.0	)%			(8.0	)%			(13.1)% - (17.7)	%			(22.3	%)			1.0	%
Long-term Market Revenue Growth Rate Range (Years 6 – 10)			1.5% - 2.5	%			1.5% - 2.5	%			1.5% - 2.5	%			–				1.0% - 2.5	%
Mature Market Share Range			5.8% - 27.0	%			1.2% - 27.0	%			1.2% - 27.0	%			–				0.8% - 28.1	%
Operating Profit Margin Range			34.0% - 50.7	%			20.0% - 50.7	%			17.7% - 50.7	%			–				18.5% - 50.7	%

 

(a)	Reflects changes only to the key assumptions used in the February 2009 interim testing for a certain unit of accounting.

 

Broadcasting Licenses Valuation Results

The Company’s total broadcasting licenses carrying value decreased to approximately $698.6 million as of December 31, 2009, compared to approximately $763.7 million as of December 31, 2008. The decrease of approximately $65.0 million was for license impairment charges recorded in 11 of our 16 markets. The table below represents the changes to the carrying values of the Company’s radio broadcasting licenses for the year ended December 31, 2009 for each unit of accounting. As noted above, each unit of accounting is a clustering of radio stations into one geographical market. The units of accounting are not disclosed on a specific market basis so as to not make sensitive information publicly available that could be competitively harmful to the Company.

		Radio Broadcasting Licenses Carrying Balances
		As of								As of
Unit of Accounting		December 31, 2008				Impairment				December 31, 2009
		(in thousands )
Unit of Accounting 3		$	1,289			$	-			$	1,289
Unit of Accounting 2			3,086				-				3,086
Unit of Accounting 4			11,218				(1,736	)			9,482
Unit of Accounting 5			22,005				(3,348	)			18,657
Unit of Accounting 7			22,577				(3,312	)			19,265
Unit of Accounting 14			23,533				(3,098	)			20,435
Unit of Accounting 15			23,955				(3,069	)			20,886
Unit of Accounting 11			27,544				(6,409	)			21,135
Unit of Accounting 9			34,270				-				34,270
Unit of Accounting 6			35,260				(9,017	)			26,243
Unit of Accounting 16			52,965				-				52,965
Unit of Accounting 13			57,659				(5,103	)			52,556
Unit of Accounting 8			75,441				(8,726	)			66,715
Unit of Accounting 12			81,534				(2,808	)			78,726
Unit of Accounting 1			93,394				-				93,394
Unit of Accounting 10			197,927				(18,386	)			179,541
Total		$	763,657			$	(65,012	)		$	698,645

Valuation of Goodwill

The impairment testing of goodwill is performed at the reporting unit level. We had 20 reporting units as of our October 2009 annual impairment assessments. For the purpose of valuing goodwill, the 20 reporting units consist of the 16 radio markets and four other business divisions. In testing for the impairment of goodwill, we also use the income approach. The approach involves a 10-year model with similar variables as described above for broadcasting licenses, except that the discounted cash flows are based on the Company’s estimated and projected market revenue, market share and operating performance for its reporting units, instead of those for a hypothetical participant. We follow a two-step process to evaluate if a potential impairment exists for goodwill. The first step of the process involves estimating the fair value of each reporting unit. If the reporting unit’s fair value is less than its carrying value, a second step is performed as per the guidance of ASC 805-10, “Business Combinations,” to allocate the fair value of the reporting unit to the individual assets and liabilities of the reporting unit in order to determine the implied fair value of the reporting unit’s goodwill as of the impairment assessment date. Any excess of the carrying value of the goodwill over the implied fair value of the goodwill is written off as a charge to operations.

While our internal projections considered the recent revenue and cash flow declines experienced by the Company, those results may not be necessarily indicative of our future results. Similar to the 2009 interim assessments, which included more conservative estimates and projections compared to our 2008 annual assessment, we believe the October 2009 annual goodwill valuation estimates and assumptions reflect the recent economic downturn. We maintained the use of a consistent discount rate of 10.5%, however, with the improving economy and more positive outlook for the radio marketplace, we raised the Year 2 (2010) recovery period from a slight growth rate range from 0.3% to 0.5% in the 2009 interim testing to 1.0% in the 2009 annual testing. In addition, since our assessment in October 2008, we have not made any changes to the methodolo gy for valuing or allocating goodwill when determining the carrying values of the radio markets.

 

For Reach Media, in the annual testing in October 2009, we raised the Year 1 growth rate (2010), to 16.5% primarily due to the September 2009 amendment of Reach Media’s sales representation agreement with Citadel, whereby the guaranteed revenue paid to Reach Media by Citadel was reduced by $2.0 million in the fourth of quarter 2009, (the final quarter of the term of the sales agreement). (See Note 1 – Organization and Summary of Significant Accounting Policies.) Since our annual assessment in October 2008, we have not made any changes to the methodology for valuing or allocating goodwill when determining the carrying value for Reach Media.

Below are some of the key assumptions used in the income approach model for estimating reporting unit fair values for all interim and annual impairment assessments performed since August 2008.    

 

Goodwill (Radio Market Reporting Units)		August 31, 2008				October 1, 2008				February 28,  2009				August 31, 2008 (a)				October 1, 2009 (b)
		(In millions)
Pre-tax impairment charge		$	–			$	31.1			$	–			$	–			$	0.6
Discount Rate			10.0	%			10.5	%			10.5	%			–				10.5	%
Year 1 Market Revenue Decline or Growth Rate or Range			(2.0	)%			(8.0	)%			(13.1)% - (17.7)	%			(19.9	%)			1.0	%
Long-term Market Revenue Growth Rate Range (Years 6 – 10)			1.5% - 2.5	%			1.5% - 2.5	%			1.5% - 2.5	%			–				1.5% - 2.5	%
Mature Market Share Range			5.2% - 16.5	%			1.1% - 23.0	%			2.8% - 22.0	%			–				7.0% - 16.5	%
Operating Profit Margin Range			31.0% - 58.5	%			18.0% - 60.0	%			15.0% - 61.5	%			–				30.0% - 57.5	%

 

(a)   (b)

Reflects changes only to the key assumptions used in the February 2009 interim testing for a certain unit of accounting.   Reflects some of the key assumptions for testing only those radio markets with remaining goodwill for October 2009, as compared to testing all markets in October 2008 and February 2009.

The outcome of our annual testing in October 2009 was to eliminate the remaining goodwill of $628,000 in one of our radio market reporting units.

 

F-14

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Below are some of the key assumptions used in the income approach model for estimating the fair value for Reach Media for all interim and annual assessments since October 2008. When compared to the discount rates used for assessing radio market reporting units, the higher discount rates used in these assessments reflect a premium for a riskier and broader media business, with a heavier concentration and significantly higher amount of programming content related intangible assets that are highly dependent on the on-air personality Tom Joyner. As a result of both the August and October 2009 interim and annual assessments, the Company concluded no impairment to the carrying value of Reach Media had occurred.

Reach Media Goodwill (Within Radio Segment)		October 1, 2008				August 31, 2009				October 1, 2009
		(In millions)
Pre-tax impairment charges		$	–			$	–			$	–
Discount Rate			14.5	%			14.0	%			14.0	%
Year 1 Revenue Growth Rate			5.9	%			9.9	% (a)			16.5	% (a)
Long-term Revenue Growth Rate (Years 6 – 10)			2.5	%			2.5	%			2.5	%
Operating Profit Margin Range			27.2% - 31.3	%			28.9% - 33.5	%			27.2% - 35.3	%

 

(a)

The Year 1 revenue growth rate is driven by the September 2009 amendment of Reach Media’s sales representation agreement with Citadel, whereby the guaranteed revenue paid to Reach Media by Citadel was reduced by $2.0 million in the fourth quarter of 2009, which was the final quarter for the term of the agreement. A new agreement was executed in November 2009, whereby, effective 2010, Citadel will sell advertising inventory outside the Tom Joyner Morning Show.  In addition Reach Media has expanded its internal sales force to sell in-show advertising inventory, event sponsorships and BlackAmericaWeb.com advertising.

  

CCI, an online social networking company, was acquired by the Company in April 2008. The preliminary purchase price accounting was completed for this reporting unit during the second quarter of 2009. With the weak economy and its negative impact on online advertising, the Company lowered its internal projections for CCI, and performed its first interim impairment testing in August 2009. Below are some of the key assumptions used in the income approach model for determining CCI’s fair value as of August 2009 and again as of October 2009. When compared to discount rates for the radio reporting units, the higher discount rate used to value CCI is reflective of discount rates applicable to internet media businesses. As a result of the August and October 2009 interim and annual testing, the Company concluded no impairment to the carr ying value of CCI had occurred. We did not make any changes to the methodology for valuing or allocating goodwill when determining the carrying value for CCI.

Goodwill (CCI – Within Internet Segment)		August 31,  2009				October 1, 2009
		(In millions)
Pre-tax impairment charges		$	-			$	-
Discount Rate			17.0	%			16.5	%
Year 1 Revenue Growth Rate			13.7	%			13.7	%
Long-term Revenue Growth Rate (Year 10)			3.5	%			3.5	%
Operating Profit Margin Range			8.8% - 42.9	%			10.8% - 42.2	%

 

The above three goodwill tables reflect some of the key valuation assumptions used for 13 of our 20 reporting units. As a result of our annual testing in October 2009, goodwill of $628,000 was impaired in one of our radio markets for the entire amount, thus leaving eight remaining reporting units that had no goodwill carrying value balances as of December 31, 2009.

Goodwill Valuation Results

The table below presents the changes in the Company’s goodwill carrying values for each of its 20 reporting units and two reportable segments. The Company’s goodwill balance increased from approximately $137.1 million at December 31, 2008 to $137.5 million at December 31, 2009. The $422,000 increase was due to a purchase price adjustment of approximately $1.1 million for the CCI acquisition and the impairment of $628,000 of remaining goodwill in one of our radio market reporting units. As noted above, the 20 reporting units consist of the 16 radio markets plus four other business divisions. The actual reporting units are not disclosed so as to not make sensitive information publicly available that could potentially be competitively harmful to the Company.

 

		Goodwill Carrying Balances
		As of								As of
Reporting Unit		December 31, 2008				Increase/Decrease				December 31, 2009
						(In thousands)
Reporting Unit 3		$	-			$	-			$	-
Reporting Unit 4			-				-				-
Reporting Unit 8			-				-				-
Reporting Unit 9			-				-				-
Reporting Unit 15			-				-				-
Reporting Unit 14			628				(628	)			-
Reporting Unit 2			406				-				406
Reporting Unit 6			928				-				928
Reporting Unit 10			2,081				-				2,081
Reporting Unit 13			2,491				-				2,491
Reporting Unit 12			2,915				-				2,915
Reporting Unit 11			3,791				-				3,791
Reporting Unit 16			4,442				-				4,442
Reporting Unit 5			5,074				-				5,074
Reporting Unit 7			12,887				-				12,887
Reporting Unit 19			30,468				-				30,468
Reporting Unit 1			50,194				-				50,194
Radio Broadcasting Segment			116,305				(628	)			115,677
Reporting Unit 20			-				-				-
Corporate/Eliminations/Other			-				-				-
Reporting Unit 17			-				-				-
Reporting Unit 18			20,790				1,050				21,840
Internet Segment			20,790				1,050				21,840
Total		$	137,095			$	422			$	137,517

 

In arriving at the estimated fair values for radio broadcasting licenses and goodwill, we also performed a reasonableness test by comparing our overall average implied multiple based on our cash flow projections and fair values to recently completed sales transactions, and by comparing our estimated fair values to the market capitalization of the Company. The results of these comparisons confirmed that the fair value estimates resulting from our annual assessments in 2009 were reasonable.

 

 

F-15

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Intangible Assets Excluding Goodwill and Radio Broadcasting Licenses

 

Other intangible assets, excluding goodwill and radio broadcasting licenses, are being amortized on a straight-line basis over various periods. Other intangible assets consist of the following:

		As of December 31,
		2009				2008			Period of Amortization
		(In thousands)
Trade names		$	16,965			$	16,893		2-5 Years
Talent agreement			19,549				19,549		10 Years
Debt financing and modification costs			17,527				15,586		Term of debt
Intellectual property			13,011				13,011		4-10 Years
Affiliate agreements			7,769				7,769		1-10 Years
Acquired income leases			1,282				1,282		3-9 Years
Non-compete agreements			1,260				1,260		1-3 Years
Advertiser agreements			6,613				6,613		2-7 Years
Favorable office and transmitter leases			3,358				3,655		2-60 Years
Brand names			2,539				2,539		2.5 Years
Other intangibles			1,260				1,241		1-5 Years
			91,133				89,399
Less: Accumulated amortization			(56,074	)			(45,292	)
Other intangible assets, net		$	35,059			$	44,106

 

Amortization expense of intangible assets for the years ended December 31, 2009, 2008 and 2007 was approximately $8.4 million, $7.3 million and $4.9 million, respectively. The amortization of deferred financing costs was charged to interest expense for all periods presented. The amount of deferred financing costs included in interest expense for the years ended December 31, 2009, 2008 and 2007 was approximately $2.4 million, $2.6 million and $2.2 million, respectively.

 

The following table presents the Company’s estimate of amortization expense for the years 2010 through 2014 for intangible assets, excluding deferred financing costs:

		(In thousands)
2010		$	6,884
2011		$	5,631
2012		$	5,350
2013		$	4,765
2014		$	4,066

Actual amortization expense may vary as a result of future acquisitions and dispositions.

6.  INVESTMENT IN AFFILIATED COMPANY:

In January 2004, the Company, together with an affiliate of Comcast Corporation and other investors, launched TV One, an entity formed to operate a cable television network featuring lifestyle, entertainment and news-related programming targeted primarily towards African-American viewers. At that time, we committed to make a cumulative cash investment of $74.0 million in TV One, of which $60.3 million had been funded as of April 30, 2007, with no additional funding investment made since then. The initial four year commitment period for funding the capital was extended to June 30, 2010, due in part to TV One’s lower than anticipated capital needs during the initial commitment period. In December 2004, TV One entered into a distribution agreement with DIRECTV and certain affiliates of DIRECTV became investors in TV One. As of December 31, 2009 and 2008, the Company owned approximately 37% of TV One on a fully-converted basis.

 

The Company has recorded its investment at cost and has adjusted the carrying amount of the investment to recognize the change in the Company’s claim on the net assets of TV One resulting from operating income or losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. For the years ended December 31, 2009, 2008 and 2007, the Company’s allocable share of TV One’s operating income or (losses) was approximately $3.7 million, $(3.7) million and $(15.8) million, respectively.

 
 

We entered into separate network services and advertising services agreements with TV One in 2003. Under the network services agreement, we are providing TV One with administrative and operational support services and access to Radio One personalities. This agreement was originally scheduled to expire in January 2009, and has now been extended to January 2011. Under the advertising services agreement, we are providing a specified amount of advertising to TV One. This agreement was also originally scheduled to expire in January 2009 and has now been extended to January 2011. In consideration of providing these services, we have received equity in TV One, and receive an annual cash fee of $500,000 for providing services under the network services agreement.

The Company is accounting for the services provided to TV One under the advertising and network services agreements in accordance with ASC 505-50-30, “Equity.”  As services are provided to TV One, the Company is recording revenue based on the fair value of the most reliable unit of measurement in these transactions. For the advertising services agreement, the most reliable unit of measurement has been determined to be the value of underlying advertising time that is being provided to TV One. For the network services agreement, the most reliable unit of measurement has been determined to be the value of the equity received in TV One. The Company recognized $2.3 million, $3.6 million and $4.3 million in revenue relating to these two agreements for the year en ded December 31, 2009, 2008 and 2007, respectively.

 

7.  OTHER CURRENT LIABILITIES:

Other current liabilities consist of the following:

 

		As of December 31,
		2009				2008
						(As Adjusted – See Note 1)
		(In thousands)
Deferred revenue		$	2,964			$	6,125
Deferred barter revenue			1,344				1,107
Deferred contract credits			237				1,263
Deferred rent			456				470
Accrued national representative fees			720				549
Accrued miscellaneous taxes			417				371
Current deferred tax liability			9				159
Other			1,089				329
Other current liabilities		$	7,236			$	10,373

  

 

F-16

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8.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

ASC 815, “Derivatives and Hedging,” establishes disclosure requirements related to derivative instruments and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit-risk-related contingen t features in derivative instruments.

The fair values and the presentation of the Company’s derivative instruments in the consolidated balance sheet are as follows: 

 

	Liability Derivatives
	As of December 31, 2009					As of December 31, 2008
	(In thousands)
	Balance Sheet Location		Fair  Value			Balance Sheet Location		Fair  Value
Derivatives designated as hedging instruments:
Interest rate swaps	Other Current Liabilities		$	486		Other Current Liabilities		$	-
Interest rate swaps	Other Long-Term Liabilities			1,600		Other Long-Term Liabilities			2,981
Derivatives not designated as hedging instruments:
Employment agreement award	Other Long-Term Liabilities			4,657		Other Long-Term Liabilities			4,326
Total derivatives			$	6,743				$	7,307

 

The effect and the presentation of the Company’s derivative instruments on the consolidated statement of operations are as follows:

  

Derivatives in Cash Flow Hedging Relationships		Amount of Gain (Loss) in Other Comprehensive Income on Derivative (Effective Portion)						Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)							Gain (Loss) in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
		Amount						Location		Amount					Location		Amount
For the Years Ended December 31,
(In thousands)
		2009		2008	2007					2009		2008	2007				2009		2008	2007
Interest rate swaps		$895		$(3,625)	$(323)			Interest expense		$(1,749)		$(601)	$1,006		Interest expense		$-		$-	$-

Derivatives Not Designated as Hedging Instruments		Location of Gain (Loss) in Income of Derivative		Amount of Gain (Loss) in Income of Derivative
				For the Years Ended December 31,
				2009		2008		2007
				(In thousands)
Employment agreement award		Corporate selling, general and administrative expense		$(331)		$(4,326)		$-

 

 Hedging Activities

 

In June 2005, pursuant to the Credit Agreement (as defined in Note 9 — Long-Term Debt), the Company entered into four fixed rate swap agreements to reduce interest rate fluctuations on certain floating rate debt commitments. Two of the four $25.0 million swap agreements expired in June 2007 and 2008, respectively.

 

The remaining swap agreements have the following terms:

Agreement		Notional Amount		Expiration		Fixed Rate
No. 1		$25.0 million		June 16, 2010			4.27	%
No. 2		$25.0 million		June 16, 2012			4.47	%

 

Each swap agreement has been accounted for as a qualifying cash flow hedge of the Company’s senior bank debt, in accordance with ASC 815, “Derivatives and Hedging,” whereby changes in the fair market value are reflected as adjustments to the fair value of the derivative instruments as reflected on the accompanying consolidated financial statements.

The Company’s objectives in using interest rate swaps are to manage interest rate risk associated with the Company’s floating rate debt commitments and to add stability to future cash flows. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

 

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009, such derivatives were used to hedge the variable cash flows associated with existing floating rate debt commitments.  The ineffective portion of the change in fair value of the derivatives, if any, is recognized directly in earnings. There was no hedging ineffectiveness during the years ended December 31, 2009, 2008 and 2007.  

Amounts reported in Accumulated Other Comprehensive Loss related to derivatives are reclassified to interest expense as interest payments are made on the Company’s floating rate debt. During the next 12 months, the Company estimates that an additional amount of approximately $1.7 million will be reclassified as an increase to interest expense.

 

Under the swap agreements, the Company pays the fixed rate listed in the table above. The counterparties to the agreements pay the Company a floating interest rate based on the three month LIBOR, for which measurement and settlement is performed quarterly. The counterparties to these agreements are international financial institutions. The Company estimates the net fair value of these instruments as of December 31, 2009 to be a liability of approximately $2.1 million. The fair value of the interest rate swap agreements is estimated by obtaining quotations from the financial institutions, which are parties to the Company’s swap agreements. 

 

Costs incurred to execute the swap agreements are deferred and amortized over the term of the swap agreements. The amounts incurred by the Company, representing the effective difference between the fixed rate under the swap agreements and the variable rate on the underlying term of the debt, are included in interest expense in the accompanying consolidated statements of operations. In the event of early termination of these swap agreements, any gains or losses would be amortized over the respective lives of the underlying debt or recognized currently if the debt is terminated earlier than initially anticipated.

 

 

 

F-17

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Other Derivative Instruments

 

The Company recognizes all derivatives at fair value, whether designated in hedging relationships or not, in the balance sheet as either an asset or liability. The accounting for changes in the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and the resulting designation. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects net income . If a derivative does not qualify as a hedge, it is marked to fair value through the statement of operations.  Any fees associated with these derivatives are amortized over their term. 

 

As of December 31, 2009, the Company was party to an Employment Agreement executed in April 2008 with the CEO which calls for an award that has been accounted for as a derivative instrument without a hedging relationship in accordance with the guidance under ASC 815, “Derivatives and Hedging.” Pursuant to the Employment Agreement, the CEO is eligible to receive an award amount equal to 8% of any proceeds from distributions or other liquidity events in excess of the return of the Company’s aggregate investment in TV One. With the assistance of a third party valuation firm, the Company reassessed the estimated fair value of the award at December 31, 2009 to be approximately $4.7 million, and accordingly, adjusted its liability to this amount. The Compan y’s obligation to pay the award will be triggered only after the Company’s recovery of the aggregate amount of its capital contribution in TV One and only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to the Company’s membership interest in TV One. The CEO was fully vested in the award upon execution of the Employment Agreement, and the award lapses upon expiration of the Employment Agreement in April 2011, or earlier if the CEO voluntarily leaves the Company, or is terminated for cause.