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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-28395
INTEREP NATIONAL RADIO SALES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1865151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Park Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (212) 916-0700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on May 11, 2001, was 4,628,598 shares of Class A Common
Stock, and 3,887,031 shares of Class B Common Stock.
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share information)
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 6,900 $ 23,681
Marketable securities............................... 10,043 9,965
Receivables, net of allowance for doubtful accounts
of $1,773 and $1,940, respectively................. 25,743 33,810
Representation contract buyouts receivable.......... 4,555 5,266
Current portion of deferred representation contract
costs.............................................. 43,983 44,240
Prepaid expenses and other current assets........... 1,326 1,075
-------- --------
Total current assets.............................. 92,550 118,037
Fixed assets, net..................................... 4,916 5,046
Deferred representation contract costs................ 69,200 71,532
Representation contract buyouts receivable............ 6,401 6,718
Investments and other assets.......................... 24,291 20,211
-------- --------
Total assets...................................... $197,358 $221,544
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 9,147 $ 16,121
Accrued interest.................................... 2,475 4,950
Representation contract buyouts payable............. 34,729 36,116
Accrued employee-related liabilities................ 1,607 6,216
-------- --------
Total current liabilities......................... 47,958 63,403
-------- --------
Long-term debt........................................ 99,000 99,000
-------- --------
Representation contract buyouts payable............... 31,466 34,119
-------- --------
Other noncurrent liabilities.......................... 4,319 4,452
-------- --------
Shareholders' equity:
Class A common stock $0.01 par value--20,000,000
shares authorized, 4,628,598 and 4,614,143 shares
issued and outstanding at March 31, 2001
and December 31, 2000, respectively................ 46 46
Class B common stock, $0.01 par value--10,000,000
shares authorized, 3,887,031 and 3,901,486 shares
issued and outstanding at March 31, 2001
and December 31, 2000, respectively................ 39 39
Additional paid-in-capital............................ 36,238 35,888
Accumulated deficit................................... (21,708) (15,403)
-------- --------
Total shareholders' equity........................ 14,615 20,570
-------- --------
Total liabilities and shareholders' equity........ $197,358 $221,544
======== ========
The accompanying Notes to Unaudited Interim Consolidated Financial
Statements are an integral part of these balance sheets.
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(unaudited)
For the Three
Months
Ended March 31,
------------------
2001 2000
-------- --------
Commission revenues........................................ $ 16,608 $ 20,106
Contract termination revenue............................... 69 810
-------- --------
Total revenues............................................. 16,677 20,916
-------- --------
Operating expenses:
Selling expenses........................................... 14,964 15,564
General and administrative expenses........................ 3,180 2,907
Depreciation and amortization expense...................... 6,507 5,592
-------- --------
Total operating expenses................................... 24,651 24,063
-------- --------
Operating loss............................................. (7,974) (3,147)
Interest expense, net...................................... 2,257 1,829
Other expense, net......................................... 313 --
-------- --------
Loss before benefit for income taxes....................... (10,544) (4,976)
Benefit for income taxes................................... (4,239) (2,040)
-------- --------
Net loss................................................... $ (6,305) $ (2,936)
======== ========
Basic and diluted loss per share........................... $ (0.74) $ (0.28)
======== ========
The accompanying Notes to Unaudited Interim Consolidated Financial Statements
are an integral part of these statements.
2
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three
Months Ended
March 31,
------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss.................................................. $ (6,305) $ (2,936)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization............................. 6,507 5,592
Noncash compensation expense.............................. 350 --
Equity loss on investment................................. 385 --
Changes in assets and liabilities:
Receivables............................................... 8,067 (549)
Representation contract buyouts receivable................ 1,028 2,268
Prepaid expenses and other current assets................. (251) (2,333)
Other noncurrent assets................................... (4,441) (74)
Accounts payable and accrued expenses..................... (6,974) (2,312)
Accrued interest.......................................... (2,475) (2,500)
Accrued employee-related liabilities...................... (4,609) (4,707)
Other noncurrent liabilities.............................. (133) (54)
-------- --------
Net cash used in operating activities..................... (8,851) (7,605)
-------- --------
Cash flows from investing activities:
Additions to fixed assets................................. (211) (184)
Increase in other investments............................. (575) (1,340)
Purchase of marketable securities......................... -- (9,800)
-------- --------
Net cash used in investing activities..................... (786) (11,324)
-------- --------
Cash flows from financing activities:
Station representation contract payments.................. (7,144) (6,229)
-------- --------
Net cash used in financing activities..................... (7,144) (6,229)
-------- --------
Net decrease in cash and cash equivalents................. (16,781) (25,158)
Cash and cash equivalents, beginning of period............ 23,681 66,725
-------- --------
Cash and cash equivalents, end of period.................. $ 6,900 $ 41,567
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid........................................... $ 4,950 $ 5,000
Income taxes paid....................................... -- 37
Non-cash investing and financing activities:
Station representation contracts acquired............... $ 2,798 $ 7,169
======== ========
The accompanying Notes to Unaudited Interim Consolidated Financial
Statementsare an integral part of these statements.
3
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share information)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Interep
National Radio Sales, Inc. ("Interep"), together with its subsidiaries
(collectively, the "Company"), and have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. All significant
intercompany transactions and balances have been eliminated.
The consolidated financial statements of March 31, 2001 and 2000 are
unaudited; however, in the opinion of management, such statements include all
adjustments necessary for a fair presentation of the results for the periods
presented. The interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Consolidated Financial Statements for the year ended December 31, 2000, which
are available upon request of the Company. Due to the seasonal nature of the
Company's business, the results of operations for the interim periods are not
necessarily indicative of the results that might be expected for future interim
periods or for the full year ending December 31, 2001.
Revenue Recognition
The Company is a national representation ("rep") firm serving radio
broadcast clients throughout the United States. Commission revenue is derived
from sales of advertising time for radio stations under representation
contracts. Commissions and fees are recognized in the month the advertisement
is broadcast. In connection with its unwired network business, the Company
collects fees for unwired network radio advertising and, after deducting its
commissions, remits the fees to the respective radio stations. In instances
when the Company is not legally obligated to pay a station until the
corresponding receivable is paid, fees payable to stations have been offset
against the related receivable from advertising agencies in the accompanying
consolidated balance sheets. The Company records all commission revenues on a
net basis. Commissions are recognized based on the standard broadcast calendar
that ends on the last Sunday in each reporting period. The broadcast calendar
for the calendar quarters ended March 31, 2001 and 2000 had 12 and 13 weeks,
respectively.
Representation Contract Termination Revenue and Contract Acquisition Costs
The Company's station representation contracts usually renew automatically
from year to year unless either party provides written notice of termination at
least twelve months prior to the next automatic renewal date. In accordance
with industry practice, in lieu of termination, an arrangement is normally made
for the purchase of such contracts by a successor representative firm. The
purchase price paid by the successor representation firm is generally based
upon the historic commission income projected over the remaining contract
period plus two months.
Costs of obtaining station representation contracts are deferred and
amortized over the life of the new contract. Such amortization is included in
the accompanying consolidated statements of operations as a component of
depreciation and amortization expense. Amounts which are to be amortized during
the next year are included as current assets in the accompanying consolidated
balance sheets. Income earned from the loss of station representation contracts
(contract termination revenue) is recognized on the effective date of the
buyout agreement.
4
Loss Per Share
Basic loss per share for each of the respective periods has been computed by
dividing the net loss by the weighted average number of common shares
outstanding during the period which was 8,515,629 and 10,340,629 for the three
months ended March 31, 2001 and 2000, respectively. Diluted loss per share
would reflect the potential dilution that could occur if the outstanding
options to purchase common stock were exercised. For the three months ended
March 31, 2001 and 2000, the exercise of outstanding options would have an
antidilutive effect and therefore have been excluded from the calculation.
New Accounting Pronouncement
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and was
subsequently amended by SFAS No. 138 issued in June 2000. These statements
require companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Depending on the use of a derivative and
whether it has been designated and qualifies as a hedge, gains or losses
resulting from changes in the value of the derivative would be recognized
currently in earnings or reported as a component of other comprehensive income.
The effective date of SFAS No. 133 was delayed to fiscal years beginning after
June 15, 2000, with earlier adoption encouraged. The Company does not use
derivative instruments and therefore the adoption of these statements did not
have any impact on its financial position or results of operations.
2. Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information". The
Statement requires the Company to report segment financial information
consistent with the presentation made to the Company's management for decision
making purposes. The Company is managed as one segment and all revenues are
derived solely from radio representation operations and related activities. The
Company's management decisions are based on operating cash flow, (defined as
operating income before depreciation, amortization, and management fees),
general and administrative expenses of $3,180 and $2,907 for the three months
ended March 31, 2001 and 2000, respectively, and adjusted EBITDA (income
excluding contract termination revenue before interest, taxes, depreciation and
amortization) of ($1,536) and $1,635, respectively.
3. Acquisitions and Investments
In December 2000, the Company invested $3 million in Cybereps, Inc.
increasing its ownership percentage from 16% to 51%. The Company has recorded
an equity loss on the investment of $385 for the three months ended March 31,
2001. In addition, the Company has recorded amortization expense of $473 for
the three months ended March 31, 2001, representing amortization of the excess
of the cash investment over the underlying equity interest in Cybereps. This
excess is being amortized over a five year period. The Company has accounted
for this investment using the equity method of accounting as it is unable to
exercise effective control due to minority shareholders participating in
significant decisions in the ordinary course of business. As of March 31, 2001,
the carrying value of the Company's investment in Cybereps was $4.0 million.
In September 1999, the Company acquired substantially all of the assets of
Morrison and Abraham, Inc., a promotion and marketing consulting service to the
radio broadcasting industry, for approximately $1 million paid upon closing and
a maximum of $3 million to be paid contingent upon certain future performance
measures over the next five years. The performance measures were met for the
years ended December 31, 2000 and 1999 and therefore, the Company has paid an
additional $1.0 million and has accrued an additional $0.5 million, to be paid
in September 2001. The acquisition has been accounted for by the purchase
method; accordingly, operating results are included in the accompanying
statement of operations from the date of purchase. The acquired assets include
fixed assets, current assets and rights to certain service agreements. The
excess of cost over the fair market value of the assets acquired is being
amortized over a five year period.
5
The Company has investments in affiliates, which are accounted for using the
cost method of accounting as the Company does not have the ability to exercise
significant influence over operating and financial policies of these
affiliates. The total carrying value of these investments was $4.5 million and
$4.1 million as of March 31, 2001 and December 31, 2000, respectively,
representing a range of ownership from 8% to 16% of the affiliated companies.
4. Stock Options
In April 2000, the Company granted options to purchase 775,300 shares of
Class A common stock at an exercise price of $8.77. In December 2000, the
Company repriced these options to an exercise price of $2.81, which represented
the fair market value on the date of the repricing. In accordance with
generally accepted accounting principles, the Company has adopted variable plan
accounting for these options from the date of the repricing and has recorded
compensation expense of $350 for the three months ended March 31, 2001.
5. Commitments and Contingencies
The Company may be involved in various legal actions from time to time
arising in the normal course of business. In the opinion of management, there
are no matters outstanding that would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
In 2000, certain clients of the Company were served summons and complaints
(on separate matters) for alleged breaches of various national sales
representation agreements. The Company has agreed to indemnify its clients from
and against any loss, liability, cost or expense incurred in the actions.
Management believes the defendants have meritorious factual and legal defenses
to the actions and intends to vigorously defend the claims.
In December 1999, the Company's representation agreement with Clear Channel
Communications was terminated. In April 2000, the Company filed an action in
the Supreme Court of the State of New York seeking damages arising out of Clear
Channel's alleged breach of contract of its national sales representation
agreement with the Company. As of March 31, 2001, the Company had $6.3 million
of current deferred costs on representation contract purchases and $9.4 million
of current representation contract buyout payables resulting from the purchase
of the Clear Channel representation agreement in 1996. Management believes that
the deferred costs will be realized and the buyout payables will be assumed as
part of the outcome of this action.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussion is based upon and should be read in conjunction
with our Consolidated Financial Statements, including the notes thereto,
included elsewhere in this Report.
Throughout this Quarterly Report, when we refer to "Interep" or "the
Company," we refer collectively to Interep National Radio Sales, Inc. and all
of our subsidiaries unless the context indicates otherwise or as otherwise
noted.
Important Note Regarding Forward Looking Statements
Some of the statements made in this Quarterly Report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are not statements of historical fact, but instead
represent our belief about future events. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other comparable
terminology. These statements are based on many assumptions and involve known
and unknown risks and uncertainties that are inherently uncertain and beyond
our control. These risks and uncertainties may cause our or our industry's
actual results, levels of activity, performance or achievements to be
materially different than any expressed or implied by these forward-looking
statements. Although we believe that the
6
expectations in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. You
should review the factors noted in "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Certain Factors That May Affect
Our Results of Operations" for a discussion of some of the things that could
cause actual results to differ from those expressed in our forward-looking
statements.
Overview
We derive a substantial majority of our revenues from commissions on sales
by us of national spot radio advertising air time for the radio stations we
represent. Generally, advertising agencies or media buying services retained by
advertisers purchase national spot advertising time. We receive commissions
from our client radio stations based on the national spot radio advertising
billings of the station, net of standard advertising agency and media buying
services commissions. We enter into written representation contracts with our
clients, which include negotiated commission rates. Because commissions are
based on the prices paid to radio stations for spots, our revenue base is
regularly and automatically adjusted for inflation.
Our operating results generally depend on:
. changes in advertising expenditures;
. increases and decreases in the size of the total national spot radio
advertising market;
. changes in our share of this market;
. acquisitions and terminations of representation contracts; and
. operating expense levels.
The effect of these factors on our financial condition and results of
operations varies from period to period.
A number of factors influence the performance of the national spot radio
advertising market, including, but not limited to, general economic conditions,
consumer attitudes and spending patterns, the amount spent on advertising
generally, the share of total advertising spent on radio and the share of total
radio advertising represented by national spot radio. Our share of the national
spot advertising market changes as a result of increases and decreases in the
amount of national spot advertising broadcast by our clients. Moreover, our
market share increases as we acquire representation contracts with new client
stations and decreases if current client representation contracts are
terminated. Thus, our ability to attract new clients and to retain existing
clients significantly affects our market share.
The value of representation contracts that have been acquired or terminated
during the last few years has tended to increase due to a number of factors,
including the consolidation of ownership in the radio broadcast industry
following the passage of the Telecommunications Act of 1996. In recent years,
we have increased our representation contract acquisition activity, and we have
devoted a significant amount of our resources to these acquisitions. At the
same time, we have received an increased amount of contract termination
revenue. We base our decisions to acquire a representation contract on the
market share opportunity presented and an analysis of the costs and net
benefits to be derived. We continuously seek opportunities to acquire
additional representation contracts on attractive terms, while maintaining our
current clients. Our ability to acquire and maintain representation contracts
has had, and will continue to have, a significant impact on our revenues and
cash flows.
We recognize revenues on a contract termination as of the effective date of
the termination. When a contract is terminated, we write off in full the
unamortized portion, if any, of the expense we originally incurred on our
acquisition of the contract. When we enter into a representation contract with
a new client, we amortize the contract acquisition cost in equal monthly
installments over the life of the new contract. As a result, our operating
income is affected, negatively or positively, by the acquisition or loss of
client stations. We are unable to forecast any trends in contract buyout
activity, or in the amount of revenues or expenses that will
7
likely be associated with buyouts during a particular period. Generally, the
amount of revenue resulting from the buyout of a representation contract
depends on the length of the remaining term of the contract and the revenue
generated under the contract during the 12-month "trailing period" preceding
the date of termination. The amount recognized by us as contract termination
revenue in any period is not, however, indicative of contract termination
revenue that may be realized in any future period. Historically, the level of
buyout activity has varied from period to period. Additionally, the length of
the remaining terms, and the commission revenue generation, of the contracts
which are terminated in any period vary to a considerable extent. Accordingly,
while buyout activity and the size of buyout payments has increased since 1996,
their impact on our revenues and income is expected to be uncertain, due to the
variables of contract length and commission generation.
During 1999, we entered the Internet advertising business. Revenues and
expenses from this business will be affected by the level of advertising on the
Internet generally, the prices obtained for advertising on the Internet and our
ability to obtain contracts from high-traffic Internet websites and from
Internet advertisers. In December 2000, we merged our Interep Interactive
business with Cybereps, Inc., an Internet advertising and marketing firm
founded in 1996, in which we had a minority interest. See Note 3, "Acquisitions
and Investments", in the Notes to the Unaudited Interim Consolidated Financial
Statements included elsewhere in this Report.
Our selling and corporate expense levels are dependent on management
decisions regarding operating and staffing levels and on inflation. Selling
expenses represent all costs associated with our marketing, sales and sales
support functions. Corporate expenses include items such as corporate
management, corporate communications, financial services, advertising and
promotion expenses and employee benefit plan contributions.
Our business normally follows the pattern of advertising expenditures in
general. It is seasonal to the extent that radio advertising spending increases
during the fourth calendar quarter in connection with the Christmas season and
tends to be weaker during the first calendar quarter. Radio advertising also
generally increases during the second and third quarters due to holiday-related
advertising, school vacations and back-to-school sales. Additionally, radio
tends to experience increases in the amount of advertising revenues as a result
of special events such as presidential election campaigns. Furthermore, the
level of advertising revenues of radio stations, and therefore our level of
revenues, is susceptible to prevailing general and local economic conditions
and the corresponding increases or decreases in the budgets of advertisers, as
well as market conditions and trends affecting advertising expenditures in
specific industries.
Results of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Commission revenues. Commission revenues for the first quarter of 2001
declined from $20.1 million in the first quarter of 2000 to $16.6 million, or
approximately 17.4%. This $3.5 million decrease was primarily attributable to a
decrease in national spot advertising on client stations, due in particular to
the substantial reduction in advertising by Internet companies following the
first six months of 2000. Additionally, our comparative revenue was negatively
affected due to the fact that the first quarter of 2001 contained 12 weeks as
compared to 13 weeks during the first quarter of 2000.
Contract termination revenue. Contract termination revenue in the first
quarter of 2001 decreased by $0.7 million, or 91.5%, to $0.1 million from $0.8
million in the first quarter of 2000. This decrease was attributable to the
fact that fewer large contracts were terminated in the first quarter of 2001 as
compared to the first quarter of 2000.
Selling expenses. Selling expenses for the first three months of 2001
decreased to $15.0 million from $15.6 million in the first quarter of 2000.
This decrease of $0.6 million, or approximately 3.9%, was primarily due to
employee compensation decreases associated with changes in commission revenues
and the fact that costs relating to our Internet advertising business,
beginning in 2001, are included in the operations of Cybereps, Inc., and are
included in the equity loss in Other expenses, below.
8
General and administrative expenses. General and administrative expenses for
the first quarter of 2001 increased by $0.3 million, or 9.4%, to $3.2 million
from $2.9 million for the first quarter of 2000. This increase is attributable
primarily to litigation expenses incurred during the first quarter 2001.
Depreciation and amortization expense. Depreciation and amortization expense
increased $0.9 million, or 16.4%, during the first quarter of 2001, to $6.5
million from $5.6 million in the first quarter of 2000. This increase was
primarily due to new representation contracts acquired during 2000.
Operating loss. Operating loss increased by $4.9 million, or 153.4%, for the
first quarter of 2001 to $8.0 million, as compared to a loss of $3.1 million
during the first quarter of 2000, for the reasons discussed above.
Interest expense, net. Interest expense, net, increased $0.4 million, or
23.4%, to $2.2 million for the first quarter of 2001, from $1.8 million for the
first quarter of 2000. This increase primarily resulted from a reduction in the
amount of cash invested in interest-bearing investments, and accordingly, in
the related partial offset of the interest expense on our Senior Subordinated
Notes.
Other expense, net. Other expense, net, primarily consists of our share of
the equity loss incurred by Cybereps, Inc. See Note 3 to the Notes to Unaudited
Interim Consolidated Financial Statements included elsewhere in this Report.
Benefit for income taxes. The benefit for income taxes increased by $2.2
million to $4.2 million for the first quarter of 2001 compared to $2.0 million
for the first quarter of 2000, as a result of the increased operating loss.
Net loss. Our net loss after tax was $6.3 million for the first quarter of
2001, a $3.4 million, or 114.7%, increase from the $2.9 million loss for the
first quarter of 2000. The increase was attributable to the reasons discussed
above. Due to the seasonality of our business, the first quarter is normally
our weakest quarter.
Liquidity and Capital Resources
Our cash requirements have been primarily funded by cash provided from
operations and financing transactions. In December 1999 we closed our initial
public offering, which resulted in net proceeds of $46.8 million. At March 31,
2001, we had cash and cash equivalents of $6.9 million, marketable securities
of $10.0 million and working capital of $44.6 million.
Cash used by operating activities during the first quarter of 2001 was $8.9
million, as compared to cash used by operating activities of $7.6 million
during the first quarter of 2000. This fluctuation was primarily attributable
to the reduction of payables and accrued expenses. As noted above, the first
quarter is normally our weakest quarter due to the seasonality of our business.
Net cash used in investing activities is primarily attributable to capital
expenditures and investments in private companies. Net cash used in investing
activities was $0.8 million during the first quarter of 2001.
Cash used for financing activities of $7.1 million during the first quarter
of 2001 was used for acquisitions of representation contracts.
In general, as we acquire new representation contracts, we use more cash
and, as our contracts are terminated, we receive additional cash. For the
reasons noted above in "Overview", we are not able to predict the amount of
cash we will require for contract acquisitions, or the cash we will receive on
contract terminations, from period to period.
In July 1998 we issued 10% Senior Subordinated Notes in the aggregate
principal amount of $100.0 million due July 1, 2008. Interest on the Senior
Subordinated Notes is payable in semi-annual payments of $5.0 million. The
Senior Subordinated Notes, while guaranteed by our subsidiaries, are unsecured
and are junior in right of payment to any amounts outstanding under the
revolving credit agreement described below, as well as to certain other
indebtedness. We used a portion of the net proceeds from the issuance of the
Senior
9
Subordinated Notes to repay the then outstanding balance of our bank debt.
Additionally, we redeemed all of the outstanding shares of our then outstanding
Series A preferred stock and Series B preferred stock, together with all of the
associated shares of common stock then subject to redemption.
We issued the Senior Subordinated Notes under an indenture that limits our
ability to engage in various activities. Among other things: we are generally
not able to pay any dividends to our stockholders, other than dividends payable
in shares of common stock; we can only incur additional indebtedness under
limited circumstances; and certain types of mergers, asset sales and changes of
control either are not permitted or permit the note holders to demand immediate
redemption of their Senior Subordinated Notes.
The Senior Subordinated Notes may not be redeemed by us prior to July 1,
2003, except that we may redeem up to 30% of the Senior Subordinated Notes with
the proceeds of equity offerings. If certain events occurred which would be
deemed to involve a change of control under the indenture, we would be required
to offer to repurchase all of the Senior Subordinated Notes at a price equal to
101% of their aggregate principal, plus unpaid interest.
We believe that the liquidity resulting from our initial public offering and
the transactions described above, together with anticipated cash from
continuing operations, should be sufficient to fund our operations and
anticipated needs for required representation contract acquisition payments,
and to make the required 10% annual interest payments on our Senior
Subordinated Notes, for at least the next 12 months. We may not, however,
generate sufficient cash flow for these purposes or to repay the notes at
maturity.
Our ability to fund our operations and required contract acquisition
payments and to make scheduled principal and interest payments will depend on
our future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control. We may also need to refinance all or a portion of
our Senior Subordinated Notes on or prior to maturity. There can be no
assurance that we will be able to effect any such refinancing on commercially
reasonable terms, if at all.
Certain Factors That May Affect Our Results of Operations
The following factors are some, but not all, of the variables that may have
an impact on our results of operations:
. Changes in the ownership of our radio station clients, in the demand for
radio advertising, in our expenses, in the types of services offered by
our competitors, and in general economic factors may adversely affect
our ability to generate the same levels of revenue and operating
results.
. Advertising tends to be seasonal in nature as advertisers typically
spend less on radio advertising during the first calendar quarter.
. The termination of a representation contract will increase our results
of operations for the fiscal quarter in which the termination occurs due
to the termination payments that are usually required to be paid, but
will negatively affect our results in later quarters due to the loss of
commission revenues. Hence, our results of operations on a quarterly
basis are not predictable and are subject to significant fluctuations.
. We depend heavily on our key personnel, including our Chief Executive
Officer Ralph C. Guild and the President of our Marketing Division Marc
Guild, and our inability to retain them could adversely affect our
business.
. We rely on a limited number of clients for a significant portion of our
revenues.
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. Our significant indebtedness from our Senior Subordinated Notes may
burden our operations, which could make us more vulnerable to general
adverse economic and industry conditions, make it more difficult to
obtain additional financing when needed, reduce our cash flow from
operations to make payments of principal and interest and make it more
difficult to react to changes in our business and industry.
. We may need additional financing for our future capital needs, which may
not be available on favorable terms, if at all.
. Competition could harm our business. Our only significant competitor is
Katz Media Corporation, which is a subsidiary of a major radio station
group that has significantly greater financial and other resources than
do we. In addition, radio must compete for a share of advertisers' total
advertising budgets with other advertising media such as television,
cable, print, outdoor advertising and the Internet.
. Acquisitions and strategic investments could adversely affect our
business.
. Our Internet business may suffer if the market for Internet advertising
fails to develop or continues to weaken.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates that may
adversely affect our results of operations and financial condition. We seek to
minimize the risks from these interest rate fluctuations through our regular
operating and financing activities. Our policy is not to use financial
instruments for trading or other speculative purposes. We are not currently a
party to any financial instruments.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(A) Documents Filed as Part of this Report
None.
(B) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York.
INTEREP NATIONAL RADIO SALES, INC.
/s/ William J. McEntee, Jr.
By ________________________________
William J. McEntee, Jr.
Vice President and
Chief Financial Officer
May 15, 2001
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