AMENDMENT #1 TO FORM 8-K, DATED OCTOBER 6, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report October 6, 2000 Commission File No. 333-30795 (Date of earliest event reported) RADIO ONE, INC. (Exact name of registrant as specified in its charter) Delaware 52-1166660 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5900 Princess Garden Parkway, 8th Floor Lanham, Maryland 20706 (Address of principal executive offices) (301) 306-1111 Registrant's telephone number, including area code This Current Report on Form 8-K/A1 amends the Current Report on Form 8-K filed by the Company on September 7, 2000 to add the financial statements of the business acquired by the Company required by Item 7(a) and the pro forma financial information required by Item 7(b). In addition, Item 5 hereof reports (a) the results tabulated at the Company's recent annual meeting of stockholders of the votes on certain proposals put before the holders of the Company's Common Stock, (b) a pending asset acquisition in Greenville, South Carolina, and (c) a recently completed asset acquisition in Dallas, Texas. Item 5. Other Events. (a) Submission of Matters to a Vote of Security Holders. On September 15, 2000, the Company held the Annual Meeting of its holders of Common Stock pursuant to a Notice of Annual Meeting of Stockholders and Proxy Statement dated August 16, 2000, a copy of which has been filed previously with the Securities and Exchange Commission. Stockholders were asked to vote upon the following proposals: 1. The election of Brian W. McNeill and Terry L. Jones as Class A directors to serve until the 2001 annual meeting of Stockholders or until their successors are duly elected and qualified. 2. The election of Catherine L. Hughes, Alfred C. Liggins, III, and Larry D. Marcus as directors to serve until the 2001 annual meeting of Stockholders or until their successors are duly elected and qualified. 3. The amendment of the Company's Amended and Restated Certificate of Incorporation to provide holders of the Class A Common Stock the right to convert such Class A Common Stock into Class D Non-Voting Common Stock. The Amendment to the Company's Amended and Restated Certificate of Incorporation is included as Exhibit 3.1.1 to this Form 8-K/A1. 4. The amendment of the Company's Amended and Restated Bylaws to permit the election of up to eleven, but not fewer than five, members of the Board of Directors. The Company's Amended and Restated Bylaws, as so amended, are included as Exhibit 3.2 to this Form 8-K/A1. 5. The ratification of the adoption of the 1999 Stock Option Plan. 6. The ratification of the appointment of Arthur Andersen, LLP as independent public accountants for the Company for the year ended December 31, 2000. All proposals were adopted by a majority of the holders of Common Stock. The results of the vote tabulation were as follows: Number of Votes --------------- Class A Class B Class C Class D ------- ------- ------- ------- PROPOSAL 1 ---------- Election of McNeill For 19,089,011 N/A N/A N/A Withhold Authority 127,772 N/A N/A N/A Election of Jones For 19,089,011 N/A N/A N/A Withhold Authority 127,772 N/A N/A N/A PROPOSAL 2 ---------- Election of Hughes For 19,089,011 28,618,430 N/A N/A Withhold Authority 127,772 N/A N/A 0 Election of Liggins For 19,089,011 28,618,430 N/A N/A Withhold Authority 127,772 0 N/A N/A Election of Marcus For 19,102,641 28,618,430 N/A N/A Withhold Authority 114,142 0 N/A N/A PROPOSAL 3 ---------- For 18,037,198 28,618,430 3,121,048 37,820,936 Against 182,882 0 0 342,613 Abstain 15,465 0 0 24,085 PROPOSAL 4 ---------- For 18,781,883 28,618,430 N/A N/A Against 422,853 0 N/A N/A Abstain 12,840 0 N/A N/A PROPOSAL 5 ---------- For 10,256,007 28,618,430 N/A N/A Against 7,890,633 0 N/A N/A Abstain 88,905 0 N/A N/A PROPOSAL 6 ---------- For 15,241,569 28,618,430 N/A N/A Against 3,962,418 0 N/A N/A Abstain 12,796 0 N/A N/A (b) Pending acquisition in Greenville, South Carolina. Pursuant to an asset purchase agreement dated August 7, 2000, the Company has agreed to acquire WPEK-FM, licensed to Seneca, South Carolina, for approximately $7.5 million in cash. The Company expects to complete this acquisition in the fourth quarter of 2000. (c) Recent acquisition in Dallas, Texas. On September 25, 2000, the Company completed its acquisition of KJOI- AM (formerly KLUV-AM), licenced to Dallas, Texas, for approximately $16 million in cash. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Radio One, Inc.: We have audited the accompanying combined balance sheets of the selected operations of AMFM, Inc., consisting of stations KKBT-FM, KBFB-FM, WZAK-FM, WJMO-AM and WVCG-AM (the "Stations") as of December 31, 1998 and 1999, and the related combined statements of operations and changes in station equity and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Stations' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying combined financial statements have been prepared from the separate records maintained by the Stations and may not be indicative of the conditions that would have existed or the results of operations had the Stations been operated as an unaffiliated entity. As discussed in Note 2, certain services performed by the parent corporations have not been allocated to the accompanying financial statements. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the selected operations of AMFM, Inc., consisting of stations KKBT-FM, KBFB-FM, WZAK-FM, WJMO-AM and WVCG-AM as of December 31, 1998 and 1999, and the results of their operations for each of the years in the three-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Baltimore, Maryland June 1, 2000 THE SELECTED OPERATIONS OF AMFM, INC. COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1998 and 1999, AND JUNE 30, 2000 (IN THOUSANDS) December 31, ------------------------ 1998 1999 June 30, 2000 --------- --------- ------------- (Unaudited) ASSETS Assets: Trade accounts receivable, net of allowance for doubtful accounts of $95, $613 and $581, respectively.................................... $ 7,920 $ 11,478 $ 11,546 Prepaid expenses and other........................................... 113 120 76 -------- --------- --------- Total current assets......................................... 8,033 11,598 11,622 Property and equipment, net............................................ 1,976 2,836 2,791 Intangible assets, net................................................. 24,572 121,339 116,925 -------- --------- --------- Total assets $34,581 $135,773 $131,338 ======== ========= ========= LIABILITIES AND STATION EQUITY Current liabilities: Accounts payable and accrued expenses................................. $ 855 $ 2,984 $ 1,259 Station equity.......................................................... 33,726 132,789 130,079 -------- --------- --------- Total liabilities and station equity.......................... $34,581 $135,773 $131,338 ======== ========= ========= 1 THE SELECTED OPERATIONS OF AMFM, INC. COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN STATION EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (IN THOUSANDS) Six Months Ended Year Ended December 31, June 30, ------- ------- ------- ------- -------- 1997 1998 1999 1999 2000 ------- ------- ------- ------- -------- (Unaudited) Revenue: Broadcast revenue, including barter revenue of $647, $774 and $571 for the years ended December 31, 1997, 1998 and 1999, respectively.................................. $36,375 $42,371 $ 58,401 $ 26,528 $ 28,339 Less- Agency commissions....................... 4,910 5,361 7,409 3,373 3,535 ------- ------- ------- ------- -------- Net broadcast revenue.................. 31,465 37,010 50,992 23,155 24,804 ------- ------- ------- ------- -------- Operating expenses: Program and technical.......................... 5,169 5,842 7,867 4,027 3,712 Selling, general and administrative............ 9,113 12,489 18,386 8,266 8,090 Time brokerage agreement fee................... -- 3,208 4,509 2,750 -- Depreciation and amortization.................. 1,673 1,629 8,221 3,736 4,575 ------- ------- -------- -------- -------- Total operating expenses............... 15,955 23,168 38,983 18,779 16,377 ------- ------- -------- -------- -------- Operating income................................. 15,510 13,842 12,009 4,376 8,427 Income tax allocation............................ 6,204 5,537 4,804 1,750 3,370 ------- ------- -------- -------- -------- Net income............................. 9,306 8,305 7,205 2,626 5,057 Station equity, beginning of period.............. 34,513 35,024 33,726 33,726 132,789 Net transfer (to) from Parent.................... (8,795) (9,603) 91,858 92,803 (7,767) ------- ------- -------- -------- -------- Station equity, end of period.................... $35,024 $33,726 $132,789 $129,155 $130,079 ======= ======= ======== ======== ======== 2 THE SELECTED OPERATIONS OF AMFM, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 Six Months Ended Year Ended December 31, June 30, ------- ------- ------- ------- -------- 1997 1998 1999 1999 2000 ------- ------- ------- ------- -------- (Unaudited) Cash flows from operating activities: Operating income............................... $ 9,306 $ 8,305 $ 7,205 $ 4,376 $ 5,057 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization............... 1,673 1,629 8,221 3,736 4,575 Effect of change in operating assets and liabilities- Trade accounts receivable...................... (3,146) (1,522) (3,558) (173) (68) Prepaid expenses and other..................... (20) (32) (7) 40 44 Accounts payable and accrued expenses.......... 982 1,223 2,120 2,518 (1,725) ------- ------- ------- ------- -------- Net cash flows from operating activities............................ 8,795 9,603 13,981 10,497 7,883 Cash flows from investing activities: Purchase of tangible and intangible assets in acquisitions.................................. -- -- (105,839) (103,300) -- Purchase of property, plant and equipment, net...................................... -- -- -- -- (116) ------- ------- ------- ------- -------- Net cash flows from investing activities............................ -- -- (105,839) (103,300) (116) Cash flows from financing activities: Net transfer (to) from parent.................. (8,975) (9,603) 91,858 92,803 (7,767) ------- ------- ------- ------- -------- Net decrease in cash............................. -- -- -- -- -- ------- ------- ------- ------- -------- Cash and cash equivalents, beginning of period... -- -- -- -- -- ------- ------- ------- ------- -------- Cash and cash equivalents, end of period......... $ -- $ -- $ -- $ -- $ -- ------- ------- ------- ------- -------- 3 THE SELECTED OPERATIONS OF AMFM, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1999 1. Description of the Entities: The accompanying financial statements include the activity and financial positions of radio stations KKBT-FM, KBFB-FM, WZAK-FM, WJMO-AM and WVCG-AM (the "Stations"), which are owned by AMFM, Inc. (AMFM) and are being sold to Radio One, Inc. (Radio One). Radio station KKBT-FM is broadcast in the Los Angeles, California, area. Radio station KBFB-FM is broadcast in the Dallas, Texas, area. Radio stations WZAK-FM and WJMO-AM are broadcast in the Cleveland, Ohio, area, and WVCG-AM is broadcast in the Miami, Florida, area. All interstation transactions have been eliminated in combination. 2. Summary of Significant Accounting Policies: Basis of Presentation The accompanying combined financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements (Unaudited) The interim combined financial statements for the Stations have been prepared by management, 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. Results for interim periods are not necessarily indicative of results to be expected for the full year. On August 25, 2000, Radio One acquired the assets of the Stations, along with certain assets of stations owned by Clear Channel Communications, Inc. ("Clear Channel"), for approximately $1.3 billion. Radio One did not acquire cash, receivables, prepaids, or assume any liabilities. Cash The Stations make cash disbursements out of bank accounts controlled by AMFM and their cash receipts are deposited into accounts controlled by AMFM. As such, the accompanying combined financial statements do not have cash balances. All cash transactions are recorded through the station equity account. Revenue Recognition In accordance with industry practice, revenue for broadcast advertising is recognized when the commercial is broadcast. Barter Arrangements Certain program contracts provide for the exchange of advertising air time in lieu of cash payments for the rights to such programming. These contracts are recorded as the programs are aired at the lower of estimated fair value of the advertising air 4 time given in exchange for the program rights or the service or asset received. As of year-end, the excess of services received or air time given was recorded as deferred revenue or accounts receivable. Corporate Expense The accompanying statements of operations and changes in stations' equity represent the direct revenues and expenses of the Stations. They do not include certain corporate expenses related to management fees, income taxes, legal expenses, corporate salaries and certain other corporate expenses. Because the accompanying statements omit certain corporate costs that benefit the Stations (and include allocations of certain costs among several stations in a market), the accompanying operating results could be substantially different if the Stations had been operated on a stand-alone basis. The accompanying statements include certain operating revenues and expenses related to contracts for advertisements entered into by AMFM corporate and are allocated to the Stations based on their market revenues and airplay of the advertisements. The two Cleveland stations (WZAK-FM and WJMO-FM) and one Dallas Station (KBFM-FM) were operated as part of a market circle and received cost allocations related to the market circle employees. Though management is of the opinion that all allocations used are reasonable and appropriate, other allocations might be used that could produce results substantially different from those reflected herein, and those cost allocations might not be indicative of amounts which might be paid to unrelated parties for similar services if these stations had been operated on a stand-alone basis. Income Tax Allocation The Stations' pre-tax income is included in the consolidated income of AMFM. The accompanying combined statements of operations include an income tax allocation as if the Stations were a stand-alone entity. Financial Instruments Financial instruments as of December 31, 1998 and 1999, consist of trade accounts receivables all of which the carrying amounts approximate fair value. 3. Property and Equipment Property and equipment are recorded at cost and are being depreciated on a straight-line basis over various periods. The components of the Stations' property and equipment as of December 31, 1998 and 1999, were as follows: Period of 1998 1999 Depreciation ---------- ----------- -------------- (In Thousands) Property and equipment: Land.................................. $ 240 $ 240 Building and leasehold improvements... 956 1,048 30 years Furniture and fixtures................ 513 598 5 to 7 years Equipment and other................... 4,334 5,556 5 to 7 years ---------- ---------- 6,043 7,442 Less- Accumulated depreciation.......... 4,067 4,437 ---------- ---------- Property and equipment, net............. $1,976 $3,005 ========== ========== Depreciation expense for the fiscal years ended December 31, 1997, 1998 and 1999, were $199, $210 and $514, respectively, and $153 and $161 for the six months ended June 30, 1999 and 2000, respectively. 5 4. Intangible Assets: Intangible assets consist primarily of broadcast licenses, goodwill and other identifiable intangible assets resulting from applying the purchase method of accounting to acquisitions. The intangible assets are the results of applying the purchase price to the fair market value of the tangible assets acquired, then to the intangible assets acquired, with the resulting excess purchase price being allocated to goodwill. The Stations amortize such intangible assets using the straight-line method over estimated useful lives ranging from 15 to 40 years. As of December 31, 1998 and 1999, accumulated amortization on intangibles was $18.2 million and $25.9 million, respectively. Long-Lived Assets In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," AMFM reviews its identifiable purchased intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows is less than the carrying amount of an asset, an impairment loss would be recognized. 5. Acquisitions: AMFM purchased WZAK-FM and WJMO-AM in February 1999 for approximately $103 million. The acquisition was accounted for using the purchase method of accounting and resulted in the recording of $101 million of intangible assets. The activities of WZAK-FM and WJMO-AM prior to the acquisition by AMFM are not included in the accompanying financial statements. The revenue for WZAK-FM and WJMO-AM for the year ended December 31, 1998 was approximately $11 million (unaudited). The revenue for the year ended December 31, 1997 is not readily available as those records are maintained by the prior owners. Beginning July 1998, AMFM entered into a time brokerage agreement to manage and operate KBFB-FM whereby broadcast revenue and operating expenses of running the station were included in AMFM's operating results. AMFM paid approximately $3.2 million and $4.5 million during the years ended December 31, 1998 and 1999, respectively in time brokerage fees. In July 1999, AMFM purchased KBFB-FM for approximately $3.4 million. This acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $3.4 million of intangible assets. The activity of KBFM-FM prior to entering into the time brokerage agreement in July 1998 has not been included in the accompanying financial statements. 6. Commitments: Future lease payments of operating leases are as follows: Year Ending (in thousands) 2000....................................... $315 2001....................................... 489 2002....................................... 476 2003....................................... 417 2004....................................... 420 Thereafter................................. 927 Rent expense for the years ended December 31, 1997, 1998 and 1999, was approximately $397, $512 and $873, respectively, and $486 and $389 for the six months ended June 30, 1999 and 2000. 6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Radio One, Inc.: We have audited the accompanying combined balance sheets of the selected operations of Clear Channel Communications, consisting of stations KMJQ-FM, KBXX-FM, WQOK-FM, WFXK-FM, WNNL-FM, WFXC-FM and WJMZ-FM (the "Stations") as of December 31, 1998 and 1999, and the related combined statements of operations and changes in station equity and cash flows for each of the years in the three- year period ended December 31, 1999. These financial statements are the responsibility of the Stations' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying combined financial statements have been prepared from the separate records maintained by the Stations and may not be indicative of the conditions that would have existed or the results of operations had the Stations been operated as an unaffiliated entity. As discussed in Note 2, certain corporate overhead and other expenses represent allocations made by the Stations' parent, and certain services performed by the parent corporations have not been allocated to the accompanying financial statements. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the selected operations of Clear Channel Communications, consisting of stations KMJQ-FM, KBXX-FM, WQOK-FM, WFXK-FM, WNNL-FM, WFXC-FM and WJMZ-FM as of December 31, 1998 and 1999, and the results of their operations for each of the years in the three-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Baltimore, Maryland June 1, 2000 THE SELECTED OPERATIONS OF CLEAR CHANNEL COMMUNICATIONS COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1999, AND JUNE 30, 2000 (IN THOUSANDS) December 31, ------------------ 1998 1999 June 30, 2000 ------ ------ ------------- (Unaudited) ASSETS Current assets: Trade accounts receivable, net of allowance for doubtful accounts of $379, $402, and $548, respectively................................... $ 8,153 $ 10,194 $11,728 Property and equipment, net............................................. 5,924 5,091 4,475 Intangible assets, net.................................................. 89,041 84,678 82,638 Other assets............................................................ 269 269 268 -------- -------- --------- Total assets.................................................. $103,387 $100,232 $99,109 ======== ======== ========= LIABILITIES AND STATION EQUITY Current liabilities: Accounts payable and accrued expenses................................. $ 446 $ 532 $ 798 Station equity.......................................................... 102,941 99,700 98,311 -------- -------- --------- Total liabilities and station equity.......................... $103,387 $100,232 $99,109 ======== ======== ========= The accompanying notes are an integral part of these combined statements. 1 THE SELECTED OPERATIONS OF CLEAR CHANNEL COMMUNICATIONS COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN STATION EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (IN THOUSANDS) Six Months Ended Year Ended December 31, June 30, -------------------------- ----------------- 1997 1998 1999 1999 2000 ------ ------ ------ ------ ------ (Unaudited) Revenue: Broadcast revenue, including barter revenue of $123, $282 and $474 for the years ended December 31, 1997, 1998 and 1999, respectively................................. $35,355 $ 45,563 $ 53,825 $ 24,351 $29,324 Less-Agency commissions....................... 4,378 5,460 6,610 2,998 3,822 ------- -------- -------- -------- ------- Net broadcast revenue................. 30,977 40,103 47,215 21,353 25,502 ------- -------- -------- -------- ------- Operating expenses: Program and technical......................... 4,260 4,850 5,641 2,497 2,906 Selling, general and administrative........... 9,757 11,584 12,719 6,107 6,431 Depreciation and amortization................. 3,593 4,929 5,324 2,692 2,683 ------- -------- -------- -------- ------- Total operating expenses.............. 17,610 21,363 23,684 11,296 12,020 ------- -------- -------- -------- ------- Operating income................................ 13,367 18,740 23,531 10,057 13,482 Income tax allocation........................... 5,347 7,496 9,412 4,249 5,394 ------- -------- -------- -------- ------- Net income............................ 8,020 11,244 14,119 5,808 8,088 Station equity, beginning of period............. 79,098 88,917 102,941 102,941 99,700 Net transfer to Parent.......................... 1,799 2,780 (17,360) (6,487) (9,477) ------- -------- -------- -------- ------- Station equity, end of period................... $88,917 $102,941 $ 99,700 $102,262 $98,311 ======= ======== ======== ======== ======= The accompanying notes are an integral part of these combined statements. 2 THE SELECTED OPERATIONS OF CLEAR CHANNEL COMMUNICATIONS STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (IN THOUSANDS) Six Months Ended Year Ended December 31, June 30, ----------------------------- ----------------- 1997 1998 1999 1999 2000 ------ ------ ------ ------ ------ (Unaudited) Cash flows from operating activities: Operating income.......................... $ 8,020 $ 11,244 $ 14,119 $ 5,808 $ 8,088 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization.......... 3,593 4,929 5,324 2,692 2,683 Effect of change in operating assets and liabilities- Trade accounts receivable................. 1,253 (2,653) (2,041) (1,985) (1,534) Other assets.............................. -- -- -- -- 1 Accounts payable and accrued expenses..... 35 50 86 50 266 -------- -------- -------- -------- ------- Net cash flows from operating activities....................... 12,901 13,570 17,488 6,565 9,504 Cash flows from investing activities: Purchase of tangible and intangible assets in acquisitions................... (14,700) (16,350) -- -- -- Purchase of property, plant and equipment, net........................... -- -- (128) (78) (27) -------- -------- -------- -------- ------- Net cash flows from investing activities....................... (14,700) (16,350) (128) (78) (27) Cash flows from financing activities: Net transfer (to) from parent............. 1,799 2,780 (17,360) (6,487) (9,477) -------- -------- -------- -------- ------- Net decrease in cash........................ -- -- -- -- -- -------- -------- -------- -------- ------- Cash and cash equivalents, beginning of period..................................... -- -- -- -- -- -------- -------- -------- -------- ------- Cash and cash equivalents, end of period.... $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======= The accompanying notes are an integral part of these combined statements. 3 THE SELECTED OPERATIONS OF CLEAR CHANNEL COMMUNICATIONS NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 AND 1999 1. Description of the Entities: The accompanying financial statements include the activity and financial positions of radio stations KMJQ-FM, KBXX-FM, WQOK-FM WFXK-FM, WNNL-FM, WFXC-FM and WJMZ-FM (the "Stations"), which are owned by Clear Channel Communications (Clear Channel) and are being sold to Radio One, Inc. (Radio One). Radio stations KMJQ-FM and KBXX-FM are broadcast in the Houston, Texas, area. Radio stations WQOK-FM, WFXK-FM, WNNL-FM and WFXC-FM are broadcast in the Raleigh, North Carolina, area. Radio station WJMZ-FM is broadcast in the Greenville, South Carolina, area. All interstation transactions have been eliminated in combination. 2. Summary of Significant Accounting Policies: Basis of Presentation The accompanying combined financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements (Unaudited) The interim combined financial statements included herein for the selected operations of Clear Channel have been prepared by management, 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. Results for interim periods are not necessarily indicative of results to be expected for the full year. On August 25, 2000, Radio One acquired the assets of the Stations, along with certain assets of stations owned by AMFM, Inc. (AMFM), for approximately $1.3 billion. Radio One did not acquire cash, receivables, prepaids or assume any liabilities. Cash The Stations make cash disbursements out of bank accounts controlled by Clear Channel and their cash receipts are deposited into accounts controlled by Clear Channel. As such, the accompanying combined financial statements do not have cash balances. All cash transactions are recorded through the station equity account. Revenue Recognition In accordance with industry practice, revenue for broadcast advertising is recognized when the commercial is broadcast. 4 Barter Arrangements Certain program contracts provide for the exchange of advertising air time in lieu of cash payments for the rights to such programming. These contracts are recorded as the programs are aired at the lower of estimated fair value of the advertising air time given in exchange for the program rights or the service or asset received. As of year-end, the excess of services received or air time given was recorded as deferred revenue or accounts receivable. Corporate Expense The accompanying statements of operations and changes in stations' equity represent the direct revenues and expenses of the Stations. They do not include certain corporate expenses related to management fees, income taxes, legal expenses, corporate salaries and certain other corporate expenses. Because the accompanying statements omit certain corporate costs that benefit the Stations (and includes allocations of certain costs among several stations in a market), the accompanying operating results could be substantially different if the Stations had been operated on a stand-alone basis. Income Tax Allocation The Stations' pre-tax income is included in the consolidated income of Clear Channel. The accompanying combined statements of operations include tax allocation as if the Stations were a stand-alone equity. Financial Instruments Financial instruments as of December 31, 1998 and 1999, consist of trade accounts receivables, accounts payable and accrued expenses, all of which the carrying amounts approximate fair value. 3. Property and Equipment Property and equipment are recorded at cost and are being depreciated on a straight-line basis over various periods. The components of the Stations' property and equipment as of December 31, 1998 and 1999, were as follows: Period of 1998 1999 Depreciation ------- ------- --------------- (in thousands) Property and equipment: Land........................................... $ 126 $ 126 Building and leasehold improvements............ 853 715 30 years Furniture and fixtures......................... 674 563 5 to 7 years Equipment...................................... 6,716 7,232 5 to 7 years ------- ------ 8,369 8,636 Less- Accumulated depreciation................... 2,445 3,545 ------- ------ Property and equipment, net...................... $5,924 $5,091 ======= ====== Depreciation expense for the fiscal years ended December 31, 1997, 1998 and 1999, was $623, $960 and $961, respectively, and $633 and $643 for the six months ended June 30, 1999 and 2000, respectively. 4. Intangible Assets: Intangible assets consist primarily of broadcast licenses, goodwill and other identifiable intangible assets resulting from applying the purchase method of accounting to acquisitions. The intangible assets are the results of applying the purchase price to the fair market value of the tangible assets acquired, then to the intangible assets acquired, with the resulting excess purchase price being allocated to goodwill. The Stations amortize such intangible assets using the straight-line method over estimated useful lives ranging from 15 to 40 years. As of December 31, 1998 and 1999, accumulated amortization on intangibles was $12,655 and $17,018, respectively. 5 Long Lived Assets In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," Clear Channel reviews its identifiable purchased intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the expected future cash flows is less than the carrying amount of an asset, an impairment loss would be recognized. 5. Acquisitions: Clear Channel purchased WJMZ-FM in May 1998 for approximately $16.3 million. The acquisition was accounted for using the purchase method of accounting and resulted in the recording of $15.1 of intangible assets. The activities of WJMZ-FM prior to the acquisition by Clear Channel are not included in the accompanying financial statements. The revenue for WJMZ-FM for the period prior to acquisition was approximately $1.6 million (unaudited). 6. Commitments: Future lease payments of operating leases are as follows noting there are no lease payments due after 2002: Year Ending (in thousands) 2000........................ $263 2001........................ 382 2002........................ 308 Rent expense for the years ended December 31, 1997, 1998 and 1999 was approximately $401, $556, $431, respectively, and $270 and $275 for the six months ended June 30, 1999 and 2000. 6 (b) Pro Forma Financial Information. Unaudited Pro Forma Consolidated Statement of Operations and Other Data Year Ended December 31, 1999 --------------------------------------------------------------------------------------------------- Pro Forma Pro Forma for Completed for Pending Completed and Transactions Completed Transactions Pending Offering Pro Forma as Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustment Adjusted ------------- -------------- ------------ -------------- ------------- ----------- ------------ (in thousands) Statement of Operations: Net broadcast revenue.............. $81,703 $119,389 $201,092 $ 2,564 $203,656 $ 203,656 Station operating expenses............. 44,259 58,824 103,083 595 103,678 103,678 Corporate expenses.... 4,380 1,421 5,801 -- 5,801 5,801 Depreciation and amortization......... 17,073 99,597 116,670 2,289 118,959 118,959 ------- -------- -------- ------- -------- ------ --------- Operating income...... 15,991 (40,453) (24,462) (320) (24,782) (24,782) Interest expense...... 15,279 44,804 60,083 (1,631) 58,452 58,452 Other income (expense), net....... 2,149 (2,001) 148 -- 148 148 Income tax (expense) benefit.............. (2,728) -- (2,728) -- (2,728) 2,728(d) -- ------- -------- -------- ------- -------- ------ --------- Net income (loss)..... $ 133 $(87,258) $(87,125) $ 1,311 $(85,814) $2,728 $ (83,086) ======= ======== ======== ======= ======== ====== ========= Net loss applicable to common stockholders... $(1,343) $(104,712) ======= ========= Earnings per common share: Basic................. $ (0.02) $ (1.23) Diluted............... (0.02) (1.23) Weighted average common shares outstanding: Basic................. 73,609(e) 85,430 Diluted............... 73,609(e)(f) 85,430(f) Other Data: Broadcast cash flow(g).............. $37,444 $ 99,978 Broadcast cash flow margin(h)............ 45.8 % 49.1 % EBITDA (before non- cash compensation expense)(i).......... $33,289 $ 94,402 After-tax cash flow(g).............. 16,303 36,098 Cash interest expense(i)........... 10,762 53,935 Capital expenditures.. 3,252 3,974 Ratio of earnings to combined fixed charges to preferred stock dividends(j)............................... -- Ratio of EBITDA (before non-cash compensation expense) to interest expense................................ 1.6x Ratio of EBITDA (before non-cash compensation expense) to/cash interest expense........................... 1.8x 1 Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and Other Data for the Year Ended December 31, 1999. (a) See the consolidated financial statements included in the Company's Annual Report on Form 10-K for the period ended December 31, 1999. (b) The table below gives effect to the acquisitions completed during the period from January 1, 1999 through October 5, 2000, as if they had occurred on January 1, 1999. The operating results include the activities of these entities during 1999 prior to the period acquired by Radio One. The 1999 operating results after the acquisition by Radio One are included in the Radio One historical amounts: Historical --------------------------------------------------------------------------------------------------------------- ROA Cleveland Richmond I Richmond II WPLY Davis Shirk/IBL Historical(/1/) Historical(/2/) Historical(/2/) Historical(/2/) Historical(/1/) Historical(/2/) Historical(/3/) --------------- --------------- --------------- --------------- --------------- --------------- --------------- (in thousands) Statement of Operations: Net broadcast revenue........ $2,447 $977 $198 $1,420 $8,384 $3,176 $4,655 Station operating expenses....... 1,388 513 182 659 6,268 2,051 3,336 Corporate expenses....... 96 -- 6 8 704 160 9 Time Brokerage agreement...... Depreciation and amortization... 202 137 8 182 110 538 425 ------ ---- ---- ------ ------ ------ ------ Operating income......... 761 327 2 571 1,302 427 885 Interest expense........ 491 -- -- 231 -- -- 355 Other income, net............ -- -- -- 8 77 -- 96 Income tax benefit (expense)...... (100) -- (6) -- -- -- -- ------ ---- ---- ------ ------ ------ ------ Net income (loss)......... $ 170 $327 $ (4) $ 348 $1,379 $ 427 $ 626 ====== ==== ==== ====== ====== ====== ====== AMFM Clear Channel Pro Forma Historical(/4/) Historical(/4/) Adjustments(/5/) Total --------------- --------------- -------------------- --------- Statement of Operations: Net broadcast revenue........ $50,992 $47,215 $ (75)(/6/) $119,389 Station operating expenses....... 26,253 18,360 (186)(/7/) 58,824 Corporate expenses....... -- 438 (/8/) 1,421 Time Brokerage agreement...... 4,509 -- (4,509)(/9/) -- Depreciation and amortization... 8,221 5,324 84,450 (/10/) 99,597 --------------- --------------- -------------------- --------- Operating income......... 12,009 23,531 (80,268) (40,453) Interest expense........ 43,727 (/11/) 44,804 Other income, net............ (2,182)(/12/) (2,001) Income tax benefit (expense)...... (4,804) (9,412) 14,322(/13/) -- --------------- --------------- -------------------- --------- Net income (loss)......... $ 7,205 $14,119 $(111,855) $(87,258) =============== =============== ==================== ========= - ------------------ (/1/) See the financial statements included by reference in the Form 8-K. (/2/) The column represents the historical results of operations of the stations acquired during the year ended December 31, 1999. As these stations acquired did not prepare stand-alone financial statements, these financial statements were carved out from a larger entity and include the direct revenue and expenses charged to the stations and an allocation of those expenses which benefited the stations but were not directly charged to the stations. As these results of operations include allocated expenses, these financial statements do not represent what the results from operations would have been if the stations operated on a stand-alone basis or what they would have been if they were owned by Radio One. (/3/) This column represents the historical results of operations for the year ended December 31, 1999, that were accumulated from statements of Shirk, Inc. and IBL, Inc. (/4/) The column represents the historical results of operations, which include direct revenue and expense charged to the stations, excluding certain corporate allocations, for the year ended December 31, 1999. As these stations acquired did not prepare stand-alone financial statements, these financial statements were carved out from a larger entity and include the direct revenue and expenses charged to the stations. As these results of operations include allocated expenses, these financial statements do not represent what the results of operations would have been if the stations operated on a stand-alone basis or what they would have been if they were owned by Radio One. See the financial statements included elsewhere in this Form 8-K. (/5/) Historical financial statements and pro forma adjustments related to the Dallas II, St. Louis and Boston acquisitions have not been included in this pro forma income statement because Radio One has determined that these acquisitions are purchases of assets. Income statement activity would not be relevant because Radio One purchased the FCC license, reformatted the stations, will not retain the employees, and for the St. Louis and Boston acquisitions, took them off the air. (/6/) To reflect the elimination of the management fee paid by ROA to Radio One for administrative services provided by Radio One. (/7/) To eliminate corporate expenses which Radio One does not expect to incur going forward, which consist primarily of corporate management fees. 2 (/8/) To eliminate corporate expenses of $962 which Radio One does not expect to incur going forward and to record additional corporate expenses of $1,400 which Radio One expects to incur related to the acquisitions. The $1,400 consists of the following costs: Additional corporate staff........................................... $ 900 Additional rent for corporate space.................................. 100 Additional travel costs.............................................. 100 Additional professional fees, insurance and supplies................. 300 ------ Total.............................................................. $1,400 ====== (/9/) To eliminate the LMA fee paid by AMFM for the periods prior to being acquired by AMFM. (/10/) To record the additional depreciation and amortization expense that would have been recognized if the ROA, Cleveland, Richmond I and II, WPLY, Davis, Shirk/IBL AMFM and Clear Channel acquisitions had occurred and the payment of the additional $4.0 million purchase price of Richmond II based on the earn out provision, calculated as follows: Excess purchase price over tangible assets acquired of ROA, Cleveland, Richmond I, Richmond II, WPLY, Davis, Shirk/IBL, AMFM and Clear Channel amortized over 15 years.......................... $96,667 Additional purchase price paid for Richmond II of $4.0 million amortized over 15 years............................................ 267 Amortization of the $3.5 million in acquisition costs over 15 years.............................................................. 233 Less: Previously recorded amortization expense...................... 12,717 ------- Total............................................................. $84,450 ======= (/11/) To reflect the interest expense on the new bank credit facility, to record the amortization of deferred financing costs and to eliminate interest expense assuming Radio One uses the proceeds from the March 3, 2000 offering, the November 11, 1999 offering, the May 5, 1999 offering and the July 10, 2000 offering, instead of borrowings, to fund the acquisitions. Assumed $577.0 million used of the line of credit at 8.5% to fund the acquisitions.................................................. $49,045 Amortization of the $5.7 million in financing costs using the effective interest method......................................... 1,000 Less: Interest expense that would not have been incurred........... 6,318 ------- Total............................................................ $43,727 ======= (/12/) To eliminate Radio One's historical interest income as excess cash would have been used to partially finance the acquisitions. (/13/) To eliminate tax expense as Radio One would have had a net loss as to which it would have provided a 100% valuation reserve to offset the deferred income tax benefit. (c) The table below gives effect to the acquisition pending as of October 5, 2000. Richmond III Historical Pro Forma (1) Adjustments Total ------------ ----------- ------- Statement of Operations: (in thousands) Net broadcast revenues................... $2,564 $ -- $ 2,564 Station operating expenses............... 595 -- 595 Corporate expenses....................... 206 (206)(/2/) -- Depreciation and amortization............ 161 2,128 (/3/) 2,289 ------ ------- ------- Operating income....................... 1,602 (1,922) (320) Interest expense......................... 82 (1,713)(/4/) (1,631) ------ ------- ------- Net income (loss)...................... $1,520 $ (209) $ 1,311 ====== ======= ======= - -------------------- (/1/) The column represents the historical results of operations for the period ended May 31, 1999, that were obtained from carveout unaudited financial statements, as Radio One entered into a LMA with Richmond III, effective June 1, 1999. (/2/) To eliminate corporate expenses of $206 which Radio One does not expect to incur going forward. (/3/) To record the additional depreciation and amortization expense that would have been recorded if the acquisition had occurred, calculated as follows: Excess purchase price over tangible assets acquired of Richmond III amortized over 15 years............................................ $2,186 Less: Previously recorded amortization expense...................... 58 ------ Total............................................................. $2,128 ====== 3 (/4/) To eliminate the LMA fee paid by Radio One to Richmond III and to eliminate interest expense assuming Radio One uses the proceeds from the March 3, 2000 offering, the November 11, 1999 offering, the May 5, 1999 offering and the July 10, 2000 offering, instead of borrowings, to fund the acquisition. Less: LMA fee paid to Richmond III................................... $1,631 Less: Interest expense that would not have been incurred............. 82 ------ Total.............................................................. $1,713 ====== (d) To eliminate Radio One's historical tax expense as Radio One would have had a net loss as to which it would have provided a 100% valuation reserve to offset the deferred income tax benefit. (e) Restated to reflect the stock dividend of May 2000. (f) This amount has been adjusted assuming the March 3, 2000 offering, the November 11, 1999 offering and the May 5, 1999 offering and the stock dividend had occured as of January 1, 1999. Because the common stock equivalents are antidilutive, they have not been added to the weighted average shares of common stock outstanding for average diluted shares outstanding. (g) Broadcast cash flow consists of operating income before depreciation, amortization, local marketing agreement fees and corporate expenses. EBITDA (before non-cash compensation expense) consists of operating income before depreciation, amortization, non-cash compensation expense and local marketing agreement fees. After-tax cash flow consists of income before income tax expense (benefit) and extraordinary items, minus net gain on sale of assets (net of tax) and the current income tax provision, plus depreciation and amortization expense and non-cash compensation expense. Although broadcast cash flow, EBITDA (before non-cash compensation expense), and after-tax cash flow are not measures of performance or liquidity calculated in accordance with GAAP, we believe that these measures are useful to an investor in evaluating Radio One because these measures are widely used in the broadcast industry as a measure of a radio broadcasting company's performance. Nevertheless, broadcast cash flow, EBITDA (before non-cash compensation expense) and after-tax cash flow should not be considered in isolation from or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Moreover, because broadcast cash flow, EBITDA (before non-cash compensation expense) and after-tax cash flow are not measures calculated in accordance with GAAP, these performance measures are not necessarily comparable to similarly titled measures employed by other companies. (h) Broadcast cash flow margin is defined as broadcast cash flow divided by net broadcast revenue. (i) Cash interest expense is calculated as interest expense less non-cash interest, including the accretion of principal, the amortization of discounts on debt and the amortization of deferred financing costs, for the indicated period. (j) For purposes of this calculation, earnings consist of income (loss) before income taxes, extraordinary items and fixed charges. Combined fixed charges consist of interest expense, including the amortization of discounts on debt and the amortization of deferred financing costs and the interest component of rent expense. Earnings were insufficient to cover combined fixed charges and preferred stock dividends on a pro forma as adjusted basis for the year ended December 31, 1999, by approximately $104.7 million. 4 Unaudited Pro Forma Consolidated Statement of Operations and Other Data Six Months Ended June 30, 2000 -------------------------------------------------------------------------------------------------- Pro Forma Pro Forma for Completed for Pending Completed Transactions Completed Transaction and Pending Offering Pro Forma Historical(a) Adjustments(b) Transactions Adjustment(c) Transactions Adjustment as Adjusted ------------- -------------- ------------ -------------- ------------ ----------- ----------- (in thousands) Statement of Operations: Net broadcast revenue............... $54,795 $ 55,434 $110,229 $ -- $110,229 $110,229 Station operating expenses.............. 28,728 24,272 53,000 -- 53,000 53,000 Corporate expenses..... 2,400 700 3,100 -- 3,100 3,100 Depreciation and amortization.......... 12,671 47,052 59,723 1,093 60,816 60,816 ------- -------- -------- ------ -------- ------ -------- Operating income....... 10,996 (16,590) (5,594) (1,093) (6,687) (6,687) Interest expense....... 7,247 24,930 32,177 (1,398) 30,779 30,779 Other income (expense), net........ 9,707 (9,676) 31 -- 31 31 Income tax expense (benefit)............. 5,818 -- 5,818 -- 5,818 (5,818)(d) -- ------- -------- -------- ------ -------- ------ -------- Net income (loss).... $ 7,638 $(51,196) $(43,558) $ 305 $(43,253) $5,818 $(37,435) ======= ======== ======== ====== ======== ====== ======== Net income (loss) applicable to common stockholders........ $ 7,638 $(47,510) ======= ======== Earnings per common share: Basic.................. $ 0.09 $ (0.56) Diluted................ 0.09 (0.55) Weighted average common shares outstanding: Basic.................. 83,038(e) 85,430 Diluted................ 83,316(e)(f) 85,708 (f) Other Data: Broadcast cash flow(g)............... $26,067 $ 57,229 Broadcast cash flow margin(h)............. 47.6% 51.9% EBITDA (before non- cash compensation expense)(g)........... $23,667 $ 54,129 After-tax cash flow(g)............... 19,726 23,381 Cash interest expense(i)............ 4,756 28,288 Capital expenditures... 1,397 1,540 Ratio of earnings to combined fixed charges and preferred stock dividends(j).... -- Ratio of total debt to EBITDA (before non- cash compensation expense).............. -- Ratio of EBITDA (before non-cash compensation expense) to interest expense... 1.8x Ratio of EBITDA (before non-cash compensation expense) to cash interest expense............... 1.9x - ------------------- Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and Other Data for the Six Months Ended June 30, 2000, (a) See the consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000. 5 (b) The table below gives effect to the acquisitions completed during the period January 1, 2000 through October 5, 2000, as if they occurred on January 1, 1999. The operating results include activities of these entities during 2000 prior to the period acquired by Radio One. The 2000 operating results after the acquisition by Radio One are included in the Radio One historical amounts: Historical ------------------------------------------------------------------------------- WPLY Davis Shirk AMFM Clear Channel Pro Forma Historical(/1/) Historical(/2/) Historical(/3/) Historical(/4/) Historical(/4/) Adjustments Total --------------- --------------- --------------- --------------- --------------- ----------- -------- (in thousands) Statement of Operations: Net broadcast revenue.......... $1,405 $1,534 $2,189 $24,804 $25,502 $ -- $ 55,434 Station operating expenses......... 726 961 1,539 11,802 9,337 (93)(/5/) 24,272 Corporation expenses......... 117 49 8 -- 526(/6/) 700 Depreciation and amortization..... 6 135 160 4,575 2,683 39,493(/7/) 47,052 ------ ------ ------ ------- ------- -------- -------- Operating income......... 556 389 482 8,427 13,482 (39,926) (16,590) Interest expense.......... -- 85 -- -- 24,845(/8/) 24,930 Other income (expense), net... 9 -- 22 -- -- (9,707)(/9/) (9,676) Income tax allocation....... -- -- (3,370) (5,394) 8,764 (/10/) -- ------ ------ ------ ------- ------- -------- -------- Net income (loss)......... $ 565 $ 389 $ 419 $ 5,057 $ 8,088 $(65,714) $(51,196) ====== ====== ====== ======= ======= ======== ======== - --------------------- (/1/) The column represents the historical results of operations for the period ended February 28, 2000, that were obtained from unaudited financial statements. (/2/) The column represents the historical results of operations for the period ended June 7, 2000, the date the stations were purchased by Radio One. As these stations acquired did not prepare stand-alone financial statements, these financial statements were carved out from a larger entity and include the direct revenue and expenses charged to those stations and an allocation of those expenses which benefited the stations but were not directly charged to the stations. As these results of operations include allocated expenses, these financial statements do not represent what the results from operations would have been if the stations operated on a stand-alone basis or what they would have been if they were owned by Radio One. (/3/) The column represents the historical results of operations for the period ended June 8, 2000, the date the stations were purchased by Radio One, that were obtained from unaudited financial statements of Shirk, Inc. and IBL, Inc. (/4/) The column represents the historical results of operations of the stations for the six months ended June 30, 2000. See the financial statements included elsewhere in the Form 8-k. (/5/) To eliminate expenses which Radio One does not expect to incur going forward, which consist primarily of corporate officers' salaries. (/6/) To record additional corporate expenses of $700 which Radio One expects to incur related to the acquisitions and to eliminate $174 in corporate expenses which Radio One does not expect to incur going forward. The $700 consists of 50% of what Radio One estimates the incremental cost to be which is included on page 3. (/7/) To record additional depreciation and amortization expense that would have been recorded if the acquisitions had occurred and the payment of the additional $4.0 million purchase price of Richmond II based on the earn out provision calculated as follows: Excess purchase price over tangible assets acquired of WPLY, Davis, Shirk, AMFM and Clear Channel amortized over 15 years for six months ................................................ $45,716 Additional purchase price paid for Richmond II of $4.0 million amortized over 15 years for six months ........................ 133 Amortization of the $3.5 million in acquisition costs over 15 years for six months........................................... 117 Less: Previously recorded amortization expense.................. 6,473 ------- Total......................................................... $39,493 ======= (/8/) To reflect the interest expense on the new bank credit facility, to record the amortization of deferred finance costs and to eliminate interest expenses that would not have been incurred. Assumed $577.0 million used of the line of credit at 8.5% for six months to fund the acquisitions................................. $24,523 Amortization of the $5.7 million in financing costs using the effective interest method for six months ....................... 407 Less: Interest expense that would not have been incurred......... 85 ------- Total........................................................... $24,845 ======= 6 (/9/) To eliminate Radio One's Historical interest income as excess cash would have been used to partially finance the acquisitions. (/10/) To eliminate interest expense of the acquisitions assuming Radio One uses the proceeds from the March 3, 2000 offering, the November 11, 1999 offering, the May 5, 1999 offering and the July 10, 2000 offering to fund the acquisitions. (c) The table below gives effect to the acquisition pending as of October 5, 2000. Richmond III Pro Forma Historical(1) Adjustments Total ------------- ----------- ------ Statement of Operations: Net broadcast revenues................ $-- $ -- $ -- Station operating expenses............ -- -- -- Corporate expenses.................... -- -- -- Depreciation and amortization......... -- 1,093 (/2/) 1,093 ---- ------- ------ Operating income.................... -- (1,093) (1,093) Interest expense...................... -- (1,398)(/3/) (1,398) Other income.......................... -- -- -- Income tax allocations................ -- -- -- ---- ------- ------ Net income (loss)................... $-- $ 305 $ 305 ==== ======= ====== - --------------------- (/1/) All broadcast revenues and expenses of Richmond III for the period are recorded in the financial statements of Radio One because Radio One has the LMA arrangement with Richmond III during the period. (/2/) To record additional depreciation and amortization expense that would have been recorded if the acquisition had occurred calculated as the excess purchase price over tangible assets acquired amortized over 15 years for six months. (/3/) To eliminate the LMA fee paid by Radio One to Richmond III. (d) To eliminate Radio One's historical tax expense as Radio One would have had a net loss as to which it would have provided a 100% valuation reserve to offset the deferred income tax benefit. (e) Restated to reflect the stock dividend of May 2000. (f) This amount has been adjusted assuming the March 3, 2000 offering, the November 11, 1999 offering and the May 5, 1999 offering and the 3 for 1 stock split had occured as of January 1, 1999. (g) Broadcast cash flow consists of operating income before depreciation, amortization, local marketing agreement fees and corporate expenses. EBITDA (before non-cash compensation expense) consists of operating income before depreciation, amortization, non-cash compensation expense and local marketing agreement fees. After-tax cash flow consists of income before income tax expense (benefit) and extraordinary items, minus net gain on sale of assets (net of tax) and the current income tax provision, plus depreciation and amortization expense and non-cash compensation expense. Although broadcast cash flow, EBITDA (before non-cash compensation expense), and after-tax cash flow are not measures of performance or liquidity calculated in accordance with GAAP, we believe that these measures are useful to an investor in evaluating Radio One because these measures are widely used in the broadcast industry as a measure of a radio broadcasting company's performance. Nevertheless, broadcast cash flow, EBITDA (before non-cash compensation expense) and after-tax cash flow should not be considered in isolation from or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. Moreover, because broadcast cash flow, EBITDA (before non-cash compensation expense) and after-tax cash flow are not measures calculated in accordance with GAAP, these performance measures are not necessarily comparable to similarly titled measures employed by other companies. (h) Broadcast cash flow margin is defined as broadcast cash flow divided by net broadcast revenue. (i) Cash interest expense is calculated as interest expense less non-cash interest, including the accretion of principal, the amortization of discounts on debt and the amortization of deferred financing costs, for the indicated period. 7 (j) For purposes of this calculation, earnings consist of income (loss) before income taxes, extraordinary items and fixed charges. Combined fixed charges consist of interest expense, including the amortization of discounts on debt and the amortization of deferred financing costs and rent expense. Earnings were insufficient to cover combined fixed charges and preferred stock dividends on a pro forma as adjusted basis for the six months ended June 30, 2000, by approximately $47.5 million. 8 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of June 30, 2000 -------------------------------------------------------------------------------------------------- Pro Forma Completed Pro Forma Pending for Completed Transactions for Completed Transactions and Pending Offering Pro Forma Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments as Adjusted ------------- -------------- ------------- -------------- ------------- ----------- ----------- (in thousands) ASSETS Current Assets: Cash and cash equivalents........... $148,083 $(413,039) $ (264,956) $(32,682) $ (297,638) $298,500 (d) $ 862 Investments, available for sale.............. 204,924 (204,924) -- -- -- -- Trade accounts receivable, net....... 26,670 -- 26,670 -- 26,670 26,670 Prepaid expenses and other................. 1,431 -- 1,431 -- 1,431 1,431 Deferred income taxes................. 985 -- 985 -- 985 985 -------- --------- ---------- -------- ---------- --------- ---------- Total current assets.............. 382,093 (617,963) (235,870) (32,682) (268,552) 298,500 29,948 Property and equipment,net......... 18,199 7,266 25,465 -- 25,465 25,465 Intangible assets, net................... 363,134 1,317,947 1,681,081 34,000 1,715,081 1,715,081 Deferred taxes......... -- -- -- -- -- -- Other assets........... 138,866 (130,250) 8,616 (1,318) 7,298 7,298 -------- --------- ---------- -------- ---------- --------- ---------- Total assets......... $902,292 $ 577,000 $1,479,292 $ -- $1,479,292 $ 298,500 $1,777,792 ======== ========= ========== ======== ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses...... $ 11,931 $ -- $ 11,931 $ -- $ 11,931 $ 11,931 Other current liabilities........... 2,248 -- 2,248 -- 2,248 2,248 Income taxes payable... 1,879 -- 1,879 -- 1,879 1,879 -------- --------- ---------- -------- ---------- --------- ---------- Total current liabilities......... 16,058 -- 16,058 -- 16,058 -- 16,058 Bank Credit Facility... -- 577,000 577,000 -- 577,000 577,000 12% Senior Subordinated Notes due May 15, 2004...... 84,202 -- 84,202 -- 84,202 84,202 Other long-term debt... 155 -- 155 155 155 Deferred tax liability............. 24,150 -- 24,150 -- 24,150 24,150 -------- --------- ---------- -------- ---------- --------- ---------- Total liabilities.... 124,565 577,000 701,565 -- 701,565 -- 701,565 -------- --------- ---------- -------- ---------- --------- ---------- Stockholders' Equity (Deficit): Preferred Stock........ -- -- -- -- -- 310,000 (d) 310,000 Class A Common Stock... 23 -- 23 -- 23 23 Class B Common Stock... 3 -- 3 -- 3 3 Class C Common Stock... 3 -- 3 -- 3 3 Class D Common Stock... 57 -- 57 -- 57 57 Accumulated comprehensive income adjustments........... (87) -- (87) -- (87) (87) Additional paid in capital............... 796,297 -- 796,297 -- 796,297 (11,500)(d) 784,797 Accumulated deficit.... (18,569) -- (18,569) -- (18,569) (18,569) -------- --------- ---------- -------- ---------- --------- ---------- Total stockholders' equity.............. 777,727 -- 777,727 -- 777,727 298,500 1,076,227 -------- --------- ---------- -------- ---------- --------- ---------- Total liabilities and stockholders' equity.............. $902,292 $ 577,000 $1,479,292 $ -- $1,479,292 $ 298,500 $1,777,792 ======== ========= ========== ======== ========== ========= ========== 9 - --------------------- (a) See the Consolidated Financial Statements included in the Company's Quarterly Report on Form 10-Q as of June 30, 2000. (b) The table below gives effect to the completed transactions between April 1, 2000 and October 5, 2000, as if they were completed on June 30, 2000. Clear Channel AMFM Dallas II Line of Acquisition Historical(1) Historical(1) Historical(2) Credit Adjustments Total ------------- ------------- ------------- --------- ----------- ---------- ASSETS Current Assets: Cash and cash equivalents........... $ -- $ -- $ -- $ 776,211 (/3/) $(1,189,250)(/4/) $ (413,039) Investments, available for sale.............. -- -- -- (204,924)(/3/) (204,924) Trade accounts receivable, net....... 11,728 11,546 -- -- (23,274)(/5/) -- Prepaid expenses and other................. -- 76 -- -- (76)(/5/) -- ------- -------- ----- --------- ----------- ---------- Total current assets.............. 11,728 11,622 -- 571,287 (1,212,600) (617,963) Property and equipment, net........ 4,475 2,791 -- -- -- 7,266 Intangible assets, net................... 82,638 116,925 -- 5,713 (/3/) 1,112,671 (/6/) 1,317,947 Other assets........... 268 -- -- -- (130,518)(/4/)(/5/) (130,250) ------- -------- ----- --------- ----------- ---------- Total assets......... $99,109 $131,338 $ -- $ 577,000 $ (230,447) $ 577,000 ======= ======== ===== ========= =========== ========== LIABILITIES AND STATIONS' EQUITY Current liabilities: Accounts payable and accrued expenses...... 798 1,259 -- -- (2,057)(/5/) -- ------- -------- ----- --------- ----------- ---------- Total current liabilities......... 798 1,259 -- -- (2,057) -- Long-term debt and deferred interest..... -- -- -- 577,000 -- 577,000 ------- -------- ----- --------- ----------- ---------- Total liabilities.... 798 1,259 -- 577,000 (2,057) 577,000 ------- -------- ----- --------- ----------- ---------- Stations' Equity Stations equity........ 98,311 130,079 -- -- (228,390)(/5/) ------- -------- ----- --------- ----------- ---------- Total liabilities and stations' equity (deficit)........... $99,109 $131,338 $ -- $ 577,000 $ (230,447) -- ======= ======== ===== ========= =========== ---------- $ 577,000 ========== - --------------------- (/1/) This column represents the historical balance sheets as of June 30, 2000. See the financial statements included elsewhere in the Form 8-K. (/2/) Historical balance sheet related to the Dallas II acquisition only includes the FCC license which Radio One acquired and is included in the pro forma adjustment. (/3/) To reflect borrowings of $577,000 from the new bank credit facility, the use of investments for the acquisitions and the $5.7 million paid in financing costs. (/4/) To reflect the cash paid by Radio One of $1,300,000 for the AMFM and Clear Channel acquisitions and $16,000 for the Dallas II acquisition and $3,500 paid in acquisition costs, less deposits of $130,250. (/5/) To eliminate the account balances not being purchased or assumed by Radio One. (/6/) To reflect the capitalized acquisition costs of $3,500 and to record intangible assets booked as a result of the acquisitions, calculated as follows: Purchase price................................................ $1,316,000 Less: Net tangible assets..................................... 7,266 ---------- Intangibles acquired.......................................... 1,308,734 Less: Intangibles previously recorded......................... 199,563 Acquisition costs............................................. 3,500 ---------- Total........................................................ $1,112,671 ========== 10 (c) The table below gives effect to the pending transaction as of October 5, 2000, as if they had occurred on June 30, 2000: Richmond Acquisition Historical(/1/) Adjustments Total --------------- ----------- -------- (in thousands) ASSETS Current Assets Cash and cash equivalents........... $ -- $(32,682)(/2/) $(32,682) ----- -------- -------- Total current assets... -- (32,682) (32,682) Intangible assets, net................... -- 34,000 (/2/) 34,000 Other assets........... -- (1,318)(/2/) (1,318) ----- -------- -------- Total assets........... $ -- $ -- $ -- ===== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses...... $ -- $ -- $ -- Long-term debt......... -- -- -- ----- -------- -------- Total liabilities...... -- -- -- ----- -------- -------- Stations' Equity: Stations' equity....... -- -- -- ----- -------- -------- Total liabilities and stations' equity...... $ -- $ -- $ -- ===== ======== ======== - --------------------- (/1/) All broadcast assets and liabilities as of June 30, 2000, except for the Stations' FCC licenses of Richmond III, are recorded in the financial statements of Radio One as Radio One has an LMA agreement with respect to Richmond III. (/2/) To reflect the cash paid by Radio One of $34,000 for the Richmond III acquisition less deposits of $1,318. (d) To reflect the net proceeds of the July 10, 2000 offering of $310,000 less underwriting discounts, commissions and offering expenses of $2,200. 11 (c) 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. 000-25969; Film No. 631638)). 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. 3.2 Amended and Restated By-laws of Radio One, Inc., amended as of September 15, 2000. 23.1 Consent of Arthur Andersen LLP. 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/ Linda J. Eckard ---------------------------------------- October 6, 2000 Linda J. Eckard Assistant Secretary