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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 333-30795
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
RADIO ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
52-1166660
(I.R.S. Employer Identification No.)
5900 Princess Garden Parkway,
8th Floor
Lanham, Maryland 20706
(Address of principal executive offices)
(301) 306-1111
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Class A Common Stock, $.001 par value The Nasdaq Stock Market's National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 8, 2000 is as follows:
Class Outstanding at March 8, 2000
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Class A Common Stock, $.001 par value 22,272,622
Class B Common Stock, $.001 par value 2,867,463
Class C Common Stock, $.001 par value 3,132,458
The aggregate market value as of March 8, 2000 of voting and non-voting common
equity held by non-affiliates of the registrant was $1,202,631,692.00.
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RADIO ONE, INC. AND SUBSIDIARIES
Form 10-K
For the Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business............................................... 3
Item 2. Properties and Facilities.............................. 26
Item 3. Legal Proceedings...................................... 27
Item 4. Submission of Matters to a Vote of Security Holders.... 27
PART II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters................................... 28
Item 6. Selected Financial Data................................ 28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 31
Item 8. Financial Statements and Supplementary Data............ 38
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and
1999
Consolidated Statements of Operations for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1998 and
1999
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statement
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant..... 39
Item 11. Compensation of Directors and Officers................. 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ 43
Item 13. Certain Relationship and Related Transactions.......... 45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 47
SIGNATURES
EXHIBIT INDEX
2
PART I
ITEM 1. BUSINESS
Unless otherwise noted, the terms "Radio One," "we," "our" and "us" refer to
Radio One, Inc. and our subsidiaries, Radio One Licenses, Inc., WYCB
Acquisition Corporation, Broadcast Holdings, Inc., Bell Broadcasting Company,
Radio One of Detroit, Inc., Allur-Detroit, Inc., Allur Licenses, Inc., Radio
One of Atlanta, Inc., ROA Licenses, Inc., Dogwood Communications, Inc. and
Dogwood Licenses, Inc., from the time of their respective acquisitions.
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our pending acquisitions we will own 48 radio stations, 47 of which are
located in 18 of the 40 largest African-American markets in the United States.
Our strategy is to expand within our existing markets and into new markets
that have a significant African-American presence. We believe radio
broadcasting primarily targeting African-Americans has significant growth
potential. We also believe that we have a competitive advantage in the
African-American market and the radio industry in general, due to our primary
focus on urban formats, our skill in programming and marketing these formats,
and our turnaround expertise. The radio station clusters that we owned or
managed as of December 31, 1999, were ranked in the top three in their markets
in combined audience and revenue share among radio stations primarily
targeting African-Americans.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, Alfred C. Liggins, III, our Chief Executive Officer and President,
who together have over 40 years of operating experience in radio broadcasting.
Ms. Hughes, Mr. Liggins and our strong management team have successfully
implemented a strategy of acquiring and turning around underperforming radio
stations. We believe that we are well positioned to apply our proven operating
strategy to our recently or soon to be acquired stations, and to other radio
stations in existing and new markets as attractive acquisition opportunities
arise.
On May 6, 1999, we completed our initial public offering of approximately
5.4 million shares of our class A common stock. On November 11, 1999, we
completed a follow-on public offering of approximately 5.2 million shares of
our class A common stock and on March 8, 2000, we completed another follow-on
public offering of 5.0 million shares of our class A common stock. From these
three offerings we received net proceeds of approximately $747.0 million after
deducting offerings costs. We have used a portion of these proceeds to repay
amounts borrowed under our bank credit facility, redeem our preferred stock,
repay a note payable and deferred interest, fund acquisitions and for other
general corporate purposes. We plan to use the balance of the proceeds to fund
acquisitions and for general corporate purposes.
On March 11, 2000, we entered into agreements to acquire a total of 21 radio
stations in three separate transactions: (i) we agreed to acquire from Clear
Channel Communications, Inc. and AMFM, Inc. the assets of 12 radio stations
located in seven markets in the United States for approximately $1.3 billion;
(ii) we agreed to acquire from Davis Broadcasting, Inc. six radio stations in
Charlotte, North Carolina and Augusta, Georgia for approximately $24.0 million
in cash and stock and (iii) we agreed to acquire from Shirk, Inc. and IBL,
L.L.C. the assets of three radio stations located in Indianapolis, Indiana for
approximately $40.0 million in cash and stock.
Station Portfolio
We operate in some of the largest African-American markets. Additionally, we
have acquired or agreed to acquire 35 radio stations since January 1, 1999.
These acquisitions diversify our net broadcast revenue, broadcast cash flow
and asset bases and will increase the number of top 40 African-American
markets in which we currently operate from nine to 18. The table below
outlines our station operations and information about the markets where we own
stations (from the BIA 1999 Fourth Edition).
3
Radio One and Our Markets
Radio One Data Market Data
----------------------------------------------- ---------------------------------------------
Number of African-American 1999 Entire
Stations Market Market 1997 MSA Population
--------- ---------------- ----------------- ----------------------
Fall January- Estimated Ranking by
1999 12 December 1999 Annual Size of
Audience + 1999 Radio African- African-
Share Revenue Audience Revenue Revenue American Total American
Market FM AM Rank Rank Share Share ($millions) Population (in millions) %
- ------ ---- ---- -------- ------- -------- -------- ----------- ---------- ------------- --------
Washington, D.C......... 2 2 1 1 10.9 10.1% $289.7 3 4.3 26.5%
Detroit................. 2 2/1/ 2 2 5.0 3.7 246.1 5 4.6 22.3
Philadelphia............ 2 -- 2 2 5.9 5.3 283.7 6 4.9 20.2
Atlanta................. 2 -- 2 3 6.8 5.1 280.6 7 3.7 26.0
Baltimore............... 2 2 1 1 17.1 21.4 121.1 10 2.5 27.6
St. Louis 1 -- n/a n/a n/a n/a 123.7 14 2.6 17.7
Cleveland............... 1 1 2 2 4.1 3.0 106.6 17 2.1 19.2
Boston 1 -- n/a n/a n/a n/a 279.3 18 4.3 7.1
Richmond/2.........../.. 6 1 1 1 26.2 21.5 50.1 19 0.9 30.1
---- ----
Total................... 19 8
==== ====
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/1/Includes WJZZ(AM) licensed to Kingsley, Michigan.
/2/Includes four stations that Radio One has agreed to acquire, three of which
are operated pursuant to a time brokerage agreement.
The African-American Market Opportunity
We believe that operating urban formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
Rapid African-American Population Growth. From 1980 to 1995, the African-
American population increased from approximately 26.7 million to 33.1
million, a 24.0% increase, compared to a 16.0% increase in the population
as a whole. (Source: 1998 U.S. Cenus Bureau Current Population Report)
Furthermore, the African-American population is expected to approach 40
million by 2010, a 20.8% increase from 1995, compared to an expected
increase of 14.1% for the population as a whole. (Source: U.S. Census
Bureau, Population Projection Program, Projection of the Resident
Population Report, January 13, 2000)
Higher African-American Income Growth. According to the U.S. Census Bureau,
from 1980 to 1995, the rate of increase in median family household income
in 1995 adjusted dollars for African-Americans was approximately 10.7%
compared to 4.3% for the population as a whole. African-American buying
power is estimated to reach $533 billion in 1999, up 73.0% from 1990
compared to a 57.0% increase for all Americans, and to account for 8.2% of
total buying power in 1999, compared to 7.4% in 1990. (Source: "African-
American Buying Power by Place of Residence: 1990-1999," Dr. Jeffrey M.
Humphreys). In addition, the African-American consumer tends to have a
different consumption profile than non-African-Americans. For example, 31%
of African-Americans purchased a TV, VCR or stereo in the past year
compared to 25% of average U.S. households. African-Americans' higher than
average rate of consumption is a powerful reason for U.S. retailers to
increase targeted advertising spending toward this consumer group. (Source:
Pricewaterhouse Coopers, LLP 1998 Study)
Growth in Advertising Targeting the African-American Market. We believe
that large corporate advertisers are becoming more focused on reaching
minority consumers in the United States. The African-American and Hispanic
communities are viewed as an emerging growth market within the mature
domestic market. A 1997 study estimated that major national advertisers
spent $881 million on advertising targeting African-American consumers, up
from $463 million in 1985. (Source: Target Market News (Chicago, IL-1997)).
For example, Ford Motor Company reportedly planned to increase its spending
targeting African-Americans and Hispanics by 20% in the 1998-99 model year.
(Source: Ad Week Midwest September 28, 1998). We believe Ford is one
example of many large corporations expanding their commitment to ethnic
advertising.
4
Growing Influence of African-American Culture. We believe that there is an
ongoing "urbanization" of many facets of American society as evidenced by
the influence of African-American culture in the areas of music (for
example, hip-hop and rap music), film, fashion, sports and urban-oriented
television shows and networks. We believe that companies as disparate as
the News Corporation's Fox television network, the sporting goods
manufacturer Nike, the fast food chain McDonald's, and prominent fashion
designers have embraced this urbanization trend in their products as well
as their advertising messages.
Growing Popularity of Radio Formats Primarily Targeting African-
Americans. We believe that urban programming has been expanded to target a
more diverse urban listener base and has become more popular with listeners
and advertisers over the past ten years. The number of urban radio stations
has increased from 294 in 1990 to an estimated 371 in 1998, or 26%, and is
expected to increase an additional 10% to 409 by 2002. In Fall 1997, urban
formats were one of the top three formats in nine of the top ten radio
markets nationwide and the top format in five of these markets. (Source:
INTEREP, Research Division, 1998 Regional Differences in Media Usage
Study).
Concentrated Presence of African-Americans in Urban Markets. In 1997,
approximately 61.8% of the African-American population was located in the
top 40 African-American markets. (Source: BIA 1999, Fourth Edition).
Relative to radio broadcasters targeting a broader audience, we believe we
can cover the various segments of our target market with fewer programming
formats and therefore fewer radio stations than the maximum of eight
allowed by the FCC.
Strong African-American Listenership and Loyalty. In 1996, African-
Americans in the ten largest markets listened to radio broadcasts an
average of 27.0 hours per week. (Source: INTEREP Research Division, 1998
Urban Radio Study). This compares to 22.0 hours per week for all Americans.
(Source: Forbes, June 1, 1998). In addition, we believe that African-
American radio listeners exhibit greater loyalty to radio stations that
target the African-American community because those radio stations become a
valuable source of entertainment and information responsive to the
community's interests and lifestyles.
Acquisition Strategy
Our acquisition strategy includes acquiring and turning around
underperforming radio stations principally in the top 40 African-American
markets. We will also make acquisitions in existing markets where expanded
coverage is desirable and in new markets where we believe it is advantageous
to establish a presence. In analyzing potential acquisition candidates, we
generally consider:
. the price and terms of the purchase;
. whether the radio station has a signal adequate to reach a large
percentage of the African-American community in a market;
. whether we can increase ratings and net broadcast revenue of the radio
station;
. whether we can reformat or improve the radio station's programming in
order to serve profitably the African-American community;
. whether the radio station affords us the opportunity to introduce
complementary formats in a market where we already maintain a presence;
and
. the number of competitive radio stations in the market.
For strategic reasons, or as a result of a station cluster purchase, we may
also acquire and operate stations with formats that target non-African-
American segments of the population.
5
RECENT AND PENDING ACQUISITIONS
We have acquired or agreed to acquire 35 radio stations since January 1,
1999. These acquisitions diversify our net broadcast revenue, broadcast cash
flow and asset bases and increase the number of top 40 African-American
markets in which we currently operate from nine to 18.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of March 11, 2000.
Approximate
Purchase
Price
No. of Call (in Date
Stations Letters millions) Completed
-------- ------- ----------- ---------
Completed Transactions
Atlanta (ROA and Dogwood)......... 2 WHTA-FM (1) 3/99
WAMJ-FM
Cleveland......................... 2 WENZ-FM $ 20.0 4/99
WERE-AM
St. Louis......................... 1 WFUN-FM 13.6 6/99
Richmond I........................ 1 WDYL-FM 4.6 7/99
Richmond II....................... 2 WKJS-FM 12.0 7/99
WARV-FM
Boston............................ 1 WBOT-FM 10.0 10/99
Philadelphia...................... 1 WPLY-FM 80.0 2/00
--- --------
Subtotal.......................... 10 140.2(2)
=== --------
Pending Transactions
Richmond III...................... 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
Los Angeles (3)................... 1 KKBT-FM 1,302.5 --
Houston (3)....................... 2 KMJQ-FM
KBXX-FM
Dallas (3)........................ 1 KBFB-FM
Cleveland (3)..................... 2 WZAK-FM
WJMO-AM
Miami (3)......................... 1 WVCG-AM
Raleigh........................... 4 WQOK-FM
WFXK-FM
WNNL-FM
WFXC-FM
Greenville (3).................... 1 WJMZ-FM
Charlotte (4)..................... 1 WCCJ-FM 24.0
Augusta (4)....................... 5 WAKB-FM --
WAEG-FM
WAEJ-FM
WFXA-FM
WTHB-AM
Indianapolis (5).................. 4 WHHH-FM 40.0 --
WBKS-FM
WYJZ-FM
W53AV(6)
--- --------
Subtotal.......................... 25 1,400.5
--- --------
Total............................. 35 $1,540.7(2)
=== ========
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(1) Radio One issued approximately 3.3 million shares of its common stock and
assumed approximately $16.3 million of debt in this transaction.
(2) Excludes ROA and Dogwood.
6
(3) Stations being acquired from Clear Channel Communications, Inc./AMFM, Inc.
(4) Stations being acquired from Davis Broadcasting, Inc.
(5) Stations being acquired from Shirk, Inc. and IBL, LLC.
(6) Low powered Indianapolis television station not included in station total.
Completed Acquisitions
Atlanta--Radio One of Atlanta and Dogwood Communications Acquisition
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA acquired the remaining approximate 67% of Dogwood for $3.6 million.
Founded in 1995, ROA owns and operates WHTA-FM licensed to Fayetteville,
Georgia. Dogwood owns WAMJ-FM, licensed to Roswell, Georgia, which, prior to
ROA's acquisition of 100% of Dogwood, ROA operated under a local marketing
agreement ("LMA"). Upon the completion of these acquisitions, ROA became a
wholly owned subsidiary of Radio One, and Dogwood became a wholly owned
subsidiary of ROA. See "Certain Relationships and Related Transactions."
Cleveland--WENZ-FM and WERE-AM Acquisition
On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM, both of which are
licensed to Cleveland, Ohio, for approximately $20.0 million in cash.
St. Louis--WFUN-FM Acquisition
On June 4, 1999, Radio One acquired the assets of WFUN-FM, licensed to
Bethalto, Illinois, for approximately $13.6 million in cash. We are in the
process of moving WFUN-FM to a broadcast tower site closer to downtown St.
Louis and upgrading its signal from 6 kW to 25 kW, and we expect to reformat
the station.
Richmond I and II--WDYL-FM Acquisition and WKJS-FM and WARV-FM Acquisition
On July 1, 1999, Radio One acquired WKJS-FM, licensed to Crewe, Virginia,
and WARV-FM, licensed to Petersburg, Virginia, for approximately $12.0 million
in cash, subject to purchase price adjustments.
On July 15, 1999, Radio One acquired WDYL-FM, licensed to Chester, Virginia,
for approximately $4.6 million in cash.
Boston--WBOT-FM Acquisition
On October 1, 1999, Radio One acquired the assets of WBOT-FM, licensed to
Brockton, Massachusetts, for approximately $10.0 million in cash. WBOT-FM
began broadcasting a Young Urban Contemporary format on December 1, 1999.
Philadelphia--WPLY-FM Acquisition
On February 28, 2000 Radio One acquired the assets of WPLY-FM, licensed to
Media, Pennsylvania for approximately $80.0 million in cash. We expect to
continue operating WPLY-FM in an Alternative Rock format.
Pending Acquisitions
Richmond III--WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM Acquisition
Pursuant to an asset purchase agreement dated May 6, 1999, Radio One has
agreed to acquire WCDX-FM, licensed to Mechanicsville, Virginia; WPLZ-FM,
licensed to Petersburg, Virginia; WJRV-FM, licensed to Richmond, Virginia; and
WGCV-AM, licensed to Petersburg, Virginia, for approximately $34.0 million in
cash. We have been operating WCDX-FM, WPLZ-FM and WJRV-FM under a time
brokerage agreement since June 1, 1999, and we expect to complete the
acquisition by the end of 2000.
7
Clear Channel Communications, Inc./AMFM, Inc. Acquisition
On March 11, 2000 we entered into an Asset Purchase Agreement with Clear
Channel Communications, Inc. and AMFM, Inc. to acquire the assets of 12 radio
stations located in seven markets in the United States for approximately $1.3
billion. The radio stations being acquired from Clear Channel and AMFM are as
follows: KKBT-FM (Los Angeles), KMJQ-FM and KBXX-FM (Houston), KBFB-FM
(Dallas), WZAK-FM and WJMO-AM (Cleveland), WVCG-AM (Miami), WQOK-FM, WFXK-FM,
WFXC-FM and WNNL-FM (Raleigh) and WJMZ-FM (Greenville, South Carolina).
Davis Broadcasting, Inc. Acquisition
On March 11, 2000 we entered into a Merger Agreement with Davis
Broadcasting, Inc. to acquire radio stations in Charlotte, North Carolina, and
Augusta, Georgia for approximately $24.0 million in cash and stock. The radio
stations being acquired from Davis Broadcasting are as follows: WCCJ-FM
(Charlotte), WAKB-FM, WAEG-FM, WAEJ-FM, WFXA-FM and WTHB-AM (Augusta).
Shirk, Inc. and IBL, L.L.C. Acquisition
On March 11, 2000 we entered into an Asset Purchase Agreement with Shirk,
Inc. and IBL, L.L.C. to acquire the assets of three radio stations located in
the Indianapolis, Indiana market for approximately $40.0 million in cash and
stock. The radio stations being acquired from Shirk, Inc. and IBL, L.L.C. are
as follows: WHHH-FM (Indianapolis), WBKS-FM (Greenwood) and WYJZ-FM (Lebanon).
We will also acquire W53AV, a low-powered Indianapolis television station, as
part of the purchase price.
Following the consummation of these acquisitions Radio One will own and/or
operate 48 radio stations in 19 markets.
Turnaround Expertise
Historically, we have entered a market by acquiring a station or stations
that have little or negative broadcast cash flow. Additional stations we have
acquired in existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategies, we have succeeded
in increasing ratings, net broadcast revenue and broadcast cash flow of most
of the FM stations we have owned or managed for at least one year. We have
achieved these improvements while operating against much larger competitors.
Some of these successful turnarounds are described below by market:
Washington, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 12 by Arbitron in the 12-
plus age demographic. Over a two-year period, we repositioned WKYS-FM,
improved its programming and enhanced the station's community involvement
and image. For the Arbitron Survey four book averages ending with the Fall
1999 Arbitron Survey, the station was ranked number two in the 18-34 age
demographic (with a 9.8 share) and number three in the 12-plus age
demographic (with a 5.3 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the time,
WMMJ-FM was being programmed in a general market Adult Contemporary format,
and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM the first FM radio
station on the East Coast to introduce an Urban Adult Contemporary
programming format. For the Arbitron Survey four book averages ending with
the Fall 1999 Arbitron Survey, the station was ranked number seven in the
25-54 age demographic (with a 4.6 share) and was ranked number 10 in the
12-plus age demographic (with a 3.8 share).
Baltimore. In 1993, we acquired WERQ-FM and WOLB-AM for approximately $9.0
million. At the time, these stations had mediocre ratings. We converted
WERQ-FM's programming to a more focused Young Urban Contemporary format and
began aggressively marketing the station. WERQ-FM is now Baltimore's
8
dominant station, and in the Arbitron Survey four book averages ending with
the Fall 1999 Arbitron Survey, was ranked number one in the 12-plus and 18-
34 age demographics (with a 9.1 and a 16.4 share, respectively), a position
it first achieved in the Spring 1997 Arbitron Survey, and number two in the
25-54 age demographic (with a 7.6 share) behind Radio One's WWIN-FM.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second in
ratings to its in-format direct competitor, WXYV-FM. We repositioned WWIN-
FM towards the 25-54 age demographic, and for the Arbitron Survey four book
averages ending with the Fall 1999 Arbitron Survey, the station was ranked
number one in that age demographic (with an 8.0 share).
Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM, a
Class A radio station located approximately 40 miles from Atlanta, for
approximately $4.5 million. Prior to that acquisition, the previous owners,
together with our management, upgraded and moved the station approximately
20 miles closer to Atlanta. The result was the introduction of a new, Young
Urban Contemporary radio station in the Atlanta market. The station's
ratings increased quickly, to an approximate 5.0 share in the 12-plus age
demographic. For the Arbitron Survey four book averages ending with the
Fall 1999 Arbitron Survey, the station was ranked number four in the 18-34
age demographic (with a 7.9 share).
Philadelphia. In May 1997, we acquired WPHI-FM for approximately $20.0
million. At the time the station was being programmed in a Modern Rock
format and had a 2.7 share in the 12-plus age demographic. We changed the
station's format to Young Urban Contemporary and, for the Arbitron Survey
four book averages ending with the Fall 1999 Arbitron Survey, the station
was ranked number six in the 18-34 age demographic (with a 5.5 share).
Detroit. We acquired WDTJ-FM, WCHB-AM, and WJZZ-AM for approximately $34.2
million in June, 1998. WDTJ-FM had an existing urban format garnering a
revenue share of 2.1% of the market in 1998. We repositioned the format
targeting a stronger female audience base, focusing on the urban adult age
demographic 18-34. Despite the addition of two new urban competitors
entering the arena in 1999, the sales force has been able to significantly
improve power ratios to a current ratio of .81, and achieved a 30% revenue
growth in 1999 versus a market growth rate of only 11%. In the Arbitron
Survey four book averages ending with the Fall 1999 Arbitron Survey, WDTJ
achieved a number two ranking in the 12-17 age demographic (with a 17.9
share), and ranked number four with persons aged 18 to 34 (with a 6.3
share).
Cleveland. In April 1999, we acquired WENZ-FM and WERE-AM for approximately
$20 million. At the time WENZ-FM was being programmed in an Alternative
Rock format and had a 2.1 share and ranked number 14 in the 12-plus age
demographic. We changed the station's format to Young Urban Contemporary in
May 1999 and, in the Fall 1999 Arbitron Survey, the station was ranked
number 11 in the 12-plus age demographic (with a 4.5 share), number five in
the 18-34 age demographic (with an 8.3 share), and number one in the 12-17
age demographic (with a 27.7 share).
9
Top 40 African-American Radio Markets in the United States
In the table below, boxes and bold text indicates markets where we currently
own or have agreed to acquire radio stations. Population estimates are for
1997 and are based upon BIA Investing in Radio Market Report ("BIA 1999 Fourth
Edition").
African-Americans
African American as a Percentage
Population in of the Overall
the Market Population in the
Rank Market (in thousands) Market
---- ----------------------------------- ---------------- -----------------
1. New York, NY 3,589 21.3%
2. Chicago, IL 1,670 19.6
- --------------------------------------------------------------------------------
| 3. Washington, DC 1,131 26.5 |
| 4. Los Angeles, CA 1,120 9.1 |
| 5. Detroit, MI 1,032 22.3 |
| 6. Philadelphia, PA 987 20.2 |
| 7. Atlanta, GA 957 26.0 |
| 8. Houston/Galveston, TX 795 18.3 |
| 9. Miami/Ft. Lauderdale/Hollywood, FL 713 19.7 |
| 10. Baltimore, MD 686 27.6 |
| 11. Dallas/Ft. Worth, TX 659 14.2 |
- --------------------------------------------------------------------------------
12. San Francisco, CA 594 8.9
13. Memphis, TN 491 42.0
- --------------------------------------------------------------------------------
| 14. St. Louis, MO 455 17.7 |
- --------------------------------------------------------------------------------
15. Norfolk/Virginia Beach/Newport
News, VA 455 30.2
16. New Orleans, LA 443 35.0
- --------------------------------------------------------------------------------
| 17. Cleveland, OH 408 19.2 |
| 18. Boston, MA 309 7.1 |
| 19. Richmond, VA 284 30.1 |
| 20. Charlotte/Gastonia/Rock Hill, NC 280 20.5 |
- --------------------------------------------------------------------------------
21. Birmingham, AL 267 27.4
22. Milwaukee/Racine, WI 261 15.5
- --------------------------------------------------------------------------------
| 23. Raleigh/Durham, NC 256 24.1 |
- --------------------------------------------------------------------------------
24. Jacksonville, FL 241 22.6
25. Tampa/St. Petersburg/Clearwater, FL 239 10.5
26. Kansas City, MO 229 13.5
Greensboro/Winston Salem/High
27. Point, NC 228 19.6
28. Cincinnati, OH 224 11.6
29. Nassau/Suffolk Counties (NY) 224 8.4
30. Pittsburgh, PA 198 8.4
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| 31. Indianapolis, IN 196 14.2 |
- --------------------------------------------------------------------------------
32. Orlando, FL 191 14.6
33. Columbus, OH 190 13.0
34. Jackson, MS 186 43.3
35. Nashville, TN 181 15.8
36. Baton Rouge, LA 181 31.5
37. San Diego, CA 174 6.3
38. Seattle/Tacoma, WA 174 5.1
- --------------------------------------------------------------------------------
| 39. Greenville/Spartanburg, SC 155 17.8 |
| 40. Augusta, GA 153 33.1 |
- --------------------------------------------------------------------------------
10
Operating Strategy
In order to maximize net broadcast revenue and broadcast cash flow at our
radio stations, we strive to achieve the largest audience share of African-
American listeners in each market, convert these audience share ratings to
advertising revenue, and control operating expenses. The success of our
strategy relies on the following:
. market research, targeted programming and marketing;
. strong management and performance-based incentives;
. strategic sales efforts;
. radio station clustering, programming segmentation and sales bundling;
. advertising partnerships and special events; and
. significant community involvement.
Market Research, Targeted Programming and Marketing
Radio One uses market research to tailor the programming, marketing and
promotions of our radio stations to maximize audience share. To achieve these
goals, we use market research to identify unserved or underserved markets or
segments of the African-American community in current and new markets and to
determine whether to acquire a new radio station or reprogram one of our
existing radio stations to target those markets or segments.
We also seek to reinforce our targeted programming by creating a distinct
and marketable identity for each of our radio stations. To achieve this
objective, in addition to our significant community involvement discussed
below, we employ and promote distinct, high-profile on-air personalities at
many of our radio stations, many of whom have strong ties to the African-
American community.
Strong Management and Performance-based Incentives
Radio One focuses on hiring highly motivated and talented individuals in
each functional area of the organization who can effectively help us implement
our growth and operating strategies. Radio One's management team is comprised
of a diverse group of individuals who bring expertise to their respective
functional areas. We seek to hire and promote individuals with significant
potential, the ability to operate with high levels of autonomy and the
appropriate team-orientation that will enable them to pursue their careers
within the organization.
To enhance the quality of our management in the areas of sales and
programming, general managers, sales managers and program directors have
significant portions of their compensation tied to the achievement of certain
performance goals. General managers' compensation is based partially on
achieving broadcast cash flow benchmarks which create an incentive for
management to focus on both sales growth and expense control. Additionally,
sales managers and sales personnel have incentive packages based on sales
goals, and program directors and on-air talent have incentive packages focused
on maximizing overall ratings as well as ratings in specific target segments.
Strategic Sales Efforts
Radio One has assembled an effective, highly trained sales staff responsible
for converting audience share into revenue. We operate with a focused, sales-
oriented culture which rewards aggressive selling efforts through a generous
commission and bonus compensation structure. We hire and deploy large teams of
sales professionals for each of Radio One's stations or station clusters, and
we provide these teams with the resources necessary to compete effectively in
the markets in which we operate. We utilize various sales strategies to sell
and market Radio One's stations as stand-alones, in combination with other
stations within a given market and across markets, where appropriate.
11
Radio Station Clustering, Programming Segmentation and Sales Bundling
Radio One strives to build clusters of radio stations in our markets, with
each radio station targeting different demographic segments of the African-
American population. This clustering and programming segmentation strategy
allows us to achieve greater penetration into each segment of our target
market. We are then able to offer advertisers multiple audiences and to bundle
the radio stations for advertising sales purposes when advantageous.
We believe there are several potential benefits that result from operating
multiple radio stations in the same market. First, each additional radio
station in a market provides us with a larger percentage of the prime
advertising time available for sale within that market. Second, the more
stations we program, the greater the market share we can achieve in our target
demographic groups through the use of segmented programming. Third, we are
often able to consolidate sales, promotional, technical support and corporate
functions to produce substantial cost savings. Finally, the purchase of
additional radio stations in an existing market allows us to take advantage of
our market expertise and existing relationships with advertisers.
Advertising Partnerships and Special Events
We believe that in order to create advertising loyalty, Radio One must
strive to be the recognized expert in marketing to the African-American
consumer in the markets in which we operate. We believe that Radio One has
achieved this recognition by focusing on serving the African-American consumer
and by creating innovative advertising campaigns and promotional tie-ins with
our advertising clients and sponsoring numerous entertainment events each
year. We sponsor the Stone Soul Picnic, an all-day free outdoor concert which
showcases advertisers, local merchants and other organizations to over 100,000
people in each of Washington, D.C. and Baltimore. We also sponsor The People's
Expo every Winter in Washington, D.C. and Baltimore, which provides
entertainment, shopping and educational seminars to Radio One's listeners and
others from the communities we serve. In these events, advertisers buy
signage, booth space and broadcast promotions to sell a variety of goods and
services to African-American consumers. As we expand our presence in our
existing markets and into new markets, we plan to increase the number of
events and the number of markets in which we host these major events.
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provides a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement
in the African-American community in each of our markets significantly
improves the marketability of our radio broadcast time to advertisers who are
targeting such communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are able to
identify music and musical styles, as well as political and social trends and
issues, early in their evolution. This understanding is then integrated into
all aspects of our operations and enables us to create enhanced awareness and
name recognition in the marketplace. In addition, we believe our multi-level
approach to community involvement leads to increased effectiveness in
developing and updating our programming formats. We believe our enhanced
awareness and more effective programming formats lead to greater listenership
and higher ratings over the long-term.
We have a history of sponsoring events that demonstrate our commitment to
the African-American community, including:
. heightening the awareness of diseases which disproportionately impact
African-Americans, such as sickle-cell anemia and leukemia, and holding
fundraisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
12
. fundraising for the many African-American churches throughout the
country that have been the target of arsonists; and
. organizing seminars designed to educate African-Americans on personal
issues such as buying a home, starting a business, developing a credit
history, financial planning and health care.
Management Stock Option Plan
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock
Grant Plan designed to provide incentives relating to equity ownership to
present and future executive, managerial, and other key employees of Radio One
and our subsidiaries. The option plan affords us latitude in tailoring
incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices. For more
information see "Management--Stock Option Plan."
Station Operations
The following table sets forth selected information about our portfolio of
radio stations, including our acquisition of WPLY-FM, which closed in the
first quarter of fiscal year 2000, and four stations in Richmond that we have
agreed to acquire, three of which are operated pursuant to a time brokerage
agreement. Market population data and revenue rank data are from BIA 1999
Fourth Edition. Audience share and audience rank data are based on Arbitron
Survey four book averages ending with the Fall 1999 Arbitron Survey. Except as
noted, revenue share and revenue rank data for the Washington, D.C., Baltimore
and Detroit markets are based on the Radio Revenue Reports of Hungerford for
the twelve-month period ending December 31, 1999. For the Philadelphia,
Atlanta, Cleveland and Richmond markets, the revenue share and revenue rank
data are from revenue reports for the twelve-month period ending December 31,
1999, as prepared by Miller, Kaplan, Arase & Co., Certified Public
Accountants. As used in this table, "n/a" means not applicable or not
available and "t" means tied with one or more radio stations.
13
January-
December
1999
Radio One
Market
1999 Market Rank Four Book Average Four Book Average Revenue
------------------ ----------------- ----------------- -------------
Audience Audience Audience Audience
Target Share in Rank in Share in Rank in
Age 12+ 12+ Target Target
Metro Radio Year Demo- Demo- Demo- Demo- Demo-
Market(1) Population Revenue Acquired Format Graphic Graphic Graphic Graphic Graphic Share Rank
--------- ---------- ------- -------- ---------------- ------- -------- -------- -------- -------- ----- ----
Washington, DC 9 6
WKYS-FM 1995 Urban 18-34 5.2 3 9.8 2 5.3% 8
WMMJ-FM 1987 Urban AC 25-54 3.8 10 4.6 7 3.9% 13
WYCB-AM 1998 Gospel 35-64 0.9 23(t) 1.0 22 0.5% n/a(2)
WOL-AM 1980 Urban Talk 35-64 0.9 23(t) 0.9 24(t) 0.4% 21
Baltimore 20 20
WERQ-FM 1993 Urban 18-34 9.1 1 16.4 1 12.5% n/a(3)
WWIN-FM 1992 Urban AC 25-54 6.5 3 8.0 1 8.3% n/a(3)
WWIN-AM 1993 Gospel 35-64 0.9 16 1.0 15 0.4% n/a(3)
WOLB-AM 1992 Urban Talk 35-64 0.5 19 0.7 17(t) 0.2% n/a(3)
Philadelphia 5 9
WPHI-FM 1997 Urban 18-34 2.8 17(t) 5.5 6(t) 2.2% 16
WPLY-FM 2000 Alternative Rock 18-34 3.1 14 6.6 4 3.1% 15
Detroit 6 11
WDTJ-FM 1998 Urban 18-34 3.7 10(t) 6.3 4 2.8% 15
WDMK-FM 1998 Urban AC 25-54 0.8 26 1.0 24 0.7% 19
WCHB-AM 1998 Urban Talk 35-64 0.5 27(t) 0.6 27(t) .2% n/a(2)
Atlanta 12 7
WHTA-FM 1999 Urban 18-34 4.5 10 7.9 4 3.5% 12
WAMJ-FM 1999 Urban AC 25-54 2.3 14(t) 3.0 12 1.6% 13
Cleveland 24 23
WENZ-FM 1999 Urban 18-34 3.6 13 7.0 7 2.1% 14
WERE-AM 1999 News/Talk 35-64 -- -- -- -- -- --(4)
Richmond 57 47
WCDX-FM (pending) Urban 18-34 9.6 1 17.2 1 11.0% 3
WKJS-FM 1999 Urban AC 25-54 5.7 6(t) 7.4 3 6.5% 9
WPLZ-FM (pending) R&B 35-64 4.1 11 5.1 8 2.4% 11
WARV-FM 1999 Country 25-54 2.4 12 1.4 14(t) n/a(2) n/a(2)
WJRV-FM (pending) Country 25-54 2.3 13 2.4 12 1.6% 13
WGCV-AM (pending) Gospel/Oldies 35-64 1.2 18(t) 1.7 15(t) n/a(2) n/a(2)
WDYL-FM 1999 Modern Rock 18-34 0.9 20 1.4 13(t) -- 15
Boston 8 10
WBOT-FM(5) 1999 Urban 18-34 n/a n/a n/a n/a n/a n/a
- --------
(1) WJZZ-AM in Kingsley, MI and WFUN-FM in St. Louis, MO are not currently
broadcasting and are not included in the table.
(2) WYCB-AM, WCHB-AM, WARV-FM and WGCV-AM do not report revenues to
Hungerford or Miller Kaplan. Revenue shares for WYCB-AM and WCHB-AM
represent those stations' net broadcast revenue as a percentage of the
market radio revenue reported by Hungerford in their respective markets
for the twelve-month period ending December 31, 1999, as adjusted for
WYCB-AM and WCHB-AM revenue, as appropriate.
(3) The revenues of WERQ-FM and WOLB-AM are reported jointly to Hungerford,
as are the revenues of WWIN-FM and WWIN-AM. The revenue share percentages
for these stations reflect the proportional contribution by each station
to the joint share reported by Hungerford.
(4) WERE-AM's format consists of brokered time programming. The station's
ratings were not meaningful.
(5) Prior to resuming broadcasting on December 1, 1999, WBOT-FM in Boston, MA
was not operational. Accordingly, there are no ratings or revenue data to
be included in the table.
Advertising Revenue
Substantially all of our net broadcast revenue is generated from the sale of
local and national advertising for broadcast on our radio stations. Additional
net broadcast revenue is generated from network compensation payments and
other miscellaneous transactions. Local sales are made by the sales staffs
located in our markets. National sales are made by firms specializing in radio
advertising sales on the national level, in exchange for a commission from
Radio One that is based on a percentage of our net broadcast revenue from the
advertising obtained. Approximately 68.1% of our net broadcast revenue for the
year ended December 31, 1999, was
14
generated from the sale of local advertising and 30.1% from sales to national
advertisers. The balance of net broadcast revenue is derived from network
advertising, tower rental income and ticket and other revenue related to
special events hosted by Radio One.
We believe that advertisers can reach the African-American community more
cost effectively through radio broadcasting than through newspapers or
television. Advertising rates charged by radio stations are based primarily
on:
. a radio station's audience share within the demographic groups targeted
by the advertisers,
. the number of radio stations in the market competing for the same
demographic groups, and
. the supply and demand for radio advertising time.
Advertising rates are generally highest during the morning and afternoon
commuting hours.
A radio station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to a radio station and the time they spend
listening to that radio station. Each radio station's ratings are used by its
advertisers to consider advertising with the radio station, and are used by us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
We will continue to evaluate potential radio station acquisitions in
African-American markets. We are also exploring opportunities in other forms
of media to apply our expertise in marketing to African-Americans. Such
opportunities could include outdoor advertising in urban environments, an
urban-oriented Internet strategy, an urban-oriented radio network, music
production, publishing and other related businesses.
We have entered into a programming agreement with XM Satellite Radio, Inc.
to be the exclusive provider of African-American oriented programming to be
broadcast on XM Satellite's digital audio radio service, which is expected to
be available in 2001.
We have also invested, together with most other publicly-traded radio
companies, in a private placement for USA Digital Radio, Inc., a leading
developer of in-band on-channel digital audio broadcast technology. This
technology could enable radio broadcasters to convert from analog to digital
broadcasting within the existing frequency allocation of their AM and FM
stations. In conjunction with this investment, Alfred C. Liggins, III, the
Chief Executive Officer and President of Radio One, became a board member of
USA Digital Radio, Inc.
Additionally, we have invested in PNE Media Holdings, LLC, a privately-held
outdoor advertising company with a presence in several of the markets in which
we own radio stations.
We recently invested a combination of cash and advertising time in aka.com,
LLC, an aggregator of web sites devoted to hip hop culture. In conjunction
with this investment, our Chief Financial Officer, Scott R. Royster, became a
director of aka.com, LLC.
We also made a $750,000 loan to NetNoir, Inc., an internet portal service
provider. We provided $250,000 in cash and $500,000 of advertising in exchange
for the loan. The loan is convertible into preferred stock. Subsequent to
year-end, in March 2000, we made a commitment to invest an additional $2.5
million worth of advertising on our radio stations in exchange for an equity
investment in NetNoir, Inc.
Competition
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and
with other media such as television, newspapers, direct mail
15
and outdoor advertising. Audience ratings and advertising revenue are subject
to change and any adverse change in a market could adversely affect our net
broadcast revenue in that market. If a competing station converts to a format
similar to that of one of our stations, or if one of our competitors
strengthens its operations, our stations could suffer a reduction in ratings
and advertising revenue. Other radio companies which are larger and have more
resources may also enter markets where we operate. Although we believe our
stations are well positioned to compete, we cannot assure you that our
stations will maintain or increase their current ratings or advertising
revenue.
The radio broadcasting industry is also subject to rapid technological
change, evolving industry standards and the emergence of new media
technologies. Several new media technologies are being developed, including
the following:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same band width currently
occupied by traditional AM and FM radio services.
We recently entered into a programming agreement with a satellite digital
audio radio service and have also invested in a developer of digital audio
broadcast technology. However, we cannot assure you that these arrangements
will be successful or enable us to adapt effectively to these new media
technologies. We also cannot assure you that we will continue to have the
resources to acquire other new technologies or to introduce new services that
could compete with other new technologies.
Antitrust
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
Justice Department has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy. The
Justice Department has challenged a number of radio broadcasting transactions.
Some of those challenges ultimately resulted in consent decrees requiring,
among other things, divestitures of certain stations. In general, the Justice
Department has more closely scrutinized radio broadcasting acquisitions that
result in local market shares in excess of 40% of radio advertising revenue.
Similarly, the FCC staff has adopted procedures to review proposed radio
broadcasting transactions even if the proposed acquisition otherwise complies
with the FCC's ownership limitations. In particular, the FCC may invite public
comment on proposed radio transactions that the FCC believes, based on its
initial analysis, may present ownership concentration concerns in a particular
local radio market.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act. The Communications Act permits the operation of
radio broadcast stations only in accordance with a license issued by the FCC
upon a finding that the grant of a license would serve the public interest,
convenience and necessity. The Communications Act provides for the FCC to
exercise its licensing authority to provide a fair, efficient and equitable
distribution of broadcast service throughout the United States. Among other
things, the FCC:
. assigns frequency bands for radio broadcasting;
. determines the particular frequencies, locations and operating power of
radio broadcast stations;
16
. issues, renews, revokes and modifies radio broadcast station licenses;
. establishes technical requirements for certain transmitting equipment
used by radio broadcast stations;
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and
. has the power to impose penalties, including monetary forfeitures, for
violations of its rules and the Communications Act.
The Communications Act prohibits the assignment of an FCC license, or other
transfer of control of an FCC licensee, without the prior approval of the FCC.
In determining whether to grant requests for consents to assignments or
transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership,
compliance with FCC media ownership limits and other FCC rules, licensee
"character" and compliance with the Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the Communications
Act and specific FCC rules and policies. This summary does not purport to be
complete and is qualified in its entirety by the text of the Communications
Act, the FCC's rules and regulations, and the rulings of the FCC. You should
refer to the Communications Act and these FCC rules and rulings for further
information concerning the nature and extent of federal regulation of radio
broadcast stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, for particularly egregious
violations, the denial of a license renewal application, the revocation of an
FCC license or the denial of FCC consent to acquire additional broadcast
properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of our radio stations, result in
the loss of audience share and advertising revenue for our radio broadcast
stations or affect our ability to acquire additional radio broadcast stations
or finance such acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. auction of new broadcast licenses;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
low power radio broadcast service;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast cross-interest, multiple ownership, foreign
ownership, cross-ownership and ownership attribution policies;
17
. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposals or
changes might have on our business.
FCC Licenses
The Communications Act provides that a broadcast station license may be
granted to any applicant if the public interest, convenience and necessity
will be served thereby, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant's legal, technical, financial
and other qualifications. The FCC grants radio broadcast station licenses for
specific periods of time and, upon application, may renew them for additional
terms. Under the Communications Act, radio broadcast station licenses may be
granted for a maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
. there have been no other violations by the licensee of the
Communications Act or FCC rules and regulations which, taken together,
indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term less than
the maximum otherwise permitted, or hold an evidentiary hearing.
In addition, the Communications Act authorizes the filing of petitions to
deny a license renewal application during specific periods of time after a
renewal application has been filed. Interested parties, including members of
the public, may use such petitions to raise issues concerning a renewal
applicant's qualifications. If a substantial and material question of fact
concerning a renewal application is raised by the FCC or other interested
parties, or if for any reason the FCC cannot determine that grant of the
renewal application would serve the public interest, convenience and
necessity, the FCC will hold an evidentiary hearing on the application. If as
a result of an evidentiary hearing the FCC determines that the licensee has
failed to meet the requirements specified above and that no mitigating factors
justify the imposition of a lesser sanction, then the FCC may deny a license
renewal application. Only after a license renewal application is denied will
the FCC accept and consider competing applications for the vacated frequency.
Also, during certain periods when a renewal application is pending, the
transferability of the applicant's license may be restricted. Historically,
our licenses have been renewed without any conditions or sanctions imposed.
However, there can be no assurance that the licenses of each of our stations
will be renewed or will be renewed without conditions or sanctions.
The FCC classifies each AM and FM radio station. An AM radio station
operates on either a clear channel, regional channel or local channel. A clear
channel is one on which AM radio stations are assigned to serve wide areas,
particularly at night. Clear channel AM radio stations are classified as
either: (1) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (2)
Class B radio stations, which operate unlimited time and are designed to
render service only over a primary service area. Class D radio stations, which
operate either daytime, or unlimited time with low nighttime power, may
operate on the same frequencies as clear channel radio stations. A regional
channel is one on which Class B and Class D AM radio stations may operate and
serve primarily a principal center of population and the rural areas
contiguous to it. A local channel is one on which AM radio stations operate
unlimited time and serve primarily a community and the suburban and rural
areas immediately contiguous to it. A Class C AM radio
18
station operates on a local channel and is designed to render service only
over a primary service area that may be reduced as a consequence of
interference.
The minimum and maximum facilities requirements for an FM radio station are
determined by its class. Possible FM class designations depend upon the
geographic zone in which the transmitter of the FM radio station is located.
In general, commercial FM radio stations are classified as follows, in order
of increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio
stations. The FCC has proposed to divide Class C stations into two subclasses
based on antenna height. Stations not meeting the minimum height requirement
within a three-year transition period would be downgraded automatically to the
new Class C0 category.
In January 2000, the FCC voted to create a class of radio stations designed
to serve very localized communities or underrepresented groups within
communities by authorizing two new classes of noncommercial low power FM radio
stations which will be permitted to operate on commercial FM frequencies.
There will be two types of LPFM stations, LP100 stations with power from 50 to
100 watts and a service radius of approximately 3.5 miles and LP10 stations
with power from one to 10 watts and a service radius of approximately 1-2
miles. New LPFM stations will have to protect the signals of all other
authorized FM stations and may be authorized on any FM frequency. Eligible
licensees are limited to noncommercial government or private educational
organizations, associations or entities; non-profit entities with educational
purposes; or government or non-profit entities providing local public safety
or transportation services. No existing broadcasters or other media entities
may own an LPFM station. For the first two years of the LPFM service,
licensees will be limited to local entities headquartered within 10 miles of
the LPFM station transmitter. During the first two years, no entity may
operate more than one LPFM station. After two years, the ownership limit will
be five LPFM stations nationwide and after three years, the ownership limit
will be 10 LPFM stations nationwide.
The following table sets forth information with respect to each of our radio
stations, including the additional radio stations we have agreed to purchase
in Richmond three of which are currently operated pursuant to a local
marketing agreement . A broadcast station's market may be different from its
community of license. "ERP" refers to the effective radiated power of an FM
radio station. "HAAT" refers to the antenna height above average terrain of an
FM radio station. "AI" refers to the above insulator measurement of an AM
radio station. The coverage of an AM radio station is chiefly a function of
the power of the radio station's transmitter, less dissipative power losses
and any directional antenna adjustments. For FM radio stations, signal
coverage area is chiefly a function of the ERP of the radio station's antenna
and the HAAT of the radio station's antenna. The height of an AM radio
station's antenna is measured by reference to AI and the height of an FM radio
station's antenna is measured by reference to HAAT.
19
ERP (FM) Expiration
Station Power HAAT (FM) Date of
Call Year of FCC (AM) in AI (AM) Operating FCC
Market Letters Acquisition Class Kilowatts in Meters Frequency License
- -------------- ------- ----------- ----- --------- --------- --------- ----------
Washington, DC WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.0 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 50.9 1340 kHz 10/01/2003
Baltimore WWIN-AM 1992 C 1.0 61.0 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 85.4 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
Atlanta WHTA-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WAMJ-FM 1999 C3 25.0 98.0 107.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.3(1) 305.0 103.9 MHz 08/01/2006
WPLY-FM 2000 B 35.0 183.0 100.3 MHz 08/01/2006
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 50.0 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0(2) 59.7 1210 kHz 10/01/2004
WDMK-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0(3) 100.0 95.5 MHz 12/01/2003
Cleveland WERE-AM 1999 B 5.0 128.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
Richmond WDYL-FM 1999 A 6.0 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WARV-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM (pending) B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM (pending) A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM (pending) A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM (pending) C 1.0 122.0 1240 kHz 10/01/2003
Boston WBOT-FM 1999 A 2.7 150.0 97.7 MHZ 04/01/2006
- --------
(1) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(2) WJZZ-AM ceased broadcast operations on October 12, 1999.
(3) WFUN-FM is authorized to upgrade to a Class C3 facility. WFUN-FM ceased
broadcast operations on June 4, 1999.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
a broadcast licensee, the FCC considers, among other things:
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S.
citizen or entity ownership and control;
. compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties;
. the history of compliance with FCC operating rules; and
. the "character" qualifications of the transferee or assignee and the
individuals or entities holding "attributable" interests in them.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the
20
application must be placed on public notice for a period of 30 days during
which petitions to deny the application may be filed by interested parties,
including members of the public. Informal objections may be filed any time
until the FCC acts upon the application. If an assignment application does not
involve new parties, or if a transfer of control application does not involve
a "substantial change" in ownership or control, it is a pro forma application,
which is not subject to the public notice and 30-day petition to deny
procedure. The pro forma application is nevertheless subject to informal
objections that may be filed any time until the FCC acts on the application.
If the FCC grants an assignment or transfer application, interested parties
have 30 days from public notice of the grant to seek reconsideration of that
grant. The FCC usually has an additional ten days to set aside such grant on
its own motion. When ruling on an assignment or transfer application, the FCC
is prohibited from considering whether the public interest might be served by
an assignment or transfer to any party other than the assignee or transferee
specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% of its capital stock owned or
voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations.
Furthermore, the Communications Act provides that no FCC broadcast license may
be granted to or held by any corporation directly or indirectly controlled by
any other corporation of which more than 25% of its capital stock is owned of
record or voted by non-U.S. citizens or entities or their representatives, or
foreign governments or their representatives or by non-U.S. corporations, if
the FCC finds the public interest will be served by the refusal or revocation
of such license. These restrictions apply in modified form to other forms of
business organizations, including partnerships and limited liability
companies. Thus, the licenses for our stations could be revoked if more than
25% of our outstanding capital stock is issued to or for the benefit of non-
U.S. citizens.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the
case of a corporation holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly have the right to vote five
percent or more of the stock of a licensee corporation are generally deemed
attributable interests, as are positions as an officer or director of a
corporate parent of a broadcast licensee. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media-related activities of the
partnership. The FCC currently treats limited liability companies like limited
partnerships for purposes of attribution. Stock interests held by insurance
companies, mutual funds, bank trust departments and certain other passive
investors that hold stock for investment purposes only become attributable
with the ownership of 20% or more of the voting stock of the corporation
holding broadcast licenses.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a multi-
corporation ownership chain. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well for purposes of the FCC's local radio station ownership
rules, if the agreement affects more than 15% of the brokered radio station's
weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests
where the limited partner is not "materially involved" in the media-related
activities of the partnership, and minority voting stock interests in
corporations where there is a single holder of more than 50% of the
outstanding voting stock whose vote is sufficient to affirmatively direct the
affairs of the corporation, generally do not subject their holders to
attribution. As of December 31, 1999, no single stockholder held more than 50%
of the total voting power of our common stock.
However, the FCC recently adopted a new rule, known as the equity-debt-plus
or EDP rule that causes certain creditors or investors to be attributable
owners of a station, regardless of whether there is a single majority
shareholder or other applicable exception to the FCC's attribution rules.
Under this new rule, a major programming supplier or a same-market media
entity will be an attributable owner of a station if the supplier or same-
market media entity holds debt or equity, or both, in the station that is
greater than 33% of the value of the
21
station's total debt plus equity. For purposes of the EDP rule, equity
includes all stock, whether voting or nonvoting, and equity held by insulated
limited partners in limited partnerships. Debt includes all liabilities,
whether long-term or short-term. A major programming supplier includes any
programming supplier that provides more than 15% of the station's weekly
programming hours. A same-market media entity includes any holder of an
attributable interest in a media company, including broadcast stations, cable
television and newspapers, located in the same market as the station, but only
if the holder's interest is attributable under an FCC attribution rule other
than the EDP rule. The FCC's rules also specify other exceptions to these
general principles for attribution.
Communications Act and FCC rules generally restrict ownership, operation or
control of, or the common holding of attributable interests in:
. radio broadcast stations above certain limits servicing the same local
market;
. radio broadcast stations and television broadcast stations servicing the
same local market; and
. a radio broadcast station and a daily newspaper serving the same local
market.
These rules include specific signal contour overlap standards to determine
compliance, and the FCC defined market will not necessarily be the same market
used by Arbitron, Neilsen or other surveys, or for purposes of the HSR Act.
Under these "cross-ownership" rules, we, absent waivers, would not be
permitted to own a radio broadcast station and acquire an attributable
interest in any daily newspaper in the same market where we then owned any
radio broadcast station. Our stockholders, officers or directors, absent a
waiver, may not hold an attributable interest in a daily newspaper in those
same markets.
Under the newly revised radio/television cross-ownership rule, a single
owner may own up to two television stations, consistent with the FCC's rules
on common ownership of television stations, together with one radio station in
all markets. In addition, an owner will be permitted to own additional radio
stations, not to exceed the local ownership limits for the market, as follows:
. In markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. In markets where 10 media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently-owned and operating full power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number
of FM radio stations and AM radio stations nationwide, the Communications Act
and the FCC's rules limit the number of radio broadcast stations in local
markets in which a single entity may own an attributable interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
22
The FCC staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Under its "cross-interest" policy, the FCC has considered "meaningful"
relationships among competing media outlets that serve "substantially the same
area" even if the FCC's ownership rules do not specifically prohibit the
relationship. Under this policy the FCC has considered whether to prohibit one
party from holding an attributable interest and a substantial non-attributable
interest (including non-voting stock, limited partnership and limited
liability company interests) in a media outlet in the same market, or from
entering into a joint venture or having common key employees with competitors.
The FCC, however, has determined that the recently adopted EDP rule addresses
many of the competitive concerns previously encompassed by its "cross-
interest" policy. As a result, effective November 16, 1999, the FCC has
eliminated its "cross-interest" policy. Nevertheless, the FCC has retained
discretion to review individual cases that present unusual cross-interest
relationships on a case-by-case basis.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an "attributable" interest in Radio
One, such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other
television, radio stations or daily newspapers, depending on their number and
location. If an attributable stockholder, officer or director of Radio One
violates any of these ownership rules, we may be unable to obtain from the FCC
one or more authorizations needed to conduct our radio station business and
may be unable to obtain FCC consents for certain future acquisitions.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980s, the FCC has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a radio
station's community of license. Nevertheless, a broadcast licensee continues
to be required to present programming in response to community problems, needs
and interests and to maintain certain records demonstrating its
responsiveness. The FCC will consider complaints from listeners about a
broadcast station's programming when it evaluates the licensee's renewal
application, but listeners' complaints also may be filed and considered at any
time. Stations also must pay regulatory and application fees, and follow
various FCC rules that regulate, among other things, political advertising,
the broadcast of obscene or indecent programming, sponsorship identification,
the broadcast of contests and lotteries and technical operation.
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules,
as they related to outreach efforts for recruitment of minorities, however,
were struck down as unconstitutional by the U.S. Court of Appeals for the D.C.
Circuit. The FCC recently adopted new rules to address the concern of the U.S.
Court of Appeals. The new rules will require us not to discriminate in hiring
practices, to file certain employment reports annually and at other times, to
certify compliance with the rules, and to widely disseminate information
regarding job openings.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the
licensee owns both radio broadcast stations or owns one and programs the other
through a local marketing agreement, provided that the contours of the radio
stations overlap in a certain manner.
From time to time, complaints may be filed against Radio One's radio
stations alleging violations of these or other rules. In addition, the FCC
recently has proposed to establish a system of random audits to ensure and
verify licensee compliance with FCC rules and regulations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including fines or conditions, the grant of "short" (less than the
maximum eight year) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
23
Local Marketing Agreements. Often radio stations enter into LMAs or time
brokerage agreements. These agreements take various forms. Separately owned
and licensed radio stations may agree to function cooperatively in
programming, advertising sales and other matters, subject to compliance with
the antitrust laws and the FCC's rules and policies, including the requirement
that the licensee of each radio station maintain independent control over the
programming and other operations of its own radio station. One type of time
brokerage agreement is a programming agreement between two separately owned
radio stations that serve a common service area whereby the licensee of one
radio station programs substantial portions of the broadcast day of the other
licensee's radio station, subject to ultimate control by the radio station
licensee, and sells advertising time during these program segments. The FCC
has held that such agreements do not violate the Communications Act as long as
the licensee of the radio broadcast station that is being substantially
programmed by another entity (1) remains ultimately responsible for, and
maintains control over, the operation of its radio station, and (2) otherwise
ensures the radio station's compliance with applicable FCC rules and policies.
A radio broadcast station that brokers time on another radio broadcast
station or enters into a time brokerage agreement with a radio broadcast
station in the same market will be considered to have an attributable
ownership interest in the brokered radio station for purposes of the FCC's
local ownership rules if the time brokerage arrangement covers more than 15%
of the brokered station's weekly broadcast hours. As a result, a radio
broadcast station may not enter into a time brokerage agreement that allows it
to program more than 15% of the broadcast time, on a weekly basis, of another
local radio broadcast station that it could not own under the FCC's local
multiple ownership rules. Attribution for radio time brokerage agreements
applies to all of the FCC's multiple ownership rules applicable to radio
stations (daily newspaper/radio cross-ownership and radio/television cross-
ownership) and not only the local radio ownership rules. Also, as described
above, FCC rules prohibit a radio broadcast station from simulcasting more
than 25% of its programming on another radio broadcast station in the same
broadcast service (that is, AM/AM or FM/FM) where the two radio stations serve
substantially the same geographic area, whether the licensee owns both radio
stations or owns one radio station and programs the other through a time
brokerage agreement. Thus far, the FCC has not considered what relevance, if
any, a time brokerage agreement may have upon its evaluation of a licensee's
performance at renewal time.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling party of certain sales, accounting and services
to the station whose advertising is being sold. The typical JSA is distinct
from a local marketing agreement in that a JSA normally does not involve
programming.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute ("ANSI") standard regarding human exposure to
levels of radio frequency ("RF") radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC at the time of filing such applications whether an existing broadcast
facility would expose people to RF radiation in excess of certain limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, which are based in part on the revised ANSI standard, and
which must be fully complied with by September 1, 2000.
Digital Audio Radio Service. The FCC allocated spectrum to a new technology,
digital audio radio service ("DARS"), to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a
DARS service in early 1997. DARS may provide a medium for the delivery by
satellite or
24
terrestrial means of multiple new audio programming formats with compact disc
quality sound to local and national audiences. The nationwide reach of
satellite DARS could allow niche programming aimed at diverse communities that
Radio One is targeting. It is not known at this time whether this technology
also may be used in the future by existing radio broadcast stations either on
existing or alternate broadcasting frequencies. Two companies that hold
licenses for authority to offer multiple channels of digital, satellite-
delivered S-Band aural services could compete with conventional terrestrial
radio broadcasting. The licensees will be permitted to sell advertising and
lease channels in these media. The FCC's rules require that these licensees
launch and begin operating at least one space station by 2001 and be fully
operational by 2003.
The FCC has established a new Wireless Communications Service ("WCS") in the
2305-2320 and 2345-2360 MHz bands (the "WCS Spectrum") and awarded licenses.
Licensees are generally permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
These satellite radio services use technology that may permit higher sound
quality than is possible with conventional AM and FM terrestrial radio
broadcasting.
Implementation of DARS would provide an additional audio programming service
that could compete with Radio One's radio stations for listeners, but the
effect upon Radio One cannot be predicted.
Low Power Radio Broadcast Service. In January 2000, the FCC voted to create
a class of radio stations designed to serve very localized communities or
underrepresented groups within communities by authorizing two new classes of
noncommercial low power FM radio stations that may operate on commercial FM
frequencies. There will be two types of LPFM stations, LP100 stations with
power from 50 to 100 watts and a service radius of approximately 3.5 miles and
LP10 stations with power from one to 10 watts and a service radius of
approximately 1-2 miles. New LPFM stations will have to protect the signals of
all other authorized FM stations and may be authorized on any FM frequency.
Eligible licensees are limited to noncommercial government or private
educational organizations, associations or entities; non-profit entities with
educational purposes; or government or non-profit entities providing local
public safety or transportation services. No existing broadcasters or other
media entities may own an LPFM station. For the first two years of the LPFM
service, licensees will be limited to local entities headquartered within 10
miles of the LPFM station transmitter. During the first two years, no entity
may operate more than one LPFM station. After two years, the ownership limit
will be five LPFM stations nationwide and after three years, the ownership
limit will be 10 LPFM stations nationwide. FCC engineers have conducted
interference testing and have concluded that the new lower power FM stations
will not produce unacceptable levels of interference to existing FM radio
stations, such as those owned by Radio One. Nevertheless, the effect of this
untested newly created low power radio service on Radio One cannot be
predicted.
Subsidiaries And Related Entities
Radio One has title to most of the assets used in the operations of our
radio stations. The FCC licenses for the radio stations in all cases are held
by direct or indirect wholly-owned subsidiaries of Radio One. In the case of
all of the Baltimore stations, three of the Washington, D.C. stations, the
Philadelphia stations, the St. Louis station, the Cleveland stations and the
Richmond stations, the FCC licenses are held by Radio One Licenses, Inc., a
Delaware corporation and a wholly-owned subsidiary of Radio One that is
subject to the restrictions imposed by the agreements governing our
indebtedness. Radio One Licenses, Inc. holds no other material assets. WYCB
Acquisition Corporation, a Delaware corporation and a wholly-owned
unrestricted subsidiary, holds title to all of the outstanding capital stock
of BHI, a District of Columbia corporation and an unrestricted subsidiary. The
FCC licenses for WYCB-AM are held by BHI which also holds the assets used in
the operation of that station. Bell Broadcasting, a Michigan corporation and a
wholly-owned restricted subsidiary, holds the assets used in the operation of
WCHB-AM, WDTJ-FM and WJZZ-AM. Bell Broadcasting holds title to all of the
outstanding capital stock of Radio One of Detroit, Inc., a Delaware
corporation and a restricted subsidiary. The FCC licenses for WCHB-AM, WDTJ-FM
and WJZZ-AM are held by Radio One of Detroit, Inc. Radio One of Detroit, Inc.
holds no other material assets.
25
Allur-Detroit, a Delaware corporation and a wholly-owned restricted
subsidiary, holds the assets used in the operation of station WDMK-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a restricted subsidiary. The FCC licenses for
WDMK-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
ROA, a Delaware corporation and a wholly-owned restricted subsidiary, holds
the assets used in the operation of station WHTA-FM and some assets used in
the operation of station WAMJ-FM. ROA holds title to all of the outstanding
capital stock of ROA Licenses, Inc., a Delaware corporation and a restricted
subsidiary. The FCC licenses for WHTA-FM are held by ROA Licenses, Inc. ROA
Licenses, Inc. holds no other material assets. Dogwood, a Delaware corporation
and a wholly-owned restricted subsidiary, owns some of the assets used in the
operation of station WAMJ-FM and all of the outstanding capital stock of
Dogwood Licenses, Inc., a Delaware corporation and a restricted subsidiary.
The FCC licenses for WAMJ-FM are held by Dogwood Licenses, Inc. Dogwood
Licenses, Inc., holds no other material assets.
The FCC licenses for radio stations included in pending acquisitions will be
held by existing or to be formed subsidiaries.
Employees
As of February 29, 2000, we employed approximately 684 people. Our employees
are not unionized. We have, however, agreed to assume a collective bargaining
agreement with regard to certain employees at KKBT-FM pursuant to our
agreement with Clear Channel Communications, Inc. and AMFM, Inc. to acquire
that radio station. We have not experienced any work stoppages and believe
relations with our employees are satisfactory. Each radio station has its own
on-air personalities and clerical staff. However, in an effort to control
broadcast and corporate expenses, we centralize certain radio station
functions by market location. For example, in each of our markets we typically
employ one General Manager who is responsible for all of our radio stations
located in such market and our Vice President of Programming oversees
programming for all of our urban-oriented FM radio stations.
Industry Segments
We consider radio broadcasting to be our only business segment.
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are not historical facts, but
rather are based on our current expectations, estimates and projections about
Radio One's industry, our beliefs and assumptions. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions are intended to identify forward-looking statements.
Because these statements apply to future events, they are subject to risks and
uncertainties that could cause actual results to differ materially, including
the absence of a combined operating history with an acquired company or radio
station and the potential inability to integrate acquired businesses, need for
additional financing, high degree of leverage, seasonality of the business,
market ratings, variable economic conditions and consumer tastes, as well as
restrictions imposed by existing debt and future payment obligations.
Important factors that could cause actual results to differ materially are
described in the Company's reports on Forms 10-K and 10-Q and other filings
with the Securities and Exchange Commission.
ITEM 2. PROPERTIES AND FACILITIES
Properties
The types of properties required to support each of our radio stations
include offices, studios and transmitter/antenna sites. We typically lease our
studio and office space with lease terms that are five to ten years.
26
A station's studios are generally housed with its offices in downtown or
business districts. We generally consider our facilities to be suitable and of
adequate size for our current and intended purposes. We lease a majority of
our main transmitter/antenna sites and when negotiating a lease for such sites
we try to obtain a lengthy lease term with options to renew. In general, we do
not anticipate difficulties in renewing facility or transmitter/antenna site
leases or in leasing additional space or sites if required.
We own substantially all of our equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by Radio
One's stations are generally in good condition, although opportunities to
upgrade facilities are continuously reviewed.
The tangible personal property owned by Radio One and the real property
owned or leased by Radio One is the subject of a security interest held
pursuant to the terms of our amended and restated credit agreement (the
"Credit Agreement") dated as of February 26, 1999, under which we may borrow
$100 million on a revolving basis (the "Bank Credit Facility").
ITEM 3. LEGAL PROCEDINGS
We are involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of our business. We believe the resolution
of such matters will not have a material adverse effect on our business,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our stockholders for vote during the fourth
quarter of 1999.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Recent Sales of Unregistered Securities
On January 25, 1999, Radio One issued an aggregate of 51,194 shares of
common stock to its Chief Financial Officer. These shares were issued pursuant
to the exemption from registration provided by Rule 701 under the Securities
Act.
On February 25, 1999, pursuant to a plan of recapitalization, Radio One
issued to the holders of its class A common stock, in exchange for all of the
outstanding shares of class A common stock, 46.15 shares of class B common
stock and 92.3 shares of class C common stock. These shares were issued
pursuant to the exemption from registration provided by Section 3(a)(10) of
the Securities Act.
On March 30, 1999, Radio One issued approximately 3.3 million shares of
common stock to the shareholders of ROA in connection with Radio One's
acquisition of ROA. These shares were issued pursuant to the exemption from
registration provided by Section 3(a)(10) of the Securities Act.
Price Range of Our Class A Common Stock
Our class A common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "ROIA." The table below shows, for the quarters
indicated, the reported high and low bid quotes for our class A common stock
on the Nasdaq Stock Market's National Market.
High Low
------ ------
Fiscal Year 1999
Second Quarter (beginning May 6)......................... $47.00 $28.00
Third Quarter............................................ 46.50 39.63
Fourth Quarter........................................... 97.50 41.50
The initial public offering of our class A common stock was priced on May 5,
1999 at $24.00 per share.
Dividends
Since becoming a public company in May 1999, we have not declared any
dividends on our common stock. We intend to retain future earnings for use in
our business and do not anticipate declaring or paying any cash or stock
dividends on shares of our common stock in the foreseeable future. In
addition, any determination to declare and pay dividends will be made by our
board of directors in light of our earnings, financial position, capital
requirements, the Bank Credit Facility, and the indenture governing our 12%
Notes due 2004 (the "Indenture"), and such other factors as the board of
directors deems relevant. See Note 4 to the Consolidated Financial Statements
of Radio One included elsewhere in this Form 10-K.
Number of Stockholders
Based upon a survey of record holders and a review of our stock transfer
records, as of the date of this report there were approximately 6,200 holders
of Radio One's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected historical consolidated financial data
with respect to Radio One. The selected historical consolidated financial data
have been derived from the Consolidated Financial Statements of Radio One for
each of the fiscal years for the five year period ended December 31, 1999,
which have been
28
audited by Arthur Andersen LLP, independent public accountants. The selected
historical consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Radio One included
elsewhere in this Form 10-K.
The following table includes information regarding broadcast cash flow,
EBITDA, and after-tax cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, local marketing agreement fees and
corporate expenses. EBITDA consists of operating income before depreciation,
amortization, and local marketing agreement fees. After-tax cash flow consists
of income before income tax expense (benefit) and extraordinary items, minus
net gain on sale of assets (net of tax) and the current income tax provision,
plus depreciation and amortization expense. Although broadcast cash flow,
EBITDA, and after-tax cash flow are not measures of performance or liquidity
calculated in accordance with GAAP, we believe that these measures are useful
to an investor in evaluating Radio One because these measures are widely used
in the broadcast industry as a measure of a radio broadcasting company's
performance. Nevertheless, broadcast cash flow, EBITDA and after-tax cash flow
should not be considered in isolation from or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Moreover, because broadcast cash flow, EBITDA and after-tax cash
flow are not measures calculated in accordance with GAAP, these performance
measures are not necessarily comparable to similarly titled measures employed
by other companies.
29
Fiscal Years Ended (1)
------------------------------------------------
December 31,
December 25, -----------------------------------
1995 1996 1997 1998 1999
------------ ------- ------- ------- --------
(In Thousands)
Statement of Operations:
Net broadcast revenue....... $21,455 $23,702 $32,367 $46,109 $ 81,703
Station operating expenses.. 11,736 13,927 18,848 24,501 44,259
Corporate expenses.......... 1,995 1,793 2,155 2,800 4,380
Depreciation and
amortization............... 3,912 4,262 5,828 8,445 17,073
------- ------- ------- ------- --------
Operating income........... 3,812 3,720 5,536 10,363 15,991
Interest expense(2)......... 5,289 7,252 8,910 11,455 15,279
Other income (expense),
net........................ 89 (77) 415 358 2,149
Income tax (benefit)
expense(3)................. -- -- -- (1,575) 2,728
------- ------- ------- ------- --------
(Loss) income before
extraordinary item........ (1,388) (3,609) (2,959) 841 133
Extraordinary loss.......... 468 -- 1,985 -- --
------- ------- ------- ------- --------
Net (loss) income.......... $(1,856) $(3,609) $(4,944) $ 841 $ 133
======= ======= ======= ======= ========
Other Data:
Broadcast cash flow......... $ 9,719 $ 9,775 $13,519 $21,608 $ 37,444
Broadcast cash flow
margin(4).................. 45.3% 41.2% 41.8% 46.9% 45.8%
EBITDA (before non-cash
compensation).............. $ 7,724 $ 7,982 $11,364 $18,808 $ 33,289
After-tax cash flow......... 2,524 806 2,869 7,248 16,303
Cash interest expense(5).... 5,103 4,815 4,413 7,192 10,762
Capital expenditures........ 224 252 2,035 2,236 3,252
Balance Sheet Data (at
period end):
Cash and cash equivalents......................................... $ 6,221
Intangible assets, net............................................ 218,460
Total assets...................................................... 527,536
Total debt (including current portion and deferred interest)...... 82,626
Preferred stock................................................... --
Total stockholders' equity........................................ 420,256
- --------
(1) Year-to-year comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." Prior to the fiscal year ended December 31, 1996, Radio
One's accounting reporting period was based on a fifty-two/fifty-three
week period ending on the last Sunday of the calendar year. During 1996,
we changed our fiscal year end to December 31.
(2) Interest expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(3) From January 1, 1996 to May 19, 1997, Radio One elected to be treated as
an S corporation for U.S. federal and state income tax purposes and,
therefore, generally was not subject to income tax at the corporate level
during that period.
(4) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(5) Cash interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for
the indicated period.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
included elsewhere in this Form 10-K.
Introduction
The net broadcast revenue of Radio One is derived from local and national
advertisers and, to a much lesser extent, ticket and other revenue related to
special events sponsored by Radio One throughout the year. Our significant
broadcast expenses are employee salaries and commissions, programming
expenses, advertising and promotion expenses, rental of premises for studios
and rental of transmission tower space and music license royalty fees. We
strive to control these expenses by centralizing certain functions such as
finance, accounting, legal, human resources and management information systems
and the overall programming management function, as well as using our multiple
stations, market presence and purchasing power to negotiate favorable rates
with certain vendors and national representative selling agencies.
Depreciation and amortization of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
Radio One's overall profitability.
Radio One's net broadcast revenue is affected primarily by the advertising
rates our radio stations are able to charge as well as the overall demand for
radio advertising time in a market. Advertising rates are based primarily on
(1) a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports developed by
Arbitron, (2) the number of radio stations in the market competing for the
same demographic groups, and (3) the supply of and demand for radio
advertising time. Advertising rates are generally highest during morning and
afternoon commuting hours. In 1999, approximately 68.1% of Radio One's revenue
was generated from local advertising and 30.1% was generated from national
spot advertising. The balance of 1999 revenue was generated primarily from
network advertising, tower rental income and ticket and other revenue related
to Radio One sponsored events.
The performance of an individual radio station or group of radio stations in
a particular market is customarily measured by its ability to generate net
broadcast revenue and broadcast cash flow, although broadcast cash flow is not
a measure utilized under generally accepted accounting principles ("GAAP").
Broadcast cash flow should not be considered in isolation from, nor as a
substitute for, operating income, net income, cash flow, or other consolidated
income or cash flow statement data computed in accordance with GAAP, nor as a
measure of Radio One's profitability or liquidity. Despite its limitations,
broadcast cash flow is widely used in the broadcasting industry as a measure
of a company's operating performance because it provides a meaningful measure
of comparative radio station performance, without regard to items such as
depreciation and amortization, which can vary depending upon accounting
methods and the book value of assets, particularly in the case of acquisitions
and corporate expenses.
Radio One's operating results in any period may be affected by advertising
and promotion expenses that do not produce commensurate net broadcast revenue
in the period in which such expenses are incurred. We generally incur
advertising and promotion expenses in order to increase listenership and
Arbitron ratings. Increased advertising revenue may wholly or partially lag
behind the incurrence of such advertising and promotion expenses because
Arbitron only reports complete ratings information on a quarterly basis.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to reduce expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our spot inventory, we
minimize the use of trade agreements and have reduced trade revenue to
approximately 2.0% of our gross revenue in 1999, down from approximately 2.7%
in 1997.
Radio One calculates same station growth over a particular period by
comparing performance of stations owned or operated under an LMA during the
current period with the performance of the same stations for the
31
corresponding period in the prior year. However, no station will be included
in such a comparison unless it has been owned or operated under an LMA for at
least one month of every quarter included in each of the current and
corresponding prior-year periods.
From January 1, 1997, through December 31, 1999, Radio One acquired 15 radio
stations and began operating three stations under a Time Brokerage Agreement,
the acquisition of which is pending. On May 19, 1997, Radio One acquired WPHI-
FM, in Philadelphia, for approximately $20.0 million, after having operated
the station under a Time Brokerage Agreement since February 8, 1997. On March
16, 1998, Radio One, through an Unrestricted Subsidiary, acquired BHI, owner
and operator of WYCB-AM, in Washington, D.C., for approximately $3.8 million.
On June 30, 1998, Radio One acquired Bell Broadcasting, owner and operator of
WDTJ-FM and WCHB-AM in Detroit, and WJZZ-AM in Kingsley, Michigan, for
approximately $34.2 million. On December 28, 1998, Radio One acquired Allur-
Detroit, owner and operator of WDMK-FM, in Detroit, for approximately $26.5
million. On March 30, 1999, Radio One acquired its affiliate, ROA, owner and
operator of WHTA-FM in Atlanta, for approximately 3.3 million shares of Radio
One common stock, and ROA acquired the 67% of Dogwood it did not own for
approximately $3.6 million. Dogwood owns and operates WAMJ-FM also in Atlanta.
On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM for approximately
$20.0 million. On June 4, 1999, Radio One acquired the assets of WFUN-FM for
approximately $13.6 million. On July 1, 1999, Radio One acquired WKJS-FM and
WARV-FM for approximately $12.0 million. On July 15, 1999, Radio One acquired
WDYL-FM for approximately $4.6 million. On October 1, 1999, Radio One acquired
WBOT-FM in Boston for approximately $10.0 million. On May 6, 1999, Radio One
entered into an asset purchase agreement to acquire WCDX-FM, WPLZ-FM, WJRV-FM
and WGCV-AM in Richmond. The Company began operating the three Richmond FM
stations under a Time Brokerage Agreement on June 1, 1999.
The consolidated financial statements of Radio One for fiscal years 1997,
1998 and 1999 included elsewhere in this Form 10-K set forth the results of
operations of WPHI-FM for approximately 11 months of fiscal year 1997,
including the LMA period. For fiscal year 1998, they include WYCB-AM from
March 16, 1998, through the end of fiscal year 1998; Bell Broadcasting from
July 1, 1998, through the end of fiscal year 1998; and Allur-Detroit from
December 29, 1998, through the end of fiscal year 1998. The consolidated
financial statements of Radio One for the fiscal year 1999 set forth the
results of operations of: ROA and Dogwood from March 30, 1999, through the end
of the fiscal year 1999; WENZ-FM and WERE-AM from April 30, 1999 through the
end of the fiscal year 1999; WCDX-FM, WPLZ-FM and WJRV-FM from June 1, 1999,
through the end of the fiscal year 1999; WFUN-FM from June 4, 1999, through
the end of the fiscal year 1999; WKJS-FM and WARV-FM from July 1, 1999,
through the end of the fiscal year 1999; WDYL-FM from July 15, 1999, through
the end of the fiscal year 1999; and WBOT-FM from October 1, 1999, through the
end of the fiscal year 1999. The discussion below concerning results of
operations reflects the operations of radio stations Radio One owned and/or
managed during the periods presented. As a result of the aforementioned
acquisitions and additions in operations (including the Time Brokerage
Agreement for the three stations in Richmond in June, 1999), Radio One's
historical financial data prior to such times are not directly comparable to
Radio One's historical financial data for subsequent periods.
32
RADIO ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes Radio One's historical consolidated results
of operations:
Years Ended December 31
-------------------------
1997 1998 1999
------- ------- -------
(In Thousands)
Statement of Operations:
Net broadcast revenue.............................. $32,367 $46,109 $81,703
Station operating expenses......................... 18,848 24,501 44,259
Corporate expenses................................. 2,155 2,800 4,155
Stock-based compensation........................... -- -- 225
Depreciation and amortization...................... 5,828 8,445 17,073
------- ------- -------
Operating income................................. 5,536 10,363 15,991
Interest expense................................... 8,910 11,455 15,279
Other income, net.................................. 415 358 2,149
------- ------- -------
(Loss) income before (benefit) provision for income
taxes and extraordinary item...................... (2,959) (734) 2,861
Income tax (benefit) provision..................... -- (1,575) 2,728
(Loss) income before extraordinary item.......... (2,959) 841 133
Extraordinary loss................................. 1,985 -- --
------- ------- -------
Net (loss) income................................ $(4,944) $ 841 $ 133
======= ======= =======
Broadcast cash flow................................ $13,519 $21,608 $37,444
Broadcast cash flow margin......................... 41.8% 46.9% 45.8%
EBITDA............................................. $11,364 $18,808 $33,289
After-tax cash flow................................ 2,869 7,248 16,303
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 31,
1998
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$81.7 million for the fiscal year ended December 31, 1999 from approximately
$46.1 million for the fiscal year ended December 31, 1998 or 77.2%. This
increase in net broadcast revenue was the result of continuing broadcast
revenue growth in all of the markets in which we have operated for at least
one year as we benefited from historical ratings increases at certain of our
radio stations, improved power ratios at these stations, as well as from
industry growth in each of these markets. Additional revenue gains were
derived from our mid-1999 acquisitions in Cleveland and Richmond (where the
Company also operates stations under a time brokerage agreement) as well as
the March 30, 1999 acquisition of Radio One of Atlanta, Inc.
Operating Expenses. Operating expenses increased to approximately $44.3
million for the fiscal year ended December 31, 1999 from approximately $24.5
million for the fiscal year ended December 31, 1998 or 80.8%. This increase in
expenses was related to our rapid expansion within all of the markets in which
we operate including higher costs in Washington associated with improved
programming on our morning shows as well as start-up and expansion expenses in
our newer markets of Detroit, Cleveland and Richmond, in particular, as well
as the March 30, 1999 acquisition of Radio One of Atlanta, Inc.
Corporate Expenses. Corporate expenses (including stock-based compensation)
increased to approximately $4.4 million for the fiscal year ended December 31,
1999, from approximately $2.8 million for the fiscal year ended December 31,
1998, or 57.1%. This increase was due primarily to growth in the corporate
staff consistent with our overall expansion and costs associated with
operating as a public company.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $17.1 million for the fiscal year ended December 31, 1999, from
approximately $8.4 million for the fiscal year ended
33
December 31, 1998, or 103.6%. This increase was due primarily to our asset
growth as well as our acquisitions in 1998 and 1999.
Operating Income. Operating income increased to approximately $16.0 million
for the fiscal year ended December 31, 1999 from approximately $10.4 million
for the fiscal year ended December 31, 1998 or 53.8%. This increase was
attributable to higher revenue as described above offset by higher
depreciation and amortization expenses associated with several of our
acquisitions made within the last year .
Interest Expense. Interest expense increased to approximately $15.3 million
for the fiscal year ended December 31, 1999 from approximately $11.5 million
for the fiscal year ended December 31, 1998 or 33.0%. This increase relates
primarily to interest incurred on higher average borrowings outstanding under
our bank credit facility as a result of borrowings to fund certain
acquisitions.
Other Income. Other income increased to approximately $2.1 million for the
fiscal year ended December 31, 1999 from approximately $0.4 million for the
fiscal year ended December 31, 1998 or 425%. This increase was due to our
higher cash balances following our two equity offerings during the year.
Income (loss) before Provision (Benefit) for Income Taxes. Income before
provision (benefit) for income taxes increased to approximately $2.9 million
for the fiscal year ended December 31, 1999 from a loss of approximately $0.7
million for the fiscal year ended December 31, 1998. This increase was due to
higher operating and interest income partially offset by higher depreciation,
amortization and interest expense, as described above.
Net Income. Net income decreased to approximately $0.1 million for the
fiscal year ended December 31, 1999 from approximately $0.8 million for the
fiscal year ended December 31, 1998 or 87.5%. The decrease in net income for
the fiscal year was due to higher income before provision for income taxes in
1999 offset by an income tax provision in 1999 versus a tax benefit in 1998
related to an elimination of a deferred income tax asset valuation reserve.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $37.4
million for the fiscal year ended December 31, 1999 from approximately $21.6
million for the fiscal year ended December 31, 1998 or 73.1%. This increase
was attributable to the increases in broadcast revenue partially offset by
higher operating expenses as described above.
Our broadcast cash flow margin decreased to approximately 45.8% for the
fiscal year ended December 31, 1999, from 46.9% for the fiscal year ended
December 31, 1998. This overall decrease for the year was the result of the
acquisition of radio stations with considerably lower profit margins than
those operated by us for periods longer than one year. On a same station
basis, broadcast cash flow margin for the period increased to approximately
51.0% in 1999 from approximately 48.0% in 1998. The increase in those stations
we have owned or operated for more than one year was the result of strong
revenue gains in these more mature markets partially offset by slower expense
growth in those markets.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
(EBITDA), and excluding stock-based compensation expense, increased to
approximately $33.3 million for the fiscal year ended December 31, 1999 from
approximately $18.8 million for the fiscal year ended December 31, 1998 or
77.1%. This increase was attributable to the increase in broadcast revenue
partially offset by higher operating expenses and higher corporate expenses,
as described above.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$46.1 million for the fiscal year ended December 31, 1998, from approximately
$32.4 million for the fiscal year ended December 31, 1997, or 42.3%.
Approximately $3.8 million of the increase was attributable to stations
acquired during 1998. On a same station basis, net revenue for the period
increased approximately 30.6% to approximately $42.3 million in 1998
34
from approximately $32.4 million in 1997. This increase was the result of
continuing broadcast revenue growth in Radio One's Washington, D.C.,
Baltimore, and Philadelphia markets as we benefited from ratings increases at
certain of our radio stations, improved power ratios at these stations and
radio market growth.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $24.5 million for the
fiscal year ended December 31, 1998, from approximately $18.8 million for the
fiscal year ended December 31, 1997, or 30.3%. Approximately $2.5 million of
the increase was attributable to stations acquired during 1998. On a same
station basis, station operating expenses for the period increased
approximately 17.0% to approximately $22.0 million in 1998 from approximately
$18.8 million in 1997. This increase was primarily related to increases in
sales commissions and license fees due to significant revenue growth, as well
as additional programming costs related to ratings gains at some of our larger
radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.8
million for the fiscal year ended December 31, 1998, from approximately $2.2
million for the fiscal year ended December 31, 1997, or 27.3%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% Notes due 2004 and costs
associated with our public reporting requirements.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $8.4 million for the fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%. This increase was due primarily to our asset growth as well as our
acquisitions in 1998.
Operating Income. Operating income increased to approximately $10.4 million
for the fiscal year ended December 31, 1998, from approximately $5.5 million
for the fiscal year ended December 31, 1997, or 89.1%. This increase was
attributable to the increases in broadcast revenues partially offset by higher
operating expenses and higher depreciation and amortization expenses as
described above.
Interest Expense. Interest expense increased to approximately $11.5 million
for the fiscal year ended December 31, 1998, from approximately $8.9 million
for the fiscal year ended December 31, 1997, or 29.2%. This increase was
primarily due to the 12% Notes Offering, the retirement of our approximately
$45.6 million bank credit facility and borrowings under our Bank Credit
Facility associated with the Bell Broadcasting acquisition.
Other Income. Other income decreased to $358,000 for the fiscal year ended
December 31, 1998, from $415,000 for the fiscal year ended December 31, 1997,
or 13.7%. This decrease was primarily attributable to lower interest income
due to lower cash balances as we used a portion of our cash balances to help
fund the Bell Broadcasting acquisition.
Loss before Benefit from Income Taxes. Loss before benefit from income taxes
decreased to $734,000 for the fiscal year ended December 31, 1998, from
approximately $3.0 million for the fiscal year ended December 31, 1997, or
75.5%. This decrease was due to higher operating income partially offset by
higher interest expense and lower other income. The income tax benefit of
approximately $1.6 million for the year ended December 31, 1998, was the
result of reversing our valuation allowance recorded in prior years related to
our net operating loss carryforward and other deferred tax assets, offset by
an income tax provision of $483,000 as we had net income for tax reporting
purposes as a result of non-deductible amortization expense for income tax
purposes. Certain intangible assets acquired as a result of the Bell
Broadcasting acquisition maintained their old income tax basis because the
Bell Broadcasting acquisition was a stock purchase.
Net Income (Loss). Net income increased to $841,000 for the fiscal year
ended December 31, 1998, from a net loss of approximately $4.9 million for the
fiscal year ended December 31, 1997. The increase was due to higher operating
income and an income tax benefit, partially offset by higher interest expense
as described above and an approximate $2.0 million extraordinary loss related
to the refinancing of debt.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $21.6
million for the fiscal year ended December 31, 1998, from approximately $13.5
million for the fiscal year ended December 31, 1997, or
35
60.0%. Approximately $1.3 million of the increase was attributable to stations
acquired during 1998. On a same station basis, broadcast cash flow for the
period increased approximately 50.4% to approximately $20.3 million in 1998
from approximately $13.5 million in 1997. This increase was attributable to
the increase in net broadcast revenue partially offset by higher station
operating expenses as described above.
Our broadcast cash flow margin increased to approximately 46.9% for the
fiscal year ended December 31, 1998, from 41.8% for the fiscal year ended
December 31, 1997. On a same station basis, broadcast cash flow margin for the
period increased to approximately 48.0% in 1998 from approximately 41.8% in
1997. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1998 was the result of our recent entrance into the Detroit market where
we acquired underperforming stations with profit margins lower than those of
many of the radio stations we own in markets in which we have operated for a
longer period of time.
EBITDA. EBITDA increased to approximately $18.8 million for the fiscal year
ended December 31, 1998, from approximately $11.4 million for the fiscal year
ended December 31, 1997, or 64.9%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher station operating
and corporate expenses as described above.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by operations and, to the
extent necessary, undrawn commitments available under the Bank Credit
Facility. Our ability to borrow in excess of the commitments set forth in the
Credit Agreement is limited by the terms of the Indenture. Additionally, such
terms place restrictions on Radio One with respect to the sale of assets,
liens, investments, dividends, debt repayments, capital expenditures,
transactions with affiliates, consolidation and mergers, and the issuance of
equity interests among other things.
We have used, and will continue to use, a significant portion of our capital
resources to consummate acquisitions. These acquisitions were or will be
funded from (i) the Bank Credit Facility, (ii) the proceeds of the historical
offerings of our common stock, (iii) the proceeds of future common and/or
preferred stock, and/or debt offerings, and (iv) internally generated cash
flow.
Radio One's balance of cash and cash equivalents was approximately $6.2
million as of December 31, 1999, and approximately $4.5 million as of December
31, 1998. This increase in cash resulted primarily from our follow-on public
offering in November 1999 as well as higher cash from operations. We have
entered into a $100.0 million Bank Credit Facility from which we have
historically drawn down on as capital was required, primarily for
acquisitions. On December 31, 1999, $100.0 million was available to be drawn
down from the Bank Credit Facility.
Net cash flow from operating activities increased to approximately $18.2
million for the fiscal year ended December 31, 1999, from approximately $9.3
million for the fiscal year ended December 31, 1998, or 95.7%. This increase
was primarily due to lower net income and an increase in trade account
receivables more than offset by higher non-cash expenses and an increase in
payables. Non-cash expenses of depreciation and amortization increased to
approximately $17.1 million for fiscal year ended December 31, 1999, from
approximately $8.4 million for the fiscal year ended December 31, 1998, or
103.6%, due, primarily, to our acquisitions in the second half of 1998 and at
various times in 1999. Non-cash expenses of amortization of debt financing
costs, unamortized discount and deferred interest increased to approximately
$4.6 million for the fiscal year ended December 31, 1999, from approximately
$4.1 million for the fiscal year ended December 31, 1998, or 12.2%, due
primarily to the terms of the 12% Notes issued in 1997.
Net cash flow used in investing activities increased to approximately $346.6
million for the fiscal year ended December 31, 1999, compared to approximately
$61.2 million for the fiscal year ended December 31, 1998, or 466.3%. During
the fiscal year ended December 31, 1999, we used $85.4 million of cash to
acquire radio stations
36
or make deposits on radio stations we have agreed to acquire. Additionally, we
purchased $256.3 million worth of short-term investment securities with cash
from operations as well as cash raised in two public stock offerings, made
purchases of capital equipment totaling approximately $3.3 million and made
approximately $1.6 million worth of investments in other companies. During the
fiscal year ended December 31, 1998, we used $59.1 million of cash to acquire
radio stations or make deposits on radio stations we had agreed to acquire and
made net purchases of capital equipment totaling approximately $2.0 million.
Net cash flow from financing activities was approximately $330.1 million for
the fiscal year ended December 31, 1999. During the fiscal year ended December
31, 1999 we completed our initial public stock offering and a follow-on stock
offering and raised approximately $412.0 million net of offering costs. Also
during the fiscal year ended December 31, 1999 we borrowed approximately $75.7
million to fund various acquisitions and repaid $128.8 million worth of debt
with cash from operations and from our two equity offerings. In conjunction
with these borrowings and our 12% Notes issued in 1997, we incurred
approximately $0.6 million in deferred debt financing costs. Additionally,
during the fiscal year ended December 31, 1999, we repaid approximately $28.2
million of Cumulative Redeemable Preferred Stock with proceeds from our
initial public offering. During the fiscal year ended December 31, 1998, Radio
One entered into a $57.5 million Bank Credit Facility, of which, approximately
$49.4 million was used to finance partially the acquisitions of Bell
Broadcasting and Allur-Detroit. In conjunction with this facility and our 12%
Notes issued in 1997, we incurred approximately $1.0 million in deferred debt
financing costs. Additionally, during the fiscal year ended December 31, 1998,
a wholly-owned Unrestricted Subsidiary of Radio One financed the acquisition
of WYCB-AM with a promissory note due to the seller for approximately $3.8
million. As a result, cash and cash equivalents increased by approximately
$1.8 million during the fiscal year ended December 31, 1999, compared to a
decrease of approximately $4.0 million during the fiscal year ended December
31, 1998.
We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the top 40 African-American
markets. As of the date of this report, other than the pending transactions
with Clear Channel Communications, Inc. AMFM, Inc., Davis Broadcasting, Inc.,
Shirk, Inc. and IBL, L.L.C., we have no written or oral understandings,
letters of intent or contracts to acquire radio stations. We anticipate that
any future radio station acquisitions would be financed through funds
generated from operations, equity financings, permitted debt financings, debt
financings through Unrestricted Subsidiaries or a combination of these
sources. However, there can be no assurance that financing from any of these
sources, if available, will be available on favorable terms.
Management believes that, based on current levels of operations and
anticipated internal growth, cash flow from operations together with other
available sources of funds will be adequate for the foreseeable future to
consummate the acquisitions of radio stations we have agreed to acquire, make
required payments of interest on Radio One's indebtedness, to fund anticipated
capital expenditures and working capital requirements and to enable us to
comply with the terms of our debt agreements. Our ability to meet our debt
service obligations and reduce our total debt, and our ability to refinance
the 12% Notes due 2004, at or prior to their scheduled maturity date in 2004,
will depend upon our future performance which, in turn, will be subject to
general economic conditions and to financial, business and other factors,
including factors beyond our control. For 2000, we anticipate maintenance
capital expenditures to be between $2.0 million and $4.0 million and total
capital expenditures to be between $4.0 million and $7.0 million.
Impact of Inflation
We believe that inflation has not had a material impact on our results of
operations for each of our fiscal years in the three-year period ended
December 31, 1999. However, there can be no assurance that future inflation
would not have an adverse impact on our operating results and financial
condition.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Radio One's first fiscal
quarter generally produces the lowest net broadcast revenue for the year.
37
Year 2000 Compliance
We believe that we have successfully rendered our internal management and
other administrative systems and external information systems year 2000
compliant. In addition, we surveyed vendors of third-party technologies we
utilize in our business and applied updates or made arrangements to correct
potential year 2000 compliance problems. Since January 1, 2000, we have
experienced no significant disruptions in our business operations as a result
of year 2000 compliance problems or otherwise, and we have received no reports
of any material year 2000 compliance problems. We are continuing to monitor
third-party vendors of technologies we use for additional recommended year
2000 upgrades, which we will apply as soon as they become available. To date,
the total cost of our efforts to address year 2000 compliance has not been
material.
Nonetheless, some problems related to year 2000 risks may not appear until
several months after January 1, 2000. Year 2000 issues could include problems
with our own systems or with third-party products or technology that we use or
with which our systems exchange data. Any problems that are not identified and
corrected successfully and completely could adversely affect our business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have significant interest rate risk related to our Senior
Subordinated Notes, which have an interest rate of 12%. We do not have foreign
currency risk as we have no foreign operations. We do not have any derivative
commodity instruments or other financial instruments such as interest rate
swaps, foreign currency forwards, futures and options, and foreign currency
denominated debt. We do not have commodity price risk or other relevant market
risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Radio One required by this item are
filed with this report on Pages F-1 to F-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors, executive officers and other
significant personnel of Radio One are set forth in the table below. All
directors serve for the term for which they are elected or until their
successors are duly elected and qualified or until death, retirement,
resignation or removal.
Age as of
Name 2/9/00 Position
---------------------------- --------- -------------------------------------
Chairperson of the Board of Directors
Catherine L. Hughes......... 52 and Secretary
Chief Executive Officer, President,
Alfred C. Liggins, III (1).. 35 Treasurer, and Director
Executive Vice President and Chief
Scott R. Royster............ 35 Financial Officer
Mary Catherine Sneed........ 48 Chief Operating Officer
General Counsel and Assistant
Linda J. Eckard............. 42 Secretary
Steve Hegwood............... 38 Vice President of Programming
Leslie J. Hartmann.......... 38 Corporate Controller
Terry L. Jones (2).......... 53 Director
Brian W. McNeill (2)........ 43 Director
Larry D. Marcus............. 51 Director
- --------
(1) Mr. Alfred C. Liggins, III, is the son of Ms. Catherine L. Hughes
(2) Member of the Audit and Compensation Committees
Ms. Hughes has been Chairperson of the board of directors and Secretary of
Radio One since 1980, and was Chief Executive Officer of Radio One from 1980
to 1997. She was one of the founders of Radio One's predecessor company in
1980. Since 1980, Ms. Hughes has worked in various capacities for Radio One
including President, General Manager, General Sales Manager and talk show
host. She began her career in radio as General Sales Manager of WHUR-FM, the
Howard University-owned, urban-contemporary radio station. Ms. Hughes is also
the mother of Mr. Liggins, Radio One's Chief Executive Officer, President,
Treasurer and director.
Mr. Liggins has been Chief Executive Officer since 1997, and President,
Treasurer and a director of Radio One since 1989. Mr. Liggins joined Radio One
in 1985 as an Account Manager at WOL-AM. In 1987, he was promoted to General
Sales Manager and promoted again in 1988 to General Manager overseeing Radio
One's Washington, D.C. operations. After becoming President, Mr. Liggins
engineered Radio One's expansion into other markets. Mr. Liggins is a graduate
of the Wharton School of Business/Executive M.B.A. Program. Mr. Liggins is the
son of Ms. Hughes, Radio One's Chairperson and Secretary.
Mr. Royster has been Executive Vice President of Radio One since 1997 and
Chief Financial Officer of Radio One since 1996. Prior to joining Radio One,
he served as an independent consultant to Radio One. From 1995 to 1996, Mr.
Royster was a principal at TSG Capital Group, LLC, a private equity investment
firm located in Stamford, Connecticut, which has been an investor in Radio One
since 1987. Mr. Royster has also served as an associate and later a principal
at Capital Resource Partners from 1992 to 1995, a private capital investment
firm in Boston, Massachusetts. Mr. Royster is a graduate of Duke University
and Harvard Business School.
Ms. Sneed has been Radio One's Chief Operating Officer since January 1998
and General Manager of ROA since 1995. Prior to joining Radio One, she held
various positions with Summit Broadcasting including Executive Vice President
of the Radio Division, and Vice President of Operations from 1992 to 1995. Ms.
Sneed is a graduate of Auburn University.
Ms. Eckard has been General Counsel of Radio One since January 1998 and
Assistant Secretary of Radio One since April 1999. Prior to joining Radio One
as General Counsel, Ms. Eckard represented Radio One as
39
outside counsel from July 1995 until assuming her current position. Ms. Eckard
was a partner in the Washington, D.C. office of Davis Wright Tremaine LLP,
from August 1997 to December 1997. Her practice focused on transactions and
FCC regulatory matters. Prior to joining Davis Wright Tremaine LLP, Ms. Eckard
was a shareholder of Roberts & Eckard, P.C., a firm that she co-founded in
April 1992. Ms. Eckard is a graduate of Gettysburg College, the National Law
Center at George Washington University and the University of Glasgow. Ms.
Eckard is admitted to the District of Columbia Bar and the Bar of the United
States Supreme Court.
Mr. Hegwood has been the Vice President of Programming for Radio One and
Program Director of WKYS-FM since 1995. From 1990 to 1995, Mr. Hegwood was
Program Director of WJLB-FM in Detroit, Michigan.
Ms. Hartmann has been Controller of Radio One since 1997. Prior to joining
Radio One, she served as Vice President and Market Controller for Bonneville
International Corporation in Phoenix, Arizona from 1991 to 1997. Ms. Hartmann
is a graduate of the University of California and has an M.B.A. degree from
the University of Phoenix.
Mr. Jones has been a director of Radio One since 1995. Since 1990, Mr. Jones
has been President of Syndicated Communications, Inc., a communications
venture capital investment company, and its wholly owned subsidiary, Syncom
Capital Corporation. He joined Syndicated Communications, Inc. in 1978 as a
Vice President. Mr. Jones serves in various capacities, including director,
president, general partner and vice president, for various other entities
affiliated with Syndicated Communications, Inc. He also serves on the board of
directors of the National Association of Investment Companies, Delta Capital
Corporation, Sun Delta Capital Access Center, Cyber Digital Inc. and the
Southern African Enterprise Development Fund. Mr. Jones earned his B.S. degree
from Trinity College, his M.S. from George Washington University and his
M.B.A. from Harvard Business School.
Mr. McNeill has been a director of Radio One since 1995. Since 1986, Mr.
McNeill has been a General Partner of Burr, Egan, Deleage & Co., a major
private equity firm which specializes in investments in the communications and
technology industries. He has served as a director in many private radio and
television broadcasting companies such as Tichenor Media Systems, OmniAmerica
Group, Panache Broadcasting and Shockley Communications. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed that institution's
broadcast lending group. Mr. McNeill is a graduate of Holy Cross College and
earned an M.B.A. from the Amos Tuck School at Dartmouth College. He currently
serves as a director of Acme Communications, Inc., a public company with
ownership interests in nine television stations.
Mr. Marcus became a director of Radio One in April 1999. Mr. Marcus is
currently President of Peak Media L.L.C., which is the sole management member
of Peak Media Holdings L.L.C., the owner of a television station in Johnstown,
Pennsylvania, and the operator under a time brokerage agreement of a
television station in Altoona, Pennsylvania. In 1989, Mr. Marcus became the
Chief Financial Officer of River City Broadcasting, L.P., licensee of ten
television stations and thirty-four radio stations located in medium to large
markets. River City Broadcasting was sold to Sinclair Broadcasting in 1996.
Mr. Marcus is also a director of Citation Computer Systems, Inc., a publicly
traded NASDAQ company. Mr. Marcus is a graduate of City College of New York.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Radio One's
directors and executive officers and persons who beneficially own more than
ten percent of our common stock to file with the Securities and Exchange
Commission reports showing ownership of and changes in ownership of our common
stock and other equity securities. On the basis of reports and representations
submitted by Radio One's directors, executive officers, and greater than ten
percent owners, we believe that all required Section 16(a) filings for fiscal
1999 were timely made, except that the initial report on Form 3 for Mr. Marcus
was inadvertently filed approximately one month after its due date.
40
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Our non-officer directors are reimbursed for all out-of-pocket expenses
related to meetings attended. In addition, Mr. Marcus receives an annual
stipend of $24,000. Our other non-officer directors receive no additional
compensation for their services as directors. Our officers who serve as
directors do not receive compensation for their services as directors other
than the compensation they receive as officers of Radio One.
Compensation of Executive Compensation
The following information relates to compensation of our Chief Executive
Officer and each of our most highly compensated executive officers (the "Named
Executives") for the fiscal years ended December 31, 1999, 1998 and 1997 (as
applicable):
Summary Compensation Table
Long Term
Compensation Awards
---------------------------
Securities
Name and Principal Restricted Stock Underlying All Other
Positions Year Salary Bonus Awards Options Compensation(2)
- ------------------------ ---- -------- -------- ---------------- ---------- ---------------
Catherine L. Hughes..... 1999 $250,000 $150,000 $ -- -- $6,167
Chairperson of the
Board of Directors and 1998 225,000 100,000 -- -- 3,232
Secretary 1997 193,269 50,000 -- -- 3,050
Alfred C. Liggins, III.. 1999 300,000 250,000 -- -- 6,230
Chief Executive 1998 225,000 100,000 -- -- 3,567
Officer, President, 1997 193,269 50,000 -- -- 3,125
Treasurer and Director
Scott R. Royster........ 1999 200,000 175,000 225,000(1) 18,646 7,739
Executive Vice
President and Chief 1998 165,000 50,000 -- -- --
Financial Officer 1997 148,077 25,000 -- -- --
Mary Catherine Sneed.... 1999 220,000 50,000 -- -- --
Chief Operating Officer 1998 200,000 50,000 -- -- --
Linda J. Eckard......... 1999 175,000 90,000 -- 31,077 --
General Counsel 1998 150,000 25,000 -- -- --
- --------
(1) Represents 51,194 shares of class C common stock with a value as of
December 31, 1999 (based on the last reported sale price for class A
common stock on the Nasdaq National Market on such date of $92) of
$4,709,848. Twenty-five percent of the stock vested on the date of grant;
the remaining stock will vest in equal increments every month beginning
February 28, 1999 and ending December 31, 2001.
(2) Represents personal use of vehicle and other taxable fringe benefits.
Option Grants in Last Fiscal Year
Potential
Realizable
Value at Assumed
Annual
Rates of Stock
Price for Option
Term
------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ---------- ------------ -------- ----------- -------- ---------
Scott R. Royster........ 18,646 9.0% $24.00 May 5, 2009 $281,433 $ 713,206
Linda J. Eckard......... 31,077 15.0 24.00 May 5, 2009 469,060 1,188,690
41
Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End Fiscal Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Scott R. Royster............ 4,662 13,984 $317,016 $ 950,912
Linda J. Eckard............. 7,289 23,788 495,652 1,617,584
Employment Agreements
Ms. Catherine L. Hughes Employment Agreement. We anticipate entering into a
three-year employment agreement with Ms. Hughes pursuant to which Ms. Hughes
will continue to serve as Radio One's Chairperson of the board of directors.
Ms. Hughes will receive an annual base salary of $250,000 effective January 1,
1999, subject to an annual increase of not less than 5%, and an annual cash
bonus at the discretion of the board of directors. We could incur severance
obligations under the expected terms of the employment agreement in the event
that Ms. Hughes's employment is terminated.
Mr. Alfred C. Liggins, III Employment Agreement. We anticipate entering into
a three-year employment agreement with Mr. Liggins pursuant to which Mr.
Liggins will continue to serve as Radio One's Chief Executive Officer and
President. Mr. Liggins will receive an annual base salary of $300,000
effective January 1, 1999, subject to an annual increase of not less than 5%,
and an annual cash bonus at the discretion of the board of directors. Radio
One could incur severance obligations under the expected terms of the
employment agreement in the event that Mr. Liggins' employment is terminated.
Mr. Scott R. Royster Employment Agreement. We are party to a three-year
employment agreement with Mr. Royster pursuant to which Mr. Royster serves as
our Chief Financial Officer and Executive Vice President. Mr. Royster receives
an annual base salary of $300,000 effective January 1, 2000, subject, under
the terms of the employment agreement, to an annual increase of not less than
5% and an annual cash bonus at the discretion of the board of directors. We
could incur severance obligations under the expected terms of the employment
agreement in the event that Mr. Royster's employment is terminated.
Ms. Linda J. Eckard Employment Agreement. We anticipate entering into an
employment agreement with Ms. Eckard pursuant to which Ms. Eckard will
continue to serve as our General Counsel. Under the expected terms of the
employment agreement, Ms. Eckard will receive an annual base salary of
$200,000 effective January 1, 2000, subject to an annual increase of not less
than 5% and an annual cash bonus at the discretion of the board of directors.
We could incur severance obligations under the expected terms of the
employment agreement in the event that Ms. Eckard's employment is terminated.
401(k) Plan
We adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after
completing 90 days of service and attaining age 21. Participants may
contribute up to 15% of their gross compensation subject to certain
limitations.
Stock Option Plan
On March 10, 1999, we adopted an option plan designed to provide incentives
relating to equity ownership to present and future executive, managerial and
other key employees, directors and consultants of Radio One and our
subsidiaries as may be selected in the sole discretion of the board of
directors. The option plan provides for the granting to participants of stock
options and restricted stock grants as the Compensation Committee of the board
of directors, or such other committee of the board of directors as the board
of directors may designate (the "Committee") deems to be consistent with the
purposes of the option plan. An aggregate of
42
1,408,100 shares of common stock have been reserved for issuance under the
option plan. The option plan affords Radio One latitude in tailoring incentive
compensation for the retention of key personnel, to support corporate and
business objectives, and to anticipate and respond to a changing business
environment and competitive compensation practices. As of December 31, 1999,
we have granted options to purchase 207,208 shares of class A common stock
having a weighted average exercise price of $24.00 per share.
The Committee has exclusive discretion to select the participants, to
determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the option plan. The option plan
terminates ten years from the date that the option plan was approved and
adopted by the stockholders of Radio One. Generally, a participant's rights
and interest under the option plan are not transferable except by will or by
the laws of descent and distribution.
Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of common stock
at a price fixed by the Committee. The option price may be less than, equal to
or greater than the fair market value of the underlying shares of common
stock, but in no event will the exercise price of an incentive stock option be
less than the fair market value on the date of grant. Options will expire not
later than ten years after the date on which they are granted. Options will
become exercisable at such times and in such installments as the Committee
shall determine. Upon termination of a participant's employment with Radio
One, options that are not exercisable will be forfeited immediately and
Options that are exercisable will be forfeited on the ninetieth day following
such termination unless exercised by the participant. Payment of the option
price must be made in full at the time of exercise in such form (including,
but not limited to, cash or common stock of Radio One) as the Committee may
determine.
Grants are awards of restricted common stock at no cost to participants and
are generally subject to vesting provisions as determined by the Committee.
Upon termination of a participant's employment with Radio One, grants that are
not vested will be forfeited immediately.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or shares of Radio One,
the Committee will make any adjustments it deems appropriate in the number and
kind of shares reserved for issuance upon the exercise of options and vesting
of grants under the option plan and in the exercise price of outstanding
options.
Compensation Committee Interlocks and Insider Participation
Radio One has formed a Compensation Committee of the Board of Directors of
Radio One, and all of the directors serving on such Compensation Committee are
directors who are not employees of Radio One. The Compensation Committee is
comprised of Messrs. Terry L. Jones and Brian W. McNeill. No member of our
Compensation Committee has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity. See Item 13--"Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 8, 2000, by: (1) each person (or
group of affiliated persons) known by us to be the beneficial owner of more
than five percent of any class of common stock; (2) each Named Executive; (3)
each of our directors; (4) all of our directors and officers as a group. The
number of shares of each class of common stock excludes the shares of any
other class of common stock issuable upon conversion of that class of common
stock. Unless otherwise indicated in the footnotes below, each stockholder
possesses sole voting and investment power with respect to the shares listed.
Information with respect to the beneficial ownership of shares has been
provided by the stockholders.
43
Common Stock
--------------------------------------------------------
Class A Class B Class C(1)
------------------ ------------------ ------------------
Percent Percent
of Total of Total
Number of Percent Number of Percent Number of Percent Economic Voting
Name of Beneficial Owner Shares of Class Shares of Class Shares of Class Interest Power
- ------------------------ --------- -------- --------- -------- --------- -------- -------- --------
Catherine L.
Hughes(2)(3)........... 1,000 * 851,536 29.7% 3,121,048 99.6% 14.1% 16.7%
Alfred C. Liggins,
III(2)(4).............. 38,036 * 2,010,307 70.1 3,121,048 99.6 18.3 39.5
Scott R. Royster(5)..... 51,376 * -- -- -- -- * *
Linda J. Eckard(6)...... 12,654 * -- -- -- -- * *
Mary Catherine Sneed.... 230,922 1.0% -- -- -- -- * *
Terry L. Jones(7)....... 1,077,318 4.8 -- -- -- -- 3.8% 2.1%
Brian W. McNeill(8)..... 492,258 2.2 -- -- -- -- 1.7 1.0
Larry D. Marcus......... 2,500 * -- -- -- -- * *
FMR Corp................ 1,122,870 5.0% -- -- -- -- 4.0% 2.2%
Janus Capital
Corporation............ 1,774,975 8.0 -- -- -- -- 5.8 3.2
Putnam Investments,
Inc.................... 2,096,619 9.4 -- -- -- -- 7.4 4.1
All Directors and Named
Executives as a group
(8 persons)............ 1,906,064 8.6 2,861,843 99.8 3,121,048 99.6 27.9 59.9
- --------
* Less than 1%
(1) The shares of class C common stock are held by Hughes-Liggins Family
Partners, L.P., the limited partners of which are the Catherine L. Hughes
Revocable Trust, dated March 2, 1999 (of which Ms. Hughes is the trustee
and sole beneficiary), and the Alfred C. Liggins, III Revocable Trust,
dated March 2, 1999 (of which Mr. Liggins is the trustee and sole
beneficiary), and the general partner of which is Hughes-Liggins &
Company, L.L.C., the members of which are the Catherine L. Hughes
Revocable Trust, dated March 2, 1999, and the Alfred C. Liggins, III
Revocable trust, dated March 2, 1999.
(2) The shares of class A common stock and class B common stock are subject
to a voting agreement between Ms. Hughes and Mr. Liggins with respect to
the election of Radio One's directors.
(3) The shares of class B common stock are held by the Catherine L. Hughes
Revocable Trust, dated March 2, 1999.
(4) The shares of class B common stock are held by the Alfred C. Liggins, III
Revocable Trust, dated March 2, 1999.
(5) Includes 6,992 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of March 13, 2000.
(6) Includes 11,654 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of March 13, 2000.
(7) Includes 49,557 shares of class A common stock held by Mr. Jones, 300
shares of class A common stock held by each of Mr. Jones' three
daughters, and 1,026,861 shares of class A common stock held by Syncom
Capital Corporation. Mr. Jones is the President of Syncom Capital
Corporation and may be deemed to share beneficial ownership of shares of
class A common stock held by Syncom Capital Corporation by virtue of his
affiliation with Syncom Capital Corporation. Mr. Jones disclaims
beneficial ownership in such shares.
(8) Includes 14,217 shares of class A common stock held by Mr. McNeill and
478,041 shares of class A common stock held by Alta Subordinated Debt
Partners III, L.P. Mr. McNeill is a general partner of Alta Subordinated
Debt Partners III, L.P. and Mr. McNeill may be deemed to share beneficial
ownership of shares of class A common stock held by Alta Subordinated
Debt Partners III, L.P. by virtue of his affiliation with Alta
Subordinated Debt Partners III, L.P. Mr. McNeill disclaims any beneficial
ownership of such shares.
44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mableton Option
Mr. Liggins, the Chief Executive Officer and President of Radio One, has a
right, which he obtained in 1995, (the "Mableton Option") to acquire an
interest in a construction permit for an FM radio station licensed to
Mableton, Georgia (the "Mableton Station") which is in the Atlanta MSA. Mr.
Liggins and Syndicated Communications Venture Partners II, L.P. have reached
an agreement to provide initial funding to satisfy the requirements of the
Mableton Option. Syndicated Communications Venture Partners II, L.P. has
provided this funding, a portion of which will be reimbursed to it by Mr.
Liggins. Terry L. Jones, a general partner of the general partner of
Syndicated Communications Venture Partners II, L.P., is also a member of Radio
One's board of directors. Mr. Liggins has also proposed that Radio One, most
likely through ROA, enter into an LMA with respect to the Mableton Station, or
otherwise participate in the operations and financing of the Mableton Station.
Any such arrangement will be on terms at least as favorable to Radio One as
any such transaction with an unaffiliated third party.
Office Lease
We lease office space located at 100 St. Paul Street, Baltimore, Maryland
from Chalrep Limited Partnership, a limited partnership controlled by Ms.
Hughes and Mr. Liggins. The annual rent for the office space during 1999 was
approximately $161,000 and is expected to increase.
Music One, Inc.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. We
sometimes engage in promoting the recorded music product of Music One, Inc. We
estimate that the dollar value of such promotion is nominal.
Allur-Detroit
Allur-Detroit leases the transmitter site for WDMK-FM from American
Signalling Corporation for approximately $72,000 per year. American Signalling
Corporation is a wholly-owned subsidiary of Syndicated Communications Venture
Partners II, L.P. Terry L. Jones, a general partner of the general partner of
Syndicated Communications Venture Partners II, L.P., is also a member of Radio
One's board of directors. We believe that the terms of this lease are not
materially different than if the agreement were with an unaffiliated third
party.
XM Satellite, Inc.
Radio One and XM Satellite Radio, Inc. have entered into a Programming
Partner Agreement whereby we will provide programming to XM Satellite Radio,
Inc. for distribution over satellite-delivered channels. At the time we
entered into this agreement, Worldspace, Inc. held 20% of the stock of XM
Satellite Radio, Inc. Syndicated Communications Venture Partners II, L.P. owns
approximately 1.25% of the stock of Worldspace, Inc. Terry L. Jones, a
director of Radio One, is also a director of Worldspace, Inc.
Radio One of Atlanta, Inc.
On March 30, 1999, we acquired all of the outstanding capital stock of ROA.
ROA's stockholders included Alta Subordinated Debt Partners III, L.P.
("Alta"), Syndicated Communications Venture Partners II, L.P., and Alfred C.
Liggins, III. Mr. Brian W. McNeill, a general partner of Alta, is also a
member of Radio One's board of directors. Terry L. Jones, a general partner of
the general partner of Syndicated Communications Venture Partners II, L.P., is
also a member of Radio One's board of directors.
45
Radio One issued approximately 3.3 million shares of common stock in
exchange for the outstanding capital stock of ROA. Alta, Syndicated
Communications Venture Partners II, L.P. and Mr. Liggins received a majority
of such shares in exchange for their shares in ROA. In connection with this
transaction, Mr. Liggins was paid a fee of approximately $1.2 million for
arranging the acquisition. Also, as part of this transaction, Radio One
assumed and retired debt and accrued interest of approximately $16.3 million
of ROA and Dogwood. Of this amount, approximately $12.0 million was paid to
Allied Capital Corporation, approximately $1.3 million was paid to Syndicated
Communications Venture Partners II, L.P., and approximately $2.0 million was
paid to Alta.
The board of directors authorized the formation of an ad-hoc committee to
oversee the valuation of ROA. The ad-hoc committee members were Catherine L.
Hughes of Radio One, Sanford Anstey of BancBoston Investments, Inc. and Dean
Pickerell of Medallion Capital, Inc. (formerly Capital Dimensions Venture
Fund, Inc.). The committee was comprised of members of the board of directors
of, and investors in, Radio One that did not have an interest in ROA.
The ad-hoc committee recommended approval of the acquisition of ROA based
upon its determination that the acquisition was fair to Radio One and its
stockholders.
PNE Media Holdings, LLC
We have invested approximately $1,000,000 in PNE Media Holdings, LLC. During
the first quarter of 2000 we entered into an agreement to exchange our equity
and debt instruments with PNE Media for stock in SGH Holdings, Inc., which is
the holding company of a billboard company. SGH Holdings, Inc. and PNE Media
have entered into an agreement to combine their assets. Alta and its
affiliates own approximately 30% of the equity interest in PNE Media Holdings,
LLC. Mr. McNeill, a general partner of Alta, is also a member of Radio One's
board of directors.
NetNoir, Inc.
We also made a $750,000 loan to NetNoir, Inc., an internet portal service
provider. We provided $250,000 in cash and $500,000 of advertising in exchange
for the loan. The loan is convertible into preferred stock. Subsequent to
year-end, in March 2000, we made a commitment to invest an additional $2.5
million worth of advertising on our radio stations in exchange for an equity
investment in NetNoir, Inc. It is anticipated that a representative of Radio
One may serve on the board of directors of NetNoir. Several entities in which
Mr. Jones has an interest as an officer or director own approximately 32% of
the equity of NetNoir. Mr. Jones is a director of Radio One.
Executive Officers' Loans
We have extended an unsecured loan to Mr. Liggins in the amount of $380,000,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note. As of December 31, 1999, the aggregate outstanding principal
and interest amount on this loan was $411,465. The purpose of the loan was to
repay a loan that Mr. Liggins obtained from NationsBank, Texas, N.A. in 1997
to purchase an additional interest in Radio One.
ROA has extended an unsecured loan to Mary Catherine Sneed, Chief Operating
Officer of Radio One, in the original amount of $262,539, which bears interest
at an annual rate of 5.56% and is evidenced by two demand promissory notes. As
of December 31, 1999, the aggregate outstanding principal and interest amount
on this loan was $274,291. The purpose of this loan was to pay Ms. Sneed's tax
liability with respect to incentive stock grants of ROA stock received by Ms.
Sneed.
We have extended an unsecured loan to Mr. Royster in the amount of $87,564,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note. As of December 31, 1999, the aggregate outstanding principal
and interest on this loan was $90,027. The purpose of this loan was to pay Mr.
Royster's tax liability with respect to the restricted stock grant that we
made to Mr. Royster.
46
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report:
Index to Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
(a)(2) EXHIBITS: The following exhibits are filed as part of this annual
statement.
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of Radio One, Inc. (incorporated by
reference to Radio One's
Amendment to its Registration Statement on Form S-1 filed on May 4,
1999 (File No. 333-74351;
Film No. 99610524)).
3.2 Amended and Restated By-laws of Radio One, Inc., amended as of March
17, 2000.
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One
Licenses, Inc. and United States Trust Company of New York
(incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327)).
4.2 First Supplemental Indenture dated as of June 30, 1998, to Indenture
dated as of May 15, 1997, by and among Radio One, Inc., as Issuer and
United States Trust Company of New York, as Trustee, by and among
Radio One, Inc., Bell Broadcasting Company, Radio One of Detroit,
Inc., and United States Trust Company of New York, as Trustee
(incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139)).
4.3 Second Supplemental Indenture dated as of December 23, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One, Inc., as
Issuer and United States Trust Company of New York, as Trustee, by and
among Radio One, Inc., Allur-Detroit, Allur Licenses, Inc., and United
States Trust Company of New York, as Trustee (incorporated by
reference to Radio One's Current Report on Form 8-K filed January 12,
1999 (File No. 333-30795; Film No. 99504706)).
4.7 Standstill Agreement dated as of June 30, 1998 among Radio One, Inc.,
the subsidiaries of Radio One, Inc., United States Trust Company of
New York and the other parties thereto (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period ended June
30, 1998 (File No. 333-30795; Film No. 98688998)).
4.9 Stockholders Agreement dated as of March 2, 1999 among Catherine L.
Hughes and Alfred C. Liggins, III (incorporated by reference to Radio
One's Quarterly Report on Form 10-Q for the period ended June 30, 1999
(File No. 000-25969; Film No. 99686684)).
10.1 Office Lease dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for premises located at 5900 Princess
Garden Parkway, Lanham, Maryland, as amended on the period ended
December 31, 1997 (File No. 333-30795; Film No. 98581327)).
10.1(a) Amendment to Office Lease dated January 22, 1999 between National Life
Insurance Company and Radio One, Inc. for premises located at 5900
Princess Garden Parkway, Lanham, Maryland (incorporated by reference
to Radio One's Quarterly Report on Form 10-Q for the period ended
June 30, 1999 (File No. 000-25969; Film No. 99686684)).
47
Exhibit
Number Description
------- -----------
10.3 Office Lease commencing November 1, 1993 between Chalrep Limited
Partnership and Radio One, Inc., with respect to the property located
at 100 St. Paul Street, Baltimore, Maryland (incorporated by
reference to Radio One's Annual Report on Form 10-K for the period
ended December 31, 1997 (File No. 333-30795; Film No. 98581327)).
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended by the
First Amendment to Warrantholders' Agreement dated as of May 19,
1997, among Radio One, Inc., Radio One Licenses, Inc. and the other
parties thereto (incorporated by reference to Radio One's Annual
Report on Form 10-K for the period ended December 31, 1997 (File No.
333-30795; Film No. 98581327)).
10.7(a) Second Amendment to the Warrantholders' Agreement dated as of May 3,
1999, among Radio One, Inc., Radio One Licenses, Inc. and the other
parties thereto (incorporated by reference to Radio One's Quarterly
Report on Form 10-Q for the period ended June 30, 1999 (File No. 000-
25969; Film No. 99686684)).
10.17 Credit agreement dated June 30, 1998 among Radio One, Inc., as the
borrower and NationsBank, N.A., as Documentation Agent and Credit
Suisse First Boston as the Agent (incorporated by reference to Radio
One's Quarterly Report on Form 10-Q for the period ended June 30,
1998 (File No. 333-30795; Film No. 98688998)).
10.21 Time Management and Services Agreement dated March 17, 1998, among
WYCB Acquisition Corporation, Broadcast Holdings, Inc., and Radio
One, Inc. (incorporated by reference to Radio One's Annual Report on
Form 10-K for the period ended December 31, 1997 (File No. 333-30795;
Film No. 98581327)).
10.30 Agreement dated February 20, 1998 between WUSQ License Limited
Partnership and Radio One, Inc. (incorporated by reference to Radio
One's Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 333-30795; Film No. 98581327)).
10.40 Merger Agreement dated as of March 30, 1999 relating to the
acquisition of Radio One of Atlanta, Inc. (incorporated by reference
to Radio One's Quarterly Report on Form 10-Q for the period ended
June 30, 1998 (File No. 333-30795; Film No. 98688998)).
10.41 Asset Purchase Agreement dated as of November 23, 1998 (as amended on
December 4, 1998) relating to the acquisition of WFUN-FM, licensed to
Bethalto, Illinois (incorporated by reference to Radio One's
Amendment No. 3 to its registration statement on Form S-1 filed on
April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.42 Asset Purchase Agreement relating to the Acquisition of WENZ-FM and
WERE-AM, both licensed to Cleveland, Ohio (incorporated by reference
to Radio One's Amendment No. 3 to its registration statement on Form
S-1 filed on April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.43 Asset Purchase Agreement dated as of February 10, 1999 relating to
the acquisition of WDYL-FM, licensed to Chester, Virginia
(incorporated by reference to Radio One's Amendment No. 3 to its
registration statement on Form S-1 filed on April 14, 1999 (File No.
333-74351; Film No. 99593769)).
10.44 Asset Purchase Agreement dated as of February 26, 1999 relating to
the acquisition of WJKS-FM, licensed to Crewe Virginia, and WARV-FM,
licensed Petersburg, Virginia (incorporated by reference to Radio
One's Amendment No. 3 to its registration statement on Form S-1 filed
on April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.45 Asset Purchase Agreement dated as of May 6, 1999 relating to the
acquisition of WCDX-FM, licensed to Mechanicsville, Virginia, WPLZ-
FM, licensed to Petersburg, Virginia, WJRV-FM licensed to Richmond,
Virginia, and WGCV-AM licensed to Petersburg, Virginia (incorporated
by reference to Radio One's Registration Statement on Form S-1 filed
on October 25, 1999 (File No. 333-89607; Film No. 99732728)).
10.45(a) Time Brokerage Agreement dated May 5, 1999 among Radio One, Inc. and
Sinclair Telecable, Inc. Commonwealth Broadcasting, L.L.C. and Radio
One, Inc. (incorporated by reference to Radio One's Quarterly Report
on Form 10-Q for the period ended June 30, 1999 (File No. 000-25969;
Film No. 99686684)).
48
Exhibit
Number Description
------- -----------
10.46 Stock Purchase Agreement dated as of October 26, 1998, by and between
Radio One and Syndicated Communications Venture Partners, II, L.P.
(incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1998 (File No. 333-30795; Film No.
99581532)).
10.50 Amended and Restated Credit Agreement dated as of February 26, 1999,
among Radio One, Inc., as the borrower, and Nations Bank, N.A., as
Administrative Agent, and Credit Suisse First Boston, as the
Documentation Agent (incorporated by reference to Radio One's
Amendment No. 3 to its registration statement on Form S-1 filed on
April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.52 Asset Purchase Agreement dated as of May 24, 1999 relating to the
acquisition of WBOT-FM, licensed to Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on Form 10-
Q for the period ended June 30, 1999 (File No. 000-25969; Film No.
99686684)).
10.53 Time Brokerage Agreement dated May 24, 1999 among Radio One, Inc. and
Radio Station WBOT-FM, Brockton, Massachusetts (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.54 Agreement and Plan of Warrant Recapitalization dated as of February
25, 1999, among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30, 1999 (File
No. 000-25969; Film No. 99686684)).
10.55 Employment Agreement between Radio One, Inc. and Scott R. Royster
dated effective as of January 1, 1999 (incorporated by reference to
Radio One's Registration Statement on Form S-1 filed on October 25,
1999 (File No. 333-89607; Film No. 99732728)).
10.57 Asset Purchase Agreement dated as of December 1, 1999 relating to the
acquisition of WPLY-FM, licensed to Philadelphia, Pennsylvania
(incorporated by reference to Radio One's Registration Statement on
Form S-1 on February 14, 2000(File No. 333-30285; Film No. 537846))
21.1 Subsidiaries of Radio One, Inc.
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on March 28, 2000
Radio One, Inc.
By: /s/ Scott R. Royster____________
Name: Scott R. Royster
Title: Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities indicated on March 28, 2000.
By: /s/ Catherine L. Hughes_________
Name: Catherine L. Hughes
Title: Chairperson, Director and
Secretary
By: /s/ Alfred C. Liggins, III______
Name: Alfred C. Liggins, III
Title: Chief Executive Officer,
President and Director
By: /s/ Terry L. Jones______________
Name: Terry L. Jones
Title: Director
By: /s/ Brian W. McNeill____________
Name: Brian W. McNeill
Title: Director
By: /s/ Larry D. Marcus_____________
Name: Larry D. Marcus
Title: Director
50
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One,
Inc. (a Delaware corporation) and subsidiaries (the Company) as of December
31, 1998 and 1999, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
March 20, 2000
F-1
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1999
1998 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,455,000 $ 6,221,000
Investments, available for sale................... -- 256,390,000
Trade accounts receivable, net of allowance for
doubtful accounts of $1,243,000 and $2,429,000,
respectively..................................... 12,026,000 19,833,000
Prepaid expenses and other......................... 334,000 1,035,000
Deferred income taxes............................. 826,000 984,000
------------ ------------
Total current assets........................... 17,641,000 284,463,000
PROPERTY AND EQUIPMENT, net........................ 6,717,000 15,512,000
INTANGIBLE ASSETS, net............................. 127,639,000 218,460,000
OTHER ASSETS....................................... 1,859,000 9,101,000
------------ ------------
Total assets................................... $153,856,000 $527,536,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 1,190,000 $ 1,663,000
Accrued expenses.................................. 3,708,000 6,941,000
Income taxes payable.............................. 143,000 1,532,000
------------ ------------
Total current liabilities...................... 5,041,000 10,136,000
LONG-TERM DEBT AND DEFERRED INTEREST, net of
current portion................................... 131,739,000 82,626,000
DEFERRED INCOME TAX LIABILITY...................... 15,251,000 14,518,000
------------ ------------
Total liabilities.............................. 152,031,000 107,280,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
Series A, $.01 par value, 140,000 shares
authorized, 84,843 shares issued and
outstanding...................................... 10,816,000 --
Series B, $.01 par value, 150,000 shares
authorized, 124,467 shares issued and
outstanding...................................... 15,868,000 --
STOCKHOLDERS' EQUITY:
Common stock--Class A, $.001 par value, 30,000,000
shares authorized, 0 and 17,221,000 shares issued
and outstanding.................................. -- 17,000
Common stock--Class B, $.001 par value, 30,000,000
shares authorized, 1,572,000 and 2,867,000 shares
issued and outstanding........................... 2,000 3,000
Common stock--Class C, $.001 par value, 30,000,000
shares authorized, 3,146,000 and 3,184,000 shares
issued and outstanding........................... 3,000 3,000
Accumulated comprehensive income adjustments...... -- 40,000
Additional paid-in capital........................ -- 446,400,000
Accumulated deficit............................... (24,864,000) (26,207,000)
------------ ------------
Total stockholders' (deficit) equity........... (24,859,000) 420,256,000
------------ ------------
Total liabilities and stockholders' equity..... $153,856,000 $527,536,000
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
1997 1998 1999
----------- ------------ -----------
REVENUE:
Broadcast revenue, including barter
revenue of $1,010,000, $644,000 and
$1,821,000, respectively............. $36,955,000 $ 52,696,000 $93,260,000
Less: Agency commissions.............. 4,588,000 6,587,000 11,557,000
----------- ------------ -----------
Net broadcast revenue.............. 32,367,000 46,109,000 81,703,000
----------- ------------ -----------
OPERATING EXPENSES:
Program and technical................. 5,934,000 8,015,000 13,576,000
Selling, general and administrative... 12,914,000 16,486,000 30,683,000
Corporate expenses.................... 2,155,000 2,800,000 4,155,000
Stock-based compensation.............. -- -- 225,000
Depreciation and amortization......... 5,828,000 8,445,000 17,073,000
----------- ------------ -----------
Total operating expenses........... 26,831,000 35,746,000 65,712,000
----------- ------------ -----------
Operating income................... 5,536,000 10,363,000 15,991,000
INTEREST EXPENSE, including
amortization of deferred financing
costs................................. 8,910,000 11,455,000 15,279,000
OTHER INCOME, net...................... 415,000 358,000 2,149,000
----------- ------------ -----------
(Loss) income before (benefit)
provision for income taxes and
extraordinary item................ (2,959,000) (734,000) 2,861,000
(BENEFIT) PROVISION FOR INCOME TAXES... -- (1,575,000) 2,728,000
----------- ------------ -----------
(Loss) income before extraordinary
item................................. (2,959,000) 841,000 133,000
EXTRAORDINARY ITEM:
Loss on early retirement of debt...... 1,985,000 -- --
----------- ------------ -----------
Net (loss) income.................. $(4,944,000) $ 841,000 $ 133,000
=========== ============ ===========
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS.......................... $(6,981,000) $ (2,875,000) $(1,343,000)
=========== ============ ===========
BASIC AND DILUTED LOSS PER COMMON
SHARE:
Loss before extraordinary item........ $ (.53) $ (.31) $ (.08)
=========== ============ ===========
Net loss.............................. $ (.74) $ (.31) $ (.08)
=========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted..................... 9,392,000 9,392,000 16,137,000
=========== ============ ===========
The accompanying notes are an integral part of these consolidated statements.
F-3
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
Common Common Accumulated
Stock Stock Comprehensive Additional Total
Common Class Class Comprehensive Income Paid-In Accumulated Stockholders'
Stock B C Income Adjustments Capital Deficit Equity
------- ------ ------ ------------- ------------- ------------ ------------ -------------
BALANCE, as of December
31, 1996............... $ -- $2,000 $3,000 $ -- $ 1,158,000 $(16,166,000) $(15,003,000)
Net loss................ -- -- -- -- -- (4,944,000) (4,944,000)
Effect of conversion to
C Corporation.......... -- -- -- -- (1,158,000) 1,158,000 --
Preferred stock
dividends.............. -- -- -- -- -- (2,037,000) (2,037,000)
------- ------ ------ ------- ------------ ------------ ------------
BALANCE, as of December
31, 1997............... -- 2,000 3,000 -- -- (21,989,000) (21,984,000)
Net income.............. -- -- -- -- -- 841,000 841,000
Preferred stock
dividends.............. -- -- -- -- -- (3,716,000) (3,716,000)
------- ------ ------ ------- ------------ ------------ ------------
BALANCE, as of December
31, 1998............... -- 2,000 3,000 -- -- (24,864,000) (24,859,000)
Comprehensive income:
Net income............. -- -- -- $133,000 -- -- 133,000 133,000
Unrealized gain on
securities............ -- -- -- 40,000 40,000 -- -- 40,000
--------
Comprehensive income... -- -- -- $173,000 -- -- -- --
========
Preferred stock
dividends............. -- -- -- -- -- (1,476,000) (1,476,000)
Issuance of stock for
acquisition........... 2,000 1,000 -- -- 34,191,000 -- 34,194,000
Stock issued to an
officer............... -- -- -- -- 225,000 -- 225,000
Conversion of
warrants.............. 5,000 -- -- -- (5,000) -- --
Issuance of common
stock................. 10,000 -- -- -- 411,989,000 -- 411,999,000
------- ------ ------ ------- ------------ ------------ ------------
BALANCE, as of December
31, 1999............... $17,000 $3,000 $3,000 $40,000 $446,400,000 $(26,207,000) $420,256,000
======= ====== ====== ======= ============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
F-4
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Years Ended December 31, 1997, 1998 and 1999
1997 1998 1999
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income..................... $(4,944,000) $ 841,000 $ 133,000
Adjustments to reconcile net (loss)
income to net cash from operating
activities:
Depreciation and amortization......... 5,828,000 8,445,000 17,073,000
Amortization of debt financing costs,
unamortized discount and deferred
interest 3,270,000 4,110,000 4,597,000
Loss on early retirement of debt...... 1,985,000 -- --
Deferred income taxes and reduction
in valuation reserve on deferred
income taxes......................... -- (2,038,000) (1,043,000)
Non-cash compensation to officer...... -- -- 225,000
Non-cash advertising revenue in
exchange for equity investments...... -- -- (448,000)
Effect of change in operating assets
and liabilities-
Trade accounts receivable, net....... (2,302,000) (1,933,000) (5,419,000)
Prepaid expenses and other........... (198,000) (4,000) (593,000)
Other assets......................... (147,000) (1,391,000) (627,000)
Accounts payable..................... (131,000) 830,000 369,000
Accrued expenses..................... 1,576,000 296,000 2,218,000
Income taxes payable................. -- 143,000 1,736,000
----------- ----------- ------------
Net cash flows from operating
activities......................... 4,937,000 9,299,000 18,221,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (2,035,000) (2,236,000) (3,252,000)
Proceeds from disposal of property and
equipment............................ -- 150,000 --
Equity investments.................... -- -- (1,025,000)
Loans made............................ -- -- (600,000)
Purchase of available for sale
investments.......................... -- -- (256,321,000)
Deposits and payments for station
purchases............................ (21,164,000) (59,085,000) (85,373,000)
----------- ----------- ------------
Net cash flows from investing
activities......................... (23,199,000) (61,171,000) (346,571,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt..................... (45,599,000) (485,000) (128,804,000)
Proceeds from new debt................ 72,750,000 49,350,000 75,650,000
Deferred financing costs.............. (2,148,000) (1,038,000) (569,000)
Repayment of Senior Cumulative
Redeemable Preferred Stock........... -- -- (28,160,000)
Proceeds from issuance of common
stock, net of issuance costs -- -- 411,999,000
Financed equipment purchases.......... 51,000 -- -- --
----------- ----------- ------------
Net cash flows from financing
activities......................... 25,054,000 47,827,000 330,116,000
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 6,792,000 (4,045,000) 1,766,000
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 1,708,000 8,500,000 4,455,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 8,500,000 $ 4,455,000 $ 6,221,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest............................. $ 4,413,000 $ 7,192,000 $ 10,762,000
=========== =========== ============
Income taxes......................... $ -- $ 338,000 $ 2,252,000
=========== =========== ============
The accompanying notes are an integral part of these consolidated statements.
F-5
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware corporation referred to as Radio One) and its
subsidiaries, Radio One Licenses, Inc., WYCB Acquisition Corporation, Radio
One of Detroit, Inc., Allur-Detroit, Inc., and Allur Licenses, Inc. (Delaware
corporations), Broadcast Holdings, Inc. (a Washington, D.C., corporation),
Bell Broadcasting Company (a Michigan corporation) and Radio One of Atlanta,
Inc. and its wholly owned subsidiaries, ROA Licenses, Inc. and Dogwood
Communications, Inc. (Delaware Corporations), and its wholly owned subsidiary,
Dogwood Licenses, Inc. (a Delaware corporation) (collectively referred to as
the Company) were organized to acquire, operate and maintain radio
broadcasting stations. The Company owns and operates radio stations in the
Washington, D.C.; Baltimore, Maryland; Philadelphia, Pennsylvania; Detroit,
Michigan; Kingsley, Michigan; Atlanta, Georgia; Cleveland, Ohio; St. Louis,
Missouri; Richmond, Virginia; and Boston, Massachusetts, markets. The Company
also operates radio stations in Richmond, Virginia through a time brokerage
agreement (TBA).
The Company has been and may be highly leveraged in the future, which may
require substantial semi-annual and other periodic interest payments. The
Company's operating results are significantly affected by its share of the
audience in markets where it has stations
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are presented on the
accrual basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
IPO and Additional Public Offerings
The Company effected an initial public offering (IPO) of common stock during
May 1999, in which it sold approximately 5.4 million shares of Class A common
stock. The Company completed an additional offering of common stock during
November 1999, in which it sold approximately 5.2 million shares of Class A
common stock. The Company received net proceeds of approximately $412 million
from the offerings, after deducting offerings costs, and used a portion of the
proceeds to repay amounts borrowed under its line of credit, redeem its
preferred stock, repay a note payable and deferred interest, fund acquisitions
and for other general corporate purposes. The Company plans to use the
remaining proceeds for future acquisitions and other general corporate
purposes.
In March 2000, the Company completed a public offering of 5.0 million shares
of Class A common stock at $70.00 per share. The net proceeds from this
offering, net of offering costs, was approximately $335 million.
Stock Split and Conversion
The Company effected a 34,061-for-one stock split, effective May 6, 1999, in
conjunction with the IPO. All share data included in the accompanying
consolidated financial statements and notes thereto are as if the stock split
had occurred prior to the periods presented.
F-6
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Also, effective February 25, 1999, the Company converted certain Class A
common stock held by the principal stockholders to Class B common stock which
has ten votes per share, as compared to Class A common stock which has one
vote per share, and certain of their Class A common stock to Class C common
stock. Class C common stock has no voting rights except as required by
Delaware law. All share data included in the accompanying consolidated
financial statements and notes thereto are as if the stock conversion had
occurred prior to the periods presented.
2. ACQUISITIONS:
On February 28, 2000, the Company acquired WPLY-FM, located in the
Philadelphia, Pennsylvania, area, for approximately $80.0 million. Radio One
made a deposit of approximately $3.8 million towards the purchase price. This
deposit is included in other assets in the accompanying consolidated balance
sheet as of December 31, 1999.
On October 1, 1999, the Company acquired the assets of WBOT-FM (formerly
WCAV-FM), located in the Boston, Massachusetts, metropolitan area for
approximately $10.0 million. The acquisition of WBOT-FM resulted in the
recording of approximately $10.0 million of intangible assets.
On July 15, 1999, the Company acquired WDYL-FM in Richmond, Virginia, for
approximately $4.6 million. The acquisition resulted in the recording of
approximately $4.6 million of intangible assets.
On July 1, 1999, the Company acquired WKJS-FM and WARV-FM (formerly WSOJ-FM)
in Richmond, Virginia, for approximately $12.0 million, subject to certain
purchase price adjustments. The acquisition resulted in the recording of
approximately $11.0 million of intangible assets.
On June 4, 1999, the Company acquired the assets of WFUN-FM in St. Louis,
Missouri, for approximately $13.6 million. The acquisition resulted in the
recording of approximately $13.2 million of intangible assets. Radio One made
a deposit of approximately $700,000 towards the purchase price that is
included in other assets in the accompanying consolidated balance sheet as of
December 31, 1998.
On May 6, 1999, the Company entered into an asset purchase agreement to
acquire WCDX-FM, WJRV-FM, WPLZ-FM and WCGV-AM in Richmond, Virginia, for
approximately $34.0 million. Radio One made a deposit of approximately
$1,250,000 towards the purchase price that is included in other assets in the
accompanying consolidated balance sheet as of December 31, 1999. The Company
operates the three FM stations under a Time Brokerage Agreement (TBA) and paid
approximately $1,631,000 in TBA fees that are included in interest expense in
the accompanying consolidated statement of operations for the year ended
December 31, 1999.
On April 30, 1999, the Company acquired the assets of WENZ-FM and WERE-AM in
Cleveland, Ohio, for approximately $20.0 million. The acquisition resulted in
the recording of approximately $15.4 million of intangible assets.
On March 30, 1999, the Company acquired all of the outstanding stock of
Radio One of Atlanta, Inc. (ROA), an affiliate of the Company and owner and
operator of WHTA-FM in Atlanta, Georgia, for approximately 3,277,000 shares of
the Company's common stock. At the time of the ROA acquisition, ROA owned
approximately 33% of Dogwood Communications, Inc. (Dogwood), owner and
operator of WAMJ-FM in Atlanta, Georgia. On March 30, 1999, ROA acquired the
remaining approximate 67% of Dogwood for $3.6 million. The acquisition was
accounted for using purchase accounting, with the portion of the excess
purchase price over the net book value of the assets acquired related to the
non-controlling stockholders being stepped up and that portion of the excess
purchase price being recorded as goodwill. The remaining net book value of the
assets acquired was recorded at historical cost. The acquisitions resulted in
the recording of approximately $49.6 million of intangible assets.
F-7
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
On December 28, 1998, Radio One purchased all of the outstanding stock of
Allur-Detroit, Inc. (Allur), which owned one radio station in Detroit,
Michigan, for approximately $26.5 million. The acquisition of Allur resulted
in the recording of approximately $31.7 million of intangible assets
(including the recording of a deferred tax liability for the difference in
book and tax basis in the assets acquired from the Allur purchase price being
in excess of the net book value of Allur).
On June 30, 1998, Radio One purchased all of the outstanding stock of Bell
Broadcasting Company (Bell), which owned three radio stations in Michigan, for
approximately $34.2 million. The acquisition of Bell resulted in the recording
of approximately $42.5 million of intangible assets (including the recording
of a deferred tax liability for the difference in book and tax basis in the
assets acquired from the Bell purchase price being in excess of the net book
value of Bell).
On March 16, 1998, WYCB Acquisition Corporation, an unrestricted subsidiary
of Radio One, acquired all the stock of Broadcast Holdings, Inc., the owner of
one radio station in Washington, D.C., for approximately $3.8 million. The
acquisition was financed with a promissory note payable to the seller.
On February 8, 1997, under a local marketing agreement with the former
owners of WDRE-FM licensed to Jenkintown, Pennsylvania, Radio One began to
provide programming to and selling advertising for WDRE-FM. On May 19, 1997,
Radio One acquired the broadcast assets of WDRE-FM for approximately
$16,000,000. In connection with the purchase, Radio One entered into a three-
year noncompete agreement totaling $4,000,000 with the former owners.
Following this acquisition, Radio One converted the call letters of the radio
station from WDRE-FM to WPHI-FM.
The unaudited pro forma summary consolidated results of operations for the
years ended December 31, 1998 and 1999, assuming the acquisitions of WDYL-FM,
WKJS-FM and WARV-FM, WENZ-FM and WERE-AM, Radio One of Atlanta, Dogwood
Communications, Allur-Detroit, Bell Broadcasting and WYCB-AM had occurred as
of January 1, 1998, are as follows:
1998 1999
----------- -----------
Net broadcast revenue............................. $65,585,000 $86,670,000
Operating expenses, excluding depreciation and
amortization..................................... 40,267,000 51,402,000
Depreciation and amortization..................... 18,198,000 18,634,000
Interest expense.................................. 11,455,000 15,279,000
Other income, net................................. 451,000 2,157,000
(Benefit) provision for income taxes.............. (1,205,000) 3,488,000
----------- -----------
Net (loss) income................................. $(2,679,000) $ 24,000
=========== ===========
The historical results of operations and pro forma adjustments related to
WFUN-FM and WBOT-FM have not been included because the Company has determined
that these asset purchases are not purchases of a business. All of the
acquisitions discussed in this note were accounted for using the purchase
method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
F-8
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Investments
Investments as of December 31, 1999, consist of U.S. government, tax-exempt
municipal and commercial securities that mature within eighteen months.
Investments are classified as available for sale and are recorded at market
value. The change in market value is recorded as a component of stockholders'
equity.
Other Assets
During 1999, the Company made a $1,000,000 investment in PNE Media Holdings,
LLC, a privately-held outdoor advertising company. The Company also made a
$750,000 loan to Net Noir, Inc., an internet portal service provider. The
Company provided $250,000 in cash and $500,000 of advertising in exchange for
the loan. The loan is convertible into equity. Subsequent to year-end, in
March 2000, the Company made a commitment to invest an additional $2.5 million
worth of advertising on the Company's radio stations in exchange for an equity
investment in Net Noir, Inc. The advertising provided by the Company is valued
based on the valuation of Net Noir, Inc. using what other investors have paid
for equity of Net Noir, Inc. This basis for the value of the advertising is
not more than the Company's normal rates for this advertising. During 1999,
the Company made an investment in aka.com, an internet portal service
provider. The Company provided $25,000 of cash and a commitment of advertising
on the Company's radio stations valued at $100,000 in exchange for the
interest.
As of December 31, 1999, the Company had a loan receivable of approximately
$350,000 from a company. The loan is due July 28, 2000, and bears interest at
5.56% per annum.
Financial Instruments
Financial instruments as of December 31, 1998 and 1999, consist of cash and
cash equivalents, investments, trade accounts receivable, notes receivable,
accounts payable, accrued expenses, long-term debt and preferred stock, all of
which the carrying amounts approximate fair value except for the Senior
Subordinated Notes as of December 31, 1998 and 1999, which have a fair value
of approximately $84.5 million and $87.7 million, respectively, as compared to
a carrying value of $78.5 million and $82.5 million, respectively. The Company
has estimated the fair value of the debt, based on its estimate of what rate
it could have issued that debt as of December 31, 1998 and 1999, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the
equipment, merchandise or services received is recorded as deferred barter
costs and the corresponding obligation to broadcast advertising is recorded as
deferred barter revenue. The deferred barter costs are expensed or capitalized
as they are used, consumed or received. Deferred barter revenue is recognized
as the related advertising is aired.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
December 31, 1998. This statement establishes standards for reporting and
displaying comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
F-9
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of December 31, 1998, and has
determined that the Company has only one segment, radio broadcasting. The
Company came to this conclusion because the Company has one product or
service, has the same type of customer and operating strategy in each market,
operates in one regulatory environment, has only one management group that
manages the entire Company and provides information on the Company's results
as one segment to the key decision-makers. All of the Company's revenue is
derived from stations located in the United States.
Earnings Available for Common Stockholders
The Company had certain senior cumulative redeemable preferred stock
outstanding which paid dividends at 15% per annum (see Note 4) and was retired
during 1999. The Company accreted dividends on this preferred stock, which was
paid when the preferred stock was redeemed. The earnings available for common
stockholders for the years ended December 31, 1997, 1998 and 1999, is the net
loss or income for each of the years, less the accreted dividend of
$2,037,000, $3,716,000 and $1,476,000 during 1997, 1998 and 1999,
respectively, on the preferred stock.
Earnings per Share
Earnings per share are based on the weighted average number of common and
diluted common equivalent shares for stock options and warrants outstanding
during the period the calculation is made, divided into the earnings available
for common stockholders. Diluted common equivalent shares consist of shares
issuable upon the exercise of stock options and warrants, using the treasury
stock method. All warrants outstanding to acquire common stock as of December
31, 1998, which were exercised concurrent with the closing of the IPO and the
stock issued to an employee in January 1999 have been reflected in the
calculation of earnings per share as if the stock issued was outstanding for
all periods presented. As of December 31, 1999, there were approximately
207,000 stock options outstanding from options granted in May 1999 (see Note
6), however, the common stock equivalents of these options are not included in
the diluted earnings per share as the stock options are anti-dilutive. The
weighted average shares outstanding is calculated as follows:
1997 1998 1999
--------- --------- ----------
Common stock outstanding....................... 4,716,000 4,716,000 16,137,000
Common stock issued from exercise of
warrants...................................... 4,625,000 4,625,000 --
Stock issued subsequent to year end............ 51,000 51,000 --
--------- --------- ----------
Weighted average shares outstanding for both
basic and diluted earnings per share.......... 9,392,000 9,392,000 16,137,000
========= ========= ==========
F-10
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
3. FIXED AND INTANGIBLE ASSETS:
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Company's
property and equipment as of December 31, 1998 and 1999, are as follows:
Period of
1998 1999 Depreciation
----------- ----------- -------------
PROPERTY AND EQUIPMENT:
Land and improvements................ $ 748,000 $ 2,838,000 --
Building and improvements............ 248,000 434,000 31 years
Transmitter towers................... 2,282,000 6,080,000 7 or 15 years
Equipment............................ 5,609,000 9,412,000 5 to 7 years
Leasehold improvements............... 1,722,000 2,893,000 Life of Lease
Construction-in-progress............. 697,000 839,000 --
----------- -----------
11,306,000 22,496,000
Less: Accumulated depreciation....... 4,589,000 6,984,000
----------- -----------
Property and equipment, net....... $ 6,717,000 $15,512,000
=========== ===========
Depreciation expenses for the fiscal years ended December 31, 1997, 1998 and
1999, was $706,000, $746,000 and $2,395,000, respectively.
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1998 and 1999, are as follows:
Period of
1998 1999 Amortization
------------ ------------ ------------
FCC broadcast license............... $103,792,000 $172,642,000 7-15 Years
Goodwill............................ 39,272,000 75,875,000 15 Years
Debt financing...................... 3,186,000 3,755,000 Life of Debt
Favorable transmitter site and other
intangibles........................ 1,924,000 1,924,000 6-17 Years
Noncompete agreement................ 4,000,000 4,005,000 3 Years
------------ ------------
Total............................. 152,174,000 258,201,000
Less: Accumulated amortization.... 24,535,000 39,741,000
------------ ------------
Net intangible assets............. $127,639,000 $218,460,000
============ ============
Amortization expense for the fiscal years ended December 31, 1997, 1998 and
1999, was $5,082,000, $7,243,000 and $14,678,000, respectively. The
amortization of deferred financing costs was charged to interest expense.
4. DEBT AND SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
As of December 31, 1998 and 1999, the Company's outstanding debt is as
follows:
1998 1999
------------ -----------
Senior Subordinated Notes (net of $7,020,000 and
$2,951,000 unamortized discounts, respectively) $78,458,000 $82,526,000
Line of credit................................... 49,350,000 --
WYCB note payable and deferred interest.......... 3,841,000 --
Other notes payable.............................. 23,000 69,000
Capital lease obligations........................ 67,000 31,000
------------ -----------
Total, noncurrent.............................. $131,739,000 $82,626,000
============ ===========
F-11
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Senior Subordinated Notes
To finance the WPHI-FM acquisition (as discussed in Note 2) and to refinance
certain other debt, Radio One issued approximately $85,500,000 of 12% Senior
Subordinated Notes due 2004. The notes were sold at a discount, with the net
proceeds to Radio One of approximately $72,750,000. The notes pay cash
interest at 7% per annum through May 15, 2000, and at 12% thereafter. In
connection with this debt offering, Radio One retired approximately
$45,600,000 of debt outstanding under a bank credit agreement with the
proceeds from the offering. Radio One also exchanged approximately $20,900,000
of 15% Senior Cumulative Redeemable Preferred Stock for an equal amount of
Radio One's then outstanding subordinated notes and accrued interest. This
preferred stock was redeemed during 1999.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of the Company, in whole or in part, on or after May 15, 2001 at
the redemption prices set forth in the 12% notes due 2004, plus accrued and
unpaid interest to the date of redemption. In addition, on or prior to May 15,
2000, the Company may redeem, at its option, up to 25% of the aggregate
original principal amount of the 12% notes due 2004 with the net proceeds of
one or more Public Equity Offerings at 112% of the Accreted Value thereof,
together with accrued and unpaid interest, if any, to the date of redemption,
as long as at least approximately $64.1 million of the aggregate principal
amount of the 12% notes due 2004 remains outstanding after each such
redemption. Upon a Change of Control (as defined in the indenture), the
Company must commence an offer to repurchase the 12% notes due 2004 at 101% of
the Accreted Value thereof, plus accrued and unpaid interest, if any, to the
date of repurchase.
The Company's bank credit facility and the agreements governing the other
outstanding debt contain covenants that restrict, among other things, the
ability of the Company to incur additional debt, pay cash dividends, purchase
capital stock, make capital expenditures, make investment or other restricted
payments, swap or sell assets, engage in transactions with related parties,
secure non-senior debt with assets, or merge, consolidate or sell all or
substantially all of its assets.
Line of Credit
To finance the Bell Broadcasting and Allur-Detroit acquisitions during 1998,
Radio One borrowed $49,350,000 from a group of financial institutions which
matures on December 31, 2003. This credit agreement bears interest at the
Eurodollar rate plus an applicable margin. The average interest rate for the
years ended December 31, 1998 and 1999, was 7.58% and 7.45%, respectively.
This credit agreement is secured by the property of the Company (other than
Unrestricted Subsidiaries), and interest and proceeds of real estate and Key
Man life insurance policies. During 1998 and 1999, the month-end weighted
average and the highest month-end balances were $28,779,000 and $33,225,000
and $49,350,000 and $90,000,000, respectively. During 1999, the Company repaid
the borrowings under the line of credit with the proceeds of the stock
offerings. As of December 31, 1999, the availability under the $100,000,000
line of credit was $100,000,000.
WYCB Note Payable
To finance the 1998 acquisition of WYCB by Broadcast Holdings, Inc., the
Company issued a promissory note for $3,750,000 at 13%, due 2001, which paid
quarterly cash interest payments at an annual rate of 10%, with the remaining
interest being added to the principal. The Company retired the note during
1999 with the proceeds from the IPO.
Other Notes Payable
During 1996, Radio One entered into two notes totaling $51,000 to purchase
vehicles. These notes bear interest at 8.74% and 8.49%, require monthly
principal and interest payments of $789 and $471 and mature on April 30, 2000,
and December 2, 2000.
F-12
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Capital Lease Obligations
During 1997, the Company entered into a capital lease obligation in the
amount of $95,000 for office equipment. The lease has an imputed interest rate
of 14.5% and requires monthly principal and interest payments of $1,822,
terminating on May 31, 2002. The Company assumed a capital lease obligation in
the amount of $46,000 for office equipment during the acquisition of WKJS-FM
and WARV-FM. The lease has an imputed interest rate of 20.0% and requires
monthly principal and interest payments of $1,168.
Refinancing of Debt
During 1997, Radio One retired $45,600,000 of outstanding debt. Associated
with the retirement of the debt, Radio One incurred certain early prepayment
penalties and legal fees, and had to write-off certain deferred financing
costs associated with the debt retired. These costs amounted to $1,985,000 and
were recorded as an extraordinary item in the accompanying consolidated
statements of operations.
Senior Cumulative Redeemable Preferred Stock
On May 19, 1997, concurrent with the senior subordinated debt issuance, all
of the holders of Radio One Subordinated Promissory Notes converted all of
their existing subordinated notes consisting of approximately $17,000,000,
together with all accrued interest thereon of approximately $3,900,000 and
outstanding warrants, for shares of Senior Cumulative Redeemable Preferred
Stock, which had to be redeemed by May 2005 and stock warrants to purchase
147.04 shares of common stock. The Senior Cumulative Redeemable Preferred
Stock could be redeemed at 100% of its liquidation value, which is the
principal and accreted dividends. The dividends on each share accrued on a
daily basis at a rate of 15% per annum. Preferred stock dividends of
approximately $2,037,000, $3,716,000 and $1,476,000 were accrued during the
years ended December 31, 1997, 1998 and 1999, respectively. In May 1999, the
Company redeemed the outstanding preferred stock and accreted dividends with
the proceeds from the IPO.
5. COMMITMENTS AND CONTINGENCIES:
Leases
Radio One has various operating leases for office space, studio space,
broadcast towers and transmitter facilities which expire on various dates
through December 31, 2011. One of these leases is for office and studio space
in Baltimore, Maryland, and is with a partnership in which two of the partners
are stockholders of the Company (see Note 8).
The following is a schedule of the future minimum rental payments required
under the operating leases that have an initial or remaining noncancelable
lease term in excess of one year as of December 31, 1999.
For the Year
Ending December31, Total
------------------------------------------------------------- ----------
2000......................................................... $1,736,000
2001......................................................... 1,624,000
2002......................................................... 1,504,000
2003......................................................... 1,365,000
2004......................................................... 1,401,000
2005 and thereafter.......................................... 5,826,000
Total rent expense for the years ended December 31, 1997, 1998 and 1999, was
$809,000, $888,000 and $1,492,000, respectively.
F-13
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
FCC Broadcast Licenses
Each of the Company's radio stations operates pursuant to one or more
licenses issued by the Federal Communications Commission (FCC) that have a
maximum term of eight years prior to renewal. The Company's radio operating
licenses expire at various times from October 1, 2003, to August 1, 2006.
Although the Company may apply to renew its FCC licenses, third parties may
challenge the Company's renewal applications. The Company is not aware of any
facts or circumstances that would prevent the Company from having its current
licenses renewed.
Litigation
The Company has been named as a defendant in several legal actions occurring
in the ordinary course of business. It is management's opinion, after
consultation with its legal counsel, the outcome of these claims will not have
a material adverse effect on the Company's financial position or results of
operations.
6. STOCK OPTION PLAN AND GRANTS:
During 1999, the Company adopted a Stock Option Plan and Restricted Stock
Grant Plan (the Plans) to enable directors, executives and other key employees
to acquire stock in the Company. Options for approximately 1,408,000 shares
are authorized under the Plans. On May 5, 1999, the Company granted options of
approximately 207,000 shares of common stock at an exercise price of $24.00
per share. The options expire in 10 years and vest over periods of three to
five years.
The Company accounts for its stock-based compensation plans as permitted by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," which
allows the Company to follow Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and recognize no
compensation cost for options granted at fair market prices. The Company has
computed, for pro forma disclosure purposes, the value of all compensatory
options granted during 1999, using the Black-Scholes option pricing model. The
following assumptions were used for grants:
For the Year
Ended 1999
------------
Average risk-free interest rate............................ 4.65%
Expected dividend yield.................................... 0.0%
Expected lives............................................. 3 years
Expected volatility........................................ 59.0%
Options were assumed to be exercised upon vesting for the purpose of this
valuation. Adjustments were also made for options assumed forfeited prior to
vesting. Had compensation costs for compensatory options been determined
consistent with SFAS No. 123, the Company's pro forma net income and earnings
per share information reflected on the accompanying consolidated statements of
operations would have been reduced to the following "as adjusted" amounts:
For the Year Ended
December 31, 1999
------------------
Net income (loss):
As reported......................................... $ 133,000
As adjusted......................................... (153,000)
Basic Earnings and Diluted Loss Per Share,
applicable to common stockholders:
As reported......................................... $ (0.08)
As Adjusted......................................... (0.10)
F-14
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
The Company's stock did not trade prior to May 1999.
The following table summarizes all stock option activity during 1999.
Qualified Nonqualified
--------- ------------
Outstanding as of December 31, 1998................ -- --
Granted at $24 per share.......................... 152,000 55,000
Exercised......................................... -- --
Terminated........................................ -- --
------- ------
Outstanding as of December 31, 1999................ 152,000 55,000
======= ======
Weighted average fair value of options granted for the year ended December
31,1999, was $10.37. This fair value was calculated using the Black-Scholes
option pricing model. As of December 31, 1999, approximately 19,700 of the
outstanding options were exercisable.
7. INCOME TAXES:
Effective January 1, 1996, Radio One elected to be treated as an S
Corporation under Subchapter S of the Internal Revenue Code. As an S
Corporation, the stockholders separately account for their pro-rata share of
Radio One's income, deductions, losses and credits. Effective May 19, 1997,
the Company's S Corporation status was terminated.
In connection with the conversion to a C Corporation, in accordance with SEC
Staff Accounting Bulletin 4.B, Radio One transferred the amount of the
undistributed losses up to the amount of additional paid-in capital at the
date of conversion to additional paid-in capital.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
During 1998, the Company acquired the stock of three companies. Associated
with these stock purchases, the Company allocated the purchase price to the
related assets acquired, with the excess purchase price allocated to goodwill.
In a stock purchase, for income tax purposes, the underlying assets of the
acquired companies retain their historical tax basis. Accordingly, the Company
recorded a deferred tax liability of approximately $16,863,000 related to the
difference between the book and tax basis for all of the assets acquired
(excluding goodwill). The result of recording this deferred tax liability is
reflected as additional goodwill of $16,863,000 related to these acquisitions.
A reconciliation of the statutory federal income taxes to the recorded
income tax (benefit) provision for the years ended December 31, 1997, 1998 and
1999, is as follows:
1997 1998 1999
----------- ----------- ----------
Statutory tax (@ 35% rate)............... $(1,730,000) $ (257,000) $1,001,000
Effect of state taxes, net of federal.... (245,000) (29,000) 114,000
Establishment of S Corporation loss to
its stockholders........................ 984,000 -- --
Effect of net deferred tax asset in
conversion to C Corporation............. (1,067,000) -- --
Nondeductible goodwill................... -- 769,000 1,613,000
Valuation reserve........................ 2,058,000 (2,058,000) --
----------- ----------- ----------
(Benefit) provision for income taxes... $ -- $(1,575,000) $2,728,000
=========== =========== ==========
F-15
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
The components of the (benefit) provision for income taxes for the years
ended December 31, 1997, 1998 and 1999, are as follows:
1997 1998 1999
---------- ----------- ----------
Federal:
Current................................. $ -- $ 414,000 $3,374,000
Deferred................................ (887,000) 18,000 (933,000)
---------- ----------- ----------
(887,000) 432,000 2,441,000
---------- ----------- ----------
State:
Current................................. -- 49,000 397,000
Deferred................................ (104,000) 2,000 (110,000)
---------- ----------- ----------
(104,000) 51,000 287,000
---------- ----------- ----------
Establishment of net deferred tax asset
in conversion to C corporation.......... (1,067,000) -- --
Valuation reserve........................ 2,058,000 (2,058,000) --
---------- ----------- ----------
(Benefit) provision for income taxes.... $ -- $(1,575,000) $2,728,000
========== =========== ==========
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 and 1999, are as follows:
1998 1999
------------ ------------
Deferred tax assets--
Reserve for bad debts............................ $ 473,000 $ 665,000
Accruals......................................... 268,000 51,000
Barter activity.................................. 85,000 85,000
Deferred revenue................................. -- 35,000
Other............................................ -- 148,000
------------ ------------
Current deferred tax assets.................... 826,000 984,000
Interest expense.................................. 479,000 628,000
FCC and other intangibles amortization............ 1,152,000 1,069,000
NOL carryforward.................................. 400,000 705,000
Debt costs........................................ -- 338,000
Other............................................. 20,000 --
------------ ------------
Total deferred tax assets...................... 2,877,000 3,724,000
------------ ------------
Deferred tax liabilities--
FCC license...................................... (16,525,000) (16,638,000)
Depreciation..................................... (539,000) (536,000)
Other............................................ (238,000) (84,000)
------------ ------------
Total deferred tax liabilities................. (17,302,000) (17,258,000)
------------ ------------
Net deferred taxes included in the accompanying
consolidated balance sheets...................... $(14,425,000) $(13,534,000)
============ ============
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During the year ended December 31, 1998, this valuation allowance
was reversed as the deferred tax asset was likely to be realized.
F-16
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
During 1998, the Company utilized its entire NOL carryforward, but acquired
an approximate $1,200,000 net operating loss from the purchase of Allur-
Detroit, Inc. This net operating loss acquired can only be utilized as Allur-
Detroit, Inc. has taxable income. As of December 31, 1999, the Company had an
NOL carryforward of approximately $1,800,000.
8. RELATED PARTY TRANSACTIONS:
Radio One leased office space for $8,000 per month in 1997 and 1998 and
$13,000 per month in 1999 from a partnership in which two of the partners are
officers of Radio One (see Note 5). Total rent paid to the stockholders for
fiscal years 1997, 1998 and 1999, was approximately $96,000, $96,000 and
$161,000, respectively. Radio One also had a net receivable as of December 31,
1998, of approximately $4,000 due from Radio One of Atlanta, Inc. (ROA), of
which an executive officer and stockholder of Radio One was a major
stockholder of ROA. Effective January 1, 1998 Radio One charged ROA a
management fee of $300,000 per year, and prior to January 1, 1998, the fee was
$100,000 per year.
During 1999, the stockholders of Radio One of Atlanta, Inc. sold Radio One
of Atlanta, Inc. to the Company in exchange for shares of the Company's common
stock.
The Company has a loan outstanding of $380,000, and accrued interest of
$7,000 and $31,000, as of December 31, 1998 and 1999, respectively, from an
officer. The loan is due in May 2003 and bears interest at 5.6%.
The Company has a loan outstanding of approximately $262,000, and accrued
interest of $12,000 as of December 31, 1999, from another officer. The loan is
due in May 2004 and bears interest at 5.6%.
The Company has a loan outstanding of approximately $88,000, and accrued
interest of $2,000 as of December 31, 1999, from another officer. The loan is
due in May 2004 and bears interest at 5.6%.
As of December 31, 1999, the Company has a receivable of approximately
$260,000 from a company in which one of the shareholders is an officer of
Radio One.
9. PROFIT SHARING:
Radio One has a 401(k) profit sharing plan for its employees. Radio One can
contribute to the plan at the discretion of its Board of Directors. Radio One
made no contribution to the plan during fiscal year 1997, 1998 or 1999.
10. SUBSEQUENT EVENTS:
In March 2000, the Company entered into agreements to acquire 21 radio
stations in 10 markets for approximately $1.4 billion. The Company expects to
finance these acquisitions with available cash and other third-party
financings.
F-17
RADIO ONE, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
Page
----
Report of Independent Accountants. S-2
Schedule II--Valuation and Qualifying Account. S-3
S-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Radio One, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated balance sheets and statements of
operations, changes in stockholders' equity and cash flows of Radio One, Inc.
and subsidiaries (the Company) included in this Form 10-K and have issued our
report thereon dated March 20, 2000. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
March 20, 2000
S-2
RADIO ONE, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1998, and 1999
(In Thousands)
Balance Additions
at Charged Acquired Balance
Beginning to from at End
Description of Year Expense Acquisitions Deductions of Year
----------- --------- --------- ------------ ---------- -------
Allowance for Doubtful
Accounts:
1997.................... $ 765 $ 894 $ -- $ 755 $ 904
1998.................... 904 1,942 258 1,861 1,243
1999.................... 1,243 2,824 481 2,119 2,429
Tax Valuation Reserve:
1997.................... -- 2,058 -- -- 2,058
1998.................... 2,058 -- -- 2,058 --
1999.................... -- -- -- -- --
S-3