| REGENT COMMUNICATIONS INC Item 1A Risk Factors |
| We Face Many Unpredictable Business Risks That Could Have a Material Adverse Effect on Our Future Operations |
| Our operations are subject to many business risks, including certain risks that specifically influence the radio broadcasting industry, which could have a material adverse effect on our business |
| These include: • changing economic conditions, both generally and relative to the radio broadcasting industry; • shifts in population, listenership, demographics, or audience tastes; • the level of competition for advertising revenues with other radio stations, satellite radio, television stations, newspapers, Internet-based media, and other communications media; • technological changes and innovations; and • changes in governmental regulations and policies and actions of federal regulatory bodies, including the US Department of Justice, the Federal Trade Commission, and the Federal Communications Commission (FCC) |
| Given the inherent unpredictability of these variables, we cannot with any degree of certainty predict what effect, if any, these risks will have on our future operations |
| Our stations are located in a relatively small number of markets |
| A significant decline in net broadcasting revenue from our stations in any of our significant markets could have a material adverse effect on our operations and financial condition |
| We derive substantially all of our revenue from the sale of advertising time on our radio stations |
| Generally, advertising tends to decline during economic recessions or downturns |
| Futhermore, because a substantial portion of our revenue is derived from local advertisers, our ability to generate advertising revenue in specific markets is directly affected by local or regional economic conditions |
| A recession or downturn in the US economy could have a significant effect on our financial condition or results of operations |
| At December 31, 2005, our long-term debt, including current portion, was approximately dlra84dtta5 million |
| We have borrowed and may continue to borrow to finance acquisitions, repurchase shares of our common stock, or for other corporate purposes |
| Because of our substantial indebtedness, a significant portion of our cash flow from operations is and will be required for debt service |
| Our significant levels of debt could have negative consequences for us |
| You should note that: • a substantial portion of our cash flow is, and will be, dedicated to debt service and is not, and will not be, available for other purposes; • our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes may be impaired in the future; • certain of our borrowings are, and will be, at variable rates of interest, which may expose us to the risk of increases in interest rates; and • our level of indebtedness could make us more vulnerable to economic downturns, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions |
| Under the terms of our credit facility, the amount outstanding under the term portion permanently reduces each quarter in amounts ranging from 2dtta2prca to 6dtta5prca of the total term loan outstanding at December 31, 2005 |
| Additionally, under the terms of our credit facility, the amount available under the revolving portion of the facility permanently reduces each quarter in amounts ranging from 1dtta6prca to 6dtta8prca of the amount available under the revolving portion of the facility at December 31, 2005 |
| We believe that cash flows from operations will be sufficient to meet our debt service requirements for interest and scheduled quarterly payments of principal under the credit facility |
| However, if such cash flow is not sufficient, we may be required to sell additional debt or equity securities, refinance our obligations, or dispose of one or more of our properties in order to make such scheduled payments |
| We cannot be sure that we would be able to effect any such transactions on favorable terms, if at all |
| Our credit facility contains a number of financial covenants, which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances |
| Our ability to meet the financial ratios can be affected by operating performance or other events beyond our control, and we cannot assure you that we will meet those ratios |
| Our indebtedness under the credit facility is secured by a lien on substantially all of our assets and of our subsidiaries, by a pledge of our operating and license subsidiaries’ stock and by a guarantee of our subsidiaries |
| If the amounts outstanding under the credit facility were accelerated, the lenders could proceed against such available collateral |
| Our growth strategy includes acquiring new stations in middle and small-sized markets |
| This strategy is subject to a variety of risks, including the: • increase in prices for radio stations due to increased competition for acquisition opportunities; • reduction in the number of suitable acquisition targets resulting from continued industry consolidation; • inability to negotiate definitive purchase agreements on satisfactory terms; • inability to obtain additional financing; • inability to sell any non-performing station; and • failure or unanticipated delays in completing acquisitions due to difficulties in obtaining required regulatory approvals |
| If we are unable to grow as planned, we may not be able to compete successfully with larger broadcasting companies and other media |
| Additionally, in the event that the operations of a newly acquired business do not meet our expectations, we may be required to write-off the value of some or all of the assets of the new business |
| We Could Experience Delays in Expanding our Business Due to Antitrust Laws and Other Regulatory Considerations |
| Although part of our growth strategy is the acquisition of additional radio stations, we may not be able to complete all the acquisitions that we agree to make |
| The Federal Trade Commission, the United States Department of Justice and the FCC carefully review proposed transactions under their respective regulatory authority, focusing, among other things, on the effects on competition, the number of radio stations and other media outlets owned in a market, and compliance with federal antitrust and communications laws and regulations |
| Any delay, prohibition or modification required by these regulatory authorities could adversely affect the terms of a proposed transaction or could require us to abandon an otherwise attractive opportunity |
| We have experienced delays from time to time in connection with some of our acquisitions |
| Additionally, we may be unable to maximize our profit when selling properties that no longer fit in our strategy, due to the same such regulations imposed upon our competitors |
| Our business is dependent upon maintaining our broadcasting licenses issued by the FCC, which are issued currently for a maximum term of eight years |
| Our broadcasting licenses will expire between 2006 and 2013 |
| Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure you that our pending or future renewal applications will be approved, or that such renewals will not include conditions or qualifications that could adversely affect our operations |
| The non-renewal or renewal with substantial conditions or modifications, of one or more of our licenses could have a material adverse affect on us |
| We must also comply with the extensive FCC regulations and policies in the ownership and operation of our radio stations (refer also to our discussion of FCC regulations contained in Part I, Item I of this Form 10-K) |
| FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to complete future transactions and in certain circumstances could require us to divest some radio stations |
| Changes in the FCC’s rules may also limit our ability to transfer our radio stations in certain markets as a group to a single buyer |
| Additionally, these FCC regulations could change over time and we cannot assure you that those changes would not have a material adverse affect on us |
| Our radio stations compete with other radio stations in each market for audience share and advertising revenue |
| Our advertising revenue primarily depends upon our stations’ audience share in the demographic 19 _________________________________________________________________ [72]Table of Contents groups targeted by our advertisers |
| Audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on the revenue of our stations located in that market |
| While we already compete in some of our markets with other stations with similar programming formats, if a competing station converts to a format similar to that of one of our stations, or if one of our competitors strengthens its operations, our stations could suffer a reduction in ratings and/or advertising revenue, and could incur increased promotional and other expenses |
| Other radio companies which are larger and have more financial resources may also enter our markets |
| Although we believe our stations are well positioned to compete, we cannot assure that our stations will maintain or increase their current ratings or advertising revenue |
| We also compete with other media, such as satellite-delivered digital audio radio, television, newspapers, direct mail, outdoor advertising, and Internet-based media for advertising revenue |
| A loss of audience share to these media, or the introduction of new media competitors could result in decreased advertising revenue for us |
| Our radio stations are subject to rapid technological change, evolving industry standards, and the emergence of competition from new media technologies and services |
| Various new media technologies and services have been introduced, or are being developed, including: • satellite-delivered digital audio radio service, which has resulted in the introduction of new subscriber-based satellite radio services with numerous niche formats; • audio programming by cable systems, direct-broadcast satellite systems, personal communications systems, Internet content providers and other digital audio broadcast formats; • in-band on-channel digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; • low-powered FM radio, which could result in additional FM radio broadcast outlets; and • MP3 players and other personal audio systems that create new ways for individuals to listen to music and other content of their own choosing |
| We cannot predict the effect, if any, that competition arising from new technologies or regulatory change may have on the radio broadcasting industry or on our financial condition and results of operations |
| Depending upon the nature, size and timing of our acquisitions, we may require financing in excess of that available under our credit facility |
| We cannot assure you that our credit facility or any other agreements to which we are a party will permit additional borrowings at the desired times |
| Nor can we assure you that additional and/or alternative financing from other sources will be available to us or, if available, that the financing would be on terms acceptable to us |
| As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain |
| We May Be Unable to Integrate Our Acquisitions |
| The success of our completed acquisitions will depend on our ability to effectively integrate the acquired stations into our existing portfolio |
| Integration of acquisitions involves numerous risks, including difficulties in integration of operations, systems and management of a large and geographically diverse group of stations, the potential loss of key personnel at acquired stations, and the diversion of management’s attention from other business concerns during periods of integration |
| We May Lose Key Personnel |
| Our business depends upon the continued efforts, abilities and expertise of our executive officers and key employees, particularly William L Stakelin, our President and CEO We believe that the unique combination 20 _________________________________________________________________ [73]Table of Contents of skills and experience possessed by Mr |
| Stakelin and these individuals would be difficult to replace and could have a material adverse effect on us |
| These adverse effects could include the impairment of our ability to execute our acquisition and operating strategies and a decline in our standing in the radio broadcast industry |
| Although we have entered into long-term employment and non-competition agreements with Mr |
| We also employ several on-air personalities with large loyal audiences in their individual markets |
| The loss of one or more of these personalities could result in a short-term loss of audience share in that particular market |
| Indefinite-lived intangible assets, primarily consisting of FCC licenses and goodwill, represent a significant portion of our long-term assets |
| Such intangible assets are subject to annual impairment testing under Statement of Financial Accounting Standards Nodtta 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) to determine if their carrying amount exceeds their fair market value |
| If it is determined the fair market value is lower than the carrying value of an intangible asset, we are required to reduce the value of the asset to its fair market value and record a corresponding operating expense |
| During our initial transition to SFAS 142 in the first quarter of 2002, we recorded an impairment loss of approximately dlra6dtta1 million, net of taxes, to cumulative effect of accounting change in our consolidated statement of operations |
| During our annual impairment testing of intangible assets in the fourth quarter of 2002, we recorded a dlra2dtta9 million impairment loss as a component of operating income in our consolidated statement of operations |
| We recorded no impairment losses in the 2003 or 2004 years |
| During our annual impairment review of indefinite-lived intangible assets in the fourth quarter of 2005, we recorded an impairment loss of dlra20dtta8 million as a component of operating loss in our consolidated statement of operations |
| Our future impairment reviews could result in additional write-downs, and we cannot with any degree of certainty predict what effect, if any, such write-downs could have on our future operations |
| We Have Established Certain Anti-takeover Measures That Could Prevent an Acquisition or Change of Control of Our Company |
| Certain of the provisions of our charter and bylaws could discourage, delay or prevent an acquisition or change of control of our Company even if our stockholders believe the change in control would be in our and their best interests and even if the transaction might be at a premium price |
| These provisions: • permit the Board of Directors to increase its own size and fill the resulting vacancies; • permit the Board of Directors, without stockholder approval, to issue preferred stock with such dividend, liquidation, conversion, voting and other rights as the Board may determine; and • limit the persons who may call special meetings of stockholders |
| The Company has adopted a Stockholder Rights Plan which would allow its common stockholders to exercise rights to purchase shares of the Company’s Series J Junior Participating Preferred Stock upon the acquisition by a person or group of persons, or the commencement or announcement of a tender offer or exchange offer to acquire, 15prca or more of the Company’s outstanding shares of common stock, such that the stockholders could purchase dlra70 worth of the Company’s common stock for a purchase price of dlra35, thereby resulting in substantial dilution to a person or group that attempts to acquire the Company in a manner or on terms not approved by the Company’s Board of Directors |
| In addition, Section 203 of the Delaware General Corporation Law also imposes restrictions on mergers and other business combinations between us and any holder of 15prca or more of our common stock |