Radio One, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 17, 2015. The filing identifies the registrant as Radio One, Inc., although the request metadata names Urban One, Inc.
Business context
Radio One is a multi-media company focused on African-American and urban audiences. Its businesses include radio broadcasting, Reach Media syndication, Interactive One digital properties, and TV One cable television. At year-end it owned or operated 54 broadcast stations in 16 markets; it held approximately 80% of Reach Media and 52.1% of TV One. The company acquired Charlotte station assets and the Global Grind brand in 2014, and agreed to invest in the MGM National Harbor project, then expected to open in the second half of 2016.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Net revenue | $441.4 million | $448.7 million |
| Operating income | $77.2 million | $73.0 million |
| Net loss attributable to common stockholders | $62.7 million, or $1.32 per share | $62.0 million, or $1.28 per share |
| Station operating income and margin | $157.4 million; 35.7% | $165.5 million; 36.9% |
| Cash from operating activities | $53.9 million | $37.0 million |
| Capital expenditures | $5.5 million | $9.2 million |
| Cash and cash equivalents at year-end | $67.8 million | $56.7 million |
Revenue declined 1.6%. Core radio revenue fell 4.3%, Reach Media revenue fell 7.4%, and internet revenue fell 5.1%; cable television revenue rose to $157.1 million from $149.5 million. Radio and Reach Media weakness was partly offset by cable growth. Station operating income, a company-defined non-GAAP measure, fell 4.9%; its margin declined 1.2 percentage points. Operating income improved partly because 2014 had no long-lived-asset impairment charge, compared with $14.9 million in 2013.
Interest expense was $79.8 million, down from $89.2 million, but the company recorded a $5.7 million loss on retiring debt. The $34.8 million income-tax provision was predominantly deferred tax expense; the company maintained a full valuation allowance on net deferred tax assets. Cash flow from operations improved, principally from better receivable collections, lower content payments, and lower cash interest. Investing cash outflow was $15.1 million, including $9.1 million for acquisitions; financing cash outflow was $27.7 million.
At December 31, the balance sheet reported $822.5 million of gross debt, including $368.5 million of bank term debt, $335.0 million of 9.25% notes due 2020, and $119.0 million of TV One notes due March 2016. The selected-data table reports total debt of $820.3 million, reflecting a different presentation; investors should reconcile the figures to the debt note. Current assets were $201.9 million and current liabilities $62.6 million. The company reported $21 million available under its revolver after covenant and letter-of-credit adjustments; the revolver was due to expire March 31, 2015, and the company did not expect to replace it. Debt covenants were met at year-end, but reported leverage and interest coverage were close to their limits: total leverage 7.02x versus a 7.50x maximum, secured leverage 3.51x versus 3.75x, and interest coverage 1.57x versus a 1.25x minimum.
Fourth-quarter revenue was $109.7 million, compared with $111.6 million a year earlier; operating income was $19.4 million versus $17.4 million, and net loss attributable to common stockholders was $13.5 million versus $16.4 million.
Changes, outlook, and notable items
- Management expected 2015 results to improve relative to 2014, citing a gradual advertising recovery. Priorities included growing market and audience share, improving revenue conversion, and expanding digital and cable businesses. This was a qualitative outlook; the filing provides no numerical guidance.
- In February 2014, Radio One issued $335 million of 9.25% notes due 2020 and used proceeds to retire its 12.5%/15% notes due 2016. The refinancing reduced interest expense but generated a $5.7 million extinguishment loss.
- In January 2015, lenders amended the credit agreement, revising covenants and allowing the facilities to be amended and extended. The bank term loan and TV One notes both had substantial maturities in 2016.
- In February 2015, Radio One agreed to acquire Comcast’s approximately 47.5% TV One interest for an effective price of approximately $220 million, based on a $550 million enterprise valuation. Closing required financing and customary conditions; completion was not assured. Comcast and TV One also extended their affiliation agreement.
- Radio licenses and goodwill totaled approximately $942 million, about 67% of total assets. No impairment was recorded in 2014, but valuations are sensitive to market growth, margins, and discount rates. Management’s sensitivity analysis indicated that a 100-basis-point increase in the discount rate could produce $33.2 million of license impairment and $1.2 million of radio-market goodwill impairment.
- The company had reported net losses in each of 2012–2014 and remains highly leveraged. Advertising cyclicality, market concentration, competition from digital media, audience and ratings shifts, FCC regulation, talent retention, and TV One’s carriage and advertising performance are material risks.
- The CEO’s TV One-related award was valued at approximately $18.0 million at year-end, up from $13.7 million, and was recorded as a liability and compensation expense. The award is tied to proceeds above the company’s investment in TV One.
- Management and the auditor concluded internal control over financial reporting was effective at year-end. The filing also describes a material weakness identified in 2013 and remediation measures. The auditor issued unqualified opinions on the financial statements and internal controls.
Key facts for investors to verify
- Whether the 2015 revolver expiration was resolved and how the 2016 bank and TV One maturities were refinanced or repaid.
- Whether financing and closing conditions for the approximately $220 million Comcast TV One buyout were satisfied, and the effect on debt, liquidity, and distributions.
- Quarterly covenant headroom, cash generation, and the availability of TV One distributions to support Radio One’s liquidity.
- Whether radio-market revenue and audience trends, especially in major markets, and the declines at Reach Media and Interactive One stabilized.
- Whether impairment-test assumptions remain supportable, given the material carrying value of licenses and goodwill and the disclosed valuation sensitivity.