Item 8. Financial Statements and Supplementary Data
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BEASLEY BROADCAST GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Financial Statements
Report of Independent Registered Public Accounting Firm
32
Consolidated Balance Sheets as of December 31, 2019 and
2020
35
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31,
2019 and 2020
36
Consolidated Statements of Equity for the Years Ended December
31, 2019 and 2020
37
Consolidated Statements of Cash Flows for the Years Ended December
31, 2019 and 2020
38
Notes to Consolidated Financial Statements
39
Consolidated Financial Statement ScheduleValuation and Qualifying Accounts
56
31
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Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of Beasley Broadcast Group, Inc.
Naples, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Beasley Broadcast Group, Inc. (the Company) as of December 31, 2020 and 2019,
the related consolidated statements of comprehensive income (loss), equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and consolidated financial statement schedule (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters
communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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FCC Licenses Impairment Assessment Radio Reporting Units
As disclosed in Note 5 to the consolidated financial statements, the Companys consolidated FCC licenses balance was $508.6 million as of
December 31, 2020. During the year ended December 31, 2020, the Company recorded impairment on FCC licenses of $6.8 million. Management performs an annual impairment test during the fourth quarter of each year which includes a
qualitative assessment as to whether it is more likely than not that an FCC license is impaired. This qualitative assessment requires significant judgment when considering the events and circumstances that may affect the estimated fair value of the
FCC licenses. If there are changes in market conditions, events, or other circumstances that occur during the interim periods that indicate the carrying value of its FCC licenses may be impaired, management determines whether an interim test is
necessary. FCC licenses are assessed for recoverability at the market cluster level. Potential impairment is identified by comparing the fair value of a markets FCC licenses to its carrying value. Fair value is estimated by management using
the Greenfield method, which is a form of the income approach, assuming a start-up scenario in which the only assets held by an investor are FCC licenses. Managements cash flow projections for its FCC
licenses included significant judgments and assumptions relating to the market share and profit margin of an average station within a market based upon market size and station type, the forecasted growth rate of each radio market (including
long-term growth rate), and the discount rate.
We considered auditing the impairment of FCC licenses to be a critical audit matter because it
involved a high degree of subjectivity in evaluating managements estimates, judgments and assumptions, significant audit effort due to complexity in the aggregation and evaluation of significant amounts of data and the use of
valuation specialists.
Our audit procedures related to impairment of FCC licenses included the following:
a.
Evaluated managements judgements in their assessment of identifying changes in market conditions, events
or other changes in circumstances that indicate an impairment of FCC licenses may be present;
b.
Tested the completeness, accuracy, appropriateness of aggregation and relevance of underlying data used in the
valuation model based on the Greenfield method;
c.
Evaluated the significant assumptions used by management, including normalized market share and profit margin
of an average station within a market based upon market size and station type, the forecasted growth rate of each radio market (including long-term growth rate), and the discount rate. This involved evaluating whether the assumptions used by
management were reasonable considering (i) the current and past performance in the market being evaluated, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence
obtained in other areas of the audit;
d.
Utilized valuation specialists to assist in evaluating the appropriateness of valuation model used, evaluating
certain assumptions applied in the valuation model, and recalculations of the discounted cash flow schedules.
Goodwill Impairment Test
Boston and Philadelphia Radio Reporting Units
As described in Note 6 to the consolidated financial statements, the Companys consolidated
goodwill balance was $28.6 million as of December 31, 2020. Management conducts an impairment test on an annual basis. If actual market conditions are less favorable than those projected by the industry or management, or if events occur,
or circumstances change during the interim periods that indicate the carrying value of its goodwill may be impaired, management may be required to conduct an interim test. Potential impairment is identified by comparing the fair value of each
reporting unit to its carrying value. As a result of the impairment test performed on the radio market clusters during the first quarter of 2020, the Company determined that the estimated fair value of each market cluster exceeded the carrying
amount by at least five percent at each market cluster as of March 31, 2020. Management performed a qualitative assessment and did not identify any triggering events for impairment during subsequent quarters of 2020. As a result, the Company
did not perform a quantitative test for goodwill during the subsequent quarters of 2020. Management estimates the fair value of its radio reporting units using a discounted cash flow model. Managements cash flow projections for its radio
reporting units includes significant judgments and assumptions relating to projected operating profit margin (including revenue and expense growth rates) and the discount rate.
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We considered auditing the impairment of goodwill for the Companys Boston and Philadelphia radio
reporting units to be a critical audit matter because it involved a high degree of subjectivity in evaluating managements estimates and judgments, significant audit effort in performing procedures and evaluating evidence related to
managements cash flow projections, including significant assumptions related to projected operating profit margin (including revenue and expense growth rates) and the discount rate.
Our audit procedures related to impairment of goodwill for Boston and Philadelphia radio reporting units included the following:
a.
Evaluated managements judgements in their assessment of identifying changes in market conditions, events
or other changes in circumstances that indicate an impairment of goodwill may be present;
b.
Evaluated managements model for determining the fair value of its radio reporting units;
c.
Tested the completeness, accuracy, and relevance of underlying data used in the discounted cash flow model;
d.
Evaluated the significant assumptions used by management, including projected operating profit margin
(including revenue and expense growth rates) and the discount rate. This involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance in the market being evaluated,
(ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit;
e.
Utilized valuation specialists to assist in evaluating the appropriateness of the discount rate.
/s/ Crowe LLP
We have served as the Companys auditor since 2006.
Fort Lauderdale, Florida
February 19, 2021
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BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2019
2020
ASSETS
Current assets:
Cash and cash equivalents
$
18,648,171
$
20,759,432
Accounts receivable, less allowance for doubtful accounts of $2,145,599 in 2019 and $5,033,035 in
2020
54,577,452
47,395,423
Prepaid expenses
3,516,766
2,486,860
Other current assets
2,915,654
6,883,554
Total current assets
79,658,043
77,525,269
Property and equipment, net
53,813,602
53,667,550
Operating lease
right-of-use assets
39,768,910
34,419,663
Finance lease
right-of-use assets
346,667
333,333
FCC licenses
517,529,167
508,558,355
Goodwill
28,596,547
28,596,547
Other intangibles, net
29,333,230
25,859,192
Other assets
11,014,063
9,654,447
Total assets
$
760,060,229
$
738,614,356
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term debt
$
7,500,000
$
Accounts payable
10,323,408
12,395,407
Operating lease liabilities
7,234,492
7,006,194
Finance lease liabilities
70,192
70,171
Other current liabilities
28,064,367
20,988,441
Total current liabilities
53,192,459
40,460,213
Due to related parties
565,617
5,621,364
Long-term debt, net of current installments and unamortized debt issuance costs
248,712,452
258,345,380
Operating lease liabilities
34,837,804
29,632,908
Finance lease liabilities
75,020
1,945
Deferred tax liabilities
121,130,996
120,913,983
Other long-term liabilities
17,073,923
16,536,743
Total liabilities
475,588,271
471,512,536
Commitments and contingencies
Stockholders equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 15,805,432 issued and
11,312,251 outstanding in 2019; 15,930,765 issued and 12,677,074 outstanding in 2020
15,804
15,930
Class B common stock, $0.001 par value; 75,000,000 shares authorized; 16,662,743 issued and
outstanding in 2019 and 2020
16,662
16,662
Additional paid-in capital
153,254,599
154,004,965
Treasury stock, Class A common stock; 4,493,181 shares in 2019; 3,253,691 shares in
2020
(30,662,332
)
(28,187,857
)
Retained earnings
162,350,145
143,304,213
Accumulated other comprehensive income
(436,338
)
(1,426,619
)
Total stockholders equity
284,538,540
267,727,294
Noncontrolling interests
(66,582
)
(625,474
)
Total equity
284,471,958
267,101,820
Total liabilities and equity
$
760,060,229
$
738,614,356
See accompanying notes to consolidated financial statements
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BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended
Year Ended
December 31,
December 31,
2019
2020
Net revenue
$
261,554,114
$
206,143,861
Operating expenses:
Operating expenses (including stock-based compensation of $359,657 in 2019 and $333,012 in 2020
and excluding depreciation and amortization shown separately below)
201,107,084
182,181,555
Corporate expenses (including stock-based compensation of $1,759,061 in 2019 and $417,658 in
2020)
21,209,432
15,628,370
Transaction expenses
768,945
Depreciation and amortization
7,349,682
11,096,937
Impairment losses
13,657,941
8,970,812
Gain on dispositions
(20,657,360
)
(4,439,710
)
Other operating (income) expenses, net
(3,000,000
)
Total operating expenses
223,435,724
210,437,964
Operating income (loss)
38,118,390
(4,294,103
)
Non-operating income (expense):
Interest expense
(18,032,669
)
(16,894,407
)
Loss on modification of long-term debt
(2,798,789
)
Other income (expense), net
(246,155
)
88,030
Income (loss) before income taxes
19,839,566
(23,899,269
)
Income tax expense (benefit)
6,597,751
(5,185,992
)
Income (loss) before equity in earnings of unconsolidated affiliates
13,241,815
(18,713,277
)
Equity in earnings of unconsolidated affiliates, net of tax
141,827
(160,879
)
Net income (loss)
13,383,642
(18,874,156
)
Earnings attributable to noncontrolling interest
66,582
1,108,234
Net income (loss) attributable to BBGI stockholders
13,450,224
(17,765,922
)
Other comprehensive loss:
Unrecognized actuarial losses on postretirement plans (net of income tax benefit of $188,505 in
2019 and $355,662 in 2020)
(524,223
)
(990,281
)
Comprehensive income (loss)
$
12,926,001
$
(18,756,203
)
Net income (loss) attributable to BBGI stockholders per Class A and B common share:
Basic
$
0.49
$
(0.63
)
Diluted
$
0.48
$
(0.63
)
Dividends declared per common share
$
0.20
$
0.05
Weighted average shares outstanding:
Basic
27,730,392
28,386,456
Diluted
27,777,850
28,386,456
See accompanying notes to consolidated financial statements
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BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock
Accumulated
Additional
Other
Class A
Class B
Paid-In
Treasury Stock
Retained
Comprehensive
Noncontrolling
Total
Shares
Amount
Shares
Amount
Capital
Shares
Amount
Earnings
Income (Loss)
Interest
Equity
Balances as of January 1, 2019
15,334,336
$
15,334
16,662,743
$
16,662
$
149,963,252
(4,426,027
)
$
(30,447,597
)
$
155,398,555
$
87,885
$
$
275,034,091
Change in accounting principle
(935,916
)
(935,916
)
Issuance of common stock
285,296
285
1,172,340
1,172,625
Stock-based compensation
185,800
185
2,118,533
2,118,718
Adjustment from related party acquisition
474
474
Purchase of treasury stock
(67,154
)
(214,735
)
(214,735
)
Net income
13,450,224
(66,582
)
13,383,642
Cash dividends, $0.20 per common share
(5,562,718
)
(5,562,718
)
Other comprehensive loss
(524,223
)
(524,223
)
Balances as of December 31, 2019
15,805,432
15,804
16,662,743
16,662
153,254,599
(4,493,181
)
(30,662,332
)
162,350,145
(436,338
)
(66,582
)
284,471,958
Issuance of common stock
1,276,596
2,540,426
2,540,426
Stock-based compensation
125,333
126
750,544
750,670
Adjustment from related party acquisition
(178
)
(178
)
Purchase of treasury stock
(37,106
)
(65,951
)
(65,951
)
Net loss
(17,765,921
)
(1,108,235
)
(18,874,156
)
Cash dividends, $0.05 per common share
(1,398,321
)
(1,398,321
)
Other comprehensive loss
(990,281
)
(990,281
)
Noncontrolling interest created in consolidation
118,310
549,343
667,653
Balances as of December 31, 2020
15,930,765
$
15,930
16,662,743
$
16,662
$
154,004,965
(3,253,691
)
$
(28,187,857
)
$
143,304,213
$
(1,426,619
)
$
(625,474
)
$
267,101,820
See accompanying notes to consolidated financial statements
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BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
Year Ended
December 31,
December 31,
2019
2020
Cash flows from operating activities:
Net income (loss)
$
13,383,642
$
(18,874,156
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation
2,118,718
750,670
Provision for bad debts
692,460
5,206,423
Depreciation and amortization
7,349,682
11,096,937
Impairment losses
13,657,941
8,970,812
Gain on dispositions
(20,657,360
)
(4,439,710
)
Other operating gain
(4,000,000
)
Non-cash interest expense
290,426
Amortization of loan fees
1,935,932
1,915,302
Loss on modification of long-term debt
2,798,789
Deferred income taxes
(1,753,952
)
(129,005
)
Equity in earnings of unconsolidated affiliates
(141,827
)
160,879
Change in operating assets and liabilities:
Accounts receivable
(2,852,760
)
1,975,606
Prepaid expenses
(382,010
)
1,029,906
Other assets
(239,601
)
(1,974,787
)
Accounts payable
712,257
2,071,999
Other liabilities
6,813,784
(3,034,217
)
Other operating activities
354,318
398,442
Net cash provided by operating activities
20,991,224
4,214,316
Cash flows from investing activities:
Payments for acquisitions
(17,264,484
)
Capital expenditures
(9,030,025
)
(7,477,182
)
Proceeds from dispositions
26,349,462
4,631,566
Payments for investments
(5,009,999
)
(1,000,000
)
Net cash used in investing activities
(4,955,046
)
(3,845,616
)
Cash flows from financing activities:
Issuance of debt
11,000,000
14,000,000
Payments on debt
(16,000,000
)
(6,750,000
)
Payments of debt issuance costs
(2,581,163
)
Reduction of finance lease liabilities
(67,492
)
(64,821
)
Dividends paid
(5,539,608
)
(2,795,504
)
Purchase of treasury stock
(214,735
)
(65,951
)
Net cash provided by (used in) financing activities
(10,821,835
)
1,742,561
Net increase in cash and cash equivalents
5,214,343
2,111,261
Cash and cash equivalents at beginning of period
13,433,828
18,648,171
Cash and cash equivalents at end of period
$
18,648,171
$
20,759,432
Cash paid for interest
$
16,377,994
$
14,439,991
Cash paid for income taxes
$
4,253,747
$
965,029
Supplement disclosure of non-cash investing and financing
activities:
Class A common stock issued from treasury for debt repayment
$
$
2,250,000
Dividends declared but unpaid
$
1,396,621
$
Class A common stock issued for acquisition
$
198,500
$
Class A common stock issued for investment
$
974,125
$
Media advertising exchanged for investment
$
1,000,000
$
Note issued to seller for acquisition
$
16,500,000
$
Liability assumed from seller for acquisition
$
10,000,000
$
See accompanying notes to consolidated financial statements
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BEASLEY BROADCAST GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Nature of Business
Beasley Broadcast Group, Inc. (the Company or BBGI) is a multi-platform media company operating one reportable business
segment whose primary business is operating radio stations throughout the United States. The Company offers local and national advertisers integrated marketing solutions across audio, digital and event platforms. The Company owns and operates radio
stations in the following radio markets: Atlanta, GA, Augusta, GA, Boston, MA, Charlotte, NC, Detroit, MI, Fayetteville, NC, Fort Myers-Naples, FL, Las Vegas, NV, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Philadelphia, PA, Tampa-Saint Petersburg,
FL, West Palm Beach-Boca Raton, FL, and Wilmington, DE. The Company also now operates an esports segment, however, it does not exceed the thresholds for separate disclosure.
COVID-19
In March 2020, coronavirus disease 2019 (COVID-19) was recognized as a pandemic by the
World Health Organization. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant
volatility in U.S. and international debt and equity markets. The Company has been impacted by deteriorating general economic conditions, which have caused a downturn in the advertising industry. The decreased demand for advertising has negatively
impacted its net revenue, and many advertisers have reduced or ceased advertising spend due to the COVID-19 pandemic and its related economic impact. Specifically, the Company observed a rapid increase in
cancellations and a reduction of new sales beginning midway through the month of March 2020. The cancellations were broad-based but more severe in industries that were severely impacted by the COVID-19
pandemic. Advertising sales began to recover near the end of the second quarter of 2020 and continued to recover during the remainder of 2020. The Company is actively monitoring the COVID-19 pandemic. While
this disruption is currently expected to be temporary, there is considerable uncertainty around the duration. Thus, it is impossible to predict the total impact that it will have on the Company. If public and private entities continue to implement
restrictive measures, the material adverse effect on the Companys results of operations, financial condition and cash flows could persist.
Beginning in March 2020, the Company implemented certain expense control initiatives, such as reductions in compensation for management and
other employees, reductions in planned capital expenditures, negotiated vendor pricing reductions, furloughs and headcount reductions for certain employees and suspensions of new employee hiring and travel and entertainment expenses. These
initiatives continued reducing the Companys expenses throughout the remainder of 2020 and the Company expects expense reductions to continue into 2021. The board of directors also suspended future quarterly dividend payments until it is
determined that resumption of dividend payments is in the best interest of the Companys stockholders.
The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact the Companys
significant accounting estimates related to, but not limited to, allowance for doubtful accounts, impairment of FCC licenses and goodwill, and determination of
right-of-use assets. As a result, many of the Companys estimates and assumptions require increased judgment and carry a higher degree of variability and
volatility. The Companys estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
(2)
Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States
of America and include the accounts of the Company and its wholly owned subsidiaries and its investments in OutlawsXP, Inc. (Outlaws) and Renegades Holdings, Inc. (Renegades). The Company holds an approximately 90% economic
interest in Outlaws and an approximately 51% economic interest in Renegades. Net assets and results of operations for Outlaws and Renegades as of and for the years ended December 31, 2019 and 2020 are not significant. All significant
inter-company transactions and balances have been eliminated.
Use of Estimates
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Such estimates include (i) the amount of
allowance for doubtful accounts; (ii) future cash flows used for testing recoverability of property and equipment; (iii) fair values used for testing FCC licenses and goodwill for impairment; (iv) estimates used to determine the
incremental borrowing rate to record lease liabilities and related right-of-use assets (v) the realization of deferred tax assets; and (vi) actuarial
assumptions related to the SERP. Actual results and outcomes may differ from managements estimates and assumptions.
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Table of Contents
Cash and Cash Equivalents
All short-term investments with an original maturity of three months or less are considered to be cash equivalents.
Accounts Receivable
Accounts receivable consist primarily of uncollected amounts due from advertisers for the sale of advertising airtime. The amounts are net of
advertising agency commissions and an allowance for doubtful accounts. The allowance for doubtful accounts reflects managements estimate of probable losses in accounts receivable. Management determines the allowance based on historical
information, relative improvements or deteriorations in the age of the accounts receivable and changes in current economic conditions. Interest is not accrued on accounts receivable.
Property and Equipment
Property and equipment is recorded at fair value in a business combination or otherwise at cost and depreciated using the straight-line method
over the estimated useful life of the asset. If an event or change in circumstances were to indicate that the carrying amount of property and equipment is not recoverable, the carrying amount will be reduced to the estimated fair value. Repairs and
maintenance are charged to expense as incurred.
FCC Licenses
FCC licenses, including translator licenses, are generally granted for renewable terms of eight years. Renewal costs are generally minor and
expensed as incurred. Licenses are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the Companys licenses might be impaired. The Company assesses qualitative factors to determine
whether it is more likely than not that its licenses are impaired. If the Company determines it is more likely than not that its licenses are impaired then the Company is required to perform the quantitative impairment test. The quantitative
impairment test compares the fair value of the Companys licenses with their carrying amounts. If the carrying amounts of the licenses exceed their fair value, an impairment loss is recognized in an amount equal to that excess. For the purpose
of testing its licenses for impairment, the Company combines its licenses into reporting units based on its radio market clusters. See Note 5 for changes in the carrying amount of FCC licenses for the years ended December 31, 2019 and 2020. The
weighted-average period before the next renewal of the Companys FCC licenses is 4.4 years.
Goodwill
Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the Companys
goodwill might be impaired. The Company assesses qualitative factors to determine whether it is necessary to perform a quantitative assessment for each reporting unit. If the quantitative assessment is necessary, the Company will determine the fair
value of each reporting unit. If the fair value of any reporting unit is less than the carrying amount, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value. The
loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. For the purpose of testing its goodwill for impairment, the Company has identified its radio market clusters and the Outlaws as its reporting units. See
Note 6 for changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2020.
Other Intangibles
Other intangibles include advertiser relationships, franchise rights and sponsorship base, which are amortized over their respective estimated
useful lives and brands and other intangibles with indefinite lives which are not amortized. If an event or change in circumstances were to indicate that the carrying amount of any other intangibles is not recoverable, the carrying amount will be
reduced to the estimated fair value.
Investments
Other assets include an investment in Quu, Inc. (Quu). The Company is considered to have the ability to exercise significant
influence over the operating and financial policies of Quu. Therefore, the investment in Quu is accounted for using the equity method. The Company will recognize its share of the earnings of Quu in the periods for which it is reported. Any loss in
value of the investment that is other than a temporary decline will be recognized. Other assets also include a noncontrolling interest in AUDIOis which does not have a readily determinable fair value and therefore is recorded at cost less
impairment. The Company evaluates the investments on a quarterly basis to identify impairment. When the evaluation indicates that an impairment exists, the Company will estimate the fair value of the investment and recognize an impairment loss equal
to the difference between the fair value and the carrying amount of the investment.
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Debt Issuance Costs
Debt issuance costs are capitalized and amortized over the life of the related debt as interest expense on a straight-line basis which
approximates the effective interest method. Unamortized debt issuance costs are reported as a direct deduction from the carrying amount of the related debt.
Leases.
The Company
determines whether a contract is or contains a lease at inception. The term for each lease agreement begins on the commencement date and includes the noncancelable period specified in the agreement together with (1) the periods covered by
options to extend the lease if the Company is reasonably certain to exercise that option, (2) periods covered by an option to terminate if the Company is reasonably certain not to exercise that option and (3) period covered by an option to
extend (or not terminate) if controlled by the lessor. The lease liabilities and the related right-of use assets are calculated based on the present value of the lease payments using (1) the rate implicit
in the lease or (2) the lessees incremental borrowing rate (IBR). IBR is defined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease
payments in a similar economic environment.
Supplemental Employee Retirement Plan
The costs and liabilities of the Supplemental Employee Retirement Plan (SERP) are determined using actuarial valuations. An
actuarial valuation involves making various assumptions that include the discount rate and mortality rates. The discount rate is based on matching the cash flows of the SERP to the FTSE Pension Discount Curve. The mortality assumptions are based on
the mortality tables and mortality improvement scales that are selected based on the most recent study of the Society of Actuaries. The SERP is frozen so future employment does not change the benefit amounts. Actual results will differ from results
which are estimated based on assumptions.
Treasury Stock
Treasury stock is accounted for using the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value
of the award. The cost is recognized in earnings over the period during which an employee is required to provide service. No compensation cost is recognized for equity instruments for which employees do not render the requisite services.
Income Taxes
The Company
recorded income taxes under the liability method. Deferred tax assets and liabilities are recognized for all temporary differences between tax and financial reporting bases of the Companys assets and liabilities using enacted tax rates
applicable to the periods in which the differences are expected to affect taxable income. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting equity that, under accounting principles
generally accepted in the United States of America, are excluded from net income (loss) including unrecognized net actuarial gains (losses) related to the SERP.
Earnings (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders of the Company by the weighted
average number of common shares outstanding for the period. Common shares outstanding include shares of both Class A and Class B common stock, which have equal rights and privileges except with respect to voting. Diluted net income (loss)
per share reflect the potential dilution that could occur if stock options, restricted stock or other contracts to issue common stock were exercised or converted into common stock and were not anti-dilutive. When reporting a net loss, the effect of
restrictive stock units and restricted stock is excluded under the treasury stock method as the addition of shares would be anti-dilutive.
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Concentrations of Risk
Certain cash deposits with financial institutions may at times exceed FDIC insurance limits.
The radio stations located in Boston, MA, Detroit, MI, Philadelphia, PA and Tampa-Saint Petersburg, FL collectively contributed 66.3% of the
Companys net revenue in 2020. The radio stations located in Boston, MA, Philadelphia, PA and Tampa-Saint Petersburg, FL collectively contributed 60.7% of the Companys net revenue in 2019.
Fair Value Measurements
Fair value is defined as 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. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs
are based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Companys own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs
used to measure fair value into three broad levels. The three levels of the fair value hierarchy are defined as follows:
Level 1
Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
Level 2 Inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, as of the reporting date.
Level 3 Unobservable inputs for the asset or liability that reflect managements own assumptions about the assumptions that
market participants would use in pricing the asset or liability as of the reporting date.
Sports Programming Costs
Sports programming rights for a specified season are amortized on a straight-line basis over the season. Other payments are expensed when the
additional contract elements, such as post-season games, are broadcast.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued guidance to increase transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. There continues to be a differentiation between finance
leases and operating leases, however lease assets and lease liabilities arising from operating leases should now be recognized in the statement of financial position. New disclosures are required to meet the objective of enabling users of financial
statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In 2018 and 2019, the FASB issued several updates to address certain practical expedients, codification improvements, and targeted improvements to the
original guidance. On January 1, 2019, the Company adopted the new guidance retrospectively, at the beginning of the period of adoption, through a cumulative-effect adjustment. On January 1, 2019, the Company recorded a lease liability of
$43.1 million and right-of-use assets of $38.8 million. The Company recorded a cumulative effect of initially applying the new standard of $0.9 million on
the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting guidance in effect for that period.
(3)
Acquisitions and Dispositions
On December 31, 2020, the Company completed the sale of certain land in Charlotte, NC to a third party for $4.65 million. As a result
of the sale, the Company recorded a gain of $4.4 million in the fourth quarter of 2020.
On December 23, 2019, the Company
completed the sale of certain land in Las Vegas, NV to a third party for $13.5 million. As a result of the sale, the Company recorded a gain of $7.9 million in the fourth quarter of 2019.
On December 2, 2019, the Company completed the sale of certain land in Boca Raton, FL to a third party for $7.1 million. As a result
of the sale, the Company recorded a gain of $6.5 million in the fourth quarter of 2019.
On November 13, 2019, the Company
created a new entity called OutlawsXP, Inc. (Outlaws) and holds 80% of the equity of Outlaws. The remaining equity was acquired by Renegades Holdings, Inc. in which the Company holds approximately 51% of the outstanding shares (see Note
8). On November 14, 2019, Outlaws acquired an esports team, the Houston Outlaws, from Immortals, LLC that competes in the Overwatch League and domestic and international tournaments. The acquisition was accounted for as a
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business acquisition and included franchise rights and other intangibles (see Note 7). The acquisition also included goodwill (see Note 6). The acquisition of the team was financed with cash from
operations and a promissory note to the seller (the Promissory Note). On June 30, 2020, the Company entered into an amendment to the Promissory Note that replaced all previous agreements related to consideration and represents the
final amount due to the seller (see Note 10). Outlaws also assumed a $10.0 million franchise fee payable that will be paid to the esports league over time. The franchise fee payable was legally reduced to $6.0 million by the esports league
in December 2020 and the resulting $4.0 million gain is reported in other operating (income) expenses, net in the accompanying consolidated statement of comprehensive income (loss). The Company incurred transaction costs of $0.4 million.
The acquisition broadened and diversified the Companys revenue base. The current portion of the franchise fee payable is reported in other current liabilities, and the noncurrent portion is reported in other long-term liabilities in the
accompanying consolidated balance sheets. The results of operations are reported in the accompanying consolidated statements of comprehensive income (loss).
The fair value of the franchise rights was estimated using an income approach. The income approach measures the expected economic benefits the
franchise rights will provide and discounts these future benefits using a discounted cash flow model. The discounted cash flow model incorporates variables such as revenue, revenue growth rates, operating expense projections, and a discount rate.
The discounted cash flow projection period of ten years was determined to be an appropriate time horizon for the analyses. If different assumptions or estimates had been used in the income approach, the fair value of the franchise rights could have
been materially different. If actual results are different from assumptions or estimates used in the discounted cash flow analyses, the Company may incur impairment losses in the future and they may be material. Goodwill was equal to the amount the
purchase price exceeded the values allocated to the identifiable intangible assets. The amount allocated to goodwill is deductible for tax purposes. The fair value of the Promissory Note and the assumed franchise fee payable approximate the carrying
value of each item as of the acquisition date.
On October 25, 2019, the Company completed the sale of a radio tower in Tampa, FL and
a radio tower in New Jersey to a third party for $2.4 million. As a result of the sales, the Company recorded a gain of $2.0 million in the fourth quarter of 2019.
On August 31, 2019, the Company completed the acquisition of substantially all of the assets used to operate WDMK-FM in Detroit from Urban One, Inc. for $13.5 million in cash. The purchase price was partially financed with $10.0 million in borrowings under the Companys revolving credit facility and
partially funded with $3.5 million of cash from operations. The acquisition broadened and diversified the Companys local radio broadcasting platform and revenue base in the Detroit radio market. The acquisition was accounted for as an
asset acquisition. The Company incurred transaction costs of $0.3 million which were capitalized as a component of the assets acquired.
The assets acquired are summarized as follows:
Property and equipment
$
432,588
FCC licenses
12,891,117
Other intangibles
176,295
$
13,500,000
On March 28, 2019, the Company completed the sale of certain land and improvements in Augusta, GA to a
third party for $0.5 million. As a result of the sale, the Company recorded a gain of $0.4 million in the first quarter of 2019.
On March 15, 2019, the Company agreed to cancel a broadband radio service license in Chattanooga, TN in exchange for a fee of
$3.3 million received from Clearwire Spectrum Holdings LLC (Clearwire). The Company had previously leased the channels under the broadband radio service license to Clearwire under an agreement that ended on March 15, 2019. As a
result of the license cancelation, the Company recorded a gain of $3.1 million in the first quarter of 2019.
(4)
Property and Equipment
Property and equipment is comprised of the following:
December 31,
Estimated
useful lives
(years)
2019
2020
Land
$
13,471,312
$
13,342,547
Buildings and improvements
22,114,228
30,416,904
15-30
Broadcast equipment
35,223,342
33,212,926
5-15
Transportation equipment
2,379,818
2,269,019
5
Office equipment
6,061,531
6,907,944
5-10
Construction in progress
8,725,339
2,610,137
87,975,570
88,759,477
Less accumulated depreciation and amortization
(34,161,968
)
(35,091,927
)
$
53,813,602
$
53,667,550
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The Company recorded depreciation expense of $6.9 million and $7.4 million for the
years ended December 31, 2019 and 2020, respectively.
(5)
FCC Licenses
Changes in the carrying amount of FCC licenses for the years ended December 31, 2019 and 2020 are as follows:
Balance as of January 1, 2019
$
516,735,554
Asset acquisition (see Note 3)
13,155,601
Impairment losses
(12,361,988
)
Balance as of December 31, 2019
517,529,167
Impairment losses
(8,970,812
)
Balance as of December 31, 2020
$
508,558,355
Licenses are tested for impairment on an annual basis, or more frequently if events or changes in
circumstances indicate that the Companys licenses might be impaired. The Company assesses qualitative factors to determine whether it is more likely than not that its licenses are impaired. If the Company determines it is more likely than not
that its licenses are impaired, then the Company is required to perform a quantitative impairment test. The quantitative impairment test compares the fair value of the Companys licenses with their carrying amounts. If the carrying amounts of
the licenses exceed their fair value, an impairment loss is recognized in an amount equal to that excess. For the purpose of testing its licenses for impairment, the Company combines its licenses into reporting units based on its radio market
clusters.
Due to the impact of the COVID-19 pandemic on the U.S. economy, the Company tested its
FCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test, the Company recorded impairment losses of $6.8 million related to the FCC licenses in its Atlanta, GA, Las Vegas, NV,
Middlesex-Monmouth-Morristown, NJ, West Palm Beach-Boca Raton, FL, and Wilmington, DE radio market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of the FCC licenses due to certain risks specifically associated with the Company and the
radio broadcasting industry. The fair values were estimated using an income approach. The income approach is based upon discounted cash flow analyses incorporating variables such as projected radio market revenues, projected growth rate for radio
market revenues, projected radio market revenue shares, projected radio station operating income margins, and a discount rate appropriate for the radio broadcasting industry. The key assumptions used in the discounted cash flow analyses are as
follows:
Revenue growth rates
(14.1)% - 7.9%
Market revenue shares at maturity
0.6% - 39.0%
Operating income margins at maturity
26.5% - 35.4%
Discount rate
9.5%
The Company did not identify any triggering events for impairment during the second quarter of 2020.
The Company elected to perform the quantitative impairment test for its FCC licenses in all markets during the third quarter of 2020. As a
result of the quantitative impairment test performed as of September 30, 2020, the Company recorded no impairment losses related to its FCC licenses in any of its reporting units. The fair values were estimated using the income approach. The
key assumptions used in the discounted cash flow analyses are as follows:
Revenue growth rates
0.5% - 18.8%
Market revenue shares at maturity
0.6% - 44.4%
Operating income margins at maturity
19.5% - 33.3%
Discount rate
9.0%
The Company did not identify any triggering events for impairment during the fourth quarter of 2020.
On December 31, 2020, the Company completed the sale of certain land in Charlotte, NC to a third party for $4.65 million. As a
result of the sale, the Company no longer utilizes one FCC license in that market. Therefore, the carrying amount of $2.2 million was recorded in impairment losses during the fourth quarter of 2020.
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The Company performed its annual impairment test for its FCC licenses in 2019 as of
November 30, 2019. As a result of the impairment test, the Company recorded impairment losses of $12.4 million related to the FCC licenses in its Atlanta, GA and West Palm Beach-Boca Raton, FL radio market clusters for the year ended
December 31, 2019. The impairment losses were primarily due to a reduced share of projected revenue in these markets. The Company believed the impairment losses were indicative of trends in the industry and are not unique to the Company or its
operations. The fair value of the FCC license in Atlanta, GA and in West Palm Beach-Boca Raton, FL radio market clusters was estimated using the income approach. The key assumptions used in the discounted cash flow analyses are as follows:
Revenue growth rates
0.5% - 1.4%
Market revenue shares at maturity
0.6% - 1.1%
Operating income margins at maturity
27.5% - 29.8%
Discount rate
9.0%
(6)
Goodwill
There were no changes in the carrying amount of goodwill for the year ended December 31, 2020. Changes in the carrying amount of goodwill
for the year ended December 31, 2019 are as follows:
Balance as of January 1, 2019
$
25,377,447
Business acquisition (see Note 3)
3,219,100
Balance as of December 31, 2019
$
28,596,547
(7)
Other Intangibles
Other intangibles as of December 31, 2020 are comprised of the following:
Asset
Accumulated
amortization
Net
asset
Amortization
period
(years)
Advertiser relationships
$
1,721,600
$
(568,282
)
$
1,153,318
6-11
Franchise rights
25,149,300
(2,557,921
)
22,591,379
10
Sponsorship base
1,164,600
(661,592
)
503,008
2
28,035,500
(3,787,795
)
24,247,705
Brands
1,582,663
1,582,663
Other intangibles with indefinite lives
28,824
28,824
$
29,646,987
$
(3,787,795
)
$
25,859,192
Other intangibles as of December 31, 2019 are comprised of the following:
Asset
Accumulated
amortization
Net
asset
Amortization
period
(years)
Advertiser relationships
$
2,819,879
$
(1,495,465
)
$
1,324,414
6-11
Assembled workforce
176,295
(58,765
)
117,530
1
Franchise rights
25,149,300
(42,993
)
25,106,307
10
Sponsorship base
1,164,600
(79,292
)
1,085,308
2
Sports program rights
267,400
(179,216
)
88,184
3
29,577,474
(1,855,731
)
27,721,743
Brands
1,582,663
1,582,663
Other intangibles with indefinite lives
28,824
28,824
$
31,188,961
$
(1,855,731)
$
29,333,230
The Company recorded amortization expense of $0.5 million and $3.5 million for the years ended
December 31, 2019 and 2020, respectively. Estimated future amortization expense related to intangible assets subject to amortization for the next five years and thereafter is as follows:
2021
$
3,161,985
2022
2,648,020
2023
2,648,020
2024
2,648,020
2025
2,648,020
Thereafter
10,493,640
Total
$
24,247,705
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(8)
Other Assets
On August 22, 2019, the Company contributed an additional $1.5 million in cash to Quu in exchange for an additional 10,000,000
shares. The Company also received a warrant to acquire 16,949,306 shares of Quu common stock that terminates on August 22, 2029. As a result of the additional investment, the Company holds approximately 35% of the outstanding shares of Quu. On
August 22, 2019, the Company adjusted the initial investment to fair value and recognized a loss of $0.1 million. The Companys share of earnings from Quu is reported in equity in earnings of unconsolidated affiliates, net of tax in
the accompanying consolidated statements of comprehensive income (loss) for the years ended December 31, 2019 and 2020. The carrying amount of the investment in Quu was $2.2 million and $2.1 million as of December 31, 2019 and
2020, respectively.
On March 1, 2019, the Company (i) issued 235,296 shares of Class A common stock with a fair value of
$1.0 million, (ii) agreed to provide $1.0 million of media advertising over a three year period, and (iii) contributed $2.5 million in cash for an aggregate investment of $4.5 million in Renegades, an esports
organization, in exchange for 3,750,000 shares. The Company acquired an additional 416,666 shares in the third quarter of 2019 for $0.5 million in cash. As of December 31, 2019, the Company held approximately 45% of the outstanding shares
of Renegades and the carrying amount of the investment in Renegades is $5.7 million. In January 2020, the Company acquired an additional 833,334 shares for an aggregate of $1.0 million in cash. As a result of the additional investment in
January 2020, the Company obtained control of Renegades and consolidated the accounts of Renegades in the accompanying financial statements as of and for the year ended December 31, 2020.
(9)
Other Current Liabilities
Other current liabilities are comprised of the following:
December 31,
2019
2020
Accrued payroll expenses
$
8,126,091
$
5,677,375
Deferred revenue
3,639,077
3,732,890
Income taxes payable
4,483,800
3,481,710
Trade sales payable
2,180,783
892,543
Franchise fee payable
2,500,000
Dividends payable
1,396,621
Other accrued expenses
5,737,995
7,203,923
$
28,064,367
$
20,988,441
(10)
Long-Term Debt
Long-term debt is comprised of the following:
December 31,
2019
December 31,
2020
Credit facility - term loan
$
239,000,000
$
238,000,000
Credit facility - revolving credit facility
11,000,000
20,000,000
Promissory note
13,500,000
5,500,000
263,500,000
263,500,000
Less unamortized debt issuance costs
(7,287,548
)
(5,154,620
)
256,212,452
258,345,380
Less current installments
(7,500,000
)
$
248,712,452
$
258,345,380
On February 2, 2021, the Company issued $300.0 million aggregate principal amount of 8.625% senior
secured notes due on February 1, 2026 (the Notes) under an indenture dated February 2, 2021 (the Indenture). Interest on the Notes accrues at the rate of 8.625% per annum and is payable semiannually in arrears on
February 1 and August 1 of each year, commencing on August 1, 2021. The Notes are secured on a first-lien priority basis by substantially all assets of the Company and its majority owned subsidiaries and are guaranteed jointly and
severally by the Company and its majority owned subsidiaries. The Company used the net proceeds from the Notes, to refinance the credit facility and the Amended Promissory Note and to repay the loan from Mr. George Beasley (see Note 18) and
related accrued interest, fees and expenses. The Indenture contains restrictive covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, guarantee indebtedness or issue disqualified
stock or, in the case of such subsidiaries, preferred stock; pay dividends on, repurchase or make distributions in respect of
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our capital stock or make other restricted payments; make certain investments or acquisitions; sell, transfer or otherwise convey certain assets; create liens; enter into agreements restricting
certain subsidiaries ability to pay dividends or make other intercompany transfers; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; prepay certain kinds of
indebtedness; and issue or sell stock of its subsidiaries. Current installments of long-term debt have been updated as of December 31, 2020 to reflect the subsequent refinancing of long-term debt.
As of December 31, 2019, the credit facility consisted of a term loan facility with a remaining balance of $239.0 million and a
revolving credit facility with an outstanding balance of $11.0 million and a maximum commitment of $20.0 million. The term loan facility and revolving credit facility carried interest, based on LIBOR, at 5.8% as of December 31, 2019.
On June 30, 2020, the Company entered into the Amendment with certain of its lenders. The Amendment amended and modified the credit
agreement to, among other things, (i) increase the interest rate applicable to the term loans and revolving credit facility by 25 basis points per annum, (ii) add fees of 300 basis points payable on December 31, 2021 and 150 basis
points payable on December 31, 2022, (provided the credit agreement was not refinanced prior to such time), (iii) impose additional reporting requirements, (iv) revise the Excess Cash Flow prepayment requirement such that when the Total
Leverage Ratio was greater than 4.5x, 75% of Excess Cash Flow must be prepaid, with such prepayment amounts stepping down to 50%, 25% and 0% upon achievement of certain Total Leverage Ratio milestones, and (v) reduce the flexibility to incur
certain additional indebtedness, liens and investments and make certain restricted payments, subject to the achievement of certain leverage-based milestones. In connection with the Amendment, the Company recorded a loss on modification of long-term
debt of $2.8 million during the second quarter of 2020.
Additionally, the Amendment modified the financial covenant to remove the
maximum First Lien Leverage Ratio previously tested quarterly through the fiscal quarter ended March 31, 2020. In its place, the Amendment added (i) a minimum liquidity covenant of $8.5 million (the Minimum Liquidity
Amount), which was to be tested every other week until the Total Leverage Ratio was less than 5.0x, (ii) a minimum EBITDA (as defined in the credit agreement, as amended by the Amendment) covenant, which was to be tested monthly through
June 30, 2021 and (iii) a maximum First Lien Leverage Ratio covenant, which was to be tested quarterly beginning with the fiscal quarter ending September 30, 2021. The Amendment also modified the definition of Consolidated EBITDA to
remove certain add-backs with respect to the calculation of Consolidated EBITDA and EBITDA for financial covenants and other similar calculations and reduced the amount of cash that could be netted for the
calculation of the First Lien Leverage Ratio for purposes of testing the First Lien Leverage Ratio financial covenant, when applicable.
As of December 31, 2020, the credit facility consisted of a term loan facility with a remaining balance of $238.0 million and a
revolving credit facility with an outstanding balance of $20.0 million and a maximum commitment of $20.0 million. As of December 31, 2020, the Company had no available commitments under its revolving credit facility. Following the
entry into the Amendment as described above, at the Companys option, the credit facility bore interest at either (i) the London Interbank Offered Rate (LIBOR) plus a margin of 4.25% or (ii) the base rate (as defined in
the credit agreement) plus a margin of 3.25%. The LIBOR interest rate for the term loan was subject to a 1% floor and the base rate was subject to a 2% floor for the term loan facility and a 0% floor for the revolving credit facility. Interest
payments were, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period was longer than three months, in which case they were due at the end of each three-month period. Interest payments for loans based
on the base rate were due quarterly. The revolving credit facility carried interest, based on LIBOR, at 4.4% as of December 31, 2020. The term loan carried interest, based on LIBOR, at 5.25% as of December 31, 2020. The credit facility was
secured by substantially all assets of the Company and its subsidiaries and was guaranteed jointly and severally by the Company and its subsidiaries. As of December 31, 2020, the maximum amount of undiscounted payments the Company and its
applicable subsidiaries would have been required to make in the event of default was $258.0 million. As noted above, the credit facility was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering.
Also, as a condition to entering into the Amendment, George Beasley, the Companys Chairman, provided a $5.0 million loan to the
Company that accrued payment-in-kind interest at 6% per annum with no cash payments due until the loans maturity in December 2023. Mr. Beasley and GGB Family
Limited Partnership also each entered into standby letters of credit in combined aggregate face amount of $5.0 million in favor of U.S. Bank, National Association for the benefit of the Company as a source of backup liquidity in the event that
the Company failed to maintain the Minimum Liquidity Amount. As noted above, the loan was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering.
On November 14, 2019, the Company acquired a majority interest in an esports team and issued the Promissory Note for $16.5 million
to the seller. The Promissory Note had a remaining balance of $13.5 million as of December 31, 2019. On June 30, 2020, the Company entered into an amendment to the Promissory Note (as amended, the Amended Promissory Note)
applicable to the remaining balance of $10.0 million. The Amended Promissory Note bore cash-pay interest at 5% per annum payable quarterly in arrears and additional payment-in-kind interest at 10% per annum. On July 8, 2020, the Company issued an initial stock payment of 1,276,596 shares of Class A common stock at a fixed price of $2.35 per share that reduced
the principal amount of the Amended Promissory Note by $2.25 million. The shares were issued at $1.99 per share and the $0.3 million difference between the fair value of the shares and the principal reduction was recorded as additional
interest expense. For subsequent stock issuances, which were scheduled to begin on June 30, 2021, the principal reduction amount would have been the lesser of (i) the value of the stock issued based on
20-day moving average on the day prior to issuance or (ii) the principal reduction amount, which was 50% of the value of the stock based on a fixed price of $2.35 per share. As noted above,
the Amended Promissory Note was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering.
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(11)
Leases
The Company leases office space, radio towers and office equipment. Discount rates are based on the Companys incremental borrowing rate
due to the rate implicit in the leases being not readily determinable. The Company used the current borrowing rate on its credit facility, adjusted for the effects of collateralization, to determine the various rates it would pay to finance similar
transactions over similar time periods.
The following table summarizes lease information:
Year ended December 31,
2019
2020
Lease cost
Operating lease cost
$
10,190,243
$
10,441,532
Finance lease cost:
Amortization of
right-of-use asset
22,088
13,333
Interest on lease liability
11,285
5,371
Short-term lease cost
28,800
28,800
Total lease cost
$
10,252,416
$
10,489,036
Other information
Operating cash flows from operating leases
$
9,901,889
$
10,775,742
Operating cash flows from finance lease
11,285
5,371
Financing cash flows from finance lease
67,492
64,821
Right-of-use
assets obtained in exchange for new operating lease liabilities
5,523,800
1,823,807
Right-of-use
assets obtained in exchange for new finance lease liabilities
December 31,
2020
Weighted-average remaining lease term operating leases
6.0 years
Weighted-average remaining lease term finance lease
25.0 years
Weighted-average discount rate operating leases
8.2
%
Weighted-average discount rate finance lease
3.9
%
As of December 31, 2020, future minimum payments for operating and finance leases for the next five years
and thereafter are summarized as follows:
2021
$
10,703,432
2022
9,545,225
2023
8,141,094
2024
6,865,454
2025
5,775,905
Thereafter
14,164,891
Total lease payments
55,196,001
Less imputed interest
(18,484,783
)
Present value of lease liabilities
$
36,711,218
(12)
Employee Benefit Plans
Defined Contribution Plan
The Company has a defined contribution plan that conforms to Section 401(k) of the Internal Revenue Code. Under this plan, employees may
contribute a minimum of 1% of their compensation (no maximum) to the Plan. However, the Internal Revenue Code limited contributions to $19,000 and $19,500 (or $25,000 and $26,000 if aged 50 years or older) in 2019 and 2020, respectively. No employer
matching contributions were made to the defined contribution plan in 2019 and 2020.
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Table of Contents
Supplemental Employee Retirement Plan
The benefit obligations related to the frozen SERP of $9.7 million and $10.8 million are reported in other long-term liabilities in
the consolidated balance sheets as of December 31, 2019 and 2020, respectively. The Company contributed $0.4 million and $0.5 million to the SERP in 2019 and 2020, respectively.
The SERP is summarized as follows:
Year ended December 31,
2019
2020
Change in Projected Benefit Obligation
Benefit obligation at beginning of year
$
9,038,825
$
9,723,866
Interest cost
340,302
279,778
Actuarial loss
712,728
1,345,943
Benefits paid
(367,989
)
(544,261
)
Benefit obligation at end of year
$
9,723,866
$
10,805,326
Change in Plan Assets
Fair value of plan assets at beginning of year
$
$
Employer contribution
367,989
544,261
Benefits paid
(367,989
)
(544,261
)
Fair value of plan assets at end of year
$
$
Funded status
$
(9,723,866
)
$
(10,805,326
)
Unrecognized net actuarial loss
593,326
1,939,269
Cumulative employer contributions in excess of the net periodic pension cost
$
(9,130,540
)
$
(8,866,057
)
Amounts Recognized in the Statement of Financial Position
Current liabilities
$
(493,735
)
$
(542,110
)
Noncurrent liabilities
(9,230,131
)
(10,263,216
)
Net amount recognized
$
(9,723,866
)
$
(10,805,326
)
Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss
$
593,326
$
1,939,269
Total (before tax effects)
$
593,326
$
1,939,269
Information for Pension Plans about Benefit Obligation and Plan Assets
Projected benefit obligation
$
9,723,866
$
10,805,326
Accumulated benefit obligation
$
9,723,866
$
10,805,326
Weighted-average assumptions for Disclosure
Discount rate
2.95
%
2.10
%
Mortality table
Pri-2012
Pri-2012 WC
Mortality improvement scale
MP-2019
MP-2020
Net periodic benefit cost
Interest cost
$
340,302
$
279,778
Net periodic benefit cost
$
340,302
$
279,778
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive
Income
Net actuarial loss
$
712,728
$
1,345,943
Total recognized in other comprehensive income (before tax effects)
$
712,728
$
1,345,943
Total recognized in net cost and other comprehensive income (before tax effects)
$
1,053,030
$
1,625,721
Amounts Expected to be Recognized in Net Periodic Cost in the Coming Year
(Gain) loss recognition
$
$
143,362
Prior service cost recognition
$
$
Net initial obligation (asset) recognition
$
$
Weighted-average assumptions used to determine Net Periodic Benefit Cost
Discount rate
4.00
%
2.95
%
Corridor
10.00
%
10.00
%
Average future working lifetime
6.46
6.48
Mortality table
RP-2014
Pri-2012
Mortality improvement scale
MP-2018
MP-2019
Estimated Future Benefit Payments
2021
$
542,110
2022
$
545,375
2023
$
552,156
2024
$
576,377
2025
$
603,510
2026-2030
$
2,963,215
Contributions
Estimated contributions for 2021
$
542,110
49
Table of Contents
(13)
Stockholders Equity
The Company has two classes of common stock: Class A common stock and Class B common stock. In the election of directors, the holders
of Class A common stock are entitled by class vote, exclusive of other stockholders, to elect two of the Companys directors, with each Class A share being entitled to one vote. In the election of the other seven directors and all
other matters submitted to the stockholders for a vote, the holders of Class A shares and Class B shares shall vote as a single class, with each Class A share being entitled to one vote and each Class B share entitled to ten
votes.
From time to time, the Company repurchases sufficient shares of its common stock to fund withholding taxes in connection with the
vesting of restricted stock units and shares of restricted stock. The Company paid $0.1 million to repurchase 37,106 shares in 2020.
The Company paid cash dividends of $5.5 million in 2019 and $2.8 million in 2020. However, in response to the COVID-19 pandemic, the board of directors suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Companys stockholders. In
addition, the Indenture governing the Notes limits the ability of the Company to pay dividends.
(14)
Revenue
Revenue is comprised of the following:
Year ended December 31,
2019
2020
Commercial advertising
$
224,314,435
$
171,830,152
Digital advertising
19,815,489
21,605,742
Other revenue
17,424,190
12,707,967
$
261,554,114
$
206,143,861
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Table of Contents
The Company recognizes revenue when it satisfies a performance obligation under a contract
with an advertiser. The transaction price is allocated to performance obligations based on executed contracts which represent relative standalone selling prices. Payment is generally due within 30 days although certain advertisers are required to
pay in advance. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. The Company has elected to use the practical expedient to expense sales commissions as incurred. Payments received from advertisers
before the performance obligation is satisfied are recorded as deferred revenue in the balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.
December 31,
2019
December 31,
2020
Deferred revenue
$
3,639,077
$
3,732,890
Year ended December 31,
2019
2020
Losses on receivables
$
557,582
$
2,318,987
Commercial advertising includes revenue from the sale or trade of aired commercial spots to advertisers
directly or through national, regional or local advertising agencies. Each commercial spot is considered a performance obligation. Revenue is recognized when the commercial spots have aired. Trade sales are recorded at the estimated fair value of
the goods or services received. If commercial spots are aired before the goods or services are received then a trade sales receivable is recorded. If goods or services are received before the commercial spots are aired then a trade sales payable is
recorded.
December 31,
December 31,
2019
2020
Trade sales receivable
$
1,691,295
$
956,999
Trade sales payable
2,180,783
892,543
Year ended December 31,
2019
2020
Trade sales revenue
$
8,710,014
$
4,980,829
Digital advertising includes revenue from the sale of streamed commercial spots, station-owned assets and
third-party products. Each streamed commercial spot, station-owned asset and third-party product is considered a performance obligation. Revenue is recognized when the commercial spots have streamed. Station-owned assets are generally scheduled over
a period of time and revenue is recognized over time as the digital items are used for advertising content except for streamed commercial spots. Third-party products are generally scheduled over a period of time with an impression target each month.
Revenue from the sale of third-party products is recognized over time as the digital items are used for advertising content and impression targets are met each month.
Other revenue includes revenue from esports, concerts, promotional events, talent fees and other miscellaneous items. Revenue is generally
recognized when the event is completed, as the promotional events are completed, or as the talent services are completed.
(15)
Stock-Based Compensation
The Beasley Broadcast Group, Inc. 2007 Equity Incentive Award Plan (the 2007 Plan) permits the Company to issue up to
7.5 million shares of Class A common stock. The 2007 Plan allows for eligible employees, directors and certain consultants of the Company to receive restricted stock units, shares of restricted stock, stock options or other stock-based
awards. The restricted stock units and restricted stock awards that have been granted under the 2007 Plan generally vest over one to five years of service.
A summary of restricted stock unit activity is presented below:
Units
Weighted-Average
Grant-Date Fair
Value
Unvested as of January 1, 2019
429,833
$
9.77
Granted
343,518
3.49
Vested
(201,300
)
9.03
Forfeited
(95,384
)
4.50
Unvested as of December 31, 2019
476,667
4.94
Granted
206,750
2.99
Vested
(130,333
)
5.48
Forfeited
(99,583
)
3.22
Unvested as of December 31, 2020
453,501
$
4.11
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A summary of restricted stock activity is presented below:
Shares
Weighted-Average
Grant-Date Fair
Value
Unvested as of January 1, 2019
101,500
$
6.42
Vested
(54,000
)
5.11
Forfeited
(15,500
)
4.07
Unvested as of December 31, 2019
32,000
5.01
Vested
(14,500
)
5.14
Forfeited
(5,000
)
4.65
Unvested as of December 31, 2020
12,500
$
4.84
As of December 31, 2020, there was $1.2 million of total unrecognized compensation cost for
restricted stock units and shares of restricted stock granted under the 2007 Plan. That cost is expected to be recognized over a weighted-average period of 2.8 years.
(16)
Income Taxes
Income tax expense (benefit) is as follows:
Year ended December 31,
2019
2020
Current:
Federal
$
6,258,953
$
(5,056,987
)
State
2,092,750
8,351,703
(5,056,987
)
Deferred:
Federal
(1,607,189
)
982,431
State
(146,763
)
(1,111,436
)
(1,753,952
)
(129,005
)
$
6,597,751
$
(5,185,992
)
Income tax expense (benefit) differs from the amounts that would result from applying the federal statutory
rate of 21% to the Companys income (loss) before taxes as follows:
Year ended December 31,
2019
2020
Expected tax expense (benefit)
$
4,166,309
$
(5,018,846
)
State income taxes, net of federal benefit
4,263,192
(878,034
)
Tax rate adjustments
290,381
(109,421
)
Change in valuation allowance
(3,450,458
)
(3,074
)
Non-deductible items
1,055,121
535,080
Other
273,206
288,303
$
6,597,751
$
(5,185,992
)
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Temporary differences that give rise to the components of deferred tax assets and
liabilities are as follows:
December 31,
2019
2020
Deferred tax assets:
Allowance for doubtful accounts
$
567,702
$
1,330,493
Other assets
(979,560
)
(474,351
)
Accrued expenses
786,001
765,531
Other long-term liabilities
2,663,792
2,928,717
Stock-based compensation
149,087
138,809
Net operating losses
94,878
1,398,872
Subtotal
3,281,900
6,088,071
Valuation allowance
(311,214
)
(308,140
)
Total
2,970,686
5,779,931
Deferred tax liabilities:
Prepaid expenses
(91,665
)
(85,946
)
Property and equipment
(1,827,323
)
(4,051,119
)
Intangibles
(122,182,694
)
(122,556,849
)
Total
(124,101,682
)
(126,693,914
)
Net deferred tax liabilities
$
(121,130,996
)
$
(120,913,983
)
As of December 31, 2020, the Company has state net operating losses of $25.2 million, which expire
in various years through 2040. The CARES Act, among other things, permits federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes.
The Company intends to carry back federal net operating losses of $24.1 million from 2020 under the CARES Act to recover $5.1 million of federal taxes paid in 2018 and 2019. As of December 31, 2020, the Company has a current federal
tax liability of $3.1 million and current state liabilities of $0.3 million due from 2019 (see Note 9).
As of December 31,
2019 and 2020, the Company does not have any material unrecognized tax benefits and accordingly has not recorded any interest or penalties related to unrecognized tax benefits. The Company and its subsidiaries file a consolidated federal income tax
return and various state returns. These returns remain subject to examination by taxing authorities for all years after 2016. In the fourth quarter of 2019, the Internal Revenue Service completed an examination of the Companys 2015, 2016 and
2017 federal income tax returns that resulted in no changes to the returns.
(17)
Earnings Per Share
Net income (loss) per share calculation information is as follows:
Year ended December 31,
2019
2020
Net income (loss) attributable to BBGI stockholders
$
13,450,224
$
(17,765,922
)
Weighted-average shares outstanding:
Basic weighted shares outstanding
27,730,392
28,386,456
Effect of dilutive restricted stock units and restricted stock
47,458
Diluted
27,777,850
28,386,456
Net income (loss) per Class A and Class B common share basic
$
0.49
$
(0.63
)
Net income (loss) per Class A and Class B common share diluted
$
0.48
$
(0.63
)
The Company excluded the effect of restrictive stock units and restricted stock under the treasury stock
method as the addition of shares were anti-dilutive when reporting a net loss. The number of shares excluded were 29,406 for year ended December 31, 2020.
(18)
Related Party Transactions
Beasley Broadcasting Management, LLC
The Company leases its principal executive offices in Naples, FL from Beasley Broadcasting Management, LLC, which is held by a trust for the
benefit of Caroline Beasley, Bruce G. Beasley, Brian E. Beasley and other family members of George G. Beasley. Rental expense was $0.2 million for each of the years ended December 31, 2019 and 2020.
Beasley Family Towers, LLC
The Company leases towers for two radio stations in Tampa, FL from Beasley Family Towers, LLC (BFT), which is partially held by a
trust for the benefit of Caroline Beasley, Bruce G. Beasley, Brian E. Beasley and other family members of George G. Beasley and partially owned directly by Caroline Beasley, Bruce G. Beasley, Brian E. Beasley and other family members. The lease
agreements expire on various dates through December 31, 2038. Rental expense was $0.2 million and $0.1 million for the years ended December 31, 2019 and 2020, respectively.
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Table of Contents
The Company leases several towers for one radio station in Boca Raton, FL from BFT. The
lease agreement expires on April 30, 2021. Rental expense was $0.1 million for each of the years ended December 31, 2019 and 2020. Lease payments are currently offset by the partial recognition of a deferred gain on sale from the sale
of these towers to BFT in 2006, therefore no rental expense was reported for these towers for the years ended December 31, 2019 and 2020.
The Company leases towers for 19 radio stations in various markets from BFT. As of December 28, 2020, all lease agreements had expired.
Rental expense was $0.4 million for each of the years ended December 31, 2019 and 2020.
GGB Augusta, LLC
The Company leases land for its radio stations in Augusta, GA from GGB Augusta, LLC which is held by a trust for the benefit of Caroline
Beasley, Bruce G. Beasley, Brian E. Beasley and other family members of George G. Beasley. The lease agreement expires on November 1, 2023. Rental expense was approximately $44,000 and $41,000 for the years ended December 31, 2019 and
2020, respectively.
GGB Estero, LLC
The Company leases property for its radio stations in Fort Myers, FL from GGB Estero, LLC which is held by a trust for the benefit of Caroline
Beasley, Bruce G. Beasley, Brian E. Beasley and other family members of George G. Beasley. The lease agreement expires on August 31, 2024. Rental expense was $0.2 million for each of the years ended December 31, 2019 and 2020.
GGB Las Vegas, LLC
The
Company leases property for its radio stations in Las Vegas, NV from GGB Las Vegas, LLC which is controlled by George G. Beasley. The lease agreement expires on December 31, 2023. Rental expense was $0.2 million for each of the years ended
December 31, 2019 and 2020.
LN2 DB, LLC
On March 25, 2011, the Company contributed $250,000 to Digital PowerRadio, LLC (now LN2 DB, LLC) in exchange for 25,000 units or
approximately 20% of the outstanding units. The Company contributed an additional $62,500 on February 14, 2012, $104,167 on July 31, 2012, $104,167 on April 10, 2013, $104,167 on April 4, 2014, $166,667 on April 3, 2015, and
$166,667 on May 3, 2016. On February 22, 2017, the Company contributed $150,000 to LN2 DB, LLC in exchange for a note bearing interest at 18% per annum. On June 18, 2018, the note receivable and accrued interest due from LN2 DB, LLC
totaling $187,618 was converted to additional equity in LN2 DB, LLC and the Company contributed an additional $150,000. The Company may be called upon to make additional pro rata cash contributions to LN2 DB, LLC in the future. LN2 DB, LLC is
managed by Fowler Radio Group, LLC which is partially owned by Mark S. Fowler, an independent director of the Company. In June 2018, George G. Beasley, Caroline Beasley, Bruce Beasley, Brian Beasley and other family members also invested in LN2 DB,
LLC under a recapitalization plan. In January 2020, LN2 DB, LLC completed a study of its patents, which concluded that none of them had any significant remaining market value. Therefore, LN2 DB, LLC may decide to dissolve itself in the near future.
The Company recorded an impairment loss of $1.3 million for the year ended December 31, 2019.
Wintersrun Communications, LLC
The Company sold the tower for one radio station in Charlotte, NC to Wintersrun Communications, LLC, which is partially held by a
trust for the benefit of Caroline Beasley, Bruce G. Beasley, Brian E. Beasley and other family members of George G. Beasley and partially owned directly by Bruce G. Beasley and Brian E. Beasley, for $0.4 million then leased back the tower under
an agreement which expires on December 31, 2025. The lease met the criteria to be recorded as a finance lease, however, based on the terms of the lease agreement the $0.3 million gain on sale was deferred and will be recognized as the
finance lease right-of-use asset is depreciated. Rental expense was $0.1 million for each of the years ended December 31, 2019 and 2020.
The Company leased a tower for one radio station in Augusta, GA from Wintersrun. The lease agreement expires on October 16, 2025. Rental
expense was approximately $31,000 for each of the years ended December 31, 2019 and 2020.
Mr. George Beasley
As a condition to entering into the Amendment (see Note 10), George Beasley, the Companys Chairman, provided a $5.0 million loan to
the Company that accrued payment-in-kind interest at 6% per annum with no cash payments due until the loans maturity in December 2023. Mr. Beasley and GGB
Family Limited Partnership also each entered into standby letters of credit in combined aggregate face amount of $5.0 million in favor of U.S. Bank, National Association for the benefit of the Company as a source of backup liquidity that could
have been drawn by U.S. Bank, National Association in the event that the Company fails to maintain the Minimum Liquidity Amount. The loan was repaid on February 2, 2021, using a portion of the proceeds from the Notes offering (see Note 10).
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Table of Contents
(19)
Commitments and Contingencies
The Company has various commitments for rating services and on-air programming including sports
broadcast rights for the Boston Bruins, Boston Celtics, and New England Patriots. As of December 31, 2020, future minimum payments for the next five years and thereafter are summarized as follows:
2021
$
24,621,730
2022
24,469,796
2023
7,457,266
2024
6,750,000
2025
6,750,000
Thereafter
34,775,000
Total
$
104,823,792
In the normal course of business, the Company is party to various legal matters. The ultimate disposition of
these matters will not, in managements judgment, have a material adverse effect on the Companys financial position.
(20)
Financial Instruments
The carrying amount of the Companys financial instruments including cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short term nature of these financial instruments.
The carrying amount of the Companys long-term
debt, including the term loan, the revolving credit facility, Promissory Note and current installments, as of December 31, 2020 was $263.5 million which approximated fair value based on current market interest rates. The carrying amount of
the Companys long-term debt as of December 31, 2019 was $263.5 million which approximated fair value based on current market interest rates.
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Table of Contents
BEASLEY BROADCAST GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2019 and 2020
Column A Description
Column B
Balance at
Beginning
of Period
Column C
Charged to
Costs and
Expenses
Column D
Deductions
Column E
Balance at
End of
Period
Year ended December 31, 2019:
Allowance for doubtful accounts
(deducted from accounts receivable)
2,010,721
692,460
557,582
2,145,599
Valuation allowance for deferred tax assets
3,760,454
87,665
3,536,905
311,214
Year ended December 31, 2020:
Allowance for doubtful accounts
(deducted from accounts receivable)
2,145,599
5,206,423
2,318,987
5,033,035
Valuation allowance for deferred tax assets
311,214
3,074
308,140
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Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.