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URBAN ONE, INC. - Quarter Report: 2003 September (Form 10-Q)

FORM 10-Q
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2003

 

Commission File No. 0-25969

 


 

RADIO ONE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   52-1166660

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification No.)

 

5900 Princess Garden Parkway,

7th Floor

Lanham, Maryland 20706

(Address of principal executive offices)

 

(301) 306-1111

Registrant’s telephone number, including area code

 


 

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class


 

Outstanding at November 7, 2003


Class A Common Stock, $.001 Par Value

  22,397,691

Class B Common Stock, $.001 Par Value

    2,867,463

Class C Common Stock, $.001 Par Value

    3,132,458

Class D Common Stock, $.001 Par Value

  76,274,394

 



Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

For the Quarter Ended September 30, 2003

 

TABLE OF CONTENTS

 

          Page

PART I.

  

FINANCIAL INFORMATION

    

Item 1.

  

Financial Statements

   3
    

Consolidated Balance Sheets as of December 31, 2002 and September 30, 2003 (Unaudited)

   4
    

Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2002 and 2003 (Unaudited)

   5
    

Consolidated Statements of Changes in Stockholders’ Equity for the Year Ended December 31, 2002 and for the Nine Months Ended September 30, 2003 (Unaudited)

   6
    

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2003 (Unaudited)

   7
    

Notes to Consolidated Financial Statements

   8
    

Consolidating Financial Statements

   12
    

Consolidating Balance Sheet as of December 31, 2002

   13
    

Consolidating Balance Sheet as of September 30, 2003 (Unaudited)

   15
    

Consolidating Statement of Operations for the Three Months Ended September 30, 2002 (Unaudited)

   17
    

Consolidating Statement of Operations for the Three Months Ended September 30, 2003 (Unaudited)

   18
    

Consolidating Statement of Operations for the Nine Months Ended September 30, 2002 (Unaudited)

   19
    

Consolidating Statement of Operations for the Nine Months Ended September 30, 2003 (Unaudited)

   20
    

Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2002 (Unaudited)

   21
    

Consolidating Statement of Cash Flows for the Nine Months Ended September 30, 2003 (Unaudited)

   23

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   25

Item 4.

  

Controls and Procedures

   35

PART II.

  

OTHER INFORMATION

    

Item 1.

  

Legal Proceedings

   36

Item 2.

  

Changes in Securities and Use of Proceeds

   36

Item 3.

  

Defaults Upon Senior Securities

   36

Item 4.

  

Submission of Matters to a Vote of Security Holders

   37

Item 5.

  

Other Information

   37

Item 6.

  

Exhibits and Reports on Form 8-K

   37

SIGNATURE

   38


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

(See pages 4-24 — This page intentionally left blank.)

 

3


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

    

December 31,

2002


   

September 30,

2003


 
           (Unaudited)  
ASSETS                 

CURRENT ASSETS:

                

Cash and cash equivalents

   $ 86,115,000     $ 64,061,000  

Trade accounts receivable, net of allowance for doubtful accounts of $5,733,000 and $6,007,000, respectively

     64,565,000       64,596,000  

Prepaid expenses and other current assets

     2,017,000       2,078,000  

Income taxes receivable

     3,650,000       3,650,000  

Deferred income tax asset

     2,965,000       2,965,000  
    


 


Total current assets

     159,312,000       137,350,000  

PROPERTY AND EQUIPMENT, net

     41,622,000       41,677,000  

GOODWILL, net

     79,002,000       112,224,000  

RADIO BROADCASTING LICENSES, net

     1,670,311,000       1,648,295,000  

OTHER INTANGIBLE ASSETS, net

     27,313,000       21,716,000  

INVESTMENT IN AFFILIATED COMPANY

     —         35,471,000  

OTHER ASSETS

     6,800,000       5,544,000  
    


 


Total assets

   $ 1,984,360,000     $ 2,002,277,000  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY                 

CURRENT LIABILITIES:

                

Accounts payable

   $ 7,211,000     $ 7,089,000  

Accrued interest

     14,103,000       7,550,000  

Accrued compensation

     12,184,000       13,405,000  

Income taxes payable

     1,200,000       1,119,000  

Deferred revenue

     —         3,390,000  

Other accrued expenses

     8,122,000       6,507,000  

Fair value of derivative instruments

     4,888,000       5,950,000  

Other current liabilities

     401,000       494,000  

Current portion of long-term debt

     52,500,000       52,500,000  
    


 


Total current liabilities

     100,609,000       98,004,000  

LONG-TERM DEBT, net of current portion

     597,501,000       558,126,000  

DEFERRED REVENUE, net of current portion

     —         13,561,000  

DEFERRED INCOME TAX LIABILITY

     42,227,000       65,399,000  
    


 


Total liabilities

     740,337,000       735,090,000  
    


 


STOCKHOLDERS’ EQUITY:

                

Convertible preferred stock, $.001 par value, 1,000,000 shares authorized and 310,000 shares issued and outstanding; liquidation preference of $1,000 per share plus cumulative dividends at 6.5% per year, unpaid dividends were $4,198,000 as of December 31, 2002 and September 30, 2003

     —         —    

Common stock – Class A, $.001 par value, 30,000,000 shares authorized, 22,398,000 and 22,423,000 shares issued and outstanding

     23,000       23,000  

Common stock – Class B, $.001 par value, 150,000,000 shares authorized, 2,867,000 shares issued and outstanding

     3,000       3,000  

Common stock – Class C, $.001 par value, 150,000,000 shares authorized, 3,132,000 shares issued and outstanding

     3,000       3,000  

Common stock – Class D, $.001 par value, 150,000,000 shares authorized, 76,171,000 and 76,246,000 shares issued and outstanding

     76,000       76,000  

Accumulated other comprehensive loss

     (3,006,000 )     (3,659,000 )

Stock subscriptions receivable

     (33,344,000 )     (34,609,000 )

Additional paid-in capital

     1,408,435,000       1,409,318,000  

Accumulated deficit

     (128,167,000 )     (103,968,000 )
    


 


Total stockholders’ equity

     1,244,023,000       1,267,187,000  
    


 


Total liabilities and stockholders’ equity

   $ 1,984,360,000     $ 2,002,277,000  
    


 


 

The accompanying notes are an integral part of these consolidated balance sheets.

 

4


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    

Three Months Ended

September 30,


   

Nine Months Ended

September 30,


 
     2002

    2003

    2002

    2003

 
     (Unaudited)     (Unaudited)  

REVENUE:

                                

Broadcast revenue, including barter revenue of $1,076,000, $1,041,000, $2,782,000 and $2,618,000, respectively

   $ 91,279,000     $ 92,635,000     $ 248,251,000     $ 256,688,000  

Less: agency commissions

     10,810,000       11,179,000       29,306,000       30,890,000  
    


 


 


 


Net broadcast revenue

     80,469,000       81,456,000       218,945,000       225,798,000  
    


 


 


 


OPERATING EXPENSES:

                                

Program and technical, exclusive of depreciation and amortization, shown separately below

     12,699,000       12,404,000       36,805,000       38,576,000  

Selling, general and administrative

     24,665,000       23,450,000       69,787,000       69,468,000  

Corporate expenses

     3,597,000       3,557,000       9,996,000       10,469,000  

Depreciation and amortization

     4,156,000       4,555,000       12,929,000       13,586,000  
    


 


 


 


Total operating expenses

     45,117,000       43,966,000       129,517,000       132,099,000  
    


 


 


 


Operating income

     35,352,000       37,490,000       89,428,000       93,699,000  

OTHER (EXPENSE) INCOME:

                                

Interest expense, including amortization of deferred financing costs

     (14,331,000 )     (10,255,000 )     (46,058,000 )     (31,394,000 )

Equity in net loss of affiliated company

     —         (939,000 )     —         (939,000 )

Other (expense) income, net

     (52,000 )     594,000       1,013,000       1,957,000  
    


 


 


 


Income before provision for income taxes and cumulative effect of accounting change

     20,969,000       26,890,000       44,383,000       63,323,000  

PROVISION FOR INCOME TAXES

     8,178,000       10,174,000       17,089,000       24,019,000  
    


 


 


 


Income before cumulative effect of accounting change

     12,791,000       16,716,000       27,294,000       39,304,000  

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of income taxes of $15,038,000

     —         —         (29,847,000 )     —    
    


 


 


 


NET INCOME (LOSS)

   $ 12,791,000     $ 16,716,000     $ (2,553,000 )   $ 39,304,000  
    


 


 


 


NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS

   $ 7,756,000     $ 11,681,000     $ (17,658,000 )   $ 24,199,000  
    


 


 


 


BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE:

                                

Net income before cumulative effect of accounting change

     .07       .11       .12       .23  

Cumulative effect of accounting change

     —         —         (.30 )     —    
    


 


 


 


Net income (loss) per common share

   $ .07     $ .11     $ (.18 )   $ .23  
    


 


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING:

                                

Basic

     104,538,000       104,649,000       100,755,000       104,611,000  
    


 


 


 


Diluted

     104,892,000       105,185,000       100,755,000       105,049,000  
    


 


 


 


 

The accompanying notes are an integral part of these consolidated statements.

 

5


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

FOR THE YEAR ENDED DECEMBER 31, 2002, AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)

 

    Convertible
preferred
stock


  Common
stock Class
A


  Common
stock Class
B


  Common
stock Class
C


  Common
stock Class
D


  Comprehensive
income


    Accumulated
other
comprehensive
loss


    Stock
subscriptions
receivable


    Additional
paid-in capital


    Accumulated
deficit


    Total
stockholders’
equity


 

BALANCE, as of December 31, 2001

    —       23,000     3,000     3,000     66,000             (9,053,000 )     (31,666,000 )     1,208,652,000       (115,081,000 )     1,052,947,000  

Comprehensive income:

                                                                             

Net income

    —       —       —       —       —       7,054,000       —         —         —         7,054,000       7,054,000  

Change in unrealized net loss on derivative and hedging activities, net of taxes

    —       —       —       —       —       6,047,000       6,047,000       —         —         —         6,047,000  
                                 


                                       

Comprehensive income

                                $ 13,101,000                                          
                                 


                                       

Preferred stock dividends

    —       —       —       —       —               —         —         —         (20,140,000 )     (20,140,000 )

Issuance of stock

    —       —       —       —       10,000             —         —         198,703,000       —         198,713,000  

Interest on stock subscriptions receivable

    —       —       —       —       —               —         (1,678,000 )     —         —         (1,678,000 )

Employee exercise of options

    —       —       —       —       —               —         —         783,000       —         783,000  

Tax effect on non-qualified option exercises

    —       —       —       —       —               —         —         372,000       —         372,000  

Repurchase of stock

    —       —       —       —       —               —         —         (75,000 )     —         (75,000 )
   

 

 

 

 

         


 


 


 


 


BALANCE, as of December 31, 2002

    —       23,000     3,000     3,000     76,000             (3,006,000 )     (33,344,000 )     1,408,435,000       (128,167,000 )     1,244,023,000  

Comprehensive income:

                                                                             

Net income

    —       —       —       —       —       39,304,000       —         —         —         39,304,000       39,304,000  

Change in unrealized net loss on derivative and hedging activities, net of taxes

    —       —       —       —       —       (653,000 )     (653,000 )     —               —         (653,000 )
                                 


                                       

Comprehensive income

                                $ 38,651,000                                          
                                 


                                       

Preferred stock dividends

    —       —       —       —       —               —         —         —         (15,105,000 )     (15,105,000 )

Interest income on stock

subscriptions receivable

    —       —       —       —       —               —         (1,265,000 )     —         —         (1,265,000 )

Employee exercise of options

    —       —       —       —       —               —         —         883,000       —         883,000  
   

 

 

 

 

         


 


 


 


 


BALANCE, as of September 30, 2003

  $ —     $ 23,000   $ 3,000   $ 3,000   $ 76,000           $ (3,659,000 )   $ (34,609,000 )   $ 1,409,318,000     $ (103,968,000 )   $ 1,267,187,000  
   

 

 

 

 

         


 


 


 


 


 

The accompanying notes are an integral part of these consolidated statements.

 

6


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    

Nine Months Ended

September 30,


 
     2002

    2003

 
     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net (loss) income

   $ (2,553,000 )   $ 39,304,000  

Adjustments to reconcile net (loss) income to net cash flows from operating activities:

                

Depreciation and amortization

     12,929,000       13,586,000  

Amortization of debt financing costs

     1,629,000       1,274,000  

Deferred income taxes

     16,700,000       23,581,000  

Equity in net loss of affiliated company

     —         939,000  

Cumulative effect of accounting change, net of tax

     29,847,000       —    

Loss on write-down of investments

     750,000       —    

Non-cash compensation to officers

     994,000       1,319,000  

Loss on retirement of assets

     113,000       2,000  

Effect of change in operating assets and liabilities-

                

Trade accounts receivable, net

     (7,480,000 )     8,000  

Prepaid expenses and other current assets

     (367,000 )     (61,000 )

Other assets

     (954,000 )     246,000  

Accounts payable

     (92,000 )     (122,000 )

Accrued interest

     (10,790,000 )     (6,553,000 )

Accrued compensation

     1,692,000       1,221,000  

Income taxes payable

     26,000       (81,000 )

Other accrued expenses

     (529,000 )     (2,889,000 )
    


 


Net cash flows from operating activities

     41,915,000       71,774,000  
    


 


CASH FLOWS FROM INVESTING ACTIVITIES:

                

Purchase of property and equipment

     (7,619,000 )     (7,621,000 )

Equity investments

     (503,000 )     (19,108,000 )

Proceeds from sale of assets

     130,000       —    

Purchase of intangible assets

     —         (1,281,000 )

Deposits and payments for station purchases

     (53,040,000 )     (10,956,000 )
    


 


Net cash flows from investing activities

     (61,032,000 )     (38,966,000 )
    


 


CASH FLOWS FROM FINANCING ACTIVITIES:

                

Repayment of debt

     (130,021,000 )     (39,375,000 )

Proceeds from issuance of common stock, net of issuance costs

     198,812,000       —    

Interest on stock subscription receivable

     (1,309,000 )     (1,265,000 )

Payment of preferred stock dividends

     (15,105,000 )     (15,105,000 )

Proceeds from exercise of stock options

     615,000       883,000  

Payment for retirement of stock

     (75,000 )     —    
    


 


Net cash flows from financing activities

     52,917,000       (54,862,000 )
    


 


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     33,800,000       (22,054,000 )

CASH AND CASH EQUIVALENTS, beginning of period

     32,115,000       86,115,000  
    


 


CASH AND CASH EQUIVALENTS, end of period

   $ 65,915,000     $ 64,061,000  
    


 


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                

Cash paid for-

                

Interest

   $ 55,219,000     $ 36,875,000  
    


 


Income taxes

   $ 380,000     $ 345,000  
    


 


 

The accompanying notes are an integral part of these consolidated statements.

 

7


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Organization and Business

 

Radio One, Inc. (a Delaware corporation referred to as Radio One) and subsidiaries (collectively referred to as the Company) were organized to acquire, operate and maintain radio broadcasting stations. The Company owns and/or operates radio stations in 22 markets throughout the United States. The Company also provides programming services to XM Satellite Radio Inc. and owns approximately 40% of TV One, LLC, an African-American targeted cable channel, which is a joint venture with Comcast Corporation and other investors.

 

The Company has made and may continue to make significant acquisitions of radio stations, which may require it to incur additional debt. The Company’s operating results are significantly affected by its share of the audience in markets where it owns and/or operates stations.

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of Radio One, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

 

Interim Financial Statements

 

The interim consolidated financial statements included herein for Radio One and subsidiaries have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In management’s opinion, the interim financial data presented herein include all adjustments (which include only normal recurring adjustments) necessary for a fair presentation. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.

 

Results for interim periods are not necessarily indicative of results to be expected for the full year. It is suggested that these consolidated financial statements be read in conjunction with the Company’s December 31, 2002 consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K.

 

8


Table of Contents

2. ACQUISITIONS AND INVESTMENTS:

 

WRNB-FM Dayton Acquisition

 

In July 2003, the Company purchased the outstanding stock of Hawes-Saunders Broadcast Properties, Inc., owner and operator of WRNB-FM (formerly WROU-FM) licensed to West Carrollton, Ohio, for approximately $9.2 million in cash. WRNB-FM had been a primary competitor of one of the Company’s other stations in the Dayton market. The Company began operating the station under a local marketing agreement in March 2003. This acquisition increased the number of stations that the Company owns in the Dayton market to five.

 

TV One Joint Venture

 

In July 2003, the Company entered into a joint venture agreement with Comcast Corporation and other investors to create TV One, LLC (TV One), an entity formed to launch a cable television network featuring entertainment, news, opinion and sports-related programming targeted primarily towards African-American viewers. The Company expects to make a cash investment of approximately $74.0 million over four years. Radio One also recorded the value of the equity it has received in TV One to provide advertising and management services to the network over the next five years, which has been estimated at approximately $17.0 million. The Company based this value on cash exchanges for similar equity instruments in TV One.

 

In August 2003, the Company made its first capital contribution of approximately $18.5 million to TV One, LLC. On a fully-diluted basis, the Company owns approximately 40% of TV One and is accounting for this investment under the equity method of accounting. Accordingly, the Company is recognizing its ratable share of TV One’s net loss.

 

3. RECENT ACCOUNTING PRONOUNCEMENTS:

 

In June 2001, FASB issued Statement of Financial Accounting Standard No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets.” This pronouncement requires a non-amortization approach to account for purchased goodwill and certain other intangible assets. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations but, instead, would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than their fair value. Upon adopting the transitional rules of SFAS No. 142, the Company recorded an impairment charge of approximately $23.2 million, net of an income tax benefit of approximately $14.5 million in the first quarter of 2002, as the carrying value of certain of the Company’s FCC licenses exceeded the appraised fair value. In accordance with SFAS No. 142, the Company reflected this charge as a cumulative effect of an accounting change, effective January 1, 2002, in its statement of operations.

 

The Company adopted the final provision of SFAS No. 142 in the fourth quarter of 2002 by reviewing the fair value of its reporting units and comparing that fair value to the net book value of the reporting unit. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication would exist that the reporting unit’s goodwill was impaired, and the Company would then be required to perform the second step of the transitional impairment test. In the second step, the Company compared the implied fair value of the reporting unit’s goodwill, determined by

 

9


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allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement of Financial Accounting Standard No. 141 (SFAS No. 141), “Business Combinations”, to its carrying amount, both of which would be measured as of the date of adoption. Based on this analysis, the Company determined that it had an impairment of goodwill (as defined in SFAS No. 142) in its Augusta, Georgia market. The Company calculated the amount of the impairment and recorded an impairment charge of approximately $6.6 million, net of an income tax benefit of approximately $0.5 million during the fourth quarter of 2002. As the provisions of SFAS No. 142 related to the impairment of goodwill and other indefinite life intangible assets were effective as of January 1, 2002, the financial information for the nine months ended September 30, 2002, which preceded the period in which the transitional goodwill impairment charge was measured, has been restated to reflect the accounting change in that period.

 

In January 2003, FASB issued Financial Accounting Standards Board Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” This interpretation of ARB No. 51, “Consolidated Financial Statements, “ requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. The Company is currently evaluating the applicability of FIN 46 on their local marketing agreements (LMA), and the possible impact on the Company’s results of operations and financial position. The Company operates two stations under LMAs – WDBZ-AM in Cincinnati, OH and WAMJ-FM in Atlanta, GA. We are currently reviewing these agreements to determine if the licensor represents a variable interest entity to the Company. We believe the exposure to loss because of our involvement with the license holder for each station is minimal and can be measured by the incremental depreciation expense from the addition of the fixed assets of the license holder. Aggregate net broadcast revenue for WDBZ-AM and WAMJ-FM was approximately $0.5 million and $1.4 million for the three and nine months ended September 30, 2003, respectively. The Company paid LMA fees under these agreements to the license holders of approximately $48,000 and $138,000 for the three and nine months ended September 30, 2003, respectively.

 

10


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4. STOCK-BASED COMPENSATION:

 

The Company accounts for its stock-based compensation plans as permitted by Statement of Financial Accounting Standard No. 123 (SFAS 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 to employees at fair market value. The Company has computed, for pro forma disclosure purposes, the value of all compensatory options granted during 2002 and 2003, using the Black-Scholes option pricing model. 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 (loss) income and (loss) earnings per share information reflected on the accompanying consolidated statements of operations would have been adjusted to the following “as adjusted” amounts:

 

    

For the Nine Months Ended

September 30,


 
     2002

    2003

 

Net (loss) income:

                

As reported

   $ (17,658,000 )   $ 24,199,000  

Stock-based employee compensation expense determined under fair value based method for all awards

     (8,297,000 )     (8,540,000 )
    


 


As adjusted

     (25,955,000 )     15,659,000  

Basic earnings and diluted net (loss) income per share, applicable to common stockholders:

                

As reported

   $ (.18 )   $ .23  

As adjusted

     (.26 )     .15  

 

11


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CONSOLIDATING FINANCIAL STATEMENTS

 

The Company conducts a portion of its business through its subsidiaries. All of the Company’s subsidiaries (Subsidiary Guarantors) have fully and unconditionally guaranteed the Company’s 8 7/8% Senior Subordinated Notes due 2011.

 

Set forth below are consolidating financial statements for the Company and the Subsidiary Guarantors as of September 30, 2002 and 2003, and for the three month and nine month periods then ended. The equity method of accounting has been used by the Company to report its investments in subsidiaries. Separate financial statements for the Subsidiary Guarantors are not presented based on management’s determination that they do not provide additional information that is material to investors.

 

12


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RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING BALANCE SHEET

 

AS OF DECEMBER 31, 2002

 

    

Combined

Guarantor
Subsidiaries


   Radio One, Inc.

   Eliminations

    Consolidated

ASSETS

                            

CURRENT ASSETS:

                            

Cash and cash equivalents

   $ 423,000    $ 85,692,000    $ —       $ 86,115,000

Trade accounts receivable, net of allowance for doubtful accounts

     30,281,000      34,284,000      —         64,565,000

Prepaid expenses and other

     894,000      1,123,000      —         2,017,000

Income tax receivable

     —        3,650,000      —         3,650,000

Deferred income tax asset

     2,282,000      683,000      —         2,965,000
    

  

  


 

Total current assets

     33,880,000      125,432,000      —         159,312,000

PROPERTY AND EQUIPMENT, net

     26,196,000      15,426,000      —         41,622,000

INTANGIBLE ASSETS, net

     1,755,353,000      21,273,000      —         1,776,626,000

INVESTMENT IN SUBSIDIARIES

     —        1,783,677,000      (1,783,677,000 )     —  

OTHER ASSETS

     1,044,000      5,756,000      —         6,800,000
    

  

  


 

Total assets

   $ 1,816,473,000    $ 1,951,564,000    $ (1,783,677,000 )   $ 1,984,360,000
    

  

  


 

 

The accompanying notes are an integral part of this consolidating balance sheet.

 

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Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING BALANCE SHEET

 

AS OF DECEMBER 31, 2002

 

    

Combined

Guarantor
Subsidiaries


   Radio One, Inc.

    Eliminations

    Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                               

CURRENT LIABILITIES:

                               

Accounts payable

   $ 1,238,000    $ 5,973,000     $ —       $ 7,211,000  

Accrued expenses

     7,620,000      27,989,000       —         35,609,000  

Fair value of derivative investments

     —        4,888,000       —         4,888,000  

Other current liabilities

     203,000      198,000       —         401,000  

Current portion of long-term debt

     —        52,500,000       —         52,500,000  
    

  


 


 


Total current liabilities

     9,061,000      91,548,000       —         100,609,000  

LONG-TERM DEBT AND DEFERRED INTEREST

     —        597,501,000       —         597,501,000  

DEFERRED INCOME TAX LIABILITY

     23,735,000      18,492,000       —         42,227,000  
    

  


 


 


Total liabilities

     32,796,000      707,541,000       —         740,337,000  
    

  


 


 


STOCKHOLDERS’ EQUITY:

                               

Common stock

     —        105,000       —         105,000  

Accumulated comprehensive loss

     —        (3,006,000 )     —         (3,006,000 )

Stock subscriptions receivable

     —        (33,344,000 )     —         (33,344,000 )

Additional paid-in capital

     1,237,854,000      1,408,435,000       (1,237,854,000 )     1,408,435,000  

Accumulated deficit

     545,823,000      (128,167,000 )     (545,823,000 )     (128,167,000 )
    

  


 


 


Total stockholders’ equity

     1,783,677,000      1,244,023,000       (1,783,677,000 )     1,244,023,000  
    

  


 


 


Total liabilities and stockholders’ equity

   $ 1,816,473,000    $ 1,951,564,000     $ (1,783,677,000 )   $ 1,984,360,000  
    

  


 


 


 

The accompanying notes are an integral part of this consolidating balance sheet.

 

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RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING BALANCE SHEET

 

AS OF SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


   Radio One, Inc.

   Eliminations

    Consolidated

ASSETS

                            

CURRENT ASSETS:

                            

Cash and cash equivalents

   $ 952,000    $ 63,109,000    $ —       $ 64,061,000

Trade accounts receivable, net of allowance for doubtful accounts

     30,792,000      33,804,000      —         64,596,000

Prepaid expenses and other

     754,000      1,324,000      —         2,078,000

Income tax receivable

     —        3,650,000      —         3,650,000

Deferred tax asset

     2,282,000      683,000      —         2,965,000
    

  

  


 

Total current assets

     34,780,000      102,570,000      —         137,350,000

PROPERTY AND EQUIPMENT, net

     27,218,000      14,459,000      —         41,677,000

INTANGIBLE ASSETS, net

     1,762,775,000      19,460,000      —         1,782,235,000

INVESTMENT IN SUBSIDIARIES

     —        1,792,773,000      (1,792,773,000 )     —  

INVESTMENT IN AFFILIATED COMPANY

     —        35,471,000      —         35,471,000

OTHER ASSETS

     1,007,000      4,537,000      —         5,544,000
    

  

  


 

Total assets

   $ 1,825,780,000    $ 1,969,270,000    $ (1,792,773,000 )   $ 2,002,277,000
    

  

  


 

 

The accompanying notes are an integral part of this consolidating balance sheet.

 

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RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING BALANCE SHEET

 

AS OF SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


   Radio One, Inc.

    Eliminations

    Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                               

CURRENT LIABILITIES:

                               

Accounts payable

   $ 925,000    $ 6,164,000     $ —       $ 7,089,000  

Accrued expenses

     8,163,000      20,418,000       —         28,581,000  

Fair value of derivative instruments

     —        5,950,000       —         5,950,000  

Other current liabilities

     184,000      3,700,000       —         3,884,000  

Current portion of long-term debt

     —        52,500,000       —         52,500,000  
    

  


 


 


Total current liabilities

     9,272,000      88,732,000       —         98,004,000  

LONG-TERM DEBT, net of current portion

     —        558,126,000       —         558,126,000  

DEFERRED REVENUE, net of current portion

     —        13,561,000       —         13,561,000  

DEFERRED INCOME TAX LIABILITY

     23,735,000      41,664,000       —         65,399,000  
    

  


 


 


Total liabilities

     33,007,000      702,083,000       —         735,090,000  
    

  


 


 


STOCKHOLDERS’ EQUITY:

                               

Common stock

     —        105,000       —         105,000  

Accumulated other comprehensive loss

     —        (3,659,000 )     —         (3,659,000 )

Stock subscriptions receivable

     —        (34,609,000 )     —         (34,609,000 )

Additional paid-in capital

     1,203,216,000      1,409,318,000       (1,203,216,000 )     1,409,318,000  

Accumulated deficit

     589,557,000      (103,968,000 )     (589,557,000 )     (103,968,000 )
    

  


 


 


Total stockholders’ equity

     1,792,773,000      1,267,187,000       (1,792,773,000 )     1,267,187,000  
    

  


 


 


Total liabilities and stockholders’ equity

   $ 1,825,780,000    $ 1,969,270,000     $ (1,792,773,000 )   $ 2,002,277,000  
    

  


 


 


 

The accompanying notes are an integral part of this consolidating balance sheet.

 

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RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF OPERATIONS

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


    Radio One,
Inc.


    Eliminations

    Consolidated

 

REVENUE:

                                

Broadcast revenue, including barter revenue

   $ 40,909,000     $ 50,370,000     $ —       $ 91,279,000  

Less: agency commissions

     4,713,000       6,097,000       —         10,810,000  
    


 


 


 


Net broadcast revenue

     36,196,000       44,273,000       —         80,469,000  
    


 


 


 


OPERATING EXPENSES:

                                

Program and technical, exclusive of depreciation and amortization, shown separately below

     5,792,000       6,907,000       —         12,699,000  

Selling, general and administrative

     12,388,000       12,277,000       —         24,665,000  

Corporate expenses

     —         3,597,000       —         3,597,000  

Depreciation and amortization

     2,709,000       1,447,000       —         4,156,000  
    


 


 


 


Total operating expenses

     20,889,000       24,228,000       —         45,117,000  
    


 


 


 


Operating income

     15,307,000       20,045,000               35,352,000  

INTEREST EXPENSE, including amortization of deferred financing costs

     (112,000 )     (14,219,000 )     —         (14,331,000 )

OTHER EXPENSE, net

     38,000       (90,000 )     —         (52,000 )
    


 


 


 


Income before provision for income taxes

     15,233,000       5,736,000       —         20,969,000  

PROVISION FOR INCOME TAXES

     —         8,178,000       —         8,178,000  

EQUITY IN INCOME OF SUBSIDIARIES

     —         15,233,000       (15,233,000 )     —    
    


 


 


 


Net income

   $ 15,233,000     $ 12,791,000     $ (15,233,000 )   $ 12,791,000  
    


 


 


 


NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

           $ 7,756,000             $ 7,756,000  
            


         


 

The accompanying notes are an integral part of this consolidating statement.

 

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Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF OPERATIONS

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


    Radio One, Inc.

    Eliminations

    Consolidated

 

REVENUE:

                                

Broadcast revenue, including barter revenue

   $ 45,693,000     $ 46,942,000     $ —       $ 92,635,000  

Less: Agency commissions

     5,380,000       5,799,000       —         11,179,000  
    


 


 


 


Net broadcast revenue

     40,313,000       41,143,000       —         81,456,000  
    


 


 


 


OPERATING EXPENSES:

                                

Program and technical, exclusive of depreciation and amortization, shown separately below

     6,299,000       6,105,000       —         12,404,000  

Selling, general and administrative

     13,157,000       10,293,000       —         23,450,000  

Corporate expenses

     —         3,557,000       —         3,557,000  

Depreciation and amortization

     3,063,000       1,492,000       —         4,555,000  
    


 


 


 


Total operating expenses

     22,519,000       21,447,000       —         43,966,000  
    


 


 


 


Operating income

     17,794,000       19,696,000       —         37,490,000  

OTHER (EXPENSE) INCOME:

                                

Interest expense, including amortization of deferred financing costs

     (77,000 )     (10,178,000 )     —         (10,255,000 )

Equity in net loss of affiliated company

     —         (939,000 )     —         (939,000 )

Other (expense) income, net

     (3,000 )     597,000       —         594,000  
    


 


 


 


Income before provision for income taxes

     17,714,000       9,176,000       —         26,890,000  

PROVISION FOR INCOME TAXES

     —         10,174,000       —         10,174,000  

EQUITY IN INCOME OF SUBSIDIARIES

     —         17,714,000       (17,714,000 )     —    
    


 


 


 


Net income

   $ 17,714,000     $ 16,716,000     $ (17,714,000 )   $ 16,716,000  
    


 


 


 


NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

           $ 11,681,000             $ 11,681,000  
            


         


 

The accompanying notes are an integral part of this consolidating statement.

 

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Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF OPERATIONS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


    Radio One, Inc.

    Eliminations

    Consolidated

 

REVENUE:

                                

Broadcast revenue, including barter revenue

   $ 111,039,000     $ 137,212,000     $ —       $ 248,251,000  

Less: Agency commissions

     12,742,000       16,564,000       —         29,306,000  
    


 


 


 


Net broadcast revenue

     98,297,000       120,648,000       —         218,945,000  
    


 


 


 


OPERATING EXPENSES:

                                

Program and technical, exclusive of depreciation and amortization, shown separately below

     16,383,000       20,422,000       —         36,805,000  

Selling, general and administrative

     35,585,000       34,202,000       —         69,787,000  

Corporate expenses

     —         9,996,000       —         9,996,000  

Depreciation and amortization

     6,861,000       6,068,000       —         12,929,000  
    


 


 


 


Total operating expenses

     58,829,000       70,688,000       —         129,517,000  
    


 


 


 


Operating income

     39,468,000       49,960,000       —         89,428,000  

INTEREST EXPENSE, including amortization of deferred financing costs

     (1,693,000 )     (44,365,000 )     —         (46,058,000 )

OTHER (EXPENSE) INCOME, net

     (77,000 )     1,090,000       —         1,013,000  
    


 


 


 


Income before provision for income taxes and cumulative effect of accounting change

     37,698,000       6,685,000       —         44,383,000  

PROVISION FOR INCOME TAXES

     —         17,089,000       —         17,089,000  
    


 


 


 


Income (loss) before cumulative effect of accounting change

     37,698,000       (10,404,000 )     —         27,294,000  

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of tax

     29,847,000       —         —         29,847,000  

EQUITY IN LOSSES OF SUBSIDIARIES

     —         7,851,000       (7,851,000 )     —    
    


 


 


 


Net income (loss)

   $ 7,851,000     $ (2,553,000 )   $ (7,851,000 )   $ (2,553,000 )
    


 


 


 


NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

           $ (17,658,000 )           $ (17,658,000 )
            


         


 

19


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF OPERATIONS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


    Radio One, Inc.

    Eliminations

    Consolidated

 

REVENUE:

                                

Broadcast revenue, including barter revenue

   $ 127,514,000     $ 129,174,000     $ —       $ 256,688,000  

Less: Agency commissions

     14,956,000       15,934,000       —         30,890,000  
    


 


 


 


Net broadcast revenue

     112,558,000       113,240,000       —         225,798,000  
    


 


 


 


OPERATING EXPENSES:

                                

Program and technical, exclusive of depreciation and amortization, shown separately below

     19,632,000       18,944,000       —         38,576,000  

Selling, general and administrative

     39,674,000       29,794,000       —         69,468,000  

Corporate expenses

     —         10,469,000       —         10,469,000  

Depreciation and amortization

     9,141,000       4,445,000       —         13,586,000  
    


 


 


 


Total operating expenses

     68,447,000       63,652,000       —         132,099,000  
    


 


 


 


Operating income

     44,111,000       49,588,000       —         93,699,000  

OTHER (EXPENSE) INCOME:

                                

Interest expense, including amortization of deferred financing costs

     (384,000 )     (31,010,000 )     —         (31,394,000 )

Equity in net loss of affiliated company

     —         (939,000 )     —         (939,000 )

Other income, net

     6,000       1,951,000       —         1,957,000  
    


 


 


 


Income before provision for income taxes

     43,733,000       19,590,000       —         63,323,000  

PROVISION FOR INCOME TAXES

     —         24,019,000       —         24,019,000  

EQUITY IN INCOME OF SUBSIDIARIES

     —         43,733,000       (43,733,000 )     —    
    


 


 


 


Net income

   $ 43,733,000     $ 39,304,000     $ (43,733,000 )   $ 39,304,000  
    


 


 


 


NET INCOME APPLICABLE TO COMMON STOCKHOLDERS

           $ 24,199,000             $ 24,199,000  
            


         


 

The accompanying notes are an integral part of this consolidating statement.

 

20


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


   Radio One, Inc.

    Eliminations

    Consolidated

 

CASH FLOWS FROM OPERATING ACTIVITIES:

                               

Net loss

   $ 7,851,000    $ (2,553,000 )   $ (7,851,000 )   $ (2,553,000 )

Adjustments to reconcile loss to net cash from operating activities:

                               

Depreciation and amortization

     6,861,000      6,068,000       —         12,929,000  

Amortization of debt financing costs

     —        1,629,000       —         1,629,000  

Deferred income taxes and reduction in valuation reserve on deferred income taxes

     12,967,000      3,733,000       —         16,700,000  

Cumulative effect of accounting change, net of tax

     29,847,000      —         —         29,847,000  

Loss on write-down of investments

     —        750,000       —         750,000  

Non-cash compensation to officers

     —        994,000       —         994,000  

Loss on retirement of assets

     —        113,000       —         113,000  

Effect of change in operating assets and liabilities-

                               

Trade accounts receivable, net

     3,418,000      (10,898,000 )     —         (7,480,000 )

Due to Corporate/from Subsidiaries

     17,792,000      (17,792,000 )     —         —    

Prepaid expenses and other

     181,000      (548,000 )     —         (367,000 )

Other assets

     2,663,000      (3,617,000 )     —         (954,000 )

Accounts payable

     23,000      (115,000 )     —         (92,000 )

Accrued expenses and other

     504,000      (10,105,000 )     —         (9,601,000 )
    

  


 


 


Net cash flows from operating activities

     82,107,000      (32,341,000 )     (7,851,000 )     41,915,000  
    

  


 


 


 

The accompanying notes are an integral part of this consolidating statement.

 

21


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

 

    

Combined

Guarantor

Subsidiaries


    Radio One, Inc.

    Eliminations

   Consolidated

 

CASH FLOWS FROM INVESTING ACTIVITIES:

                               

Purchase of property and equipment

   $ (4,047,000 )   $ (3,572,000 )   $ —      $ (7,619,000 )

Investment in Subsidiaries

     —         (7,851,000 )     7,851,000      —    

Equity investments

     —         (503,000 )     —        (503,000 )

Proceeds from sale of assets

     —         130,000       —        130,000  

Deposits and payments for station purchases

     (53,040,000 )     —         —        (53,040,000 )
    


 


 

  


Net cash flows from investing activities

     (57,087,000 )     (11,796,000 )     7,851,000      (61,032,000 )
    


 


 

  


CASH FLOWS FROM FINANCING ACTIVITIES:

                               

Repayment of debt

     —         (130,021,000 )     —        (130,021,000 )

Proceeds from issuance of common stock, net of issuance costs

     —         198,812,000       —        198,812,000  

Payment of preferred stock dividends

     —         (1,309,000 )     —        (1,309,000 )

Stock subscriptions receivable

     —         (15,105,000 )     —        (15,105,000 )

Proceeds from exercise of stock options

     —         615,000       —        615,000  

Payment for retirement of stock

     —         (75,000 )     —        (75,000 )
    


 


 

  


Net cash flows from financing activities

     —         52,917,000       —        52,917,000  
    


 


 

  


INCREASE IN CASH AND CASH EQUIVALENTS

     25,020,000       8,780,000       —        33,800,000  

CASH AND CASH EQUIVALENTS, beginning of period

     (447,000 )     32,562,000       —        32,115,000  
    


 


 

  


CASH AND CASH EQUIVALENTS, end of period

   $ 24,573,000     $ 41,342,000     $ —      $ 65,915,000  
    


 


 

  


 

The accompanying notes are an integral part of this consolidating statement.

 

22


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor
Subsidiaries


    Radio One, Inc.

    Eliminations

    Consolidated

 

CASH FLOWS FROM OPERATING ACTIVITIES:

                                

Net income

   $ 43,733,000     $ 39,304,000     $ (43,733,000 )   $ 39,304,000  

Adjustments to reconcile loss to net cash from operating activities:

                                

Depreciation and amortization

     9,141,000       4,445,000       —         13,586,000  

Amortization of debt financing costs

     —         1,274,000       —         1,274,000  

Deferred income taxes

     —         23,581,000       —         23,581,000  

Equity in net loss of affiliated company

     —         939,000       —         939,000  

Non-cash compensation to officers

     —         1,319,000       —         1,319,000  

Loss on retirement of assets

     2,000       —         —         2,000  

Effect of change in operating assets and liabilities-

                                

Trade accounts receivable, net

     (472,000 )     480,000       —         8,000  

Due to Corporate/from Subsidiaries

     (34,638,000 )     34,638,000       —         —    

Prepaid expenses and other

     142,000       (203,000 )     —         (61,000 )

Other assets

     (621,000 )     867,000       —         246,000  

Accounts payable

     (313,000 )     191,000       —         (122,000 )

Accrued expenses and other

     474,000       (8,776,000 )     —         (8,302,000 )
    


 


 


 


Net cash flows from operating activities

     17,448,000       98,059,000       (43,733,000 )     71,774,000  
    


 


 


 


 

The accompanying notes are an integral part of this consolidating statement.

 

23


Table of Contents

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF CASH FLOWS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003

(Unaudited)

 

    

Combined

Guarantor

Subsidiaries


    Radio One, Inc.

    Eliminations

   Consolidated

 

CASH FLOWS FROM INVESTING ACTIVITIES:

                               

Purchase of property and equipment

   $ (4,703,000 )   $ (2,918,000 )   $ —      $ (7,621,000 )

Equity investments

     —         (19,108,000 )     —        (19,108,000 )

Investment in subsidiary

     —         (43,733,000 )     43,733,000      —    

Purchase of intangible assets

     (1,260,000 )     (21,000 )     —        (1,281,000 )

Deposits and payments for station purchases

     (10,956,000 )     —         —        (10,956,000 )
    


 


 

  


Net cash flows from investing activities

     (16,919,000 )     (65,780,000 )     43,733,000      (38,966,000 )
    


 


 

  


CASH FLOWS FROM FINANCING ACTIVITIES:

                               

Repayment of debt

     —         (39,375,000 )     —        (39,375,000 )

Interest on stock subscription receivable

     —         (1,265,000 )     —        (1,265,000 )

Payment of preferred stock dividends

     —         (15,105,000 )     —        (15,105,000 )

Proceeds from exercise of stock options

             883,000              883,000  
    


 


 

  


Net cash flows from financing activities

     —         (54,862,000 )     —        (54,862,000 )
    


 


 

  


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     529,000       (22,583,000 )     —        (22,054,000 )

CASH AND CASH EQUIVALENTS, beginning of period

     423,000       85,692,000       —        86,115,000  
    


 


 

  


CASH AND CASH EQUIVALENTS, end of period

   $ 952,000     $ 63,109,000     $ —      $ 64,061,000  
    


 


 

  


 

The accompanying notes are an integral part of this consolidating statement.

 

24


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this quarterly report and the audited financial statements and Management’s Discussion and Analysis contained in Radio One’s Annual Report on Form 10-K for the year ended December 31, 2002. Unless otherwise noted, the terms “Radio One,” “we,” and “us” refer to Radio One, Inc. and its subsidiaries.

 

General

 

Our net broadcast revenue is derived primarily from local and national advertisers and, to a much lesser extent, tower rental income, ticket and revenue related to special events sponsored throughout the year and miscellaneous other revenue. Our 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:

 

  a radio station’s audience share in the demographic groups targeted by advertisers, as measured principally by quarterly reports issued by Arbitron;

 

  the number of radio stations in the market competing for the same demographic groups; and

 

  the supply of and demand for radio advertising time.

 

Our significant broadcast expenses are (i) employee salaries and commissions, (ii) programming expenses, (iii) advertising and promotion expenses, (iv) rental of premises for studios, (v) rental of transmission tower space and (vi) 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. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies.

 

We generally incur advertising and promotional expenses to increase our audiences. However, because Arbitron ratings are reported on a quarterly basis, any changed ratings and the corresponding effect on advertising revenues tends to lag behind the incurrence of advertising and promotional expenditures.

 

25


Table of Contents

RESULTS OF OPERATIONS

 

Comparison of period ended September 30, 2002 to the period ended September 30, 2003

(all periods are unaudited – all numbers in 000s except per share data).

 

     Three months
ended
September 30,
2002


    Three months
ended
September 30,
2003


    Nine months
ended
September 30,
2002


   

Nine months
ended

September 30,

2003


 

STATEMENT OF OPERATIONS DATA:

                                

REVENUE:

                                

Broadcast revenue

   $ 91,279     $ 92,635     $ 248,251     $ 256,688  

Less: Agency commissions

     10,810       11,179       29,306       30,890  
    


 


 


 


Net broadcast revenue

     80,469       81,456       218,945       225,798  
    


 


 


 


OPERATING EXPENSES:

                                

Programming and technical

     12,699       12,404       36,805       38,576  

Selling, G&A

     24,665       23,450       69,787       69,468  

Corporate expenses

     3,245       3,132       9,002       9,150  

Non-cash compensation

     352       425       994       1,319  

Depreciation & amortization

     4,156       4,555       12,929       13,586  
    


 


 


 


Total operating expenses

     45,117       43,966       129,517       132,099  
    


 


 


 


Operating income

     35,352       37,490       89,428       93,699  

OTHER (EXPENSE) INCOME:

                                

Interest expense, including amortization of deferred financing costs

     (14,331 )     (10,255 )     (46,058 )     (31,394 )

Equity in net loss of affiliated company

     —         (939 )     —         (939 )

Other (expense) income, net

     (52 )     594       1,013       1,957  
    


 


 


 


Income before provision for income taxes and cumulative effect of accounting change

     20,969       26,890       44,383       63,323  

PROVISION FOR INCOME TAXES

     8,178       10,174       17,089       24,019  
    


 


 


 


INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of taxes

     12,791       16,716       27,294       39,304  

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of taxes

     —         —         (29,847 )     —    
    


 


 


 


Net income (loss)

   $ 12,791     $ 16,716     $ (2,553 )   $ 39,304  
    


 


 


 


Net income (loss) applicable to common stockholders

   $ 7,756     $ 11,681     $ (17,658 )   $ 24,199  
    


 


 


 


 

26


Table of Contents
     Three months
ended
September 30,
2002


    Three months
ended
September 30,
2003


    Nine months
ended
September 30,
2002


   

Nine months
ended

September 30,

2003


 

BASIC AND DILUTED PER SHARE DATA:

                                

Net income per share before cumulative effect of accounting change

   $ 0.12     $ 0.16     $ 0.27     $ 0.37  

Cumulative effect of accounting change per share

     —         —         (0.30 )     —    

Preferred dividends per share

     (0.05 )     (0.05 )     (0.15 )     (0.14 )
    


 


 


 


Net income (loss) per common share

     0.07       0.11       (0.18 )     0.23  

Capital expenditures

     2,504       1,486       7,619       7,621  

Weighted average shares outstanding

– basic

     104,538       104,649       100,755       104,611  

Weighted average shares outstanding

– diluted

     104,892       105,185       100,755       105,049  

 

Net broadcast revenue increased to approximately $81.5 million for the quarter ended September 30, 2003 from approximately $80.5 million for the quarter ended September 30, 2002 or 1%. Net broadcast revenue increased to approximately $225.8 million for the nine months ended September 30, 2003 from approximately $218.9 million for the nine months ended September 30, 2002 or 3%. These increases were the result of net broadcast revenue growth in several of Radio One’s markets, including Cincinnati, Dallas, Indianapolis and Minneapolis, partially offset by revenue declines in several other markets, including Boston, Houston, Philadelphia and Richmond.

 

Operating expenses decreased to approximately $44.0 million for the quarter ended September 30, 2003 from approximately $45.1 million for the quarter ended September 30, 2002 or 2%. This decrease was the result of strong cost controls and a reduction in expenses for certain terminated or downsized special events as well as the approximately $0.8 million reversal of over-accrued music licensing royalty expenses from prior periods associated with the radio industry’s settlement with Broadcast Music Inc. (BMI), offset partially by higher depreciation and amortization expense. Operating expenses excluding depreciation, amortization and non-cash compensation decreased to approximately $39.0 million for the quarter ended September 30, 2003 from approximately $40.6 million for the quarter ended September 30, 2002 or 4%. Operating expenses increased to approximately $132.1 million for the nine months ended September 30, 2003 from approximately $129.5 million for the nine months ended September 30, 2002 or 2%. Operating expenses excluding depreciation, amortization and non-cash compensation increased to approximately $117.2 million for the nine months ended September 30, 2003 from approximately $115.6 million for the nine months ended September 30, 2002 or 1%. These increases in expenses were related primarily to (1) increased variable expenses associated with increased revenue and (2) higher programming expenses in certain markets with new radio station formats and/or programming, such as with two relatively young stations in Atlanta and the syndication of the Steve Harvey Morning Show to one of Radio One’s Dallas stations.

 

27


Table of Contents

Operating income increased to approximately $37.5 million for the quarter ended September 30, 2003 from approximately $35.4 million for the quarter ended September 30, 2002 or 6%. Operating income increased to approximately $93.7 million for the nine months ended September 30, 2003 from approximately $89.4 million for the nine months ended September 30, 2002 or 5%. These increases in operating income were primarily attributable to higher revenue and lower operating expenses as described above.

 

Interest expense decreased to approximately $10.3 million for the quarter ended September 30, 2003 from approximately $14.3 million for the quarter ended September 30, 2002 or 28%. Interest expense decreased to approximately $31.4 million for the nine months ended September 30, 2003 from approximately $46.1 million for the nine months ended September 30, 2002 or 32%. These decreases relate primarily to a reduction of outstanding bank debt (starting in the middle of the second quarter of 2002) with the proceeds received from the Company’s April 2002 equity offering and from principal payments made, utilizing free cash flow, beginning at the end of the first quarter of 2003. In addition, interest expense decreased due to lower interest rates on that bank debt as a result of declining leverage and lower market interest rates over the past 12 months.

 

Equity in net loss of affiliated company was approximately $0.9 million for the quarter and nine months ended September 30, 2003. This activity was associated with the financial results of TV One, LLC. Radio One accounts for this investment, the initial portion which was made in August 2003, under the equity method of accounting.

 

Other income (almost exclusively interest income) increased to approximately $0.6 million for the quarter ended September 30, 2003 compared to approximately $0.1 million for the quarter ended September 30, 2002 or 500%. Other income increased to approximately $2.0 million for the nine months ended September 30, 2003 compared to approximately $1.0 million for the nine months ended September 30, 2002 or 100%. These increases were due to higher cash balances for the same periods in 2003 than in 2002. In addition, during the third quarter of 2002, we wrote down an approximate $0.8 million portion of our investment in New Urban Entertainment Television in 2002 and we had no similar write down in 2003.

 

Income before provision for income taxes and cumulative effect of an accounting change increased to approximately $26.9 million for the quarter ended September 30, 2003 compared to income before provision for income taxes and cumulative effect of an accounting change of approximately $21.0 million for the quarter ended September 30, 2002 or 28%. Income before provision for income taxes and cumulative effect of an accounting change increased to approximately $63.3 million for the nine months ended September 30, 2003 compared to income before provision for income taxes and cumulative effect of an accounting change of approximately $44.4 million for the nine months ended September 30, 2002 or 43%. These increases were due primarily to higher operating income due to higher revenue and lower interest expense, partially offset by equity in net loss of affiliated company, as described above.

 

Income before cumulative effect of accounting change increased to approximately $16.7 million for the quarter ended September 30, 2003 compared to income before cumulative effect of an accounting change of approximately $12.8 million for the quarter ended September 30, 2002 or 30%. Income before cumulative effect of accounting change increased to approximately $39.3 million for the nine months ended September 30, 2003 compared to income before cumulative effect of an accounting change of approximately $27.3 million for the nine months ended September 30, 2002 or 44%. These increases were due to higher income before provision for income taxes and cumulative effect of an accounting change compared to the previous year’s income, partially offset by a higher provision for income taxes in the same periods of 2003 than in 2002.

 

Cumulative effect of accounting change was approximately $29.8 million for the nine months ended September 30, 2002. This charge, net of income tax benefit of approximately $15.0 million, related to an impairment charge associated with the adoption of SFAS No. 142. Based on an analysis completed in accordance with SFAS No. 142, we calculated impairment on the carrying value of certain of our FCC broadcast licenses and goodwill amounts. See “Recent Accounting Pronouncements” below.

 

28


Table of Contents

Net income increased to approximately $16.7 million for the quarter ended September 30, 2003 from approximately $12.8 million for the quarter ended September 30, 2002 or 30%. Net income increased to approximately $39.3 million for the nine months ended September 30, 2003 compared to a net loss of approximately $2.6 million for the nine months ended September 30, 2002. These increases were due to higher income before provision for income taxes and cumulative effect of an accounting change, as well as the effect of the accounting change in the first quarter of 2002, which reduced net income in that period by approximately $29.8 million.

 

29


Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary source of liquidity is cash provided by operations and, to the extent necessary, commitments available under our bank credit facility and other debt or equity financing. We have a bank credit facility under which we have $310.6 million outstanding in term loans and may borrow up to $250.0 million on a revolving basis, and from which we have historically drawn down funds as capital was required, primarily for acquisitions. As of September 30, 2003, we were able to borrow up to $250.0 million, taking into account the covenant restrictions in effect on that date. In 2003, minimum principal payments on our outstanding term loans in the aggregate amount of $52.5 million are due in equal quarterly installments of approximately $13.1 million. As of September 30, 2003, we have made $39.4 million in principal payments on our outstanding term loans.

 

The credit facility requires that we comply with certain financial covenants limiting our ability to incur additional debt. Such terms also place restrictions on us 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. The credit facility also requires compliance with financial tests based on financial position and results of operations, including a leverage ratio, an interest coverage ratio and a fixed charge coverage ratio, all of which could effectively limit our ability to borrow under the credit facility or to otherwise raise funds in the debt markets.

 

Both the revolving commitment and term loan borrowings under our credit facility bear interest, at our option, at a rate equal to either LIBOR plus a spread that ranges from .625% to 2.000% or on the prime rate plus a spread of up to 1%, depending on our leverage ratio. Under the bank credit facility, we may be required from time to time to protect ourselves from interest rate fluctuations using interest rate hedge agreements. As a result, we have entered into various fixed rate swap agreements designed to mitigate our exposure to higher floating interest rates. These swap agreements require that we pay a fixed rate of interest on the notional amount to a bank and that bank pay to us a variable rate equal to three-month LIBOR. We currently have swap agreements in place for a total notional amount of $225.0 million. As of September 30, 2003, the periods remaining on the swap agreements range in duration from 10 to 36 months.

 

Our credit exposure under these swap agreements is limited to the cost of replacing an agreement in the event of non-performance by our counter-party; however, we do not anticipate non-performance. All of the swap agreements are tied to the three-month LIBOR interest rate, which may fluctuate significantly on a daily basis. The valuation of each of these swap agreements is affected by the change in the three-month LIBOR rates and the remaining term of the agreement. Any increase in the three-month LIBOR rate results in a more favorable valuation, while a decrease in the three-month LIBOR rate results in a less favorable valuation. The following table summarizes the interest rates in effect with respect to certain of our debt as of September 30, 2003.

 

30


Table of Contents

Type of debt


   Amount outstanding

  

Applicable

interest rate


 

Senior bank term debt (subject to a 46 month fixed swap) (1)(2)

   $ 100.0 million    4.39 %

Senior bank term debt (subject to a 36 month fixed swap) (1)(2)

   $ 50.0 million    4.01 %

Senior bank term debt (subject to a 24 month fixed swap) (1)(2)

   $ 50.0 million    3.55 %

Senior bank term debt (subject to a 20 month fixed swap) (2)

   $ 25.0 million    4.51 %

Senior bank term debt (subject to variable interest rate) (3)

   $ 85.6 million    approximately 2.15 %

8 7/8% senior subordinated notes (fixed rate)

   $ 300.0 million    8.88 %

(1) A total of $200 million is subject to fixed rate swap agreements that became effective on December 2, 2002.
(2) Under our fixed rate swap agreements, we pay a fixed rate plus a spread based on our leverage ratio, as defined in our credit agreement. That spread is currently set at 1.00% and is incorporated into the applicable interest rates outlined above.
(3) Subject to rolling 90-day LIBOR plus a spread currently at 1.00% and incorporated into the applicable interest rate outlined above.

 

We have used, and may continue to use, a significant portion of our capital resources to consummate acquisitions. These acquisitions have been and may continue to be funded from (i) our credit facility (ii) the proceeds of the historical offerings of our common stock, (iii) the proceeds of future equity or debt offerings, and (iv) internally generated cash flow.

 

The following table provides a comparison of our statements of cash flows for the nine months ended September 30, 2002 and 2003.

 

    

Nine Months Ended

September 30,


 
     2002

    2003

 

Net cash flows from operating activities

   41,915,000     71,774,000  

Net cash used in investing activities

   (61,032,000 )   (38,966,000 )

Net cash from (used in) financing activities

   52,917,000     (54,862,000 )

 

Net cash flows from operating activities were approximately $71.8 million and $41.9 million for the nine months ended September 30, 2003 and 2002, respectively. The increase for the nine months ended September 30, 2003 was primarily due to (i) an increase in net broadcast revenue, net of an increase in operating expenses, (ii) reduced leverage, and (iii) to a lesser extent, changes in other working capital components.

 

Net cash flows used in investing activities were approximately $39.0 million and $61.0 million for the nine months ended September 30, 2003 and 2002, respectively. During the nine months ended September 30, 2003, we completed the acquisition of WBLO-FM in the Louisville market for approximately $2.0 million and paid approximately $1.3 million to lease tower space in the Dallas market for the next 60 years. In July 2003, we completed the acquisition of WRNB-FM (formerly WROU-FM) in the Dayton market for approximately $9.2 million in cash. Also in July 2003, we entered into a joint venture agreement to create TV One, LLC, an entity formed to launch a cable television network in which we expect to invest approximately $74.0 million over four years. In

 

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August 2003, we made our first capital contribution of approximately $18.5 million to TV One, LLC. During the nine months ended September 30, 2002, we completed the acquisition of the assets of WHTA-FM (formerly WPZE-FM) in the Atlanta, Georgia market for approximately $56.0 million. Capital expenditures were approximately $7.6 million for both the nine months ended September 30, 2003 and 2002.

 

Net cash flows used in financing activities were approximately $54.9 million for the nine months ended September 30, 2003 and net cash flows from financing activities were approximately $52.9 million for the nine months ended September 30, 2002. During the nine months ended September 30, 2003, we repaid $39.4 million of principal under our bank credit facility. During the nine months ended September 30, 2002, certain selling shareholders and we completed an offering of 11,500,000 shares of class D common stock at an offering price of $20.25 per share. Through this offering, we received proceeds of approximately $198.8 million after deducting offering costs. Approximately $130.0 million of the proceeds were used to partially repay amounts outstanding under our bank credit facility.

 

As a result of the aforementioned, cash and cash equivalents decreased by $22.1 million during the nine months ended September 30, 2003 compared to an increase of approximately $33.8 million during the nine months ended September 30, 2002. Our balance of cash and cash equivalents was approximately $86.1 million as of December 31, 2002. Our balance of cash and cash equivalents was approximately $64.1 million as of September 30, 2003.

 

In addition to debt service and quarterly dividend payments of approximately $5.0 million on our 6.5% Convertible Preferred Securities, our principal liquidity requirements are working capital and general corporate purposes, including capital expenditures, and, if appropriate opportunities arise, acquisitions of additional radio stations and/or investments in other media related opportunities, including our investment commitment in TV One, LLC. We estimate that for all of 2003, capital expenditures will total approximately $10.5 to $11.5 million.

 

During the nine months ended September 30, 2003, we obtained a standby letter of credit in the amount of $275,000 in connection with our annual insurance policy renewal. To date, there has been no activity on this standby letter of credit.

 

We believe that our current cash and cash investment balances, as well as anticipated cash flows generated from operations, will be sufficient to meet our working capital, capital expenditure and debt service requirements through at least the next 12 months.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In June 2001, FASB issued Statement of Financial Accounting Standard No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets.” This pronouncement requires a non-amortization approach to account for purchased goodwill and certain other intangible assets. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations but, instead, would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than their fair value. Upon adopting the transitional rules of SFAS No. 142, we recorded an impairment charge of approximately $23.2 million, net of an income tax benefit of approximately $14.5 million in the first quarter of 2002, as the carrying value of certain of our FCC licenses exceeded the appraised fair value. In accordance with SFAS No. 142, we reflected this charge as a cumulative effect of an accounting change, effective January 1, 2002, in our statement of operations.

 

We adopted the final provision of SFAS No. 142 in the fourth quarter of 2002 by reviewing the fair value of our reporting units and comparing that fair value to the net book value of the reporting unit. To the extent a reporting unit’s carrying amount exceeded its fair value, an indication would exist that the reporting unit’s goodwill was impaired, and we would then be required to perform the second step of the transitional

 

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impairment test. In the second step, we compared the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with Statement of Financial Accounting Board Standard No. 141 (SFAS No. 141), “Business Combinations”, to its carrying amount, both of which would be measured as of the date of adoption. Based on this analysis, we determined that we had an impairment of goodwill (as defined in SFAS No. 142) in our Augusta, Georgia market. We calculated the amount of the impairment and recorded an impairment charge of approximately $6.6 million, net of an income tax benefit of approximately $0.5 million during the fourth quarter of 2002. As the provisions of SFAS No. 142 related to the impairment of goodwill and other indefinite life intangible assets were effective as of January 1, 2002, the financial information for the nine months ended September 30, 2002, which preceded the period in which the transitional goodwill impairment loss was measured, has been restated to reflect the accounting change in that period.

 

In January 2003, FASB issued Financial Accounting Standards Board Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” This interpretation of ARB No. 51, “Consolidated Financial Statements, “ requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. We are currently evaluating the applicability of FIN 46 on our local marketing agreements (LMA) and the possible impact on the Company’s results of operations and financial position. The Company operates two stations under LMAs – WDBZ-AM in Cincinnati, OH and WAMJ-FM in Atlanta, Ga. We are currently reviewing these agreements to determine if the licensor represents a variable interest entity to the Company. We believe the exposure to loss because of our involvement with the license holder for each station is minimal and can be measured by the incremental depreciation expense from the addition of the fixed assets of the license holder. Aggregate net broadcast revenue for WDBZ-AM and WAMJ-FM was approximately $0.5 million and $1.4 million for the three and nine months ended September 30, 2003, respectively. The Company paid LMA fees under these agreements to the license holders of approximately $48,000 and $138,000 for the three and nine months ended September 30, 2003, respectively.

 

FORWARD-LOOKING STATEMENTS

 

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are not historical facts, but rather reflect our current expectations concerning future results and events. You can identify these forward-looking statements by our use of words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “likely,” “may,” “estimates” and similar expressions. We cannot guarantee that we will achieve these plans, intentions or expectations. Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially from those forecast or anticipated in the forward-looking statement. These risks, uncertainties and factors include, but are not limited to:

 

  economic conditions, both generally and relative to the radio broadcasting industry;

 

  risks associated with our acquisition strategy;

 

  the highly competitive nature of the broadcast industry;

 

  our high degree of leverage; and

 

  other factors described in our reports on Form 10-K and Form 10-Q.

 

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You should not place undue reliance on these forward-looking statements, which reflect our view as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

 

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Item 4. Controls and Procedures

 

Prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO concluded that, as of September 30, 2003, our disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic SEC reports. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

We maintain a system of internal controls that are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of our CEO’s and CFO’s last evaluation.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In November 2001, Radio One and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York captioned, In re Radio One, Inc. Initial Public Offering Securities Litigation, Case No. 01-CV-10160. Similar complaints were filed in the same court against hundreds of other public companies (“Issuers”) that conducted initial public offerings of their common stock in the late 1990s (the “IPO Lawsuits”). In the complaint filed against Radio One (as amended), the plaintiffs claim that Radio One, certain of its officers and directors, and the underwriters of certain of its public offerings violated Section 11 of the Securities Act of 1933 based on allegations that its registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the underwriters. The complaint also contains a claim for violation of Section 10(b) of the Securities Exchange Act of 1934 based on allegations that this omission constituted a deceit on investors. The plaintiffs seek unspecified monetary damages and other relief.

 

In July 2002, Radio One joined in a global motion, filed by the Issuers, to dismiss the IPO Lawsuits. In October 2002, the Court entered an order dismissing the Company’s named officers and directors from the IPO Lawsuits without prejudice, pursuant to an agreement tolling the statute of limitations with respect to Radio One’s officers and directors until September 30, 2003. In February 2003, the Court issued a decision denying the motion to dismiss the Section 11 and Section 10(b) claims against Radio One and most of the Issuers.

 

In July 2003, a Special Litigation Committee of Radio One’s Board of Directors approved in principle a settlement proposal with the plaintiffs that is anticipated to include most of the Issuers. The proposed settlement would result in the dismissal with prejudice of all claims against the participating Issuers and their officers and directors as well as a guarantee of payment to the plaintiffs in the lawsuits and assignment of certain claims against the underwriters to the plaintiffs. In September 2003, in connection with the proposed settlement, Radio One’s named officers and directors extended the tolling agreement so that it would not expire prior to any settlement being finalized. Although we have approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court. Other than legal fees incurred to date, Radio One expects that the expenses of settlement, if any, will be paid by its insurance carriers. Until such settlement is finalized, we and our officers and directors intend to continue to defend the actions vigorously.

 

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 2. Changes in Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None.

 

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Item 4. Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits and Reports on Form 8-K

 

(a) EXHIBITS

 

3.1      Amended and Restated Certificate of Incorporation of Radio One, Inc. (dated as of May 4, 2000), as filed with the State of Delaware on May 9, 2000 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended March 31, 2000 (File No. 0-25969)).
3.1.1      Certificate of Amendment (dated as of September 21, 2000) of the Amended and Restated Certificate of Incorporation of Radio One, Inc. (dated as of May 4, 2000), as filed with the State of Delaware on September 21, 2000 (incorporated by reference to Radio One’s Current Report on Form 8-K filed October 6, 2000 (File No. 0-25969)).
3.2      Amended and Restated By-laws of Radio One, Inc., amended as of June 5, 2001 (incorporated by reference to Radio One’s Form 10-Q filed August 14, 2001 (File No. 0-25969)).
3.3      Certificate Of Designations, Rights and Preferences of the 6½% Convertible Preferred Securities Remarketable Term Income Deferrable Equity Securities (HIGH TIDES) of Radio One, Inc., as filed with the State of Delaware on July 13, 2000 (incorporated by reference to Radio One’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 0-25969)).
31.1      Certification of Chief Executive Officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act.
31.2      Certification of Chief Financial Officer pursuant to Rule 13a-14 or Rule 15d-14 of the Exchange Act.
32.1      Certification of Chief Executive Officer pursuant to 18U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2      Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(b) REPORTS ON FORM 8-K

 

The Company filed an Item 12 Form 8-K dated August 7, 2003 for the purpose of releasing financial results for the second quarter of 2003.

 

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SIGNATURE

 

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.

 

     RADIO ONE, INC.     
    

/s/ Scott R. Royster


    

November 13, 2003

  

Scott R. Royster

    
     Executive Vice President and Chief Financial Officer     
    

(Principal Financial Officer)

    

 

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