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 March 31, 2007

 

Commission File No. 0-25969

 

 

 

 

RADIO ONE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

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 þ     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ     Accelerated filer  o     Non-accelerated filer  o

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.  Yes o     No þ

 

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

 

 

 

TABLE OF CONTENTS

 

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

 

 

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

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

 

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

 

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

 

 

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

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

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

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

The interim consolidated financial statements included herein for Radio One, Inc. (a Delaware corporation referred to as “Radio One”) and subsidiaries (collectively the “Company”) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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. This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s 2006 Annual Report on Form 10-K.

 

Certain reclassifications associated with accounting for discontinued operations have been made to prior period amounts to conform to the current period presentation. There was no other effect on any other previously reported statement of income, balance sheet or cash flow amounts.

 

 

Financial instruments as of March 31, 2007 and December 31, 2006 consisted of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, long-term debt and subscriptions receivable. The carrying amounts approximated fair value for each of these financial instruments as of March 31, 2007 and December 31, 2006, except for the Company’s outstanding senior subordinated notes. The 87/8% senior subordinated notes had a fair value of approximately $307.5 million and $309.8 million as of March 31, 2007 and December 31, 2006, respectively. The 63/8% senior subordinated notes had a fair value of approximately $183.5 million and $187.0 million as of March 31, 2007 and December 31, 2006, respectively. The fair value was determined based on the fair market value of similar instruments.

 

 

The Company recognizes revenue for broadcast advertising when the commercial is broadcast and is reported, net of agency and outside sales representative commissions, in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Topic 13, “Revenue Recognition, Revised and Updated.” Agency and outside sales representative commissions are calculated based on a stated percentage applied to gross billing. Generally, clients remit the gross billing amount to the agency or outside sales representative, and the agency or outside sales representative remits the gross billing, less their commission, to the Company. Agency and outside sales representative commissions were approximately $9.2 million and $9.7 million during the three months ended March 31, 2007 and 2006, respectively.

 

 

The Company provides broadcast advertising time in exchange for programming content and certain services. The terms of the exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time in exchange for cash. The Company includes the value of such exchanges in both net broadcast revenues and station operating expenses. The valuation of barter time is based upon the fair value of the network advertising time provided for the programming content and services received. For the three months ended March 31, 2007 and 2006, barter transactions reflected in net broadcast revenue were $796,000 and $59,000, respectively. Additionally, barter transaction costs reflected in programming and technical expenses and selling, general and administrative expenses were $740,000 and $11,000 and $57,000 and $0, in the respective three months ended March 31, 2007 and 2006.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes (“BSM”) valuation model, which is consistent with our valuation methodologies previously used for options in footnote disclosures required under SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Such fair value is recognized as an expense over the service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). Estimating the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period the estimates are revised. We consider many factors when estimating expected forfeitures, including the types of awards, employee classification and historical experience. Actual forfeitures may differ substantially from our current estimates. See Note 9 — Stockholders’ Equity.

 

 

The Company’s comprehensive income consists of net income and other items recorded directly to the equity accounts. The objective is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events during the period, other than transactions with owners. The Company’s other comprehensive income consists of gains on derivative instruments that qualify for cash flow hedge treatment.

 

The following table sets forth the components of comprehensive income:

 

 

 

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — Interpretation of SFAS No. 109,” which clarifies the accounting for uncertainty in income taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 requires that the Company recognize the impact of a tax position in the financial statements, if it is more likely than not that the position would be sustained on audit, based on the technical merits of the position. FIN No. 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective beginning January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The impact to the Company of adopting FIN No. 48 on its financial statements was a $923,000 increase to accumulated deficit and a corresponding increase to income tax reserve as of January 1, 2007.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

In March 2007, the Company signed an agreement to acquire the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area for approximately $2.6 million in seller financing. Since 2001, the station has been and will continue to be consolidated within the Company’s existing Cincinnati operations under a local marketing agreement (“LMA”) until closing. Subject to the necessary regulatory approvals, the Company expects to complete this acquisition during the second half of 2007.

 

In December 2006, the Company completed the acquisition of certain net assets of Giant Magazine (“Giant”), a publishing company located in the New York City metropolitan area, for $367,000 in cash, inclusive of closing costs. The Company’s preliminary purchase price allocation consisted of approximately $1.8 million to current assets, $189,000 to fixed assets, $211,000 to definitive-lived intangibles (trade names), approximately $1.8 million to current liabilities and $14,000 to long-term debt (capital lease) on the Company’s consolidated balance sheet as of March 31, 2007.

 

In September 2006, the Company completed the acquisition of the assets of WIFE-FM, a radio station located in the Cincinnati metropolitan area, for approximately $18.0 million in cash. In connection with the transaction, the Company also acquired the intellectual property of radio station WMOJ-FM, also in the Cincinnati market, for approximately $5.0 million in cash and changed WIFE-FM’s call sign to WMOJ-FM. The station has been consolidated with the Company’s existing Cincinnati operations. The Company’s preliminary purchase price allocation consisted of $198,000 to transmitters and towers and approximately $5.0 million to definite-lived intangibles (intellectual property) and $18.1 million to radio broadcasting licenses on the Company’s consolidated balance sheet as of March 31, 2007.

 

In May 2006, the Company acquired the assets of WHHL-FM (formerly WRDA-FM), a radio station located in the St. Louis metropolitan area, for approximately $20.0 million in cash. The Company began operating the station under a LMA in October 2005, and the financial results since inception of the LMA have been included in the Company’s financial statements. The station has been consolidated with the Company’s existing St. Louis operations. The Company’s purchase price allocation consisted of $364,000 to definite-lived intangibles (a favorable transmitter lease), $180,000 to goodwill, $228,000 to transmitters and towers, and approximately $19.3 million to radio broadcasting licenses on the Company’s consolidated balance sheet as of March 31, 2007.

 

 

In August 2006, the Company entered into an agreement to sell radio station WILD-FM in the Boston metropolitan area to Entercom Boston, LLC (“Entercom”) for approximately $30.0 million in cash. Entercom began operating the station under an LMA effective August 18, 2006. The assets and liabilities of WILD-FM have been classified as held for sale and reflected as discontinued operations as of March 31, 2007 and December 31, 2006 and its results of operations for the three month period ended March 31, 2006 have been reflected as discontinued operations in the accompanying consolidated financial statements. The sale of the station was completed on December 29, 2006, resulting in a gain of approximately $18.6 million (approximately $11.4 million net of tax).

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the operating results for WILD-FM for the three months ended March 31, 2006:

 

 

The assets and liabilities of WILD-FM classified as discontinued operations in the accompanying consolidated balance sheets consisted of the following:

 

 

 

The fair value of goodwill and radio broadcasting licenses is determined on a market basis using a discounted cash flow model considering the market’s revenue, the number of stations, the performance of the stations, the Company’s performance and estimated multiples for the sale of stations in the market. Because the assumptions used in estimating the fair value of goodwill and radio broadcasting licenses are based on current conditions, a change in market conditions or in the discount rate could have a significant effect on the estimated value of goodwill or radio broadcasting licenses. A significant decrease in the fair value of goodwill or radio broadcasting licenses in a market could result in an impairment charge. The Company performs an impairment test as of October 1st of each year, or when other conditions suggest impairment may have occurred. The carrying amount of goodwill at both December 31, 2006 and March 31, 2007 was approximately $157.8 million.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other intangible assets, excluding goodwill and radio broadcasting licenses, are being amortized on a straight-line basis over various periods. Other intangible assets consist of the following:

 

 

Amortization expense of intangible assets for the three months ended March 31, 2007 and 2006 was approximately $1.2 million and $1.1 million, respectively. The amortization of deferred financing costs was charged to interest expense for all periods presented.

 

The following table presents the Company’s estimate of amortization expense for each of the five succeeding years for intangible assets, excluding deferred financing costs.

 

 

Actual amortization expense may vary as a result of future acquisitions and dispositions.

 

 

In July 2003, the Company entered into a joint venture agreement with an affiliate of Comcast Corporation and other investors to create TV One, LLC (“TV One”), an entity formed to operate a cable television network featuring lifestyle, entertainment and news-related programming targeted primarily towards African-American viewers. The Company has committed to make a cumulative cash investment of approximately $74.0 million in TV One over approximately four years, of which the Company has funded approximately $51.6 million as of March 31, 2007. As of March 31, 2007, the Company owned approximately 36% of TV One on a fully-converted basis.

 

The Company has recorded its investment in TV One at cost and has adjusted the carrying amount of the investment to recognize the change in the Company’s claim on the net assets of TV One resulting from losses of TV One as well as other capital transactions of TV One using a hypothetical liquidation at book value approach. For the three months ended March 31, 2007 and 2006, the Company’s allocable share of TV One’s losses was $492,000 and $481,000, respectively. Under the hypothetical liquidation at book value approach, the increase in the Company’s claim on the change in net assets of TV One resulting from TV One’s buyback of equity from a certain TV One investor, resulted in a decrease of $652,000 and an increase of $325,000 in additional paid-in capital of the Company for the three months ended March 31, 2007 and 2006, respectively, in accordance with SAB No. 51, “Accounting for Sales of Stock by a Subsidiary.”

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company also entered into separate network services and advertising services agreements with TV One in 2003. Under the network services agreement, which expires in January 2009, the Company is providing TV One with administrative and operational support services. Under the advertising services agreement, the Company is providing a specified amount of advertising to TV One over a term of five years ending in January 2009. In consideration for providing these services, the Company has received equity in TV One and receives an annual fee of $500,000 in cash for providing services under the network services agreement.

 

The Company is accounting for the services provided to TV One under the advertising and network services agreements in accordance with EITF, Issue No. 00-8, “Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services.” As services are provided to TV One, the Company is recording revenue based on the fair value of the most reliable unit of measurement in these transactions. For the advertising services agreement, this has been determined to be the value of underlying advertising time that is being provided to TV One. For the network services agreement, this has been determined to be the value of the equity received in TV One. As a result, the Company is re-measuring the fair value of the equity received in consideration of its obligations under the network services agreement in each subsequent reporting period as the services are provided. The Company recognized approximately $1.1 million and $624,000 of revenue relating to these two agreements for the three months ended March 31, 2007 and 2006, respectively.

 

 

In June 2005, pursuant to the Credit Agreement (as defined in Note 7 — Long-Term Debt), the Company entered into four fixed rate swap agreements to reduce interest rate fluctuations on certain floating rate debt commitments. The Company accounts for the swap agreements using the mark-to-market method of accounting.

 

The swap agreements had the following terms:

 

 

Each swap agreement has been accounted for as a qualifying cash flow hedge of the Company’s senior bank term debt, in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” whereby changes in the fair market value are reflected as adjustments to the fair value of the derivative instruments as reflected on the accompanying consolidated balance sheets.

 

Under the swap agreements, the Company pays the fixed rate listed in the table above. The counterparties to the agreements pay the Company a floating interest rate based on the three-month London Interbank Offered Rate (“LIBOR”), for which measurement and settlement is performed quarterly. The counterparties to these agreements are international financial institutions. The Company estimates the net fair value of these instruments as of March 31, 2007 to be a receivable of approximately $1.3 million. The fair value of the interest swap agreements is estimated by obtaining quotations from the financial institutions that are parties to the Company’s swap agreements. The fair value is an estimate of the net amount that the Company would receive on March 31, 2007, if the agreements were transferred to other parties or cancelled by the Company.

 

Costs incurred to execute the swap agreements are deferred and amortized over the term of the swap agreements. The amounts incurred by the Company, representing the effective difference between the fixed rate under the swap agreements and the variable rate on the underlying term of the debt, are included in interest expense in the accompanying consolidated statements of income. In the event of early termination of these swap agreements, any gains or losses would be amortized over the respective lives of the underlying debt or recognized currently if the debt is terminated earlier than initially anticipated.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Long-term debt consists of the following:

 

 

Credit Facilities

 

In June 2005, the Company entered into a new credit agreement with a syndicate of banks (the “Credit Agreement”). The agreement was amended in April 2006 to modify certain financial covenants. The term of the Credit Agreement is seven years and the total amount available under the Credit Agreement is $800.0 million, consisting of a $500.0 million revolving facility and a $300.0 million term loan facility. Borrowings under the credit facilities are subject to compliance with certain provisions of the Credit Agreement including but not limited to financial covenants. The Company may use proceeds from the credit facilities for working capital, capital expenditures made in the ordinary course of business, its common stock repurchase program, direct and indirect investments permitted under the Credit Agreement, and other lawful corporate purposes. The Credit Agreement contains affirmative and negative covenants that the Company must comply with, including (a) maintaining an interest coverage ratio of no less than 1.90 to 1.00 from January 1, 2006 to December 31, 2007, and no less than 2.25 to 1.00 from January 1, 2008 to December 31, 2008, and no less than 2.50 to 1.00, January 1, 2009 and thereafter, (b) maintaining a total leverage ratio of no greater than 7.00 to 1.00 beginning April 1, 2006 to December 31, 2007, and no greater than 6.00 to 1.00 beginning January 1, 2008 and thereafter, (c) limitations on liens, (d) limitations on the sale of assets, (e) limitations on the payment of dividends, and (f) limitations on mergers, as well as other customary covenants. Simultaneous with entering into the credit agreement in June 2005, the Company borrowed $437.5 million to retire all outstanding obligations under its previous credit agreement. We were unable to meet the interest ratio covenant at March 31, 2007 and have received a waiver from compliance with the interest ratio covenant in the Credit Agreement until July 13, 2007. The waiver also extended the due date for the delivery of our consolidated financial statements for the quarter ended March 31, 2007. We expect that with the filing of this Form 10-Q we will be in compliance with the requirements for delivery of our consolidated financial statements.

 

The Credit Agreement and the indentures governing the Company’s senior subordinated notes contain covenants that restrict, among other things, the ability of the Company to incur additional debt, purchase capital stock, make capital expenditures, make investments 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.

 

The Company’s borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum principal payments of long-term debt as of March 31, 2007 are as follows:

 

 

 

The effective tax rate for the three month period ended March 31, 2007 was 32.5%. This rate is lower than the projected annual effective tax rate due to the tax impact of discrete items during the three months ended March 31, 2007. These items include the current year benefit of the reversal of state tax reserves due to expired statutes. As of March 31, 2007, the Company’s annual effective tax rate, exclusive of discrete items, is projected at 42.1%, which reflects the permanent differences between income for book versus tax purposes and the non-deductibility of certain stock-based compensation.

 

As previously noted, the Company adopted SFAS No. 123(R) as of January 1, 2006 and incorporated the tax impact into its effective tax rate above. This has increased the expected effective tax rate for 2007 due to the unfavorable tax treatment of the Company’s book compensation expense for incentive stock options.

 

In June 2005, the State of Ohio enacted a law that will phase-out the corporation franchise tax and phase-in a commercial activity tax over a five-year period. The new commercial activity tax is based on gross receipts, and is not considered an income tax for SFAS No. 109, “Accounting for Income Taxes,” purposes. In 2005, based on the enacted law, the Company determined that the likelihood of a reversal of the deferred tax liabilities related to intangible assets within the five-year period of the phase-out was unlikely. In 2006, the remaining Ohio deferred tax balances were adjusted to reflect the impact of the 2006 phase-in of the new tax law. As a result, the Company expects a benefit to its effective tax rate related to the current year tax amortization of the Ohio intangibles since no deferred tax liabilities will be created related to this amortization. It is expected that no additional deferred tax liability will result from the amortization of these intangibles during the remaining portion of the five-year phase-out period.

 

We adopted the provisions of FIN No. 48 on January 1, 2007. As a result of the implementation of FIN No. 48, we recorded a $923,000 increase in the net liability for unrecognized tax positions, which was recorded as an adjustment to the opening balance of accumulated deficit on January 1, 2007. On the adoption date, we had approximately $4.9 million of unrecognized tax benefits, of which approximately $3.3 million would affect our effective tax rate if recognized. The total amount of unrecognized tax benefits as of March 31, 2007 was approximately $4.7 million. An estimate of the possible change prior to March 31, 2008 is a decrease in the amount of unrecognized tax benefits of $118,000 due to closed statutes in states where amortization liability exists.

 

In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN No. 48. Our consolidated statement of income for the quarter ended March 31, 2007 and our consolidated balance sheet as of that date include interest savings of $36,000 and accrued interest of $55,000, respectively.

 

As of January 1, 2007, the Company is subject to United States federal income tax examinations for the tax years ended December 31, 2004 through 2006. In addition, the Company is subject to state and local income tax examinations for the tax years ended December 31, 2002 through 2006.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Stock Option and Restricted Stock Grant Plan

 

Radio One may issue up to 10,816,198 shares of Class D Common Stock under the Company’s Stock Option and Restricted Stock Grant Plan (“Plan”). At inception of the Plan, the Company’s board of directors authorized 1,408,099 shares of Class A common stock to be issuable under this plan. As of March 31, 2007, 5,248,063 shares were available for grant. The options are exercisable in installments determined by the compensation committee of the Company’s board of directors. The options expire as determined by the compensation committee, but no later than ten years from the date of the grant. The Company uses an average life for all option awards. The Company settles stock options upon exercise by issuing stock.

 

The Company uses the BSM to calculate the fair value of stock-based awards. The BSM incorporates various assumptions including volatility, expected life, and interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the preceding three years. The expected life is based on historical exercise patterns and post-vesting termination behavior within each of the four groups identified by the Company. The interest rate for periods within the expected life of the award is based on the United States Treasury yield curve in effect at the time of grant.

 

The Company granted 100,000 and 12,500 stock options during the three months ended March 31, 2007 and 2006, respectively. The per share weighted-average fair values of options granted during the three months ended March 31, 2007 and 2006 were $3.94 and $5.49, respectively, on the date of grant. These fair values were derived using the BSM with the following weighted-average assumptions.

 

 

Transactions and other information relating to the stock options for the period ended March 31, 2007 are summarized below:

 

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing price on the last day of trading during the three months ended March 31, 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the option holders exercised their options on March 31, 2007. This amount changes based on the fair market value of the Company’s stock. The number of options vested during the three months ended March 31, 2007 was 9,083.

 

As of March 31, 2007, approximately $5.1 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of approximately two years. The stock option weighted-average fair value per share was $8.35 at March 31, 2007.

 

Transactions and other information relating to restricted stock grants for the period ended March 31, 2007 are summarized below:

 

 

 

 

As of March 31, 2007, $569,000 of total unrecognized compensation cost related to restricted stock grants is expected to be recognized over a weighted-average period of three years. The stock option weighted-average fair value per share was $3.94 at March 31, 2007.

 

 

In September 2005, the Company terminated its national sales representation agreements with Interep National Radio Sales, Inc. (“Interep”), and entered into new agreements with Katz Communications, Inc. (“Katz”), whereby Katz became the Company’s sole national sales representative. Interep had previously acted as a national sales representative for approximately half of the Company’s national advertising business, while Katz represented the remaining half. Katz paid the Company $3.4 million as an inducement to enter into the new agreements. Katz also agreed to pay Interep approximately $5.3 million to satisfy the Company’s termination obligations stemming from the previous sales representation agreements with Interep. Accordingly, the Company recorded the termination obligation of approximately $5.3 million as a one-time charge in selling, general and administrative expense for the year ended December 31, 2005. Both the $3.4 million inducement and the approximately $5.3 million termination amounts are being amortized over the four-year life of the new Katz agreements as a reduction to selling, general and administrative expense. As of March 31, 2007, approximately $3.1 million of the deferred termination obligation and inducement amount is reflected in other long-term liabilities on the accompanying consolidated balance sheets, and approximately $2.2 million is reflected in other current liabilities.

 

 

In March 2007, the Company signed an agreement to acquire the assets of WDBZ-AM, a radio station located in the Cincinnati metropolitan area from Blue Chip Communications, Inc. (“Blue Chip”) for approximately $2.6 million in seller financing. The financing is a 5.1% interest bearing loan payable monthly through July 2008.

 

RADIO ONE, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Blue Chip is owned by L. Ross Love, a member of the Company’s board of directors. The transaction was approved by a special committee of independent directors appointed by the board of directors. Additionally, the Company retained an independent valuation firm to provide fair value appraisal of the station. The Company continues to operate and consolidate the financial results of WDBZ-AM under a LMA for no annual fee until closing, which is expected to take place in the second half of 2007.

 

 

KTTB-FM Disposition

 

In June 2007, the Company entered into an agreement to sell the assets of radio station KTTB-FM in the Minneapolis metropolitan area to Northern Lights Broadcasting, LLC for approximately $28.0 million in cash. The assets and liabilities of these stations will be classified as held for sale and reflected as discontinued operations in June 2007. At that time, the results of operations for the quarterly and year-to-to-date periods going forward for 2007 and 2006 will be reflected as discontinued operations in the consolidated financial statements. The Company expects to complete this transaction during the second half 2007, subject to necessary regulatory approvals.

 

Dayton and Louisville Stations Disposition

 

In May 2007, the Company entered into an agreement to sell all of its radio stations in the Dayton metropolitan area and five of its six radio stations in the Louisville metropolitan area to Main Line Broadcasting, LLC for approximately $76.0 million in cash. The assets and liabilities of these stations will be classified as held for sale and reflected as discontinued operations in May 2007. At that time, the results of operations for the quarterly and year-to-to-date periods going forward for 2007 and 2006 will be reflected as discontinued operations in the consolidated financial statements. Subject to the necessary regulatory approvals, the transaction is expected to close during the second half of 2007.

 

WPRS-FM Acquisition

 

In April 2007, the Company signed an agreement and made a deposit of $3.0 million to acquire the assets of WPRS-FM (formerly WXGG-FM), a radio station located in the Washington, DC metropolitan area for approximately $38.0 million in cash. The Company began operating the station under a LMA in April 2007 and the financial results since inception of the LMA will be included in the Company’s financial statements. The station has been consolidated with the existing Washington, DC operations. Subject to the necessary regulatory approvals, the Company expects to complete this acquisition in the first half of 2008.

 

The Company conducts a portion of its business through its subsidiaries. All of the Company’s restricted subsidiaries (“Subsidiary Guarantors”) have fully and unconditionally guaranteed the Company’s 87/8% senior subordinated notes due 2011, the 63/8% senior subordinated notes due 2013 and the Company’s obligations under the Credit Agreement.

 

Set forth below are consolidating financial statements for the Company and the Subsidiary Guarantors as of March 31, 2007 and 2006 and for the three-month periods then ended. Also included is the consolidating balance sheet for the Company and the Subsidiary Guarantors as of December 31, 2006. 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.

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2007

 

 

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

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2006

 

 

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

RADIO ONE, INC. AND SUBSIDIARIES

 

CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2007