Business context and reporting period
Filing identity: The document is Radio One, Inc.’s Form 10-K for the fiscal year ended December 31, 2013 (filed March 31, 2014). Although the request identifies Urban One, the filing itself names Radio One, Inc. Results are annual, with fourth-quarter figures noted separately.
The company operated 54 broadcast stations in 16 U.S. markets and reported four segments: Radio Broadcasting, Reach Media, Internet and Cable Television (TV One). It held approximately 51.9% of TV One and 80% of Reach Media.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Net revenue | $448.7 million | $424.6 million |
| Operating income | $73.0 million | $71.2 million |
| Net loss attributable to common stockholders | $62.0 million | $66.9 million |
| Station operating income, non-GAAP | $165.5 million | $150.8 million |
| Station operating income margin, non-GAAP | 36.9% | 35.5% |
| Operating cash flow | $37.0 million | $45.4 million |
| Cash and cash equivalents at year-end | $56.7 million | $57.3 million |
| Total debt, reported carrying amount | $815.6 million | $818.7 million |
- 2013 cash capital expenditures were $9.2 million; cash interest paid was $83.6 million. Operating cash flow declined mainly due to higher receivables and collection timing.
- Year-end current assets were $192.5 million and current liabilities $62.7 million. The company reported approximately $24 million available under its revolving facility after covenant considerations.
- Segment revenue: Radio Broadcasting $222.5 million (down from $223.4 million); Reach Media $56.7 million (up from $55.2 million); Internet $25.6 million (up from $19.9 million); Cable Television $149.5 million (up from $131.2 million). Segment figures include consolidation and eliminations effects in the consolidated total.
- Fourth-quarter 2013 revenue was $111.6 million and operating income $17.4 million; common-stockholder net loss was $16.4 million. In fourth-quarter 2012, those amounts were $105.9 million, $14.6 million and $17.2 million, respectively.
Material changes versus the prior comparable period
- Revenue grew 5.7%; management said Radio One outperformed its measured markets by 110 basis points, while combined radio broadcasting and Reach Media revenue increased only 0.3%.
- Internet revenue increased 29.1%, and TV One revenue rose primarily on higher advertising sales. Radio market performance was mixed, with declines in several clusters.
- Station operating income rose 9.7%, primarily reflecting improved TV One and Reach Media performance. The measure is non-GAAP and should not be treated as operating income or cash flow.
- Common-stockholder net loss narrowed by $4.9 million. Operating cash flow nevertheless fell $8.4 million.
- Radio license impairment charges rose to $14.9 million from $0.3 million, affecting Boston, Cincinnati, Cleveland and Philadelphia. No goodwill impairment was recorded in 2013.
Outlook, risks and unusual items
- Management expected 2014 results to continue improving with a gradual recovery in advertising. Priorities included market share, audience and revenue conversion, and growth in online and cable businesses. This is management’s stated outlook, not quantified guidance.
- After year-end, Radio One issued $335 million of 9.25% senior subordinated notes due 2020 and used proceeds to redeem its 12.5%/15% notes due 2016. Management estimated annual interest savings of approximately $9.9 million. The refinancing does not eliminate the company’s substantial leverage.
- Debt covenants were satisfied at December 31, 2013; covenant interest coverage was 1.43x against a 1.10x minimum, senior secured leverage 3.34x against a 4.50x maximum, and total leverage 6.54x against an 8.50x maximum. Covenant calculations exclude TV One’s operating results and related debt, except for Radio One’s share of TV One cash dividends.
- Management identified advertising demand and pricing, competition from digital media, audience ratings and key talent, FCC licensing and regulation, refinancing and covenant compliance, and restrictions on TV One distributions as significant risks. Broadcast licenses and goodwill totaled $931.8 million, about 65.9% of assets, making valuation assumptions and future impairment a key sensitivity.
- The Columbus station sale generated a reported $893,000 gain in 2013. The Boston station remained under an LMA and was expected to transfer at the end of 2016. The company also reported an MGM National Harbor letter of intent, with potential investment up to $40 million, including an initial $5 million commitment due in 2014 and an option for up to $35 million in 2016.
- A material weakness identified in 2013 related to review of guarantor consolidating disclosures and led to restatements of prior footnote information. Management described remediation and concluded internal control over financial reporting was effective at year-end; the auditor did not provide an internal-control opinion. Routine legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Review the 2014 refinancing terms, actual interest savings, maturity profile and any related fees or premiums.
- Assess covenant headroom using the credit agreement’s definitions, including the exclusion of TV One debt and results from covenant calculations.
- Track advertising trends, segment margins and cash conversion, particularly receivables and operating cash flow.
- Test impairment sensitivities for radio licenses and goodwill against actual market growth, margins and discount rates.
- Confirm the status and terms of the Boston LMA transfer, MGM investment and TV One distributions or any appraisal/buyout rights.
- Review the effectiveness of remediation for the prior material weakness and the status of FCC license renewals subject to enforcement holds.