Business Context and Reporting Period
Radio One, Inc. (the filing’s registrant name; the request metadata identifies Urban One, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2011. It operated an urban-oriented media business targeting African-American and urban consumers, with radio, syndicated programming, internet properties, and cable television. The company began consolidating TV One in April 2011 after obtaining control; reported 2011 results therefore include only part of TV One’s year. Comparisons with 2010 are not fully like-for-like.
Key Financial Metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net revenue | $364.6 million | $279.7 million |
| Operating income | $25.5 million | $15.3 million |
| Net income (loss) attributable to common stockholders | $2.9 million | $(28.6) million |
| Adjusted EBITDA | $90.0 million | $74.5 million |
| Station operating income / margin | $123.7 million / 33.9% | $102.6 million / 36.7% |
| Cash from operating activities | $55.0 million | $17.8 million |
| Cash and cash equivalents at year-end | $35.9 million | $9.2 million |
Revenue rose 30.3%, principally because TV One contributed $86.0 million after consolidation. Core radio revenue declined 3.5%; internet revenue increased 9.4% to $17.5 million, and Reach Media revenue increased 15.8% to $48.4 million. The filing reports approximately $27.9 million of TV One station operating income for the period consolidated, while TV One recorded a net loss of approximately $5.5 million after depreciation, amortization, and interest.
FY 2011 net income included a $146.9 million accounting gain from obtaining control of TV One. This gain was not operating cash flow and materially affected the reported result. Interest expense rose to $88.3 million from $46.8 million; income tax expense was $66.7 million, including substantial deferred tax expense. Impairment charges totaled $22.3 million, including $14.5 million of Columbus goodwill and $7.8 million of Reach Media long-lived assets.
Capital expenditures were reported as $9.4 million for property and equipment; the cash flow statement also shows $23.4 million of content-asset purchases. Management describes total capital expenditures, including content assets, as approximately $32.9 million.
Debt and Liquidity
Year-end cash was $35.9 million, current assets were $156.5 million, and current liabilities were $62.3 million. The company reported $23.8 million of available capacity under its $25 million revolving facility, after covenant considerations. Operating cash flow improved, but the company remained highly leveraged and faced significant scheduled interest and debt obligations.
Debt carrying value, including current maturities and net of original issue discount, was approximately $808.9 million; stated principal balances across the listed facilities and notes totaled approximately $815.7 million. Major obligations included $383.1 million of bank term debt, $312.8 million of 12.5%/15% senior subordinated notes, and $119.0 million of TV One notes bearing 10% and due in 2016. The company paid $17.3 million in cash interest and issued approximately $26.0 million of additional notes under its payment-in-kind election during 2011. That election was available only for interest accruing before May 15, 2012; thereafter, note interest was payable in cash.
At December 31, 2011, the company said it complied with its credit-facility financial covenants. Reported covenant ratios were 4.67x senior secured leverage versus a 5.00x limit, 8.68x total leverage versus a 9.25x limit, and 1.62x interest coverage versus a 1.25x minimum. These calculations excluded Reach Media’s and TV One’s operating results and related debt.
Changes, Outlook, Risks, and Unusual Items
- TV One consolidation: Control and consolidation began April 14, 2011; TV One had issued $119 million of senior secured notes to finance membership-interest redemptions. The consolidation generated the $146.9 million accounting gain and increased reported debt and revenue.
- Margins and underlying operations: Station operating income increased 20.6%, but the margin fell from 36.7% to 33.9%. Excluding TV One, management said station operating income declined approximately $6.8 million, primarily due to Reach Media event spending. Radio faced weaker advertising demand, pricing pressure, and competition from digital and other media.
- Management outlook: Management expected 2012 results and revenue to improve, citing a gradual recovery in advertising and strategic investments. It said liquidity should cover needs through at least December 31, 2012, based on cash, projected operating cash flow, and potential revolver borrowings. The outlook depends on continued economic and advertising improvement; no specific revenue or earnings guidance range was provided.
- Covenants and refinancing risk: The company’s 2011 facility imposes leverage and interest-coverage tests that tighten over time, alongside restrictions on borrowing, asset sales, dividends, and other actions. Management warned that weaker results could threaten liquidity and covenant compliance. The filing also describes prior-period covenant defaults and a 2010 payment blockage, which were addressed through refinancing and amendments.
- Impairment and asset concentration: FCC licenses and goodwill totaled $949.4 million, or 63.9% of assets. Valuations depend on forecasts and discount-rate assumptions; further impairment could occur if performance or market conditions deteriorate.
- Other items and risks: Reach Media minority holders had annual put rights beginning in 2012; they did not exercise the right during the window ending March 29, 2012. The CEO’s TV One award was valued at $10.3 million at year-end and creates a potential related-party conflict. The company also cited advertising cyclicality, audience ratings, key talent, FCC regulation, TV One distribution and programming costs, and control by the chairperson and CEO as risks. The Boston station was subject to an LMA and reported in discontinued operations. The IPO-related shareholder litigation settlement became final in January 2012 and was expected to be funded by insurance.
Fourth-quarter 2011 revenue was $98.1 million and net loss attributable to common stockholders was $21.5 million; continuing-operations results included approximately $22.3 million of pre-tax impairment charges.
Important Facts for Investors to Verify
- How much of reported revenue, operating income, and cash flow growth is attributable to TV One consolidation versus organic performance, especially given the 3.5% decline in core radio revenue.
- Whether 2012 advertising and cash-flow assumptions were achieved, and whether covenant headroom remained adequate as the leverage limits tightened.
- The company’s cash interest burden and refinancing capacity, including the transition from payment-in-kind to cash interest on the 2016 notes after May 15, 2012.
- TV One’s operating performance, debt restrictions, and capacity to make distributions to Radio One.
- The sensitivity of goodwill, broadcast-license, and other intangible valuations to revenue, margin, and discount-rate assumptions.
- Potential cash or share dilution from Reach Media put rights, and any changes to the CEO’s TV One award or employment agreement.