On June 30, just as many of its peers were starting the process of crunching the numbers for the second quarter of 2023, Urban One filed its full-year results for 2022 with the Securities & Exchange Commission (SEC).
The delay, primarily due to a re-evaluation of its accounting for the valuation of its MGM National Harbor investment, overshadowed fiscal results that were positive, as earnings per share increased to $0.72 on a diluted basis, up from $0.68.
Now, Urban One has moved ahead with dismissing the accounting firm linked to those faulty numbers, which also saw restated impairment charges for the Radio One arm.
Subsequent to the filing of the 2022 10-K by Urban One, BDO has been “dismissed” as the company’s independent registered public accounting firm. That decision was made by the Urban One board on July 11, effective the next day, when Ernst & Young (EY) would immediate become the independent registered public accounting firm Urban One will rely on for the fiscal year ending December 31, 2023.
This suggests that the Q1 and Q2 2023 results remain forthcoming for Urban One, with no release date offered as of yet by the company superserving African American consumers.
BDO had previously done two years’ worth of accounting reports for Urban One. While mostly amicable, the companies had a disagreement over how Urban One was keeping track of its financial information and processes. The main problem that led to the delayed 2022 10-K filing? Urban One realized that initial accounting underestimated the value of their MGM National Harbor Casino Investment. This was revealed on May 10, just weeks after Urban One sold its interest in the Prince George’s County, Md., MGM National Harbor casino resort for cash proceeds of approximately $136.8 million.
Thus, an adjustment to Urban One financial statements as of January 1, 2021 were needed.
With Nasdaq noncompliance the result of these restatements, it is now EY’s task to get Urban One back within the guidelines of trading on the exchange, which is widely expected to transpire.
RADIO BROADCAST LICENSES GET AN IMPAIRMENT RE-WRITE
In addition to the adjustments tied to MGM National Harbor, Urban One found and corrected several other mistakes that they thought were not significant enough to materially impact any period presented in their previously issued financial statements.
These errors include mistakes in Urban One’s cash flow statements and disclosures related to deferred tax assets and content assets.
But, as RBR+TVBR previously reported, during the impairment assessment in Q2 2022, Urban One became aware that a specific assumption used to estimate total market revenues in the valuation of its Houston and Dallas assets for the three years ended 2019, 2020, and 2021 was incorrect. This resulted in overstatements of the fair value of the radio broadcasting licenses by approximately $1.1 million, $2.8 million, and $2.1 million as of December 31, 2019; March 31, 2020; and December 31, 2021, respectively, and understated by approximately $2.3 million as of September 30, 2020. Accordingly, Urban One recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three months ended June 30, 2022.
There’s more. During the preparation of the financial statements for fiscal 2022, Urban One identified that certain assumptions used in the valuation of the Atlanta, Dallas, Houston, Raleigh, and Richmond station groups for Q2 and Q3 2022 were incorrect and resulted in overstatements of the fair value of the radio broadcasting licenses by approximately $1.7 million and $1.0 million, respectively.
How did Urban One resolve this? It engineered a reversal of the $3.7 million impairment charge recorded in the second quarter of 2022, an opening balance sheet adjustment of a $1.6 million non-cash impairment charge for 2019 and 2020 during the first quarter of 2021, a $2.1 million impairment charge in the fourth quarter of 2021, and approximately $1.7 million and $1.0 million of impairment charges during the second and third quarters of 2022. Additionally, Urban One included the associated tax implications of these adjustments.
In a statement addressing this news, BDO said, We agree with the statements made in response to that item insofar as they relate to our cirm.”
It is a company’s responsibility to ensure their financials are properly managed and that necessary filings with the SEC are made on time. An auditor, like BDO, is an external entity that reviews a company’s financials for accuracy but isn’t typically involved in the timeline for filing reports with the SEC.
That being said, the significant issues discovered during the Urban One audit would have required extra time to resolve, and likely contributed to a delayed filing. Either way, Urban One has talked about these issues with BDO and are allowing BDO to share this information with Ernst and Young in the transition.
— With additional reporting by Cameron Coats, in Troy, N.Y.
