Company Quick10K Filing
Urban One
Price2.35 EPS3
Shares47 P/E1
MCap110 P/FCF2
Net Debt862 EBIT73
TEV972 TEV/EBIT13
TTM 2019-09-30, in MM, except price, ratios
10-K 2019-12-31 Filed 2020-04-29
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-04
10-K 2014-12-31 Filed 2015-02-17
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-19
10-Q 2013-03-31 Filed 2013-05-13
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-11
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-16
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-23
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-04-01
8-K 2020-05-14 Other Events
8-K 2020-05-12
8-K 2020-03-28 Other Events
8-K 2020-03-20 Earnings, Other Events, Exhibits
8-K 2020-01-03 Officers
8-K 2019-12-05 Regulation FD, Exhibits
8-K 2019-11-13 Enter Agreement, Exhibits
8-K 2019-11-12 Earnings, Regulation FD
8-K 2019-11-07 Earnings, Amendment, Regulation FD, Exhibits
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-06-10 Enter Agreement, Exhibits
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-03-05 Earnings, Officers, Exhibits
8-K 2019-01-17
8-K 2019-01-07
8-K 2018-12-19
8-K 2018-12-04
8-K 2018-12-03
8-K 2018-11-06 Earnings, Other Events, Exhibits
8-K 2018-10-04
8-K 2018-08-08
8-K 2018-06-25
8-K 2018-05-21
8-K 2018-05-08
8-K 2018-03-06

UONE 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Part II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors and Executive Officers of The Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10 - K Summary
EX-4.7 tm205255d1_ex4-7.htm
EX-21.1 tm205255d1_ex21-1.htm
EX-23.1 tm205255d1_ex23-1.htm
EX-31.1 tm205255d1_ex31-1.htm
EX-31.2 tm205255d1_ex31-2.htm
EX-32.1 tm205255d1_ex32-1.htm
EX-32.2 tm205255d1_ex32-2.htm

Urban One Earnings 2019-12-31

Balance SheetIncome StatementCash Flow
1.51.20.90.50.2-0.12012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

10-K 1 tm205255d1_10k.htm FORM 10-K

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

 

For the transition period from                    to

 

Commission File No. 0-25969

 

 

 

URBAN ONE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 52-1166660
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

1010 Wayne Avenue,

14th Floor

Silver Spring, Maryland 20910

(Address of principal executive offices)

 

Registrant’s telephone number, including area code

(301) 429-3200

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $.001 par value

Class D Common Stock, $.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨     No   x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ¨     No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x      No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x      No  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes  ¨     No  x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨            Accelerated filer   ¨            Non-accelerated filer  x

Smaller reporting company x Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes  ¨    No  x

 

The number of shares outstanding of each of the issuer’s classes of common stock is as follows:

 

Class  Outstanding at March 16, 2020
Class A Common Stock, $.001 par value  1,582,359
Class B Common Stock, $.001 par value  2,861,843
Class C Common Stock, $.001 par value  2,928,906
Class D Common Stock, $.001 par value  38,204,964

  

The aggregate market value of common stock held by non-affiliates of the Registrant, based upon the closing price of the Registrant’s Class A and Class D common stock on June 30, 2019, was approximately $43.8 million.

 

 

 

 

 

 

EXPLANATORY NOTE

 

On March 25, 2020, the Securities and Exchange Commission (“SEC”) issued an order and guidance (collectively, the “Order”) providing regulatory relief to public companies whose operations may be affected by the novel coronavirus disease (“COVID-19”). The Order provided public companies with a 45-day extension to file certain disclosure reports, including their Annual Report on 10-K (“Annual Report”), that would otherwise have been due between March 1, 2020 and July 1, 2020.

 

Due to its operations being impacted by COVID-19, the Company was unable to meet its filing deadline with respect to its Annual Report and on March 30, 2020 submitted a Current Report on Form 8-K in accordance with and reliance upon the Order.

 

The Company's corporate headquarters is located in Silver Spring, Maryland. On March 5, 2020 a state of emergency was declared within the entire state of Maryland, renewed on March 17, 2020 and further amended on March 23, 2020 to recommend “social distancing” in the workplace and certain other measures to prevent the further spread of COVID-19. In response to the state of Maryland's COVID-19 recommendations and in response to social distancing measures in other states and localities in which the Company operates, including New York City which is a “hotspot” for the virus, the Company has had to transition its business operations to some form of a remote working model (“RWM”). Due to this transition, management had to prioritize ensuring the performance and security of the RWM and other operational and organizational issues arising due to the unprecedented scope and nature of the global pandemic. As a result of these measures, the routine efforts of the Company's accounting and finance personnel to complete the audit and prepare the Company's financial statements and disclosures have taken a greater amount of time and the Company was unable to finalize and file its Annual Report on a timely basis to meet its pre-Order filing deadline of March 30, 2020. However, the Company’s filing of this Annual Report is timely and in accordance with the new deadline provided by the Order of May 14, 2020. The Company notes that the delay in the Company's filing of its Annual Report did not relate to any inability of any person to furnish any required opinion, report or certification in connection with our filing.

 

 

 

 

URBAN ONE, INC. AND SUBSIDIARIES

 

Form 10-K

For the Year Ended December 31, 2019

 

TABLE OF CONTENTS

  

    Page
PART I  
     
Item 1. Business 5
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 25
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Mine Safety Disclosure 25
   
PART II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26
Item 6. Selected Financial Data 26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 46
Item 8. Financial Statements and Supplementary Data 46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 46
Item 9A. Controls and Procedures 46
Item 9B. Other Information 47
   
PART III  
   
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive  Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 48
Item 13. Certain Relationships and Related Transactions 48
Item 14. Principal Accounting Fees and Services 48
   
PART IV  
   
Item 15. Exhibits and Financial Statement Schedules 49
Item 16. Form 10-K Summary 52
   
SIGNATURES 53

 

 2 

 

 

CERTAIN DEFINITIONS

 

Unless otherwise noted, throughout this report, the terms “Urban One,” “the Company,” “we,” “our,” and “us” refer to Urban One, Inc. together with all of its subsidiaries.

 

We use the terms “local marketing agreement” (“LMA”) or time brokerage agreement (“TBA”) in various places in this report. An LMA or a TBA is an agreement under which a Federal Communications Commission (“FCC”) licensee of a radio station makes available, for a fee, air time on its station to another party.  The other party provides programming to be broadcast during the airtime and collects revenues from advertising it sells for broadcast during that programming. In addition to entering into LMAs or TBAs, we will, from time to time, enter into management or consulting agreements that provide us with the ability, as contractually specified, to assist current owners in the management of radio station assets that we have contracted to purchase, subject to FCC approval. In such arrangements, we generally receive a contractually specified management fee or consulting fee in exchange for the services provided.

 

The term “broadcast and digital operating income” is used throughout this report.  Net income (loss) before depreciation and amortization, income taxes, interest expense, interest income, noncontrolling interests in income of subsidiaries, other (income) expense, corporate selling, general and administrative, expenses, stock-based compensation, impairment of long-lived assets, (gain) loss on retirement of debt and gain on sale-leaseback, is commonly referred to in the radio broadcasting industry as “station operating income.” However, given the diverse nature of our business, station operating income is not truly reflective of our multi-media operation and, therefore, we now use the term broadcast and digital operating income. Broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”). Nevertheless, broadcast and digital operating income is a significant basis used by our management to evaluate the operating performance of our core operating segments. Broadcast and digital operating income provides helpful information about our results of operations, apart from expenses associated with our fixed and long-lived intangible assets, income taxes, investments, impairment charges, debt financings and retirements, corporate overhead and stock-based compensation. Our measure of broadcast and digital operating income is similar to our historic use of station operating income; however, it reflects our more diverse business, and therefore, may not be similar to “station operating income” or other similarly titled measures as used by other companies. Broadcast and digital operating income does not represent operating loss or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of our performance.

 

The term “broadcast and digital operating income margin” is also used throughout this report.  Broadcast and digital operating income margin represents broadcast and digital operating income as a percentage of net revenue. Broadcast and digital operating income margin is not a measure of financial performance under GAAP. Nevertheless, we believe that broadcast and digital operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net revenue. Broadcast and digital operating margin includes results from all four segments (radio broadcasting, Reach Media, digital and cable television).

 

Unless otherwise indicated:

 

·we obtained total radio industry revenue levels from the Radio Advertising Bureau (the “RAB”);

 

·we obtained audience share and ranking information from Nielsen Audio, Inc. (“Nielsen”); and

 

·we derived historical market statistics and market revenue share percentages from data published by Miller, Kaplan, Arase & Co., LLP (“Miller Kaplan”), a public accounting firm that specializes in serving the broadcasting industry and BIA/Kelsey (“BIA”), a media and telecommunications advisory services firm.

 

 3 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

Our disclosure and analysis in this annual report on Form 10-K concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements do not relay historical facts, but rather reflect our current expectations concerning future operations, results and events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. You can identify some of these forward-looking statements by our use of words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “seek(s),” “likely,” “may,” “should,” “estimate(s),” “strategy” “future,” “will” and similar expressions.  You can also identify a forward-looking statement in that such statements discuss matters in a way that anticipates operations, results or events that have not already occurred but rather will or may occur in future periods.  We cannot guarantee that we will achieve any forward-looking plans, intentions, results, operations or expectations.  Although these statements are based upon assumptions we consider reasonable, as they contemplate future events, they are subject to risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially from those forecasted or anticipated in the forward-looking statements.  These risks, uncertainties and factors include (in no particular order), but are not limited to:

 

·economic volatility, financial market unpredictability and fluctuations in the United States and other world economies that may affect our business and financial condition, and the business and financial conditions of our advertisers;

 

·our high degree of leverage, certain cash commitments related thereto and potential inability to finance strategic transactions given fluctuations in market conditions;

 

·fluctuations in the local economies of the markets in which we operate (particularly our largest markets, Atlanta; Baltimore; Houston; and Washington, DC) could negatively impact our ability to meet our cash needs and our ability to maintain compliance with our debt covenants;

 

·fluctuations in the demand for advertising across our various media;

 

·risks associated with the implementation and execution of our business diversification strategy;

  

·regulation by the Federal Communications Commission (“FCC”) relative to maintaining our broadcasting licenses, enacting media ownership rules and enforcing of indecency rules;

 

·changes in our key personnel and on-air talent;

 

·increases in competition for and in the costs of our programming and content, including on-air talent and content production or acquisitions costs;

 

·financial losses that may be incurred due to impairment charges against our broadcasting licenses, goodwill, and other intangible assets;

 

·increased competition for advertising revenues with other radio stations, broadcast and cable television, newspapers and magazines, outdoor advertising, direct mail, internet radio, satellite radio, smart phones, tablets, and other wireless media, the internet, social media, and other forms of advertising;

 

·the impact of our acquisitions, dispositions and similar transactions, as well as consolidation in industries in which we and our advertisers operate;

 

·developments and/or changes in laws and regulations, such as the California Consumer Privacy Act or other similar federal or state regulation through legislative action and revised rules and standards;

 

·disruptions to our technology network including computer systems and software, whether by man-made or other disruptions of our operating systems, structures or equipment as well as natural events such as severe weather, fires, floods and earthquakes;

 

·disruptions to business operations and our sales resulting from quarantines of employees, customers and suppliers in areas affected by the Coronavirus outbreak and reduced consumer spending given uncertainty around the duration of the virus’ impact; and

 

·other factors mentioned in our filings with the Securities and Exchange Commission (“SEC”) including the factors discussed in detail in Item 1A, “Risk Factors,” contained in this report.

 

You should not place undue reliance on these forward-looking statements, which reflect our views based only on information currently available to us as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements because of new information, future events, or otherwise.

 

 4 

 

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

Urban One, Inc. (a Delaware corporation originally formed in 1980 and hereinafter 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 December 31, 2019, we owned and/or operated 60 broadcast stations (including all HD stations, translator stations and the low power television station we operate) located in 15 of the most populous African-American markets in the United States. While a core source of our revenue has historically been and remains the sale of local and national advertising for broadcast on our radio stations, our strategy is to operate the premier multi-media entertainment and information content provider targeting African-American and urban consumers. Thus, we have diversified our revenue streams by making acquisitions and investments in other complementary media properties. Our diverse media and entertainment interests include TV One, LLC (“TV One”), an African-American targeted cable television network; our 80.0% ownership interest in Reach Media, Inc. (“Reach Media”) which operates the Rickey Smiley Morning Show and our other syndicated programming assets, including the Russ Parr Morning Show and the DL Hughley Show; and Interactive One, LLC (“Interactive One”), our wholly owned digital platform serving the African-American community through social content, news, information, and entertainment websites, including its Cassius and Bossip, HipHopWired and MadameNoire digital platforms and brands. We also hold a minority ownership interest in MGM National Harbor, a gaming resort located in Prince George’s County, Maryland. Through our national multi-media operations, we provide advertisers with a unique and powerful delivery mechanism to the African-American and urban audiences.

 

On January 19, 2019, the Company launched CLEO TV, a lifestyle and entertainment network targeting Millennial and Gen X women of color. CLEO TV offers quality content that defies negative and cultural stereotypes of today’s modern women. The results of CLEO TV’s operations will be reflected in the Company’s cable television segment.

 

Our core radio broadcasting franchise operates under the brand “Radio One.”  We also operate our other brands, such as TV One, Reach Media and Interactive One, while developing additional branding reflective of our diverse media operations and targeting our African-American and urban audiences.

 

Recent Developments

 

On December 19, 2019, we entered into both an asset purchase agreement ("APA") and a time brokerage agreement ("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.

 

On October 20, 2011, we entered into 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 management services to the current owner and operator of WGPR.

 

On August 31, 2019, the Company closed on its previously announced sale of assets of its Detroit, Michigan radio station, WDMK-FM and three translators W228CJ, W252BX, and W260CB for approximately $13.5 million to Beasley Broadcast Group, Inc. The Company recognized an immaterial loss on the sale of the station during the year ended December 31, 2019.

 

On January 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.

 

 5 

 

 

On January 17, 2019, the Company announced that it had given the required notice (“2020 Redemption Notice”) under the indenture governing its 9.25% Senior Subordinated Notes due 2020 (the “2020 Notes”) to redeem for cash all outstanding aggregate principal amount of its Notes to the extent outstanding on February 15, 2019 (the “Redemption Date”).  The redemption price for the 2020 Notes was 100.0% of the principal amount of the Notes, plus accrued and unpaid interest to the Redemption Date.

 

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 book-runner. The 2018 Credit Facility, provided $192.0 million in term loan borrowings. Concurrently, on December 4, 2018, Urban One Entertainment SPV, LLC and its immediate parent, Radio One Entertainment Holdings, LLC, 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”). The net proceeds of term loan borrowings under the 2018 Credit Facility and the MGM National Harbor Loan were used to refinance and redeem substantially all of the Company’s outstanding 2020 Notes. Simultaneously with entry into the 2018 Credit Facility and the MGM National Harbor Loan, the Company announced the launch of a cash tender offer for any and all of its 2020 Notes.  Under the Tender Offer, the Company accepted for purchase $213,255,000 aggregate principal amount of the 2020 Notes, and paid for such 2020 Notes on December 20, 2018. Concurrently with that settlement, the Company also repurchased at par of approximately $29.7 million aggregate principal amount of 2020 Notes from certain lenders under the new credit facilities. Immediately following these settlements, approximately $2.0 million aggregate principal amount of 2020 Notes remained outstanding. Such 2020 Notes were the subject of the 2020 Redemption Notice described above. The 2018 Credit Facility and MGM National Harbor Loan are more fully described in Note 9 of our consolidated financial statements — Long-Term Debt.)

 

On August 9, 2018, the Company closed on the acquisition of the assets of the radio station The Team 980 (WTEM 980 AM) from Red Zebra Broadcasting. Upon closing, the Company also entered into an agreement with the Washington Redskins to ensure that all Redskins games, as well as pregame and postgame programming, will remain on The Team 980.  The Company’s purchase accounting to reflect the fair value of assets acquired and liabilities assumed consisted of approximately $2.0 million to radio broadcasting licenses, $1.1 million to land and land improvements, $512,000 to towers, $91,000 to goodwill, $206,000 to advertiser agreements, and $254,000 to other property and equipment assets.

  

On August 8, 2018, the Company closed on a sale of the assets of one of its Detroit, Michigan, radio stations, WPZR-FM (102.7 FM), to Educational Media Foundation, of California, for total consideration of approximately $12.7 million, of which approximately $12.2 million was received in cash. As part of the deal, the Company received 3 FM translators that service the Detroit metropolitan area. These signals were combined with the existing FM translator to multicast the Detroit Praise Network. The Company recognized an immaterial loss on the sale of the station during the year ended December 31, 2018.

 

Segments

 

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) cable television; (iii) Reach Media; and (iv) digital.

 

Our Radio Station Portfolio, Strategy and Markets

 

As noted above, our core business is our radio broadcasting franchise which is the largest radio broadcasting operation in the country primarily targeting African-American and urban listeners. Within the markets in which we operate, we strive to build clusters of radio stations with each radio station targeting different demographic segments of the African-American population. This clustering and programming segmentation strategy allows us to achieve greater penetration within the distinct segments of our overall target market. In addition, we have been able to achieve operating efficiencies by consolidating office and studio space where possible to minimize duplicative management positions and reduce overhead expenses. Depending on market conditions, changes in ratings methodologies and economic and demographic shifts, from time to time, we may reprogram some of our stations in underperforming segments of certain markets.

 

 6 

 

 

As of December 31, 2019, we owned and/or operated 60 broadcast stations (including all HD stations, translator stations and the low power television station we operate) located in 15 of the most populous African-American markets in the United States. The following tables set forth further selected information about our portfolio of radio stations as of December 31, 2019.

 

   Urban One   Market Data 
Market  Number of Stations(1)   Entire Audience
Four Book
Average Audience
Share(2)
   Ranking by Size of
African-American
Population Persons
12+(3)
   Estimated Fall 2019
Metro
Population Persons
12+
 
   FM   AM   HD**           Total
(millions)
   African-
American
%
 
Atlanta   4         1    14.6    2    5.0    35 
Washington, DC   4    3         14.3    3    5.0    27 
Houston   3         1    11.9    6    5.9    17 
Dallas   2              4.6    5    6.4    17 
Philadelphia   3         1    6.5    7    4.6    21 
Detroit***   1                   9    3.8    22 
Baltimore   2    2    1    17.1    11    2.4    30 
Charlotte   3              10.1    12    2.4    23 
St. Louis   2              8.2    15    2.3    19 
Raleigh-Durham   4              20.6    18    1.7    22 
Cleveland   2    2         13.1    19    1.8    20 
Richmond(4)   4    2         18.7    23    1.0    30 
Columbus   4              7.2    25    1.7    17 
Indianapolis   3    1    1    11.9    30    1.6    17 
Cincinnati   2    1         6.6    35    1.9    13 
Total   43    11    5                     

 

(1)WDNI-CD (formerly WDNI-LP), the low power television station that we operate in Indianapolis is not included in this table.

(2)Audience share data are for the 12+ demographic and derived from the Nielsen Survey ending with the Fall 2019 Nielsen Survey.

(3)Population estimates are from the Nielsen Radio Market Survey Population, Rankings and Information, Fall 2019.

(4)Richmond is the only market in which we operate using the diary methodology of audience measurement.

 

**Market also has one or more independently programmed station(s) broadcasting on an HD Channel.

***Company ceased operation of Detroit station as of December 31, 2019; however, we continue to provide management services to the current owner and operator.

 

Market  Market Rank Metro
Population 2019
  Format  Target Demo
Atlanta  8      
          
WAMJ/WUMJ     Urban AC  25-54
WHTA     Urban Contemporary  18-34
WPZE     Contemporary Inspirational  25-54
WAMJ-HD-2     Urban Contemporary  25-54
          
Baltimore  22      
          
WERQ     Urban Contemporary  18-34
WOLB     News/Talk  35-64
WWIN-FM     Urban AC  25-54
WWIN-AM     Gospel  35-64
WLIF-HD-2     Contemporary Inspirational  25-54
          
Charlotte  23      
          
WPZS     Contemporary Inspirational  25-54
WOSF     Urban AC / Old School  25-54
WQNC     Urban Contemporary  18-34
          
Cincinnati  33      
          
WIZF     Urban Contemporary  18-34
WOSL     Urban AC / Old School  25-54
WDBZ-AM     Urban AC / Old School  35-64

 

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Cleveland  35      
          
WENZ     Urban Contemporary  18-34
WERE-AM     News/Talk  35-64
WJMO-AM     Contemporary Inspirational  35-64
WZAK     Urban AC  25-54
          
Columbus  36      
          
WCKX     Urban Contemporary  18-34
WXMG     Urban AC  25-54
WBMO     Urban Contemporary  18-34
WJYD     Contemporary Inspirational  25-54
          
Dallas  5      
          
KBFB     Urban Contemporary  18-34
KZJM     Urban Contemporary  25-54
          
Detroit  13      
          
WGPR (1)     Urban Contemporary  18-34
          
Houston  6      
          
KBXX     Urban Contemporary  18-34
KMJQ     Urban AC  25-54
KROI     Pop/CHR  18-34
KMJQ-HD2     Contemporary Inspirational   25-54
          
Indianapolis  39      
          
WTLC-FM     Urban AC  25-54
WHHH     Urban Contemporary  18-34
WNOW     Pop/CHR  18-34
WTLC-AM     Contemporary Inspirational  35-64
WNOW-HD2, HD-3     Regional Mexican  25-54
          
Philadelphia  9      
          
WPHI     Urban Contemporary  18-34
WPPZ     Adult Contemporary  25-54
WRNB     Urban AC  25-54
WPPZ-HD2     Contemporary Inspirational  25-54
          
Raleigh  38      
          
WFXC/WFXK     Urban AC  25-54
WQOK     Urban Contemporary  18-34
WNNL     Contemporary Inspirational  25-54
          
Richmond (2)  53      
          
WKJS/WKJM     Urban AC  25-54
WCDX     Urban Contemporary  18-34
WPZZ     Contemporary Inspirational  25-54
WXGI-AM/WTPS-AM     Sports  25-54
          
St. Louis  24      
          
WHHL     Urban Contemporary  18-34
WFUN     Urban AC / Old School  25-54

 

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Washington DC  7      
          
WKYS     Urban Contemporary  18-34
WMMJ/WDCJ     Urban AC  25-54
WPRS     Contemporary Inspirational  25-54
WOL-AM     News/Talk  35-64
WYCB-AM     Gospel  35-64
WTEM-AM     Sports  25-54

 

AC-refers to Adult Contemporary

 

CHR-refers to Contemporary Hit Radio

 

Pop-refers to Popular Music

 

Old School - refers to Old School Hip/Hop

 

(1)Station was operated under a TBA that expired December 31, 2019.  The Company continues to provide management services to the current owner and operator of the station.
(2)Richmond is the only market in which we operate using the diary methodology of audience measurement.
(3)WDNI-CD (formerly WDNI-LP), the low power television station that we acquired in Indianapolis in June 2000, is not included in this table.

 

For the year ended December 31, 2019, approximately 40.6% of our net revenue was generated from the sale of advertising in our core radio business, excluding Reach Media. Within our core radio business, four of the 15 markets in which we operated radio stations in 2019 (Houston, Washington, DC, Atlanta and Baltimore) accounted for approximately 56.3% of our radio station net revenue for the year ended December 31, 2019. Revenue from the operations of Reach Media, along with revenue from both the Houston and Washington, DC markets accounted for approximately 22.8% of our total consolidated net revenue for the year ended December 31, 2019. Revenue from the operations of Reach Media, along with revenue from the four significant contributing radio markets, accounted for approximately 32.8% of our total consolidated net revenue for the year ended December 31, 2019. Adverse events or conditions (economic, including government cutbacks or otherwise) could lead to declines in the contribution of Reach Media or declines in one or more of the four significant contributing radio markets, which could have a material adverse effect on our overall financial performance and results of operations.

 

Radio Advertising Revenue

 

Substantially all net revenue generated from our radio franchise is generated from the sale of local, national and network advertising. Local sales are made by the sales staff located in our markets. National sales are made primarily by Katz Communications, Inc. (“Katz”), a firm specializing in radio advertising sales on the national level. Katz is paid agency commissions on the advertising sold. Approximately 57.2% of our net revenue from our core radio business for the year ended December 31, 2019, was generated from the sale of local advertising and 36.8% from sales to national advertisers, including network/syndication advertising. The balance of net revenue from our radio segment is primarily derived from tower rental income, ticket sales, and revenue related to sponsored events, management fees and other alternative revenue.

 

Advertising rates charged by radio stations are based primarily on:

 

·a radio station’s audience share within the demographic groups targeted by the advertisers;

 

·the number of radio stations in the market competing for the same demographic groups; and

 

·the supply and demand for radio advertising time.

 

A radio station’s listenership is measured by the Portable People MeterTM (the “PPMTM”) system or diary ratings surveys, both of which estimate the number of listeners tuned to a radio station and the time they spend listening to that radio station. Ratings are used by advertisers to evaluate whether to advertise on our radio stations, and are used by us to chart audience size, set advertising rates and adjust programming. Advertising rates are generally highest during the morning and afternoon commuting hours.

 

Cable Television, Reach Media and Digital Segments, Strategy and Sources of Revenue and Income

 

We have expanded our operations to include other media forms that are complementary to our core radio business.  In a strategy similar to our radio market segmentation, we have multiple complementary media and online brands.  Each of these brands focuses upon a different segment of African-American consumers.  With our multiple brands, we are able to direct advertisers to specific audiences within the urban communities in which we are located or to bundle the brands for advertising sales purposes when advantageous.

 

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TV One, our cable television franchise targeting the African-American and urban communities, derives its revenue from advertising and affiliate revenue. Advertising revenue is derived from the sale of television air time to advertisers and is recognized when the advertisements are run. TV One also derives revenue from affiliate fees under the terms of various affiliation agreements based upon a per subscriber fee multiplied by the most recent subscriber counts reported by the applicable affiliate. In January 2019, we launched CLEO TV, a lifestyle and entertainment network targeting Millennial and Gen X women of color.  CLEO TV derives its revenue principally from advertising.

 

Reach Media, our syndicated radio unit, primarily derives its revenue from the sale of advertising in connection with its syndicated radio shows, including the Rickey Smiley Morning Show, Get Up! Mornings with Erica Campbell, the Russ Parr Morning Show, and the DL Hughley Show. In addition to being broadcast on 50 Urban One stations, our syndicated radio programming also was available on over 224 non-Urban One stations throughout the United States as of December 31, 2019. Reach Media’s syndicated line up also included the Tom Joyner Morning Show. Mr. Joyner was a leading nationally syndicated radio personality. Mr. Joyner announced his then forthcoming retirement in 2018 and in December 2019, the Tom Joyner Morning Show ceased being broadcast upon Mr. Joyner’s retirement. Up until his retirement in December 2019, the Tom Joyner Morning Show was broadcast on 71 affiliate stations across the United States.

  

We have launched websites that simultaneously stream radio station content for each of our radio stations, and we derive revenue from the sale of advertisements on those websites. We generally encourage our web advertisers to run simultaneous radio campaigns and use mentions in our radio airtime to promote our websites. By providing streaming, we have been able to broaden our listener reach, particularly to “office hour” listeners. We believe streaming has had a positive impact on our radio stations’ reach to listeners.  In addition, our station websites link to our other online properties operated by our primary digital unit, Interactive One. Interactive One operates the largest social networking site primarily targeting African-Americans and other branded websites, including Bossip, HipHopWired and MadameNoire. Interactive One derives revenue from advertising services on non-radio station branded websites, and studio services where Interactive One provides services to other publishers. Advertising services include the sale of banner and sponsorship advertisements.  Advertising revenue is recognized 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 which provide third-party clients with digital platforms and 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.

 

Finally, our MGM National Harbor investment entitles us to an annual cash distribution based on net gaming revenue. Future opportunities could include investments in, or acquisitions of, companies in diverse media businesses, gaming and entertainment, music production and distribution, movie distribution, internet-based services, and distribution of our content through emerging distribution systems such as the Internet, smartphones, cellular phones, tablets, and the home entertainment market.

 

Competition

 

The media industry is highly competitive and we face intense competition across our core radio franchise and all of our complementary media properties. Our media properties compete for audiences and advertising revenue with other radio stations and with other media such as broadcast and cable television, the Internet, satellite radio, newspapers, magazines, direct mail and outdoor advertising, some of which may be controlled by horizontally-integrated companies. Audience ratings and advertising revenue are subject to change and any adverse change in a market could adversely affect our net revenue in that market. If a competing radio station converts to a format similar to that of one of our radio stations, or if one of our competitors strengthens its signal or operations, our stations could suffer a reduction in ratings and advertising revenue. Other media companies which are larger and have more resources may also enter or increase their presence in markets or segments in which we operate. Although we believe our media properties are well positioned to compete, we cannot assure that our properties will maintain or increase their current ratings, market share or advertising revenue.

 

Providing content across various distribution platforms is a highly competitive business. Our digital and cable television segments compete for the time and attention of internet users and viewers and, thus, advertisers and advertising revenues with a wide range of internet companies such as AmazonTM, NetflixTM, Yahoo!TM, GoogleTM, and MicrosoftTM, with social networking sites such as FacebookTM and with traditional media companies, which are increasingly offering their own digital products and services both organically and through acquisition. We experience competition for the development and acquisition of content, distribution of content, sale of commercial time on our digital and cable television networks and viewership. There is competition from other digital companies, production studios and other television networks for the acquisition of content and creative talent such as writers, producers and directors. Our ability to produce and acquire popular content is an important competitive factor for the distribution of our content, attracting viewers and the sale of advertising. Our success in securing popular content and creative talent depends on various factors such as the number of competitors providing content that targets the same genre and audience, the distribution of our content, viewership, and the production, marketing and advertising support we provide.

 

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Our TV One and CLEO TV networks compete with other television networks for the distribution of our content and fees charged to cable television operators, DTH satellite service providers, and other distributors that carry our content. Our ability to secure distribution agreements is necessary to ensure the retention of our audiences. Our contractual agreements with distributors are renewed or renegotiated from time to time in the ordinary course of business. Growth in the number of networks distributed, consolidation and other market conditions in the cable and satellite distribution industry, and increased popularity of other platforms may adversely affect our ability to obtain and maintain contractual terms for the distribution of our content that are as favorable as those currently in place. The ability to secure distribution agreements is dependent upon the production, acquisition and packaging of original content, viewership, the marketing and advertising support and incentives provided to distributors, the product offering across a series of networks within a region, and the prices charged for carriage.

 

Our networks and digital products compete with other television networks, including broadcast, cable, local networks and other content distribution outlets for their target audiences and the sale of advertising. Our success in selling advertising is a function of the size and demographics of our audiences, quantitative and qualitative characteristics of the audience of each network, the perceived quality of the network and of the particular content, the brand appeal of the network and ratings as determined by third-party research companies, prices charged for advertising and overall advertiser demand in the marketplace.

 

Federal Antitrust Laws

 

The agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission or the Department of Justice, may investigate certain acquisitions. We cannot predict the outcome of any specific FTC or Department of Justice investigation. Any decision by the FTC or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms. For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires the parties to file Notification and Report Forms concerning antitrust issues with the FTC and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition.

 

Federal Regulation of Radio Broadcasting

 

The radio broadcasting industry is subject to extensive and changing regulation by the FCC and other federal agencies of ownership, programming, technical operations, employment and other business practices. The FCC regulates radio broadcast stations pursuant to the Communications Act of 1934, as amended (the “Communications Act”). The Communications Act permits the operation of radio broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of a license would serve the public interest, convenience and necessity. Among other things, the FCC:

 

·assigns frequency bands for radio broadcasting;

 

·determines the particular frequencies, locations, operating power, interference standards, and other technical parameters for radio broadcast stations;

 

·issues, renews, revokes and modifies radio broadcast station licenses;

 

·imposes annual regulatory fees and application processing fees to recover its administrative costs;

 

·establishes technical requirements for certain transmitting equipment to restrict harmful emissions;

 

·adopts and implements regulations and policies that affect the ownership, operation, program content, employment, and business practices of radio broadcast stations; and

 

·has the power to impose penalties, including monetary forfeitures, for violations of its rules and the Communications Act.

 

The Communications Act prohibits the assignment of an FCC license, or the transfer of control of an FCC licensee, without the prior approval of the FCC. In determining whether to grant or renew a radio broadcast license or consent to assignment or transfer of a license, the FCC considers a number of factors, including restrictions on foreign ownership, compliance with FCC media ownership limits and other FCC rules, the character and other qualifications of the licensee (or proposed licensee) and compliance with the Anti-Drug Abuse Act of 1988. A licensee’s failure to comply with the requirements of the Communications Act or FCC rules and policies may result in the imposition of sanctions, including admonishment, fines, the grant of a license renewal for less than a full eight-year term or with conditions, denial of a license renewal application, the revocation of an FCC license, and/or the denial of FCC consent to acquire additional broadcast properties.

 

 11 

 

 

Congress, the FCC and, in some cases, other federal agencies and local jurisdictions, are considering or may in the future consider and adopt new laws, regulations and policies that could affect the operation, ownership and profitability of our radio stations, result in the loss of audience share and advertising revenue for our radio broadcast stations or affect our ability to acquire additional radio broadcast stations or finance such acquisitions. Such matters include or may include:

 

·changes to the license authorization and renewal process;

 

·proposals to increase record keeping, including enhanced disclosure of stations’ efforts to serve the public interest;

 

·proposals to impose spectrum use or other fees on FCC licensees;

 

·changes to rules relating to political broadcasting, including proposals to grant free air time to candidates, and other changes regarding political and non-political program content, political advertising rates and sponsorship disclosures;

 

·revised rules and policies regarding the regulation of the broadcast of indecent content;

  

·proposals to increase the actions stations must take to demonstrate service to their local communities;

 

·technical and frequency allocation matters;

 

·changes in broadcast multiple ownership, foreign ownership, cross-ownership and ownership attribution policies;

 

·changes to allow satellite radio operators to insert local content into their programming service;

 

·service and technical rules for digital radio, including possible additional public interest requirements for terrestrial digital audio broadcasters;

 

·legislation that would provide for the payment of sound recording royalties to artists, musicians or record companies whose music is played on terrestrial radio stations; and

 

·changes to tax laws affecting broadcast operations and acquisitions.

 

The FCC also has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed mutually exclusive applications for authority to construct new stations or certain major changes in existing stations. Such procedures may limit our efforts to modify or expand the broadcast signals of our stations.

 

We cannot predict what changes, if any, might be adopted or considered in the future, or what impact, if any, the implementation of any particular proposals or changes might have on our business.

 

FCC License Grants and Renewals.  In making licensing determinations, the FCC considers an applicant’s legal, technical, financial and other qualifications. The FCC grants radio broadcast station licenses for specific periods of time and, upon application, may renew them for additional terms. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. Under the Communications Act, radio broadcast station licenses may be granted for a maximum term of eight years.

 

Generally, the FCC renews radio broadcast licenses without a hearing upon a finding that:

 

·the radio station has served the public interest, convenience and necessity;

 

·there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and

 

·there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken together, indicate a pattern of abuse.

 

After considering these factors and any petitions to deny a license renewal application (which may lead to a hearing), the FCC may grant the license renewal application with or without conditions, including renewal for a term less than the maximum otherwise permitted. Historically, our licenses have been renewed for full eight-year terms without any conditions or sanctions; however, there can be no assurance that the licenses of each of our stations will be renewed for a full term without conditions or sanctions.

 

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Types of FCC Broadcast Licenses. The FCC classifies each AM and FM radio station. An AM radio station operates on either a clear channel, regional channel or local channel. A clear channel serves wide areas, particularly at night. A regional channel serves primarily a principal population center and the contiguous rural areas. A local channel serves primarily a community and the suburban and rural areas immediately contiguous to it. AM radio stations are designated as Class A, Class B, Class C or Class D. Class A, B and C stations each operate unlimited time. Class A radio stations render primary and secondary service over an extended area. Class B stations render service only over a primary service area. Class C stations render service only over a primary service area that may be reduced as a consequence of interference. Class D stations operate either during daytime hours only, during limited times only, or unlimited time with low nighttime power.

 

FM class designations depend upon the geographic zone in which the transmitter of the FM radio station is located. The minimum and maximum facilities requirements for an FM radio station are determined by its class. In general, commercial FM radio stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1, C0 and C. The FCC has adopted a rule subjecting Class C FM stations that do not satisfy a certain antenna height requirement to an involuntary downgrade in class to Class C0 under certain circumstances.

 

Urban One’s Licenses. The following table sets forth information with respect to each of our radio stations for which we hold the license as of December 31, 2019. Stations which we do not own as of December 31, 2019, but operate under an LMA, are not reflected on this table. A broadcast station’s market may be different from its community of license. The coverage of an AM radio station is chiefly a function of the power of the radio station’s transmitter, less dissipative power losses and any directional antenna adjustments. For FM radio stations, signal coverage area is chiefly a function of the ERP of the radio station’s antenna and the HAAT of the radio station’s antenna. “ERP” refers to the effective radiated power of an FM radio station. “HAAT” refers to the antenna height above average terrain of an FM radio station.  

 

Market  Station Call Letters  Year of
Acquisition
  FCC
Class
  ERP (FM)
Power
(AM) in
Kilowatts
  Antenna
Height
(AM)
HAAT in
Meters
  Operating
Frequency
  Expiration
Date of FCC
License
Atlanta  WUMJ-FM  1999  C3  8.5  165.0  97.5 MHz  4/1/2020
   WAMJ-FM  1999  C2  33.0  185.0  107.5 MHz  4/1/2020
   WHTA-FM  2002  C2  35.0  177.0  107.9 MHz  4/1/2020
   WPZE-FM  1999  A  3.0  143.0  102.5 MHz  4/1/2020
                      
Washington, DC  WOL-AM  1980  C  0.37  N/A  1450 kHz  10/1/2027
   WMMJ-FM  1987  A  2.9  146.0  102.3 MHz  10/1/2027
   WKYS-FM  1995  B  24.5  215.0  93.9 MHz  10/1/2027
   WPRS-FM  2008  B  20.0  244.0  104.1 MHz  10/1/2027
   WYCB-AM  1998  C  1.0  N/A  1340 kHz  10/1/2027
   WDCJ-FM  2017  A  2.85  145.0  92.7 MHz  10/1/2027
    WTEM-AM  2018   B  50   N/A   980 kHz   10/1/2027
                      
Philadelphia  WPHI-FM  1997  A  0.27  338.0  103.9 MHz  8/1/2022
   WRNB-FM  2000  B  17.0  263.0  100.3 MHz  8/1/2022
   WPPZ-FM  2004  A  0.78  276.0  107.9 MHz  6/1/2022
                      
Houston  KMJQ-FM  2000  C  100.0  524.0  102.1 MHz  8/1/2021
   KBXX-FM  2000  C  100.0  585.0  97.9 MHz  8/1/2021
   KROI-FM  2004  C1  22.36  526  92.1 MHz  8/1/2021
                      
Dallas  KBFB-FM  2000  C  100.0  574  97.9 MHz  8/1/2021
   KZMJ-FM  2001  C  100.0  591.0  94.5 MHz  8/1/2021
                      
Baltimore  WWIN-AM  1992  C  0.5  N/A  1400 kHz  10/1/2027
   WWIN-FM  1992  A  3.0  91.0  95.9 MHz  10/1/2027
   WOLB-AM  1993  D  0.25  N/A  1010 kHz  10/1/2027
   WERQ-FM  1993  B  37.0  173.0  92.3 MHz  10/1/2027
                      
Charlotte  WQNC-FM  2000  C3  10.5  154.0  92.7 MHz  12/1/2027
   WPZS-FM  2004  A  6.0  94.0  100.9 MHz  12/1/2027
   WOSF-FM  2014  C1  51.0  395.0  105.3 MHz  12/1/2027

 

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St. Louis  WFUN-FM  1999  C3  10.5  155.0  95.5 MHz  12/1/2020
   WHHL-FM  2006  C2  50.0  140.0  104.1 MHz  2/1/2021
                      
Cleveland  WJMO-AM  1999  B  5.0  N/A  1300 kHz  10/1/2020
   WENZ-FM  1999  B  16.0  272.0  107.9 MHz  10/1/2020
   WZAK-FM  2000  B  27.5  189.0  93.1 MHz  10/1/2020
   WERE-AM  2000  C  1.0  N/A  1490 kHz  10/1/2020
Raleigh-Durham  WQOK-FM  2000  C2  50.0  146.0  97.5 MHz  12/1/2027
   WFXK-FM  2000  C1  100.0  299.0  104.3 MHz  12/1/2027
   WFXC-FM  2000  C3  13.0  141.0  107.1 MHz  12/1/2027
   WNNL-FM  2000  C3  7.9  176.0  103.9 MHz  12/1/2027
                      
Richmond  WPZZ-FM  1999  C1  100.0  299.0  104.7 MHz  10/1/2027
   WCDX-FM  2001  B1  4.5  235.0  92.1 MHz  10/1/2027
   WKJM-FM  2001  A  6.0  100.0  99.3 MHz  10/1/2027
   WKJS-FM  2001  A  2.3  162.0  105.7 MHz  10/1/2027
   WTPS-AM  2001  C  1.0  N/A  1240 kHz  10/1/2027
   WXGI-AM  2017  D  3.9  N/A  950 kHz  10/1/2027
                      
Columbus  WCKX-FM  2001  A  1.9  126.0  107.5 MHz  10/1/2020
   WBMO-FM  2001  A  6.0  99.0  106.3 MHz  10/1/2020
   WXMG-FM  2016  B  21.0  232.0  95.5 MHz  10/1/2020
   WJYD-FM  2016  A  6.0  100.0  107.1 MHz  10/1/2020
                      
Indianapolis  WHHH-FM  2000  A  3.3  87.0  96.3 MHz  8/1/2020
   WTLC-FM  2000  A  6.0  99.0  106.7 MHz  8/1/2020
   WNOW-FM  2000  A  6.0  100.0  100.9 MHz  8/1/2020
   WTLC-AM  2001  B  5.0  N/A  1310 kHz  8/1/2020
                      
Cincinnati  WIZF-FM  2001  A  2.5  155.0  101.1 MHz  8/1/2020
   WDBZ-AM  2007  C  1.0  N/A  1230 kHz  10/1/2020
   WOSL-FM  2006  A  3.1  141.0  100.3 MHz  10/1/2020

 

To obtain the FCC’s prior consent to assign or transfer control of a broadcast license, an appropriate application must be filed with the FCC. If the assignment or transfer involves a substantial change in ownership or control of the licensee, for example, the transfer of more than 50% of the voting stock, the applicant must give public notice and the application is subject to a 30-day period for public comment. During this time, interested parties may file petitions with the FCC to deny the application. Informal objections may be filed at any time until the FCC acts upon the application. If the FCC grants an assignment or transfer application, administrative procedures provide for petitions seeking reconsideration or full FCC review of the grant.  The Communications Act also permits the appeal of a contested grant to a federal court.

 

Under the Communications Act, a broadcast license may not be granted to or held by any person who is not a U.S. citizen or by any entity that has more than 20% of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, or by foreign governments or their representatives. The Communications Act prohibits more than 25% indirect foreign ownership or control of a licensee through a parent company if the FCC determines the public interest will be served by such prohibition.  The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before this 25% limit may be exceeded. Since we serve as a holding company for subsidiaries that serve as licensees for our stations, we are effectively restricted from having more than one-fourth of our stock owned or voted directly or indirectly by non-U.S. citizens or their representatives, foreign governments, representatives of foreign governments, or foreign business entities unless we seek and obtain FCC authority to exceed that level. The FCC will entertain and authorize, on a case-by-case basis and upon a sufficient public interest showing and favorable executive branch review, proposals to exceed the 25% indirect foreign ownership limit in broadcast licensees. In September 2016, the FCC adopted rules to simplify and streamline the process for requesting authority to exceed the 25% indirect foreign ownership limit and reformed the methodology that publicly traded broadcasters must use to assess their compliance with the foreign ownership restrictions.

 

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The FCC applies its media ownership limits to “attributable” interests. The interests of officers, directors and those who directly or indirectly hold five percent or more of the total outstanding voting stock of a corporation that holds a broadcast license (or a corporate parent) are generally deemed attributable interests, as are any limited partnership or limited liability company interests that are not properly “insulated” from management activities. Certain passive investors that hold stock for investment purposes only are deemed attributable with the ownership of 20% or more of the voting stock of a licensee or parent corporation. An entity with one or more radio stations in a market that enters into a local marketing agreement or a time brokerage agreement with another radio station in the same market obtains an attributable interest in the brokered radio station if the brokering station supplies more than 15% of the brokered radio station’s weekly broadcast hours. Similarly, a radio station licensee’s right under a joint sales agreement (“JSA”) to sell more than 15% per week of the advertising time on another radio station in the same market constitutes an attributable ownership interest in such station for purposes of the FCC’s ownership rules. Debt instruments, non-voting stock, unexercised options and warrants, minority voting interests in corporations having a single majority shareholder, and limited partnership or limited liability company membership interests where the interest holder is not “materially involved” in the media-related activities of the partnership or limited liability company pursuant to FCC-prescribed “insulation” provisions, generally do not subject their holders to attribution unless such interests implicate the FCC’s equity-debt-plus (or “EDP”) rule. Under the EDP rule, a major programming supplier or the holder of an attributable interest in a same-market radio station, television station or daily newspaper will have an attributable interest in a station if the supplier or same-market media entity also holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity.  For purposes of the EDP rule, equity includes all stock, whether voting or nonvoting, and interests held by limited partners or limited liability company members that are “insulated” from material involvement in the company’s media activities. A major programming supplier is any supplier that provides more than 15% of the station’s weekly programming hours.

 

The Communications Act and FCC rules generally restrict ownership, operation or control of, or the common holding of attributable interests in, radio broadcast stations serving the same local market in excess of specified numerical limits. 

 

The numerical limits on radio stations that one entity may own in a local market are as follows:

 

·in a radio market with 45 or more commercial radio stations, a party may hold an attributable interest in up to eight commercial radio stations, not more than five of which are in the same service (AM or FM);

 

·in a radio market with 30 to 44 commercial radio stations, a party may hold an attributable interest in up to seven commercial radio stations, not more than four of which are in the same service (AM or FM);

 

·in a radio market with 15 to 29 commercial radio stations, a party may hold an attributable interest in up to six commercial radio stations, not more than four of which are in the same service (AM or FM); and

 

·in a radio market with 14 or fewer commercial radio stations, a party may hold an attributable interest in up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not hold an attributable interest in more than 50% of the radio stations in such market.

 

To apply these tiers, the FCC currently relies on Nielsen Metro Survey Areas, where they exist. In other areas, the FCC relies on a contour-overlap methodology. The FCC has initiated a rulemaking to determine how to define local radio markets in areas located outside Nielsen Metro Survey Areas. The market definition used by the FCC in applying its ownership rules may not be the same as that used for purposes of the Hart-Scott-Rodino Act.  In 2003, when the FCC changed its methodology for defining local radio markets, it grandfathered existing combinations of radio stations that would not comply with the modified rules.  The FCC provided that these grandfathered combinations could not be sold intact except to certain “eligible entities,” which the FCC defined as entities qualifying as a small business consistent with Small Business Administration standards. In response to a federal appeals court decision, the FCC repealed the eligible entity standard in December 2019.

 

The media ownership rules are subject to review by the FCC every four years.  In August 2016, the FCC issued an order concluding its 2010 and 2014 quadrennial reviews. The August 2016 decision retained the local radio ownership rule, the radio-television cross-ownership rule and the prohibition on newspaper-broadcast cross-ownership without significant changes. In November 2017, the FCC adopted an order reconsidering the August 2016 decision and modifying it in a number of respects.  The November 2017 order on reconsideration did not significantly modify the August 2016 decision with respect to the local radio ownership limits.  It did, however, eliminate the FCC’s previous limits on radio/television cross-ownership and newspaper/broadcast cross-ownership effective February 7, 2018.  In September 2019, however, a federal appeals court vacated the FCC’s November 2017 order on reconsideration, as a result of which the radio/television and newspaper/broadcast cross-ownership rules have been reinstated. The FCC’s 2018 quadrennial review of its media ownership rules, which commenced in December 2018, is currently pending.

 

The attribution and media ownership rules limit the number of radio stations we may acquire or own in any particular market and may limit the prospective buyers of any stations we want to sell. The FCC’s rules could affect our business in a number of ways, including, but not limited to, the following:

 

·the FCC’s radio ownership limits could have an adverse effect on our ability to accumulate stations in a given area or to sell a group of stations in a local market to a single entity;

 

·restricting the assignment and transfer of control of “grandfathered” radio combinations that exceed the ownership limits as a result of the FCC’s 2003 change in local market definition could adversely affect our ability to buy or sell a group of stations in a local market from or to a single entity; and

 

·in general terms, future changes in the way the FCC defines radio markets or in the numerical station caps could limit our ability to acquire new stations in certain markets, our ability to operate stations pursuant to certain agreements, and our ability to improve the coverage contours of our existing stations.

 

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Programming and Operations. The Communications Act requires broadcasters to serve the “public interest” by presenting programming that responds to community problems, needs and interests and by maintaining records demonstrating its responsiveness. The FCC considers complaints from viewers or listeners about a broadcast station’s programming. In January 2016, the FCC adopted rules requiring that radio stations post and maintain their public inspection files online.  All radio stations are now required to maintain their public inspection files on a publicly accessible FCC-hosted online database.  Moreover, the FCC has proposed rules designed to increase local programming content and diversity, including renewal application processing guidelines for locally-oriented programming and a requirement that broadcasters establish advisory boards in the communities where they own stations.   Stations also must follow FCC rules and policies regulating political advertising, obscene or indecent programming, sponsorship identification, contests and lotteries and technical operation, including limits on human exposure to radio frequency radiation.

 

The FCC’s rules prohibit a broadcast licensee, in certain circumstances, from simulcasting more than 25% of its programming on another radio station in the same broadcast service (that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee owns both radio broadcast stations or owns one and programs the other through a local marketing agreement, and only if the contours of the radio stations overlap in a certain manner. The FCC has recently proposed to modify or eliminate this rule.

 

The FCC requires that licensees not discriminate in hiring practices on the basis of race, color, religion, national origin or gender.  It also requires stations with at least five full-time employees to broadly disseminate information about all full-time job openings and undertake outreach initiatives from an FCC list of activities such as participation in job fairs, internships, or scholarship programs. The FCC is considering whether to apply these recruitment requirements to part-time employment positions.  Stations must retain records of their outreach efforts and keep an annual Equal Employment Opportunity (“EEO”) report in their public inspection files and post an electronic version on their websites.

 

From time to time, complaints may be filed against any of our radio stations alleging violations of these or other rules. In addition, the FCC may conduct audits or inspections to ensure and verify licensee compliance with FCC rules and regulations. Failure to observe these or other rules and regulations can result in the imposition of various sanctions, including fines or conditions, the grant of “short” (less than the maximum eight year) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.

 

Employees

 

As of December 31, 2019, we employed 999 full-time employees and 442 part-time employees. Our employees are not unionized.

 

Environmental

 

As the owner, lessee or operator of various real properties and facilities, we are subject to federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures in the future.

 

Corporate Governance

 

Code of Ethics. We have adopted a code of ethics that applies to all of our directors, officers (including our principal financial officer and principal accounting officer) and employees and meets the requirements of the SEC and the NASDAQ Stock Market Rules. Our code of ethics can be found on our website, www.urban1.com. We will provide a paper copy of the code of ethics, free of charge, upon request.

 

Audit Committee Charter. Our audit committee has adopted a charter as required by the NASDAQ Stock Market Rules. This committee charter can be found on our website, www.urban1.com. We will provide a paper copy of the audit committee charter, free of charge, upon request.

 

Compensation Committee Charter. Our Board of Directors has adopted a compensation committee charter. We will provide a paper copy of the compensation committee charter, free of charge, upon request.

 

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Internet Address and Internet Access to SEC Reports

 

Our internet address is www.urban1.com. You may obtain through our internet website, free of charge, copies of our proxies, annual reports on Form 10-K, quarterly reports on Form 10-Q and 10-Q/A, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are available as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Form 10-K.

  

ITEM 1A. RISK FACTORS

 

Risks Related to Our Business and Industry

 

In an enterprise as large and complex as ours, a wide range of factors could affect our business and financial results. The factors described below are considered to be the most significant, but are not listed in any particular order. There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The following discussion of risk factors should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

 

Risks Related to the Nature and Operations of Our Business

 

The state and condition of the global financial markets and fluctuations in the global and U.S. economies may have an unpredictable impact on our business and financial condition.

 

From time to time, the global equity and credit markets experience high levels of volatility and disruption. At various points in time, the markets have produced downward pressure on stock prices and limited credit capacity for certain companies without regard to those companies’ underlying financial strength. In addition, advertising is a discretionary and variable business expense. Spending on advertising tends to decline disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. A recession or downturn in the economy of any individual geographic market, particularly a major market in which we operate, also may have a significant effect on us. Radio revenues in the markets in which we operate may also face greater challenges than the U.S. economy generally and may remain so.  Radio revenues in certain markets in which we operate have lagged the growth of the general United States economy.  Radio revenues in markets in which we operate, as measured by the accounting firm Miller Kaplan Arase LLP (“Miller Kaplan”) were down in 2018.  During this same period, the U.S. Bureau of Economic Analysis reports that U.S. current-dollar gross domestic product grew. Our results of operations could be negatively impacted if radio revenue performance in the markets in which we operate continues to lag general United States economic growth. Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector experiences a downturn. If that sector’s spending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may affect our revenue.

 

Any deterioration in the economy could negatively impact our ability to meet our cash needs and our ability to maintain compliance with our debt covenants.

 

If economic conditions change, or other adverse factors outside our control arise, our operations could be negatively impacted, which could prevent us from maintaining compliance with our debt covenants. If it appears that we could not meet our liquidity needs or that noncompliance with debt covenants is likely, we would implement remedial measures, which could include, but not be limited to, operating cost and capital expenditure reductions and deferrals. In addition, we could implement de-leveraging actions, which may include, but not be limited to, other debt repayments, subject to our available liquidity and contractual ability to make such repayments and/or debt refinancing and amendments.

 

Impact of Public Health Crisis

 

An epidemic or pandemic disease outbreak, such as the current COVID-19 outbreak, could cause, and is causing, significant disruption to our business operations. Measures taken by governmental authorities and private actors to limit the spread of this virus are interfering with the ability of the Company's employees, suppliers, and customers to conduct their functions and business in a normal manner. Further, the demand for advertising across our various segments/platforms is linked to the level of economic activity and employment in the U.S. Specifically, our business is heavily dependent on the demand for advertising from consumer-focused companies. The recent and significant dislocation of consumer demand due to social distancing and government interventions (such as lockdowns or shelter in place policies) has caused, and could further cause, advertisers to reduce, postpone or eliminate their marketing spending generally, and on our platforms in particular. Continued or future social distancing, government interventions and/or recessions could have a material adverse effect on our business and financial condition. Moreover, continued or future declines or disruptions due to the COVID-19 outbreak, could adversely affect our business and financial performance. The COVID-19 outbreak has had an impact on certain of the Company's revenue and alternative revenue sources. Most notably, a number of advertisers across significant advertising categories have reduced advertising spend due to the outbreak, particularly within our radio segment which derives substantial revenue from local advertisers who have been particularly hard hit due to social distancing and government interventions. Further, the COVID-19 outbreak has caused the postponement of our 2020 Tom Joyner Foundation Fantastic Voyage cruise and was impairing ticket sales of other tent pole special events. We do not carry business interruption insurance to compensate us for losses that may occur as a result of any of these interruptions and continued impacts from the COVID-19 outbreak. Outbreaks in the markets in which we operate could have material impacts on our liquidity, operations including potential impairment of assets, and our financial results.

 

The terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take some actions.

 

Our debt instruments impose operating and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends, enter into asset purchase or sale transactions, merge or consolidate with another company, dispose of all or substantially all of our assets or make certain other payments or investments. These restrictions could limit our ability to grow our business through acquisitions and could limit our ability to respond to market conditions or meet extraordinary capital needs.

 

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To service our indebtedness and other obligations, we will require a significant amount of cash.

 

Our ability to generate cash depends on many factors beyond our control. Our latest credit agreement requires us to repay principal due thereunder to the extent then outstanding on each quarterly interest payment date. Commencing on the quarterly interest payment date ending March 2019, the required principal repayment equals one quarter of 7.5% of the aggregate outstanding principal amount due thereunder such amount payable until December 2019. Commencing on the quarterly interest payment date ending March 2020, the required principal repayment amount equals one quarter of 10.0% of the aggregate outstanding principal amount such amount payable until December 2021. And, commencing on the quarterly interest payment date ending March 2021, the required principal repayment equals one quarter of 12.5% of the aggregate outstanding principal amount due thereunder payable until to December 2022.  The Company is also required to use 75% of excess cash flow to repay outstanding term loans due thereunder at par, paid semi-annually 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 due thereunder at par. Our ability to make payments on our indebtedness and to fund capital expenditures will depend on our ability to generate cash in the future. This ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our businesses might not generate sufficient cash flow from operations. We might not be able to complete future offerings, and future borrowings might not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

 

We have historically incurred net losses which could continue into the future.

 

We have historically reported net losses in our consolidated statements of operations, due mostly in part to recording non-cash impairment charges for write-downs to radio broadcasting licenses and goodwill, interest expenses (both cash and non-cash), and revenue declines caused by weakened advertising demand resulting from the current economic environment. These results have had a negative impact on our financial condition and could be exacerbated in a poor economic climate. If these trends continue in the future, they could have a material adverse effect on our financial condition.

 

Our revenue is substantially dependent on spending and allocation decisions by advertisers, and seasonality and/or weakening economic conditions may have an impact upon our business.

 

Substantially all of our revenue is derived from sales of advertisements and program sponsorships to local and national advertisers. Any reduction in advertising expenditures or changes in advertisers’ spending priorities and/or allocations across different types of media/platforms or programming could have an adverse effect on the Company’s revenues and results of operations. We do not obtain long-term commitments from our advertisers and advertisers may cancel, reduce, or postpone advertisements without penalty, which could adversely affect our revenue. Seasonal net revenue fluctuations are common in the media industries and are due primarily to fluctuations in advertising expenditures by local and national advertisers. In addition, advertising revenues in even-numbered years tend to benefit from advertising placed by candidates for political offices. The effects of such seasonality (including the weather), combined with the severe structural changes that have occurred in the U.S. economy, make it difficult to estimate future operating results based on the previous results of any specific quarter and may adversely affect operating results.

 

Advertising expenditures also tend to be cyclical and reflect general economic conditions, both nationally and locally. Because we derive a substantial portion of our revenues from the sale of advertising, a decline or delay in advertising expenditures could reduce our revenues or hinder our ability to increase these revenues. Advertising expenditures by companies in certain sectors of the economy, including the automotive, financial, entertainment, and retail industries, represent a significant portion of our advertising revenues. Structural changes (such as reduced footprints in retail and the movement of retailers online) and business failures in these industries have affected our revenues and continued structural changes or business failures in any of these industries could have significant further impact on our revenues. Any political, economic, social, or technological change resulting in a significant reduction in the advertising spending of these sectors could adversely affect our advertising revenues or our ability to increase such revenues. In addition, because many of the products and services offered by our advertisers are largely discretionary items, weakening economic conditions or changes in consumer spending patterns could reduce the consumption of such products and services and, thus, reduce advertising for such products and services. Changes in advertisers’ spending priorities during economic cycles may also affect our results. Disasters (domestic or external to the United States), acts of terrorism, political uncertainty or hostilities could also lead to a reduction in advertising expenditures as a result of supply or demand issues, uninterrupted news coverage and economic uncertainty.

 

Our success is dependent upon audience acceptance of our content, particularly our television and radio programs, which is difficult to predict.

 

Radio, video, and digital content production and distribution are inherently risky businesses because the revenues derived from the production and distribution of media content or a radio program, and the licensing of rights to the intellectual property associated with the content or program, depend primarily upon their acceptance and perceptions by the public, which can change quickly and are difficult to predict. The commercial success of content or a program also depends upon the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, and other tangible and intangible factors, all of which are difficult to predict. Our failure to obtain or retain rights to popular content on any part of our multi-media platform could adversely affect our revenues.

 

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Ratings for broadcast stations and traffic on a particular website are also factors that are weighed when advertisers determine which outlets to use and in determining the advertising rates that the outlet receives. Poor ratings or traffic levels can lead to a reduction in pricing and advertising revenues. For example, if there is an event causing a change of programming at one of our stations, there could be no assurance that any replacement programming would generate the same level of ratings, revenues, or profitability as the previous programming. In addition, changes in ratings methodology and technology could adversely impact our ratings and negatively affect our advertising revenues.

 

Television content production is inherently a risky business because the revenues derived from the production and distribution of a television program and the licensing of rights to the associated intellectual property depends primarily upon the public’s level of acceptance, which is difficult to predict. The commercial success of a television program also depends upon the quality and acceptance of other competing programs in the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, and other tangible and intangible factors, all of which are difficult to predict. Rating points are also factors that are weighed when determining the advertising rates that TV One receives. Poor ratings can lead to a reduction in pricing and advertising revenues. Consequently, low public acceptance of TV One’s content may have an adverse effect on TV One’s results of operations. Further, networks or programming launched by NetflixTM, Oprah Winfrey (OWNTM), Sean Combs (REVOLT TVTM), and Magic Johnson (ASPIRETM), could take away from our audience share and ratings and thus have an adverse effect on TV One’s results of operations.

 

Legislation could require radio broadcasters to pay additional royalties, including to additional parties such as record labels or recording artists.

 

We currently pay royalties to song composers and publishers through BMI, ASCAP, SESAC and GMR but not to record labels or recording artists for exhibition or use of over the air broadcasts of music. From time to time, Congress considers legislation which could change the copyright fees and the procedures by which the fees are determined. The legislation historically has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the proposed legislation. It cannot be predicted whether any proposed future legislation will become law or what impact it would have on our results from operations, cash flows or financial position. 

 

A disproportionate share of our radio segment revenue comes from a small number of geographic markets and from Reach Media.

 

For the year ended December 31, 2019, approximately 40.6% of our net revenue was generated from the sale of advertising in our core radio business, excluding Reach Media. Within our core radio business, four of the 15 markets in which we operated radio stations in 2019 (Houston, Washington, DC, Atlanta and Baltimore) accounted for approximately 56.3% of our radio station net revenue for the year ended December 31, 2019. Revenue from the operations of Reach Media, along with revenue from both the Houston and Washington, DC markets accounted for approximately 22.8% of our total consolidated net revenue for the year ended December 31, 2019. Revenue from the operations of Reach Media, along with revenue from the four significant contributing radio markets, accounted for approximately 32.8% of our total consolidated net revenue for the year ended December 31, 2019. Adverse events or conditions (economic, including government cutbacks or otherwise) could lead to declines in the contribution of Reach Media or declines in one or more of the four significant contributing radio markets, which could have a material adverse effect on our overall financial performance and results of operations.

 

We may lose audience share and advertising revenue to our competitors.

 

Our media properties compete for audiences and advertising revenue with other radio stations and station groups and other media such as broadcast television, newspapers, magazines, cable television, satellite television, satellite radio, outdoor advertising, “over the top providers” on the internet and direct mail. Adverse changes in audience ratings, internet traffic, and market shares could have a material adverse effect on our revenue. Larger media companies, with more financial resources than we have may target our core audiences or enter the segments or markets in which we operate, causing competitive pressure. Further, other media and broadcast companies may change their programming format or engage in aggressive promotional campaigns to compete directly with our media properties for our core audiences and advertisers. Competition for our core audiences in any of our segments or markets could result in lower ratings or traffic and, hence, lower advertising revenue for us, or cause us to increase promotion and other expenses and, consequently, lower our earnings and cash flow. Changes in population, demographics, audience tastes and other factors beyond our control, could also cause changes in audience ratings or market share. Failure by us to respond successfully to these changes could have an adverse effect on our business and financial performance. We cannot assure that we will be able to maintain or increase our current audience ratings and advertising revenue.

 

We must respond to the rapid changes in technology, content offerings, services, and standards across our entire platform in order to remain competitive.

 

Technological standards across our media properties are evolving and new distribution technologies/platforms are emerging at a rapid pace. We cannot assure that we will have the resources to acquire new technologies or to introduce new features, content or services to compete with these new technologies. New media has resulted in fragmentation in the advertising market, and we cannot predict the effect, if any, that additional competition arising from new technologies or content offerings may have across any of our business segments or our financial condition and results of operations, which may be adversely affected if we are not able to adapt successfully to these new media technologies or distribution platforms. The continuing growth and evolution of channels and platforms has increased our challenges in differentiating ourselves from other media platforms. We continually seek to develop and enhance our content offerings and distribution platforms/methodologies. Failure to effectively execute in these efforts, actions by our competitors, or other failures to deliver content effectively could hurt our ability to differentiate ourselves from our competitors and, as a result, have adverse effects across our business.

 

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The loss of key personnel, including certain on-air talent, could disrupt the management and operations of our business.

 

Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key employees, including certain on-air personalities. We believe that the combination of skills and experience possessed by our executive officers and other key employees could be difficult to replace, and that the loss of one or more of them could have a material adverse effect on us, including the impairment of our ability to execute our business strategy. In addition, several of our on-air personalities and syndicated radio programs hosts have large loyal audiences in their respective broadcast areas and may be significantly responsible for the ratings of a station. The loss of such on-air personalities or any change in their popularity could impact the ability of the station to sell advertising and our ability to derive revenue from syndicating programs hosted by them. We cannot be assured that these individuals will remain with us or will retain their current audiences or ratings.

 

If our digital segment does not continue to develop and offer compelling and differentiated content, products and services, our advertising revenues could be adversely affected.

 

In order to attract consumers and generate increased activity on our digital properties, we believe that we must offer compelling and differentiated content, products and services. However, acquiring, developing, and offering such content, products and services may require significant costs and time to develop, while consumer tastes may be difficult to predict and are subject to rapid change. If we are unable to provide content, products and services that are sufficiently attractive to our digital users, we may not be able to generate the increases in activity necessary to generate increased advertising revenues. In addition, although we have access to certain content provided by our other businesses, we may be required to make substantial payments to license such content. Many of our content arrangements with third parties are non-exclusive, so competitors may be able to offer similar or identical content. If we are not able to acquire or develop compelling content and do so at reasonable prices, or if other companies offer content that is similar to that provided by our digital segment, we may not be able to attract and increase the engagement of digital consumers on our digital properties.

 

Continued growth in our digital business also depends on our ability to continue offering a competitive and distinctive range of advertising products and services for advertisers and publishers and our ability to maintain or increase prices for our advertising products and services. Continuing to develop and improve these products and services may require significant time and costs. If we cannot continue to develop and improve our advertising products and services or if prices for our advertising products and services decrease, our digital advertising revenues could be adversely affected.

 

More individuals are using devices other than personal and laptop computers to access and use the internet, and, if we cannot make our products and services available and attractive to consumers via these alternative devices, our internet advertising revenues could be adversely affected.

 

Digital users are increasingly accessing and using the internet through mobile tablets and smartphones. In order for consumers to access and use our products and services via these devices, we must ensure that our products and services are technologically compatible with such devices. If we cannot effectively make our products and services available on these devices, fewer internet consumers may access and use our products and services and our advertising revenue may be negatively affected.

 

Unrelated third parties may claim that we infringe on their rights based on the nature and content of information posted on websites we maintain.

 

We host internet services that enable individuals to exchange information, generate content, comment on our content, and engage in various online activities. The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally. While we monitor postings to such websites, claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that may be posted online or generated by our users. Our defense of such actions could be costly and involve significant time and attention of our management and other resources.

 

If we are unable to protect our domain names and/or content, our reputation and brands could be adversely affected.

 

We currently hold various domain name registrations relating to our brands, including urban1.com, radio-one.com and interactiveone.com. The registration and maintenance of domain names are generally regulated by governmental agencies and their designees. Governing bodies may establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may be unable to register or maintain relevant domain names. We may be unable, without significant cost or at all, to prevent third parties from registering domain names that are similar to, infringe upon, or otherwise decrease the value of our trademarks and other proprietary rights. Failure to protect our domain names could adversely affect our reputation and brands, and make it more difficult for users to find our websites and our services. In addition, piracy of the Company’s content, including digital piracy, may decrease revenue received from the exploitation of the Company’s programming and other content and adversely affect its businesses and profitability.

 

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Future asset impairment to the carrying values of our FCC licenses and goodwill could adversely impact our results of operations and net worth.

 

As of December 31, 2019, we had approximately $582.7 million in broadcast licenses and $239.8 million in goodwill, which totaled $822.5 million, and represented approximately 65.7% of our total assets. Therefore, we believe estimating the fair value of goodwill and radio broadcasting licenses is a critical accounting estimate because of the significance of their carrying values in relation to our total assets. We recorded impairment charges against radio broadcasting licenses and goodwill of approximately $10.6 million during the year ended December 31, 2019.

 

We are required to test our goodwill and indefinite-lived intangible assets for impairment at least annually, which we have traditionally done in the fourth quarter, or on an interim basis when events or changes in circumstances suggest impairment may have occurred. Impairment is measured as the excess of the carrying value of the goodwill or indefinite-lived intangible asset over its fair value. Impairment may result from deterioration in our performance, changes in anticipated future cash flows, changes in business plans, adverse economic or market conditions, adverse changes in applicable laws and regulations, or other factors beyond our control. The amount of any impairment must be expensed as a charge to operations. Fair values of FCC licenses and goodwill have been estimated using the income approach, which involves a 10-year model that incorporates several judgmental assumptions about projected revenue growth, future operating margins, discount rates and terminal values. We also utilize a market-based approach to evaluate our fair value estimates. There are inherent uncertainties related to these assumptions and our judgment in applying them to the impairment analysis.

 

During the year ended December 31, 2019, the Company recorded a non-cash impairment charge of approximately $4.8 million associated with our Indianapolis and Detroit market radio broadcasting licenses. As part of our annual goodwill impairment analysis, the Company recorded a goodwill impairment charge related to Interactive One of approximately $5.8 million for the year ended December 31, 2019. For the second and third quarters of 2018, the total market revenue growth for certain markets in which we operate was below the estimated total market revenue growth used in our respective prior year annual impairment testing. In each quarter, we deemed that to be an impairment indicator that warranted interim impairment testing of certain markets’ radio broadcasting licenses, which we performed as of each quarter-end date. We recorded an impairment charge of approximately $21.3 million related to our Detroit radio broadcasting licenses and Atlanta and Charlotte goodwill balances during the year ended December 31, 2018.

 

Changes in certain events or circumstances could result in changes to our estimated fair values, and may result in further write-downs to the carrying values of these assets. Additional impairment charges could adversely affect our financial results, financial ratios and could limit our ability to obtain financing in the future.

 

Our business depends on maintaining our licenses with the FCC. We could be prevented from operating a radio station if we fail to maintain its license.

 

Within our primary business, we are required to maintain radio broadcasting licenses issued by the FCC. These licenses are ordinarily issued for a maximum term of eight years and are renewable. Currently, subject to renewal, our radio broadcasting licenses expire at various times beginning April 2020 through December 1, 2027. While we anticipate receiving renewals of all of our broadcasting licenses, interested third parties may challenge our renewal applications. In addition, we are subject to extensive and changing regulation by the FCC with respect to such matters as programming, indecency standards, technical operations, employment and business practices. If we or any of our significant stockholders, officers, or directors violate the FCC’s rules and regulations or the Communications Act of 1934, as amended (the “Communications Act”), or is convicted of a felony or found to have engaged in certain other types of non-FCC related misconduct, the FCC may commence a proceeding to impose fines or other sanctions upon us. Examples of possible sanctions include the imposition of fines, the renewal of one or more of our broadcasting licenses for a term of fewer than eight years or the revocation of our broadcast licenses. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio station covered by the license only after we had exhausted administrative and judicial review without success.

 

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Disruptions or security breaches of our information technology infrastructure could interfere with our operations, compromise client information and expose us to liability, possibly causing our business and reputation to suffer.

 

Our industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data could result in the loss or misuse of such data, which could harm our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in general. Our efforts to protect our company’s data or the information we receive may be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data on a continual basis.

 

Any internal technology breach, error or failure impacting systems hosted internally or externally, or any large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the Internet, may disrupt our technology network. Any individual, sustained or repeated failure of technology could impact our customer service and result in increased costs or reduced revenues. Our technology systems and related data also may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. Our technology security initiatives, disaster recovery plans and other measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial consequences to our reputation.

 

In addition, as a part of our ordinary business operations, we may collect and store sensitive data, including personal information of our clients, listeners and employees. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Any compromise of our technology systems resulting from attacks by hackers or breaches due to employee error or malfeasance could result in the loss, disclosure, misappropriation of or access to clients’, listeners’, employees’ or business partners’ information. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption of our operations and damage to our reputation, any or all of which could adversely affect our business. Although we have developed systems and processes that are designed to protect our data and user data, to prevent data loss, and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security.

 

In the event of a technical or cyber event, we could experience a significant, unplanned disruption, or substantial and extensive degradation of our services, or our network may fail in the future. Despite our significant infrastructure investments, we may have insufficient communications and server capacity to address these or other disruptions, which could result in interruptions in our services. Any widespread interruption or substantial and extensive degradation in the functioning of our IT or technical platform for any reason could negatively impact our revenue and could harm our business and results of operations. If such a widespread interruption occurred, or if we failed to deliver content to users as expected, our reputation could be damaged severely. Moreover, any disruptions, significant degradation, cybersecurity threats, security breaches, or attacks on our internal information technology systems could impact our ratings and cause us to lose listeners, users or viewers or make it more difficult to attract new ones, either of which could harm our business and results of operations.

 

Certain Regulatory Risks

 

The FCC’s media ownership rules could restrict our ability to acquire radio stations.

 

The Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments of licenses. The FCC’s media ownership rules remain subject to further agency and court proceedings. As a result of the FCC media ownership rules, the outside media interests of our officers and directors could limit our ability to acquire stations. The filing of petitions or complaints against Urban One or any FCC licensee from which we are acquiring a station could result in the FCC delaying the grant of, refusing to grant or imposing conditions on its consent to the assignment or transfer of control of licenses. The Communications Act and FCC rules and policies also impose limitations on non-U.S. ownership and voting of our capital stock.

 

Enforcement by the FCC of its indecency rules against the broadcast industry could adversely affect our business operations.

 

The FCC’s rules prohibit the broadcast of obscene material at any time and indecent or profane material on broadcast stations between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCC’s indecency and profanity definitions, coupled with the spontaneity of live programming. The FCC has in the past vigorously enforced its indecency rules against the broadcasting industry and has threatened to initiate license revocation proceedings against broadcast licensees for “serious” indecency violations. In June 2012, the Supreme Court issued a decision which, while setting aside certain FCC indecency enforcement actions on narrow due process grounds, declined to rule on the constitutionality of the FCC’s indecency policies. Following the Supreme Court’s decision, the FCC requested public comment on the appropriate substance and scope of its indecency enforcement policy. It is not possible to predict whether and, if so, how the FCC will revise its indecency enforcement policies or the effect of any such changes on us. The fines for broadcasting indecent material are a maximum of $325,000 per utterance. The determination of whether content is indecent is inherently subjective and, as such, it can be difficult to predict whether particular content could violate indecency standards. The difficulty in predicting whether individual programs, words or phrases may violate the FCC’s indecency rules adds significant uncertainty to our ability to comply with the rules. Violation of the indecency rules could lead to sanctions which may adversely affect our business and results of operations. In addition, third parties could oppose our license renewal applications or applications for consent to acquire broadcast stations on the grounds that we broadcast allegedly indecent programming on our stations. Some policymakers support the extension of the indecency rules that are applicable to over-the-air broadcasters to cover cable programming and/or attempts to increase enforcement of or otherwise expand existing laws and rules. If such an extension, attempt to increase enforcement, or other expansion took place and was found to be constitutional, some of TV One’s content could be subject to additional regulation and might not be able to attract the same subscription and viewership levels.

 

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Changes in current federal regulations could adversely affect our business operations.

 

Congress and the FCC have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress may consider and adopt a revocation of terrestrial radio’s exemption from paying royalties to performing artists and record companies for use of their recordings (radio already pays a royalty to songwriters, composers and publishers). In addition, commercial radio broadcasters and entities representing artists are negotiating agreements that could result in broadcast stations paying royalties to artists. A requirement to pay additional royalties could have an adverse effect on our business operations and financial performance. Moreover, it is possible that our license fees and negotiating costs associated with obtaining rights to use musical compositions and sound recordings in our programming could sharply increase as a result of private negotiations, one or more regulatory rate-setting processes, or administrative and court decisions. We cannot predict whether such increases will occur.

 

The television and distribution industries in the United States are highly regulated by U.S. federal laws and regulations issued and administered by various federal agencies, including the FCC. The television broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. The U.S. Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations, and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation of TV One. For example, the FCC has initiated a proceeding to examine and potentially regulate more closely embedded advertising such as product placement and product integration. Enhanced restrictions affecting these means of delivering advertising messages may adversely affect TV One’s advertising revenues. Changes to the media ownership and other FCC rules may affect the competitive landscape in ways that could increase the competition faced by TV One. Proposals have also been advanced from time to time before the U.S. Congress and the FCC to extend the program access rules (currently applicable only to those cable program services which also own or are owned by cable distribution systems) to all cable program services. TV One’s ability to obtain the most favorable terms available for its content could be adversely affected should such an extension be enacted into law. TV One is unable to predict the effect that any such laws, regulations or policies may have on its operations.

 

Changes in U.S. tax laws could have a material adverse effect on the Company’s cash flow, results of operations or financial condition.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law and contains broad and complex changes to U.S. Federal tax laws. The Company’s interpretation of changes in the law requires significant judgments to be made, and significant estimates in the calculation of the provision for income taxes. However, additional guidance may be issued by the Internal Revenue Service, Department of Treasury, or other governing body that may significantly differ from the Company’s interpretation of the Act’s changes, which may result in a material adverse effect on the Company’s cash flow, results of operations or financial condition.

 

New or changing federal, state or international privacy legislation or regulation could hinder the growth of our internet business.

 

A variety of federal and state laws govern the collection, use, retention, sharing and security of consumer data that our business uses to operate its services and to deliver certain advertisements to its customers, as well as the technologies used to collect such data. Not only are existing privacy-related laws in these jurisdictions evolving and subject to potentially disparate interpretation by governmental entities, new legislative proposals affecting privacy are now pending at both the federal and state level in the U.S. Changes to the interpretation of existing law or the adoption of new privacy-related requirements could hinder the growth of our business and cause us to incur new and additional costs and expenses. Also, a failure or perceived failure to comply with such laws or requirements or with our own policies and procedures could result in significant liabilities, including a possible loss of consumer or investor confidence or a loss of customers or advertisers.

 

Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business, financial condition and results of operations.

 

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

 

As disclosed in Part II, Item 9A “Controls and Procedures” of this Form 10-K, or Item 9A, material weaknesses were identified in our internal control over financial reporting resulting from an error in the Company’s recording of an out-of-period tax provision adjustment of approximately $3.4 million during the quarter ended March 31, 2019, not designing and maintaining effective controls over the completeness and accuracy of the balances of the income tax related accounts during the quarter ended September 30, 2019, and not designing and maintaining effective controls over the adoption of ASC 842 right of use assets and lease liability accounts and related lease accounting activity during the quarter ended December 31, 2019.  The specific issues leading to these conclusions are described in Item 9A in “Management’s Report on Internal Control over Financial Reporting.” 

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We began efforts to remediate the material weakness as part of the third quarter close of 2019. However, our remedial measures to address the material weakness may be insufficient and we may in the future discover areas of our internal controls that need improvement. Failure to maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls could, among other things, result in losses from errors, harm our reputation, or cause investors to lose confidence in the reported financial information, all of which could have a material adverse effect on our results of operations and financial condition. 

 

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Given recent market volatility and the impact of the COVID-19 pandemic on equity markets, we may not be able to satisfy listing requirements of the NASDAQ Capital Market to maintain a listing of our common stock.

 

 Our Class A and Class D common stock is listed on the NASDAQ Capital Market and we must meet certain financial, liquidity and governance criteria to maintain such listing. The COVID-19 pandemic has added volatility to the equity markets and impacted the stock prices of companies across the board.  If we fail to meet any of NASDAQ Capital Market’s listing standards, our Class A and/or Class D common stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing.  A delisting of our common stock from the NASDAQ Capital Market may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital.  While we have had stock repurchase authorizations in the past and currently have an open repurchase authorization, given the severity of the pandemic and its economic impact, we may determine that stock repurchases are not the best use of resources and may not act upon any stock repurchase authorization.   Further, we cannot guarantee that we will approve any further stock repurchase authorizations while the pandemic continues and continues to impact upon equity markets.  While, in response to the COVID-19 pandemic, NASADQ has recently offered temporary relief from the continued listing bid price and market value of publicly held shares through June 30, 2020, we cannot assure you that once that relief is lifted we will be able to meet the NASDAQ Capital Market’s listing standards.

 

Unique Risks Related to Our Cable Television Segment

    

The loss of affiliation agreements could materially adversely affect our cable segment’s results of operations.

 

Our cable television segment is dependent upon the maintenance of affiliation agreements with cable and direct broadcast distributors for its revenues, and there can be no assurance that these agreements will be renewed in the future on terms acceptable to such distributors. The loss of one or more of these arrangements could reduce the distribution of TV One’s and/or CLEO TV’s programming services and reduce revenues from subscriber fees and advertising, as applicable. Further, the loss of favorable packaging, positioning, pricing or other marketing opportunities with any distributor could reduce revenues from subscribers and associated subscriber fees. In addition, consolidation among cable distributors and increased vertical integration of such distributors into the cable or broadcast network business have provided more leverage to these distributors and could adversely affect our cable television segment’s ability to maintain or obtain distribution for its network programming on favorable or commercially reasonable terms, or at all. The results of renewals could have a material adverse effect on our cable television segment’s revenues and results and operations. We cannot assure you that TV One and/or CLEO TV will be able to renew their affiliation agreements on commercially reasonable terms, or at all. The loss of a significant number of these arrangements or the loss of carriage on basic programming tiers could reduce the distribution of our content, which may adversely affect our revenues from subscriber fees and our ability to sell national and local advertising time.

 

Changes in consumer behavior resulting from new technologies and distribution platforms may impact the performance of our businesses.

 

Our cable television segment faces emerging competition from other providers of digital media, some of which have greater financial, marketing and other resources than we do. In particular, content offered over the internet has become more prevalent as the speed and quality of broadband networks have improved. Providers such as NetflixTM, HuluTM, AppleTM, AmazonTM and GoogleTM, as well as gaming and other consoles such as Microsoft’s XboxTM, Sony’s PS4TM, Nintendo’s WiiTM, and RokuTM, are aggressively establishing themselves as alternative providers of video services, including online TV services. Most recently, new online distribution services have emerged offering live sports and other content without paying for a traditional cable bundle of channels. These services and the growing availability of online content, coupled with an expanding market for mobile devices and tablets that allow users to view content on an on-demand basis and internet-connected televisions, may impact our cable television segment’s distribution for its services and content. Additionally, devices or services that allow users to view television programs away from traditional cable providers or on a time-shifted basis and technologies that enable users to fast-forward or skip programming, including commercials, such as DVRs and portable digital devices and systems that enable users to store or make portable copies of content, have caused changes in consumer behavior that may affect the attractiveness of our offerings to advertisers and could therefore adversely affect our revenues. If we cannot ensure that our distribution methods and content are responsive to our cable television segment’s target audiences, our business could be adversely affected.

 

Unique Risks Related to Our Capital Structure

  

Our President and Chief Executive Officer has an interest in TV One that may conflict with your interests.

 

Pursuant to the terms of employment with our President and Chief Executive Officer, Mr. Alfred C. Liggins, III, in recognition of Mr. Liggins’ contributions in founding TV One on our behalf, he is eligible to receive an award amount equal to approximately 4% of any proceeds from distributions or other liquidity events in excess of the return of our aggregate investment in TV One (the “Employment Agreement Award”). Our obligation to pay the award was triggered after our recovery of the aggregate amount of our pre-Comcast Buyout capital contribution in TV One, and payment is required only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event in excess of such invested amount. Mr. Liggins’ rights to the Employment Agreement Award (i) cease if he is terminated for cause or he resigns without good reason and (ii) expire at the termination of his employment (but similar rights could be included in the terms of a new employment agreement or arrangement). As a result of this arrangement, the interest of Mr. Liggins’ with respect to TV One may conflict with your interests as holders of our debt or equity securities.

 

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Two common stockholders have a majority voting interest in Urban One and have the power to control matters on which our common stockholders may vote, and their interests may conflict with yours.

 

As of December 31, 2019, our Chairperson and her son, our President and CEO, collectively held in excess of 95% of the outstanding voting power of our common stock. As a result, our Chairperson and our CEO control our management and policies and decisions involving or impacting upon Urban One, including transactions involving a change of control, such as a sale or merger. The interests of these stockholders may differ from the interests of our other stockholders and our debt holders. In addition, certain covenants in our debt instruments require that our Chairperson and the CEO maintain a specified ownership and voting interest in Urban One, and prohibit other parties’ voting interests from exceeding specified amounts. Our Chairperson and the CEO have agreed to vote their shares together in elections of members to the Board of Directors of Urban One.

 

Further, we are a “controlled company” under rules governing the listing of our securities on the NASDAQ Stock Market because more than 50% of our voting power is held by our Chairperson and the CEO. Therefore, we are not subject to NASDAQ Stock Market listing rules that would otherwise require us to have: (i) a majority of independent directors on the board; (ii) a compensation committee composed solely of independent directors; (iii) a nominating committee composed solely of independent directors; (iv) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and (v) director nominees selected, or recommended for the board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors. While a majority of our board members are currently independent directors, we do not make any assurances that a majority of our board members will be independent directors at any given time.

 

We are a smaller reporting company and a non-accelerated filer and we cannot be certain if the reduced disclosure requirements applicable to our filing status, as well as the exemption from the requirement to provide an auditor’s attestation report regarding the effectiveness of our internal controls, will make our common stock less attractive to investors.

 

We are a “smaller reporting company” and, thus, have certain decreased disclosure obligations in our SEC filings, including, among other things, simplified executive compensation disclosures and only being required to provide two years of audited financial statements in annual reports. We are also a “non-accelerated filer,” meaning we have a public float of less than $75 million measured as of the last business day of our most recently completed second fiscal quarter. As a “non-accelerated filer,” we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” and as a “non-accelerated filer” may make it harder for investors to analyze our results of operations and financial prospects and may make our common stock a less attractive investment.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

   

ITEM 2. PROPERTIES

 

The types of properties required to support each of our radio stations include offices, studios and transmitter/antenna sites. Our other media properties, such as Interactive One, generally only require office space.  We typically lease our studio and office space with lease terms ranging from five to 10 years in length. A station’s studios are generally housed with its offices in business districts. We generally consider our facilities to be suitable and of adequate size for our current and intended purposes. We lease a majority of our main transmitter/antenna sites and associated broadcast towers and, when negotiating a lease for such sites, we try to obtain a lengthy lease term with options to renew. In general, we do not anticipate difficulties in renewing facility or transmitter/antenna site leases, or in leasing additional space or sites, if required.

 

We own substantially all of our equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by our stations are generally in good condition, although opportunities to upgrade facilities are periodically reviewed. The tangible personal property owned by us and the real property owned or leased by us are subject to security interests under our senior credit facility.

 

ITEM 3. LEGAL PROCEEDINGS

 

Urban One is involved from time to time in various routine legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business. Urban One believes the resolution of such matters will not have a material adverse effect on its business, financial condition or results of operations.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

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Part II.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Price Range of Our Class A and Class D Common Stock

 

Our Class A voting common stock is traded on The NASDAQ Stock Market (“NASDAQ”) under the symbol “UONE.” The following table presents, for the quarters indicated, the high and low daily closing prices per share of our Class A Common Stock as reported on the NASDAQ.

 

   High   Low 
2019          
First Quarter  $2.72   $1.93 
Second Quarter  $2.93   $1.87 
Third Quarter  $2.32   $1.75 
Fourth Quarter  $2.93   $1.75 
           
2018          
First Quarter  $2.20   $1.65 
Second Quarter  $3.30   $1.71 
Third Quarter  $3.25   $2.25 
Fourth Quarter  $3.04   $2.01 

 

Our Class D non-voting common stock is traded on the NASDAQ under the symbol “UONEK.” The following table presents, for the quarters indicated, the high and low daily closing prices per share of our Class D Common Stock as reported on the NASDAQ.

 

   High   Low 
2019          
First Quarter  $2.32   $1.75 
Second Quarter  $2.11   $1.78 
Third Quarter  $2.24   $1.75 
Fourth Quarter  $2.24   $1.90 
           
2018          
First Quarter  $2.20   $1.70 
Second Quarter  $2.25   $1.70 
Third Quarter  $2.35   $2.00 
Fourth Quarter  $2.35   $1.61 

 

Number of Stockholders

 

Based upon a survey of record holders and a review of our stock transfer records, as of February 19, 2020, there were approximately 1,476 holders of Urban One’s Class A Common Stock, two holders of Urban One’s Class B Common Stock, three holders of Urban One’s Class C Common Stock, and approximately 1,628 holders of Urban One’s Class D Common Stock.

 

Dividends

 

Since first selling our common stock publicly in May 1999, we have not declared any cash dividends on any class of our common stock. We intend to retain future earnings for use in our business and do not anticipate declaring or paying any cash or stock dividends on shares of our common stock in the foreseeable future. In addition, any determination to declare and pay dividends will be made by our Board of Directors in light of our earnings, financial position, capital requirements, contractual restrictions contained in our credit facility and the indentures governing our senior subordinated notes, and other factors as the Board of Directors deems relevant.  (See Note 9 of our consolidated financial statements — Long-Term Debt.) 

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not required for smaller reporting companies. 

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following information should be read in conjunction with “Selected Financial Data” and the Consolidated Financial Statements and Notes thereto included elsewhere in this report.

 

Overview

 

For the year ended December 31, 2019, consolidated net revenue decreased approximately 0.5% compared to the year ended December 31, 2018. For 2020, our strategy will be to: (i) grow market share; (ii) improve audience share in certain markets and improve revenue conversion of strong and stable audience share in certain other markets; (iii) execute on political opportunities; and (iv) grow and diversify our revenue by successfully executing our multimedia strategy.

 

The state of the economy, competition from digital audio players, the internet, cable television and satellite radio, among other new media outlets, audio and video streaming on the internet, and consumers’ increased focus on mobile applications, are some of the reasons our core radio business has seen slow or negative growth over the past few years. In addition to making overall cutbacks, advertisers continue to shift their advertising budgets away from traditional media such as newspapers, broadcast television and radio to these new media outlets. Internet companies have evolved from being large sources of advertising revenue for radio companies to being significant competitors for radio advertising dollars. While these dynamics present significant challenges for companies that are focused solely in the radio industry, through our online properties, which includes our radio websites, Interactive One and other online verticals, as well as our cable television business, we are poised to provide advertisers and creators of content with a multifaceted way to reach African-American consumers.

 

Results of Operations

 

Revenue

 

Within our core radio business, we primarily derive revenue from the sale of advertising time and program sponsorships to local and national advertisers on our radio stations. Advertising revenue is affected primarily by the advertising rates our radio stations are able to charge, as well as the overall demand for radio advertising time in a market. These rates are largely based upon a radio station’s audience share in the demographic groups targeted by advertisers, the number of radio stations in the related market, and the supply of, and demand for, radio advertising time. Advertising rates are generally highest during morning and afternoon commuting hours.

 

Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions. Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing.

 

The following chart shows the percentage of consolidated net revenue generated by each reporting segment.

 

   For the Years Ended December 31, 
   2019    2018 
Radio broadcasting segment                       40.6 %                       41.6%
            
Reach Media segment   10.2 %   9.8%
            
Digital segment   7.3 %   7.2%
            
Cable television segment   42.4 %   42.0%
            
Corporate/eliminations   (0.5 )%   (0.6)%

 

The following chart shows the percentages generated from local and national advertising as a subset of net revenue from our core radio business.

 

   For the Years Ended December 31, 
   2019   2018 
Percentage of core radio business generated from local advertising   57.2%   58.1%
           
Percentage of core radio business generated from national advertising, including network advertising   36.8%   38.0%

 

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National and local advertising also includes advertising revenue generated from our digital segment. The balance of net revenue from our radio segment was generated from tower rental income, ticket sales and revenue related to our sponsored events, management fees and other revenue.

 

The following charts show our net revenue (and sources) for the years ended December 31, 2019 and 2018:

 

    Year Ended December 31,           %  
    2019     2018     $ Change     Change  
   

 (Unaudited)

(In thousands)

             
Net Revenue:                                
                                 
Radio Advertising   $ 193,318     $ 197,594     $ (4,276 )     (2.2 )%
Political Advertising     1,445       6,590       (5,145 )     (78.1 )
Digital Advertising     31,912       31,510       402       1.3  
Cable Television Advertising     79,776       76,429       3,347       4.4  
Cable Television Affiliate Fees     105,071       107,277       (2,206 )     (2.1 )
Event Revenues & Other     25,407       19,698       5,709       29.0  
                                 
Net Revenue (as reported)   $ 436,929     $ 439,098     $ (2,169 )     (0.5 )%

 

In the broadcasting industry, radio stations and television stations often utilize trade or barter agreements to reduce cash expenses by exchanging advertising time for goods or services. In order to maximize cash revenue for our spot inventory, we closely manage the use of trade and barter agreements.

 

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 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 generates the Company’s cable television revenue, and derives its revenue principally from advertising and affiliate revenue. Advertising revenue is derived from the sale of television air time to advertisers and is recognized when the advertisements are run. Our cable television segment also derives revenue from affiliate fees under the terms of various affiliation agreements based upon a per subscriber fee multiplied by most recent subscriber counts reported by the applicable affiliate.

 

Reach Media primarily derives its revenue from the sale of advertising in connection with its syndicated radio shows, including the Tom Joyner Morning Show and our other syndicated programming assets, including the Rickey Smiley Morning Show, the Russ Parr Morning Show and the DL Hughley Show. Mr. Joyner was a leading nationally syndicated radio personality. Mr. Joyner announced his then forthcoming retirement in 2018 and in December 2019, the Tom Joyner Morning Show ceased being broadcast upon Mr. Joyner’s retirement. Up until his retirement in December 2019, the Tom Joyner Morning Show was broadcast on 71 affiliate stations across the United States. Reach Media also operates www.BlackAmericaWeb.com, an African-American targeted news and entertainment website.  Additionally, Reach Media operates various other event-related activities.

 

Expenses

 

Our significant expenses are: (i) employee salaries and commissions; (ii) programming expenses; (iii) marketing and promotional expenses; (iv) rental of premises for office facilities and studios; (v) rental of transmission tower space; (vi) music license royalty fees; and (vii) content amortization. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal, human resources and management information systems and, in certain markets, the programming management function. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies. In addition to salaries and commissions, major expenses for our internet business include membership traffic acquisition costs, software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with internet service provider (“ISP”) hosting services and other internet content delivery expenses. Major expenses for our cable television business include content acquisition and amortization, sales and marketing. 

 

 28 

 

 

We generally incur marketing and promotional expenses to increase and maintain our audiences. However, because Nielsen reports ratings either monthly or quarterly, depending on the particular market, any changed ratings and the effect on advertising revenue tends to lag behind both the reporting of the ratings and the incurrence of advertising and promotional expenditures.

 

Measurement of Performance

 

We monitor and evaluate the growth and operational performance of our business using net income and the following key metrics:

 

(a)  Net revenue:  The performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net revenue. Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions consistent with industry practice. Net revenue is recognized in the period in which advertisements are broadcast. Net revenue also includes advertising aired in exchange for goods and services, which is recorded at fair value, revenue from sponsored events and other revenue. Net revenue is recognized for our online business as impressions are delivered, as “click throughs” are made or ratably over contract periods, where applicable. Net revenue is recognized for our cable television business as advertisements are run, and during the term of the affiliation agreements at levels appropriate for the most recent subscriber counts reported by the affiliate, net of launch support.

 

(b)  Broadcast and digital operating income:  Net income (loss) before depreciation and amortization, income taxes, interest expense, interest income, noncontrolling interests in income of subsidiaries, other (income) expense, corporate selling, general and administrative expenses, stock-based compensation, impairment of long-lived assets, (gain) loss on retirement of debt and gain on sale-leaseback, is commonly referred to in the radio broadcasting industry as “station operating income.” However, given the diverse nature of our business, station operating income is not truly reflective of our multi-media operation and, therefore, we now use the term broadcast and digital operating income. Broadcast and digital operating income is not a measure of financial performance under accounting principles generally accepted in the United States of America (“GAAP”). Nevertheless, broadcast and digital operating income is a significant measure used by our management to evaluate the operating performance of our core operating segments. Broadcast and digital operating income provides helpful information about our results of operations, apart from expenses associated with our fixed and long-lived intangible assets, income taxes, investments, impairment charges, debt financings and retirements, corporate overhead and stock-based compensation. Our measure of broadcast and digital operating income is similar to industry use of station operating income; however, it reflects our more diverse business and therefore is not completely analogous to “station operating income” or other similarly titled measures as used by other companies. Broadcast and digital operating income does not represent operating loss or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those measurements as an indicator of our performance.

 

(c)  Broadcast and digital operating income margin:  Broadcast and digital operating income margin represents broadcast and digital operating income as a percentage of net revenue. Broadcast and digital operating income margin is not a measure of financial performance under GAAP. Nevertheless, we believe that broadcast and digital operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net revenue. Broadcast and digital operating margin includes results from all four segments (radio broadcasting, Reach Media, digital and cable television).

 

(d) Adjusted EBITDA: Adjusted EBITDA consists of net (loss) income plus (1) depreciation and amortization, income taxes, interest expense, noncontrolling interests in income of subsidiaries, impairment of long-lived assets, stock-based compensation, (gain) loss on retirement of debt, gain on sale-leaseback, employment agreement, incentive plan award expenses and other compensation, contingent consideration from acquisition, severance-related costs, cost method investment income, less (2) other income and interest income. Net income before interest income, interest expense, income taxes, depreciation and amortization is commonly referred to in our business as “EBITDA.” Adjusted EBITDA and EBITDA are not measures of financial performance under GAAP. We believe Adjusted EBITDA is often a useful measure of a company’s operating performance and is a significant measure used by our management to evaluate the operating performance of our business because Adjusted EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our acquisitions and debt financing, our taxes, impairment charges, and gain on retirements of debt. Accordingly, we believe that Adjusted EBITDA provides useful information about the operating performance of our business, apart from the expenses associated with our fixed assets and long-lived intangible assets, capital structure or the results of our affiliated company. Adjusted EBITDA is frequently used as one of the measures for comparing businesses in the broadcasting industry, although our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including, but not limited to the fact that our definition includes the results of all four of our operating segments (radio broadcasting, Reach Media, digital and cable television). Adjusted EBITDA and EBITDA do not purport to represent operating income or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as alternatives to those measurements as an indicator of our performance.

 

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Summary of Performance

 

The table below provides a summary of our performance based on the metrics described above:

 

    For the Years Ended December 31,  
    2019     2018  
    (In thousands, except margin data)  
Net revenue   $ 436,929     $ 439,098  
Broadcast and digital operating income     156,412       164,815  
Broadcast and digital operating income margin     35.8 %     37.5 %
Adjusted EBITDA     133,543       140,622  
Net income attributable to common stockholders     925       137,442  

 

The reconciliation of net income to broadcast and digital operating income is as follows:

 

    For the Years Ended December 31,  
    2019     2018  
    (In thousands)  
Net income attributable to common stockholders, as reported   $ 925     $ 137,442  
Add back non-broadcast and digital operating income items included in net income:                
Interest income     (150 )     (240 )
Interest expense     81,400       76,667  
Provision for (benefit from) from income taxes     10,864       (135,199 )
Corporate selling, general and administrative, excluding stock-based compensation     36,947       32,019  
Stock-based compensation     4,784       4,711  
Loss on retirement of debt           1,809  
Other income, net     (7,075 )     (8,002 )
Depreciation and amortization     16,985       33,189  
Noncontrolling interests in income of subsidiaries     1,132       1,163  
Impairment of long-lived assets     10,600       21,256  
Broadcast and digital operating income   $ 156,412     $ 164,815  

 

The reconciliation of net income to adjusted EBITDA is as follows:

 

    For the Years Ended December 31,  
    2019     2018  
    (In thousands)  
Adjusted EBITDA reconciliation:                
Consolidated net income attributable to common stockholders, as reported   $ 925     $ 137,442  
Interest income     (150 )     (240 )
Interest expense     81,400       76,667  
Provision for (benefit from) income taxes     10,864       (135,199 )
Depreciation and amortization     16,985       33,189  
EBITDA   $ 110,024     $ 111,859  
Stock-based compensation     4,784       4,711  
Loss on retirement of debt           1,809  
Other income, net     (7,075 )     (8,002 )
Noncontrolling interests in income of subsidiaries     1,132       1,163  
Employment Agreement Award, incentive plan award expenses and other compensation     4,948       (3,654 )
Contingent consideration from acquisition     297       2,399  
Severance-related costs     1,980       2,032  
Cost method investment income from MGM National Harbor     6,853       7,049  
Impairment of long-lived assets     10,600       21,256  
Adjusted EBITDA   $ 133,543     $ 140,622  

  

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URBAN ONE, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

 

The following table summarizes our historical consolidated results of operations:

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 (In thousands)

 

   

For the Years Ended 

December 31,

    Increase/(Decrease)  
    2019     2018        
Statements of Operations:                        
Net revenue   $ 436,929     $ 439,098     $ (2,169 )     (0.5 )%
Operating expenses:                                
Programming and technical, excluding stock-based compensation     128,726       125,316       3,410       2.7  
Selling, general and administrative, excluding stock-based compensation     151,791       148,967       2,824       1.9  
Corporate selling, general and administrative, excluding stock-based compensation     36,947       32,019       4,928       15.4  
Stock-based compensation     4,784       4,711       73       1.5  
Depreciation and amortization     16,985       33,189       (16,204 )     (48.8 )
Impairment of long-lived assets     10,600       21,256       (10,656 )     (50.1 )
Total operating expenses     349,833       365,458       (15,625 )     (4.3 )
Operating income     87,096       73,640       13,456       18.3  
Interest income     150       240       (90 )     (37.5 )
Interest expense     81,400       76,667       4,733       6.2  
Loss on retirement of debt           1,809       (1,809 )     (100.0 )
Other income, net     (7,075 )     (8,002 )     (927 )     (11.6 )
Income before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries     12,921       3,406       9,515       279.4  
Provision for (benefit from) income taxes     10,864       (135,199 )     (146,063 )     (108.0 )
Consolidated net income     2,057       138,605       (136,548 )     (98.5 )
Noncontrolling interests in income of subsidiaries     1,132       1,163       (31 )     (2.7 )
Net income attributable to common stockholders   $ 925     $ 137,442     $ (136,517 )     (99.3 )%

 

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Net revenue

 

Year Ended December 31,     Increase/(Decrease)  
2019     2018        
$ 436,929     $ 439,098     $ (2,169 )     (0.5 )%

 

During the year ended December 31, 2019, we recognized approximately $436.9 million in net revenue compared to approximately $439.1 million during the year ended December 31, 2018. These amounts are net of agency and outside sales representative commissions. Net revenues from our radio broadcasting segment for the year ended December 31, 2019, decreased 2.9% from the same period in 2018. Based on reports prepared by the independent accounting firm Miller, Kaplan, Arase & Co., LLP (“Miller Kaplan”), the radio markets we operate in (excluding Richmond and Raleigh, both of which no longer participate in Miller Kaplan) increased 1.6% in total revenues for the year ended December 31, 2019, consisting of a decrease of 3.2% in local revenues, which was offset by an increase of 3.8% in national revenues, and an increase of 26.3% in digital revenues. We experienced net revenue growth most significantly in our Atlanta and Washington, DC markets; however, this growth was offset by declines most significantly in our Cincinnati, Columbus, Detroit, Indianapolis, Philadelphia, Richmond and St. Louis markets. The declines in Detroit were driven by the previously announced sales of our Detroit WDMK-FM station as of August 31, 2019 and our Detroit WPZR-FM station as of August 8, 2018. Net revenue for our Reach Media segment increased 4.0% for the year ended December 31, 2019, compared to the same period in 2018, due primarily to increased performance at special events. We recognized approximately $185.0 million from our cable television segment for the year ended December 31, 2019, compared to approximately $184.3 million of revenue for the same period in 2018, with the increase due primarily to higher advertising sales which was partially offset by lower affiliate sales. Net revenue from our digital segment increased $345,000 and 1.1% for the year ended December 31, 2019, compared to the same period in 2018.

 

Operating expenses

 

Programming and technical, excluding stock-based compensation

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018         
$128,726   $125,316   $3,410    2.7%

 

Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for the radio segment also include expenses associated with our programming research activities and music royalties. For our digital segment, programming and technical expenses include software product design, post-application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. For our cable television segment, programming and technical expenses include expenses associated with technical, programming, production, and content management. The increase in programming and technical expenses for the year ended December 31, 2019, compared to the same period in 2018 is primarily due to higher program content expenses in our cable television segment, which was partially offset by a decrease in expenses at our Reach Media and digital segments.

 

Selling, general and administrative, excluding stock-based compensation

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$151,791   $148,967   $2,824    1.9%

 

Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back office expenses. Expenses to secure ratings data for our radio stations and visitors’ data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for the radio broadcasting segment and digital segment include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. The increase in expense for the year ended December 31, 2019, compared to the same period in 2018, is primarily due to an increase in expenses at our radio broadcasting, Reach Media and cable television segments, partially offset by a decrease in expenses at our digital segment.

 

Corporate selling, general and administrative, excluding stock-based compensation

 

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Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$36,947   $32,019   $4,928    15.4%

 

Corporate expenses consist of expenses associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. The increase in expense for the year ended December 31, 2019, compared to the same period in 2018, is primarily driven by higher corporate expenses, which was partially offset by a decrease in corporate expenses at our Reach Media and cable television segments. During the year ended December 31, 2018, management changed the methodology used in calculating the fair value of the Company's Employment Agreement Award liability to simplify the calculation. The Compensation Committee of the Board of Directors approved the simplified method which eliminated certain assumptions that were historically used in the determination of the fair value of this liability. The revised methodology resulted in a one-time reduction of approximately $6.6 million during the quarter ended September 30, 2018 to reflect this change in estimate. The liability was further reduced during the quarter ended December 31, 2018 using the simplified methodology, due primarily to an overall lower valuation. During 2019, there was an increase in the overall enterprise valuation and an increase in the overall working capital contributing to an increase in expense recognized throughout the year. Our cable television segment generated a decrease of approximately $2.7 million for the year ended December 31, 2019, compared to the same period in 2018 due primarily to lower incentive based-compensation costs.

 

Stock-based compensation

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$4,784   $4,711   $73    1.5%

 

The increase in stock-based compensation for the year ended December 31, 2019, compared to the same period in 2018, is primarily due to grants of stock awards for certain executive officers and other management personnel.

 

Depreciation and amortization

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$16,985   $33,189   $(16,204)   (48.8)%

 

The decrease in depreciation and amortization expense for the year ended December 31, 2019, was due to the mix of assets approaching or near the end of their useful lives, most notably the Company’s affiliate agreements.

 

Impairment of long-lived assets

 

Year Ended December 31,     Increase/(Decrease)  
2019     2018        
$ 10,600     $ 21,256     $ (10,656 )     (50.1 )%

 

The impairment of long-lived assets for the year ended December 31, 2019, was related to a non-cash impairment charge associated with our Detroit and Indianapolis markets’ radio broadcasting licenses as well as a non-cash impairment charge recorded to reduce the carrying value of our Interactive One goodwill balance. The impairment of long-lived assets for the year ended December 31, 2018, was related to a non-cash impairment charge recorded to reduce the carrying value of our Charlotte and Atlanta goodwill balances and a non-cash impairment charge recorded to reduce the carrying value of our Detroit radio broadcasting licenses.

 

Interest expense

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$81,400   $76,667   $4,733    6.2%

 

Interest expense increased to approximately $87.1 million for the year ended December 31, 2019, compared to approximately $76.7 million for the same period in 2018, due to higher interest rates on lower overall debt balances outstanding. On December 20, 2018, the Company closed on a new $192.0 million unsecured credit facility (the “2018 Credit Facility”) and a new $50.0 million loan secured by its interest in the MGM National Harbor Casino (the “MGM National Harbor Loan”). During the quarter ended December 31, 2018, in conjunction with entering into the 2018 Credit Facility and MGM National Harbor Loan, the Company repurchased approximately $243.0 million of its 9.25% Senior Subordinated Notes due 2020 (the “2020 Notes”) at an average price of approximately 100.88% of par, with the remaining balance of the 2020 Notes being repurchased in February 2019.

  

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Loss on retirement of debt

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$   $1,809   $(1,809)   (100.0)%

 

There was a net loss on retirement of debt of approximately $1.8 million for the year ended December 31, 2018, due to the redemption of 2020 Notes throughout the year. During the quarter ended December 31, 2018, there was a loss on retirement of debt of approximately $2.8 million which includes a write-off of previously capitalized debt financing costs and original issue discount associated with the 2020 Notes in the amount of $649,000 and also includes approximately $2.1 million associated with the premium paid to the bondholders. Prior to the quarter ended December 31, 2018, there was a gain on retirement of debt due to the redemption of the 2020 Notes at a discount during the first, second and third quarters.

 

Other income, net

 

Year Ended December 31,     Increase/(Decrease)  
2019     2018        
$ (7,075 )   $ (8,002 )   $ (927 )     (11.6 )%

 

Other income, net, decreased to approximately $7.1 million for the year ended December 31, 2019, compared to approximately $8.0 million for the same period in 2018. We recognized other income in the amount of approximately $6.9 million and $7.0 million, for the years ended December 31, 2019 and 2018, respectively, related to our MGM investment. In addition, we recognized $809,000 in other income for the year ended December 31, 2018, related to the deferred gain on sale lease-back transaction.

 

Provision for (benefit from) income taxes

 

Year Ended December 31,     Increase/(Decrease)  
2019     2018        
$ 10,864     $ (135,199 )   $ (146,063 )     (108.0 )%

  

During the year ended December 31, 2019 the provision for income taxes increased to approximately $10.9 million compared to the benefit from income taxes of approximately $135.2 million for the year ended December 31, 2018. The increase in the provision for income taxes was primarily due to the application of statutory tax rates and permanent tax adjustments. For the year ended December 31, 2019, the provision consisted of deferred tax expense of approximately $10.3 million and current tax expense of $595,000. For the year ended December 31, 2018, the benefit consisted of deferred tax benefit of approximately $135.8 million and current tax expense of $604,000. The Company continues to maintain a valuation allowance of $249,000 against certain of its deferred tax assets (“DTAs”) in jurisdictions where we do not expect these assets to be realized. The provision resulted in an effective tax rate of 84.1% and (3,969.4)% for the years ended December 31, 2019 and 2018, respectively. The 2019 annual effective tax rate primarily reflects taxes at statutory tax rates and the impact of permanent tax adjustments. The 2018 annual effective tax rate primarily reflects the impact of the valuation allowance release related to the realizability of certain of the Company’s net operating losses.

 

Noncontrolling interests in income of subsidiaries

 

Year Ended December 31,   Increase/(Decrease) 
2019   2018     
$1,132   $1,163   $(31)   (2.7)%

 

The decrease in noncontrolling interests in income of subsidiaries was primarily due to lower net income recognized by Reach Media for the year ended December 31, 2019, versus the same period in 2018.

 

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Other Data

 

Broadcast and digital operating income

 

Broadcast and digital operating income decreased to approximately $156.4 million for the year ended December 31, 2019, compared to approximately $164.8 million for the year ended December 31, 2018, a decrease of approximately $8.4 million or 5.1%. This decrease was due to lower broadcast and digital operating income in our radio broadcasting, Reach Media and cable television segments, which was partially offset by an increase in broadcast and digital operating income at our digital segment. Our radio broadcasting segment generated approximately $58.3 million of broadcast and digital operating income during the year ended December 31, 2019, compared to approximately $66.0 million during the year ended December 31, 2018, a decrease of $7.6 million, primarily due to a decrease in revenues. Reach Media generated approximately $9.7 million of broadcast and digital operating income during the year ended December 31, 2019, compared to approximately $10.5 million during the year ended December 31, 2018, primarily due to higher selling, general and administrative expenses. Our digital segment generated $200,000 of broadcast and digital operating income during the year ended December 31, 2019, compared to an approximately $5.9 million broadcast and digital operating loss during the year ended December 31, 2018. The increase in our digital segment’s broadcast and digital operating income is primarily due to overall lower expenses. Finally, TV One generated approximately $88.3 million of broadcast and digital operating income during the year ended December 31, 2019, compared to approximately $94.3 million during the year ended December 31, 2018, with the decrease due primarily to higher programming and technical expenses.

 

Broadcast and digital operating income margin

 

Broadcast and digital operating income margin decreased to 35.8% for the year ended December 31, 2019, from 37.5% for 2018. The margin decrease was primarily attributable to lower broadcast and digital operating income as described above.

 

Liquidity and Capital Resources

 

Our primary source of liquidity is cash provided by operations and, to the extent necessary, borrowings available under our asset-backed credit facility (the “ABL Facility”).  

 

Beginning in March 2020, the Company noted that the COVID-19 pandemic and the resulting government stay at home order were dramatically impacting certain of the Company's revenues. Most notably, a number of advertisers across significant advertising categories have reduced or ceased advertising spend due to the outbreak and stay at home orders which effectively shut many businesses down.  This 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. Further, the COVID-19 outbreak has caused the postponement of our 2020 Tom Joyner Foundation Fantastic Voyage cruise and was impairing ticket sales of other tent pole special events.

 

Given the expected decreases in revenues caused by the COVID-19 pandemic, we assessed a variety of factors, including but not limited to, media industry financial forecasts for the remainder of 2020, expected operating results, forecasted net cash flows from operations, future obligations and liquidity, capital expenditure commitments and forecasted debt covenant compliance.  If the Company were unable to meet its financial covenants, an event of default would occur and the Company’s debt would have to be classified as current, which the Company would be unable to repay if lenders were to call the debt.  We concluded that the potential that the Company could incur considerable decreases in operating profits and the resulting impact on the Company’s ability to meet its debt service obligations and debt covenants were probable conditions which gave rise to a need for an assessment of whether substantial doubt existed of the Company’s ability to continue as a going concern.

 

As a result, the Company performed a complete reforecast of its 2020 anticipated results extending through April 2021. In reforecasting its results, the Company included the impact of certain of cost-cutting measures including furloughs, layoffs, salary reductions, eliminating travel and entertainment expenses, eliminating discretionary bonus expenses and merit raises, reducing or deferring marketing spend, deferring programming/production costs, reducing special events costs, and implementing a hiring freeze on open positions.

 

Out of an abundance of caution and to provide for further liquidity given the uncertainty around the pandemic, the Company drew approximately $27.5 million on its ABL Facility on March 19, 2020.  As of March 31, 2020, the amount remained on the Company’s balance sheet and improved our cash on hand balance to approximately $66.4 million.  On April 15, 2020, the Company paid interest expense of approximately $12.9 million on its 7.375% Senior Secured Notes, and as of April 27, 2020 our cash on hand balance is approximately $54.7 million. As a result of the cost reduction and other measures that the Company has taken in response to COVID-19, the Company anticipates meeting its debt service requirements and is projecting compliance with all debt covenants through April 2021.

 

See Note 9 to our consolidated financial statements — Long-Term Debt for further information on liquidity and capital resources.

 

As of December 31, 2019, ratios calculated in accordance with the 2017 Credit Facility were as follows:

 

   As of
December
31, 2019
   Covenant
Limit
   Excess
Coverage
 
Interest Coverage               
Covenant EBITDA / Interest Expense   1.91x   1.25x   0.66x
                
Senior Secured Leverage               
Senior Secured Debt / Covenant EBITDA   4.78x   5.85x   1.07x

 

Covenant EBITDA – Earnings before interest, taxes, depreciation and amortization (“EBITDA”) adjusted for certain other adjustments, as defined in the 2017 Credit Facility

 

As of December 31, 2019, ratios calculated in accordance with the 2018 Credit Facility were as follows:

 

    As of
December
31, 2019
    Covenant
Limit
    Excess
Coverage
 
Total Gross Leverage                        
Consolidated Indebtedness / Covenant EBITDA     6.27 x     8.00 x     1.73 x

 

Covenant EBITDA – Earnings before interest, taxes, depreciation and amortization (“EBITDA”) adjusted for certain other adjustments, as defined in the 2018 Credit Facility

 

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The following table summarizes the interest rates in effect with respect to our debt as of December 31, 2019:

 

Type of Debt  Amount
Outstanding
   Applicable
Interest
Rate
 
   (In millions)     
2017 Credit Facility, net of original issue discount and issuance costs (at variable rates)(1)  $              315.3   5.71%
7.375% Senior Secured Notes, net of original issue discount and issuance costs (fixed rate)   347.6   7.375%
2018 Credit Facility, net of original issue discount and issuance costs (fixed rate)   163.4   12.875%
MGM National Harbor Loan, net of original issue discount and issuance costs (fixed rate, including PIK)   50.0   11.0%
Asset-backed credit facility (variable rate)(1)      %

 

(1)    Subject to variable LIBOR or Prime plus a spread that is incorporated into the applicable interest rate set forth above.

 

The following table provides a comparison of our statements of cash flows for the years ended December 31, 2019 and 2018:

 

    2019     2018  
    (In thousands)  
Net cash flows provided by operating activities   $ 58,505     $          50,229  
Net cash flows provided by investing activities     8,355       3,200  
Net cash flows used in financing activities     (49,204 )     (75,350 )

 

Net cash flows provided by operating activities were approximately $58.5 million and $50.2 million for the years ended December 31, 2019 and 2018, respectively. Cash flow from operating activities for the year ended December 31, 2019, increased from the prior year primarily due to timing of collections of accounts receivable, payments of accrued compensation and payments for accrued interest.

 

Net cash flows provided by investing activities were approximately $8.4 million and $3.2 million for the years ended December 31, 2019 and 2018, respectively. Capital expenditures, including digital tower and transmitter upgrades, and deposits for station equipment and purchases were approximately $5.1 million and $4.4 million for the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, the Company received proceeds of approximately $13.5 million for the sale of the remaining Detroit station and translators. During the year ended December 31, 2018, the Company paid approximately $4.8 million to complete the acquisition of our new WTEM Washington DC station and Detroit translators and we received proceeds of approximately $12.8 million for the sale of our Detroit WPZR-FM station assets.

 

Net cash flows used in financing activities were approximately $49.2 million and $75.4 million for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, the Company repaid approximately $42.1 million and $23.4 million, respectively, in outstanding debt. During the year ended December 31, 2018, we borrowed approximately $192.0 million in new 2018 Credit Facility and we borrowed approximately $50.0 million in the MGM National Harbor Loan. During the year ended December 31, 2018, we capitalized approximately $7.4 million of costs associated with our indebtedness. During the year ended December 31, 2018, the Company repurchased approximately $271.9 million of our 2020 Notes and the Company paid a premium of approximately $2.1 million to retire the 2020 Notes. During the years ended December 31, 2019 and 2018, we repurchased approximately $5.5 million and $8.2 million of our Class A and Class D Common Stock, respectively. Reach Media paid approximately $1.0 million and $2.2 million, respectively in dividends to noncontrolling interest shareholders for the years ended December 31, 2019 and 2018. During the years ended December 31, 2019 and 2018, respectively, the Company distributed $658,000 and approximately $1.1 million of contingent consideration related to the Moguldom acquisition.

 

Credit Rating Agencies

 

Our corporate credit ratings by Standard & Poor's Rating Services and Moody's Investors Service are speculative-grade and have been downgraded and upgraded at various times during the last several years. Any reductions in our credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase our cost of doing business or otherwise negatively impact our business operations.

 

Recent Accounting Pronouncements

 

See Note 1 of our consolidated financial statements — Organization and Summary of Significant Accounting Policies for a summary of recent accounting pronouncements.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Our accounting policies are described in Note 1 of our consolidated financial statements – Organization and Summary of Significant Accounting Policies. We prepare our consolidated financial statements in conformity with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the following policies and estimates to be most critical in understanding the judgments involved in preparing our financial statements and the uncertainties that could affect our results of operations, financial condition and cash flows.

 

 36 

 

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation for stock options and restricted stock grants in accordance with ASC 718, “Compensation - Stock Compensation.” Under the provisions of ASC 718, stock-based compensation cost for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes valuation option-pricing model (“BSM”) and is recognized as expense, less estimated forfeitures, ratably over the requisite service period.  The BSM incorporates various highly subjective assumptions including expected stock price volatility, for which historical data is heavily relied upon, expected life of options granted, forfeiture rates and interest rates. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense may differ materially in the future from that previously recorded. Compensation expense for restricted stock grants is measured based on the fair value on the date of grant less estimated forfeitures. Compensation expense for restricted stock grants is recognized ratably during the vesting period. 

 

Goodwill and Radio Broadcasting Licenses

 

Impairment Testing

 

We have made several acquisitions in the past for which a significant portion of the purchase price was allocated to radio broadcasting licenses and goodwill. Goodwill exists whenever the purchase price exceeds the fair value of tangible and identifiable intangible net assets acquired in business combinations. As of December 31, 2019, we had approximately $582.7 million in broadcast licenses and $239.8 million in goodwill, which totaled $822.5 million, and represented approximately 65.7% of our total assets. Therefore, we believe estimating the fair value of goodwill and radio broadcasting licenses is a critical accounting estimate because of the significance of their carrying values in relation to our total assets. For the years ended December 31, 2019 and 2018, we recorded impairment charges against radio broadcasting licenses and goodwill, collectively, of approximately $10.6 million and $21.3 million, respectively. Significant impairment charges have been an on-going trend experienced by media companies in general, and are not unique to us.

 

We test for impairment annually across all reporting units, or when events or changes in circumstances or other conditions suggest impairment may have occurred in any given reporting unit. Our annual impairment testing is performed as of October 1 of each year. Impairment exists when the carrying value of these assets exceeds its respective fair value. When the carrying value exceeds fair value, an impairment amount is charged to operations for the excess.

 

Beginning in March 2020, the Company noted that the COVID-19 pandemic and the resulting government stay at home order were dramatically impacting certain of the Company's revenues. Most notably, a number of advertisers across significant advertising categories have reduced or ceased advertising spend due to the outbreak and stay at home orders which effectively shut many businesses down.  This 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. The COVID-19 impact is considered a non-recognized subsequent event. The Company will perform certain interim impairment testing during the quarter ended March 31, 2020 which could result in the Company recording additional non-cash impairment charges related to its broadcasting licenses and goodwill balances during 2020.

 

Valuation of Broadcasting Licenses

  

We utilize the services of a third-party valuation firm to assist us in estimating the fair value of our radio broadcasting licenses and reporting units. Fair value is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the income approach to test for impairment of radio broadcasting licenses. A projection period of 10 years is used, as that is the time horizon in which operators and investors generally expect to recover their investments. When evaluating our radio broadcasting licenses for impairment, the testing is done at the unit of accounting level as determined by ASC 350, “Intangibles - Goodwill and Other.” In our case, each unit of accounting is a cluster of radio stations into one of our geographical markets.  Broadcasting license fair values are based on the discounted future cash flows of the applicable unit of accounting assuming an initial hypothetical start-up operation which possesses FCC licenses as the only asset. Over time, it is assumed the operation acquires other tangible assets such as advertising and programming contracts, employment agreements and going concern value, and matures into an average performing operation in a specific radio market. The income approach model incorporates several variables, including, but not limited to: (i) radio market revenue estimates and growth projections; (ii) estimated market share and revenue for the hypothetical participant; (iii) likely media competition within the market; (iv) estimated start-up costs and losses incurred in the early years; (v) estimated profit margins and cash flows based on market size and station type; (vi) anticipated capital expenditures; (vii) estimated future terminal values; (viii) an effective tax rate assumption; and (ix) a discount rate based on the weighted-average cost of capital for the radio broadcast industry. In calculating the discount rate, we considered: (i) the cost of equity, which includes estimates of the risk-free return, the long-term market return, small stock risk premiums and industry beta; (ii) the cost of debt, which includes estimates for corporate borrowing rates and tax rates; and (iii) estimated average percentages of equity and debt in capital structures. 

 

 37 

 

 

Valuation of Goodwill

 

The impairment testing of goodwill is performed at the reporting unit level. We had 17 reporting units as of our October 2019 annual impairment assessment, consisting of each of the 14 radio markets within the radio division (our license in Detroit was sold during the third quarter of 2019) and each of the other three business divisions. In testing for the impairment of goodwill, we primarily rely on the income approach. The approach involves a 10-year model with similar variables as described above for broadcasting licenses, except that the discounted cash flows are based on the Company’s estimated and projected market revenue, market share and operating performance for its reporting units, instead of those for a hypothetical participant. We use a 5-year model for our Reach Media reporting unit. We evaluate all events and circumstances on an interim basis to determine if an impairment indicator is present and also perform annual testing by comparing the fair value of the reporting unit with its carrying amount. We recognize an impairment charge to operations in the amount that the reporting unit’s carrying value exceeds its fair value. The impairment charge recognized cannot exceed the total amount of goodwill allocated to the reporting unit.

 

Below are some of the key assumptions used in the income approach model for estimating the broadcasting license and goodwill fair values for the annual impairment testing performed and interim impairment testing performed where an impairment charge was recorded since January 1, 2018.

 

Radio Broadcasting  October 1,   June 30,   October 1,   March 31, 
Licenses  2019   2019(*)   2018   2018(*) 
Impairment charge (in millions)  $1.0   $3.8   $   $3.9 
Discount Rate   9.0%   *    9.0%   * 
Year 1 Market Revenue Growth Rate Range   0.9% – 1.8%   *    (1.2)% – (0.6)%   * 
Long-term Market Revenue Growth Rate Range (Years 6 – 10)   0.7% – 1.1%   *    0.7% – 1.1%   * 
Mature Market Share Range   6.9% – 25.0%   *    5.3% – 25.0%   * 
Mature Operating Profit Margin Range   27.6% – 39.7%   *    28.3% – 41.1%   * 

 

  (a) Reflects changes only to the key assumptions used in the interim testing for certain units of accounting.
  (*) License fair value based on estimated asset sale consideration.

 

Goodwill (Radio Market  October 1,   October 1,   March 31, 
Reporting Units)  2019(a)   2018(a)   2018(*) 
Impairment charge (in millions)  $   $14.7   $2.7 
                
Discount Rate   9.0%   9.0%   * 
Year 1 Market Revenue Growth Rate Range   (7.6)% – 49.3%   (8.0)% – 27.5 %   * 
Long-term Market Revenue Growth Rate Range (Years 6 – 10)   0.7% – 1.1 %   0.7% – 1.1 %   * 
Mature Market Share Range   7.1% - 17.0 %   7.6% - 17.8 %   * 
Mature Operating Profit Margin Range   26.8% - 47.6 %   26.8% - 46.9 %   * 

 

  (a) Reflects the key assumptions for testing only those radio markets with remaining goodwill.
  (*) Goodwill fair value based on estimated asset sale consideration.

 

Below are some of the key assumptions used in the income approach model for estimating the fair value for Reach Media for the annual and interim impairment assessments performed since October 2018. When compared to the discount rates used for assessing radio market reporting units, the higher discount rates used in these assessments reflect a premium for a riskier and broader media business, with a heavier concentration and significantly higher amount of programming content assets that are highly dependent on a single on-air personality. As a result of our impairment assessments, the Company concluded that the goodwill was not impaired.

 

   October 1,   October 1, 
Reach Media Segment Goodwill  2019   2018 
Impairment charge (in millions)  $   $ 
           
Discount Rate   10.5%   10.5%
Year 1 Revenue Growth Rate   (9.7)%   2.3%
Long-term Revenue Growth Rate (Year 5)   1.0%   1.0%
Operating Profit Margin Range   13.3% - 14.3%   14.6% - 15.8%

 

 38 

 

 

During the fourth quarter of 2019, the Company performed its annual impairment testing on the valuation of goodwill associated with our digital segment. Our digital segment’s net revenues and cash flow internal projections were revised downward and as a result of our annual assessment, the Company recorded a goodwill impairment charge of approximately $5.8 million. Below are some of the key assumptions used in the income approach model for determining the fair value of our digital reporting unit since October 2018. When compared to discount rates for the radio reporting units, the higher discount rate used to value the reporting unit is reflective of discount rates applicable to internet media businesses. The Company concluded no impairment to the carrying value of goodwill had occurred as a result of the annual testing performed in 2018.

 

    October 1,     October 1,  
Digital Segment Goodwill   2019     2018  
Impairment charge (in millions)   $ 5.8     $  
                 
Discount Rate     12.0 %     13.5 %
Year 1 Revenue Growth Rate     12.2 %     12.6 %
Long-term Revenue Growth Rate (Years 6 – 10)     2.8% - 7.7 %     3.1% - 3.7 %
Operating Profit Margin Range     (4.7)% - 11. 7%     (1.1)% - 15.7 %

 

Below are some of the key assumptions used in the income approach model for determining the fair value of our cable television segment since October 2018. As a result of the testing performed in 2019 and 2018, the Company concluded no impairment to the carrying value of goodwill had occurred.  

   October 1,   October 1, 
Cable Television Segment Goodwill  2019   2018 
Impairment charge (in millions)  $   $ 
           
Discount Rate   10.0%   11.0%
Year 1 Revenue Growth Rate   1.0%   1.8%
Long-term Revenue Growth Rate Range (Years 6 – 10)   1.9% - 2.3%   2.0% - 3.0%
Operating Profit Margin Range   33.0% - 45.5%   36.9% - 42.5%

 

The above goodwill tables reflect some of the key valuation assumptions used for 11 of our 17 reporting units. The other six remaining reporting units had no goodwill carrying value balances as of December 31, 2019.

  

In arriving at the estimated fair values for radio broadcasting licenses and goodwill, we also performed an analysis by comparing our overall average implied multiple based on our cash flow projections and fair values to recently completed sales transactions, and by comparing our fair value estimates to the market capitalization of the Company. The results of these comparisons confirmed that the fair value estimates resulting from our annual assessment for 2019 were reasonable.

 

Sensitivity Analysis

 

We believe both the estimates and assumptions we utilized when assessing the potential for impairment are individually and in aggregate reasonable; however, our estimates and assumptions are highly judgmental in nature. Further, there are inherent uncertainties related to these estimates and assumptions and our judgment in applying them to the impairment analysis. While we believe we have made reasonable estimates and assumptions to calculate the fair values, changes in any one estimate, assumption or a combination of estimates and assumptions, or changes in certain events or circumstances (including uncontrollable events and circumstances resulting from continued deterioration in the economy or credit markets) could require us to assess recoverability of broadcasting licenses and goodwill at times other than our annual  October 1 assessments, and could result in changes to our estimated fair values and further write-downs to the carrying values of these assets. Impairment charges are non-cash in nature, and as with current and past impairment charges, any future impairment charges will not impact our cash needs or liquidity or our bank ratio covenant compliance.

 

We had a total goodwill carrying value of approximately $239.8 million across 11 of our 17 reporting units as of December 31, 2019. The below table indicates the long-term cash flow growth rates assumed in our impairment testing and the long-term cash flow growth/decline rates that would result in additional goodwill impairment. For three of the reporting units, given the significant excess of their fair value over carrying value, any future goodwill impairment is not likely. However, should our estimates and assumptions for assessing the fair values of the remaining reporting units with goodwill worsen to reflect the below or lower cash flow growth/decline rates, additional goodwill impairments may be warranted in the future.

 

 39 

 

 

Reporting Unit  Long-Term
Cash Flow
Growth Rate
Used
   Long-Term Cash
Flow
Growth/(Decline) Rate
That Would Result in
Carrying Value that is less
than Fair Value (a)
2    0.9%  Impairment not likely
16    0.7%  Impairment not likely
21    2.0%  Impairment not likely
1    1.1%  0.6%
11    0.9%  0.4%
18    2.5%  0.0%
12    1.0%  (1.3)%
13    0.9%  (2.6)%
10    1.0%  (3.4)%
6    0.8%  (6.0)%
19    1.0%  (15.8)%

 

(a)The long-term cash flow growth/(decline) rate that would result in the carrying value of the reporting unit being less than the fair value of the reporting unit applies only to further goodwill impairment and not to any future license impairment that would result from lowering the long-term cash flow growth rates used.

 

Several of the licenses in our units of accounting have limited or no excess of fair values over their respective carrying values. As set forth in the table below, as of October 1, 2019, we appraised the radio broadcasting licenses at a fair value of approximately $695.1 million, which was in excess of the $582.7 million carrying value by $112.4 million, or 19.3%. After the impairment charges were recorded for the year ended December 31, 2019, the fair values of the licenses exceeded the carrying values of the licenses for all units of accounting. Should our estimates, assumptions, or events or circumstances for any upcoming valuations worsen in the units with no or limited fair value cushion, additional license impairments may be needed in the future.

 

   Radio Broadcasting Licenses 
   As of         
   October 1,
2019
   October 1,
2019
   Excess 
Unit of Accounting (a)  Carrying
Values
(“CV”)
   Fair
Values
(“FV”)
   FV vs. CV   % FV
Over CV
 
       (In thousands)           
Unit of Accounting 2  $3,086   $37,261   $34,175    1,107.4%
Unit of Accounting 7   14,748    18,162    3,414    23.1%
Unit of Accounting 5   16,100    16,226    126    0.8%
Unit of Accounting 4   16,142    20,539    4,397    27.2%
Unit of Accounting 15   20,736    21,874    1,138    5.5%
Unit of Accounting 14   20,770    22,117    1,347    6.5%
Unit of Accounting 11   20,135    20,214    79    0.4%
Unit of Accounting 6   22,642    29,847    7,205    31.8%
Unit of Accounting 13   47,846    48,086    240    0.5%
Unit of Accounting 12   49,663    51,758    2,095    4.2%
Unit of Accounting 16   56,295    102,112    45,817    81.4%
Unit of Accounting 8   62,015    63,605    1,590    2.6%
Unit of Accounting 1   93,394    102,217    8,823    9.4%
Unit of Accounting 10   139,125    141,116    1,991    1.4%
Total  $582,697   $695,134   $112,437    19.3%

 

(a) The units of accounting are not disclosed on a specific market basis so as to not make publicly available sensitive information that could be competitively harmful to the Company.

 

The following table presents a sensitivity analysis showing the impact on our impairment testing resulting from: (i) a 100 basis point decrease in industry or reporting unit growth rates; (ii) a 100 basis point decrease in cash flow margins; (iii) a 100 basis point increase in the discount rate; and (iv) both a 5% and 10% reduction in the fair values of broadcasting licenses and reporting units.

 

 40 

 

 

    Hypothetical Increase in
the Recorded Impairment
Charge
For the Year Ended
December 31, 2019
 
    Broadcasting
Licenses
    Goodwill (a)  
    (In millions)  
Impairment charge recorded:                
Radio Market Reporting Units   $ 4.8     $ -  
Reach Media Reporting Unit     -       -  
Cable Television Reporting Unit     -       -  
Digital Reporting Unit     -       5.8  
Total Impairment Recorded   $ 4.8     $ 5.8  
                 
Hypothetical Change for Radio Market Reporting Units:                
A 100 basis point decrease in radio industry long-term growth rates   $ 28.5     $ 7.5  
A 100 basis point decrease in cash flow margin in the projection period   $ 5.9     $ 2.0  
A 100 basis point increase in the applicable discount rate   $ 48.1     $ 13.4  
A 5% reduction in the fair value of broadcasting licenses and reporting units   $ 11.0     $ 4.7  
A 10% reduction in the fair value of broadcasting licenses and reporting units   $ 31.4     $ 11.3  
                 
Hypothetical Change for Reach Media Reporting Unit:                
A 100 basis point decrease in long-term growth rates     Not applicable     $ -  
A 100 basis point decrease in cash flow margin in the projection period     Not applicable     $ -  
A 100 basis point increase in the applicable discount rate     Not applicable     $ -  
A 5% reduction in the fair value of the reporting unit     Not applicable     $ -  
A 10% reduction in the fair value of the reporting unit     Not applicable     $ -  
                 
Hypothetical Change for Cable Television Reporting Unit:                
A 100 basis point decrease in long-term growth rates     Not applicable     $ -  
A 100 basis point decrease in cash flow margin in the projection period     Not applicable     $ -  
A 100 basis point increase in the applicable discount rate     Not applicable     $ -  
A 5% reduction in the fair value of the reporting unit     Not applicable     $ -  
A 10% reduction in the fair value of the reporting unit     Not applicable     $ -  
                 
Hypothetical Change for Digital Reporting Unit:                
A 100 basis point decrease in long-term growth rates     Not applicable     $ 6.4  
A 100 basis point decrease in cash flow margin in the projection period     Not applicable     $ 7.4  
A 100 basis point increase in the applicable discount rate     Not applicable     $ 7.0  
A 5% reduction in the fair value of the reporting unit     Not applicable     $ 6.1  
A 10% reduction in the fair value of the reporting unit     Not applicable     $ 6.5  

 

(a) Goodwill impairment charge applies only to further goodwill impairment and not to any potential license impairment that could result from changing other assumptions.

 

Impairment of Intangible Assets Excluding Goodwill, Radio Broadcasting Licenses and Other Indefinite-Lived Intangible Assets

 

Intangible assets, excluding goodwill, radio broadcasting licenses and other indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, we will evaluate recoverability by a comparison of the carrying amount of the asset or group of assets to future undiscounted net cash flows expected to be generated by the asset or group of assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the assets are impaired, the impairment is measured by the amount by which the carrying amount exceeds the fair value of the assets determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. The Company reviewed certain intangibles for impairment during 2019 and 2018 and determined no impairment charges were necessary. Any changes in the valuation estimates and assumptions or changes in certain events or circumstances could result in changes to the estimated fair values of these intangible assets and may result in future write-downs to the carrying values.  

 

 41 

 

 

Revenue Recognition

 

On January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers” which requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity 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.

 

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. TV One, within 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. 

 

Contingencies and Litigation

 

We regularly evaluate our exposure relating to any contingencies or litigation and record a liability when available information indicates that a liability is probable and estimable. We also disclose significant matters that are reasonably possible to result in a loss, or are probable but for which an estimate of the liability is not currently available. To the extent actual contingencies and litigation outcomes differ from amounts previously recorded, additional amounts may need to be reflected.

 

Uncertain Tax Positions

 

To address the exposures of uncertain tax positions, we recognize the impact of a tax position in the financial statements if it is more likely than not that the position would be sustained on examination based on the technical merits of the position. As of December 31, 2019, we had approximately $4.7 million in unrecognized tax benefits. Future outcomes of our tax positions may be more or less than the currently recorded liability, which could result in recording additional taxes, or reversing some portion of the liability and recognizing a tax benefit once it is determined the liability is no longer necessary as potential issues get resolved, or as statutes of limitations in various tax jurisdictions close.

   

Realizability of Deferred Tax Assets

 

As of each reporting date, management considers new evidence, both positive and negative, that could affect its conclusions regarding the future realization of the Company’s deferred tax assets (“DTAs”). During the year ended December 31, 2019, management continues to weigh sufficient positive evidence to conclude that it is more likely than not the net DTAs are realizable. The assessment to determine the value of the DTAs to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the DTAs in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the DTAs. Since the evaluation requires consideration of events that may occur in some years in the future, significant judgment is required, and our conclusion could be materially different if certain expectations do not materialize.  

 

 42 

 

 

In the assessment of all available evidence, an important piece of objective verifiable evidence is evaluating a cumulative pre-tax income or loss position over the most recent three-year period. Historically, the Company has maintained a full valuation against the net deferred tax assets, principally due to a cumulative pre-tax loss over the most recent three-year period. During the quarter ended December 31, 2018, the Company achieved three years of cumulative pre-tax income, which removed the most heavily weighed piece of objective verifiable negative evidence from our evaluation of the realizability of deferred tax assets. The Company continues to maintain three years of rolling cumulative pre-tax income as of December 31, 2019.

  

Additionally, the Company is projecting forecasts of taxable income to utilize our federal and state net operating losses (“NOLs”) as part of our evaluation of positive evidence. As part of the Tax Cuts and Jobs Act (the “2017 Tax Act”) that was signed into law on December 22, 2017, IRC Section 163(j) limited the deduction of interest expense. In conjunction with evaluating and weighing our cumulative three-year pre-tax income, we also evaluated the impact that interest expense has had on our cumulative three-year pre-tax income. A material component of the Company’s expenses is interest, and has been the primary driver of historical pre-tax losses. Adjusting for the IRC Section 163(j) interest expense limitation on projected taxable income, we estimate utilization of federal and state net operating losses that are not subject to annual limitations as a result of the 2009 ownership shift as defined under IRC Section 382.

 

Realization of the Company’s federal and state NOLs is dependent on generating sufficient taxable income in future periods, and although the Company believes it is more likely than not future taxable income will be sufficient to utilize the NOLs, realization is not assured and future events may cause a change to the judgment of the realizability of these deferred tax assets. If a future event causes the Company to re-evaluate and conclude that it is not more likely than not, that all or a portion of the deferred tax assets are realizable, the Company would be required to establish a valuation allowance against the assets at that time which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.

 

The Company continues to assess potential tax strategies (which could include seeking a ruling from the IRS) which, if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. The federal and state NOLs expire in various years from 2020 to 2038.

 

Redeemable noncontrolling interests

 

Redeemable noncontrolling interests are interests in subsidiaries that are redeemable outside of the Company’s control either for cash or other assets. These interests are classified as mezzanine equity and measured at the greater of estimated redemption value at the end of each reporting period or the historical cost basis of the noncontrolling interests adjusted for cumulative earnings allocations.  The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital.  

 

With the assistance of a third-party valuation firm, the Company assesses the fair value of the redeemable noncontrolling interest in Reach Media as of the end of each reporting period.  The fair value of the redeemable noncontrolling interests as of December 31, 2019 and 2018, was approximately $10.6 million and $10.2 million, respectively.  The determination of fair value incorporated a number of assumptions and estimates including, but not limited to, forecasted operating results, discount rates and a terminal value.  Different estimates and assumptions may result in a change to the fair value of the redeemable noncontrolling interests amount previously recorded.

 

Fair Value Measurements

 

The Company accounts for an award called for in the CEO’s employment agreement (the “Employment Agreement”) as a derivative instrument. According to the Employment Agreement, executed in April 2008, the 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’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. During the quarter ended September 30, 2018, management changed the methodology used in calculating the fair value of the Company's Employment Agreement Award liability to simplify the calculation. As part of the simplified calculation, the Company eliminated certain adjustments made to its aggregate investment in TV One, including the treatment of historical dividends paid and potential distribution of assets upon liquidation. The Compensation Committee of the Board of Directors approved the simplified method which eliminates certain assumptions that were historically used in the determination of the fair value of this liability. The revised methodology resulted in a credit adjustment of approximately $6.6 million during the quarter ended September 30, 2018 to reflect this change in estimate. The liability was further reduced during the quarter ended December 31, 2018 using the simplified methodology, due primarily to an overall lower valuation. During 2019, there was an increase in the overall enterprise valuation and an increase in the overall working capital contributing to an increase in expense recognized throughout the year.

 

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The Company estimated the fair value of the Employment Agreement Award as of December 31, 2019, at approximately $27.0 million and, accordingly, adjusted the liability to that amount. The fair value estimate incorporated a number of assumptions and estimates, including but not limited to TV One’s future financial projections. As the Company will measure changes in the fair value of this award at each reporting period as warranted by certain circumstances, different estimates or assumptions may result in a change to the fair value of the award amount previously recorded.

 

Content Assets

 

Our cable television segment has entered into contracts to acquire entertainment programming rights and programs from distributors and producers. The license periods granted in these contracts generally run from one year to ten years. Contract payments are made in installments over terms that are generally shorter than the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins and the program is available for its first airing. Acquired content is generally amortized on a straight-line basis over the term of the license which reflects the estimated usage. For certain content for which the pattern of usage is accelerated, amortization is based upon the actual usage. Amortization of content assets is recorded in the consolidated statement of operations as programming and technical expenses.

 

The Company also has programming for which the Company has engaged third parties to develop and produce, and it owns most or all rights (commissioned programming). In accordance with ASC 926, content amortization expense for each period is recognized based on the revenue forecast model, which approximates the proportion that estimated advertising and affiliate revenues for the current period represent in relation to the estimated remaining total lifetime revenues as of the beginning of the current period.  Management regularly reviews, and revises when necessary, its total revenue estimates, which may result in a change in the rate of amortization and/or a write-down of the asset to fair value. 

 

Acquired program rights are recorded at the lower of unamortized cost or estimated net realizable value. Estimated net realizable values are based on the estimated revenues associated with the program materials and related expenses. The Company recorded an impairment and recorded additional amortization expense of approximately $4.9 million and $1.6 million, as a result of evaluating its contracts for recoverability for the years ended December 31, 2019 and 2018, respectively. 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.

 

Capital and Commercial Commitments

 

Indebtedness

 

We have several debt instruments outstanding within our corporate structure. We incurred senior bank debt as part of our 2017 Credit Facility in the amount of $350.0 million that matures on the earlier of (i) April 18, 2023, or (ii) in the event such debt is not repaid or refinanced, 91 days prior to the maturity of the Company’s 2022 Notes. We also have approximately $350.0 million outstanding in our 2022 Notes. Finally, on December 20, 2018, the Company closed on a $192.0 million unsecured credit facility (the “2018 Credit Facility”) and the Company also closed on a $50.0 million loan secured by our interest in the MGM National Harbor Casino (the “MGM National Harbor Loan”). See “Liquidity and Capital Resources.” See the current balances outstanding in the “Type of Debt” section as part of the “Liquidity and Capital Resources” section above.

 

Lease obligations

 

We have non-cancelable operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next 12 years.

 

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Operating Contracts and Agreements

 

We have other operating contracts and agreements including employment contracts, on-air talent contracts, severance obligations, retention bonuses, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements that expire over the next six years.

 

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 have arrangements with ASCAP, SESAC and GMR, and are in negotiations with BMI for a new agreement. If we are unable to reach an agreement with BMI, a court will determine the royalty we will be required to pay BMI.  

 

Reach Media Redeemable Noncontrolling Interest Shareholders’ Put Rights

 

Beginning on January 1, 2018, the noncontrolling interest shareholders of Reach Media have had an annual right to require Reach Media to purchase all or a portion of their shares at the then current fair market value for such shares (the “Put Right”).  This annual right is exercisable for a 30-day period beginning January 1 of each year. The purchase price for such shares may be paid in cash and/or registered Class D common stock of Urban One, at the discretion of Urban One. The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period ending January 30, 2020. Management, at this time, cannot reasonably determine the period when and if the put right will be exercised by the noncontrolling interest shareholders.

 

Contractual Obligations Schedule

 

The following table represents our scheduled contractual obligations as of December 31, 2019:

 

    Payments Due by Period  
Contractual Obligations   2020     2021     2022     2023     2024     2025 and
Beyond
    Total  
    (In thousands)  
7.375% Senior Subordinated Notes(1)   $ 25,813     $ 25,813     $ 357,529     $     $     $     $ 409,155  
2017 Credit facility(2)     21,623       24,907       24,633       316,363                   387,526  
2018 Credit facility(2)     43,182       37,117       140,471                         220,770  
Other operating contracts/agreements(3)     66,515       30,054       17,093       11,171       10,213       34,171       169,217  
Operating lease obligations     12,845       11,234       10,278       8,750       7,578       8,490       59,175  
MGM National Harbor Loan     5,866       6,104       65,026                         76,996  
Total   $ 175,844     $ 135,229     $ 615,030     $ 336,284     $ 17,791     $ 42,661     $ 1,322,839  

 

(1) Includes interest obligations based on effective interest rates on senior secured notes outstanding as of December 31, 2019.

 

(2) Includes interest obligations based on effective interest rate, and projected interest expense on credit facilities outstanding as of December 31, 2019.

 

(3) Includes employment contracts (including the Employment Agreement Award), severance obligations, on-air talent contracts, consulting agreements, equipment rental agreements, programming related agreements, and other general operating agreements. Also includes contracts that our cable television segment has entered into to acquire entertainment programming rights and programs from distributors and producers.  These contracts relate to their content assets as well as prepaid programming related agreements.

 

Of the total amount of other operating contracts and agreements included in the table above, approximately $110.1 million has not been recorded on the balance sheet as of December 31, 2019, as it does not meet recognition criteria. Approximately $14.7 million relates to certain commitments for content agreements for our cable television segment, approximately $18.7 million relates to employment agreements, and the remainder relates to other agreements.

 

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Off-Balance Sheet Arrangements

 

On February 24, 2015, the Company entered into a letter of credit reimbursement and security agreement. On October 8, 2019, the Company entered into an amendment to its letter of credit reimbursement and security agreement and extended the term to October 8, 2024. As of December 31, 2019, the Company had letters of credit totaling $848,000 under the agreement. Letters of credit issued under the agreement are required to be collateralized with cash.  

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The consolidated financial statements of Urban One required by this item are filed with this report on Pages F-1 to F-40.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures

 

We have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO concluded that as of such date, our disclosure controls and procedures are ineffective in timely alerting them to material information required to be included in our periodic SEC reports. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure controls objective. Based on this evaluation, our CEO and CFO concluded that as of such date, our disclosure controls and procedures are ineffective in timely alerting them to material information required to be included in our periodic SEC reports due to deficiencies in the review controls over the preparation of the consolidated financial statements and the review of the tax provision.

  

Notwithstanding the identified material weaknesses, management believes that the consolidated financial statements and related financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented. Management's belief is based on a number of factors, including the remediation actions described below.

  

(b) Management’s report on internal control over financial reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

Identification of Material Weaknesses

 

During the three month period ended March 31, 2019, the Company previously recorded a non-cash tax provision adjustment of approximately $3.4 million relating to the fourth quarter of 2018. The Company determined that correcting the error in the three month period ended March 31, 2019 materially misstated the statement of operations for this period. As a result, management determined that the Company did not maintain effective internal controls over its evaluation and review of the correction of the out of period adjustments in its interim financial statements.

 

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During the three month period ended September 30, 2019, management determined that we did not design and maintain effective controls over the completeness and accuracy of the balances of the income tax related accounts. Specifically, the Company’s monitoring and control activities related to i) accounting for deferred tax assets and liabilities and ii) uncertain tax positions were not operating effectively. As a result of this material weakness, adjustments to the deferred income taxes and income tax provision as of and for the three month period ended September 30, 2019 were identified.

 

During the three month period ended December 31, 2019, management determined that we did not design and maintain effective controls over the adoption of ASC 842 right of use assets and lease liability accounts and related lease accounting activity. This deficiency represents a material weakness in the Company’s internal controls over financial reporting at December 31, 2019. As a result of this material weakness, adjustments were made to revise previously reported operating income and interest expense for each quarter during 2019 and to adjust the right of use assets and lease liabilities as of and for the three month period ended December 31, 2019.

  

These material weaknesses could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

 

Remediation Actions

 

During the quarter ended December 31, 2019, we have taken the following actions to remediate these material weaknesses:

 

  · Strengthened the Finance and Accounting functions and engaged additional resources with the appropriate depth of experience for our Finance and Accounting departments

 

  · Implemented a required senior management, legal and accounting review to specifically address all disclosures and related financial information

 

  · Strengthened the existing internal controls related to estimating and accounting for deferred income taxes and determining the effective tax rate

 

  · Implemented specific review procedures designed to enhance our income tax monitoring control

 

  · Strengthened our current income tax control activities with improved documentation standards, technical oversight and training

 

We have substantially completed the remediation activities as of the date of this report and believe that we have strengthened our controls to address the identified material weaknesses. However, control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively. We expect to complete the remediation process in 2020.

 

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2019 based on the criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, our management has concluded that our internal control over financial reporting was ineffective as of December 31, 2019.

 

This Form 10-K does not include an attestation report of our Company’s independent registered public accounting firm regarding internal control over financial reporting. As we are a non-accelerated filer, management’s report was not subject to attestation by the Company’s independent registered public accounting firm.

 

(c) Changes in internal control over financial reporting

 

Except for the material weaknesses and remediation actions described above, there were no changes in our internal control over financial reporting during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

The information with respect to directors and executive officers required by this Item 10 is incorporated into this report by reference to the information set forth under the caption “Nominees for Class A Directors,” “Nominees for Other Directors,” “Code of Conduct,” and “Executive Officers” in our proxy statement for the 2019 Annual Meeting of Stockholders, which is expected to be filed with the Commission within 120 days after the close of our fiscal year. 

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this Item 11 is incorporated into this report by reference to the information set forth under the caption “Compensation of Directors and Executive Officers” in our proxy statement.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this Item 12 is incorporated into this report by reference to the information set forth under the caption “Principal Stockholders” in our proxy statement. 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The information required by this Item 13 is incorporated into this report by reference to the information set forth under the caption “Certain Relationships and Related Transactions” in our proxy statement.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this Item 14 is incorporated into this report by reference to the information set forth under the caption “Audit Fees” in our proxy statement.

  

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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements

 

The following financial statements required by this item are submitted in a separate section beginning on page F-1 of this report:

 

Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements

 

Consolidated Balance Sheets as of December 31, 2019 and 2018

 

Consolidated Statements of Operations for the years ended December 31, 2019 and 2018

 

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018

 

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018

 

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018

 

Notes to the Consolidated Financial Statements

 

Schedule II — Valuation and Qualifying Accounts

 

Schedules other than those listed above have been omitted from this Form 10-K because they are not required, are not applicable, or the required information is included in the financial statements and notes thereto.

 

(a)(2) EXHIBITS AND FINANCIAL STATEMENTS:   The following exhibits are filed as part of this Annual Report, except for Exhibits 32.1 and 32.2, which are furnished, but not filed, with this Annual Report.

  

Exhibit
Number
  Description
3.1   Amended and Restated Certificate of Incorporation of Urban Inc., dated as of May 4, 2000, as filed with the State of Delaware on May 9, 2000 (incorporated by reference to Exhibit 3.1 to Urban One’s Quarterly Report on Form 10-Q for the period ended March 31, 2000).
3.1.1   Certificate of Amendment, dated as of April 25, 2017, of the Amended and Restated Certificate of Incorporation of Urban One, Inc., dated as of April 25, 2017, as filed with the State of Delaware on April 25, 2017 (incorporated by reference to Exhibit 3.1 to Urban One’s Current Report on Form 8-K filed May 8, 2017).
3.2   Amended and Restated By-laws of Urban One, Inc. amended as of August 7, 2009 (incorporated by reference to Exhibit 3.1 to Urban One’s Current Report on Form 8-K filed May 8, 2017).
3.3   Certificate of Conversion of Bell Broadcasting Company into Bell Broadcasting Company LLC (incorporated by reference  to Exhibit 3.13 to Urban One’s Annual Report on Form 10-K, filed March 14, 2016).
3.4   Articles of Organization of Blue Chip Broadcasting Licenses, Ltd. (incorporated by reference to Exhibit 3.32 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).
3.5   Operating Agreement of Blue Chip Broadcasting Licenses, Ltd. (incorporated by reference to Exhibit 3.60 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).
3.6   Articles of Organization of Blue Chip Broadcasting, Ltd. (incorporated by reference to Exhibit 3.30 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).
3.7   Amended and Restated Operating Agreement of Blue Chip Broadcasting, Ltd. (incorporated by reference to Exhibit 3.59 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).
3.8   Certificate of Formation of Charlotte Broadcasting, LLC (incorporated by reference to Exhibit 3.18 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).
3.9   Limited Liability Company Agreement of Charlotte Broadcasting, LLC (incorporated by reference to Exhibit 3.53 to Urban One’s Registration Statement on Form S-4, filed August 5, 2005).