URBAN ONE, INC. 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 endedDecember 31, 2021 , consolidated net revenue increased approximately 17.3% compared to the year endedDecember 31, 2020 . For 2022, 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; and (iii) grow and diversify our revenue by successfully executing our multimedia strategy. The impact of the COVID pandemic, including the impact of variants and government interventions that limit normal economic activity, 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 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 diversified platform, 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 reachAfrican-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.
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The following chart shows the percentage of consolidated net revenue generated
by each reporting segment.
For The Year Ended
For the Years Ended December 31,
2021 2020
Radio broadcasting segment 31.8 % 34.7 %
Reach Media segment 10.5 % 8.2 %
Digital segment 13.6 % 9.5 %
Cable television segment 44.9 % 48.2 %
Corporate/eliminations (0.8) % (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,
2021 2020
Percentage of core radio business generated from local
advertising 59.2 % 53.2 %
Percentage of core radio business generated from national advertising, including network advertising 36.3 %
45.3 %
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
Year Ended December 31,
2021 2020 $ Change % Change
(Unaudited)
(In thousands)
Net Revenue:
Radio Advertising $ 165,244 $ 137,849 $ 27,395 19.9 %
Political Advertising 3,494 22,484 (18,990) (84.5)
Digital Advertising 59,812 34,131 25,681 75.2
Cable Television Advertising 95,589 79,732 15,857 19.9
Cable Television Affiliate Fees 102,380 99,489 2,891 2.9
Event Revenues & Other 14,943 2,652 12,291 463.5
Net Revenue (as reported) $ 441,462 $ 376,337 $ 65,125 17.3 %
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 or when
"click through" purchases are made, 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
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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 Rickey Smiley Morning
Show, the Russ Parr Morning Show and the DL Hughley Show. Reach Media also
operates www.BlackAmericaWeb.com, an
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.
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 or as "click throughs" are made, 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
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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.
Non-GAAP Financial Measures
The presentation of non-GAAP financial measures is not intended to be considered
in isolation from, as a substitute for, or superior to the financial information
prepared and presented in accordance with GAAP. We use non-GAAP financial
measures as a means to evaluate period-to-period comparisons. Reconciliations of
our non-GAAP financial measures to the most directly comparable GAAP financial
measures are included below for review. Reliance should not be placed on any
single financial measure to evaluate our business.
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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,
2021 2020
(In thousands, except margin data)
Net revenue $ 441,462 $ 376,337
Broadcast and digital operating income 179,234 163,891
Broadcast and digital operating income margin 40.6 % 43.5 %
Adjusted EBITDA 150,222 138,018
Net income (loss) attributable to common stockholders 38,352 (8,113)
The reconciliation of net income to broadcast and digital operating income is as
follows:
For the Years Ended December 31,
2021 2020
(In thousands) Consolidated net income (loss) attributable to common stockholders
$ 38,352 $ (8,113) Add back non-broadcast and digital operating income items included in consolidated net income (loss): Interest income (218) (213) Interest expense 65,702 74,507 Provision for (benefit from) income taxes 13,577 (34,476)
Corporate selling, general and administrative, excluding stock-based compensation
50,837 35,860
Stock-based compensation 565 2,294
Loss on retirement of debt 6,949 2,894
Other income, net (8,134) (4,547)
Depreciation and amortization 9,289 9,741
Noncontrolling interests in income of subsidiaries 2,315 1,544
Impairment of long-lived assets - 84,400
Broadcast and digital operating income $ 179,234 $ 163,891
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The reconciliation of net (loss) income to adjusted EBITDA is as follows:
For the Years Ended December 31,
2021 2020
(In thousands)
Adjusted EBITDA reconciliation:
Consolidated net income (loss) attributable to common
stockholders, as reported $ 38,352 $ (8,113)
Add back non-broadcast and digital operating income items
included in consolidated net income (loss):
Interest income (218) (213)
Interest expense 65,702 74,507
Provision for (benefit from) income taxes 13,577 (34,476)
Depreciation and amortization 9,289 9,741
EBITDA $ 126,702 $ 41,446
Stock-based compensation 565 2,294
Loss on retirement of debt 6,949 2,894
Other income, net (8,134) (4,547)
Noncontrolling interests in income of subsidiaries 2,315 1,544
Casino chase costs 6,727 -
Employment Agreement Award, incentive plan award expenses and other compensation
6,163 2,271
Contingent consideration from acquisition 280 46
Severance-related costs 965 2,800
Impairment of long-lived assets - 84,400
Cost method investment income from MGM National Harbor 7,690 4,870
Adjusted EBITDA $ 150,222 $ 138,018
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URBAN ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes our historical consolidated results of operations:
Year EndedDecember 31, 2021 Compared to Year EndedDecember 31, 2020 (In thousands) Year Ended December 31, 2021 2020 Increase/(Decrease) Statements of Operations: Net revenue$ 441,462 $ 376,337 $ 65,125 17.3 % Operating expenses: Programming and technical, excluding stock-based compensation 119,072 103,813 15,259 14.7 Selling, general and administrative, excluding stock-based compensation 143,156 108,633 34,523 31.8 Corporate selling, general and administrative, excluding stock-based compensation 50,837 35,860 14,977 41.8 Stock-based compensation 565 2,294 (1,729) (75.4) Depreciation and amortization 9,289 9,741 (452) (4.6) Impairment of long-lived assets - 84,400 (84,400) (100.0) Total operating expenses 322,919 344,741 (21,822) (6.3) Operating income 118,543 31,596 86,947 275.2 Interest income 218 213 5 2.3 Interest expense 65,702 74,507 (8,805) (11.8) Loss on retirement of debt 6,949 2,894 4,055 140.1 Other income, net (8,134) (4,547) 3,587 78.9 Income (loss) before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries 54,244 (41,045) 95,289 232.2 Provision for (benefit from) income taxes 13,577 (34,476) 48,053 139.4 Consolidated net income (loss) 40,667 (6,569) 47,236 719.1 Noncontrolling interests in income of subsidiaries 2,315 1,544 771 49.9 Net income (loss) attributable to common stockholders$ 38,352 $ (8,113) $ 46,465 572.7 % 41 Table of Contents Net revenue Year Ended December 31, Increase/(Decrease) 2021 2020$ 441,462 $ 376,337 $ 65,125 17.3 % During the year endedDecember 31, 2021 , we recognized approximately$441.5 million in net revenue compared to approximately$376.3 million during the year endedDecember 31, 2020 . These amounts are net of agency and outside sales representative commissions. The increase in net revenue was due primarily to mitigation of the economic impacts of the COVID-19 pandemic which began inMarch 2020 and to increased demand for minority focused media. Net revenues from our radio broadcasting segment for the year endedDecember 31, 2021 , increased 7.4% from the same period in 2020. Based on reports prepared by the independent accounting firmMiller, Kaplan, Arase & Co. , LLP ("Miller Kaplan"), the radio markets we operate in (excludingRichmond andRaleigh , both of which no longer participate inMiller Kaplan ) increased 18.4% in total revenues for the year endedDecember 31, 2021 , consisting of an increase of 14.0% in local revenues, an increase of 8.2% in national revenues, and an increase of 51.1% in digital revenues. With the exception of ourPhiladelphia ,Raleigh andSt. Louis (which we exited in 2021) markets, we experienced net revenue improvements in all of our radio markets, primarily due to higher advertising sales. Net revenue excluding political, from our radio broadcasting segment increased 19.7% compared to the same period in 2020. Net revenue for our Reach Media segment increased 49.8% for the year endedDecember 31, 2021 , compared to the same period in 2020, due primarily to increased demand and the reinstatement of our cruise during the fourth quarter of 2021. The cruise was postponed from 2020 due to the pandemic. We recognized approximately$198.2 million from our cable television segment for the year endedDecember 31, 2021 , compared to approximately$181.6 million of revenue for the same period in 2020, with the increase due primarily to both increased advertising and affiliate sales. Net revenue from our digital segment increased approximately$24.3 million for the year endedDecember 31, 2021 , compared to the same period in 2020 due primarily to stronger direct revenues.
Operating expenses
Programming and technical, excluding stock-based compensation
Year Ended December 31, Increase/(Decrease)
2021 2020
$ 119,072 $ 103,813 $ 15,259 14.7 %
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 endedDecember 31, 2021 , compared to the same period in 2020 is primarily due to higher expenses at all our segments. Our radio broadcasting segment experienced an increase of approximately$2.8 million for the year endedDecember 31, 2021 , compared to the same period in 2020 due primarily to higher compensation costs and music licensing fees. Our Reach Media segment experienced an increase of approximately$2.0 million for the year endedDecember 31, 2021 , compared to the same period in 2020 due primarily to higher contract labor and compensation costs. Our digital segment experienced an increase of approximately$1.3 million for the year endedDecember 31, 2021 , compared to the same period in 2020 due primarily to higher contract labor, consulting and compensation costs. Our cable television segment experienced an increase of approximately$9.2 million for the year endedDecember 31, 2021 , compared to the same period in 2020 due primarily to higher content amortization expense. 42
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Selling, general and administrative, excluding stock-based compensation
Year Ended December 31, Increase/(Decrease)
2021 2020
$ 143,156 $ 108,633 $ 34,523 31.8 %
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, 2021 , compared to the same period in 2020, is
primarily due to higher compensation costs and special event costs, higher
commissions and national representative fees due to improved revenue and higher
promotional expenses and travel and entertainment spending. Our radio
broadcasting segment experienced an increase of approximately $4.6 million for
the year ended December 31, 2021 , compared to the same period in 2020 primarily
due to higher compensation costs, national representative fees, special event
costs and promotional spending. Our Reach Media segment experienced an increase
of approximately $8.3 million for the year ended December 31, 2021 , compared to
the same period in 2020, primarily due to the operation of Tom Joyner
Foundation's Fantastic Voyage® and higher affiliate station costs. Our cable
television segment experienced an increase of approximately $10.7 million for
the year ended December 31, 2021 , compared to the same period in 2020 primarily
due to higher promotional and advertising expenses, compensation costs and
research expenses. Our digital segment experienced an increase of approximately
$11.9 million for the year ended December 31, 2021 compared to the same period
in 2020, primarily due to higher compensation costs, higher traffic acquisition
costs and web services fees.
Corporate selling, general and administrative, excluding stock-based compensation
Year Ended
2021 2020
Corporate expenses consist of expenses associated with our corporate headquarters and facilities, including personnel as well as other corporate overhead functions. The increase in expense was primarily due to an increase in professional fees related to corporate development activities in connection with potential gaming investments and other similar business activities as well as an increase in compensation costs. Stock-based compensation Year Ended December 31, Increase/(Decrease) 2021 2020$ 565 $ 2,294 $ (1,729) (75.4) %
The decrease in stock-based compensation for the year ended
Depreciation and amortization
Year Ended December 31, Increase/(Decrease)
2021 2020
$ 9,289 $ 9,741 $ (452) (4.6) %
The decrease in depreciation and amortization expense for the year ended
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Impairment of long-lived assets
Year Ended
2021 2020 $ - $ 84,400$ (84,400) (100.0) % The impairment of long-lived assets for the year endedDecember 31, 2020 , was related to a non-cash impairment charge of approximately$15.9 million recorded to reduce the carrying value of ourAtlanta market andIndianapolis market goodwill balances and a charge of approximately$68.5 million associated with ourAtlanta ,Cincinnati ,Dallas ,Houston ,Indianapolis ,Philadelphia ,Raleigh ,Richmond andSt. Louis radio market broadcasting licenses.
Interest expense
Year Ended
2021 2020
Interest expense decreased to approximately$65.7 million for the year endedDecember 31, 2021 , compared to approximately$74.5 million for the same period in 2020, due to lower overall debt balances outstanding and lower average interest rates. As discussed above, onJanuary 25, 2021 , the Company closed on a new financing in the form of the 2028 Notes. The proceeds from the 2028 Notes were used to repay in full each of: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) theMGM National Harbor Loan ; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in the November
2020 Exchange Offer. Loss on retirement of debt Year EndedDecember 31 , Increase/(Decrease) 2021 2020
As discussed above, upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and theMGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. There was a net loss on retirement of debt of approximately$6.9 million for the year endedDecember 31, 2021 associated with the settlement of the 2028 Notes. OnNovember 9, 2020 , we completed an exchange (the "November 2020 Exchange Offer") of 99.15% of our outstanding 7.375% Senior Secured Notes due 2022 (the "7.375% Notes") for$347 million aggregate principal amount of newly issued 8.75% Senior Secured Notes dueDecember 2022 (the "8.75% Notes"). There was a net loss on retirement of debt of approximately$2.9 million for the year endedDecember 31, 2020 associated with theNovember 2020 Exchange Offer. Other income, net Year Ended December 31, Increase/(Decrease) 2021 2020$ (8,134) $ (4,547) $ 3,587 78.9 % Other income, net, increased to approximately$8.1 million for the year endedDecember 31, 2021 , compared to approximately$4.5 million for the same period in 2020. We recognized other income in the amount of approximately$7.7 million and$4.9 million , for the years endedDecember 31, 2021 and 2020, respectively, related to ourMGM investment. 44
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Provision for (benefit from) income taxes
Year Ended December 31, Increase/(Decrease) 2021 2020$ 13,577 $ (34,476) $ 48,053 139.4 % During the year endedDecember 31, 2021 , the provision for income tax was approximately$13.6 million compared to a tax benefit of approximately$34.5 million for the year endedDecember 31, 2020 . The increase in the provision for income taxes was primarily due to the Company's change in pre-tax loss to pre-tax income during the period. For the year endedDecember 31, 2020 , the benefit consisted of deferred tax benefit of approximately$35.0 million and current tax expense of$552,000 . The provision resulted in an effective tax rate of 25.0% and 84.0% for the years endedDecember 31, 2021 and 2020, respectively. The 2021 and 2020 annual effective tax rates primarily reflect taxes at statutory tax rates, the impact of permanent tax adjustments, and 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)
2021 2020
$ 2,315 $ 1,544 $ 771 49.9 %
The increase in noncontrolling interests in income of subsidiaries was primarily
due to higher net income recognized by Reach Media for the year ended
Other Data
Broadcast and digital operating income
Broadcast and digital operating income increased to approximately$179.2 million for the year endedDecember 31, 2021 , compared to approximately$163.9 million for the year endedDecember 31, 2020 , an increase of approximately$15.3 million or 9.4%. This increase was due to higher broadcast and digital operating income in our radio broadcasting, Reach Media, and digital segments, which was partially offset by a decrease in broadcast and digital operating income at our cable television segment. Our radio broadcasting segment generated approximately$42.0 million of broadcast and digital operating income during the year endedDecember 31, 2021 , compared to approximately$39.8 million during the year endedDecember 31, 2020 , an increase of approximately$2.2 million . The increase was primarily due to higher net revenues, partially offset by higher expenses. Reach Media generated approximately$17.0 million of broadcast and digital operating income during the year endedDecember 31, 2021 , compared to approximately$11.8 million during the year endedDecember 31, 2020 , primarily due to higher net revenues, partially offset by higher expenses. Our digital segment generated approximately$17.2 million of broadcast and digital operating income during the year endedDecember 31, 2021 , compared to approximately$6.0 million of broadcast and digital operating income during the year endedDecember 31, 2020 . The increase in our digital segment's broadcast and digital operating income is primarily due to an increase in net revenues, partially offset by increased expense. Finally, TV One generated approximately$103.0 million of broadcast and digital operating income during the year endedDecember 31, 2021 , compared to approximately$106.3 million during the year endedDecember 31, 2020 , with the decrease due primarily to increased expenses.
Broadcast and digital operating income margin
Broadcast and digital operating income margin decreased to 40.6% for the year endedDecember 31, 2021 , from 43.5% for 2020. The margin decrease was primarily attributable to higher expenses as described above. 45
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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 Company's cash, cash equivalents and restricted cash balance is
approximately
Throughout each of 2020 and 2021, the COVID-19 pandemic had a negative impact on certain of our revenue and alternative revenue sources. Most notably, a number of advertisers across a variety of significant advertising categories ceased operations or reduced their advertising spend due to the pandemic. This has been particularly true within our radio segment which derives substantial revenue from local advertisers, including in areas such asTexas ,Ohio andGeorgia . The economies in these areas were hit particularly hard due to social distancing and government interventions. Further, the COVID-19 pandemic has caused a shift in the way people work and commute, which in some instances has altered demand for our broadcast radio advertising. Finally, the COVID-19 outbreak caused the postponement of or cancellation of our tent pole special events or otherwise impaired or limited ticket sales for such events. We do not carry business interruption insurance to compensate us for losses that occurred as a result of the pandemic and such losses may continue to occur as a result of the ongoing nature of the COVID-19 pandemic. 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. Likewise, our income from our investment inMGM National Harbor Casino has at times been negatively affected by closures and limitations on occupancy imposed by state and local governmental authorities. We anticipate continued fluctuations in revenues due to the COVID-19 pandemic. The extent to which our results continue to be affected by the COVID-19 pandemic will largely depend on future developments, which cannot be accurately predicted and are uncertain. These developments include, but are not limited to, the duration, scope and severity of the COVID-19 pandemic, any additional resurgences, variants or new viruses; the ability to effectively and widely manufacture and distribute vaccines/boosters; the public's perception of the safety of the vaccines/boosters and the public's willingness to take the vaccines/boosters; the effect of the COVID-19 pandemic on our customers and the ability of our clients to meet their payment terms; the public's willingness to attend live events; and the pace of recovery when the pandemic subsides. During the height of the COVID-19 pandemic in 2020, we proactively implemented certain cost-cutting measures including furloughs, layoffs, salary reductions, other expense reduction (including eliminating travel and entertainment expenses), eliminating merit raises, decreasing or deferring marketing spend, deferring programming/production costs, reducing special events costs, and implementing a hiring freeze on open positions. The Company performed a complete reforecast of its anticipated results extending through one year from the date of issuance of the consolidated financial statements. Further, out of an abundance of caution and to provide for further liquidity given the uncertainty around the pandemic, we drew approximately$27.5 million on our asset-backed credit facility onMarch 19, 2020 . As operating conditions improved throughout the year, we were able to accumulate cash and all amounts outstanding under our asset-backed credit facility were repaid onDecember 22, 2020 . As ofDecember 31, 2021 , no amounts were outstanding on our current facility. Further, as we refinanced our debt structure inJanuary 2021 , we anticipate meeting our debt service requirements and obligations for the foreseeable future, including through one year from the date of issuance of our most recent consolidated financial statements. Our estimates however, remain subject to substantial uncertainty, in particular due to the unpredictable extent and duration of the impact of the COVID-19 pandemic on our business and the economy generally, the possibility of new variants of the coronavirus and the concentration of certain of our revenues in areas that could be deemed "hotspots" for the pandemic. OnAugust 18, 2020 , the Company entered into an Open Market Sales Agreement withJefferies LLC ("Jefferies") under which the Company sold shares of its Class A common stock, par value$0.001 per share (the "Class A Shares") up to an aggregate offering price of$25 million (the "2020 ATM Program"). Jefferies acted as sales agent for the 2020 ATM Program. During the year endedDecember 31, 2020 , the Company issued 2,859,276 shares of its Class A Shares at a weighted average price of$5.39 for approximately$14.7 million of net proceeds after associated fees and expenses. OnJanuary 19, 2021 , the Company completed its 2020 ATM Program, sold an additional 1,465,825 shares for an aggregate of 4,325,102 Class A shares sold through the 2020 ATM Program, receiving aggregate gross proceeds of approximately$25.0 million and net proceeds of approximately$24.0 million for the program (inclusive of the$14.7 46
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million sold during the year endedDecember 31, 2020 ). OnJanuary 27, 2021 , the Company entered into a new 2021 Open Market Sale Agreement (the "2021 Sale Agreement") with Jefferies under which the Company could sell up to an additional$25.0 million of Class A Shares, through Jefferies as its sales agent. During the three months endedMarch 31, 2021 , the Company issued and sold an aggregate of 420,439 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately$3.0 million and net proceeds of approximately$2.8 million , after deducting commissions to Jefferies and other offering expenses. During the three months endedJune 30, 2021 , the Company issued and sold an aggregate of 1,893,126 Class A Shares pursuant to the 2021 Sale Agreement and received gross proceeds of approximately$22.0 million and net proceeds of approximately$21.2 million , after deducting commissions to Jefferies and other offering expenses which completed its 2021 ATM Program. OnMay 17, 2021 , the Company entered into an Open Market Sale AgreementSM (the "Class D Sale Agreement") with Jefferies under which the Company may offer and sell, from time to time at its sole discretion, shares of its Class D common stock, par value$0.001 per share (the "ClassD Shares "), through Jefferies as its sales agent. OnMay 17, 2021 , the Company filed a prospectus supplement pursuant to the Class D Sale Agreement for the offer and sale of its ClassD Shares having an aggregate offering price of up to$25.0 million . As ofDecember 31, 2021 , the Company has not sold any ClassD Shares under the Class D Sale Agreement. The Company may from time to time also enter into new additional ATM programs and issue additional common stock from time to time under those programs. OnJanuary 25, 2021 , the Company closed on an offering (the "2028 Notes Offering") of$825 million in aggregate principal amount of senior secured notes due 2028 (the "2028 Notes") in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). The 2028 Notes are general senior secured obligations of the Company and are guaranteed on a senior secured basis by certain of the Company's direct and indirect restricted subsidiaries. The 2028 Notes mature onFebruary 1, 2028 and interest on the Notes accrues and is payable semi-annually in arrears onFebruary 1 andAugust 1 of each year, commencing onAugust 1, 2021 at the rate of 7.375% per annum. The Company used the net proceeds from the 2028 Notes, together with cash on hand, to repay or redeem: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) theMGM National Harbor Loan ; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in theNovember 2020 Exchange Offer. Upon settlement of the 2028 Notes Offering, the 2017 Credit Facility, the 2018 Credit Facility and theMGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged. The 2028 Notes and the guarantees are secured, subject to permitted liens and except for certain excluded assets (i) on a first priority basis by substantially all of the Company's and the Guarantors' current and future property and assets (other than accounts receivable, cash, deposit accounts, other bank accounts, securities accounts, inventory and related assets that secure our asset-backed revolving credit facility on a first priority basis (the "ABL Priority Collateral")), including the capital stock of each guarantor (collectively, the "Notes Priority Collateral") and (ii) on a second priority basis by the ABL Priority Collateral. OnFebruary 19, 2021 , the Company closed on a new asset backed credit facility (the "Current 2021 ABL Facility"). The Current 2021 ABL Facility is governed by a credit agreement by and among the Company, the other borrowers party thereto, the lenders party thereto from time to time andBank of America, N.A ., as administrative agent. The Current 2021 ABL Facility provides for up to$50 million revolving loan borrowings in order to provide for the working capital needs and general corporate requirements of the Company. The Current 2021 ABL Facility also provides for a letter of credit facility up to$5 million as a part of the overall$50 million in capacity. The Asset Backed Senior Credit Facility entered into onApril 21, 2016 among the Company, the lenders party thereto from time to time andWells Fargo Bank National Association , as administrative agent (the "2016 ABL Facility"), was terminated onFebruary 19, 2021 . At the Company's election, the interest rate on borrowings under the Current 2021 ABL Facility are based on either (i) the then applicable margin relative to Base Rate Loans (as defined in the Current 2021 ABL Facility) or (ii) the then applicable margin relative to LIBOR Loans (as defined in the Current 2021 ABL Facility) corresponding to the average availability of the Company for the most recently completed fiscal quarter. 47
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Advances under the Current 2021 ABL Facility are limited to (a) eighty-five percent (85%) of the amount of Eligible Accounts (as defined in the Current 2021 ABL Facility), less the amount, if any, of the Dilution Reserve (as defined in the Current 2021 ABL Facility), minus (b) the sum of (i) the Bank Product Reserve (as defined in the Current 2021 ABL Facility), plus (ii) the AP and Deferred Revenue Reserve (as defined in the Current 2021 ABL Facility), plus (iii) without duplication, the aggregate amount of all other reserves, if any, established by Administrative Agent. All obligations under the Current 2021 ABL Facility are secured by first priority lien on all (i) deposit accounts (related to accounts receivable), (ii) accounts receivable, and (iii) all other property which constitutes ABL Priority Collateral (as defined in the Current 2021 ABL Facility). The obligations are also guaranteed by all material restricted subsidiaries of the Company. The Current 2021 ABL Facility matures on the earliest of: the earlier to occur of (a) the date that is five (5) years from the effective date of the Current 2021 ABL Facility and (b) 91 days prior to the maturity of the Company's 2028 Notes. Finally, the Current 2021 ABL Facility is subject to the terms of the Revolver Intercreditor Agreement (as defined in the Current 2021 ABL Facility) by and among theAdministrative Agent andWilmington Trust, National Association . OnJanuary 29, 2021 , the Company submitted an application for participation in the second round of the Paycheck Protection Program loan program ("PPP"). OnJune 1, 2021 , the Company received proceeds of approximately$7.5 million . The loan bears interest at a fixed rate of 1% per year and will not be changed during the life of the loan. The loan maturesJune 1, 2026 . The Company is in the process of applying for loan forgiveness. While certain of the PPP loans may be forgivable, until they are repaid or forgiven, the loan amount may constitute debt under the 2028 Notes and increase the Company's leverage.
See Note 9 to our consolidated financial statements - Long-Term Debt for further information on liquidity and capital resources.
The following table summarizes the interest rates in effect with respect to our
debt as of
Applicable
Amount Interest
Type of Debt Outstanding Rate
(In millions)
7.375% Senior Secured Notes, net of issuance costs (fixed
rate) 811.1 7.375 %
PPP Loan 7.51.0
Asset-backed credit facility (variable rate)(1) - - %
(1) Subject to variable LIBOR or Prime plus a spread that is incorporated into
the applicable interest rate.
The following table provides a comparison of our statements of cash flows for
the years ended
2021 2020
(In thousands)Net cash flows provided by operating activities$ 80,150 $
73,867
Net cash flows provided by (used in) investing activities 1,714
(3,413)
Net cash flows used in financing activities (3,504)
(30,142)
Net cash flows provided by operating activities were approximately$80.2 million and$73.9 million for the years endedDecember 31, 2021 and 2020, respectively. Cash flow from operating activities for the year endedDecember 31, 2021 , increased from the prior year primarily due to timing of payments. Cash flows from operations, cash and cash equivalents, and other sources of liquidity are expected to be available and sufficient to meet foreseeable cash requirements. 48 Table of Contents Net cash flows provided by investing activities were approximately$1.7 million for the year endedDecember 31, 2021 and net cash flows used in investing activities were$3.4 million for the year endedDecember 31, 2020 . Capital expenditures, including digital tower and transmitter upgrades, and deposits for station equipment and purchases were approximately$6.3 million and$3.8 million for the years endedDecember 31, 2021 and 2020, respectively. We took ownership of WQMC-LD onFebruary 24, 2020 for total consideration of$475,000 and we also sold property for proceeds of$860,000 for the year endedDecember 31, 2020 . The Company received approximately$8.0 million in consideration for the assets sold toGateway during the year endedDecember 31, 2021 . Net cash flows used in financing activities were approximately$3.5 million and$30.1 million for the years endedDecember 31, 2021 and 2020, respectively. During the years endedDecember 31, 2021 and 2020, the Company repaid approximately$855.2 million and$40.5 million , respectively, in outstanding debt. During the years endedDecember 31, 2021 and 2020, we repurchased$970,000 and approximately$3.6 million of our Class A and Class D Common Stock, respectively. Reach Media paid approximately$2.4 million and$2.8 million , respectively in dividends to noncontrolling interest shareholders for the years endedDecember 31, 2021 and 2020. During the year endedDecember 31, 2021 , we borrowed approximately$825.0 million on our 2028 Notes. The Company also received approximately$7.5 million in connection with its PPP Loan during the year endedDecember 31, 2021 . During the year endedDecember 31, 2020 , we borrowed approximately$3.6 million on theMGM National Harbor Loan . During the years endedDecember 31, 2021 and 2020, we paid approximately$11.2 million and$3.5 million , respectively, in debt refinancing costs. During the years endedDecember 31, 2021 and 2020, we received proceeds of$397,000 and approximately$2.0 million , respectively, from the exercise of stock options. Finally, the Company received proceeds of approximately$33.3 million and$14.7 million , from the issuance of Class A Common Stock, net of fees paid during the years endedDecember 31, 2021 and 2020, respectively.
Credit Rating Agencies
On a continuing basis, Standard and Poor's,Moody's Investor Services and other rating agencies may evaluate our indebtedness in order to assign a credit rating. Our corporate credit ratings byStandard & 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.
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
49
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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. The
fair value measurement objective for liabilities incurred in a share-based
payment transaction is the same as for equity instruments. Awards classified as
liabilities are subsequently remeasured to their fair values at the end of each
reporting period until the liability is settled.
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 ofDecember 31, 2021 , we had approximately$505.2 million in broadcast licenses and$223.4 million in goodwill, which totaled$728.6 million , and represented approximately 57.8% 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. There was no impairment recorded for the year endedDecember 31, 2021 and for the year endedDecember 31, 2020 , we recorded impairment charges against radio broadcasting licenses and goodwill, collectively, of approximately$84.4 million . 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 ofOctober 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.
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 possessesFCC 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.
We did not identify any impairment indicators at any of our reportable segments
for the year ended
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Beginning inMarch 2020 , the Company observed that the COVID-19 pandemic and the resulting government stay at home orders were dramatically impacting certain of the Company's revenues. Most notably, a number of advertisers across significant advertising categories had reduced or ceased advertising spend due to the outbreak and stay at home orders which effectively shut many businesses down in the markets in which we operate. This was particularly true within our radio segment which derives substantial revenue from local advertisers who had been particularly hard hit due to social distancing and government interventions. As a result of COVID-19, the total market revenue growth for certain markets in which we operate was below that assumed in our annual impairment testing. During the first quarter of 2020, the Company recorded a non-cash impairment charge of approximately$5.9 million to reduce the carrying value of ourAtlanta market andIndianapolis market goodwill balances and the Company recorded a non-cash impairment charge of approximately$47.7 million associated with ourAtlanta ,Cincinnati ,Dallas ,Houston ,Indianapolis ,Philadelphia ,Raleigh ,Richmond andSt. Louis radio market broadcasting licenses. We did not identify any impairment indicators for the three months endedJune 30, 2020 . Based on market data obtained by the Company in the third quarter of 2020, the total anticipated market revenue growth for certain markets in which we operate continued to be below that assumed in our first quarter impairment testing. We deemed that to be an impairment indicator that warranted interim impairment testing of certain markets' radio broadcasting licenses, which we performed as ofSeptember 30, 2020 . As a result of that testing, the Company recorded a non-cash impairment charge of approximately$10.0 million related to itsAtlanta market andIndianapolis market goodwill balances and the Company recorded a non-cash impairment charge of approximately$19.1 million for the three months endedSeptember 30, 2020 associated with ourAtlanta ,Cincinnati ,Dallas ,Houston ,Indianapolis ,Philadelphia andRaleigh market radio broadcasting licenses. As part of our annual testing for the year endedDecember 31, 2020 , there was no additional impairment identified; however we recorded an impairment charge of approximately$1.7 million associated with the asset sale consideration for one of ourSt. Louis radio broadcasting licenses for that period.
Valuation of
The impairment testing of goodwill is performed at the reporting unit level. We had 16 reporting units as of ourOctober 2021 annual impairment assessment, consisting of each of the 13 radio markets within the radio division 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. As noted above, we did not identify any impairment indicators at any of our reportable segments for the year endedDecember 31, 2021 . Also as noted above, during the first and third quarters of 2020 due to the COVID-19 pandemic, we identified impairment indicators at certain of our radio markets, and, as such, we performed an interim analysis for certain radio market goodwill. During the three months endedMarch 31, 2020 , the Company recorded a non-cash impairment charge of approximately$5.9 million to reduce the carrying value of ourAtlanta andIndianapolis market goodwill balances. We did not identify any impairment indicators at any of our other reportable segments for the three months endedJune 30, 2020 . During the three months endedSeptember 30, 2020 , the Company recorded a non-cash impairment charge of approximately$10.0 million related to itsAtlanta market andIndianapolis market goodwill balances. 51
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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
Radio Broadcasting October 1, October 1, September 30, March 31, Licenses 2021 2020 2020 (a) 2020 (a) Impairment charge (in millions) $ - $ 1.7* $ 19.1 $ 47.7 Discount Rate 9.0 % 9.0 % 9.0 % 9.5 % Year 1 Market Revenue Growth Rate Range 6.1% - 8.0 % (10.7)% - (16.0) % (10.7)% - (16.8) % (13.3) % Long-term Market Revenue Growth Rate Range 0.7% - 1.0 % 0.7% - 1.1 % 0.7% - 1.1 % 0.7% - 1.1 % Mature Market Share Range 6.2% - 23.2 % 6.7% - 23.9 % 6.7% - 23.9 % 6.9% - 25.0 % Mature Operating Profit Margin Range 26.9% - 36.1 % 27.7% - 37.1 %
27.7% - 37.1 % 27.6% - 39.7 %
(a) Reflects changes only to the key assumptions used in the interim testing for
certain units of accounting.
(*) License fair value based on estimated asset sale consideration.
Goodwill (Radio Market October 1, October 1, September 30, March 31, Reporting Units) 2021 (a) 2020 (a) 2020 (a) 2020 (a) Impairment charge (in millions) $ - $ - $ 10.0 $ 5.9 Discount Rate 9.0 % 9.0 % 9.0 % 9.5 Year 1 Market Revenue Growth Rate Range (10.7)% - 25.4 % (12.9)% - 25.9 % (26.6)% - 34.7 % (14.5)% - (12.9) Long-term Market Revenue Growth Rate Range 0.7% - 1.0 % 0.7% - 1.1 % 0.9% - 1.1 % 0.9% - 1.1 Mature Market Share Range 6.2% - 16.0 % 6.8% - 16.8 % 8.4% - 12.7 % 11.1% - 13.0 Mature Operating Profit Margin Range 21.2% - 47.3 % 27.7% - 49.1 %
27.7% - 48.1 % 29.4% - 39.0
(a) Reflects the key assumptions for testing only those radio markets with
remaining goodwill.
Below are some of the key assumptions used in the income approach model for estimating the fair value for Reach Media for the annual and interim impairment assessments performed sinceOctober 2020 . 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 2021 2020 Impairment charge (in millions) $ - $ - Discount Rate 11.5 % 11.0 % Year 1 Revenue Growth Rate (15.7) % 22.1 % Long-term Revenue Growth Rate (Year 5) 1.0 % 1.0 % Operating Profit Margin Range 24.1 - 26.2 % 18.0 - 19.1 %
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Below are some of the key assumptions used in the income approach model for determining the fair value of our digital reporting unit sinceOctober 2020 . 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. As a result of our impairment assessments, the Company concluded that the goodwill was not impaired.October 1 ,October 1 , Digital Segment Goodwill 2021
2020
Impairment charge (in millions) $ - $
-
Discount Rate 14.0 % 14.0 %
Year 1 Revenue Growth Rate (20.4) % (5.4) %
Long-term Revenue Growth Rate (Years 6 - 10) 2.5% - 6.8 % 3.4% - 6.0 %
Operating Profit Margin Range (5.2)% - 14.3 % (12.5)% - 13.1 %
Below are some of the key assumptions used in the income approach model for
determining the fair value of our cable television segment since
As a result of the testing performed, the Company concluded no impairment to the carrying value of goodwill had occurred.
October 1 ,October 1 , Cable Television Segment Goodwill 2021
2020
Impairment charge (in millions) $ -
$ - Discount Rate 9.5 % 10.5 % Year 1 Revenue Growth Rate 11.6 % 4.5 %
Long-term Revenue Growth Rate Range (Years 6 - 10) 0.4% - 0.6 % 0.6% - 1.5 % Operating Profit Margin Range 34.9% - 46.4 %
37.2% - 46.1 %
The above goodwill tables reflect some of the key valuation assumptions used for 11 of our 16 reporting units. The other five remaining reporting units had no goodwill carrying value balances as ofDecember 31, 2021 . 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 2021
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 annualOctober 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$223.4 million across 11 of our 16 reporting units as ofDecember 31, 2021 . 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 53
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goodwill worsen to reflect the below or lower cash flow growth/decline rates, additional goodwill impairments may be warranted in the future.
Long-Term Cash
Flow
Long-Term Growth/(Decline) Rate
Cash Flow That Would Result in
Growth Rate Carrying Value that is less
Reporting Unit Used than Fair Value (a)
2 0.9 % Impairment not likely
16 0.7 % Impairment not likely
21 0.5 % Impairment not likely
1 1.0 % 0.2%
11 0.7 % (0.8)%
13 0.9 % (1.9)%
12 1.0 % (2.0)%
10 1.0 % (2.9)%
6 0.7 % (8.3)%
18 2.5 % (21.9)%
19 1.0 % (268.0)%
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 (a) 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 ofOctober 1, 2021 , we appraised the radio broadcasting licenses at a fair value of approximately$599.0 million , which was in excess of the$505.2 million carrying value by$93.9 million , or 18.6%. The fair values of the licenses exceeded the carrying values of the licenses for all units of accounting. Should our estimates, assumptions, or events or circumstances for any upcoming valuations worsen in the units with no or limited fair value cushion, additional license impairments may be needed in the future. Radio Broadcasting Licenses As of October 1, October 1, 2021 2021 Carrying Fair Excess Values Values % FV Unit of Accounting (a) ("CV") ("FV") FV vs. CV Over CV (In thousands) Unit of Accounting 2$ 3,086 $ 32,375$ 29,289 949.1 % Unit of Accounting 5 13,525 15,310 1,785 13.2 % Unit of Accounting 7 15,223 18,081 2,858 18.8 % Unit of Accounting 11 15,560 17,498 1,938 12.5 % Unit of Accounting 14 19,070 20,518 1,448 7.6 % Unit of Accounting 6 22,642 28,134 5,492 24.3 % Unit of Accounting 12 32,968 34,120 1,152 3.5 % Unit of Accounting 4 37,224 40,321 3,097 8.3 % Unit of Accounting 13 39,646 40,940 1,294 3.3 % Unit of Accounting 8 52,515 56,568 4,053 7.7 % Unit of Accounting 16 54,670 89,981 35,311 64.6 % Unit of Accounting 1 84,369 90,091 5,722 6.8 % Unit of Accounting 10 114,650 115,108 458 0.4 % Total$ 505,148 $ 599,045 $ 93,897 18.6 %
The units of accounting are not disclosed on a specific market basis so as to (a) not make publicly available sensitive information that could be competitively
harmful to the Company.
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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.
Hypothetical Increase in
the Recorded
Impairment
Charge
For the Year Ended
December 31, 2021
Broadcasting
Licenses Goodwill (a)
(In millions)
Impairment charge recorded:
Radio Market Reporting Units $ - $ -
Reach Media Reporting Unit - -Cable Television Reporting Unit
- - Digital Reporting Unit - - Total Impairment Recorded $ - $ -
Hypothetical Change for Radio Market Reporting Units: A 100 basis point decrease in radio industry long-term growth rates
$ 20.7 $ 1.1 A 100 basis point decrease in cash flow margin in the projection period
$ 3.0 $ -
A 100 basis point increase in the applicable discount
rate $ 36.8 $ 5.9
A 5% reduction in the fair value of broadcasting
licenses and reporting units $ 6.6 $ -
A 10% reduction in the fair value of broadcasting
licenses and reporting units $ 22.5 $ 4.4
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 $ -
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 $
-
assumptions.
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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 2021 and 2020 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.
Revenue Recognition
In accordance with Accounting Standards Codification ("ASC") 606, "Revenue from
Contracts with Customers," the Company recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the
consideration to which it expects to be entitled in exchange for those goods or
services. 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 or when
"click through" purchases are made, where applicable. In addition, Interactive
One derives revenue from its studio operations, in which it provides third-party
clients with publishing services including digital platforms and related
expertise. In the case of the studio operations, revenue is recognized primarily
through fixed contractual monthly fees and/or as a share of the third party's
reported revenue.
Our cable television segment derives advertising revenue from the sale of
television air time to advertisers and recognizes revenue when the
advertisements are run. Advertising revenue is recognized at a point in time
when the individual spots run. To the extent there is a shortfall in contracts
where the ratings were guaranteed, a portion of the revenue is deferred until
the shortfall is settled, typically by providing additional advertising units
generally within one year of the original airing. Our cable television segment
also derives revenue from affiliate fees under the terms of various multi-year
affiliation agreements based on a per subscriber fee multiplied by the most
recent subscriber counts reported by the applicable affiliate. The Company
recognizes the affiliate fee revenue at a point in time as its performance
obligation to provide the programming is met. The Company has a right of payment
each month as the programming services and related obligations have been
satisfied.
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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 ofDecember 31, 2021 , we had approximately$1.3 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,
2021 , management continues to believe that there is sufficient positive evidence
to conclude that it is more likely than not the 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
some years into the future, significant judgment is required, and our conclusion
could be materially different if certain expectations do not materialize.
In the assessment of all available evidence, an important piece of objectively
verifiable evidence is evaluating a cumulative income or loss position over the
most recent three-year period. Historically, the Company maintained a full
valuation against the net DTAs, principally due to overwhelming objectively
verifiable negative evidence in the form of a cumulative loss over the most
recent three-year period. However, during the quarter ended December 31, 2018 ,
the Company achieved three years of cumulative income, which removed the most
heavily weighted piece of objectively verifiable negative evidence from our
evaluation of the realizability of DTAs. Moreover, in combination with the
three years of cumulative income and other objectively verifiable positive
evidence that existed as of the quarter ended December 31, 2018 , management
believed that there was sufficient positive evidence to conclude that it was
more likely than not that a material portion of its net DTAs were realizable.
Consequently, the Company reduced its valuation allowance during the quarter
ended December 31, 2018 .
As of the quarter ended December 31, 2021 , management continues to weigh the
objectively verifiable evidence associated with its cumulative income or loss
position over the most recent three-year period. Further, as of the year ended
December 31, 2021 , the Company continues to have three years of cumulative
income. Management also considered the cumulative income includes non-deductible
pre-tax expenditures that, while included in pre-tax earnings, are not a
component of taxable income and therefore are not expected to negatively impact
the Company's ability to realize the tax benefit of the DTAs in current or
future years.
As part of the 2017 Tax Act, IRC Section 163(j) limits the timing of the tax
deduction for interest expense. In conjunction with evaluating and weighing the
aforementioned negative and positive evidence from the Company's historical
cumulative income or loss position, management also evaluated the impact that
interest expense has had on our cumulative income or loss position over the most
recent three-year period. A material component of the Company's expenses is
interest and has been the primary driver of historical pre-tax losses. As part
of our evaluation of positive evidence, management is adjusting for the IRC
Section 163(j) interest expense limitation on projected taxable income as
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part of developing forecasts of taxable income sufficient to utilize the Company's federal and state net operating losses that are not subject to annual limitation resulting from the 2009 ownership shift as defined under IRC Section 382.
Realization of the Company's DTAs is dependent on generating sufficient taxable income in future periods, and although management believes it is more likely than not future taxable income will be sufficient to realize the DTAs, realization is not assured and future events may cause a change to the judgment of the realizability of the DTAs. If a future event causes management to re-evaluate and conclude that it is not more likely than not, that all or a portion of the DTAs 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 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 2022 to 2039.
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 ofDecember 31, 2021 and 2020, was approximately$17.0 million and$12.7 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") at fair value. According to the Employment Agreement, executed inApril 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 award was triggered after the Company recovered the aggregate amount of capital contributions in TV One, and payment is required only upon actual receipt of distributions of cash or marketable securities or proceeds from a liquidity event with respect to such invested amount. The long-term portion of the award is recorded in other long-term liabilities and the current portion is recorded in other current liabilities in the consolidated balance sheets. The CEO was fully vested in the award upon execution of the Employment Agreement, and the award lapses if the CEO voluntarily leaves the Company or is terminated for cause. InSeptember 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. The Company estimated the fair value of the Employment Agreement Award as ofDecember 31, 2021 , at approximately$28.2 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. 58 Table of Contents 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 five 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. For programming that is predominantly monetized as part of a content group, which includes our acquired and commissioned programs, capitalized costs are amortized based on an estimate of our usage and benefit from such programming. The estimates require management's judgement and include consideration of factors such as expected revenues to be derived from the programming, the expected number of future airings, and, if applicable, the length of the license period. 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. Content that is predominantly monetized within a film group is assessed for impairment at the film group level and is tested for impairment if circumstances indicate that the fair value of the content within the film group is less than its unamortized costs. A significant decrease in the amount of ultimate revenue expected to be recognized was determined for one of the film groups, and as a result, the Company recorded an impairment and additional amortization expense of$695,000 , as a result of evaluating its contracts for impairment for the year endedDecember 31, 2021 . The Company did not record any additional amortization expense for the year endedDecember 31, 2020 . Impairment and amortization of content assets is recorded in the consolidated statements of operations as programming and technical expenses. 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
As ofDecember 31, 2021 , we had approximately$825.0 million of our 2028 Notes outstanding and approximately$7.5 million outstanding on our PPP Loan within our corporate structure. The Company used the net proceeds from the 2028 Notes, together with cash on hand, to repay or redeem: (1) the 2017 Credit Facility; (2) the 2018 Credit Facility; (3) theMGM National Harbor Loan ; (4) the remaining amounts of our 7.375% Notes; and (5) our 8.75% Notes that were issued in theNovember 2020 Exchange Offer. Upon settlement of the 2028 Notes, the 2017 Credit Facility, the 2018 Credit Facility and theMGM National Harbor Loan were terminated and the indentures governing the 7.375% Notes and the 8.75% Notes were satisfied and discharged.
See "Liquidity and Capital Resources." See the balances outstanding as of
Lease obligations
We have non-cancelable operating leases for office space, studio space, broadcast towers and transmitter facilities that expire over the next 10 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 five years.
Royalty Agreements
Musical works rights holders, generally songwriters and music publishers, have been traditionally represented by performing rights organizations, such as theAmerican Society of Composers, Authors and Publishers ("ASCAP"),Broadcast Music, Inc. ("BMI") andSESAC, 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 asGlobal Music Rights, Inc. ("GMR"), have been formed to represent rights holders. These organizations negotiate fees with copyright users, collect royalties and distribute them to the rights holders. We currently have arrangements with ASCAP,SESAC and GMR. OnApril 22, 2020 , the Radio Music License Committee ("RMLC"), an industry group which the Company is a part of, and BMI have reached agreement on the terms of a new license agreement that covers the periodJanuary 1, 2017 , throughDecember 31, 2021 . Upon approval of the court of the BMI/RMLC agreement, the Company automatically became a party to the agreement and to a license with BMI throughDecember 31, 2021 .
Reach Media Redeemable Noncontrolling Interest Shareholders' Put Rights
Beginning onJanuary 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 beginningJanuary 1 of each year. The purchase price for such shares may be paid in cash and/or registered Class D common stock ofUrban One , at the discretion ofUrban One . The noncontrolling interest shareholders of Reach Media did not exercise their Put Right for the 30-day period endingJanuary 31, 2022 . 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 ofDecember 31, 2021 : Payments Due by Period 2027 and Contractual Obligations 2022 2023 2024 2025 2026 Beyond Total (In thousands) 7.375% Subordinated Notes (1)$ 60,844 $ 60,844 $ 60,844 $ 60,844 $ 60,844 $ 890,914 $ 1,195,134 PPP Loan (2) 75 75 75 75 7,542 - 7,842 Other operating contracts/agreements(3) 69,791 23,117 19,386 19,422 8,452 9,408 149,576 Operating lease obligations 13,164 11,333 10,099 5,377 3,070 5,378 48,421 Total$ 143,874 $ 95,369 $ 90,404 $ 85,718 $ 79,908 $ 905,700 $ 1,400,973
(1) Includes interest obligations based on effective interest rates on senior
secured notes outstanding as of
(2) Includes interest obligations on PPP Loan outstanding as of
2021.
Includes employment contracts (including the Employment Agreement Award),
severance obligations, on-air talent contracts, consulting agreements, (3) equipment rental agreements, programming related agreements, and other
general operating agreements. Also includes contracts that our cable
television segment has entered into to acquire
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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$100.1 million has not been recorded on the balance sheet as ofDecember 31, 2021 , as it does not meet recognition criteria. Approximately$18.0 million relates to certain commitments for content agreements for our cable television segment, approximately$30.9 million relates to employment agreements, and the remainder relates to other agreements.
Off-Balance Sheet Arrangements
OnFebruary 24, 2015 , the Company entered into a letter of credit reimbursement and security agreement providing for letter of credit capacity of up to$1.2 million . OnOctober 8, 2019 , the Company entered into an amendment to its letter of credit reimbursement and security agreement and extended the term toOctober 8, 2024 . As ofDecember 31, 2021 , the Company had letters of credit totaling$871,000 under the agreement for certain operating leases and certain insurance policies. Letters of credit issued under the agreement are required to be collateralized with cash. In addition, the Current 2021 ABL Facility provides for letter of credit capacity of up to$5 million subject to certain limitations on availability.
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