RESTATEMENT OF FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2022

RESTATEMENT OF FINANCIAL STATEMENTS

RESTATEMENT OF FINANCIAL STATEMENTS

2. RESTATEMENT OF FINANCIAL STATEMENTS:

In connection with the preparation of the consolidated financial statements for the year ended December 31, 2022, the Company re-evaluated its accounting for the valuation of the MGM Investment and determined that adjustments are required to its previously issued financial statements as of December 31, 2021 and the interim periods ended March 31, June 30, and September 30, 2022 and 2021 (collectively, the “Affected Periods”) due to understatements in the value of the MGM Investment, and related tax effects. In accordance with accounting guidance presented in ASC 250-10, SEC Staff Accounting Bulletin No. 99, “Materiality”, and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” for the purpose of a materiality assessment, management assessed the materiality of the error and concluded that it was material to the Company’s financial statements included in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q covering the Affected Periods.

In addition to the adjustments related to the MGM Investment, the Company included corrections for misstatements that were deemed immaterial to any period presented in our previously issued financial statements. These misstatements are related to radio broadcasting license impairment, right of use assets, fair value of the Reach Media redeemable noncontrolling interest, amortization of certain launch assets, misclassifications of certain balance sheet items, and any related tax effects. The Company also corrected certain line items within the statements of cash flows and certain disclosures relating to deferred tax assets and content assets for errors identified.

Accordingly, the Company has restated herein its audited financial statements as of and for the year ended December 31, 2021. The Company has also restated its unaudited quarterly financial statements as of and for all quarters in the year ended December 31, 2021 and as of and for the quarters ended March 31, June 30, and September 30, 2022 in Note 17 to the consolidated financial statements.

Restatement Background

MGM Investment

Prior to and as of the period ended September 30, 2022, the Company accounted for its investment in MGM National Harbor at cost less impairment under ASC 321, “Investments – Equity Securities” (“ASC 321”) and included the amortized cost of the MGM investment in other assets on the consolidated balance sheets. Distribution income associated with the investment was recorded in other income on the consolidated statements of operations. In connection with the preparation of its financial statements for the year ended December 31, 2022, the Company identified that the MGM Investment should have been classified as an available-for-sale (“AFS”) debt security in a separate financial line item in the Company’s consolidated balance sheets through December 31, 2022 and measured at fair value in accordance with ASC 320, “Investments – Debt Securities” (“ASC 320”) with unrealized gains and losses included in other comprehensive income (“OCI”), within accumulated other comprehensive income (“AOCI”). As a result, the Company has made corrections to record opening adjustments, unrealized gains and losses, and associated tax impacts and classify financial line items appropriately for the Affected Periods.

The correction of this misstatement resulted in approximately $112.6 million being recorded to debt security – available-for-sale, a decrease to other assets of $40.0 million, an increase to deferred tax liabilities, net of approximately $17.6 million, an increase to accumulated other comprehensive income of approximately $55.0 million, and a decrease to accumulated deficit of less than $100,000 in the consolidated balance sheet as of December 31, 2021. An amount of approximately $7.2 million was recorded as an unrealized gain on available-for-sale securities, net of tax in the consolidated statement of comprehensive income for the year ended December 31, 2021. The Company recorded an opening balance adjustment of approximately $47.8 million within AOCI in the December 31, 2021 consolidated statement of changes in stockholders’ equity. This correction did not have a material impact on the consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2021.

Other Adjustments

Radio Broadcast License Impairment

During the impairment assessment in the second quarter of 2022, the Company became aware that a specific assumption used to estimate total market revenues in the valuation of the Houston and Dallas assets for the three years ended December 31, 2019, 2020, and 2021 was incorrect and 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, the Company recorded an out-of-period non-cash impairment charge of approximately $3.7 million during the three months ended June 30, 2022 as the Company determined that the errors were not material to any previous period and that correcting the errors in the three-month and six-month periods ended June 30, 2022 would not materially misstate net revenue or pre-tax income for the full year, as of and for the period ended December 31, 2022, or the earnings trend and therefore could be corrected in the period ending June 30, 2022. Additionally, during the preparation of the financial statements for the year ended December 31, 2022, the Company identified that certain assumptions used in the valuation of the Atlanta, Dallas, Houston, Raleigh, and Richmond assets for the quarters ended June 30 and September 30, 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. The Company, in the process of rectifying the material MGM Investment error identified above, determined it was necessary to accurately reflect the out-of-period non-cash impairment charge of approximately $3.7 million across all Affected Periods and to record the non-cash impairment charges of approximately $1.7 million and $1.0 million for the second and third quarters of 2022, respectively. Consequently, the Company made the following adjustments: 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, the Company included the associated tax implications of these adjustments.

The correction of this misstatement resulted in a decrease to radio broadcasting licenses of $3.7 million, an increase to deferred tax assets, net of $905,000, and an increase to accumulated deficit of $2.8 million in the consolidated balance sheet as of December 31, 2021. Impairment of long-lived assets increased by $2.1 million and provision for income taxes decreased by $510,000 in the consolidated statement of operations for the year ended December 31, 2021. Comprehensive income in the consolidated statements of comprehensive income for the year ended December 31, 2021, decreased by $1.6 million. The Company recorded an opening balance adjustment of $1.2 million and an adjustment of $1.6 million to reduce consolidated net income within accumulated deficit in the December 31, 2021 consolidated statement of changes in stockholders’ equity. While in the consolidated statement of cash flows for the year ended December 31, 2021, this correction reduced consolidated net income by $1.6 million, reduced deferred income taxes by $510,000, and increased impairment of long-lived assets by $2.1 million, it had no impact on total net cash flows (used in) provided by operating, investing, or financing activities.

Right of Use Assets

During the adoption of ASC 842, “Leases” (“ASC 842”) in 2019, the Company discovered that approximately $1.3 million of deferred rent balances were not correctly accounted for, and as such, this resulted in an overstatement of right of use (“ROU”) assets for the same amount. The Company determined that the errors were not material and not correcting the errors would not materially misstate net revenue, pre-tax income, or the earnings trend in any previous or future periods. The Company, in the process of rectifying the material MGM Investment error identified above, determined it was necessary to correct these errors. Consequently, the Company has made corrections to record an opening balance sheet adjustment and associated tax impacts for the Affected Periods.

The correction of this misstatement resulted in a decrease to ROU assets of approximately $1.3 million, a decrease to deferred tax assets, net of approximately $308,000, and an increase to accumulated deficit of $960,000 in the consolidated balance sheet as of December 31, 2021. The opening balance within accumulated deficit in the December

31, 2021 consolidated statement of changes in stockholders’ equity was increased by $960,000. This correction did not impact the consolidated statement of operations, consolidated statement of comprehensive income, and consolidated statement of cash flows for the year ended December 31, 2021.

Reach Media Redeemable Noncontrolling Interest

The redeemable noncontrolling interest is measured at fair value using a discounted cash flow methodology, adjusted for excess available working capital. In connection with the preparation of its financial statements for the year ended December 31, 2022, the Company identified an error in its calculation of excess working capital which understated the value of the redeemable noncontrolling interest. As a result, the Company determined it was necessary to correct the error and recorded opening adjustments to the redeemable noncontrolling interests and additional paid-in capital (“APIC”) for the Affected Periods.

The correction of this misstatement resulted in an increase to redeemable noncontrolling interest and a decrease to additional paid-in capital of approximately $1.6 million in the consolidated balance sheet as of December 31, 2021. The Company recorded $399,000 to increase the adjustment of redeemable noncontrolling interests to estimated redemption value and recorded an opening balance adjustment of approximately $1.2 million within APIC in the December 31, 2021 consolidated statement of changes in stockholders’ equity. This correction did not impact the consolidated statement of operations, consolidated statement of comprehensive income, and consolidated statement of cash flows for the year ended December 31, 2021.

Launch Assets

The cable television segment has entered into certain affiliate agreements requiring various payments for launch support, which are used to initiate carriage under affiliation agreements and are amortized over the term of the respective contracts. The Company has historically recorded amortization associated with certain launch assets within selling, general and administrative expense in the consolidated statements of operations. In connection with the preparation of its financial statements for the year ended December 31, 2022, the Company determined that this amortization should have been recorded as a reduction to revenue. As a result, the Company has reclassified the amortization to reduce selling, general and administrative expense and net revenue in the consolidated statements of operations for the Affected Periods.

The correction of this misstatement decreased both net revenue and selling, general and administrative expense by approximately $1.2 million in the December 31, 2021 consolidated statement of operations. This correction did not impact any other consolidated financial statements as of and for the year ended December 31, 2021.

Balance Sheet Misclassifications

The Company recorded adjustments to recognize certain balance sheet misclassifications for the Affected Periods. These adjustments primarily related to the classification of other current assets, other assets, other intangible assets, net, right of use assets, trade accounts receivable, net, other current liabilities, and accounts payable.  

Disclosure Exceptions

In reconciling the income tax provision to actual tax returns filed, the Company identified that the 2021 estimate of nondeductible interest expense was calculated incorrectly. This error resulted in a disclosure exception within the Income Taxes footnote with net operating loss carryforwards overstated and interest expense carryforward understated, both by approximately $4.9 million. The disclosure exception did not have any impact on the consolidated financial statements for any of the prior periods. The Company, in the process of rectifying the material MGM Investment error identified above, determined it was necessary to correct the disclosure exception by revising the balances for net operating loss carryforwards and interest expense carryforward as of December 31, 2021 as disclosed within the Income Taxes footnote in these consolidated financial statements.

During the fourth quarter of 2022, the Company identified certain fully amortized content assets that were no longer in service. Accordingly, balances associated with these fully amortized assets have been adjusted in the presentation of content assets in the Company’s footnote disclosures as of December 31, 2021. Specifically, the Company has reflected a reduction to ‘Completed’ content assets of approximately $279.3 million, a reduction to ‘Acquired Licensed’ content assets of approximately $4.6 million, and a decrease to accumulated amortization of approximately $283.9 million as of December 31, 2021. In addition, the Company recorded an adjustment of $837,000 from ‘Completed’ content assets to ‘In-Production’ content assets. This correction did not impact total net content assets disclosed within the footnote and included in the consolidated financial statements as of and for the year ended December 31, 2021.

Statements of Cash Flows

Prior to and as of the period ended September 30, 2022, the Company presented non-cash lease liability expense as an adjustment to net income within the consolidated statements of cash flows. During the fourth quarter of 2022, the Company identified that the non-cash lease liability expense should have been presented as a change in other liabilities and determined that it was necessary to correct the error for the Affected Periods.  

The correction of this misstatement resulted in a reduction to non-cash lease liability expense and an increase to other liabilities by approximately $4.7 million in the consolidated statement of cash flows as of December 31, 2021. This correction had no impact on total net cash flows (used in) provided by operating, investing, or financing activities or any other consolidated financial statements as of and for the year ended December 31, 2021.

Description of Restatement Tables

The following tables reflect the impact of the restatement to the specific line items presented in the Company’s consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in stockholders’ equity, and consolidated statements of cash flows as of and for the year ended December 31, 2021. The previously reported amounts were derived from the Company's Original Filing. These amounts are labeled “As Previously Reported” in the tables below. The column labeled “Adjustments” represents the impact of the correction of the MGM Investment. The column labeled “Other Adjustments” represents the combined effects of the corrections of the misstatements relating to radio broadcasting license impairment, right of use assets, fair value of the Reach Media redeemable noncontrolling interest, amortization of certain launch assets, misclassifications of certain line items in the balance sheets and statements of cash flows, and any related tax effects, as described above, that were deemed immaterial to any period presented in our previously issued financial statements.

Consolidated Balance Sheets

	As of December 31, 2021
	As Previously
	Reported		Adjustments		Other Adjustments		As Restated
	(In thousands)
ASSETS
CURRENT ASSETS:
Trade accounts receivable, net of allowance for doubtful accounts of $8,743	$	127,446	$	—	$	313	$	127,759
Other current assets		4,760		—		(1,263)		3,497
Total current assets		313,274		—		(950)		312,324
RIGHT OF USE ASSETS		38,044		—		(88)		37,956
RADIO BROADCASTING LICENSES		505,148		—		(3,728)		501,420
OTHER INTANGIBLE ASSETS, net		50,159		—		(2,238)		47,921
DEBT SECURITIES - available-for-sale, at fair value; amortized cost of $40,000		—		112,600		—		112,600
OTHER ASSETS		44,635		(40,000)		2,321		6,956
Total assets	$	1,261,108	$	72,600	$	(4,683)	$	1,329,025
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	14,588	$	—	$	2,304	$	16,892
Other current liabilities		26,421		—		(1,991)		24,430
Total current liabilities		106,471		—		313		106,784
DEFERRED TAX LIABILITIES, net		2,473		17,617		(1,213)		18,877
Total liabilities		989,973		17,617		(900)		1,006,690
REDEEMABLE NONCONTROLLING INTERESTS		17,015		—		1,640		18,655
STOCKHOLDERS’ EQUITY:
Accumulated other comprehensive income		—		54,950		—		54,950
Additional paid-in capital		1,020,636		—		(1,640)		1,018,996
Accumulated deficit		(766,567)		33		(3,783)		(770,317)
Total stockholders’ equity		254,120		54,983		(5,423)		303,680
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	1,261,108	$	72,600	$	(4,683)	$	1,329,025

Consolidated Statements of Operations

	Year Ended December 31, 2021
	As Previously				Other
	Reported		Adjustments		Adjustments		As Restated
	(In thousands, except share data)
NET REVENUE	$	441,462	$	—	$	(1,177)	$	440,285
OPERATING EXPENSES:
Selling, general and administrative, including stock-based compensation of $31		143,187		—		(1,177)		142,010
Impairment of long-lived assets		—		—		2,104		2,104
Total operating expenses		322,919		—		927		323,846
Operating income (loss)		118,543		—		(2,104)		116,439
Income (loss) before provision for (benefit from) income taxes and noncontrolling interests in income of subsidiaries		54,244		—		(2,104)		52,140
PROVISION FOR (BENEFIT FROM) INCOME TAXES		13,577		(33)		(510)		13,034
NET INCOME (LOSS)		40,667		33		(1,594)		39,106
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	38,352	$	33	$	(1,594)	$	36,791
BASIC NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
Net income (loss) attributable to common stockholders	$	0.76	$	—	$	(0.03)	$	0.73
DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
Net income (loss) attributable to common stockholders	$	0.71	$	—	$	(0.03)	$	0.68

Consolidated Statements of Comprehensive Income

	Year Ended December 31, 2021
	As Previously				Other
	Reported		Adjustments		Adjustments		As Restated
	(In thousands)
OTHER COMPREHENSIVE INCOME, BEFORE TAX:
Unrealized gain on available-for-sale securities	$	—	$	9,500	$	—	$	9,500
Income tax expense related to unrealized gain on available-for-sale securities		—		(2,305)		—		(2,305)
OTHER COMPREHENSIVE INCOME, NET OF TAX		—		7,195		—		7,195
COMPREHENSIVE INCOME (LOSS)	$	40,667	$	7,228	$	(1,594)	$	46,301
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	38,352	$	7,228	$	(1,594)	$	43,986

Consolidated Statements of Changes in Stockholders’ Equity

		As Previously Reported
												Accumulated
		Convertible		Common		Common		Common		Common		Other		Additional				Total
		Preferred		Stock		Stock		Stock		Stock		Comprehensive		Paid-In		Accumulated		Stockholders’
For the year ended December 31, 2021		Stock		Class A		Class B		Class C		Class D		Income		Capital		Deficit		Equity
BALANCE, as of December 31, 2020	$	—	$	4	$	3	$	3	$	38	$	—	$	991,769	$	(804,919)	$	186,898
Net income		—		—		—		—		—		—		—		38,352		38,352
Stock-based compensation expense		—		—		—		—		—		—		565		—		565
Repurchase of 521,877 shares of Class D common stock		—		—		—		—		(1)		—		(969)		—		(970)
Issuance of 3,779,391 shares of Class A common stock		—		4		—		—		—		—		33,273		—		33,277
Exercise of options for 229,756 shares of Class D common stock		—		—		—		—		—		—		397		—		397
Conversion of 883,890 shares of Class C common stock to 883,890 shares of Class A common stock		—		1		—		(1)		—		—		—		—		—
Adjustment of redeemable noncontrolling interests to estimated redemption value		—		—		—		—		—		—		(4,399)		—		(4,399)
BALANCE, as of December 31, 2021	$	—	$	9	$	3	$	2	$	37	$	—	$	1,020,636	$	(766,567)	$	254,120

		Adjustments and Other Adjustments
												Accumulated
		Convertible		Common		Common		Common		Common		Other		Additional				Total
		Preferred		Stock		Stock		Stock		Stock		Comprehensive		Paid-In		Accumulated		Stockholders’
For the year ended December 31, 2021		Stock		Class A		Class B		Class C		Class D		Income		Capital		Deficit		Equity
BALANCE, as of December 31, 2020	$	—	$	—	$	—	$	—	$	—	$	47,755	$	(1,241)	$	(2,189)	$	44,325
Net income		—		—		—		—		—		—		—		(1,561)		(1,561)
Adjustment of redeemable noncontrolling interests to estimated redemption value		—		—		—		—		—		—		(399)		—		(399)
Other comprehensive income, net of tax		—		—		—		—		—		7,195		—		—		7,195
Total Adjustments	$	—	$	—	$	—	$	—	$	—	$	54,950	$	(1,640)	$	(3,750)	$	49,560

		As Restated
												Accumulated
		Convertible		Common		Common		Common		Common		Other		Additional				Total
		Preferred		Stock		Stock		Stock		Stock		Comprehensive		Paid-In		Accumulated		Stockholders’
For the year ended December 31, 2021		Stock		Class A		Class B		Class C		Class D		Income		Capital		Deficit		Equity
BALANCE, as of December 31, 2020	$	—	$	4	$	3	$	3	$	38	$	47,755	$	990,528	$	(807,108)	$	231,223
Net income		—		—		—		—		—		—		—		36,791		36,791
Stock-based compensation expense		—		—		—		—		—		—		565		—		565
Repurchase of 521,877 shares of Class D common stock		—		—		—		—		(1)		—		(969)		—		(970)
Issuance of 3,779,391 shares of Class A common stock		—		4		—		—		—		—		33,273		—		33,277
Exercise of options for 229,756 shares of Class D common stock		—		—		—		—		—		—		397		—		397
Conversion of 883,890 shares of Class C common stock to 883,890 shares of Class A common stock		—		1		—		(1)		—		—		—		—		—
Adjustment of redeemable noncontrolling interests to estimated redemption value		—		—		—		—		—		—		(4,798)		—		(4,798)
Other comprehensive income, net of tax				—		—		—		—		7,195		—		—		7,195
BALANCE, as of December 31, 2021	$	—	$	9	$	3	$	2	$	37	$	54,950	$	1,018,996	$	(770,317)	$	303,680

Consolidated Statements of Cash Flows

	Year Ended December 31, 2021
	As
	Previously				Other		As
	Reported		Adjustments		Adjustments		Restated
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	40,667	$	33	$	(1,594)	$	39,106
Adjustments to reconcile net income (loss) to net cash from operating activities:
Deferred income taxes		12,514		(33)		(510)		11,971
Non-cash lease liability expense		4,684		—		(4,684)		—
Impairment of goodwill and broadcasting licenses		—		—		2,104		2,104
Effect of change in operating assets and liabilities, net of assets acquired:
Trade accounts receivable		(22,734)		—		(73)		(22,807)
Accounts payable		3,453		—		153		3,606
Other liabilities		(5,892)		—		4,604		(1,288)
Net cash flows provided by operating activities		80,150		—		—		80,150
NON-CASH OPERATING, FINANCING AND INVESTING ACTIVITIES:
Adjustment of redeemable noncontrolling interests to estimated redemption value	$	4,399	$	—	$	399	$	4,798

The remainder of the notes to the Company’s financial statements have been updated and restated, as applicable, to reflect the impacts of the restatement described above.