The accompanying notes are an integral part
of these consolidated financial statements.
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In
thousands, except share data)
|
|
NET REVENUE
|
|
$
|
376,337
|
|
|
$
|
436,929
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Programming and technical, including stock-based
compensation of $20 and $78, respectively
|
|
|
103,833
|
|
|
|
128,804
|
|
Selling, general and administrative, including
stock-based compensation of $413 and $759, respectively
|
|
|
109,046
|
|
|
|
152,550
|
|
Corporate selling, general and administrative,
including stock-based compensation of $1,861 and $3,947, respectively
|
|
|
37,721
|
|
|
|
40,894
|
|
Depreciation and amortization
|
|
|
9,741
|
|
|
|
16,985
|
|
Impairment of long-lived
assets
|
|
|
84,400
|
|
|
|
10,600
|
|
Total operating
expenses
|
|
|
344,741
|
|
|
|
349,833
|
|
Operating income
|
|
|
31,596
|
|
|
|
87,096
|
|
INTEREST INCOME
|
|
|
213
|
|
|
|
150
|
|
INTEREST EXPENSE
|
|
|
74,507
|
|
|
|
81,400
|
|
LOSS ON RETIREMENT OF DEBT
|
|
|
2,894
|
|
|
|
—
|
|
OTHER INCOME,
net
|
|
|
(4,547
|
)
|
|
|
(7,075
|
)
|
(Loss) income before (benefit from) provision
for income taxes and noncontrolling interests in income of subsidiaries
|
|
|
(41,045
|
)
|
|
|
12,921
|
|
(BENEFIT FROM)
PROVISION FOR INCOME TAXES
|
|
|
(34,476
|
)
|
|
|
10,864
|
|
CONSOLIDATED NET (LOSS) INCOME
|
|
|
(6,569
|
)
|
|
|
2,057
|
|
NET INCOME ATTRIBUTABLE
TO NONCONTROLLING INTERESTS
|
|
|
1,544
|
|
|
|
1,132
|
|
CONSOLIDATED
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
(8,113
|
)
|
|
$
|
925
|
|
|
|
|
|
|
|
|
|
|
BASIC NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
Net (loss)
income attributable to common stockholders
|
|
$
|
(0.18
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
|
|
|
|
|
|
|
|
|
Net (loss)
income attributable to common stockholders
|
|
$
|
(0.18
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,041,467
|
|
|
|
44,699,586
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,041,467
|
|
|
|
47,921,671
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS) INCOME
|
|
For
The Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In
thousands)
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
$
|
(6,569
|
)
|
|
$
|
2,057
|
|
LESS: COMPREHENSIVE
INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
|
|
1,544
|
|
|
|
1,132
|
|
COMPREHENSIVE
(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
(8,113
|
)
|
|
$
|
925
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
URBAN ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For The Years Ended December 31,
2019 and 2020
|
|
Convertible
Preferred
Stock
|
|
|
Common
Stock
Class A
|
|
|
Common
Stock
Class B
|
|
|
Common
Stock
Class C
|
|
|
Common
Stock
Class D
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Equity
|
|
|
|
(In
thousands, except share data)
|
|
BALANCE, as of December 31,
2018
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
$
|
978,628
|
|
|
$
|
(803,534
|
)
|
|
$
|
175,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
925
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
4,782
|
|
|
|
—
|
|
|
|
4,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 978,844 shares of Class D common
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,108
|
|
|
|
—
|
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 54,896 shares of Class A
common stock and repurchase of 2,667,210 shares of Class D common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(5,513
|
)
|
|
|
—
|
|
|
|
(5,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options for 15,000 shares of common
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC 842
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,803
|
|
|
|
5,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of redeemable
noncontrolling interests to estimated redemption value
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, as of December 31, 2019
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
$
|
979,834
|
|
|
$
|
(796,806
|
)
|
|
$
|
183,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,113
|
)
|
|
|
(8,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,294
|
|
|
|
—
|
|
|
|
2,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 2,859,276 shares of Class A
common stock
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,671
|
|
|
|
—
|
|
|
|
14,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 3,919,280 shares of Class D
common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(3,609
|
)
|
|
|
—
|
|
|
|
(3,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options for 1,032,922 shares of
common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1,974
|
|
|
|
—
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of redeemable
noncontrolling interests to estimated redemption value
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,395
|
)
|
|
|
—
|
|
|
|
(3,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, as of
December 31, 2020
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
38
|
|
|
$
|
991,769
|
|
|
$
|
(804,919
|
)
|
|
$
|
186,898
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
URBAN ONE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income
|
|
$
|
(6,569)
|
|
|
$
|
2,057
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile consolidated net (loss) income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,741
|
|
|
|
16,985
|
|
Amortization of debt financing costs
|
|
|
4,465
|
|
|
|
3,895
|
|
Amortization of content assets
|
|
|
37,394
|
|
|
|
48,283
|
|
Amortization of launch assets
|
|
|
1,079
|
|
|
|
1,027
|
|
Amortization of right of use assets
|
|
|
7,940
|
|
|
|
6,991
|
|
Bad debt expense
|
|
|
1,394
|
|
|
|
1,370
|
|
Deferred income taxes
|
|
|
(34,601
|
)
|
|
|
10,269
|
|
Non-cash interest expense
|
|
|
2,191
|
|
|
|
2,033
|
|
Non-cash lease liability expense
|
|
|
5,492
|
|
|
|
5,682
|
|
Impairment of long-lived assets
|
|
|
84,400
|
|
|
|
10,600
|
|
Stock-based compensation
|
|
|
2,294
|
|
|
|
4,784
|
|
Non-cash fair value adjustment of Employment Agreement Award
|
|
|
2,271
|
|
|
|
4,948
|
|
|
|
|
|
|
|
|
|
|
Effect of change in operating assets and liabilities, net of assets acquired and disposed of:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(1,542
|
)
|
|
|
2,836
|
|
Prepaid expenses and other current assets
|
|
|
(255
|
)
|
|
|
(4,280
|
)
|
Other assets
|
|
|
(9,846
|
)
|
|
|
(5,695
|
)
|
Accounts payable
|
|
|
5,216
|
|
|
|
(1,412
|
)
|
Accrued interest
|
|
|
(1,077
|
)
|
|
|
2,207
|
|
Accrued compensation and related benefits
|
|
|
1,399
|
|
|
|
(4,130
|
)
|
Other liabilities
|
|
|
(5,378
|
)
|
|
|
(4,495
|
)
|
Payments for content assets
|
|
|
(32,141
|
)
|
|
|
(45,450
|
)
|
Net cash flows provided by operating activities
|
|
|
73,867
|
|
|
|
58,505
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,798
|
)
|
|
|
(5,145
|
)
|
Proceeds from sale of radio station
|
|
|
—
|
|
|
|
13,500
|
|
Proceeds from sale of property and equipment
|
|
|
860
|
|
|
|
—
|
|
Acquisition of broadcasting assets
|
|
|
(475
|
)
|
|
|
—
|
|
Net cash flows (used in) provided by investing activities
|
|
|
(3,413
|
)
|
|
|
8,355
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Class A common stock, net of fees
|
|
|
14,673
|
|
|
|
—
|
|
Proceeds from MGM National Harbor Loan
|
|
|
3,600
|
|
|
|
—
|
|
Repayment of Comcast Note
|
|
|
—
|
|
|
|
(11,872
|
)
|
Distribution of contingent consideration
|
|
|
—
|
|
|
|
(658
|
)
|
Proceeds from exercise of stock options
|
|
|
1,976
|
|
|
|
29
|
|
Repayment of 2020 Notes
|
|
|
—
|
|
|
|
(2,037
|
)
|
Payment of dividends to noncontrolling interest members of Reach Media
|
|
|
(2,802
|
)
|
|
|
(1,000
|
)
|
Debt refinancing costs
|
|
|
(3,470
|
)
|
|
|
—
|
|
Repayment of 2018 Credit Facility
|
|
|
(37,210
|
)
|
|
|
(24,854
|
)
|
Repayment of 2017 Credit Facility
|
|
|
(3,297
|
)
|
|
|
(3,297
|
)
|
Repurchase of common stock
|
|
|
(3,612
|
)
|
|
|
(5,515
|
)
|
Net cash flows used in financing activities
|
|
|
(30,142
|
)
|
|
|
(49,204
|
)
|
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
40,312
|
|
|
|
17,656
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year
|
|
|
33,546
|
|
|
|
15,890
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
|
|
$
|
73,858
|
|
|
$
|
33,546
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
68,927
|
|
|
$
|
73,255
|
|
Income taxes, net of refunds
|
|
$
|
115
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
NON-CASH OPERATING, FINANCING AND INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Right of use asset additions upon adoption of ASC 842
|
|
$
|
—
|
|
|
$
|
49,803
|
|
Lease liability additions upon adoption of ASC 842
|
|
$
|
—
|
|
|
$
|
54,113
|
|
Right of use asset and lease liability additions
|
|
$
|
6,660
|
|
|
$
|
1,300
|
|
Issuance of common stock
|
|
$
|
—
|
|
|
$
|
2,108
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
URBAN ONE, INC. AND SUBSIDIARIES
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
1. ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization
Urban One, Inc.,
a Delaware corporation, and its subsidiaries, (collectively, “Urban One,” the “Company”, “we”,
“our” and/or “us”) 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 December 31, 2020, we owned and/or operated 63 independently formatted,
revenue producing broadcast stations (including 54 FM or AM stations, 7 HD stations, and the 2 low power television stations we
operate) located in 13 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 Get Up! Mornings with Erica Campbell Show, 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 15 – Segment Information.)
(b) Basis of Presentation
The consolidated financial
statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
and require management to make certain estimates and assumptions. These estimates and assumptions may affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. The
Company bases these estimates on historical experience, current economic environment or various other assumptions that are believed
to be reasonable under the circumstances. However, continuing economic uncertainty and any disruption in financial markets
increase the possibility that actual results may differ from these estimates.
(c) Principles of Consolidation
The consolidated financial
statements include the accounts and operations of Urban One and subsidiaries in which Urban One has a controlling financial interest,
which is generally determined when the Company holds a majority voting interest. All significant intercompany accounts and transactions
have been eliminated in consolidation. Noncontrolling interests have been recognized where a controlling interest exists, but the
Company owns less than 100% of the controlled entity.
(d) Cash and Cash Equivalents
Cash and cash equivalents
consist of cash and money market funds at various commercial banks that have original maturities of 90 days or less. Investments
with contractual maturities of 90 days or less from the date of original purchase are classified as cash and cash equivalents.
For cash and cash equivalents, cost approximates fair value.
(e) Trade Accounts Receivable
Trade accounts receivable
are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s estimate of the amount of probable
losses in the Company’s existing accounts receivable portfolio. The Company determines the allowance based on the aging of
the receivables, the impact of economic conditions on the advertisers’ ability to pay and other factors. Inactive delinquent
accounts that are past due beyond a certain amount of days are written off and often pursued by other collection efforts. Bankruptcy
accounts are immediately written off upon receipt of the bankruptcy notice from the courts.
(f) Goodwill and Indefinite-Lived
Intangible Assets (Primarily Radio Broadcasting Licenses)
In connection with
past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other
intangible assets. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible
net assets acquired. In accordance with Accounting Standards Codification (“ASC”) 350, “Intangibles - Goodwill
and Other,” goodwill and other indefinite-lived intangible assets are not amortized, but are tested annually for impairment
at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on October 1 of each
year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Radio
broadcasting license impairment exists when the asset carrying values exceed their respective fair values, and the excess is then
recorded to operations as an impairment charge. With the assistance of a third-party valuation firm, we test for radio broadcasting
license impairment at the unit of accounting level using the income approach, which involves, but is not limited to, judgmental
estimates and assumptions about projected revenue growth, future operating margins, discount rates and terminal values. In testing
for goodwill impairment, we also rely primarily on the income approach that estimates the fair value of the reporting unit. We
then perform a market-based analysis by comparing the average implied multiple arrived at based on our cash flow projections and
estimated fair values to multiples for actual recently completed sale transactions and by comparing the total of the estimated
fair values of our reporting units to the market capitalization of the Company. We recognize an impairment charge to operations
in the amount that the reporting unit’s carrying value exceeds its fair value. The impairment charge recognized cannot exceed
the total amount of goodwill allocated to the reporting unit.
(g) Impairment of Long-Lived
Assets, Excluding Goodwill and Indefinite-Lived Intangible Assets
The Company accounts
for the impairment of long-lived intangible assets, excluding goodwill and other indefinite-lived intangible assets, in accordance
with ASC 360, “Property, Plant and Equipment.” Long-lived intangible assets, excluding goodwill and other indefinite-lived
intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration
in operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present,
the Company evaluates recoverability by a comparison of the carrying amount of the asset or group of assets to future undiscounted
net cash flows expected to be generated by the asset or group of assets. Assets are grouped at the lowest levels for which there
are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired,
the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset or group of
assets. Fair value is generally determined by estimates of discounted future cash flows. The discount rate used in any estimate
of discounted cash flows would be the rate of return for a similar investment of like risk. The Company reviewed these long-lived
assets during 2020 and 2019 and concluded that no impairment to the carrying value of these assets was required.
(h) Financial Instruments
Financial instruments
as of December 31, 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 December 31, 2020 and December 31, 2019, except for the Company’s
long-term debt. The 7.375% Senior Secured Notes that are due in April 2022 (the “7.375% Notes”) had a carrying
value of approximately $3.0 million and fair value of approximately $2.8 million as of December 31, 2020. The 7.375% 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 7.375% 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. 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 $317.3 million and
fair value of approximately $293.5 million as of December 31, 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 $129.9 million and fair value of approximately $132.5 million as of December 31,
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 $57.9 million
and fair value of approximately $64.8 million as of December 31, 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. On November 9, 2020, we completed an exchange of 99.15% of our outstanding 7.375% Notes for $347.0 million
aggregate principal amount of newly issued 8.75% Senior Secured Notes due December 2022 (the “8.75% Notes”). As
of December 31, 2020, the 8.75% Notes had a carrying value of approximately $347.0 million and fair value of approximately
$338.0 million. There was no balance outstanding on the Company’s asset-backed credit facility (the “ABL Facility”)
as of December 31, 2020 and December 31, 2019. See Note 16 – Subsequent Events.
(i) Derivative Financial
Instruments
The Company recognizes
all derivatives at fair value in the consolidated balance sheet as either an asset or liability. The accounting for changes in
the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use
of the derivative and the resulting designation. (See Note 8 – Derivative Instruments.)
(j) Revenue Recognition
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
$17.5 million and $23.1 million for the years ended December 31, 2020 and 2019, respectively.
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 $14.6 million and $14.1 million for the years ended December 31, 2020 and 2019,
respectively.
Revenue by Contract Type
The following chart
shows our net revenue (and sources) for the years ended December 31, 2020 and 2019:
|
|
Year Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Advertising
|
|
$
|
137,849
|
|
|
$
|
193,318
|
|
Political Advertising
|
|
|
22,484
|
|
|
|
1,445
|
|
Digital Advertising
|
|
|
34,131
|
|
|
|
31,912
|
|
Cable Television Advertising
|
|
|
79,732
|
|
|
|
79,776
|
|
Cable Television Affiliate Fees
|
|
|
99,489
|
|
|
|
105,071
|
|
Event Revenues & Other
|
|
|
2,652
|
|
|
|
25,407
|
|
Net Revenue (as reported)
|
|
$
|
376,337
|
|
|
$
|
436,929
|
|
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 December 31, 2020 and 2019 were as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
(In thousands)
|
|
Contract assets:
|
|
|
|
|
|
|
|
|
Unbilled receivables
|
|
$
|
5,798
|
|
|
$
|
3,763
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
Customer advances and unearned income
|
|
$
|
4,955
|
|
|
$
|
3,048
|
|
Unearned event income
|
|
|
5,921
|
|
|
|
6,645
|
|
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 $2.3 million was recognized as revenue during the year ended December 31,
2020. For unearned event income as of January 1, 2020, there was no revenue recognized during the year ended December 31,
2020. For customer advances and unearned income as of January 1, 2019, approximately $2.7 million was recognized
as revenue during the year ended December 31, 2019. For unearned event income as of January 1, 2019, approximately
$3.9 million was recognized during the year ended December 31, 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.
(k) Launch Support
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. For the year
ended December 31, 2020, there was a non-cash launch support addition of approximately $1.7 million for carriage initiation
and the Company did not pay any launch support for carriage initiation during the year ended December 31, 2019. The weighted-average
amortization period for launch support was approximately 7.4 years as of December 31, 2020, and approximately 7.8 years as
of December 31, 2019. The remaining weighted-average amortization period for launch support was 4.5 years and 5.1 years as
of December 31, 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 years ended December 31, 2020 and 2019, launch support asset amortization of $422,000 and $422,000, respectively, was
recorded as a reduction of revenue, and $664,000 and $605,000, 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.
The
gross value and accumulated amortization of the launch assets is as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Launch assets
|
|
$
|
9,021
|
|
|
$
|
7,259
|
|
Less: Accumulated amortization
|
|
|
(3,124
|
)
|
|
|
(2,038
|
)
|
Launch assets, net
|
|
$
|
5,897
|
|
|
$
|
5,221
|
|
Future
estimated launch support amortization expense or revenue reduction related to launch assets for years 2021 through 2025 is as follows:
|
|
|
(In thousands)
|
|
2021
|
|
|
$
|
1,337
|
|
2022
|
|
|
$
|
1,337
|
|
2023
|
|
|
$
|
1,337
|
|
2024
|
|
|
$
|
1,337
|
|
2025
|
|
|
$
|
395
|
|
(l) Barter
Transactions
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 station operating expenses. The valuation of barter time is based
upon the fair value of the network advertising time provided for the programming content and services received. For the years ended
December 31, 2020 and 2019, barter transaction revenues were approximately $2.1 million and $2.1 million, respectively. Additionally,
for the years ended December 31, 2020 and 2019, barter transaction costs were reflected in programming and technical expenses
of approximately $1.5 million and $1.5 million, respectively, and selling, general and administrative expenses of approximately
$570,000 and $596,000, 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.
(m) Advertising and Promotions
The Company expenses
advertising and promotional costs as incurred. Total advertising and promotional expenses for the years ended December 31,
2020 and 2019, were approximately $15.5 million and $24.8 million, respectively.
(n) Income Taxes
The Company accounts
for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred
tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized into income in the period of enactment. Deferred income tax expense
or benefits are based upon the changes in the net deferred tax asset or liability from period to period.
The Company recognizes
deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a
determination, management considers all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management
determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount,
the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes. Conversely, if management determines that the Company would not be able to realize the recorded amount of deferred tax assets
in the future, the Company would make an adjustment to the deferred tax asset valuation allowance, which would increase the provision
for income taxes.
The Company records
uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it
is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for
those tax positions that meet the more likely than not recognition threshold, the Company recognizes the largest amount of tax
benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company
recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated
statements of operations. Accrued interest and penalties are included in other current liabilities on the consolidated balance
sheets.
(o) Stock-Based Compensation
The Company accounts
for stock-based compensation for stock options and restricted stock grants in accordance with ASC 718, “Compensation -
Stock Compensation.” Under the provisions of ASC 718, stock-based compensation cost for stock options is estimated at
the grant date based on the award’s fair value as calculated by the Black-Scholes valuation option-pricing model (“BSM”)
and is recognized as expense ratably over the requisite service period. The BSM incorporates various highly subjective
assumptions including expected stock price volatility, for which historical data is heavily relied upon, expected life of options
granted, forfeiture rates and interest rates. Compensation expense for restricted stock grants is measured based on the fair value
on the date of grant less estimated forfeitures. Compensation expense for restricted stock grants is recognized ratably during
the vesting period. (See Note 11 – Stockholders’ Equity.)
(p) Segment Reporting and Major
Customers
In accordance with
ASC 280, “Segment Reporting,” and given its diversification strategy, the Company has determined it has four
reportable segments: (i) radio broadcasting; (ii) Reach Media; (iii) digital; and (iv) cable television.
These four 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.
No single customer accounted for over 10% of our consolidated
net revenues or accounts receivable during either of the years ended December 31, 2020 or 2019.
(q) Earnings Per Share
Basic earnings per
share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of potential
dilutive 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 summarizes the potential common shares excluded from the
diluted calculation.
|
|
Year
Ended
December 31,
2020
|
|
|
|
(Unaudited)
(In thousands)
|
|
Stock options
|
|
|
4,019
|
|
Restricted stock awards
|
|
|
1,879
|
|
(r) 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 December 31,
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
|
|
|
|
(In thousands)
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (a)
|
|
$
|
780
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
780
|
|
Employment agreement award (b)
|
|
|
25,603
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,603
|
|
Total
|
|
$
|
26,383
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests (c)
|
|
$
|
12,701
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
(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). 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 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.
(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 years ended December 31, 2020 and 2019. The following table presents the changes
in Level 3 liabilities measured at fair value on a recurring basis for the years ended December 31, 2020 and 2019:
|
|
Contingent
Consideration
|
|
|
Employment
Agreement
Award
|
|
|
Redeemable
Noncontrolling
Interests
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2018
|
|
$
|
2,831
|
|
|
$
|
25,660
|
|
|
$
|
10,232
|
|
Net income attributable to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
1,132
|
|
Dividends paid to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,000
|
)
|
Distribution
|
|
|
(1,207
|
)
|
|
|
(3,591
|
)
|
|
|
—
|
|
Change in fair value
|
|
|
297
|
|
|
|
4,948
|
|
|
|
200
|
|
Balance at December 31, 2019
|
|
$
|
1,921
|
|
|
$
|
27,017
|
|
|
$
|
10,564
|
|
Net income attributable to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
1,544
|
|
Dividends paid to redeemable noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,802
|
)
|
Distribution
|
|
|
(1,188
|
)
|
|
|
(3,685
|
)
|
|
|
—
|
|
Change in fair value
|
|
|
47
|
|
|
|
2,271
|
|
|
|
3,395
|
|
Balance at December 31, 2020
|
|
$
|
780
|
|
|
$
|
25,603
|
|
|
$
|
12,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total income (losses) for the period included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at December 31, 2020
|
|
$
|
(47
|
)
|
|
$
|
(2,271
|
)
|
|
$
|
—
|
|
The amount of total income (losses) for the period included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at December 31, 2019
|
|
$
|
(297
|
)
|
|
$
|
(4,948
|
)
|
|
$
|
—
|
|
Losses and gains included in earnings were
recorded in the consolidated statements of operations as corporate selling, general and administrative expenses for the employment
agreement award and included as selling, general and administrative expenses for contingent consideration for the years ended December 31,
2020 and 2019.
For Level 3 assets
and liabilities measured at fair value on a recurring basis, the significant unobservable inputs used in the fair value measurements
were as follows:
|
|
Valuation
|
|
Significant
|
|
As of December 31,
2020
|
|
|
As of December 31,
2019
|
|
Level 3 liabilities
|
|
Technique
|
|
Unobservable Inputs
|
|
Significant Unobservable Input Value
|
|
Contingent consideration
|
|
Monte Carol Simulation
|
|
Expected volatility
|
|
|
29.5
|
%
|
|
|
20.8
|
%
|
Contingent consideration
|
|
Monte Carol Simulation
|
|
Discount Rate
|
|
|
16.5
|
%
|
|
|
14.5
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
10.5
|
%
|
|
|
10.0
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Long-term Growth Rate
|
|
|
1.0
|
%
|
|
|
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.
The Company recorded an impairment charge of approximately $84.4 million and $10.6 million for the years ended December 31,
2020 and 2019, respectively, related to goodwill and radio broadcasting licenses.
As
of December 31, 2020, the total recorded carrying values of goodwill and radio broadcasting licenses were approximately $223.4
million and $484.1 million, respectively. Pursuant to ASC 350, “Intangibles
– Goodwill and Other,” for the year ended December 31, 2020, the Company recorded an impairment
charge of approximately $15.9 million related to its Atlanta market and Indianapolis market goodwill balances and also an impairment
charge of approximately $68.5 million associated with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia,
Raleigh, Richmond and St. Louis market radio broadcasting licenses. For the year ended
December 31, 2019, the Company recorded impairment charges totaling approximately $4.8 million related to our Indianapolis
and Detroit radio broadcasting licenses and totaling approximately $5.8 million goodwill balances in our digital segment. A description
of the Level 3 inputs and the information used to develop the inputs is discussed in Note 4 — Goodwill, Radio Broadcasting
Licenses and Other Intangible Assets.
(s) Software and Web Development Costs
The Company capitalizes
direct internal and external costs incurred to develop internal-use computer software during the application development stage
pursuant to ASC 350-40, “Intangibles – Goodwill and Other.” Internal-use software is amortized under the
straight-line method using an estimated life of three years. All web development costs incurred in connection with operating our
websites are accounted for under the provisions of ASC 350-40 and ASC 350-50, “Website Development Costs”, unless
a plan exists or is being developed to market the software externally. The Company has no plans to market software externally.
(t) Redeemable noncontrolling interests
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.
(u) 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. The value of our MGM investment is included in other assets on the consolidated
balance sheets and its distribution income in the amount of approximately $4.9 million and $6.9 million, for the years ended December 31,
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. The Company reviewed the investment during 2020 and 2019 and concluded
that no impairment to the carrying value was required. As of December 31, 2020, the Company’s interest in the MGM National
Harbor Casino secured the MGM National Harbor Loan (as defined in Note 9 – Long-Term Debt.)
(v) Content
Assets
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.
Commissioned programming
is 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 for the year ended December 31, 2020 and recorded an impairment and additional amortization expense of approximately
$4.9 million, as a result of evaluating its contracts for recoverability for the year ended December 31, 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.
(w) 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.
(x) 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 December 31,
2020, Reach Media owed the Foundation $244,000 due to passengers’ refunds pending and as of December 31, 2019, the Foundation
owed Reach Media $24,000.
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 December 31,
2020 and 2019, the Foundation owed $6,000 and $32,000, respectively, to Reach Media.
For the year ended
December 31, 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 rescheduling of the Fantastic Voyage resulting from impacts of the COVID pandemic, no cruise was operated
in 2020.
(y) Leases
As of January 1,
2019, the Company adopted ASC 842, Leases, 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 ASC Topic 840 were 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:
|
|
Year
Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Dollars In thousands)
|
|
Operating Lease Cost (Cost resulting from lease payments)
|
|
$
|
12,687
|
|
|
$
|
12,673
|
|
Variable Lease Cost (Cost excluded from lease payments)
|
|
|
143
|
|
|
|
160
|
|
Total Lease Cost
|
|
$
|
12,830
|
|
|
$
|
12,833
|
|
|
|
|
|
|
|
|
|
|
Operating Lease - Operating Cash Flows (Fixed Payments)
|
|
$
|
13,243
|
|
|
$
|
13,023
|
|
Operating Lease - Operating Cash Flows (Liability Reduction)
|
|
$
|
8,354
|
|
|
$
|
7,752
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Lease Term - Operating Leases
|
|
|
5.37 years
|
|
|
|
5.63 years
|
|
Weighted Average Discount Rate - Operating Leases
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
As
of December 31, 2020, maturities of lease liabilities were as follows:
For the Year Ended December 31,
|
|
(Dollars in
thousands)
|
|
2021
|
|
$
|
13,160
|
|
2022
|
|
|
12,416
|
|
2023
|
|
|
10,784
|
|
2024
|
|
|
9,681
|
|
2025
|
|
|
5,034
|
|
Thereafter
|
|
|
9,474
|
|
Total future lease payments
|
|
|
60,549
|
|
Imputed interest
|
|
|
(15,044
|
)
|
Total
|
|
$
|
45,505
|
|
(z) Going Concern Assessment
As part of its internal
control framework, the Company routinely performs a going concern assessment. We have concluded that the Company has sufficient
capacity to meet its financing obligations, that cash flows from operations are sufficient to meet the liquidity needs and/or has
sufficient capacity to access ABL Facility funds to finance working capital needs should the need arise, and is projecting compliance
with all applicable debt covenants through the one year period following the financial statement issuance date.
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 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.
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 (Sports); as well as the intellectual property to its St. Louis radio
station, WFUN-FM (Adult Urban Contemporary). The Company and Entercom began
operation of the exchanged stations on or about November 23, 2020 under LMAs until FCC approval was obtained. The deal
is subject to FCC approval and other customary closing conditions and is anticipated to close early in the second quarter. In addition,
we entered into an asset purchase agreement with Gateway Creative Broadcasting, Inc. for the remaining assets of our WFUN
station in a separate transaction which is also anticipated to close early in the second quarter. The identified assets, with a
combined carrying value of approximately $32.7 million, have been classified as held
for sale in the consolidated balance sheet at December 31, 2020. The major categories of the assets held for sale include
the following:
|
|
As of December 31, 2020
|
|
|
|
(In thousands)
|
|
Property and equipment, net
|
|
$
|
2,144
|
|
Goodwill
|
|
|
470
|
|
Radio broadcasting licenses
|
|
|
30,606
|
|
Right of use assets
|
|
|
1,071
|
|
Lease liabilities
|
|
|
(1,630
|
)
|
Assets held for sale, net
|
|
$
|
32,661
|
|
3. PROPERTY AND EQUIPMENT:
Property and equipment
are carried at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over
the related estimated useful lives. Property and equipment consists of the following:
|
|
As of December 31,
|
|
|
Estimated
|
|
|
2020
|
|
|
2019
|
|
|
Useful Lives
|
|
|
(In thousands)
|
|
|
|
Land and improvements
|
|
$
|
2,372
|
|
|
$
|
4,652
|
|
|
—
|
Buildings
|
|
|
2,654
|
|
|
|
2,756
|
|
|
31 years
|
Transmitters and towers
|
|
|
39,277
|
|
|
|
40,705
|
|
|
7-15 years
|
Equipment
|
|
|
59,537
|
|
|
|
60,391
|
|
|
3-7 years
|
Furniture and fixtures
|
|
|
9,019
|
|
|
|
9,322
|
|
|
6 years
|
Software and web development
|
|
|
29,741
|
|
|
|
28,789
|
|
|
3 years
|
Leasehold improvements
|
|
|
24,449
|
|
|
|
24,957
|
|
|
Lease Term
|
Construction-in-progress
|
|
|
372
|
|
|
|
226
|
|
|
—
|
|
|
|
167,421
|
|
|
|
171,798
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(148,229
|
)
|
|
|
(147,405
|
)
|
|
|
Property and equipment, net
|
|
$
|
19,192
|
|
|
$
|
24,393
|
|
|
|
Repairs and maintenance
costs are expensed as incurred. Property and equipment assets identified as assets held for sale are excluded from the table above.
4. GOODWILL, RADIO BROADCASTING
LICENSES AND OTHER INTANGIBLE ASSETS:
Impairment Testing
We have historically made
acquisitions whereby a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other
intangible assets. In accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our radio
broadcasting licenses and goodwill. Instead, we perform a test for impairment annually 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. For the years ended December 31, 2020 and 2019, we recorded impairment charges against
radio broadcasting licenses and goodwill collectively, of approximately $84.4 million and $10.6 million, respectively.
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.
2020 Interim Impairment Testing
During the first quarter of 2020, the Company recorded a non-cash
impairment charge of approximately $5.9 million to reduce the carrying value of our Atlanta market and Indianapolis market goodwill
balances and 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 $10.0
million related to its Atlanta market and Indianapolis market goodwill balances and the Company recorded a non-cash impairment
charge of approximately $19.1 million for the three months ended September 30, 2020
associated with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia and Raleigh market radio broadcasting
licenses.
2020 Annual Impairment Testing
We completed our 2020
annual impairment assessment as of October 1, 2020. Our 2020 annual impairment testing indicated the carrying values for our
radio broadcasting licenses and goodwill attributable to Reach Media, TV One, digital and our radio broadcasting reporting units
were not impaired. However we recorded an impairment charge of approximately $1.7 million
associated with the estimated asset sale consideration for one of our St. Louis radio broadcasting licenses.
2019 Interim Impairment Testing
During the second
quarter of 2019, the Company recorded a non-cash impairment charge of approximately $3.8 million associated with the sale of our
Detroit market radio broadcasting licenses.
2019 Annual Impairment Testing
We
completed our 2019 annual impairment assessment as of October 1, 2019. During the fourth quarter of 2019, the Company recorded
a non-cash impairment charge of approximately $1.0 million associated with our Indianapolis market radio broadcasting licenses
and approximately $5.8 million to reduce the carrying value of our Interactive One goodwill balance. Our 2019 annual impairment
testing indicated the carrying values for our goodwill attributable to Reach Media, TV One, and our other radio broadcasting reporting
units were not impaired.
Valuation of Broadcasting Licenses
We utilize the services
of a third-party valuation firm to assist us in estimating the fair value of our radio broadcasting licenses and reporting units.
Fair value is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. We use the income approach to test for impairment of radio broadcasting licenses.
A projection period of 10 years is used, as that is the time horizon in which operators and investors generally expect to recover
their investments. When evaluating our radio broadcasting licenses for impairment, the testing is done at the unit of accounting
level as determined by ASC 350, “Intangibles - Goodwill and Other.” In our case, each unit of accounting is
a cluster of radio stations into one of our geographical markets. Broadcasting license fair values are based on the
discounted future cash flows of the applicable unit of accounting assuming an initial hypothetical start-up operation which possesses
FCC licenses as the only asset. Over time, it is assumed the operation acquires other tangible assets such as advertising and programming
contracts, employment agreements and going concern value, and matures into an average performing operation in a specific radio
market. The income approach model incorporates several variables, including, but not limited to: (i) radio market revenue
estimates and growth projections; (ii) estimated market share and revenue for the hypothetical participant; (iii) likely
media competition within the market; (iv) estimated start-up costs and losses incurred in the early years; (v) estimated
profit margins and cash flows based on market size and station type; (vi) anticipated capital expenditures; (vii) estimated
future terminal values; (viii) an effective tax rate assumption; and (ix) a discount rate based on the weighted-average
cost of capital for the radio broadcast industry. In calculating the discount rate, we considered: (i) the cost of equity,
which includes estimates of the risk-free return, the long-term market return, small stock risk premiums and industry beta; (ii) the
cost of debt, which includes estimates for corporate borrowing rates and tax rates; and (iii) estimated average percentages
of equity and debt in capital structures.
Our methodology for valuing broadcasting licenses has been consistent
for all periods presented. Below are some of the key assumptions used in the income approach model for estimating the broadcasting
license and goodwill fair values for the annual impairment testing performed and interim impairment testing where an impairment
charge was recorded since January 1, 2019. During the year ended December 31, 2020, the Company recorded a non-cash
impairment charge of approximately $68.5 million associated with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia,
Raleigh, Richmond and St. Louis radio market broadcasting licenses. During the year ended December 31, 2019, the Company recorded
a non-cash impairment charge of approximately $4.8 million associated with our Indianapolis and Detroit market radio broadcasting
licenses.
Radio Broadcasting
|
|
October 1,
|
|
|
September 30,
|
|
|
March 31,
|
|
|
October 1,
|
|
|
June 30,
|
|
Licenses
|
|
2020
|
|
|
2020 (a)
|
|
|
2020 (a)
|
|
|
2019
|
|
|
2019 (*)
|
|
Impairment charge (in millions)
|
|
$
|
1.7*
|
|
|
$
|
19.1
|
|
|
$
|
47.7
|
|
|
|
1.0
|
|
|
$
|
3.8
|
|
Discount Rate
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
|
|
9.0
|
%
|
|
|
*
|
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(10.7)% – (16.0
|
)%
|
|
|
(10.7)% – (16.8
|
)%
|
|
|
(13.3
|
)
|
|
|
0.9% – 1.8
|
%
|
|
|
*
|
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.7% – 1.1
|
%
|
|
|
0.7% – 1.1
|
%
|
|
|
0.7% – 1.1
|
|
|
|
0.7% – 1.1
|
%
|
|
|
*
|
|
Mature Market Share Range
|
|
|
6.7% – 23.9
|
%
|
|
|
6.7% – 23.9
|
%
|
|
|
6.9% – 25.0
|
|
|
|
6.9% – 25.0
|
%
|
|
|
*
|
|
Mature Operating Profit Margin Range
|
|
|
27.7% – 37.1
|
%
|
|
|
27.7%
– 37.1
|
%
|
|
|
27.6% –
39.7
|
|
|
|
27.6% – 39.7
|
%
|
|
|
*
|
|
|
(a)
|
Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
|
|
(*)
|
License fair value based on estimated asset sale consideration.
|
Broadcasting Licenses
Valuation Results
The Company’s
total broadcasting licenses carrying value is approximately $484.1 million as of December 31,
2020. The units of accounting reflected in the table below are not disclosed on a specific market basis so as to not make sensitive
information publicly available that could be competitively harmful to the Company.
|
|
Radio Broadcasting Licenses
Carrying Balances
|
|
|
|
As of
|
|
|
Net
|
|
|
As of
|
|
Unit of Accounting
|
|
December
31, 2019
|
|
|
Increase
(Decrease)
|
|
|
December
31, 2020
|
|
|
|
(In thousands)
|
|
Unit of Accounting 2
|
|
$
|
3,086
|
|
|
$
|
–
|
|
|
$
|
3,086
|
|
Unit of Accounting 5
|
|
|
16,100
|
|
|
|
(2,575
|
)
|
|
|
13,525
|
|
Unit of Accounting 7
|
|
|
14,748
|
|
|
|
475
|
|
|
|
15,223
|
|
Unit of Accounting 11
|
|
|
20,135
|
|
|
|
(4,575
|
)
|
|
|
15,560
|
|
Unit of Accounting 4
|
|
|
16,142
|
|
|
|
–
|
|
|
|
16,142
|
|
Unit of Accounting 15
|
|
|
20,736
|
|
|
|
(20,736
|
)
|
|
|
—
|
|
Unit of Accounting 14
|
|
|
20,770
|
|
|
|
(1,700
|
)
|
|
|
19,070
|
|
Unit of Accounting 6
|
|
|
22,642
|
|
|
|
–
|
|
|
|
22,642
|
|
Unit of Accounting 13
|
|
|
47,846
|
|
|
|
(8,200
|
)
|
|
|
39,646
|
|
Unit of Accounting 12
|
|
|
49,663
|
|
|
|
(16,695
|
)
|
|
|
32,968
|
|
Unit of Accounting 8
|
|
|
62,015
|
|
|
|
(9,500
|
)
|
|
|
52,515
|
|
Unit of Accounting 16
|
|
|
56,295
|
|
|
|
(1,625
|
)
|
|
|
54,670
|
|
Unit of Accounting 1
|
|
|
93,394
|
|
|
|
(9,025
|
)
|
|
|
84,369
|
|
Unit of Accounting 10
|
|
|
139,125
|
|
|
|
(24,475
|
)
|
|
|
114,650
|
|
Total
|
|
$
|
582,697
|
|
|
$
|
(98,631
|
)*
|
|
$
|
484,066
|
|
* The amount listed
is net of additions, dispositions, impairment charges, and reclassifications into assets held for sale.
Our licenses expire
at various dates through February 1, 2029.
Valuation of Goodwill
The impairment testing
of goodwill is performed at the reporting unit level. We had 17 reporting units as of our October 2020 annual impairment assessment,
consisting of each of the 14 radio markets within the radio division (we retained ownership of our St. Louis market assets as of
December 31, 2020) and each of the other three business divisions. In testing for the impairment of goodwill, we primarily
rely on the income approach. The approach involves a 10-year model with similar variables as described above for broadcasting licenses,
except that the discounted cash flows are based on the Company’s estimated and projected market revenue, market share and
operating performance for its reporting units, instead of those for a hypothetical participant. We use a 5-year model for our Reach
Media reporting unit. We evaluate all events and circumstances on an interim basis to determine if an impairment indicator is present
and also perform annual testing by comparing the fair value of the reporting unit with its carrying amount. We recognize an impairment
charge to operations in the amount that the reporting unit’s carrying value exceeds its fair value. The impairment charge
recognized cannot exceed the total amount of goodwill allocated to the reporting unit.
We have not made any changes
to the methodology for valuing or allocating goodwill when determining the fair values of the reporting units. 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 $5.9 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. During the fourth
quarter of 2019, the Company performed its annual impairment testing on the valuation of goodwill associated with our digital segment.
Our digital segment’s net revenues and cash flow internal projections were revised downward and as a result of our annual
assessment, the Company recorded a goodwill impairment charge of approximately $5.8 million.
Below are some of
the key assumptions used in the income approach model for estimating reporting unit fair values for the annual impairment assessments
performed and interim impairment testing where an impairment charge was recorded since January 1, 2019.
Goodwill (Radio Market
|
|
October 1,
|
|
|
September 30,
|
|
|
March 31,
|
|
|
October 1,
|
|
Reporting Units)
|
|
2020(a)
|
|
|
2020(a)
|
|
|
2020(a)
|
|
|
2019(a)
|
|
Impairment charge (in millions)
|
|
$
|
—
|
|
|
$
|
10.0
|
|
|
$
|
5.9
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
|
|
9.0
|
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(12.9)% – 25.9
|
%
|
|
|
(26.6)% – 34.7
|
%
|
|
|
(14.5)% – (12.9
|
)%
|
|
|
(7.6)% – 49.3
|
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.7% – 1.1
|
%
|
|
|
0.9% – 1.1
|
%
|
|
|
0.9% – 1.1
|
%
|
|
|
0.7% – 1.1
|
|
Mature Market Share Range
|
|
|
6.8% – 16.8
|
%
|
|
|
8.4% – 12.7
|
%
|
|
|
11.1% – 13.0
|
%
|
|
|
7.1% - 17.0
|
|
Mature Operating Profit Margin Range
|
|
|
27.7% – 49.1
|
%
|
|
|
27.7% – 48.1
|
%
|
|
|
29.4% – 39.0
|
%
|
|
|
26.8% - 47.6
|
|
|
(a)
|
Reflects the key assumptions for testing only those radio markets with remaining goodwill.
|
Below are some of
the key assumptions used in the income approach model for estimating the fair value for Reach Media for the annual and interim
impairment assessments performed since October 2019. When compared to the discount rates used for assessing radio market reporting
units, the higher discount rates used in these assessments reflect a premium for a riskier and broader media business, with a heavier
concentration and significantly higher amount of programming content assets that are highly dependent on a single on-air personality.
As a result of our impairment assessments, the Company concluded that the goodwill was not impaired.
|
|
October 1,
|
|
|
October 1,
|
|
Reach Media Segment Goodwill
|
|
2020
|
|
|
2019
|
|
Impairment charge (in millions)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
11.0
|
%
|
|
|
10.5
|
%
|
Year 1 Revenue Growth Rate
|
|
|
22.1
|
%
|
|
|
(9.7
|
)%
|
Long-term Revenue Growth Rate (Year 5)
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Operating Profit Margin Range
|
|
|
18.0 – 19.1
|
%
|
|
|
13.3% - 14.3
|
%
|
During
the fourth quarter of 2019, the Company performed its annual impairment testing on the valuation of goodwill associated with our
digital segment. Our digital segment’s net revenues and cash flow internal projections were revised downward and as a result
of our annual assessment, the Company recorded a goodwill impairment charge of approximately $5.8 million. Below are some of the
key assumptions used in the income approach model for determining the fair value of our digital reporting unit since October 2019.
When compared to discount rates for the radio reporting units, the higher discount rate used to value the reporting unit is reflective
of discount rates applicable to internet media businesses. The Company concluded no impairment to the carrying value of goodwill
had occurred as a result of the annual testing performed in October 2020.
|
|
October 1,
|
|
|
October 1,
|
|
Digital Segment Goodwill
|
|
2020
|
|
|
2019
|
|
Impairment charge (in millions)
|
|
$
|
—
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
14.0
|
%
|
|
|
12.0
|
%
|
Year 1 Revenue Growth Rate
|
|
|
(5.4)
|
%
|
|
|
12.2
|
%
|
Long-term Revenue Growth Rate (Years 6 – 10)
|
|
|
3.4% - 6.0
|
%
|
|
|
2.8% - 7.7
|
%
|
Operating Profit Margin Range
|
|
|
(12.5)% - 13.1
|
%
|
|
|
(4.7)% - 11.
|
%
|
Below are some of
the key assumptions used in the income approach model for determining the fair value of our cable television segment since October 2019.
As a result of the testing performed in 2020 and 2019, the Company concluded no impairment to the carrying value of goodwill had
occurred.
|
|
October 1,
|
|
|
October 1,
|
|
Cable Television Segment Goodwill
|
|
2020
|
|
|
2019
|
|
Impairment charge (in millions)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
10.5
|
%
|
|
|
10.0
|
%
|
Year 1 Revenue Growth Rate
|
|
|
4.5
|
%
|
|
|
1.0
|
%
|
Long-term Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.6% - 1.5
|
%
|
|
|
1.9% - 2.3
|
%
|
Operating Profit Margin Range
|
|
|
37.2% - 46.1
|
%
|
|
|
33.0% - 45.5
|
%
|
The above goodwill
tables reflect some of the key valuation assumptions used for 11 of our 17 reporting units. The other six remaining reporting units
had no goodwill carrying value balances as of December 31, 2020.
Goodwill Valuation Results
The table below presents
the changes in Company’s goodwill carrying values for its four reportable segments during 2020 and 2019:
|
|
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
|
|
Accumulated impairment losses
|
|
|
(101,848
|
)
|
|
|
(16,114
|
)
|
|
|
(14,545
|
)
|
|
|
—
|
|
|
|
(132,507
|
)
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,800
|
)
|
|
|
—
|
|
|
|
(5,800
|
)
|
Net goodwill at December 31, 2019
|
|
$
|
53,152
|
|
|
$
|
14,354
|
|
|
$
|
7,222
|
|
|
$
|
165,044
|
|
|
$
|
239,772
|
|
Gross goodwill
|
|
$
|
155,000
|
|
|
$
|
30,468
|
|
|
$
|
27,567
|
|
|
$
|
165,044
|
|
|
$
|
378,079
|
|
Accumulated impairment losses
|
|
|
(101,848
|
)
|
|
|
(16,114
|
)
|
|
|
(20,345
|
)
|
|
|
—
|
|
|
|
(138,307
|
)
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairments
|
|
|
(15,900
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,900
|
)
|
Assets held for sale
|
|
|
(470
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(470
|
)
|
Net goodwill at December 31, 2020
|
|
$
|
36,782
|
|
|
$
|
14,354
|
|
|
$
|
7,222
|
|
|
$
|
165,044
|
|
|
$
|
223,402
|
|
In arriving at the
estimated fair values for radio broadcasting licenses and goodwill, we also performed an analysis by comparing our overall average
implied multiple based on our cash flow projections and fair values to recently completed sales transactions, and by comparing
our estimated fair values to the market capitalization of the Company. The results of these comparisons confirmed that the fair
value estimates resulting from our annual assessments in 2020 were reasonable.
Intangible Assets Excluding Goodwill
and Radio Broadcasting Licenses
Other intangible assets,
excluding goodwill, radio broadcasting licenses and the unamortized brand name, are being amortized on a straight-line basis over
various periods. Other intangible assets consist of the following:
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
As of December 31,
|
|
|
Period of
|
|
Period of
|
|
|
|
2020
|
|
|
2019
|
|
|
Amortization
|
|
Amortization
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Trade names
|
|
$
|
17,425
|
|
|
$
|
17,413
|
|
|
1-5 Years
|
|
|
1.1 Years
|
|
Intellectual property
|
|
|
9,531
|
|
|
|
9,531
|
|
|
4-10 Years
|
|
|
0.0 Years
|
|
Acquired income leases
|
|
|
127
|
|
|
|
127
|
|
|
3-15 Years
|
|
|
10.2 Years
|
|
Advertiser agreements
|
|
|
46,789
|
|
|
|
46,789
|
|
|
1-12 Years
|
|
|
2.4 Years
|
|
Favorable office and transmitter leases
|
|
|
2,097
|
|
|
|
2,097
|
|
|
2-60 Years
|
|
|
38.7 Years
|
|
Brand names
|
|
|
4,413
|
|
|
|
4,413
|
|
|
10 Years
|
|
|
6.9 Years
|
|
Brand names - unamortized
|
|
|
39,690
|
|
|
|
39,690
|
|
|
Indefinite
|
|
|
—
|
|
Debt costs
|
|
|
2,053
|
|
|
|
510
|
|
|
Debt term
|
|
|
0.0 Years
|
|
Launch assets
|
|
|
9,021
|
|
|
|
6,284
|
|
|
Contract length
|
|
|
4.5 Years
|
|
Other intangibles
|
|
|
675
|
|
|
|
675
|
|
|
1-5 Years
|
|
|
0.8 Years
|
|
|
|
|
131,821
|
|
|
|
127,529
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(75,768
|
)
|
|
|
(69,317
|
)
|
|
|
|
|
|
|
Other intangible assets, net
|
|
$
|
56,053
|
|
|
$
|
58,212
|
|
|
|
|
|
4.8 Years
|
|
Amortization expense
of intangible assets for the years ended December 31, 2020 and 2019 was approximately $3.9 million and $10.9 million, respectively.
The following table
presents the Company’s estimate of amortization expense for the years 2021 through 2025 for intangible assets:
|
|
(In thousands)
|
|
2021
|
|
$
|
4,663
|
|
2022
|
|
$
|
4,637
|
|
2023
|
|
$
|
2,212
|
|
2024
|
|
$
|
1,208
|
|
2025
|
|
$
|
230
|
|
The table above excludes
launch asset amortization as it is recorded as a reduction to revenue. Actual amortization expense may vary as a result of future
acquisitions and dispositions.
5. CONTENT ASSETS:
The
gross cost and accumulated amortization of content assets is as follows:
|
|
As of December 31,
|
|
|
Period of
|
|
|
2020
|
|
|
2019
|
|
|
Amortization
|
|
|
(In thousands)
|
|
|
|
Produced content assets:
|
|
|
|
|
|
|
|
|
|
|
Completed
|
|
$
|
365,806
|
|
|
$
|
349,521
|
|
|
|
In-production
|
|
|
11,029
|
|
|
|
9,472
|
|
|
|
Licensed content assets acquired:
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
56,913
|
|
|
|
46,515
|
|
|
|
Content assets, at cost
|
|
|
433,748
|
|
|
|
405,508
|
|
|
1-6 Years
|
Less: Accumulated amortization
|
|
|
(342,139
|
)
|
|
|
(304,745
|
)
|
|
|
Content assets, net
|
|
|
91,609
|
|
|
|
100,763
|
|
|
|
Current portion
|
|
|
(28,434
|
)
|
|
|
(30,642
|
)
|
|
|
Noncurrent portion
|
|
$
|
63,175
|
|
|
$
|
70,121
|
|
|
|
Produced
content assets include certain unamortized costs that will not be 80% amortized within three years from December 31, 2020,
totaling approximately $9.9 million. Approximately 38.9% of these unamortized costs are expected to be amortized within three years
from December 31, 2020. The remaining balance of these costs will be amortized through the year ending December 31, 2026.
Future
estimated content amortization expense related to agreements entered into as of December 31, 2020, for years 2021 through
2025 is as follows:
|
|
(In thousands)
|
|
2021
|
|
$
|
28,434
|
|
2022
|
|
$
|
19,938
|
|
2023
|
|
$
|
10,377
|
|
2024
|
|
$
|
3,149
|
|
2025
|
|
$
|
1,240
|
|
Future
estimated content amortization expense is not included for in-production content assets in the table above.
Future
minimum content payments required under agreements entered into as of December 31, 2020, are as follows:
|
|
(In thousands)
|
|
2021
|
|
$
|
16,248
|
|
2022
|
|
$
|
7,974
|
|
2023
|
|
$
|
1,505
|
|
6. 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. The value of our MGM investment is included in other assets on the consolidated
balance sheets and its distribution income in the amount of approximately $4.9 million and $6.9 million, for the years ended December 31,
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. The Company reviewed the investment during 2020 and 2019 and concluded
that no impairment to the carrying value was required. As of December 31, 2020, the Company’s interest in the MGM National
Harbor Casino secured the MGM National Harbor Loan (as defined in Note 9 – Long-Term Debt.)
7. OTHER CURRENT LIABILITIES:
Other current liabilities
consist of the following:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Deferred revenue
|
|
$
|
10,875
|
|
|
$
|
10,879
|
|
Deferred barter revenue
|
|
|
935
|
|
|
|
1,599
|
|
Employment Agreement Award
|
|
|
3,325
|
|
|
|
3,208
|
|
Accrued national representative fees
|
|
|
1,087
|
|
|
|
662
|
|
Accrued miscellaneous taxes
|
|
|
562
|
|
|
|
366
|
|
Income taxes payable
|
|
|
600
|
|
|
|
590
|
|
Tenant allowance
|
|
|
242
|
|
|
|
305
|
|
Contingent consideration
|
|
|
780
|
|
|
|
1,526
|
|
Reserve for audience deficiency
|
|
|
3,544
|
|
|
|
3,005
|
|
Other current liabilities
|
|
|
4,967
|
|
|
|
3,253
|
|
Other current liabilities
|
|
$
|
26,917
|
|
|
$
|
25,393
|
|
8. DERIVATIVE INSTRUMENTS:
The Company accounts
for an award called for in the CEO’s employment agreement (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 December 31, 2020 and 2019, to be approximately $25.6 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
$2.3 million and $4.9 million for the years ended December 31, 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 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.
9. LONG-TERM DEBT:
Long-term debt consists
of the following:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
2018 Credit Facility
|
|
$
|
129,935
|
|
|
$
|
167,145
|
|
MGM National Harbor Loan
|
|
|
57,889
|
|
|
|
52,099
|
|
2017 Credit Facility
|
|
|
317,332
|
|
|
|
320,629
|
|
8.75% Senior Secured Notes due December 2022
|
|
|
347,016
|
|
|
|
—
|
|
7.375% Senior Secured Notes due April 2022
|
|
|
2,984
|
|
|
|
350,000
|
|
Total debt
|
|
|
855,156
|
|
|
|
889,873
|
|
Less: current portion of long-term debt
|
|
|
23,362
|
|
|
|
25,945
|
|
Less: original issue discount and issuance costs
|
|
|
12,870
|
|
|
|
13,620
|
|
Long-term debt, net
|
|
$
|
818,924
|
|
|
$
|
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 then outstanding 9.25% Senior Subordinated Notes due
2020.
Until its termination
as described in Note 16 – Subsequent Events, borrowings under the 2018 Credit Facility were 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 satisfied 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 notified the Company within five (5) business days prior to funding the borrowings
under the 2018 Credit Facility that it disagreed with such determination (including a reasonable description of the basis upon
which it disagrees).
The 2018 Credit Facility was scheduled to mature on December 31,
2022 (the “Maturity Date”). In connection with the Exchange Offer (as defined below), we also entered into an amendment
to certain terms of our 2018 Credit Facility including the extension of the maturity date to March 31, 2023. Interest rates
on borrowings under the 2018 Credit Facility were 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 had been repaid or (iii) 10.875% per annum, once 75% of
the term loan borrowings had been repaid. Interest payments began on the last day of the 3-month period commencing on the Funding
Date. Within 90 days following the completion of the Exchange Offer (as defined below), the Company was required to repay $10 million
of the 2018 Credit Facility. The amendment was accounted for as a modification in accordance with the provisions of ASC 470, “Debt”.
The Company's obligations
under the 2018 Credit Facility were not secured. The 2018 Credit Facility was 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
be voluntarily prepaid prior to February 15, 2020 subject to payment of a prepayment premium. The Company was 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 was also required to use 75% of excess cash flow (“ECF payment”) as defined in the
2018 Credit Facility, which excluded 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 year ended December 31, 2020, the Company repaid approximately $37.2 million under the 2018 Credit
Facility. Included in the repayments made during the year ended December 31, 2020 was approximately $11.1 million in ECF payments
in accordance with the agreement. During the year ended December 31, 2019, the Company repaid approximately $24.9 million,
under the 2018 Credit Facility. Included in the repayments made during the year ended December 31, 2019 was approximately
$3.5 million in ECF payments in accordance with the agreement.
The
2018 Credit Facility contained 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, as amended, also contained 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, 6.75 to 1.00 in 2022 and 6.25 to 1.00 in 2023. As of December 31,
2020, the Company was in compliance with all of its financial covenants under the 2018 Credit Facility.
As of December 31,
2020, the Company had outstanding approximately $129.9 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 were 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 years ended December 31,
2020 and 2019, was approximately $4.5 million and $3.9 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.
Until its termination
as described in Note 16 – Subsequent Events, the MGM National Harbor Loan matured on December 31, 2022 and bore
interest at 7.0% per annum in cash plus 4.0% per annum paid-in kind. The loan had limited ability to be prepaid in the first two
years. The loan was 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 was 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 contained customary representations and warranties and events of default, affirmative
and negative covenants (in each case, subject to materiality exceptions and qualifications).
As of December 31,
2020, the Company had outstanding approximately $57.9 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 was 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
was 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 provided for $350 million in term loan borrowings,
all of which was advanced and outstanding on the date of the closing of the transaction.
Until its termination
as described in Note 16 – Subsequent Events, the 2017 Credit Facility matured 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 7.375%
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 5.17% for 2020 and was 6.27% for 2019.
The 2017 Credit Facility
was s (i) guaranteed by each entity that guarantees the Company’s 7.375% Notes on a pari passu basis with the guarantees
of the 7.375% Notes and (ii) secured on a pari passu basis with the Company’s 7.375% Notes. The Company’s obligations
under the 2017 Credit Facility were 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 was 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 required an additional prepayment premium. Beginning with the interest payment date occurring
in June 2017 and ending in March 2023, the Company was 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 years ended December 31,
2020 and 2019, the Company repaid approximately $3.3 million under the 2017 Credit Facility.
The 2017 Credit Facility
contained 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 7.375% Notes. The 2017 Credit
Facility also contained 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
contained affirmative and negative covenants that the Company was 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 December 31, 2020, the Company was in compliance with all of its financial covenants under the 2017 Credit Facility.
As of December 31,
2020, the Company had outstanding approximately $317.3 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.
7.375%
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 “7.375% Notes”). The 7.375% Notes were offered at an original issue price of 100.0% plus accrued interest from
April 17, 2015, and matured on April 15, 2022. Interest on the 7.375% Notes accrued at the rate of 7.375% per annum and
was payable semiannually in arrears on April 15 and October 15, which commenced on October 15, 2015. The 7.375%
Notes were 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 7.375% 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 7.375% 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.
Until their satisfaction
and discharge as described in Note 16 – Subsequent Events, the 7.375% Notes were the Company’s senior secured
obligations and ranked 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 7.375% Notes and related guarantees were 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 7.375% Notes, including any additional notes issued under the
Indenture, but were 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 7.375% Notes. Collateral included 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.
On November 9,
2020, we completed an exchange (the “Exchange Offer”) of 99.15% of our outstanding 7.375% Notes for $347 million aggregate
principal amount of newly issued 8.75% Senior Secured Notes due December 2022 (the “8.75% Notes”).
8.75% Notes
Until their satisfaction
and discharge as described in Note 16 – Subsequent Events, the 8.75% Notes were governed by an indenture, dated November 9,
2020 (the “8.75% Notes Indenture”), by and between the Company, the guarantors therein (the “Guarantors”)
and Wilmington Trust, National Association, as trustee (in such capacity, the “8.75% Notes Trustee”) and as notes collateral
agent (in such capacity, “the 8.75% Notes Collateral Agent”). Interest on the 8.75% Notes accrued at the rate per annum
equal to 8.75% and was payable, in cash, quarterly on January 15, April 15, July 15 and October 15 of each
year, commencing on January 15, 2021, to holders of record on the immediately preceding January 1, April 1, July 1
and October 1, respectively.
The 8.75% Notes were
general senior obligations and were guaranteed (the “Guarantees”) by the Guarantors. The 8.75% Notes and the Guarantees:
(i) ranked equal in right of payment to all of the Company’s and the Guarantor’s existing and future senior indebtedness,
(ii) were secured on a first-priority basis by the Notes Priority Collateral (as defined below) and on a second-priority
basis by the ABL Priority Collateral (defined below) owned by the Company and the applicable Guarantor, in each case subject to
certain liens permitted under the 8.75% Notes Indenture, (iii) were equal in priority to the collateral owned by the Company
and the Guarantor with respect to obligations under the credit agreement, dated as of April 18, 2017, by and among the Company,
various lenders therein and Guggenheim Securities Credit Partners, LLC, as administrative agent and any other Parity Lien Debt
(as described in the 8.75% Notes Indenture), if an, incurred after the date the 8.75% Notes were issued, (iv) ranked
senior in right of payment to any existing or future subordinated indebtedness of the Company or Guarantors, (v) were initially
guaranteed on a senior basis by each of the Company’s wholly-owned domestic subsidiaries (other than certain immaterial
subsidiaries, unrestricted subsidiaries, and other certain exceptions), (vi) were effectively senior to all of the Company’s
and the Guarantor’s existing and future unsecured indebtedness to the extent of the value of the collateral owned by the
Company or applicable Guarantors and effectively senior to all existing and future ABL Debt Obligations (as defined in the 8.75%
Notes Indenture) to the extent of the value of the Notes Priority Collateral (as defined below) owned by the Company or applicable
Guarantor, (vii) were effectively subordinated to all of the Company’s and the Guarantor’s existing and future
indebtedness that was secured by liens on assets that do not secure the Notes or the Guarantee to the extent of the value of such
assets, (viii) were structurally subordinated to all of the Company’s and the Guarantor’s existing and future
indebtedness and other claims and liabilities, including preferred stock, of subsidiaries of the Company that are not guarantors,
and (ix) were effectively senior to any 7.375% Notes that remain outstanding after the Exchange Offer with respect to any
collateral proceeds.
The 8.75% Notes and
the guarantees were secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis
by substantially all of the Company’s and the Guarantors’ current and future property and assets (other than accounts
receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed
revolving credit facility on a first priority basis (the “ABL Priority Collateral”), including the capital stock of
each Guarantor (which, in the case of foreign subsidiaries, is limited to 65% of the voting stock and 100% of the non-voting stock
of each first-tier foreign subsidiary) (collectively, the “Notes Priority Collateral”) and (ii) on a second priority
basis by the ABL Priority Collateral.
In connection with
the Exchange Offer, the 8.75% Notes were subject to a new intercreditor agreement, pursuant to which proceeds received by the 7.375%
Notes Trustee with respect to collateral proceeds received by the 7.375% Notes Trustee for the 7.375% Notes under an existing parity
lien intercreditor agreement were to be paid over to the 8.75% Notes Trustee for the 8.75% Notes to the extent of the amounts owed
to the holders of the 8.75% Notes then outstanding.
The Company could
redeem the 8.75% Notes in whole or in part, at its option, upon not less than 30 nor more than 60 days’ prior notice at a
redemption price equal to 100% of the principal amount of such 8.75% Notes plus accrued and unpaid interest, if any, to the redemption
date.
Within 90 days following
the completion of the Exchange Offer, the Company was required to repurchase, repay or redeem $15 million aggregate principal
amount of the 8.75% Notes. Separately, within five business days after each Excess Cash Flow Calculation Date (as defined in the
8.75% Notes Indenture), the Company was to redeem an aggregate principal amount of 8.75% Notes equal to 50% of the Excess Cash
Flow (as defined in the 8.75% Notes Indenture), provided that repurchases, repayments or redemption of 8.75% Notes with internally
generated funds during the applicable calculation period would reduce on a dollar-for-dollar basis the amount of such redemption
otherwise required on the applicable calculation date. Any such mandatory redemptions were to be at par (plus accrued and unpaid
interest).
During the quarter
ended December 31, 2020, the Company recorded a loss on retirement of debt of approximately $2.9 million associated with the
Exchange Offer. The premium paid to the bondholders in the amount of approximately $3.5 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.
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
For a portion of the
year ended December 31, 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 redefined the “Maturity Date” to be “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,
2020 and 2019, the Company did not have any borrowings outstanding on its ABL Facility. See Note 16 – Subsequent Events.
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 December 31, 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 7.375% Notes, the 8.75% 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 December 31, 2020, were as follows:
|
|
|
2018
Credit
Facility
|
|
|
MGM
National
Harbor
Loan
|
|
|
2017
Credit
Facility
|
|
|
8.75%
Senior
Secured
Notes
due
December
2022
|
|
|
7.38%
Senior
Secured
Notes
due April
2022
|
|
|
Total
|
|
|
(In
thousands)
|
|
2021
|
|
|
$
|
20,065
|
|
|
$
|
—
|
|
|
$
|
3,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,362
|
|
2022
|
|
|
|
24,000
|
|
|
|
57,889
|
|
|
|
3,297
|
|
|
|
347,016
|
|
|
|
2,984
|
|
|
|
435,186
|
|
2023
|
|
|
|
85,870
|
|
|
|
—
|
|
|
|
310,738
|
|
|
|
—
|
|
|
|
—
|
|
|
|
396,608
|
|
2024
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2025 and thereafter
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total Debt
|
|
|
$
|
129,935
|
|
|
$
|
57,889
|
|
|
$
|
317,332
|
|
|
$
|
347,016
|
|
|
$
|
2,984
|
|
|
$
|
855,156
|
|
10. INCOME
TAXES:
A reconciliation of
the statutory federal income taxes to the recorded (benefit from) provision for income taxes from continuing operations is as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Statutory federal tax expense
|
|
$
|
(8,620
|
)
|
|
$
|
2,714
|
|
Effect of state taxes, net of federal benefit
|
|
|
(1,205
|
)
|
|
|
1,904
|
|
Effect of state rate and tax law changes
|
|
|
(599
|
)
|
|
|
578
|
|
Return to provision adjustments
|
|
|
503
|
|
|
|
(110
|
)
|
Other permanent items
|
|
|
(213
|
)
|
|
|
75
|
|
Non-deductible meals and entertainment
|
|
|
96
|
|
|
|
226
|
|
Impairment of long-lived intangible assets
|
|
|
3,339
|
|
|
|
1,218
|
|
Non-deductible officer’s compensation
|
|
|
1,002
|
|
|
|
1,781
|
|
Change in valuation allowance
|
|
|
28
|
|
|
|
24
|
|
IRC Section 382 adjustments
|
|
|
(30,143
|
)
|
|
|
573
|
|
NOL expirations
|
|
|
3,000
|
|
|
|
1,815
|
|
Stock-based compensation forfeitures and adjustments
|
|
|
216
|
|
|
|
178
|
|
Uncertain tax positions
|
|
|
(1,923
|
)
|
|
|
(172
|
)
|
Other
|
|
|
43
|
|
|
|
60
|
|
(Benefit from) provision for income taxes
|
|
$
|
(34,476
|
)
|
|
$
|
10,864
|
|
The statutory federal
tax rate used for the years ended December 31, 2020 and 2019 is 21.0%. Major components of the effective tax rate for the year
ended December 31, 2020 and 2019 are related reductions of IRC Section 382 limitations, net operating loss expirations, impairments
of long-lived assets, limitation of officer's compensation under IRC Section 162(m), and state income taxes.
The components of the (benefit from) provision for income taxes
from continuing operations are as follows:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
(27,162
|
)
|
|
|
5,973
|
|
State:
|
|
|
|
|
|
|
|
|
Current
|
|
|
552
|
|
|
|
595
|
|
Deferred
|
|
|
(7,866
|
)
|
|
|
4,296
|
|
(Benefit from) provision for income taxes
|
|
$
|
(34,476
|
)
|
|
$
|
10,864
|
|
Deferred Income Taxes
Deferred income taxes
reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and
amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted. Deferred tax assets are reduced
by a valuation allowance if, based upon the weight of available evidence, it is not more likely than not that we will realize some
portion or all of the deferred tax assets. The significant components of the Company’s deferred tax assets and liabilities
are as follows:
|
|
As of December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,924
|
|
|
$
|
1,804
|
|
Accruals
|
|
|
2,358
|
|
|
|
528
|
|
Fixed assets
|
|
|
453
|
|
|
|
418
|
|
Stock-based compensation
|
|
|
290
|
|
|
|
499
|
|
Deferred financing costs
|
|
|
1,475
|
|
|
|
—
|
|
Net operating loss carryforwards
|
|
|
128,023
|
|
|
|
103,700
|
|
Lease liability
|
|
|
11,592
|
|
|
|
12,094
|
|
Interest expense carryforward
|
|
|
11,934
|
|
|
|
16,224
|
|
Alternative minimum tax credit
|
|
|
—
|
|
|
|
428
|
|
Other
|
|
|
(200
|
)
|
|
|
(324
|
)
|
Total deferred tax assets
|
|
|
157,849
|
|
|
|
135,371
|
|
Valuation allowance for deferred tax assets
|
|
|
(277
|
)
|
|
|
(249
|
)
|
Total deferred tax asset, net of valuation allowance
|
|
|
157,572
|
|
|
|
135,122
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(135,848
|
)
|
|
|
(147,350
|
)
|
Right of use asset
|
|
|
(10,336
|
)
|
|
|
(10,100
|
)
|
Partnership interests
|
|
|
(1,347
|
)
|
|
|
(1,813
|
)
|
Qualified film expenditures
|
|
|
—
|
|
|
|
(419
|
)
|
Total deferred tax liabilities
|
|
|
(147,531
|
)
|
|
|
(159,682
|
)
|
Net deferred tax asset (liability)
|
|
$
|
10,041
|
|
|
$
|
(24,560
|
)
|
As of December 31,
2020, the Company had federal and state NOL carryforward amounts of approximately $703.9 million and $436.5 million, respectively.
The state NOLs are applied separately from the federal NOL as the Company generally files separate state returns for each subsidiary.
Additionally, the amount of the state NOLs may change if future apportionment factors differ from current factors. During 2016,
the Company performed an Internal Revenue Code (“IRC”) Section 382 study (“the study”) and concluded that
there was an ownership shift during calendar year 2009 that resulted in an estimated limitation on our federal and state NOLs for
approximately $361.1 million and $262.7 million, respectively. During 2018, the Company updated the study for additional information
based on additional technical insight into the application of the tax law, which resulted in a decrease to the initial estimated
limitation. In 2018, the Company identified certain assets with net unrealized built-in gain that reduced the estimated federal
and state limitation by approximately $65.6 million and $52.9 million, respectively. During 2020, the Company further reduced the
federal and state limitation by approximately $109.2 million and $93.6 million, respectively. The 2020 reductions of the IRC Section
382 limitation were related to receiving approval from the Internal Revenue Service to retroactively apply a consolidated tax return
election to the 2009 income tax return, and identifying additional assets with net unrealized built-in gains. The Company continues
to assess other potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially
recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company
may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is
more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact
future quarterly and annual periods. The federal and state NOLs expire in various years from 2021 to 2039.
As of December 31, 2020, the gross deferred tax assets of approximately
$157.8 million were primarily the result of federal and state net operating losses and the IRC Section 163(j) interest expense
carryforward. A valuation allowance of $277,000 and $249,000 was recorded against our gross deferred tax asset balance as of December
31, 2020 and December 31, 2019, respectively and is related to state jurisdictions where it is not more likely than not the deferred
tax assets will be realized.
The assessment to
determine the value of the deferred tax assets to be realized under ASC 740 is highly judgmental and requires the consideration
of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the deferred tax assets
in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions
should be evaluated as positive or negative evidence that could affect the realization of the deferred tax assets. Since the evaluation
requires consideration of events that may occur in some years in the future, significant judgment is required, and our conclusion
could be materially different if certain expectations do not materialize.
In the assessment
of all available evidence, an important piece of objective verifiable evidence is evaluating a cumulative income or loss position
over the most recent three-year period. Historically, the Company has maintained a full valuation against the net deferred tax
assets, principally due to a cumulative loss over the most recent three-year period. During the quarter ended December 31,
2018, the Company achieved three years of cumulative income, which removed the most heavily weighed piece of objective verifiable
negative evidence from our evaluation of the realizability of deferred tax assets. The Company continues to maintain three years
of rolling cumulative income as of December 31, 2020.
Additionally, the
Company is projecting forecasts of taxable income to utilize our federal and state NOLs as part of our evaluation of positive evidence.
As part of the 2017 Tax Act, IRC Section 163(j) limited the deduction of interest expense. In conjunction with evaluating
and weighing the aforementioned negative and positive evidence from the Company’s historical cumulative income or loss position,
management also evaluated the impact that interest expense has had on our cumulative income or loss position over the most recent
three-year period. A material component of the Company’s expenses is interest, and has been the primary driver of historical
pre-tax losses. Adjusting for the IRC Section 163(j) interest expense limitation on projected taxable income, we estimate
utilization of federal and state net operating losses that are not subject to annual limitations as a result of the 2009 ownership
shift as defined under IRC Section 382.
Realization of the
Company’s federal and state net operating losses is dependent on generating sufficient taxable income in future periods,
and although the Company believes it is more likely than not future taxable income will be sufficient to utilize the net operating
losses, realization is not assured and future events may cause a change to the judgment of the realizability of these deferred
tax assets. If a future event causes the Company to re-evaluate and conclude that it is not more likely than not, that all or a
portion of the deferred tax assets are realizable, the Company would be required to establish a valuation allowance against the
assets at that time which would result in a charge to income tax expense and a decrease to net income in the period which the change
of judgment is concluded.
Unrecognized Tax Benefits
A reconciliation of
the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Balance as of January 1
|
|
$
|
4,733
|
|
|
$
|
4,637
|
|
Additions for tax positions related to current years
|
|
|
—
|
|
|
|
—
|
|
Additions (deductions) for tax positions related to prior years
|
|
|
(2,434
|
)
|
|
|
96
|
|
Deductions for tax positions as a result of tax settlements
|
|
|
—
|
|
|
|
—
|
|
Balance as of December 31
|
|
$
|
2,299
|
|
|
$
|
4,733
|
|
The nature of the
uncertainties pertaining to the Company’s income taxes is primarily due to various state income tax positions that affect
the amount of state NOLs available to be applied to reduce future state income tax liabilities. The unrecognized tax benefits liability
accrued on our balance sheet decreased by approximately $2.4 million and increased by $96,000 during the years ended December 31,
2020 and December 31, 2019, respectively, primarily as a result of state NOL utilizations and expirations, and applicable tax rate
changes. As of December 31, 2020, the Company had unrecognized tax benefits of approximately $1.8 million, which if recognized,
would impact the effective tax rate.
The Company recognizes
accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. There is no material amount
of interest and penalties recognized in the statement of operations and the balance sheet for the year ended December 31,
2020. The Company believes that it is reasonably possible that a decrease of up to $1.0 million of unrecognized tax benefits related
to state tax exposures may be necessary within the coming year.
The Company files
income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and is subject to examination by the
various taxing authorities. The Company’s open tax years for federal income tax examinations include the tax years ended
December 31, 2017 through 2020. For state and local purposes, the open years for tax examinations include the tax years ended December
31, 2016 through 2020. To the extent that net operating losses are utilized, the year of the loss may be subject to examination.
11. STOCKHOLDERS’ EQUITY:
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, 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 (the “2020 ATM Program”).
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 $14.7 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.
See Note 16 – Subsequent Events.
Common Stock
The Company has four
classes of common stock, Class A, Class B, Class C and Class D. Generally, the shares of each class are identical
in all respects and entitle the holders thereof to the same rights and privileges. However, with respect to voting rights, each
share of Class A common stock entitles its holder to one vote and each share of Class B common stock entitles its holder
to ten votes. The holders of Class C and Class D common stock are not entitled to vote on any matters. The holders of
Class A common stock can convert such shares into shares of Class C or Class D common stock. Subject to certain
limitations, the holders of Class B common stock can convert such shares into shares of Class A common stock. The holders
of Class C common stock can convert such shares into shares of Class A common stock. The holders of Class D common
stock have no such conversion rights.
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 December 31, 2020, the Company
had no capacity remaining under the authorizations as the capacity under the June authorization was used and the March authorization
lapsed by its terms on December 31, 2020. 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 year ended December 31, 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 year ended December 31, 2019, the Company repurchased 54,896 shares
of Class A Common Stock in the amount of $120,000 at an average 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 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 year ended December 31, 2020, the Company executed a Stock Vest Tax Repurchase of 710,992
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 year ended December 31, 2019, the Company executed a Stock Vest Tax Repurchase of 957,895 shares of Class D Common
Stock in the amount of approximately $1.9 million at an average price of $1.96 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 December 31, 2020, 520,425 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 vested 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 vested 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 vested 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 final installment vested 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 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 vested 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.
The Company measures
compensation cost for all stock-based awards at fair value on date of grant and recognizes the related expense over the service
period for awards expected to vest. The restricted stock-based awards do not participate in dividends until fully vested. The fair
value of stock options is determined using the BSM. Such fair value is recognized as an expense over the service period,
net of estimated forfeitures, using the straight-line method. Estimating the number of stock awards that will ultimately vest requires
judgment, and to the extent actual forfeitures differ substantially from our current estimates, amounts will be recorded as a cumulative
adjustment in the period the estimated number of stock awards are revised. We consider many factors when estimating expected forfeitures,
including the types of awards, employee classification and historical experience. Actual forfeitures may differ substantially from
our current estimate.
The
Company’s use of the BSM to calculate the fair value of stock-based awards incorporates various assumptions including volatility,
expected life, and interest rates. For options granted, the BSM determines: (i) the term by using the simplified “plain-vanilla”
method as allowed under SAB No. 110; (ii) a historical volatility over a period commensurate with the expected term,
with the observation of the volatility on a daily basis; and (iii) a risk-free interest rate that was consistent with the
expected term of the stock options and based on the U.S. Treasury yield curve in effect at the time of the grant.
Stock-based
compensation expense for the years ended December 31, 2020 and 2019, was approximately $2.3 million and $4.8 million, respectively.
The Company granted
878,643 stock options during the year ended December 31, 2020 and granted 653,210 stock options during the year ended December 31,
2019. The per share weighted-average fair value of options granted during the years ended December 31, 2020 and 2019, was
$0.66 and $1.26, respectively.
These fair values
were derived using the BSM with the following weighted-average assumptions:
|
|
For the Years Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Average risk-free interest rate
|
|
|
0.40
|
%
|
|
|
1.84
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected lives
|
|
|
5.04 years
|
|
|
|
5.25 years
|
|
Expected volatility
|
|
|
79.75
|
%
|
|
|
68.0
|
%
|
Transactions and other information relating
to stock options for the years December 31, 2020 and 2019 are summarized below:
|
|
Number
of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (In
Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2018
|
|
|
3,569,000
|
|
|
$
|
2.12
|
|
|
|
7.19
|
|
|
$
|
130,000
|
|
Grants
|
|
|
653,000
|
|
|
$
|
2.17
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
15,000
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired/settled
|
|
|
(10,000
|
)
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
4,197,000
|
|
|
$
|
2.13
|
|
|
|
6.70
|
|
|
$
|
255,000
|
|
Grants
|
|
|
879,000
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
1,033,000
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired/settled
|
|
|
(24,000
|
)
|
|
$
|
3.17
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
4,019,000
|
|
|
$
|
2.11
|
|
|
|
6.48
|
|
|
$
|
41,000
|
|
Vested and expected to vest at December 31, 2020
|
|
|
3,980,000
|
|
|
$
|
2.12
|
|
|
|
6.45
|
|
|
$
|
41,000
|
|
Unvested at December 31, 2020
|
|
|
884,000
|
|
|
$
|
1.83
|
|
|
|
9.47
|
|
|
$
|
7,000
|
|
Exercisable at December 31, 2020
|
|
|
3,135,000
|
|
|
$
|
2.19
|
|
|
|
5.64
|
|
|
$
|
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 year ended December 31, 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 in-the-money options on December 31, 2020.
This amount changes based on the fair market value of the Company’s stock.
There were 1,032,922
options exercised during the year ended December 31, 2020 and there were 15,000 options exercised during the year ended December 31,
2019. The number of options that vested during the year ended December 31, 2020 was 637,270 and the number of options that
vested during the year ended December 31, 2019 was 847,030.
As of December 31,
2020, $124,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average
period of 1.0 months. The weighted-average fair value per share of shares underlying stock options was $1.41 at December 31,
2020.
The Company granted
1,649,394 and 2,603,567 shares, respectively, of restricted stock during the years ended December 31, 2020 and 2019, respectively.
During the years ended December 31, 2020 and 2019, 18,248 shares and 25,000 shares, respectively, of restricted stock were
issued to the Company’s non-executive directors as a part of their compensation packages. 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 $2.74
of the Company’s Class D common stock on June 16, 2020. 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 $2.00 of the Company’s
Class D common stock on June 17, 2019. The restricted stock grants for the non-executive directors vest over a two-year
period in equal 50% installments.
Transactions and other
information relating to restricted stock grants for the years ended December 31, 2020 and 2019 are summarized below:
|
|
Shares
|
|
|
Average
Fair
Value at
Grant
Date
|
|
Unvested at December 31, 2018
|
|
|
2,124,000
|
|
|
$
|
1.85
|
|
Grants
|
|
|
2,604,000
|
|
|
$
|
2.16
|
|
Vested
|
|
|
(2,840,000
|
)
|
|
$
|
1.94
|
|
Forfeited/cancelled/expired
|
|
|
(74,000
|
)
|
|
$
|
2.19
|
|
Unvested at December 31, 2019
|
|
|
1,814,000
|
|
|
$
|
2.14
|
|
Grants
|
|
|
1,649,000
|
|
|
$
|
0.77
|
|
Vested
|
|
|
(1,739,000
|
)
|
|
$
|
2.14
|
|
Forfeited/cancelled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Unvested at December 31, 2020
|
|
|
1,724,000
|
|
|
$
|
0.83
|
|
Restricted stock grants
were and are included in the Company’s outstanding share numbers on the effective date of grant. As of December 31,
2020, $310,000 of total unrecognized compensation cost related to restricted stock grants was expected to be recognized over a
weighted-average period of 0.8 months.
12. PROFIT SHARING AND EMPLOYEE
SAVINGS PLAN:
The Company maintains
a profit sharing and employee savings plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to defer allowable portions of their compensation on a pre-tax basis through contributions to the savings plan.
The Company may contribute to the plan at the discretion of its Board of Directors. The Company does not match employee contributions.
The Company did not make any contributions to the plan during the years ended December 31, 2020 and 2019.
13. COMMITMENTS AND CONTINGENCIES:
Radio Broadcasting Licenses
Each of the Company’s
radio stations operates pursuant to one or more licenses issued by the Federal Communications Commission that have a maximum term
of eight years prior to renewal. The Company’s radio broadcasting licenses expire at various times beginning in August 2021
through February 1, 2029. Although the Company may apply to renew its radio broadcasting licenses, third parties may challenge
the Company’s renewal applications. The Company is not aware of any facts or circumstances that would prevent the Company
from having its current licenses renewed.
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 to a license with BMI through December 31, 2021.
Leases and Other Operating Contracts
and Agreements
The Company has noncancelable
operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next 11 years.
The Company’s leases for broadcast facilities generally provide for a base rent plus real estate taxes and certain operating
expenses related to the leases. Certain of the Company’s leases contain renewal options, escalating payments over the life
of the lease and rent concessions. The future rentals under non-cancelable leases as of December 31, 2020, are shown below.
The Company has other
operating contracts and agreements including employment contracts, on-air talent contracts, severance obligations, retention bonuses,
consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements that
expire over the next five years. The amounts the Company is obligated to pay for these agreements are shown below.
|
|
Operating
Lease
Agreements
|
|
|
Other
Operating
Contracts
and
Agreements
|
|
|
|
(In thousands)
|
|
Years ending December 31:
|
|
|
|
|
|
|
2021
|
|
$
|
12,892
|
|
|
$
|
58,532
|
|
2022
|
|
|
11,739
|
|
|
|
23,044
|
|
2023
|
|
|
10,323
|
|
|
|
11,896
|
|
2024
|
|
|
9,192
|
|
|
|
10,121
|
|
2025
|
|
|
4,696
|
|
|
|
9,958
|
|
2026 and thereafter
|
|
|
7,618
|
|
|
|
22,322
|
|
Total
|
|
$
|
56,460
|
|
|
$
|
135,873
|
|
Of the total amount
of other operating contracts and agreements included in the table above, approximately $82.7 million has not been recorded on the
balance sheet as of December 31, 2020, as it does not meet recognition criteria. Approximately $6.9 million relates to certain
commitments for content agreements for our cable television segment, approximately $16.6 million relates to employment agreements,
and the remainder relates to other programming, network and operating agreements.
Reach Media Redeemable 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 31, 2021. Management, at
this time, cannot reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.
Letters of Credit
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 December 31, 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.
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.
14. QUARTERLY FINANCIAL DATA
(UNAUDITED):
|
|
Quarters Ended
|
|
|
|
March 31(a)
|
|
|
June 30
|
|
|
September 30(a)
|
|
|
December 31
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
94,875
|
|
|
$
|
76,008
|
|
|
$
|
91,912
|
|
|
$
|
113,542
|
|
Operating (loss) income
|
|
|
(27,287
|
)
|
|
|
20,382
|
|
|
|
3,968
|
|
|
|
34,533
|
|
Net (loss) income
|
|
|
(23,058
|
)
|
|
|
1,642
|
|
|
|
(12,277
|
)
|
|
|
27,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income attributable
to common stockholders
|
|
|
(23,187
|
)
|
|
|
1,420
|
|
|
|
(12,772
|
)
|
|
|
26,426
|
|
BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE
TO COMMON STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income per share attributable
to common stockholders - basic
|
|
$
|
(0.51
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.58
|
|
Consolidated net
(loss) income per share attributable to common stockholders - diluted
|
|
$
|
(0.51
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.29
|
)
|
|
$
|
0.55
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding — basic
|
|
|
45,228,164
|
|
|
|
44,806,219
|
|
|
|
44,175,385
|
|
|
|
45,942,818
|
|
Weighted average
shares outstanding — diluted
|
|
|
45,228,164
|
|
|
|
48,154,262
|
|
|
|
44,175,385
|
|
|
|
48,054,418
|
|
(a)
|
The net income (loss)
from continuing operations for the quarters ended March 31, 2020, September 30, 2020, and December 31, 2020 includes
approximately $53.6 million, $29.1 million, and $1.7 million, respectively of impairment charges.
|
|
|
Quarters Ended
|
|
|
|
March 31
|
|
|
June 30 (a)
|
|
|
September 30
|
|
|
December 31 (a)
|
|
|
|
(In thousands, except share data)
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
98,449
|
|
|
$
|
121,571
|
|
|
$
|
111,055
|
|
|
$
|
105,854
|
|
Operating income
|
|
|
14,796
|
|
|
|
29,121
|
|
|
|
31,117
|
|
|
|
12,062
|
|
Net (loss) income
|
|
|
(2,979
|
)
|
|
|
7,137
|
|
|
|
5,687
|
|
|
|
(7,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income attributable to common stockholders
|
|
|
(3,104
|
)
|
|
|
6,591
|
|
|
|
5,359
|
|
|
|
(7,921
|
)
|
BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income per share attributable to common stockholders - basic
|
|
$
|
(0.07
|
)
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
$
|
(0.18
|
)
|
Consolidated net (loss) income per share attributable to common stockholders - diluted
|
|
$
|
(0.07
|
)
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
|
$
|
(0.18
|
)
|
WEIGHTED AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding — basic
|
|
|
45,001,767
|
|
|
|
45,061,821
|
|
|
|
44,315,077
|
|
|
|
44,172,147
|
|
Weighted average shares outstanding — diluted
|
|
|
45,001,767
|
|
|
|
45,701,655
|
|
|
|
46,118,702
|
|
|
|
44,172,147
|
|
(a)
|
The net income (loss) from continuing operations for the quarters ended June 30, 2019 and December 31, 2019, includes approximately $3.8 million and $6.8 million, respectively of impairment charges.
|
15. SEGMENT INFORMATION:
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 years ended
December 31, 2020 and 2019 is presented in the following table:
|
|
For the Years Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
130,573
|
|
|
$
|
177,478
|
|
Reach Media
|
|
|
30,996
|
|
|
|
44,691
|
|
Digital
|
|
|
35,599
|
|
|
|
31,922
|
|
Cable Television
|
|
|
181,583
|
|
|
|
185,027
|
|
Corporate/Eliminations*
|
|
|
(2,414
|
)
|
|
|
(2,189
|
)
|
Consolidated
|
|
$
|
376,337
|
|
|
$
|
436,929
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock-based compensation
and excluding depreciation and amortization and impairment of long-lived assets):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
91,052
|
|
|
$
|
119,878
|
|
Reach Media
|
|
|
22,376
|
|
|
|
38,150
|
|
Digital
|
|
|
29,608
|
|
|
|
31,775
|
|
Cable Television
|
|
|
81,546
|
|
|
|
103,195
|
|
Corporate/Eliminations
|
|
|
26,018
|
|
|
|
29,250
|
|
Consolidated
|
|
$
|
250,600
|
|
|
$
|
322,248
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
3,022
|
|
|
$
|
3,248
|
|
Reach Media
|
|
|
237
|
|
|
|
235
|
|
Digital
|
|
|
1,592
|
|
|
|
1,877
|
|
Cable Television
|
|
|
3,749
|
|
|
|
10,376
|
|
Corporate/Eliminations
|
|
|
1,141
|
|
|
|
1,249
|
|
Consolidated
|
|
$
|
9,741
|
|
|
$
|
16,985
|
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
84,400
|
|
|
$
|
4,800
|
|
Reach Media
|
|
|
—
|
|
|
|
—
|
|
Digital
|
|
|
—
|
|
|
|
5,800
|
|
Cable Television
|
|
|
—
|
|
|
|
—
|
|
Corporate/Eliminations
|
|
|
—
|
|
|
|
—
|
|
Consolidated
|
|
$
|
84,400
|
|
|
$
|
10,600
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
(47,901
|
)
|
|
$
|
49,552
|
|
Reach Media
|
|
|
8,383
|
|
|
|
6,306
|
|
Digital
|
|
|
4,399
|
|
|
|
(7,530
|
)
|
Cable Television
|
|
|
96,288
|
|
|
|
71,456
|
|
Corporate/Eliminations
|
|
|
(29,573
|
)
|
|
|
(32,688
|
)
|
Consolidated
|
|
$
|
31,596
|
|
|
$
|
87,096
|
|
* Intercompany revenue included in net revenue above is as follows:
Radio Broadcasting
|
|
$
|
(2,414
|
)
|
|
$
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
Capital expenditures by segment are as follows:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
2,200
|
|
|
$
|
2,778
|
|
Reach Media
|
|
|
82
|
|
|
|
179
|
|
Digital
|
|
|
799
|
|
|
|
1,390
|
|
Cable Television
|
|
|
92
|
|
|
|
207
|
|
Corporate/Eliminations
|
|
|
625
|
|
|
|
591
|
|
Consolidated
|
|
$
|
3,798
|
|
|
$
|
5,145
|
|
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
(In thousands)
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
630,174
|
|
|
$
|
721,295
|
|
Reach Media
|
|
|
38,235
|
|
|
|
41,892
|
|
Digital
|
|
|
23,168
|
|
|
|
22,223
|
|
Cable Television
|
|
|
374,046
|
|
|
|
388,465
|
|
Corporate/Eliminations
|
|
|
129,864
|
|
|
|
76,044
|
|
Consolidated
|
|
$
|
1,195,487
|
|
|
$
|
1,249,919
|
|
16. SUBSEQUENT EVENTS:
On December 27, 2020,
the Consolidated Appropriations Act of 2021 was signed into law. The legislation creates a second round of Paycheck Protection
Program (“PPP”) loans of up to $2 million available to businesses with 300 or fewer employees that have sustained a
25% revenue loss in any quarter of 2020. Certain of the new PPP provisions may benefit broadcasters such as the Company. The
provisions (i) allow individual TV and radio stations to apply for PPP loans as long as the individual TV or radio station
employs not more than 300 employees per physical location; (ii) permit the Small Business Administration (“SBA”)
to make loans up to $10 million total across TV and radio stations owned by a station group; (iii) require newly eligible
individual TV and radio stations to make a good faith certification that proceeds of the loan will be used to support expenses
for the production or distribution of locally-focused or emergency information; and (iv) waive any prohibition on loans to
broadcast stations owned by publicly traded entities. On January 29, 2021, the Company submitted an application for participation
in the PPP loan program. There is no guarantee that the Company will be awarded loan monies. While certain of the loans may
be forgivable, to the extent the Company is awarded the loans the amount may constitute debt under the 2028 Notes (as defined
below) and increase the Company’s leverage prior to repayment or forgiveness.
On January 7,
2021, the Company launched an offering (the “2028 Notes Offering”) of $825 million in aggregate principal amount of
senior secured notes due 2028 (the “2028 Notes”) in a private offering exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”). The 2028 Notes are general senior secured obligations
of the Company and are guaranteed on a senior secured basis by certain of the Company’s direct and indirect restricted subsidiaries.
The 2028 Notes mature on February 1, 2028 and interest on the Notes accrues and is payable semi-annually in arrears on February 1
and August 1 of each year, commencing on August 1, 2021 at the rate of 7.375% per annum. On January 8, 2021, the
Company entered into a purchase agreement with respect to the 2028 Notes at an issue price of 100% and the 2028 Notes Offering
closed on January 25, 2021.
The Company used the
net proceeds from the 2028 Notes Offering, together with cash on hand, to repay or redeem (1) the 2017 Credit Facility, (2) the
2018 Credit Facility, (3) the MGM National Harbor Loan; (4) the remaining amounts of our 7.375% Notes, and (5) our
8.75% Notes that were issued in the November 2020 Exchange Offer. Upon settlement of the 2028 Notes Offering, the 2017
Credit Facility, the 2018 Credit Facility and the MGM National Harbor Loan were terminated and the indentures governing the 7.375%
Notes and the 8.75% Notes were satisfied and discharged.
The
2028 Notes are the Company’s general senior obligations and are guaranteed by each of the Company’s restricted subsidiaries
(other than excluded subsidiaries). The 2028 Notes and the guarantees are secured, subject to permitted liens and except for certain
excluded assets (i) on a first priority basis by substantially all of the Company’s and the Guarantors’ current
and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts,
inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the “ABL Priority
Collateral”)), including the capital stock of each guarantor (collectively, the “Notes Priority Collateral”)
and (ii) on a second priority basis by the ABL Priority Collateral.
In connection with
the offering of the 2028 Notes, the Company entered into an amendment of its Credit Agreement dated April 21, 2016 among the
Company, as borrow, the lenders party thereto and Wells Fargo National Association, as administrative agent (the “ABL Credit
Agreement”), to facilitate the issuance of the 2028 Notes. The amendments to the ABL Credit Agreement, include, among other
things, a consent to the issuance of the 2028 Notes, revisions to terms and exclusions of collateral and addition of certain subsidiaries
as guarantors.
On
January 19, 2021, the Company completed its 2020 ATM Program, sold an aggregate of 4,325,102 Class A shares and received gross proceeds
of approximately $25.0 million and net proceeds of approximately $24.0 million for the program. On January 27, 2021, the Company
entered into a new 2021 Open Market Sale AgreementSM (the “2021 Sale Agreement”) with Jefferies under which the
Company may offer and sell, from time to time at its sole discretion, shares of its Class A common stock, par value $0.001 per share
(the “Class A Shares”), through Jefferies as its sales agent. The Company has filed a prospectus supplement pursuant
to the 2021 Sale Agreement for the offer and sale of its Class A Shares having an aggregate offering price of up to $25 million (the
“2021 ATM Program”). As of March 26, 2021, the Company has issued and sold an aggregate of 420,439 Class A Shares
pursuant to the 2021 Sale Agreement and received gross proceeds of approximately $3.0 million and net proceeds of approximately $2.9 million,
after deducting commissions to Jefferies and other offering expenses.
On February 19, 2021,
the Company closed on a new asset backed credit facility (the “New ABL Facility”). The New ABL Facility is governed
by a credit agreement by and among the Company, the other borrowers party thereto, the lenders party thereto from time to time
and Bank of America, N.A., as administrative agent. The New ABL Facility provides for up to $50 million revolving loan borrowings
in order to provide for the working capital needs and general corporate requirements of the Company. The New ABL also provides
for a letter of credit facility up to $5 million as a part of the overall $50 million in capacity. The Asset Backed Senior Credit
Facility entered into on April 21, 2016 among the Company, the lenders party thereto from time to time and Wells Fargo Bank National
Association, as administrative agent, was terminated on February 19, 2021.
At the Company’s
election, the interest rate on borrowings under the New ABL Facility are based on either (i) the then applicable margin
relative to Base Rate Loans (as defined in the New ABL Facility) or (ii) the then applicable margin relative to LIBOR
Loans (as defined in the New ABL Facility) corresponding to the average availability of the Company for the most recently
completed fiscal quarter.
Advances under the New
ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the New ABL Facility),
less the amount, if any, of the Dilution Reserve (as defined in the New ABL Facility), minus (b) the sum of (i) the Bank
Product Reserve (as defined in the New ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as defined in the
New ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established by Administrative
Agent.
All obligations
under the New ABL Facility are secured by first priority lien on all (i) deposit accounts (related to accounts receivable),
(ii) accounts receivable, and (iii) all other property which constitutes ABL Priority Collateral (as defined in the New
ABL Facility). The obligations are also guaranteed by all material restricted subsidiaries of the Company.
The New ABL Facility
matures on the earliest of: the earlier to occur of (a) the date that is five (5) years from the effective date of the New
ABL Facility and (b) 91 days prior to the maturity of the Company’s 2028 Notes.
Finally, the New
ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the New ABL Facility)
by and among the Administrative Agent and Wilmington Trust, National Association.
URBAN ONE, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION
AND QUALIFYING ACCOUNTS
For the Years Ended December 31,
2020 and 2019
Description
|
|
Balance
at
Beginning
of Year
|
|
Additions
Charged
to
Expense
|
|
Acquired
from
Acquisitions
|
|
Deductions
|
|
Balance
at End
of Year
|
|
|
|
(In thousands)
|
|
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
7,416
|
|
$
|
1,394
|
|
$
|
—
|
|
$
|
854
|
|
$
|
7,956
|
|
2019
|
|
|
8,249
|
|
$
|
1,370
|
|
$
|
—
|
|
$
|
2,203
|
|
$
|
7,416
|
|
Description
|
|
Balance
at
Beginning
of Year
|
|
Additions
Charged
to
Expense
|
|
Acquired
from
Acquisitions
|
|
Deductions
|
|
Balance
at End
of Year
|
|
|
(In thousands)
|
|
Valuation Allowance for Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
249
|
|
$
|
28
|
|
$
|
—
|
|
$
|
—
|
|
$
|
277
|
|
2019
|
|
|
235
|
|
$
|
14
|
|
$
|
—
|
|
$
|
—
|
|
$
|
249
|
|
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