The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Urban One, Inc. (a Delaware
corporation referred to as “Urban One”) and its subsidiaries (collectively, the “Company”) is an urban-oriented,
multi-media company that primarily targets African-American and urban consumers. Our core business is our radio broadcasting franchise
which is the largest radio broadcasting operation that primarily targets African-American and urban listeners. As of March 31, 2021,
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 as 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 7 – Segment Information.)
|
(b)
|
Interim Financial Statements
|
The
interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”). In management’s opinion, the interim financial data presented
herein include all adjustments (which include only normal recurring adjustments) necessary for a fair presentation. Certain information
and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
Results
for interim periods are not necessarily indicative of results to be expected for the full year. This Form 10-Q should be read in
conjunction with the consolidated financial statements and notes thereto included in the Company’s 2020 Annual Report on Form 10-K.
|
(c)
|
Financial Instruments
|
Financial instruments as
of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, except for the Company’s long-term debt.
On January 24, 2021, the Company borrowed $825 million in aggregate principal amount of senior secured notes due February 2028 (the “2028
Notes”). The 7.375% 2028 Notes had a carrying value of approximately $825.0 million and fair value of approximately $851.8 million
as of March 31, 2021. The fair values of the 2028 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. The Company used the net proceeds from the 2028 Notes, 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 (all as defined below). 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 7.375% Senior Secured Notes that were 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 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. 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. 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.
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 as of March 31, 2021 and December 31,
2020.
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 $3.5 million and $4.7 million for the three months ended March 31, 2021 and
2020, 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 $3.8 million and $3.7 million
for the three months ended March 31, 2021 and 2020, respectively.
Revenue by Contract Type
The following chart shows
our net revenue (and sources) for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
(In thousands)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Advertising
|
|
$
|
33,340
|
|
|
$
|
38,417
|
|
Political Advertising
|
|
|
780
|
|
|
|
2,404
|
|
Digital Advertising
|
|
|
10,353
|
|
|
|
6,289
|
|
Cable Television Advertising
|
|
|
20,702
|
|
|
|
21,033
|
|
Cable Television Affiliate Fees
|
|
|
25,486
|
|
|
|
26,207
|
|
Event Revenues & Other
|
|
|
779
|
|
|
|
525
|
|
Net Revenue (as reported)
|
|
$
|
91,440
|
|
|
$
|
94,875
|
|
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 March 31, 2021, December 31, 2020 and March 31, 2020 were as follows:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled receivables
|
|
$
|
4,557
|
|
|
$
|
5,798
|
|
|
$
|
5,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer advances and unearned income
|
|
$
|
5,979
|
|
|
$
|
4,955
|
|
|
$
|
2,667
|
|
Unearned event income
|
|
|
5,735
|
|
|
|
5,921
|
|
|
|
11,194
|
|
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, 2021, approximately $2.0 million was recognized as revenue during the three months ended March 31, 2021.
For unearned event income, no revenue was recognized during the three months ended March 31, 2021. For customer advances and unearned
income as of January 1, 2020, approximately $1.7 million was recognized as revenue during the three months ended March 31, 2020. For unearned
event income, no revenue was recognized during the three months ended March 31, 2020.
Practical expedients and exemptions
We generally expense sales
commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general
and administrative expenses.
We do not disclose the value
of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which
we recognize revenue at the amount to which we have the right to invoice for services performed.
The cable television segment
has entered into certain affiliate agreements requiring various payments for launch support. Launch support assets are used to initiate
carriage under affiliation agreements and are amortized over the term of the respective contracts. The Company did not pay any launch
support for carriage initiation during the three months ended March 31, 2021 and 2020. The weighted-average amortization period for launch
support is approximately 7.4 years as of March 31, 2021, and approximately 7.4 years as of December 31, 2020. The remaining weighted-average
amortization period for launch support is 4.2 years and 4.5 years as of March 31, 2021 and December 31, 2020, respectively. Amortization
is recorded as a reduction to revenue to the extent that revenue is recognized from the vendor, and any excess amortization is recorded
as launch support amortization expense. For the three months ended March 31, 2021 and 2020, launch support asset amortization of $105,000
and $105,000, respectively, was recorded as a reduction of revenue, and $229,000 and $151,000, respectively, was recorded as an operating
expense in selling, general and administrative expenses. Launch assets are included in other intangible assets on the consolidated balance
sheets, except for the portion of the unamortized balance that is expected to be amortized within one year which is included in other
current assets.
For barter transactions,
the Company provides broadcast advertising time in exchange for programming content and certain services. The Company includes the value
of such exchanges in both broadcasting net revenue and operating expenses. The valuation of barter time is based upon the fair value of
the network advertising time provided for the programming content and services received. For the three months ended March 31, 2021 and
2020, barter transaction revenues were $449,000 and $515,000 respectively. Additionally, for the three months ended March 31, 2021 and
2020, barter transaction costs were reflected in programming and technical expenses of $311,000 and $371,000, respectively, and selling,
general and administrative expenses of $138,000 and $144,000, respectively.
Basic earnings per
share is computed on the basis of the weighted average number of shares of common stock (Classes A, B, C and D) outstanding during
the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the
effect of dilutive potential common shares outstanding during the period using the treasury stock method. The
Company’s potentially dilutive securities include stock options and unvested restricted stock. Diluted earnings per share
considers the impact of potentially dilutive securities except in periods in which there is a net loss, as the inclusion of the
potentially dilutive common shares would have an anti-dilutive effect.
The following table sets
forth the calculation of basic and diluted earnings per share from continuing operations (in thousands, except share and per share data):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
7
|
|
|
$
|
(23,187
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net income (loss) per share – weighted-average outstanding shares
|
|
|
48,463,289
|
|
|
|
45,228,164
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
590,361
|
|
|
|
—
|
|
Denominator for diluted net income (loss) per share – weighted-average outstanding shares
|
|
|
49,053,650
|
|
|
|
45,228,164
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders per share – basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.51
|
)
|
All
stock options and restricted stock awards were excluded from the diluted calculation for the three months ended March 31, 2020,
as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the
diluted calculation.
|
|
Three Months
Ended March 31,
|
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Stock options
|
|
|
4,173
|
|
Restricted stock awards
|
|
|
379
|
|
|
(h)
|
Fair Value Measurements
|
We report our financial and
non-financial assets and liabilities measured at fair value on a recurring and non-recurring basis under the provisions of ASC 820, “Fair
Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
The fair value framework
requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or
liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.
The three levels are defined as follows:
Level 1: Inputs are unadjusted
quoted prices in active markets for identical assets and liabilities that can be accessed at the measurement date.
Level 2: Observable inputs other
than those included in Level 1 (i.e., quoted prices for similar assets or liabilities in active markets or quoted prices for identical
assets or liabilities in inactive markets).
Level 3: Unobservable inputs
reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
A financial instrument’s
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.
As of March 31, 2021, and
December 31, 2020, respectively, the fair values of our financial assets and liabilities measured at fair value on a recurring basis are
categorized as follows:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
As of March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (a)
|
|
$
|
455
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
455
|
|
Employment agreement award (b)
|
|
|
26,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,200
|
|
Total
|
|
$
|
26,655
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity subject to fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests (c)
|
|
$
|
12,735
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(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 capital contributions in TV One, and payment is required only upon actual receipt of distributions of
cash or marketable securities or proceeds from a liquidity event with respect to such invested amount. The long-term portion of the award
is recorded in other long-term liabilities and the current portion is recorded in other current liabilities in the consolidated balance
sheets. The CEO was fully vested in the award upon execution of the Employment Agreement, and the award lapses if the CEO voluntarily
leaves the Company or is terminated for cause. A third-party valuation firm assisted the Company in estimating TV One’s fair value
using a discounted cash flow analysis. Significant inputs to the discounted cash flow analysis include forecasted operating results, discount
rate and a terminal value. In September 2014, the Compensation Committee of the Board of Directors of the Company approved terms for a
new employment agreement with the CEO, including a renewal of the Employment Agreement Award upon similar terms as in the prior Employment
Agreement.
(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 three months ended March 31, 2021. The following table presents the changes in Level 3 liabilities
measured at fair value on a recurring basis for the three months ended March 31, 2021:
|
|
Contingent
Consideration
|
|
|
Employment
Agreement
Award
|
|
|
Redeemable
Noncontrolling
Interests
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2020
|
|
$
|
780
|
|
|
$
|
25,603
|
|
|
$
|
12,701
|
|
Net income attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
454
|
|
Distribution
|
|
|
(365
|
)
|
|
|
—
|
|
|
|
—
|
|
Change in fair value
|
|
|
40
|
|
|
|
597
|
|
|
|
(420
|
)
|
Balance at March 31, 2021
|
|
$
|
455
|
|
|
$
|
26,200
|
|
|
$
|
12,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total (losses)/income for the period included in earnings attributable to the change in unrealized losses/income relating to assets and liabilities still held at the reporting date
|
|
$
|
(40
|
)
|
|
$
|
(597
|
)
|
|
$
|
—
|
|
Losses
and income included in earnings were recorded in the consolidated statements of operations as corporate selling, general and administrative
expenses for the employment agreement award for the three months ended March 31, 2021 and 2020. Losses included in earnings were recorded
in the consolidated statements of operations as selling, general and administrative expenses for contingent consideration for the three
months ended March 31, 2021 and 2020.
|
|
|
|
|
|
As of
March 31,
2021
|
|
|
As of
December 31,
2020
|
|
Level 3 liabilities
|
|
Valuation Technique
|
|
Significant
Unobservable Inputs
|
|
Significant Unobservable
Input Value
|
|
Contingent consideration
|
|
Monte Carlo Simulation
|
|
Expected volatility
|
|
|
13.4
|
%
|
|
|
29.5
|
%
|
Contingent consideration
|
|
Monte Carlo Simulation
|
|
Discount Rate
|
|
|
16.5
|
%
|
|
|
16.5
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
10.5
|
%
|
|
|
10.5
|
%
|
Employment agreement award
|
|
Discounted Cash Flow
|
|
Long-term Growth Rate
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Redeemable noncontrolling interest
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
11.5
|
%
|
|
|
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 concluded
these assets were not impaired during the three months ended March 31, 2021. For the three months ended March 31, 2020, the Company recorded
an impairment charge of approximately $5.9 million related to its Atlanta market and Indianapolis goodwill balances and also an impairment
charge of approximately $47.7 million associated with our Atlanta, Cincinnati, Dallas, Houston, Indianapolis, Philadelphia, Raleigh, Richmond
and St. Louis market radio broadcasting licenses.
As of January 1, 2019,
the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), using
the modification retrospective transition method. Prior comparative periods will be not be restated under this new standard and
therefore those amounts are not presented below. The Company adopted a package of practical expedients as allowed by the transition
guidance which permits the Company to carry forward the historical assessment of whether contracts contain or are leases,
classification of leases and the remaining lease terms. The Company has also made an accounting policy election to exclude leases
with an initial term of twelve months or less from recognition on the consolidated balance sheet. Short-term leases will be expensed
over the lease term. The Company also elected to separate the consideration in the lease contracts between the lease and non-lease
components. All variable non-lease components are expensed as incurred.
ASC 842 results in significant
changes to the balance sheets of lessees, most significantly by requiring the recognition of right of use (“ROU”) assets and
lease liabilities by lessees for those leases classified as operating leases. Upon adoption of ASC 842, deferred rent balances, which
were historically presented separately, were combined and presented net within the ROU asset.
Many of the Company's leases
provide for renewal terms and escalation clauses, which are factored into calculating the lease liabilities when appropriate. The implicit
rate within the Company's lease agreements is generally not determinable and as such the Company’s collateralized borrowing rate
is used.
The following table sets
forth the components of lease expense and the weighted average remaining lease term and the weighted average discount rate for the Company’s
leases:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars In thousands)
|
|
Operating Lease Cost (Cost resulting from lease payments)
|
|
$
|
3,274
|
|
|
$
|
3,151
|
|
Variable Lease Cost (Cost excluded from lease payments)
|
|
|
34
|
|
|
|
40
|
|
Total Lease Cost
|
|
$
|
3,308
|
|
|
$
|
3,191
|
|
|
|
|
|
|
|
|
|
|
Operating Lease - Operating Cash Flows (Fixed Payments)
|
|
$
|
3,366
|
|
|
$
|
3,406
|
|
Operating Lease - Operating Cash Flows (Liability Reduction)
|
|
$
|
2,193
|
|
|
$
|
2,134
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Lease Term - Operating Leases
|
|
|
5.16 years
|
|
|
|
5.59 years
|
|
Weighted Average Discount Rate - Operating Leases
|
|
|
11.00
|
%
|
|
|
11.00
|
%
|
As of March 31, 2021, maturities
of lease liabilities were as follows:
For the Year Ended December 31,
|
|
(Dollars in
thousands)
|
|
For the remaining nine months ending December 31, 2021
|
|
$
|
9,969
|
|
2022
|
|
|
12,821
|
|
2023
|
|
|
11,205
|
|
2024
|
|
|
10,052
|
|
2025
|
|
|
5,373
|
|
Thereafter
|
|
|
10,101
|
|
Total future lease payments
|
|
|
59,521
|
|
Imputed interest
|
|
|
(14,281
|
)
|
Total
|
|
$
|
45,240
|
|
|
(j)
|
Impact of Recently Issued Accounting Pronouncements
|
In June 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13
is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments
and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
In November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815), and Leases (Topic 842): Effective Dates.” ASU 2019-10 defers the effective date of credit loss standard ASU 2016-13
by two years for smaller reporting companies and permits early adoption. ASU 2016-13 is effective for the Company beginning January 1,
2023. The Company is evaluating the impact of the adoption of ASU 2016-13 on its financial statements.
In December 2019, the FASB
issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740
and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU 2019-12 on
January 1, 2020, and adoption did not have a material impact on our consolidated financial statements and related disclosures.
|
(k)
|
Redeemable noncontrolling interest
|
Redeemable noncontrolling
interests are interests in subsidiaries that are redeemable outside of the Company’s control either for cash or other assets. These
interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each reporting period
or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations. The resulting increases
or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of
retained earnings, additional paid-in-capital.
|
(l)
|
Investments – Cost Method
|
On April 10, 2015, the
Company made a $5 million investment in MGM’s world-class casino property, MGM National Harbor, located in Prince George’s
County, Maryland, which has a predominately African-American demographic profile. On November 30, 2016, the Company contributed an
additional $35 million to complete its investment. This investment further diversified our platform in the entertainment industry while
still focusing on our core demographic. We account for this investment on a cost basis. Our MGM National Harbor investment entitles us
to an annual cash distribution based on net gaming revenue. 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 $x.x million and $1.5 million, for the three months ended March
31, 2021 and 2020, 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 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 4 – Long-Term Debt.) As of March 31, 2021, upon settlement of the 2028 Notes,
the Company’s subsidiaries of Radio One Entertainment Holdings, LLC and Urban One Entertainment SPV, LLC became guarantors under
the 2028 Notes along with the Company’s other subsidiaries.
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 as
a result of evaluating its contracts for recoverability for the three months ended March 31, 2021 and 2020. All produced and licensed
content is classified as a long-term asset, except for the portion of the unamortized content balance that is expected to be amortized
within one year which is classified as a current asset.
Tax incentives that state and local governments
offer that are directly measured based on production activities are recorded as reductions in production costs.
The Company recognizes all
derivatives at fair value on the consolidated balance sheets as either an asset or liability. The accounting for changes in the fair value
of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and
the resulting designation.
The Company accounts for
the Employment Agreement Award as a derivative instrument in accordance with ASC 815, “Derivatives and Hedging.” The
Company estimated the fair value of the award at March 31, 2021, and December 31, 2020, to be approximately $26.2 million and $25.6 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 $597,000 and approximately $1.2 million for the three months ended March 31, 2021, and 2020, 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.
|
(o)
|
Related Party Transactions
|
Reach Media operates
the Tom Joyner Foundation’s Fantastic Voyage® (the “Fantastic Voyage®”), a
fund-raising event, on behalf of the Tom Joyner Foundation, Inc. (the “Foundation”), a 501(c)(3) entity. The
agreement under which the Fantastic Voyage® operates provides that Reach Media provide all necessary operations of
the cruise and that Reach Media will be reimbursed its expenditures and receive a fee plus a performance bonus. Distributions from
operating revenues are in the following order until the funds are depleted: up to $250,000 to the Foundation, reimbursement of
Reach’s expenditures, up to a $1.0 million fee to Reach, a performance bonus of up to 50% of remaining operating revenues to
Reach Media, with the balance remaining to the Foundation. For 2021 and 2022, $250,000 to the Foundation is guaranteed. Reach
Media’s earnings for the Fantastic Voyage® in any given year may not exceed $1.75 million. The
Foundation’s remittances to Reach Media under the agreements are limited to its Fantastic Voyage® related
cash collections. Reach Media bears the risk should the Fantastic Voyage® sustain a loss and bears all credit risk
associated with the related passenger cruise package sales. The agreement between Reach and the Foundation automatically renews
annually unless termination is mutually agreed or unless a party’s financial requirements are not met, in which case the party
not in breach of their obligations has the right, but not the obligation, to terminate unilaterally. Due to the pandemic, the 2020
cruise has been rescheduled to November 2021 and passengers have been given the option to have the majority of their payments
refunded. As of March 31, 2021, the Foundation owed Reach Media approximately $77,000 under the agreements for the operation of
the cruises and as of December 31, 2020, Reach Media owed the Foundation $244,000 due to passengers’ refunds pending.
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 each of March 31, 2021 and December 31,
2020, the Foundation owed $6,000 to Reach Media.
Due to the aforementioned
rescheduling of the Fantastic Voyage resulting from impacts of the COVID pandemic, no cruise was operated in 2020.
|
(p)
|
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 asset-backed facility funds to finance working capital needs should the need arise.
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 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 entered into a definitive asset exchange agreement with Entercom Communications Corp. whereby the Company would receive Charlotte
stations: WLNK-FM (Adult Contemporary); WBT-AM & FM (News Talk Radio); and WFNZ-AM & 102.5 FM Translator (Sports Radio).
In exchange, Urban One would 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 was subject to FCC approval and
other customary closing conditions and closed on April 20, 2021. In addition, the Company entered into an asset purchase agreement with
Gateway Creative Broadcasting, Inc. for the remaining assets of our WFUN station in a separate transaction which also closed on April
20, 2021. The identified assets, with a combined carrying value of approximately $32.9 million and $32.7 million, have been classified
as held for sale in the consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively. The major categories of
the assets held for sale include the following:
|
|
As of March 31,
2021
|
|
|
As of December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
Property and equipment, net
|
|
$
|
2,112
|
|
|
$
|
2,144
|
|
Goodwill
|
|
|
470
|
|
|
|
470
|
|
Radio broadcasting licenses
|
|
|
30,606
|
|
|
|
30,606
|
|
Right of use assets
|
|
|
851
|
|
|
|
1,071
|
|
Lease liabilities
|
|
|
(1,107
|
)
|
|
|
(1,630
|
)
|
Assets held for sale, net
|
|
$
|
32,932
|
|
|
$
|
32,661
|
|
3.
|
GOODWILL AND RADIO BROADCASTING LICENSES:
|
Impairment Testing
In
accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our indefinite-lived radio broadcasting
licenses and goodwill. Instead, we perform a test for impairment annually across all reporting units, or on an interim basis when events
or changes in circumstances or other conditions suggest impairment may have occurred in any given reporting unit. Other intangible assets
continue to be amortized on a straight-line basis over their useful lives. We perform our annual impairment test as of October 1 of each
year. We evaluate all events and circumstances on an interim basis to determine if an interim indicator is present.
Valuation of Broadcasting
Licenses
Beginning
in March 2020, the Company noted that the COVID-19 pandemic and the resulting government stay at home orders were dramatically impacting
certain of the Company’s revenues. Most notably, a number of advertisers across significant advertising categories have reduced
or ceased advertising spend due to the outbreak and stay at home orders which effectively shut many businesses down in the markets in
which we operate. This was particularly true within our radio segment which derives substantial revenue from local advertisers who
have been particularly hard hit due to social distancing and government interventions. As a result of COVID-19, the total market
revenue growth for certain markets in which we operate was below that assumed in our annual impairment testing. We deemed that to be an
impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses, which we performed
as of March 31, 2020.
As a result of the testing,
for the first quarter of 2020, the Company recorded a non-cash impairment charge of approximately $47.7 million associated with our Atlanta,
Cincinnati, Dallas, Houston, Indianapolis, Philadelphia, Raleigh, Richmond and St. Louis radio market broadcasting licenses. Below
are some of the key assumptions used in the income approach model for estimating broadcasting licenses fair values for the interim impairment
assessment for the quarter ended March 31, 2020. We did not identify any impairment indicators at any of our reportable segments
for the three months ended March 31, 2021 and, therefore, no interim impairment testing was performed as of March 31, 2021.
Radio Broadcasting
|
|
March 31,
|
|
Licenses
|
|
2020 (a)
|
|
Pre-tax impairment charge (in millions)
|
|
$
|
47.7
|
|
Discount Rate
|
|
|
9.5
|
%
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(13.3)
|
%
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.7% – 1.1
|
%
|
Mature Market Share Range
|
|
|
6.9% – 25.0
|
%
|
Operating Profit Margin Range
|
|
|
27.6% –39.7
|
%
|
|
(a)
|
Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
|
Valuation of Goodwill
As noted above, we did not
identify any impairment indicators at any of our reportable segments for the three months ended March 31, 2021. Also as noted above,
during the first quarter 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. Below are some of the key assumptions used in the income approach model for estimating reporting unit fair values for
the interim impairment assessments for the quarter ended March 31, 2020.
Goodwill (Radio Market
|
|
March 31,
|
|
Reporting Units)
|
|
2020 (a)
|
|
Pre-tax impairment charge (in millions)
|
|
$
|
5.9
|
|
Discount Rate
|
|
|
9.5
|
%
|
Year 1 Market Revenue Growth Rate Range
|
|
|
(14.5)% – (12.9)
|
%
|
Long-term Market Revenue Growth Rate Range (Years 6 – 10)
|
|
|
0.9% – 1.1
|
%
|
Mature Market Share Range
|
|
|
11.1% – 13.0
|
%
|
Operating Profit Margin Range
|
|
|
29.4% – 39.0
|
%
|
(a)
|
Reflects the key assumptions for testing only those radio markets with remaining goodwill.
|
Goodwill Valuation Results
The table below presents
the changes in the Company’s goodwill carrying values for its four reportable segments.
|
|
Radio
Broadcasting
Segment
|
|
|
Reach
Media
Segment
|
|
|
Digital
Segment
|
|
|
Cable
Television
Segment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Gross goodwill
|
|
$
|
155,000
|
|
|
$
|
30,468
|
|
|
$
|
27,567
|
|
|
$
|
165,044
|
|
|
$
|
378,079
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Accumulated impairment losses
|
|
|
(117,748
|
)
|
|
|
(16,114
|
)
|
|
|
(20,345
|
)
|
|
|
—
|
|
|
|
(154,207
|
)
|
Assets held for sale
|
|
|
(470
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(470
|
)
|
Net goodwill at March 31, 2021
|
|
$
|
36,782
|
|
|
$
|
14,354
|
|
|
$
|
7,222
|
|
|
$
|
165,044
|
|
|
$
|
223,402
|
|
Long-term debt consists
of the following:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
7.375% Senior Secured Notes due February 2028
|
|
$
|
825,000
|
|
|
$
|
—
|
|
2018 Credit Facility
|
|
|
—
|
|
|
|
129,935
|
|
MGM National Harbor Loan
|
|
|
—
|
|
|
|
57,889
|
|
2017 Credit Facility
|
|
|
—
|
|
|
|
317,332
|
|
8.75% Senior Secured Notes due December 2022
|
|
|
—
|
|
|
|
347,016
|
|
7.375% Senior Secured Notes due April 2022
|
|
|
—
|
|
|
|
2,984
|
|
Total debt
|
|
|
825,000
|
|
|
|
855,156
|
|
Less: current portion of long-term debt
|
|
|
—
|
|
|
|
23,362
|
|
Less: original issue discount and issuance costs
|
|
|
15,143
|
|
|
|
12,870
|
|
Long-term debt, net
|
|
$
|
809,857
|
|
|
$
|
818,924
|
|
2028 Notes
On January 7, 2021,
the Company launched an offering (the “2028 Notes Offering”) of $825 million in aggregate principal amount of 7.375% 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 (all as defined below). 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. There was a net loss on retirement of debt of approximately $6.9 million
for the quarter ended March 31, 2021 associated with the settlement of the 2028 Notes.
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.
The associated debt issuance
costs in the amount of $15.4 million 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.
The amount of deferred financing
costs included in interest expense for all instruments, for the three months ended March 31, 2021 and 2020, was $824,000 and approximately
$1.1 million, respectively.
8.75% Notes
In October 2020, the Company
announced an offer to eligible holders of its 7.375% Senior Secured Notes due 2022 (the “7.375
Notes”) to exchange any and all of their 7.375 Notes for newly issued 8.75% Senior Secured Notes due 2022 (the “8.75 Notes”).
The exchange offer closed on November 9, 2020 and, therefore, is referred to as the “November 2020 Exchange Offer”. Until
their satisfaction and discharge on settlement of the 2028 Notes, 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 November 2020 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 November 2020
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 November 2020 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 year ended December 31,
2020, the Company recorded a loss on retirement of debt of approximately $2.9 million associated with the November 2020 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.
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 on
settlement of the 2028 Notes, 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 November 2020 Exchange Offer,
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 November 2020 Exchange Offer, 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 three months ended March 31, 2020, the Company repaid approximately $11.9 million
under the 2018 Credit Facility. Included in the repayments made during the three months ended March 31, 2020 was approximately $3.8 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.
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.
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 on
settlement of the 2028 Notes, the MGM National Harbor Loan was scheduled to mature 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).
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 on
settlement of the 2028 Notes, 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 5.0% for 2021 and 5.62% for
2020.
The 2017 Credit Facility
was (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 the three month periods in March 31, 2020, the Company repaid $824,000 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.
|
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.
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 on settlement of the 2028 Notes, 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 previously existing senior subordinated notes . 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 the November 2020 Exchange Offer of 99.15% of our outstanding 7.375% Notes for $347 million aggregate principal amount
of 8.75% Notes.
Asset-Backed Credit Facilities
On April 21, 2016, the
Company entered into a senior credit agreement governing an asset-backed credit facility (the “2016 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 2016 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
2016 ABL Facility, (the “2016 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 2016 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 2016 ABL Facility were based on either (i) the then applicable margin relative to Base
Rate Loans (as defined in the 2016 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the 2016
ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter.
Advances under the 2016 ABL
Facility were limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the 2016 ABL Facility),
less the amount, if any, of the Dilution Reserve (as defined in the 2016 ABL Facility), minus (b) the sum of (i) the Bank Product
Reserve (as defined in the 2016 ABL Facility), plus (ii) the aggregate amount of all other reserves, if any, established by Administrative
Agent.
All obligations under the
2016 ABL Facility were 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 2016 ABL Facility). The obligations
were also secured by all material subsidiaries of the Company.
The 2016 ABL Facility was
subject to the terms of the Intercreditor Agreement (as defined in the 2016 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.
In connection with the offering
of the 2028 Notes, the Company entered into an amendment of its 2016 ABL Facility to facilitate the issuance of the 2028 Notes. The amendments
to the 2016 ABL Facility, 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 February 19, 2021, the
Company closed on a new asset backed credit facility (the “Current 2021 ABL Facility”). The Current 2021 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 Current 2021 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 Current 2021 ABL Facility also provides
for a letter of credit facility up to $5 million as a part of the overall $50 million in capacity. On closing of the Current 2021 ABL
Facility, the 2016 ABL Facility was terminated on February 19, 2021. As of March 31, 2021, there is no balance outstanding on the Current 2021 ABL Facility.
At the Company’s election,
the interest rate on borrowings under the Current 2021 ABL Facility are based on either (i) the then applicable margin relative to
Base Rate Loans (as defined in the Current 2021 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined
in the Current 2021 ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal
quarter.
Advances under the Current
2021 ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the Current 2021
ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the Current 2021 ABL Facility), minus (b) the sum
of (i) the Bank Product Reserve (as defined in the Current 2021 ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as
defined in the Current 2021 ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established
by Administrative Agent.
All obligations under the Current
2021 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 Current 2021 ABL Facility). The
obligations are also guaranteed by all material restricted subsidiaries of the Company.
The Current 2021 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 Current
2021 ABL Facility and (b) 91 days prior to the maturity of the Company’s 2028 Notes.
Finally, the Current
2021 ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the Current 2021 ABL Facility) by
and among the Administrative Agent and Wilmington Trust, National Association.
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 March 31,
2021, 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
2028 Notes.
Future Minimum Principal Payments
Future
scheduled minimum principal payments of debt as of March 31, 2021, are as follows:
|
|
7.375% Senior
Secured
Notes due
February 2028
|
|
|
|
(In thousands)
|
|
April - December 2021
|
|
$
|
—
|
|
2022
|
|
|
—
|
|
2023
|
|
|
—
|
|
2024
|
|
|
—
|
|
2025
|
|
|
—
|
|
2026 and thereafter
|
|
|
825,000
|
|
Total Debt
|
|
$
|
825,000
|
|
The Company uses the estimated
annual effective tax rate method under ASC 740-270, “Interim Reporting” to calculate the provision for income taxes.
The Company recorded a benefit from income taxes of $10,000 on pre-tax income from continuing operations of $451,000 for the three months
ended March 31, 2021, which results in a tax rate of approximately -2.2%. This tax rate is based on an estimated annual effective rate
of 24.7%. The Company recorded discrete tax benefit of $125,000 for excess tax benefits related to restricted stock units.
In accordance with ASC 740,
“Accounting for Income Taxes”, the Company continues to evaluate the realizability of its net DTAs by assessing the
future tax consequences of events that have been recognized in the Company’s financial statements or tax returns, tax planning strategies,
and future profitability. As of March 31, 2021, the Company believes it is more likely than not that these DTAs will be realized.
The Company is subject to
the continuous examination of our income tax returns by the IRS and other domestic tax authorities. We believe that an adequate provision
has been made for any adjustments that may result from tax examinations. The Company believes that it is reasonably possible that a decrease
of up to approximately $1.0 million of unrecognized tax benefits related to state tax exposures may be necessary within the next twelve months.
On June 16, 2020, the
Company’s Board of Directors authorized an amendment (the “Potential Amendment”) of Urban One's certificate of incorporation
to effect a reverse stock split across all classes of common stock by a ratio of not less than one-for-two and not more than one-for-fifty
at any time prior to December 31, 2021, with the exact ratio to be set at a whole number within this range as determined by our board
of directors in its discretion. The Company’s shareholders approved the Potential Amendment at the annual meeting of the shareholders
June 16, 2020. The Company has not acted on the Potential Amendment but may do so as determined by our board of directors in its
discretion.
On August 18,
2020, the Company entered into an Open Market Sales Agreement with Jefferies LLC (“Jefferies”) under which the Company
may offer and sell, from time to time at its sole discretion, 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. During the year ended December 31, 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.
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 Agreement (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 31, 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 $2.8 million, after deducting commissions
to Jefferies and other offering expenses. While the Company still has Class A Shares available for issuance under the 2021 ATM Program,
the Company may also enter into new additional ATM programs and issue additional common stock from time to time under those programs.
Stock Repurchase
Program
From time to time, the Company’s
Board of Directors has authorized repurchases of shares of the Company’s Class A and Class D common stock. As of March 13,
2020, the Company’s Board authorized a new repurchase plan of up to $2.6 million of the Company’s Class A and Class D
shares through December 31, 2020. In addition, on June 11, 2020, the Company’s Board authorized a repurchase of $2.4 million
of the Company’s Class D shares. As of 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 three months ended March 31,
2021 and 2020, the Company did not repurchase any shares of Class A common stock or Class D common stock.
In addition, the Company
has limited but ongoing authority to purchase shares of Class D common stock (in one or more transactions at any time there remain
outstanding grants) under the Company’s 2009 Stock Plan and 2019 Equity and Performance Incentive Plan (both as defined below).
As of May 21, 2019, the 2019 Equity and Performance Incentive Plan will be used to satisfy any employee or other recipient tax obligations
in connection with the exercise of an option or a share grant under the 2009 Stock Plan, to the extent that the Company has capacity under
its financing agreements (i.e., its current credit facilities and indentures) (each a “Stock Vest Tax Repurchase”). During
the three months ended March 31, 2021, the Company executed a Stock Vest Tax Repurchase of 495,296 shares of Class D Common Stock in the
amount of $872,000 at an average price of $1.76 per share. During the three months ended March 31, 2020, the Company executed a Stock
Vest Tax Repurchase of 547,801 shares of Class D Common Stock in the amount of approximately $1.0 million at an average price of $1.85
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 March 31, 2021, 480,425 shares of Class D common stock were available for grant under the
2019 Equity and Performance Incentive Plan.
On June 12, 2019, the
Compensation Committee (“Compensation Committee”) of the Board of Directors of the Company 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 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 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.
Stock-based
compensation expense for the three months ended March 31, 2021 and 2020, was $253,000 and $393,000, respectively
The Company granted 20,000
stock options during the three months ended March 31, 2021 and did not grant any stock options during the three months ended March 31,
2020.
Transactions and other information
relating to stock options for the three months ended March 31, 2021, are summarized below:
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
(In Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
4,019,000
|
|
|
$
|
2.11
|
|
|
|
6.48
|
|
|
$
|
41,000
|
|
Grants
|
|
|
20,000
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired/settled
|
|
|
46,000
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2021
|
|
|
3,993,,000
|
|
|
$
|
2.12
|
|
|
|
6.33
|
|
|
$
|
198,000
|
|
Vested and expected to vest at March 31, 2021
|
|
|
3,989,000
|
|
|
$
|
2.12
|
|
|
|
6.32
|
|
|
$
|
196,000
|
|
Unvested at March 31, 2021
|
|
|
71,000
|
|
|
$
|
1.13
|
|
|
|
9.51
|
|
|
$
|
44,000
|
|
Exercisable at March 31, 2021
|
|
|
3,922,000
|
|
|
$
|
2.14
|
|
|
|
6.27
|
|
|
$
|
155,000
|
|
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 three
months ended March 31, 2021, and the exercise price, multiplied by the number of shares that would have been received by the holders of
in-the-money options had all the option holders exercised their options on March 31, 2021. This amount changes based on the fair market
value of the Company’s stock.
No options were exercised
during the three months ended March 31, 2021 and 2020. There were 832,847 options vested during the three months ended March 31, 2021
and 804,876 options vested during the three months ended March 31, 2020.
As of March 31, 2021, $20,000
of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of three
months. The weighted-average fair value per share of shares underlying stock options was $1.41 at March 31, 2021.
The Company granted 20,000
shares of restricted stock during the three months ended March 31, 2021 and did not grant any restricted shares of stock during the three
months ended March 31, 2020.
Transactions and other information
relating to restricted stock grants for the three months ended March 31, 2021, are summarized below:
|
|
Shares
|
|
|
Average
Fair Value
at Grant
Date
|
|
Unvested at December 31, 2020
|
|
|
1,724,000
|
|
|
$
|
0.83
|
|
Grants
|
|
|
20,000
|
|
|
$
|
1.25
|
|
Vested
|
|
|
(1,623,000
|
)
|
|
$
|
0.72
|
|
Forfeited/cancelled/expired
|
|
|
—
|
|
|
$
|
—
|
|
Unvested at March 31, 2021
|
|
|
121,000
|
|
|
$
|
2.38
|
|
Restricted stock grants were
and are included in the Company’s outstanding share numbers on the effective date of grant. As of March 31, 2021, $163,000 of total
unrecognized compensation cost related to restricted stock grants is expected to be recognized over the weighted-average period of seven
months.
The Company has four reportable
segments: (i) radio broadcasting; (ii) Reach Media; (iii) digital; and (iv) cable television. These segments operate in the United States
and are consistently aligned with the Company’s management of its businesses and its financial reporting structure.
The radio broadcasting segment
consists of all broadcast results of operations. The Reach Media segment consists of the results of operations for the related activities
and operations of our syndicated shows. The digital segment includes the results of our online business, including the operations of Interactive
One, as well as the digital components of our other reportable segments. The cable television segment consists of the Company’s
cable TV operation, including TV One’s and CLEO TV’s results of operations. Corporate/Eliminations represents financial activity
associated with our corporate staff and offices and intercompany activity among the four segments.
Operating loss or income
represents total revenues less operating expenses, depreciation and amortization, and impairment of long-lived assets. Intercompany revenue
earned and expenses charged between segments are recorded at estimated fair value and eliminated in consolidation.
The accounting policies described
in the summary of significant accounting policies in Note 1 – Organization and Summary of Significant Accounting Policies
are applied consistently across the segments.
Detailed segment data for
the three months ended March 31, 2021 and 2020, is presented in the following tables:
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Net Revenue:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
27,788
|
|
|
$
|
34,916
|
|
Reach Media
|
|
|
7,816
|
|
|
|
6,689
|
|
Digital
|
|
|
10,355
|
|
|
|
6,289
|
|
Cable Television
|
|
|
46,241
|
|
|
|
47,497
|
|
Corporate/Eliminations*
|
|
|
(760
|
)
|
|
|
(516
|
)
|
Consolidated
|
|
$
|
91,440
|
|
|
$
|
94,875
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock-based compensation and excluding depreciation and amortization and impairment of long-lived assets):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
23,329
|
|
|
$
|
26,391
|
|
Reach Media
|
|
|
5,174
|
|
|
|
5,895
|
|
Digital
|
|
|
8,053
|
|
|
|
7,195
|
|
Cable Television
|
|
|
21,521
|
|
|
|
20,400
|
|
Corporate/Eliminations
|
|
|
7,342
|
|
|
|
6,083
|
|
Consolidated
|
|
$
|
65,419
|
|
|
$
|
65,964
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
729
|
|
|
$
|
741
|
|
Reach Media
|
|
|
58
|
|
|
|
59
|
|
Digital
|
|
|
324
|
|
|
|
488
|
|
Cable Television
|
|
|
929
|
|
|
|
943
|
|
Corporate/Eliminations
|
|
|
224
|
|
|
|
317
|
|
Consolidated
|
|
$
|
2,264
|
|
|
$
|
2,548
|
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
—
|
|
|
$
|
53,650
|
|
Reach Media
|
|
|
—
|
|
|
|
—
|
|
Digital
|
|
|
—
|
|
|
|
—
|
|
Cable Television
|
|
|
—
|
|
|
|
—
|
|
Corporate/Eliminations
|
|
|
—
|
|
|
|
—
|
|
Consolidated
|
|
$
|
—
|
|
|
$
|
53,650
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
3,730
|
|
|
$
|
(45,866
|
)
|
Reach Media
|
|
|
2,584
|
|
|
|
735
|
|
Digital
|
|
|
1,978
|
|
|
|
(1,394
|
)
|
Cable Television
|
|
|
23,791
|
|
|
|
26,154
|
|
Corporate/Eliminations
|
|
|
(8,326
|
)
|
|
|
(6,916
|
)
|
Consolidated
|
|
$
|
23,757
|
|
|
$
|
(27,287
|
)
|
* Intercompany revenue included in net revenue above is as follows:
Radio Broadcasting
|
|
$
|
(760
|
)
|
|
$
|
(516
|
)
|
Capital expenditures by segment are as follows:
Radio Broadcasting
|
|
$
|
261
|
|
|
$
|
963
|
|
Reach Media
|
|
|
1
|
|
|
|
57
|
|
Digital
|
|
|
326
|
|
|
|
197
|
|
Cable Television
|
|
|
38
|
|
|
|
41
|
|
Corporate/Eliminations
|
|
|
178
|
|
|
|
172
|
|
Consolidated
|
|
$
|
804
|
|
|
$
|
1,430
|
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Radio Broadcasting
|
|
$
|
621,405
|
|
|
$
|
630,174
|
|
Reach Media
|
|
|
39,159
|
|
|
|
38,235
|
|
Digital
|
|
|
23,185
|
|
|
|
23,168
|
|
Cable Television
|
|
|
380,896
|
|
|
|
374,046
|
|
Corporate/Eliminations
|
|
|
104,106
|
|
|
|
129,864
|
|
Consolidated
|
|
$
|
1,168,751
|
|
|
$
|
1,195,487
|
|
8.
|
COMMITMENTS AND CONTINGENCIES:
|
Royalty Agreements
Musical
works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations,
such as the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”) and
SESAC, Inc. (“SESAC”). The market for rights relating to musical works is changing rapidly. Songwriters and music
publishers have withdrawn from the traditional performing rights organizations, particularly ASCAP and BMI, and new entities, such as
Global Music Rights, Inc. (“GMR”), have been formed to represent rights holders. These organizations negotiate fees with copyright
users, collect royalties and distribute them to the rights holders. We currently have arrangements with ASCAP, SESAC and GMR.
On April 22, 2020, the Radio Music License Committee (“RMLC”), an industry group which the Company is a part of, and BMI have
reached agreement on the terms of a new license agreement that covers the period January 1, 2017, through December 31, 2021. Upon approval
of the court of the BMI/RMLC agreement, the Company automatically became a party to the agreement and a license through December 31, 2021.
Other Contingencies
The
Company has been named as a defendant in several legal actions arising in the ordinary course of business. It is management’s opinion,
after consultation with its legal counsel, that the outcome of these claims will not have a material adverse effect on the Company’s
financial position or results of operations.
Off-Balance Sheet Arrangements
The Current 2021 ABL Facility
provides for letter of credit capacity of up to $5 million subject to certain limitations on availability. As of March 31, 2021,
the Company had letters of credit totaling $871,000 under the Current 2021 ABL Facility for certain operating leases and certain insurance
policies. Letters of credit issued under the Current 2021 ABL Facility are required to be collateralized with cash.
Noncontrolling Interest Shareholders’ Put Rights
Beginning on
January 1, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to
purchase all or a portion of their shares at the then current fair market value for such shares (the “Put
Right”). This annual right is exercisable for a 30-day period beginning January 1 of each year. The purchase
price for such shares may be paid in cash and/or registered Class D common stock of Urban One, at the discretion of Urban One.
The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period ending
January 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.
On November 6, 2020,
the Company entered into a definitive asset exchange agreement with Entercom Communications Corp. whereby the Company would receive Charlotte
stations: WLNK-FM (Adult Contemporary); WBT-AM & FM (News Talk Radio); and WFNZ-AM & 102.5 FM Translator (Sports Radio).
In exchange, Urban One would 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 was subject to FCC approval and
other customary closing conditions and closed on April 20, 2021. In addition, the Company entered into an asset purchase agreement with
Gateway Creative Broadcasting, Inc. for the remaining assets of our WFUN station in a separate transaction which also closed on April
20, 2021.