The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Urban One, Inc. (a
Delaware corporation referred to as “Urban One”) and its subsidiaries (collectively, the “Company”) is
an urban-oriented, multi-media company that primarily targets African-American and urban consumers. Our core business is our radio
broadcasting franchise which is the largest radio broadcasting operation that primarily targets African-American and urban listeners.
As of September 30, 2020, we owned and/or operated 61 broadcast stations (including all HD stations, translator stations and the
low power television stations we operate) located in 14 of the most populous African-American markets in the United States. While
a core source of our revenue has historically been and remains the sale of local and national advertising for broadcast on our
radio stations, our strategy is to operate the premier multi-media entertainment and information content provider targeting African-American
and urban consumers. Thus, we have diversified our revenue streams by making acquisitions and investments in other complementary
media properties. Our diverse media and entertainment interests include TV One, LLC (“TV One”), an African-American
targeted cable television network; our 80.0% ownership interest in Reach Media, Inc. (“Reach Media”) which operates
the Rickey Smiley Morning Show and our other syndicated programming assets, including the Russ Parr Morning Show and the DL Hughley
Show; and Interactive One, LLC (“Interactive One”), our wholly owned digital platform serving the African-American
community through social content, news, information, and entertainment websites, including its Cassius and Bossip, HipHopWired
and MadameNoire digital platforms and brands. We also hold a minority ownership interest in MGM National Harbor, a gaming resort
located in Prince George’s County, Maryland. Through our national multi-media operations, we provide advertisers with a unique
and powerful delivery mechanism to the African-American and urban audiences.
On January 19, 2019,
the Company launched CLEO TV, a lifestyle and entertainment network targeting Millennial and Gen X women of color. CLEO TV offers
quality content that defies negative and cultural stereotypes of today’s modern women. The results of CLEO TV’s operations
will be reflected in the Company’s cable television segment.
Our core radio broadcasting
franchise operates under the brand “Radio One.” We also operate our other brands, such as TV One, CLEO TV, Reach
Media and Interactive One, while developing additional branding reflective of our diverse media operations and targeting our African-American
and urban audiences.
As part of our consolidated
financial statements, consistent with our financial reporting structure and how the Company currently manages its businesses, we
have provided selected financial information on the Company’s four reportable segments: (i) radio broadcasting; (ii) Reach
Media; (iii) digital; and (iv) cable television. (See Note 7 – Segment Information.)
|
(b)
|
Interim Financial Statements
|
The
interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the interim financial
data presented herein include all adjustments (which include only normal recurring adjustments) necessary for a fair presentation.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and
regulations.
During the fourth
quarter of 2019, the Company revised the interest expense component of operating leases accounted for under ASC 842 from interest
expense into operating expenses. Operating income for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019 have
been reclassified in the amounts of approximately $1.3 million, $1.4 million and $1.4 million, respectively, to reflect the interest
expense component of operating leases from interest expense into operating expenses. The financial statements for the quarterly
periods ended March 31, June 30 and September 30, 2019 were not restated as management determined that the impact of this error
is immaterial to the interim consolidated financial statements filed for each quarterly period in 2019. These revisions had no
effect on any other previously reported or consolidated net income or loss or any other statement of operations, balance sheet
or cash flow amounts.
Results
for interim periods are not necessarily indicative of results to be expected for the full year. This Form 10-Q should be read
in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2019 Annual Report
on Form 10-K.
|
(c)
|
Financial Instruments
|
Financial instruments
as of September 30, 2020 and December 31, 2019, consisted of cash and cash equivalents, restricted cash, trade accounts receivable,
asset-backed credit facility, long-term debt and redeemable noncontrolling interests. The carrying amounts approximated fair value
for each of these financial instruments as of September 30, 2020 and December 31, 2019, except for the Company’s long-term
debt. The 7.375% Senior Secured Notes due in April 2022 (the “2022 Notes”) had a carrying value of approximately $350.0
million and fair value of approximately $316.8 million as of September 30, 2020. The 2022 Notes had a carrying value of approximately
$350.0 million and fair value of approximately $344.8 million as of December 31, 2019. The fair values of the 2022 Notes, classified
as Level 2 instruments, were determined based on the trading values of these instruments in an inactive market as of
the reporting date. See Note 9 – Subsequent Events. On April 18, 2017, the Company closed on a $350.0 million senior
secured credit facility (the “2017 Credit Facility”) which had a carrying value of approximately $318.2 million and
fair value of approximately $266.0 million as of September 30, 2020, and had a carrying value of approximately $320.6 million and
fair value of approximately $309.1 million as of December 31, 2019. The fair value of the 2017 Credit Facility, classified as a
Level 2 instrument, was determined based on the trading values of this instrument in an inactive market as of the reporting date.
On December 20, 2018, the Company closed on a $192.0 million unsecured credit facility (the “2018 Credit Facility”)
which had a carrying value of approximately $134.7 million and fair value of approximately $137.4 million as of September 30, 2020,
and had a carrying value of approximately $167.1 million and fair value of approximately $170.5 million as of December 31, 2019.
The fair value of the 2018 Credit Facility, classified as a Level 2 instrument, was determined based on the trading values of this
instrument in an inactive market as of the reporting date. On December 20, 2018, the Company also closed on a $50.0 million secured
credit loan (the “MGM National Harbor Loan”) which had a carrying value of approximately $57.3 million and fair value
of approximately $64.2 million as of September 30, 2020, and had a carrying value of approximately $52.1 million and fair value
of approximately $58.4 million as of December 31, 2019. The fair value of the 2018 MGM National Harbor Loan, classified as a Level
2 instrument, was determined based on the trading values of this instrument in an inactive market as of the reporting date. The
Company’s asset-backed credit facility (the “ABL Facility”) had a carrying value of approximately $27.5 million
and fair value of approximately $27.5 million as of September 30, 2020. There was no balance outstanding on the ABL Facility as
of December 31, 2019.
In accordance with
Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” the Company
recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which it expects to be entitled in exchange for those goods or services. The Company elected to use the modified retrospective
method, but the adoption of the standard did not have a material impact to our financial statements. In general, our spot advertising
(both radio and cable television) as well as our digital advertising continues to be recognized when aired and delivered. For our
cable television affiliate revenue, the Company grants a license to the affiliate to access its television programming content
through the license period, and the Company earns a usage based royalty when the usage occurs, consistent with our previous revenue
recognition policy. Finally, for event advertising, the performance obligation is satisfied at a point in time when the activity
associated with the event is completed.
Within our radio broadcasting
and Reach Media segments, the Company recognizes revenue for broadcast advertising at a point in time when a commercial spot runs.
The revenue is reported net of agency and outside sales representative commissions. 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. For our radio broadcasting and Reach Media segments, agency and outside sales representative commissions were approximately
$4.2 million and $6.2 million for the three months ended September 30, 2020 and 2019, respectively. Agency and outside
sales representative commissions were approximately $11.4 million and $17.2 million for the nine months ended September 30,
2020 and 2019.
Within our digital
segment, including Interactive One, which generates the majority of the Company’s digital revenue, revenue is principally
derived from advertising services on non-radio station branded but Company-owned websites. Advertising services include the sale
of banner and sponsorship advertisements. Advertising revenue is recognized at a point in time either as impressions
(the number of times advertisements appear in viewed pages) are delivered, when “click through” purchases are made,
or ratably over the contract period, where applicable. In addition, Interactive One derives revenue from its studio operations,
in which it provides third-party clients with publishing services including digital platforms and related expertise. In the
case of the studio operations, revenue is recognized primarily through fixed contractual monthly fees and/or as a share of the
third party’s reported revenue.
Our cable television
segment derives advertising revenue from the sale of television air time to advertisers and recognizes revenue when the advertisements
are run. Advertising revenue is recognized at a point in time when the individual spots run. To the extent there is a shortfall
in contracts where the ratings were guaranteed, a portion of the revenue is deferred until the shortfall is settled, typically
by providing additional advertising units generally within one year of the original airing. Our cable television segment also derives
revenue from affiliate fees under the terms of various multi-year affiliation agreements based on a per subscriber fee multiplied
by the most recent subscriber counts reported by the applicable affiliate. The Company recognizes the affiliate fee revenue at
a point in time as its performance obligation to provide the programming is met. The Company has a right of payment each month
as the programming services and related obligations have been satisfied. For our cable television segment, agency and outside sales
representative commissions were approximately $3.7 million and $3.4 million for the three months ended September 30, 2020 and 2019,
respectively. Agency and outside sales representative commissions were approximately $10.5 million and $10.9 million
for the nine months ended September 30, 2020 and 2019, respectively.
Revenue by Contract Type
The following chart
shows our net revenue (and sources) for the three and nine months ended September 30, 2020 and 2019:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands, unaudited)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising
|
|
$
|
34,919
|
|
|
$
|
50,813
|
|
|
$
|
98,695
|
|
|
$
|
144,958
|
|
Political Advertising
|
|
|
4,324
|
|
|
|
300
|
|
|
|
7,089
|
|
|
|
741
|
|
Digital Advertising
|
|
|
8,121
|
|
|
|
8,171
|
|
|
|
20,514
|
|
|
|
23,270
|
|
Cable Television Advertising
|
|
|
19,603
|
|
|
|
20,649
|
|
|
|
59,576
|
|
|
|
60,658
|
|
Cable Television Affiliate Fees
|
|
|
24,421
|
|
|
|
25,330
|
|
|
|
75,247
|
|
|
|
79,404
|
|
Event Revenues & Other
|
|
|
524
|
|
|
|
5,792
|
|
|
|
1,674
|
|
|
|
22,044
|
|
Net Revenue (as reported)
|
|
$
|
91,912
|
|
|
$
|
111,055
|
|
|
$
|
262,795
|
|
|
$
|
331,075
|
|
Contract assets and liabilities
Contract assets (unbilled
receivables) and contract liabilities (customer advances and unearned income and unearned event income) that are not separately
stated in our consolidated balance sheets at September 30, 2020, December 31, 2019 and September 30, 2019 were as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled receivables
|
|
$
|
7,085
|
|
|
$
|
3,763
|
|
|
$
|
5,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer advances and unearned income
|
|
$
|
4,587
|
|
|
$
|
3,048
|
|
|
$
|
3,403
|
|
Unearned event income
|
|
|
6,809
|
|
|
|
6,645
|
|
|
|
3,831
|
|
Unbilled receivables
consists of earned revenue on behalf of customers that have not yet been billed. Customer advances and unearned income represents
advance payments by customers for future services under contract that are generally incurred in the near term. Unearned event income
represents payments by customers for upcoming events.
For customer advances
and unearned income as of January 1, 2020, approximately $103,000 and approximately $2.2 million was recognized as revenue during
the three and nine months ended September 30, 2020. For unearned event income, there was no revenue recognized during the three
months or nine months ended September 30, 2020. For customer advances and unearned income as of January 1, 2019, $250,000
and approximately $2.3 million, respectively, was recognized as revenue during the three and nine months ended September 30, 2019.
For unearned event income as of January 1, 2019, approximately $3.9 million was recognized during the three and nine months ended
September 30, 2019, as the event took place during the second quarter of 2019.
Practical expedients and exemptions
We generally expense
sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within
selling, general and administrative expenses.
We do not disclose
the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii)
contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
The cable television
segment has entered into certain affiliate agreements requiring various payments for launch support. Launch support assets are
used to initiate carriage under affiliation agreements and are amortized over the term of the respective contracts. The Company
did not pay any launch support for carriage initiation during the three and nine months ended September 30, 2020 and 2019. The
weighted-average amortization period for launch support is approximately 7.8 years as of September 30, 2020, and approximately
7.8 years as of December 31, 2019. The remaining weighted-average amortization period for launch support is 4.3 years and 5.1 years
as of September 30, 2020 and December 31, 2019, respectively. Amortization is recorded as a reduction to revenue to the extent
that revenue is recognized from the vendor, and any excess amortization is recorded as launch support amortization expense. For
the three months ended September 30, 2020 and 2019, launch support asset amortization of $106,000 and $106,000, respectively, was
recorded as a reduction of revenue, and $151,000 and $151,000, respectively, was recorded as an operating expense in selling, general
and administrative expenses. For the nine months ended September 30, 2020 and 2019, launch support asset amortization of $317,000
and $317,000, respectively, was recorded as a reduction of revenue, and $454,000 and $455,000, respectively, was recorded as an
operating expense in selling, general and administrative expenses. Launch assets are included in other intangible assets on the
consolidated balance sheets, except for the portion of the unamortized balance that is expected to be amortized within one year
which is included in other current assets.
For barter transactions,
the Company provides broadcast advertising time in exchange for programming content and certain services. The Company includes
the value of such exchanges in both broadcasting net revenue and 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 three months
ended September 30, 2020 and 2019, barter transaction revenues were $523,000 and $574,000, respectively. Additionally, for the
three months ended September 30, 2020 and 2019, barter transaction costs were reflected in programming and technical expenses of
$380,000 and $424,000, respectively, and selling, general and administrative expenses of $143,000 and $150,000, respectively. For
the nine months ended September 30, 2020 and 2019, barter transaction revenues were approximately $1.6 million and $1.7 million,
respectively. Additionally, for the nine months ended September 30, 2020 and 2019, barter transaction costs were reflected in programming
and technical expenses of approximately $1.1 million and 1.3 million, respectively, and selling, general and administrative expenses
of $429,000 and $451,000, respectively. The Company reached an agreement with a cable television provider related to an adjustment
of previously estimated affiliate fees in the amount of approximately $2.0 million for the year ended December 31, 2018, as final
reporting became available. Upon settlement of this agreement, the Company will receive approximately $2.0 million in marketing
services that will be utilized in future periods.
Basic earnings per
share is computed on the basis of the weighted average number of shares of common stock (Classes A, B, C and D) 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.
The following table
sets forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, except share and per
share data):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(12,772)
|
|
$
|
5,359
|
|
$
|
(34,539)
|
|
$
|
8,846
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net (loss) income per share - weighted average outstanding shares
|
|
|
44,175,385
|
|
|
44,315,077
|
|
|
44,738,635
|
|
|
44,912,673
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
—
|
|
|
1,803,625
|
|
|
—
|
|
|
2,052,572
|
|
Denominator for diluted net (loss) income per share - weighted-average outstanding shares
|
|
|
44,175,385
|
|
|
46,118,702
|
|
|
44,738,635
|
|
|
46,965,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders per share – basic
|
|
$
|
(0.29
|
)
|
$
|
0.12
|
|
$
|
(0.77
|
)
|
$
|
0.20
|
|
Net (loss) income attributable to common stockholders per share –diluted
|
|
$
|
(0.29
|
)
|
$
|
0.12
|
|
$
|
(0.77
|
)
|
$
|
0.19
|
|
All
stock options and restricted stock awards were excluded from the diluted calculation for the three and nine months ended September
30, 2020, as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded
from the diluted calculation.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2020
|
|
|
|
(Unaudited)
(In thousands)
|
|
Stock options
|
|
|
3,849
|
|
|
|
3,849
|
|
Restricted stock awards
|
|
|
1,818
|
|
|
|
1,886
|
|
|
(h)
|
Fair Value Measurements
|
We report our financial
and non-financial assets and liabilities measured at fair value on a recurring and non-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.
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.
A financial instrument’s
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.
As of September 30,
2020, and December 31, 2019, respectively, the fair values of our financial assets and liabilities measured at fair value on a
recurring basis are categorized as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
As of September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (a)
|
|
$
|
1,154
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,154
|
|
Employment agreement award (b)
|
|
|
27,710
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,710
|
|
Total
|
|
$
|
28,864
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests (c)
|
|
$
|
11,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (a)
|
|
$
|
1,921
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,921
|
|
Employment agreement award (b)
|
|
|
27,017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,017
|
|
Total
|
|
$
|
28,938
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests (c)
|
|
$
|
10,564
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,564
|
|
(a) This balance is measured
based on the income approach to valuation in the form of a Monte Carlo simulation. The Monte Carlo simulation method is suited
to instances such as this where there is non-diversifiable risk. It is also well-suited to multi-year, path dependent scenarios.
Significant inputs to the Monte Carlo method include forecasted net revenues, discount rate and expected volatility. A third-party
valuation firm assisted the Company in estimating the contingent consideration. The long-term portion of the contingent consideration
is recorded in other long-term liabilities and the current portion is recorded in other current liabilities in the consolidated
balance sheets.
(b) Each quarter, pursuant
to an employment agreement (the “Employment Agreement”) executed in April 2008, the Chief Executive Officer (“CEO”)
is eligible to receive an award (the “Employment Agreement Award”) amount equal to approximately 4% 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 including the valuation of TV One (based on the estimated
enterprise fair value of TV One as determined by a discounted cash flow analysis), and an assessment of the probability
that the Employment Agreement will be renewed and contain this provision. The Company’s obligation to pay the award was triggered
after the Company recovered the aggregate amount of certain pre-April 2015 capital contributions in TV One, and payment is required
only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to such
invested amount. The long-term portion of the award is recorded in other long-term liabilities and the current portion is recorded
in other current liabilities in the consolidated balance sheets. The CEO was fully vested in the award upon execution of the Employment
Agreement, and the award lapses if the CEO voluntarily leaves the Company or is terminated for cause. A third-party valuation
firm assisted the Company in estimating TV One’s fair value using a discounted cash flow analysis. Significant inputs to
the discounted cash flow analysis include forecasted operating results, discount rate and a terminal value. In September 2014,
the Compensation Committee of the Board of Directors of the Company approved terms for a new employment agreement with the CEO,
including a renewal of the Employment Agreement Award upon similar terms as in the prior Employment Agreement. Prior to the quarter
ended September 30, 2018, there were probability factors included in the calculation of the award related to the likelihood that
the award will be realized. During the quarter ended September 30, 2018, management changed the methodology used in calculating
the fair value of the Company's Employment Agreement Award liability to simplify the calculation. As part of the simplified calculation,
the Company eliminated certain adjustments made to its aggregate investment in TV One, including the treatment of historical dividends
paid and potential distribution of assets upon liquidation. The Compensation Committee of the Board of Directors approved the simplified
method which eliminates certain assumptions that were historically used in the determination of the fair value of this liability.
(c) The redeemable noncontrolling
interest in Reach Media is measured at fair value using a discounted cash flow methodology. A third-party valuation firm assisted
the Company in estimating the fair value. Significant inputs to the discounted cash flow analysis include forecasted operating
results, discount rate and a terminal value.
There were no transfers
in or out of Level 1, 2, or 3 during the nine months ended September 30, 2020. The following table presents the changes in Level
3 liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020:
|
|
Contingent
Consideration
|
|
|
Employment
Agreement
Award
|
|
|
Redeemable
Noncontrolling
Interests
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2019
|
|
$
|
1,921
|
|
|
$
|
27,017
|
|
|
$
|
10,564
|
|
Net income attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
846
|
|
Distribution
|
|
|
(766
|
)
|
|
|
(1,625
|
)
|
|
|
—
|
|
Dividends paid to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,000
|
)
|
Change in fair value
|
|
|
(1
|
)
|
|
|
2,318
|
|
|
|
707
|
|
Balance at September 30, 2020
|
|
$
|
1,154
|
|
|
$
|
27,710
|
|
|
$
|
11,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total (losses)/income for the period included in earnings attributable to the change in unrealized losses/income relating to assets and liabilities still held at the reporting date
|
|
$
|
1
|
|
|
$
|
(2,318
|
)
|
|
$
|
—
|
|
Losses
and income included in earnings were recorded in the consolidated statements of operations as corporate selling, general and administrative
expenses for the employment agreement award for the three and nine months ended September 30, 2020 and 2019. Losses included in
earnings were recorded in the consolidated statements of operations as selling, general and administrative expenses for contingent
consideration for the three and nine months ended September 30, 2020 and 2019.
|
|
|
|
Significant
|
|
As of
September 30,
2020
|
|
|
As of
December 31,
2019
|
|
Level 3 liabilities
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Significant Unobservable Input Value
|
|
Contingent consideration
|
|
Monte Carlo Simulation
|
|
Expected volatility
|
|
|
39.1
|
%
|
|
|
20.8
|
%
|
Contingent consideration
|
|
Monte Carlo Simulation
|
|
Discount Rate
|
|
|
16.5
|
%
|
|
|
14.5
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Long-term Growth Rate
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Redeemable noncontrolling interest
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
11.0
|
%
|
|
|
11.0
|
%
|
Redeemable noncontrolling interest
|
|
Discounted Cash Flow
|
|
Long-term Growth Rate
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Any significant increases
or decreases in discount rate or long-term growth rate inputs could result in significantly higher or lower fair value measurements.
Certain assets and
liabilities are measured at fair value on a non-recurring basis using Level 3 inputs as defined in ASC 820. 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 well as content assets that are periodically written down to net realizable value.
For the three months ended September 30, 2020, the Company recorded an impairment charge of approximately $10.0 million related
to its Atlanta market and Indianapolis goodwill balances and also an impairment charge of approximately $19.1 million associated
with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia and Raleigh market radio broadcasting licenses. For
the nine months ended September 30, 2020, the Company recorded an impairment charge of approximately $15.9 million related to its
Atlanta market and Indianapolis goodwill balances and also an impairment charge of approximately $66.8 million associated with
our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia, Raleigh, Richmond and St. Louis market radio broadcasting
licenses. For the nine months ended September 30, 2019, the Company recorded an impairment charge of approximately $3.8 million
related to its Detroit market radio broadcasting licenses. The Company concluded these assets were not impaired during the
three months ended September 30, 2019.
As of January 1, 2019,
the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), using
the modification retrospective transition method. Prior comparative periods will be not be restated under this new standard
and therefore those amounts are not presented below. The Company adopted a package of practical expedients as allowed by the transition
guidance which permits the Company to carry forward the historical assessment of whether contracts contain or are leases, classification
of leases and the remaining lease terms. The Company has also made an accounting policy election to exclude leases with an initial
term of twelve months or less from recognition on the consolidated balance sheet. Short-term leases will be expensed over the lease
term. The Company also elected to separate the consideration in the lease contracts between the lease and non-lease components.
All variable non-lease components are expensed as incurred.
ASC 842 results in
significant changes to the balance sheets of lessees, most significantly by requiring the recognition of right of use (“ROU”)
assets and lease liabilities by lessees for those leases classified as operating leases. Upon adoption of ASC 842, deferred rent
balances, which were historically presented separately, were combined and presented net within the ROU asset. The adoption of this
standard resulted in the Company recording an increase in ROU assets of approximately $49.8 million and an increase in lease liabilities
of approximately $54.1 million. Approximately $4.3 million in deferred rent was also reclassified from liabilities to offset the
applicable ROU asset. The tax impact of ASC 842, which primarily consisted of deferred gains related to previous transactions that
were historically accounted for as sale and operating leasebacks in accordance with prior guidance ASC Topic 840 was recognized
as part of the cumulative-effect adjustment to retained earnings, resulting in an increase to retained earnings, net of tax, of
approximately $5.8 million.
Many of the Company's
leases provide for renewal terms and escalation clauses, which are factored into calculating the lease liabilities when appropriate.
The implicit rate within the Company's lease agreements is generally not determinable and as such the Company’s collateralized
borrowing rate is used.
The following table
sets forth the components of lease expense and the weighted average remaining lease term and the weighted average discount rate
for the Company’s leases:
|
|
Three Months
Ended September 30,
|
|
|
Nine Months
Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars
In thousands)
|
|
|
(Dollars
In thousands)
|
|
Operating Lease Cost (Cost resulting from lease payments)
|
|
$
|
3,166
|
|
|
$
|
3,200
|
|
|
$
|
9,477
|
|
|
$
|
9,642
|
|
Variable Lease Cost (Cost excluded from lease payments)
|
|
|
34
|
|
|
|
40
|
|
|
|
109
|
|
|
|
116
|
|
Total Lease Cost
|
|
$
|
3,200
|
|
|
$
|
3,240
|
|
|
$
|
9,586
|
|
|
$
|
9,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease - Operating Cash Flows (Fixed Payments)
|
|
$
|
3,241
|
|
|
$
|
3,212
|
|
|
$
|
9,897
|
|
|
$
|
10,010
|
|
Operating Lease - Operating Cash Flows (Liability Reduction)
|
|
$
|
2,080
|
|
|
$
|
1,888
|
|
|
$
|
6,258
|
|
|
$
|
6,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Lease Term - Operating Leases
|
|
|
5.42 years
|
|
|
|
5.91 years
|
|
|
|
5.42 years
|
|
|
|
5.91 years
|
|
Weighted Average Discount Rate - Operating Leases
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
As of September 30,
2020, maturities of lease liabilities were as follows:
For the Year Ended December 31,
|
|
(Dollars in
thousands)
|
|
For the remaining three months ending December 31, 2020
|
|
$
|
3,394
|
|
2021
|
|
|
13,304
|
|
2022
|
|
|
12,664
|
|
2023
|
|
|
10,916
|
|
2024
|
|
|
9,795
|
|
Thereafter
|
|
|
13,904
|
|
Total future lease payments
|
|
|
63,977
|
|
Imputed interest
|
|
|
(15,951
|
)
|
Total
|
|
$
|
48,026
|
|
|
(j)
|
Impact of Recently Issued Accounting Pronouncements
|
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 is intended to provide financial
statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments
and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November
2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic
815), and Leases (Topic 842): Effective Dates.” ASU 2019-10 defers the effective date of credit loss standard ASU 2016-13
by two years for smaller reporting companies and permits early adoption. ASU 2016-13 is effective for the Company beginning January
1, 2023. The Company is evaluating the impact of the adoption of ASU 2016-13 on its financial statements.
In December 2019,
the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which
is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted.
The Company adopted ASU 2019-12 on January 1, 2020, and adoption did not have a material impact on our consolidated financial statements
and related disclosures.
|
(k)
|
Redeemable noncontrolling interest
|
Redeemable noncontrolling
interests are interests in subsidiaries that are redeemable outside of the Company’s control either for cash or other assets.
These interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each
reporting period or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations. The
resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings,
or in the absence of retained earnings, additional paid-in-capital.
|
(l)
|
Investments – Cost Method
|
On April 10, 2015,
the Company made a $5 million investment in MGM’s world-class casino property, MGM National Harbor, located in Prince George’s
County, Maryland, which has a predominately African-American demographic profile. On November 30, 2016, the Company contributed
an additional $35 million to complete its investment. This investment further diversified our platform in the entertainment industry
while still focusing on our core demographic. We account for this investment on a cost basis. Our MGM National Harbor investment
entitles us to an annual cash distribution based on net gaming revenue. Our MGM investment is included in other assets on the consolidated
balance sheets and its income in the amount of approximately $1.7 million and $1.8 million, for the three months ended September
30, 2020 and 2019, respectively, and approximately $3.3 million and $5.2 million, for the nine months ended September 30, 2020
and 2019, respectively, is recorded in other income on the consolidated statements of operations. The cost method investment is
subject to a periodic impairment review in the normal course. In connection with its impairment analysis for the nine months ended
September 30, 2020, the Company reviewed the investment and concluded that no impairment to the carrying value was required. As
of December 4, 2018, the Company’s interest in the MGM National Harbor Casino secures the MGM National Harbor Loan (as defined
in Note 4 – Long-Term Debt).
Our cable television
segment has entered into contracts to acquire entertainment programming rights and programs from distributors and producers. The
license periods granted in these contracts generally run from one year to ten years. Contract payments are made in installments
over terms that are generally shorter than the contract period. Each contract is recorded as an asset and a liability at an amount
equal to its gross contractual commitment when the license period begins and the program is available for its first airing. Acquired
content is generally amortized on a straight-line basis over the term of the license which reflects the estimated usage. For certain
content for which the pattern of usage is accelerated, amortization is based upon the actual usage. Amortization of content assets
is recorded in the consolidated statement of operations as programming and technical expenses.
The Company also has
programming for which the Company has engaged third parties to develop and produce, and it owns most or all rights (commissioned
programming). In accordance with ASC 926, content amortization expense for each period is recognized based on the revenue forecast
model, which approximates the proportion that estimated advertising and affiliate revenues for the current period represent in
relation to the estimated remaining total lifetime revenues as of the beginning of the current period. Management regularly
reviews, and revises when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or
a write-down of the asset to fair value.
Acquired program rights
are recorded at the lower of unamortized cost or estimated net realizable value. Estimated net realizable values are based on the
estimated revenues associated with the program materials and related expenses. The Company did not record any additional amortization
expense as a result of evaluating its contracts for recoverability for the nine months ended September 30, 2020 and 2019. All produced
and licensed content is classified as a long-term asset, except for the portion of the unamortized content balance that is expected
to be amortized within one year which is classified as a current asset.
Tax incentives that state and local governments offer that are
directly measured based on production activities are recorded as reductions in production costs.
The Company recognizes
all derivatives at fair value on the consolidated balance sheets 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.
The Company accounts
for the Employment Agreement Award as a derivative instrument in accordance with ASC 815, “Derivatives and Hedging.”
The Company estimated the fair value of the award at September 30, 2020, and December 31, 2019, to be approximately $27.7 million
and $27.0 million, respectively, and accordingly adjusted its liability to this amount. The long-term portion is recorded in other
long-term liabilities and the current portion is recorded in other current liabilities in the consolidated balance sheets. The
expense associated with the Employment Agreement Award was recorded in the consolidated statements of operations as corporate selling,
general and administrative expenses and was approximately $1.0 million and $860,000 for the three months ended September 30, 2020,
and 2019, respectively, and was approximately $2.3 million and $3.6 million for the nine months ended September 30, 2020 and 2019,
respectively.
The Company’s
obligation to pay the Employment Agreement Award was triggered after the Company recovered the aggregate amount of its capital
contribution in TV One and recurs only upon actual receipt of distributions of cash or marketable securities or proceeds from a
liquidity event with respect to the Company’s aggregate investment in TV One. The CEO was fully vested in the award upon
execution of the employment agreement, and the award lapses if the CEO voluntarily leaves the Company, or is terminated for
cause. In September 2014, the Compensation Committee of the Board of Directors of the Company approved terms for a new employment
agreement with the CEO, including a renewal of the Employment Agreement Award upon similar terms as in the prior employment agreement.
Prior to the quarter ended September 30, 2018, there were probability factors included in the calculation of the award related
to the likelihood that the award will be realized. During the quarter ended September 30, 2018, management changed the methodology
used in calculating the fair value of the Company's Employment Agreement Award liability to simplify the calculation. As part of
the simplified calculation, the Company eliminated certain adjustments made to its aggregate investment in TV One, including the
treatment of historical dividends paid and potential distribution of assets upon liquidation. The Compensation Committee of the
Board of Directors approved the simplified method which eliminates certain assumptions that were historically used in the determination
of the fair value of this liability.
|
(o)
|
Related Party Transactions
|
Reach Media operates
the Tom Joyner Foundation’s Fantastic Voyage® (the “Fantastic Voyage®”), a fund-raising
event, on behalf of the Tom Joyner Foundation, Inc. (the “Foundation”), a 501(c)(3) entity. The agreement under which
the Fantastic Voyage® operates provides that Reach Media provide all necessary operations of the cruise and that
Reach Media will be reimbursed its expenditures and receive a fee plus a performance bonus. Distributions from operating revenues
are in the following order until the funds are depleted: up to $250,000 to the Foundation, reimbursement of Reach’s expenditures,
up to a $1.0 million fee to Reach, a performance bonus of up to 50% of remaining operating revenues to Reach Media, with the balance
remaining to the Foundation. For 2021 and 2022, $250,000 to the Foundation is guaranteed. Reach Media’s earnings for the
Fantastic Voyage® in any given year may not exceed $1.75 million. The Foundation’s remittances to Reach Media
under the agreements are limited to its Fantastic Voyage® related cash collections. Reach Media bears the risk
should the Fantastic Voyage® sustain a loss and bears all credit risk associated with the related passenger cruise
package sales. The agreement between Reach and the Foundation automatically renews annually unless termination is mutually agreed
or unless a party’s financial requirements are not met, in which case the party not in breach of their obligations has the
right, but not the obligation, to terminate unilaterally. Due to the pandemic, the 2020 cruise has been rescheduled to November
2021 and passengers have been given the option to have the majority of their payments refunded. As of September 30, 2020, due to
such refunds, Reach Media has an estimated net liability to the Foundation of approximately $2.7 million. As of December 31, 2019,
the Foundation owed Reach Media $24,000 under the agreements for the operation of the cruises.
Reach Media provides
office facilities (including office space, telecommunications facilities, and office equipment) to the Foundation. Such services
are provided to the Foundation on a pass-through basis at cost. Additionally, from time to time, the Foundation reimburses Reach
Media for expenditures paid on its behalf at Reach Media-related events. Under these arrangements, as of September 30, 2020,
and December 31, 2019, the Foundation owed $21,000 and $32,000, respectively, to Reach Media.
For the nine months
ended September 30, 2019, Reach Media’s revenues, expenses, and operating income for the Fantastic Voyage were approximately
$10.2 million, $8.5 million, and $1.7 million, respectively. The Fantastic Voyage took place during the second quarter of 2019.
Due to the aforementioned reschedule of the Fantastic Voyage, no cruise will be operated in 2020.
|
(p)
|
Going Concern Assessment
|
As part of its internal
control framework, the Company routinely performs a going concern assessment. The Company has concluded that it has sufficient
resources to meet its financial obligations, has additional capacity to access ABL Facility funds to finance working capital needs
should the need arise, and that cash flows from operations are sufficient to meet the liquidity needs. As a result, the Company
is projecting compliance with all debt covenants through the one year period following the financial statement issuance date.
Beginning in March
2020, the Company noted that the COVID-19 pandemic and the resulting government stay at home orders across the markets in which
we operate were dramatically impacting certain of the Company's revenues. Most notably, a number of advertisers across significant
advertising categories have reduced or ceased advertising spend due to the outbreak and stay at home orders which effectively shut
many businesses down. This has been particularly true within our radio segment which derives substantial revenue from local
advertisers who have been particularly hard hit due to social distancing and government interventions. Further, the COVID-19 outbreak
has caused the postponement of our 2020 Tom Joyner Foundation Fantastic Voyage cruise and impaired ticket sales of other tent pole
special events, some of which we had to cancel. We do not carry business interruption insurance to compensate us for losses that
may occur as a result of any of these interruptions and continued impacts from the COVID-19 outbreak. Continued or future outbreaks
and/or the speed at which businesses reopen (or reclose) in the markets in which we operate could have material impacts on our
liquidity and/or operations including causing potential impairment of assets and of our financial results.
Given the expected
continued decreases in revenues caused by the COVID-19 pandemic, we assessed our operations considering a variety of factors, including
but not limited to, media industry financial reforecasts for 2020, expected operating results, estimated net cash flows from operations,
future obligations and liquidity, capital expenditure commitments and projected debt covenant compliance. If the Company
were unable to meet its financial covenants, an event of default would occur and the Company’s debt would have to be classified
as current, which the Company would be unable to repay if lenders were to call the debt. We concluded that the potential
that the Company could incur considerable decreases in operating profits and the resulting impact on the Company’s ability
to meet its debt service obligations and debt covenants were probable conditions giving rise to assess whether substantial doubt
existed over the Company’s ability to continue as a going concern.
As a result, during
the third quarter of 2020, the Company performed a complete reforecast of its 2020 anticipated results extending through one year
from the date of issuance of the consolidated financial statements. In reforecasting its results, the Company considered the offsetting
impact of certain of cost-cutting measures including furloughs, layoffs, salary reductions, other expense reduction (including
eliminating travel and entertainment expenses), eliminating discretionary bonuses and merit raises, decreasing or deferring marketing
spend, deferring programming/production costs, reducing special events costs, and implementing a hiring freeze on open positions.
Out
of an abundance of caution and to provide for further liquidity given the uncertainty around the pandemic, the Company drew approximately
$27.5 million on its ABL Facility on March 19, 2020. As of September 30, 2020, that amount remained on the Company’s
balance sheet and together with other cash on hand improved our cash balance to approximately $102.2 million. As of November
9, 2020 our cash on hand balance is approximately $94.6 million. Based on the Company’s forecast operational activity, its
ability to manage and delay any capitalized expenditures and additional variable cost-cutting measures, the Company has adequate
cash reserves and sufficient liquidity into the foreseeable future or for the next 12 months. As a result of the cost reduction
measures that the Company took in in response to the onset of the COVID-19 pandemic, the Company’s current cash balance
and further, considering certain remaining countermeasures the Company can implement in the event of further or continued downturn,
the Company anticipates meeting its debt service requirements and is projecting compliance with all debt covenants through one
year from the date of issuance of the consolidated financial statements. This estimate is, however, subject to substantial uncertainty,
in particular due to the unpredictable extent and duration of the impact of COVID-19 on our business, and the concentration of
certain of our revenues in areas that could be deemed “hotspots” for the pandemic, and other factors described in
Part II, “Item 1A. Risk Factors” herein and Part I, “Item 1A. Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2019 as well as the factors discussed in Part II, “Item 1A. Risk Factors” in
each of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our Quarterly Report on Form 10- Q for the
quarter ended June 30, 2020.
2.
|
ACQUISITIONS AND DISPOSITIONS:
|
On
October 20, 2011, we entered into a time brokerage agreement (“TBA”) with WGPR, Inc. (“WGPR”). Pursuant
to the TBA, on October 24, 2011, we began to broadcast programs produced, owned or acquired by the Company on WGPR’s Detroit
radio station, WGPR-FM. We paid a monthly fee as well as certain operating costs of WGPR-FM, and in exchange we retained all revenues
from the sale of the advertising within the programming we provided. The original term of the TBA was through December 31, 2014;
however, in September 2014, we entered into an amendment to the TBA to extend the term of the TBA through December 31, 2019 on
which date we ceased operation of the station on our behalf. While we ceased operations of the station on December 31, 2019, the
Company continues to provide certain limited management services to the current owner and operator of WGPR.
On August 31, 2019,
the Company closed on its previously announced sale of assets of its Detroit, Michigan radio station, WDMK-FM and three translators
W228CJ, W252BX, and W260CB for approximately $13.5 million to Beasley Broadcast Group, Inc. The Company recognized an immaterial
loss on the sale of the station during the year ended December 31, 2019.
On January 30, 2017,
the Company entered into an asset purchase agreement to sell certain land, towers and equipment to a third party for $25 million.
On May 2, 2017, the Company closed on its previously announced sale, and is leasing certain of the assets back from the buyer as
a part of its normal operations. The Company received proceeds of approximately $25.0 million, resulting in an overall net gain
on sale of approximately $22.5 million, of which approximately $14.4 million was recognized immediately during the second quarter
of 2017, and approximately $8.1 million which was deferred and was recognized into income ratably over the lease term of ten years.
Upon adoption of ASC 842 on January 1, 2019, the unamortized portion of this deferred gain, net of tax, was recognized as a cumulative
adjustment to equity.
On December 19, 2019,
we entered into both an asset purchase agreement (“APA”) and a TBA with Guardian Enterprise Group, Inc. and certain
of its affiliates (collectively, “GEG”) with respect to the acquisition and interim operation of low power television
station WQMC-LD in Columbus, Ohio. Pursuant to the TBA, in January 2020, we began to operate WQMC-LD until such time as the purchase
transaction can close under the APA. Under the terms of the TBA, we pay a monthly fee as well as certain operating costs of WQMC-LD,
and, in exchange, we will retain all revenues from the sale of the advertising within the programming. After receipt of FCC approval,
we closed the transactions under the APA and took ownership of WQMC-LD on February 24, 2020 for total consideration of $475,000.
3.
|
GOODWILL AND RADIO BROADCASTING LICENSES:
|
Impairment
Testing
In
accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our indefinite-lived radio broadcasting
licenses and goodwill. Instead, we perform a test for impairment annually across all reporting units, or on an interim basis when
events or changes in circumstances or other conditions suggest impairment may have occurred in any given reporting unit. 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. We evaluate all events and circumstances on an interim basis to determine if an interim indicator
is present.
Valuation of
Broadcasting Licenses
Beginning in March 2020,
the Company noted that the COVID-19 pandemic and the resulting government stay at home orders were dramatically impacting certain
of the Company's revenues. Most notably, a number of advertisers across significant advertising categories have reduced or ceased
advertising spend due to the outbreak and stay at home orders which effectively shut many businesses down in the markets in which
we operate. This was particularly true within our radio segment which derives substantial revenue from local advertisers
who have been particularly hard hit due to social distancing and government interventions. As a result of COVID-19, the
total market revenue growth for certain markets in which we operate was below that assumed in our annual impairment testing. During
the first quarter of 2020, the Company recorded a non-cash impairment charge of approximately $47.7 million associated with our
Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia, Raleigh, Richmond and St. Louis radio market broadcasting licenses. We
did not identify any impairment indicators for the three months ended June 30, 2020. Based on the latest market data obtained by
the Company in the third quarter of 2020, the total anticipated market revenue growth for certain markets in which we operate continues
to be below that assumed in our first quarter impairment testing. We deemed that to be an impairment indicator that warranted interim
impairment testing of certain markets’ radio broadcasting licenses, which we performed as of September 30, 2020. As a result
of that testing, the Company recorded a non-cash impairment charge of approximately $19.1
million associated with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia and Raleigh market radio broadcasting
licenses. We did not identify any impairment indicators for the three months ended September 30, 2019. During the nine months
ended September 30, 2019, the Company recorded a non-cash impairment charge of approximately $3.8 million associated with our Detroit
market radio broadcasting licenses. Below are some of the key assumptions used in the income approach model for estimating broadcasting
licenses fair values for the interim impairment assessments where impairment was recorded for 2020.
Radio Broadcasting
|
|
September 30,
|
|
|
March 31,
|
|
Licenses
|
|
2020 (a)
|
|
|
2020 (a)
|
|
Impairment charge (in millions)
|
|
$
|
19.1
|
|
|
$
|
47.7
|
|
Discount Rate
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(10.7)% – (16.8)
|
%
|
|
|
(13.3)
|
%
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.7% – 1.1
|
%
|
|
|
0.7% – 1.1
|
%
|
Mature Market Share Range
|
|
|
6.7% – 23.9
|
%
|
|
|
6.9% – 25.0
|
%
|
Mature Operating Profit Margin Range
|
|
|
27.7% –37.1
|
%
|
|
|
27.6% –39.7
|
%
|
|
(a)
|
Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
|
Valuation of
Goodwill
As noted above, during
the first and third quarters of 2020 due to the COVID-19 pandemic, we identified impairment indicators at certain of our radio
markets, and, as such, we performed an interim analysis for certain radio market goodwill. During the three months ended March
31, 2020, the Company recorded a non-cash impairment charge of approximately $6.0 million to reduce the carrying value of our Atlanta
and Indianapolis market goodwill balances. We did not identify any impairment indicators at any of our other reportable segments
for the three months ended June 30, 2020. During the three months ended September 30, 2020, the Company recorded a non-cash
impairment charge of approximately $10.0 million related to its Atlanta market and Indianapolis
market goodwill balances. We did not identify any impairment indicators at any of our reportable segments for the three
months ended September 30, 2019. Below are some of the key assumptions used in the income approach model for estimating reporting
unit fair values for the interim impairment assessments where impairment was recorded
for 2020.
Goodwill (Radio Market
|
|
September 30,
|
|
|
March 31,
|
|
Reporting Units)
|
|
2020 (a)
|
|
|
2020 (a)
|
|
Impairment charge (in millions)
|
|
$
|
10.0
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(26.6)% – 34.7
|
%
|
|
|
(14.5)% – (12.9)
|
%
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.9% – 1.1
|
%
|
|
|
0.9% – 1.1
|
%
|
Mature Market Share Range
|
|
|
8.4% – 12.7
|
%
|
|
|
11.1% – 13.0
|
%
|
Mature Operating Profit Margin Range
|
|
|
27.7% – 48.1
|
%
|
|
|
29.4% – 39.0
|
%
|
(a)
|
Reflects the key assumptions for testing only those radio markets with remaining goodwill.
|
Goodwill Valuation Results
The table below presents
the changes in the Company’s goodwill carrying values for its four reportable segments.
|
|
Radio
Broadcasting
Segment
|
|
|
Reach
Media
Segment
|
|
|
Digital
Segment
|
|
|
Cable
Television
Segment
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Gross goodwill
|
|
$
|
155,000
|
|
|
$
|
30,468
|
|
|
$
|
27,567
|
|
|
$
|
165,044
|
|
|
$
|
378,079
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairments
|
|
|
(15,900
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,900
|
)
|
Accumulated impairment losses
|
|
|
(101,848
|
)
|
|
|
(16,114
|
)
|
|
|
(20,345
|
)
|
|
|
—
|
|
|
|
(138,307
|
)
|
Net goodwill at September 30, 2020
|
|
$
|
37,252
|
|
|
$
|
14,354
|
|
|
$
|
7,222
|
|
|
$
|
165,044
|
|
|
$
|
223,872
|
|
Long-term debt
consists of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
2018 Credit Facility
|
|
$
|
134,736
|
|
|
$
|
167,145
|
|
MGM National Harbor Loan
|
|
|
57,312
|
|
|
|
52,099
|
|
2017 Credit Facility
|
|
|
318,156
|
|
|
|
320,629
|
|
7.375% Senior Secured Notes
|
|
|
350,000
|
|
|
|
350,000
|
|
Asset-backed credit facility
|
|
|
27,500
|
|
|
|
—
|
|
Total debt
|
|
|
887,704
|
|
|
|
889,873
|
|
Less: current portion of long-term debt
|
|
|
49,997
|
|
|
|
25,945
|
|
Less: original issue discount and issuance costs
|
|
|
10,579
|
|
|
|
13,620
|
|
Long-term debt, net
|
|
$
|
827,128
|
|
|
$
|
850,308
|
|
2018 Credit Facility
On December 4, 2018,
the Company and certain of its subsidiaries entered into a credit agreement (“2018 Credit Facility”), among the Company,
the lenders party thereto from time to time, Wilmington Trust, National Association, as administrative agent, and TCG Senior Funding
L.L.C, as sole lead arranger and sole bookrunner. The 2018 Credit Facility provided $192.0 million in term loan borrowings, which
was funded on December 20, 2018. The net proceeds of term loan borrowings under the 2018 Credit Facility were used to refinance,
repurchase, redeem or otherwise repay the Company's outstanding 9.25% senior subordinated notes due 2020.
Borrowings under the
2018 Credit Facility are subject to customary conditions precedent, as well as a requirement under the 2018 Credit Facility that
(i) the Company's total gross leverage ratio on a pro forma basis be not greater than 8:00 to 1:00 (this total gross leverage ratio
test steps down as described below), (ii) neither of the administrative agents under the Company's existing credit facilities nor
the trustee under the Company's existing senior secured notes due 2022 have objected to the terms of the new credit documents and
(iii) certification by the Company that the terms and conditions of the 2018 Credit Facility satisfy the requirements of the definition
of “Permitted Refinancing” (as defined in the agreements governing the Company's existing credit facilities) and neither
of the administrative agents under the Company's existing credit facilities notifies the Company within five (5) business days
prior to funding the borrowings under the 2018 Credit Facility that it disagrees with such determination (including a reasonable
description of the basis upon which it disagrees).
The 2018 Credit Facility
matures on December 31, 2022 (the “Maturity Date”). Interest rates on borrowings under the 2018 Credit Facility will
be either (i) from the Funding Date to the Maturity Date, 12.875% per annum, (ii) 11.875% per annum, once 50% of the term loan
borrowings have been repaid or (iii) 10.875% per annum, once 75% of the term loan borrowings have been repaid. Interest payments
begin on the last day of the 3-month period commencing on the Funding Date.
The Company's obligations
under the 2018 Credit Facility are not secured. The 2018 Credit Facility is guaranteed on an unsecured basis by each entity that
guarantees the Company's outstanding $350.0 million 2017 Credit Facility (as defined below).
The term loans could
have been voluntarily prepaid prior to February 15, 2020 subject to payment of a prepayment premium. The Company is required to
repay principal to the extent then outstanding on each quarterly interest payment date, commencing on the last business day in
March 2019, equal to one quarter of 7.5% of the aggregate initial principal amount of all term loans incurred on the Funding Date
to December 2019, commencing on the last business day in March 2020, one quarter of 10.0% of the aggregate initial principal amount
of all term loans incurred on the Funding Date to December 2021, and, commencing on the last business day in March 2021, one quarter
of 12.5% of the aggregate initial principal amount of all term loans incurred on the Funding Date to December 2022. The Company
is also required to use 75% of excess cash flow (“ECF payment”) as defined in the 2018 Credit Facility, which exclude
any distributions to the Company or its restricted subsidiaries in respect of its interests in the MGM National Harbor to repay
outstanding term loans at par, paid semiannually and to use 100% of all distributions to the Company or its restricted subsidiaries
received in respect of its interest in the MGM National Harbor to repay outstanding terms loans at par. During the three and nine
months ended September 30, 2020, the Company repaid approximately $12.1 million and $32.4 million, respectively under the 2018
Credit Facility. Included in the repayments made during the nine months ended September 30, 2020 was approximately $11.1 million
in ECF payments in accordance with the agreement. During the three and nine months September 30, 2019, the Company repaid approximately
$7.1 million and $21.3 million, respectively, under the 2018 Credit Facility. Included in the repayments made during the quarter
ended September 30, 2019 was approximately $3.5 million in ECF payments in accordance with the agreement.
The
2018 Credit Facility contains customary representations and warranties and events of default, affirmative and negative covenants
(in each case, subject to materiality exceptions and qualifications). The 2018 Credit Facility also contains certain financial
covenants, including a maintenance covenant requiring the Company's total gross leverage ratio to be not greater than 8.0 to 1.00
in 2019, 7.5 to 1.00 in 2020, 7.25 to 1.00 in 2021 and 6.75 to 1.00 in 2022. As of September 30, 2020, the Company was in compliance
with all of its financial covenants under the 2018 Credit Facility.
As of September 30,
2020, the Company had outstanding approximately $134.7 million on its 2018 Credit Facility. The original issue discount in the
amount of approximately $3.8 million and associated debt issuance costs in the amount of $875,000 is being reflected as an
adjustment to the carrying amount of the debt obligation and amortized to interest expense over the term of the credit facility
using the effective interest rate method. 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 all instruments, for the three months
ended September 30, 2020 and 2019, was approximately $1.1 million and $986,000, respectively. The amount of deferred financing
costs included in interest expense for all instruments, for the nine months ended September 30, 2020 and 2019, was approximately
$3.2 million and $2.9 million, respectively.
MGM National Harbor Loan
Concurrently, on December
4, 2018, Urban One Entertainment SPV, LLC (“UONESPV”) and its immediate parent, Radio One Entertainment Holdings, LLC
(“ROEH”), each of which is a wholly owned subsidiary of the Company, entered into a credit agreement, providing $50.0
million in term loan borrowings (the “MGM National Harbor Loan”) which was funded on December 20, 2018. On June 25,
2020, the Company borrowed an incremental $3.6 million on the MGM National Harbor Loan and used the proceeds to pay down the higher
coupon 2018 Credit Facility by the same amount.
The MGM National Harbor
Loan matures on December 31, 2022 and bears interest at 7.0% per annum in cash plus 4.0% per annum paid-in kind. The loan has limited
ability to be prepaid in the first two years. The loan is secured on a first priority basis by the assets of UONESPV and ROEH,
including all of UONESPV's shares held by ROEH, all of UONESPV's interests in MGM National Harbor, its rights under the joint venture
operating agreement governing the MGM National Harbor and UONESPV's obligation to exercise its put right under the joint venture
operating agreement in the event of a UONESPV payment default or bankruptcy event, in each case, subject to applicable Maryland
gaming laws and approvals. Exercise by UONESPV of its put right under the joint venture operating agreement is subject to required
lender consent unless the proceeds are used to retire the MGM National Harbor Loan and any remaining excess is used to repay borrowings,
if any, under the 2018 Credit Facility. The MGM National Harbor Loan also contains customary representations and warranties and
events of default, affirmative and negative covenants (in each case, subject to materiality exceptions and qualifications).
As of September 30,
2020, the Company had outstanding approximately $57.3 million on its MGM National Harbor Loan. The original issue discount in the
amount of approximately $1.0 million and associated debt issuance costs in the amount of approximately $1.7 million is being reflected
as an adjustment to the carrying amount of the debt obligation and amortized to interest expense over the term of the obligation
using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense for
all periods presented.
2017 Credit Facilities
On April 18, 2017,
the Company closed on a senior secured credit facility (the “2017 Credit Facility”). The 2017 Credit Facility is governed
by a credit agreement by and among the Company, the lenders party thereto from time to time and Guggenheim Securities Credit Partners,
LLC, as administrative agent, The Bank of New York Mellon, as collateral agent, and Guggenheim Securities, LLC as sole lead arranger
and sole book running manager. The 2017 Credit Facility provides for $350 million in term loan borrowings, all of which was advanced
and outstanding on the date of the closing of the transaction.
The 2017 Credit Facility
matures on the earlier of (i) April 18, 2023, or (ii) in the event such debt is not repaid or refinanced, 91 days prior to the
maturity of the Company’s 2022 Notes (as defined below). At the Company’s election, the interest rate on borrowings
under the 2017 Credit Facility are based on either (i) the then applicable base rate (as defined in the 2017 Credit Facility) as,
for any day, a rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) equal to the greater of (a) the prime rate
published in the Wall Street Journal, (b) 1/2 of 1% in excess rate of the overnight Federal Funds Rate at any given time, (c) the
one-month LIBOR rate commencing on such day plus 1.00%) and (d) 2%, or (ii) the then applicable LIBOR rate (as defined in the 2017
Credit Facility). The average interest rate was approximately 5.23% for 2020 and was 6.41% for 2019.
The 2017 Credit Facility
is (i) guaranteed by each entity that guarantees the Company’s 2022 Notes on a pari passu basis with the guarantees of the
2022 Notes and (ii) secured on a pari passu basis with the Company’s 2022 Notes. The Company’s obligations under the
2017 Credit Facility are secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis
by certain notes priority collateral, and (ii) on a second priority basis by collateral for the Company’s asset-backed line
of credit.
In addition to any
mandatory or optional prepayments, the Company is required to pay interest on the term loans (i) quarterly in arrears for the base
rate loans, and (ii) on the last day of each interest period for LIBOR loans. Certain voluntary prepayments of the term loans during
the first six months will require an additional prepayment premium. Beginning with the interest payment date occurring in June
2017 and ending in March 2023, the Company will be required to repay principal, to the extent then outstanding, equal to 1∕4
of 1% of the aggregate initial principal amount of all term loans incurred on the effective date of the 2017 Credit Facility. On
December 19, 2018, upon drawing under the 2018 Credit Facility and MGM National Harbor Loan, the Company voluntarily prepaid approximately
$20.0 million in principal on the 2017 Credit Facility. During each of the three month periods in September 30, 2020 and 2019,
the Company repaid $824,000 under the 2017 Credit Facility. During each of the nine month periods in September 30, 2020 and 2019,
the Company repaid approximately $2.5 million under the 2017 Credit Facility.
The 2017 Credit Facility
contains customary representations and warranties and events of default, affirmative and negative covenants (in each case, subject
to materiality exceptions and qualifications) which may be more restrictive than those governing the 2022 Notes. The 2017 Credit
Facility also contains certain financial covenants, including a maintenance covenant requiring the Company’s interest expense
coverage ratio (defined as the ratio of consolidated EBITDA to consolidated interest expense) to be greater than or equal to 1.25
to 1.00 and its total senior secured leverage ratio (defined as the ratio of consolidated net senior secured indebtedness to consolidated
EBITDA) to be less than or equal to 5.85 to 1.00.
The
net proceeds from the 2017 Credit Facility were used to prepay in full the Company’s previous senior secured credit facility
and the agreement governing such credit facility.
The 2017 Credit Facility
contains affirmative and negative covenants that the Company is required to comply with, including:
|
(a)
|
maintaining an interest coverage ratio of no less than:
|
|
§
|
1.25 to 1.00 on June 30, 2017 and the last day of each fiscal quarter thereafter.
|
|
(b)
|
maintaining a senior leverage ratio of no greater than:
|
|
§
|
5.85 to 1.00 on June 30, 2017 and the last day of each fiscal quarter thereafter.
|
|
§
|
liens;
|
|
§
|
sale of assets;
|
|
§
|
payment of dividends; and
|
|
§
|
mergers.
|
As
of September 30, 2020, the Company was in compliance with all of its financial covenants under the 2017 Credit Facility.
As of September 30,
2020, the Company had outstanding approximately $318.2 million on its 2017 Credit Facility. The original issue discount is being reflected
as an adjustment to the carrying amount of the debt obligations and amortized to interest expense over the term of the credit
facility using the effective interest rate method. The amortization of deferred financing costs was charged to interest expense
for all periods presented.
2022 Notes
On April 17, 2015,
the Company closed a private offering of $350.0 million aggregate principal amount of 7.375% senior secured notes due 2022 (the
“2022 Notes”). The 2022 Notes were offered at an original issue price of 100.0% plus accrued interest from April 17,
2015, and will mature on April 15, 2022. Interest on the 2022 Notes accrues at the rate of 7.375% per annum and is payable semiannually
in arrears on April 15 and October 15, which commenced on October 15, 2015. The 2022 Notes are guaranteed, jointly and severally,
on a senior secured basis by the Company’s existing and future domestic subsidiaries, including TV One.
In connection with
the closing of the 2022 Notes, the Company and the guarantor parties thereto entered into a Fourth Supplemental Indenture to the
indenture governing the 2020 Notes (as defined below). Pursuant to this Fourth Supplemental Indenture, TV One, which previously
did not guarantee the 2020 Notes, became a guarantor under the 2020 Notes indentures. In addition, the transactions caused a “Triggering
Event” (as defined in the 2020 Notes Indenture) and, as a result, the 2020 Notes became an unsecured obligation of the Company
and the subsidiary guarantors and rank equal in right of payment with the Company’s other senior indebtedness.
The Company used the
net proceeds from the 2022 Notes, to refinance a previous credit agreement, refinance certain TV One indebtedness, and finance
the buyout of membership interests of Comcast in TV One and pay the related accrued interest, premiums, fees and expenses associated
therewith.
The 2022 Notes are
the Company’s senior secured obligations and rank equal in right of payment with all of the Company’s and the guarantors’
existing and future senior indebtedness, including obligations under the 2017 Credit Facility and the Company’s 2020 Notes
(defined below). The 2022 Notes and related guarantees are equally and ratably secured by the same collateral securing the
2017 Credit Facility and any other parity lien debt issued after the issue date of the 2022 Notes, including any additional notes
issued under the Indenture, but are effectively subordinated to the Company’s and the guarantors’ secured indebtedness
to the extent of the value of the collateral securing such indebtedness that does not also secure the 2022 Notes. Collateral includes
substantially all of the Company’s and the guarantors’ current and future property and assets for accounts receivable,
cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets including the capital stock of each
subsidiary guarantor. As of September 30, 2020, the Company had outstanding approximately $350.0 million of the 2022 Notes. See
Note 9 – Subsequent Events.
Senior Subordinated
Notes
On February 10, 2014,
the Company closed a private placement offering of $335.0 million aggregate principal amount of 9.25% senior subordinated notes
due 2020 (the “2020 Notes”). The 2020 Notes were offered at an original issue price of 100.0% plus accrued interest
from February 10, 2014. The 2020 Notes were scheduled to mature on February 15, 2020. Interest accrued at the rate of 9.25% per
annum and was payable semiannually in arrears on February 15 and August 15 in the initial amount of approximately $15.5 million,
which commenced on August 15, 2014. The 2020 Notes were guaranteed by certain of the Company’s existing and future domestic
subsidiaries and any other subsidiaries that guarantee the existing senior credit facility or any of the Company’s other
syndicated bank indebtedness or capital markets securities. The Company used the net proceeds from the offering to repurchase or
otherwise redeem all of the amounts then outstanding under its previous notes and to pay the related accrued interest, premiums,
fees and expenses associated therewith. During the quarter ended December 31, 2018, in conjunction with entering into the 2018
Credit Facility and MGM National Harbor Loan, the Company repurchased approximately $243.0 million of its 2020 Notes at an average
price of approximately 100.88% of par.
On January 17, 2019,
the Company announced that it had given the required notice under the indenture governing its 2020 Notes to redeem for cash all
outstanding aggregate principal amount of its Notes to the extent outstanding on February 15, 2019 (the "Redemption Date").
The redemption price for the Notes was 100.0% of the principal amount of the Notes, plus accrued and unpaid interest to the Redemption
Date. On February 15, 2019, the remaining 2020 Notes were redeemed in full.
Comcast Note
Until February 2019,
the Company also had outstanding a senior unsecured promissory note in the aggregate principal amount of approximately $11.9 million
due to Comcast (“Comcast Note”). The Comcast Note bore interest at 10.47%, was payable quarterly in arrears, and the
entire principal amount was due on April 17, 2019. However, the Company was contractually required to retire the Comcast Note in
February 2019 upon redemption of the remaining 2020 Notes. On February 15, 2019, upon redemption of the remaining 2020 Notes, the
Comcast Note was paid in full and retired.
Asset-Backed Credit Facility
On April 21, 2016,
the Company entered into a senior credit agreement governing an asset-backed credit facility (the “ABL Facility”) among
the Company, the lenders party thereto from time to time and Wells Fargo Bank National Association, as administrative agent (the
“Administrative Agent”). The ABL Facility originally provided for $25 million in revolving loan borrowings in order
to provide for the working capital needs and general corporate requirements of the Company. On November 13, 2019, the Company entered
into an amendment to the ABL Facility, (the “ABL Amendment”), which increased the borrowing capacity from $25 million
in revolving loan borrowings to $37.5 million in order to provide for the working capital needs and general corporate requirements
of the Company and provides for a letter of credit facility up to $7.5 million as a part of the overall $37.5 million in capacity.
The ABL Amendment also redefines the “Maturity Date” to read as follows: “Maturity Date" shall mean the
earlier to occur of (a) April 21, 2021 and (b) the date that is thirty (30) days prior to the earlier to occur of (i) the Term
Loan Maturity Date (as defined in the Term Loan Credit Agreement as in effect on the Effective Date or as the same may be extended
in accordance with the terms of the Term Loan Credit Agreement), and (ii) the Stated Maturity (as defined in the Senior Secured
Notes Indenture (as defined in the Term Loan Credit Agreement)) of the Notes (as defined in the Senior Secured Notes Indenture
as in effect on the Effective Date or as the same may be extended in accordance with the terms of the Senior Secured Notes Indenture).”
At the Company’s
election, the interest rate on borrowings under the ABL Facility are based on either (i) the then applicable margin relative to
Base Rate Loans (as defined in the ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the
ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter.
Advances under the
ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the ABL Facility),
less the amount, if any, of the Dilution Reserve (as defined in the ABL Facility), minus (b) the sum of (i) the Bank Product Reserve
(as defined in the ABL Facility), plus (ii) the aggregate amount of all other reserves, if any, established by Administrative Agent.
All obligations under
the ABL Facility are secured by first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts
receivable, (iii) all other property which constitutes ABL Priority Collateral (as defined in the ABL Facility). The obligations
are also secured by all material subsidiaries of the Company.
Finally, the ABL Facility
is subject to the terms of the Intercreditor Agreement (as defined in the ABL Facility) by and among the Administrative Agent,
the administrative agent for the secured parties under the Company’s term loan and the trustee and collateral trustee under
the senior secured notes indenture.
As of December 31,
2019, the Company did not have any borrowings outstanding on its ABL Facility. As of September 30, 2020, the Company had approximately
$27.5 million in borrowings outstanding on its ABL Facility.
Letter of Credit Facility
On
February 24, 2015, the Company entered into a letter of credit reimbursement and security agreement. On October 8, 2019, the Company
entered into an amendment to its letter of credit reimbursement and security agreement and extended the term to October 8, 2024.
As of September 30, 2020, the Company had letters of credit totaling $871,000 under the agreement. Letters of credit issued under
the agreement are required to be collateralized with cash.
The Company conducts
a portion of its business through its subsidiaries. Certain of the Company’s subsidiaries have fully and unconditionally
guaranteed the Company’s 2022 Notes, the Company’s obligations under the 2017 Credit Facility, and the obligations
under the 2018 Credit Facility. The Company’s interest in the MGM National Harbor Casino fully guarantees the MGM National
Harbor Loan.
Future Minimum Principal Payments
Future
scheduled minimum principal payments of debt as of September 30, 2020, are as follows:
|
|
2018
Credit
Facility
|
|
|
MGM
National
Harbor Loan
|
|
|
Asset-backed
Credit Facility
|
|
|
2017
Credit
Facility
|
|
|
7.38%
Senior
Secured
Notes
due April
2022
|
|
|
Total
|
|
|
|
(In thousands)
|
|
October - December 2020
|
|
$
|
4,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
824
|
|
|
$
|
—
|
|
|
$
|
5,624
|
|
2021
|
|
|
19,200
|
|
|
|
—
|
|
|
|
27,500
|
|
|
|
3,297
|
|
|
|
—
|
|
|
|
49,997
|
|
2022
|
|
|
110,736
|
|
|
|
57,312
|
|
|
|
—
|
|
|
|
3,297
|
|
|
|
350,000
|
|
|
|
521,345
|
|
2023
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310,738
|
|
|
|
—
|
|
|
|
310,738
|
|
2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2025 and thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total Debt
|
|
$
|
134,736
|
|
|
$
|
57,312
|
|
|
$
|
27,500
|
|
|
$
|
318,156
|
|
|
$
|
350,000
|
|
|
$
|
887,704
|
|
The
Company generally utilizes the estimated annual effective tax rate method (“Estimated AETR Method”) prescribed under
ASC 740-270, “Interim Reporting” to calculate the provision for income taxes. For the nine months ended September
30, 2020, the Company recorded a benefit from income taxes of approximately $21.5 million on pre-tax loss from continuing operations
of approximately $55.2 million utilizing the actual effective tax rate (“Discrete Method”) for the period. Economic
disruptions caused by COVID-19 have impacted the Company’s ability to accurately forecast earnings in certain segments, therefore
the Company continues to utilize the Discrete Method to calculate the interim tax provision for the quarter ended September 30,
2020.
During
the three months ended March 31, 2020, the Internal Revenue Service (“IRS”) accepted the Company’s petition to
extend the time to file certain procedural elections of a subsidiary corporation. The IRS acceptance resulted in a reduction of
the valuation allowance against certain deferred tax assets (“DTAs”) for our net operating losses. As a result of the
reduction of the valuation allowance, the Company recorded a tax benefit of approximately $12.5 million that is included in the
$21.5 million benefit from income taxes recorded for the nine months ended September 30, 2020.
In accordance with
ASC 740, “Accounting for Income Taxes”, the Company continues to evaluate the realizability of its net DTAs
by assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax
returns, tax planning strategies, and future profitability. As of September 30, 2020, the Company believes it is more likely
than not that these DTAs will be realized.
The Company is subject
to the continuous examination of our income tax returns by the IRS and other domestic tax authorities. We believe that an adequate
provision has been made for any adjustments that may result from tax examinations. The Company does not currently anticipate that
the total amounts of unrecognized tax benefits will significantly change within the next twelve months.
On June 16, 2020,
the Company’s Board of Directors authorized an amendment (the “Potential Amendment”) of Urban One's certificate
of incorporation to effect a reverse stock split across all classes of common stock by a ratio of not less than one-for-two and
not more than one-for-fifty at any time prior to December 31, 2021, with the exact ratio to be set at a whole number within this
range as determined by our board of directors in its discretion. The Company’s shareholders approved the Potential Amendment
at the annual meeting of the shareholders June 16, 2020. The Company has not acted on the Potential Amendment but may do so as
determined by our board of directors in its discretion.
On August 18, 2020,
the Company entered into an Open Market Sales Agreement with Jefferies LLC (“Jefferies”) under which the Company may
offer and sell, from time to time at its sole discretion, (the “Current ATM Program”) shares of its Class A common
stock, par value $0.001 per share (the “Class A Shares”) up to an aggregate offering price of $25 million. Jefferies
is acting as sales agent for the Current ATM Program. In August 2020, the Company issued 2,859,276 shares of its Class A Shares
at a weighted average price of $5.39 for approximately $14.8 million of net proceeds after associated fees and expenses. While
the Company still has Class A Shares available for issuance under the Current ATM Program, the Company may also enter into new
additional ATM programs and issue additional common stock from time to time under those programs.
Stock Repurchase
Program
From time to time,
the Company’s Board of Directors has authorized repurchases of shares of the Company’s Class A and Class D common stock.
As of March 13, 2020, the Company’s Board authorized a new repurchase plan of up to $2.6 million of the Company’s Class
A and Class D shares through December 31, 2020. In addition, on June 11, 2020, the Company’s Board authorized a repurchase
of $2.4 million of the Company’s Class D shares. As of September 30, 2020, the Company had $2.6 million remaining under its
open authorization with respect to its Class A and Class D common stock. Under open authorizations, repurchases may be made from
time to time in the open market or in privately negotiated transactions in accordance with applicable laws and regulations. Shares
are retired when repurchased. The timing and extent of any repurchases will depend upon prevailing market conditions, the trading
price of the Company’s Class A and/or Class D common stock and other factors, and subject to restrictions under applicable
law. When in effect, the Company executes upon stock repurchase programs in a manner consistent with market conditions and the
interests of the stockholders, including maximizing stockholder value. During the three months ended September 30, 2020, the Company
did not repurchase any shares of Class A and/or Class D common stock. During the three months ended September 30, 2019, the Company
repurchased 6,345 shares of Class A common stock in the amount of $14,000 at an average price of $2.20 per share and repurchased
448,742 shares of Class D common stock in the amount of $975,000 at an average price of $2.17 per share. During the nine months
ended September 30, 2020, the Company did not repurchase any shares of Class A common stock and repurchased 3,208,288 shares of
Class D common stock in the amount of approximately $2.4 million at an average price of $0.76 per share. During the nine months
ended September 30, 2019, the Company repurchased 54,896 shares of Class A common stock in the amount of $120,000 at an average
price of $2.19 per share and repurchased 1,709,315 shares of Class D common stock in the amount of approximately $3.5 million at
an average price of $2.06 per share.
In addition, the Company
has limited but ongoing authority to purchase shares of Class D common stock (in one or more transactions at any time there remain
outstanding grants) under the Company’s 2009 Stock Plan and 2019 Equity and Performance Incentive Plan (both as defined below).
As of May 21, 2019, the 2019 Equity and Performance Incentive Plan will be used to satisfy any employee or other recipient tax
obligations in connection with the exercise of an option or a share grant under the 2009 Stock Plan, to the extent that the Company
has capacity under its financing agreements (i.e., its current credit facilities and indentures) (each a “Stock Vest Tax
Repurchase”). During the three months ended September 30, 2020, the Company executed a Stock Vest Tax Repurchase of 3,195
shares of Class D Common Stock in the amount of $6,000 at an average price of $1.74 per share. During the three months ended September
30, 2019, the Company executed a Stock Vest Tax Repurchase of 13,264 shares of Class D Common Stock in the amount of $25,000 at
an average price of $1.87 per share. During the nine months ended September 30, 2020, the Company executed a Stock Vest Tax Repurchase
of 706,767 shares of Class D Common Stock in the amount of approximately $1.2 million at an average price of $1.64 per share. During
the nine months ended September 30, 2019, the Company executed a Stock Vest Tax Repurchase of 871,383 shares of Class D Common
Stock in the amount of approximately $1.7 million at an average price of $1.94 per share.
Stock Option and Restricted Stock
Grant Plan
Our
2009 stock option and restricted stock plan (the “2009 Stock Plan”) was originally approved by the stockholders at
the Company’s annual meeting on December 16, 2009. The Company had the authority to issue up to 8,250,000 shares
of Class D Common Stock under the 2009 Stock Plan. Since its original approval, from time to time, the Board of Directors
adopted and, as required, our stockholders approved certain amendments to and restatement of the 2009 Stock Plan (the “Amended
and Restated 2009 Stock Plan”). The amendments under the Amended and Restated 2009 Stock Plan primarily affected (i) the
number of shares with respect to which options and restricted stock grants may be granted under the 2009 Stock Plan and (ii) the
maximum number of shares that can be awarded to any individual in any one calendar year. On April 13, 2015, the Board of Directors
adopted, and our stockholders approved on June 2, 2015, an amendment that replenished the authorized plan shares, increasing the
number of shares of Class D common stock available for grant back up to 8,250,000 shares. Our new stock option and restricted stock
plan (“2019 Equity and Performance Incentive Plan”), currently in effect was approved by the stockholders at the Company’s
annual meeting on May 21, 2019. The Board of Directors adopted, and on May 21, 2019, our stockholders approved, the
2019 Equity and Performance Incentive Plan which is funded with 5,500,000 shares of Class D Common Stock. The Company uses an average
life for all option awards. The Company settles stock options upon exercise by issuing stock. As of September 30, 2020, 690,336
shares of Class D common stock were available for grant under the 2019 Equity and Performance Incentive Plan.
On August 7, 2017,
the Compensation Committee (“Compensation Committee”) of the Board of Directors of the Company awarded Catherine Hughes,
Chairperson, 474,609 restricted shares of the Company’s Class D common stock, and stock options to purchase 210,937 shares
of the Company’s Class D common stock. The grants were effective January 5, 2018, and vested on January 5, 2019.
On June 12, 2019,
the Compensation Committee awarded Catherine Hughes, Chairperson, 393,685 restricted shares of the Company’s Class D common
stock, and stock options to purchase 174,971 shares of the Company’s Class D common stock. The grants were effective July
5, 2019 and vested on January 6, 2020.
On June 12, 2019,
the Compensation Committee awarded Catherine Hughes, Chairperson, 427,148 restricted shares of the Company’s Class D common
stock, and stock options to purchase 189,843 shares of the Company’s Class D common stock. The grants were effective June
5, 2020 and will vest on January 6, 2021.
On August 7, 2017,
the Compensation Committee awarded Alfred Liggins, Chief Executive Officer and President, 791,015 restricted shares of the Company’s
Class D common stock, and stock options to purchase 351,562 shares of the Company’s Class D common stock. The grants were
effective January 5, 2018, and vested on January 5, 2019.
On June 12, 2019,
the Compensation Committee awarded Alfred Liggins, Chief Executive Officer and President, 656,142 restricted shares of the Company’s
Class D common stock, and stock options to purchase 291,619 shares of the Company’s Class D common stock. The grants were
effective July 5, 2019 and vested on January 6, 2020.
On June 12, 2019,
the Compensation Committee awarded Alfred Liggins, Chief Executive Officer and President, 711,914 restricted shares of the Company’s
Class D common stock, and stock options to purchase 316,406 shares of the Company’s Class D common stock. The grants were
effective June 5, 2020 and will vest on January 6, 2021.
On August 7, 2017,
the Compensation Committee awarded Peter Thompson, Chief Financial Officer, 270,833 restricted shares of the Company’s Class
D common stock, and stock options to purchase 120,370 shares of the Company’s Class D common stock. The grants were effective
January 5, 2018, and vested on January 5, 2019.
On June 12,
2019, the Compensation Committee awarded Peter Thompson, Chief Financial Officer, 224,654 restricted shares of the Company’s
Class D common stock, and stock options to purchase 99,846 shares of the Company’s Class D common stock. The grants were
effective July 5, 2019 and vested on January 6, 2020.
On June 12, 2019,
the Compensation Committee awarded Peter Thompson, Chief Financial Officer, 243,750 restricted shares of the Company’s Class
D common stock, and stock options to purchase 108,333 shares of the Company’s Class D common stock. The grants were effective
June 5, 2020 and will vest on January 6, 2021.
On August 7, 2017,
the Compensation Committee awarded 575,262 shares of restricted stock and 470,000 stock options to certain employees pursuant to
the Company’s long-term incentive plan. The grants were effective August 7, 2017. 470,000 shares of restricted stock and
470,000 stock options have vested or will vest in three installments, with the first installment of 33% having vested on January
5, 2018, and the second installment having vested on January 5, 2019, and the remaining installment vesting on January 5, 2020.
On October 2, 2017,
Karen Wishart, our current Chief Administrative Officer, as part of her employment agreement, received an equity grant of 37,500
shares of the Company's Class D common stock as well as a grant of options to purchase 37,500 shares of the Company's Class D common
stock. The grants have vested or vest in equal increments on each of October 2, 2018, October 2, 2019 and October 2, 2020.
On June 12, 2019,
the Compensation Committee awarded David Kantor, Chief Executive Officer – Radio Division, 195,242 restricted shares of the
Company’s Class D common stock, and stock options to purchase 86,774 shares of the Company’s Class D common stock.
The grants were effective July 5, 2019 and vested on January 6, 2020.
On June 12, 2019,
the Compensation Committee awarded David Kantor, Chief Executive Officer – Radio Division, 211,838 restricted shares of the
Company’s Class D common stock, and stock options to purchase 94,150 shares of the Company’s Class D common stock.
The grants were effective June 5, 2020 and will vest on January 6, 2021.
Pursuant to the terms
of each of our stock plans and subject to the Company’s insider trading policy, a portion of each recipient’s vested
shares may be sold in the open market for tax purposes on or about the vesting dates.
Stock-based
compensation expense for the three months ended September 30, 2020 and 2019, was $794,000 and approximately $1.9 million, respectively,
and for the nine months ended September 30, 2020 and 2019, was approximately $1.5 million and $2.6 million, respectively.
There were no stock
options granted during the three months ended September 30, 2020 and there were 708,732 stock options granted during the nine months
ended September 30, 2020. The Company granted 653,210 stock options during the three and nine months ended September 30, 2019.
Transactions and
other information relating to stock options for the nine months ended September 30, 2020, are summarized below:
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term (In
Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2019
|
|
|
4,197,000
|
|
|
$
|
2.13
|
|
|
|
6.70
|
|
|
$
|
255,000
|
|
Grants
|
|
|
709,000
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
1,033,000
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired/settled
|
|
|
24,000
|
|
|
$
|
3.17
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020
|
|
|
3,849,000
|
|
|
$
|
2.16
|
|
|
|
6.59
|
|
|
$
|
34,000
|
|
Vested and expected to vest at September 30, 2020
|
|
|
3,815,000
|
|
|
$
|
2.12
|
|
|
|
6.56
|
|
|
$
|
34,000
|
|
Unvested at September 30, 2020
|
|
|
726,000
|
|
|
$
|
2.00
|
|
|
|
9.61
|
|
|
$
|
—
|
|
Exercisable at September 30, 2020
|
|
|
3,123,000
|
|
|
$
|
2.19
|
|
|
|
5.89
|
|
|
$
|
34,000
|
|
The aggregate intrinsic
value in the table above represents the difference between the Company’s stock closing price on the last day of trading during
the nine months ended September 30, 2020, and the exercise price, multiplied by the number of shares that would have been received
by the holders of in-the-money options had all the option holders exercised their options on September 30, 2020. This amount changes
based on the fair market value of the Company’s stock.
There were no options
exercised during the three months ended September 30, 2020 and there were 1,032,922 options exercised during the nine months ended
September 30, 2020. There were no options exercised during the three months ended September 30, 2019 and there were 15,000 options
exercised during the nine months ended September 30, 2019. No options vested during the three months ended September 30, 2020 and
624,770 options vested during the nine months ended September 30, 2020. No options vested during the three months ended September
30, 2019 and 834,530 options vested during the nine months ended September 30, 2019.
As of September 30,
2020, $135,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average
period of three months. The weighted-average fair value per share of shares underlying stock options was $1.39 at September 30,
2020.
The Company did not
grant restricted stock during the three months ended September 30, 2020 and granted 1,649,394 shares of restricted stock during
the nine months ended September 30, 2020. Each of the three non-executive directors received 18,248 shares of restricted stock
or $50,000 worth of restricted stock based upon the closing price of the Company’s Class D common stock on June 16, 2020. The
Company granted 1,499,723 shares of restricted stock during the three months ended September 30, 2019 and granted 2,379,962 shares
of restricted stock during the nine months ended September 30, 2019. Each of the four non-executive directors received 25,000 shares
of restricted stock or $50,000 worth of restricted stock based upon the closing price of the Company’s Class D common stock
on June 17, 2019.
Transactions and other
information relating to restricted stock grants for the nine months ended September 30, 2020, are summarized below:
|
|
Shares
|
|
|
Average
Fair Value
at Grant
Date
|
|
Unvested at December 31, 2019
|
|
|
1,814,000
|
|
|
$
|
2.14
|
|
Grants
|
|
|
1,649,000
|
|
|
$
|
1.02
|
|
Vested
|
|
|
(1,727,000
|
)
|
|
$
|
2.14
|
|
Forfeited/cancelled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Unvested at September 30, 2020
|
|
|
1,736,000
|
|
|
$
|
1.07
|
|
Restricted stock grants
were and are included in the Company’s outstanding share numbers on the effective date of grant. As of September 30, 2020,
approximately $1.0 million of total unrecognized compensation cost related to restricted stock grants is expected to be recognized
over the weighted-average period of four months.
The Company has four
reportable segments: (i) radio broadcasting; (ii) Reach Media; (iii) digital; and (iv) cable television. These 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 results of operations. The Reach Media segment consists of the results of operations for the
related activities and operations of our syndicated shows. The digital segment includes the results of our online business, including
the operations of Interactive One, as well as the digital components of our other reportable segments. The cable television segment
consists of the Company’s cable TV operation, including TV One’s and CLEO TV’s results of operations. Corporate/Eliminations
represents financial activity associated with our corporate staff and offices and intercompany activity among the four segments.
Operating loss or
income represents total revenues less operating expenses, depreciation and amortization, and impairment of long-lived assets. Intercompany
revenue earned and expenses charged between segments are recorded at estimated fair value and eliminated in consolidation.
The accounting policies
described in the summary of significant accounting policies in Note 1 – Organization and Summary of Significant Accounting
Policies are applied consistently across the segments.
Detailed segment data
for the three and nine months ended September 30, 2020 and 2019, is presented in the following tables:
|
|
Three Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
31,645
|
|
|
$
|
46,467
|
|
Reach Media
|
|
|
7,751
|
|
|
|
10,917
|
|
Digital
|
|
|
8,451
|
|
|
|
8,170
|
|
Cable Television
|
|
|
44,746
|
|
|
|
45,981
|
|
Corporate/Eliminations*
|
|
|
(681
|
)
|
|
|
(480
|
)
|
Consolidated
|
|
$
|
91,912
|
|
|
$
|
111,055
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock-based compensation and excluding depreciation and amortization and impairment of long-lived assets):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
20,368
|
|
|
$
|
29,776
|
|
Reach Media
|
|
|
4,632
|
|
|
|
9,011
|
|
Digital
|
|
|
6,860
|
|
|
|
7,530
|
|
Cable Television
|
|
|
18,420
|
|
|
|
23,921
|
|
Corporate/Eliminations
|
|
|
6,125
|
|
|
|
7,107
|
|
Consolidated
|
|
$
|
56,405
|
|
|
$
|
77,345
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
759
|
|
|
$
|
791
|
|
Reach Media
|
|
|
59
|
|
|
|
60
|
|
Digital
|
|
|
483
|
|
|
|
474
|
|
Cable Television
|
|
|
934
|
|
|
|
953
|
|
Corporate/Eliminations
|
|
|
254
|
|
|
|
315
|
|
Consolidated
|
|
$
|
2,489
|
|
|
$
|
2,593
|
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
29,050
|
|
|
$
|
—
|
|
Reach Media
|
|
|
—
|
|
|
|
—
|
|
Digital
|
|
|
—
|
|
|
|
—
|
|
Cable Television
|
|
|
—
|
|
|
|
—
|
|
Corporate/Eliminations
|
|
|
—
|
|
|
|
—
|
|
Consolidated
|
|
$
|
29,050
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
(18,532
|
)
|
|
$
|
15,900
|
|
Reach Media
|
|
|
3,060
|
|
|
|
1,846
|
|
Digital
|
|
|
1,108
|
|
|
|
166
|
|
Cable Television
|
|
|
25,392
|
|
|
|
21,107
|
|
Corporate/Eliminations
|
|
|
(7,060
|
)
|
|
|
(7,902
|
)
|
Consolidated
|
|
$
|
3,968
|
|
|
$
|
31,117
|
|
* Intercompany revenue included in net revenue above is as follows:
Radio Broadcasting
|
|
$
|
(681
|
)
|
|
$
|
(480
|
)
|
Capital expenditures by segment are as follows:
Radio Broadcasting
|
|
$
|
306
|
|
|
$
|
1,406
|
|
Reach Media
|
|
|
9
|
|
|
|
31
|
|
Digital
|
|
|
180
|
|
|
|
348
|
|
Cable Television
|
|
|
8
|
|
|
|
15
|
|
Corporate/Eliminations
|
|
|
23
|
|
|
|
37
|
|
Consolidated
|
|
$
|
526
|
|
|
$
|
1,837
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
87,066
|
|
|
$
|
132,528
|
|
Reach Media
|
|
|
20,709
|
|
|
|
36,660
|
|
Digital
|
|
|
20,844
|
|
|
|
23,280
|
|
Cable Television
|
|
|
136,003
|
|
|
|
140,234
|
|
Corporate/Eliminations*
|
|
|
(1,827
|
)
|
|
|
(1,627
|
)
|
Consolidated
|
|
$
|
262,795
|
|
|
$
|
331,075
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock-based compensation and excluding depreciation and amortization and impairment of long-lived assets):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
67,373
|
|
|
$
|
89,142
|
|
Reach Media
|
|
|
15,468
|
|
|
|
30,955
|
|
Digital
|
|
|
19,778
|
|
|
|
22,310
|
|
Cable Television
|
|
|
55,772
|
|
|
|
75,284
|
|
Corporate/Eliminations
|
|
|
17,222
|
|
|
|
20,099
|
|
Consolidated
|
|
$
|
175,613
|
|
|
$
|
237,790
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
2,266
|
|
|
$
|
2,510
|
|
Reach Media
|
|
|
178
|
|
|
|
178
|
|
Digital
|
|
|
1,248
|
|
|
|
1,395
|
|
Cable Television
|
|
|
2,817
|
|
|
|
9,430
|
|
Corporate/Eliminations
|
|
|
910
|
|
|
|
938
|
|
Consolidated
|
|
$
|
7,419
|
|
|
$
|
14,451
|
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
82,700
|
|
|
$
|
3,800
|
|
Reach Media
|
|
|
—
|
|
|
|
—
|
|
Digital
|
|
|
—
|
|
|
|
—
|
|
Cable Television
|
|
|
—
|
|
|
|
—
|
|
Corporate/Eliminations
|
|
|
—
|
|
|
|
—
|
|
Consolidated
|
|
$
|
82,700
|
|
|
$
|
3,800
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
(65,273
|
)
|
|
$
|
37,076
|
|
Reach Media
|
|
|
5,063
|
|
|
|
5,527
|
|
Digital
|
|
|
(182
|
)
|
|
|
(425
|
)
|
Cable Television
|
|
|
77,414
|
|
|
|
55,520
|
|
Corporate/Eliminations
|
|
|
(19,959
|
)
|
|
|
(22,664
|
)
|
Consolidated
|
|
$
|
(2,937
|
)
|
|
$
|
75,034
|
|
* Intercompany revenue included in net revenue above is as follows:
Radio Broadcasting
|
|
$
|
(1,827
|
)
|
|
$
|
(1,627
|
)
|
Capital expenditures by segment are as follows:
Radio Broadcasting
|
|
$
|
1,826
|
|
|
$
|
2,269
|
|
Reach Media
|
|
|
75
|
|
|
|
97
|
|
Digital
|
|
|
616
|
|
|
|
1,066
|
|
Cable Television
|
|
|
72
|
|
|
|
173
|
|
Corporate/Eliminations
|
|
|
587
|
|
|
|
342
|
|
Consolidated
|
|
$
|
3,176
|
|
|
$
|
3,947
|
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
628,195
|
|
|
$
|
721,295
|
|
Reach Media
|
|
|
44,829
|
|
|
|
41,892
|
|
Digital
|
|
|
19,553
|
|
|
|
22,223
|
|
Cable Television
|
|
|
383,782
|
|
|
|
388,465
|
|
Corporate/Eliminations
|
|
|
134,178
|
|
|
|
76,044
|
|
Consolidated
|
|
$
|
1,210,537
|
|
|
$
|
1,249,919
|
|
|
8.
|
COMMITMENTS AND CONTINGENCIES:
|
Royalty Agreements
Musical
works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations,
such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”)
and SESAC, Inc. (“SESAC”). The market for rights relating to musical works is changing rapidly. Songwriters
and music publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities,
such as Global Music Rights, Inc. (“GMR”), have been formed to represent rights holders. These organizations negotiate
fees with copyright users, collect royalties and distribute them to the rights holders. We currently have arrangements
with ASCAP, SESAC and GMR. On April 22, 2020, the Radio Music License Committee (“RMLC”), an industry group which the
Company is a part of, and BMI have reached agreement on the terms of a new license agreement that covers the period January 1,
2017, through December 31, 2021. Upon approval of the court of the BMI/RMLC agreement, the Company automatically became a party
to the agreement and a license through December 31, 2021.
Other Contingencies
The
Company has been named as a defendant in several legal actions arising in the ordinary course of business. It is management’s
opinion, after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on
the Company’s financial position or results of operations.
Off-Balance Sheet Arrangements
On February 24, 2015,
the Company entered into a letter of credit reimbursement and security agreement. On October 8, 2019, the Company entered into
an amendment to its letter of credit reimbursement and security agreement and extended the term to October 8, 2024. As of September
30, 2020, the Company had letters of credit totaling $871,000 under the agreement for certain operating leases and certain insurance
policies. Letters of credit issued under the agreement are required to be collateralized with cash.
Noncontrolling Interest Shareholders’ Put Rights
Beginning on January
1, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to purchase all
or a portion of their shares at the then current fair market value for such shares (the “Put Right”). This
annual right is exercisable for a 30-day period beginning January 1 of each year. The purchase price for such shares may be paid
in cash and/or registered Class D common stock of Urban One, at the discretion of Urban One. The noncontrolling interest shareholders
of Reach Media did not exercise their Put Right for the 30-day period ending January 30, 2020. Management, at this time, cannot
reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.
On
October 2, 2020, the Company announced the launch of an offer to eligible holders of its 7.375% Senior Secured Notes due 2022 (the
“Existing Notes”) to exchange (the “Exchange Offer”) any and all of their Existing Notes for newly issued
8.75% Senior Secured Notes due 2022 (the “New Notes”). The New Notes are secured (i) on a first priority basis by substantially
all of the Company’s and certain subsidiary guarantors’ current and future property and assets other than certain property
and assets securing the Company’s asset-backed revolving credit facility (such property and assets, “ABL Priority Collateral”)
and (ii) on a second priority basis by the ABL Priority Collateral. Eligible holders who validly tendered and did not validly withdraw
their Existing Notes in the Exchange Offer prior to 5:00 p.m., New York City time, on October 16, 2020, were eligible to receive
$1,000 in principal amount of New Notes plus $10.00 in cash per $1,000 principal amount of Existing Notes. For any Existing Notes
validly tendered after the Early Tender Date but before 11:59 p.m., New York City time, on October 30, 2020, were eligible to receive
$1,000 in principal amount of New Notes plus $5.00 in cash per $1,000 principal amount of Existing Notes. The New Notes were offered
to provide the Company with additional financial flexibility as the New Notes mature eight months after the Existing Notes are
scheduled to mature. The New Notes will mature on December 15, 2022.
In
connection with the Exchange Offer, the Company also entered into an amendment to certain terms of its Unsecured Term Loan, dated
December 4, 2018, by and among the Company, the Lenders party thereto from time to time and Wilmington Trust, National Association,
as Administrative Agent (the “2018 Credit Facility”), including the extension of the maturity date by 90 days which
maturity is more than 90 days after the maturity date of the New Notes.
In
conjunction with the Exchange Offer, the Company also solicited consents (the “Consent Solicitation”) from holders
of the Existing Notes (the “Consents”) to certain proposed amendments to the indenture governing the Existing Notes
(the “Existing Notes Indenture”), by and among the Company, the guarantors party thereto, Wilmington Trust National
Association, as trustee and as collateral agent, to eliminate substantially all of the restrictive covenants and certain of the
default provisions contained in the Existing Notes Indenture and to enter into a new intercreditor agreement among the Company,
the trustee for the New Notes, the trustee for the Existing Notes, the collateral agent for the New Notes and the collateral agent
for the Existing Notes (collectively, the “Proposed Amendments”).
The
consummation of the Exchange Offer and Consent Solicitation was subject to customary conditions, including the receipt of Consents
from at least 90% of the eligible holders and the satisfaction or waiver of other conditions set forth in the offering memorandum
and consent solicitation statement prepared by the Company in connection with the Exchange Offer and Consent Solicitation.
On October 19, 2020,
the Company announced the early tender results of the Exchange Offer. Based on the early tenders as of 5:00 p.m. on the Early Tender
Date, eligible holders had validly tendered and not validly withdrawn $347.0 million aggregate principal amount, representing 99.15%
of the outstanding principal amount, of the Existing Notes in the Exchange Offer and Consent Solicitation.
As of the expiration
date, October 30, 2020, an aggregate of $347.0 million principal amount of Existing Notes were validly tendered and not validly
withdrawn. Eligible holders who validly tendered and did not validly withdraw their Existing Notes received the early participation
payments and accrued and unpaid interest in cash on their Existing Notes accepted for exchange to, but not including, the Settlement
Date for the Exchange Offer. In connection with the settlement of the Exchange Offer and Consent Solicitation, on November 9, 2020,
the Company issued $347,016,000 aggregate principal amount of the New Notes.
Further information
concerning the Exchange Offer and the results can be found in the Current Reports on Form 8-K dated October 2, 2020, October 19,
2020, and November 9, 2020, as on file with the SEC.
On October 30, 2020,
we entered into a local marketing agreement (“LMA”) with Southeastern Ohio Broadcasting System for the operation of
station WWCD-FM in Columbus, Ohio beginning November 2020. Under the terms of the LMA, we will pay a monthly fee as well as certain
operating costs, and, in exchange, we will retain all revenues from the sale of the advertising within the programming.
On November 6, 2020,
the Company announced it had signed a definitive asset exchange agreement with Entercom Communications Corp. where the Company
will receive Charlotte stations: WLNK-FM (Adult Contemporary); WBT-AM & FM (News Talk Radio); and WFNZ-AM & 102.5 FM Translator
(Sports Radio). As part of the transaction, Urban One will transfer three radio stations to Entercom: St. Louis, WHHL-FM (Urban
Contemporary); Philadelphia, WPHI-FM (Urban Contemporary); and Washington, DC, WTEM-AM (flagship station of the Washington Football
Team); as well as the intellectual property its St. Louis radio station, WFUN-FM (Adult Urban Contemporary). The
Company and Entercom will begin operation of the exchanged stations on or about November 23, 2020 under LMAs until FCC approval
is obtained. The deal is subject to FCC approval and other customary closing conditions and is expected to close in the
first quarter of 2021. In addition, we have entered into an asset purchase agreement with Gateway Creative Broadcasting, Inc.
for the remaining assets of our WFUN station.