Beasley Broadcast Group, Inc. — 2011 Form 10-K
Business and period: Radio broadcaster operating 42 stations across 11 U.S. markets and providing management services to two Las Vegas stations. This annual report covers the fiscal year ended December 31, 2011; comparisons are with 2010.
Financial results and liquidity
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net revenue | $97.7 million | $98.0 million | Down 0.3% |
| Operating income | $23.9 million | $22.9 million | Up 4.6% |
| Net income | $10.1 million | $8.0 million | Up 26.5% |
| Diluted EPS | $0.45 | $0.35 | Up $0.10 |
| Cash from operations | $20.7 million | $16.4 million | Up $4.3 million |
| Capital expenditures | $1.4 million | $1.2 million | Up $0.3 million |
| Cash and cash equivalents at year-end | $13.6 million | $10.7 million | Up $3.0 million |
| Total debt at year-end | $126.7 million | $142.0 million | Down $15.3 million |
Operating margin increased to approximately 24.5% from 23.4%; net margin rose to approximately 10.3% from 8.2%. Interest expense fell 26.5% to $7.4 million, primarily reflecting debt repayments and the expiration of interest-rate swaps. The effective tax rate was approximately 40% in both years.
At December 31, 2011, current assets were $34.8 million and current liabilities were $15.0 million. The credit facility had $10.2 million of remaining revolving commitments available at year-end; the company reported $125.3 million outstanding as of February 14, 2012. The facility matures June 30, 2015, bears variable rates, and had a 3.8125% LIBOR-based rate at year-end. The company was compliant with its financial covenants at December 31, 2011: debt ratio 4.6x, interest coverage 3.94x, and fixed-charge coverage 1.69x.
Material changes and notable items
- Revenue was broadly unchanged: declines in Miami-Fort Lauderdale and Las Vegas were largely offset by growth in Philadelphia.
- Station operating expenses declined 1.9%, attributed primarily to cost containment. Operating income and net income improved despite slightly lower revenue.
- Operating cash flow increased, while financing cash outflows rose to $15.4 million, mainly due to $15.3 million of credit-facility repayments. Investing cash outflow was $2.3 million, including $1.2 million invested in investments.
- Total assets were $255.0 million and stockholders’ equity was $73.6 million at year-end. FCC licenses and goodwill together represented about 75.5% of assets. No impairment losses on licenses or goodwill were recorded in 2011.
- The company had no derivative instruments at year-end after its interest-rate swaps expired during 2011.
Outlook, risks and contingencies
Management said it expects sufficient liquidity and capital resources to meet obligations for at least the next 12 months. It did not provide numerical revenue or earnings guidance. Revenue is seasonal and typically lowest in the first quarter. Management identified internally generated cash flow and the credit facility as primary liquidity sources, while cautioning that weak results, unexpected expenses or acquisitions could strain liquidity or covenant compliance.
- Debt and covenant risk are significant: the facility is secured by substantially all company assets, and a covenant breach could permit acceleration. The maximum debt-to-operating-cash-flow ratio tightens to 4.75x beginning in 2012, and minimum fixed-charge coverage rises to 1.1x.
- Miami-Fort Lauderdale and Philadelphia generated 48.2% of 2011 revenue, creating market concentration. Florida stations generated 38.9% of revenue and could be exposed to hurricanes; insurance may not cover all resulting losses.
- Radio faces competition from other broadcasters and digital, internet, satellite, mobile and social-media platforms. Economic weakness could reduce advertisers’ discretionary spending.
- FCC license renewal, indecency rules, potential changes to ownership and spectrum rules, and possible new music royalties present regulatory risks. Management reported no reason to expect license nonrenewal; the annual license impairment test found fair value above carrying value, with Las Vegas and Wilmington among the narrowest cushions.
- Related-party arrangements include tower, land and office leases, a $2.9 million note receivable from an entity owned by Beasley family members, and management of two stations owned by CEO George Beasley. The management agreement includes an option to purchase the stations for $8.5 million plus specified additional amounts, subject to approvals.
- Management reported that pending legal matters were not expected to have a material adverse effect. It also reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Current debt, revolver availability, covenant headroom and the impact of the tighter 2012 covenant thresholds.
- Whether operating cash flow and debt reduction can be sustained, particularly if advertising weakens in the two largest markets.
- Ratings, revenue trends and impairment assumptions for Miami-Fort Lauderdale, Philadelphia, Las Vegas and Wilmington.
- Terms, approvals and potential total cost of the Las Vegas station purchase option and other related-party dealings.
- Developments in FCC requirements, music-royalty proposals, hurricane exposure and any legal or regulatory proceedings.